SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number 0-20878
MNB BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1120026
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
800 Poyntz Avenue, Manhattan, Kansas 66502
(Address of principal executive offices) (Zip Code)
(913) 565-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date: As of September 30,
1996, the Registrant had outstanding 605,215 shares of its common stock,
$.01 par value per share.
<PAGE>
MNB BANCSHARES, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page
Number
Item 1. Financial Statements and Related Notes 1 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
PART II
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Form 10-Q Signature Page 14
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<TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash $1,446,317 $2,136,418
Interest-bearing deposits in
other financial institutions 500,000 787,599
Total cash and cash equivalents 1,946,317 2,924,017
Investment securities:
Held-to-maturity at amortized cost 10,638,808 16,403,035
(estimated fair value of
$10,646,000and $16,495,000 respectively)
Available-for-sale at estimated
fair value 20,035,412 15,925,916
Loans, net 64,369,768 62,582,264
Premises and equipment, net 1,344,536 1,384,052
Other assets 1,915,172 1,965,652
Total assets $100,250,013 $101,184,936
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $85,768,576 $86,399,443
Federal funds purchased - 325,000
Other borrowings 1,855,914 2,555,915
Accrued expenses, taxes and other
liabilities 1,674,396 1,094,329
Total liabilities 89,298,886 90,374,687
Stockholders' equity:
Common stock, $.01 par, 1,500,000
shares authorized,602,215 and
576,514 shares issued and outstanding
at September 30, 1996 and December
31, 1995, respectively. 6,052 5,765
Additional paid in capital 6,321,016 5,726,704
Retained earnings 5,088,761 5,410,733
Unrealized gain (loss) on
investment securities available
- -for-sale, net of tax (108,787) 22,962
Unearned employee benefits (355,915) (355,915)
Total stockholders' equity 10,951,127 10,810,249
Total liabilities and stockholders'
equity $100,250,013 $101,184,936
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
Pro-Forma
For the Nine Months For the Nine Months
Ended September 30, Ended September 30,
1995 (Note 3) 1996 1995
<S> <C> <C> <C>
Interest income:
Loans $4,143,167 $4,292,649 $3,886,365
Investment securities 1,203,825 1,334,096 1,106,985
Other 155,454 126,214 142,407
Total interest income 5,502,446 5,752,959 5,135,757
Interest expense:
Deposits 2,772,535 2,889,377 2,596,402
Borrowed funds 185,495 155,399 185,495
Total interest expense 2,958,030 3,044,776 2,781,897
Net interest income 2,544,416 2,708,183 2,353,860
Provision for loan
losses 41,250 - 37,500
Net interest income after
provision for loan
losses 2,503,166 2,708,183 2,316,360
Noninterest income:
Fees and service
charges 300,896 395,062 273,993
Gains on sale of loans 66,360 53,039 66,360
Loss on sale of
investments - (15,213) -
Other 53,131 27,262 21,158
Total noninterest income 420,387 460,150 361,511
Noninterest expense:
Compensation and benefits 902,891 919,651 819,726
Occupancy and equipment 250,452 281,777 232,489
Federal deposit insurance
premiums 133,506 121,633 123,042
FDIC special assessment - 449,000 -
Data processing 84,632 90,619 78,604
Amortization 81,692 84,597 54,697
Advertising 56,744 48,167 55,735
Professional Fees 133,745 102,311 129,797
Stationery, printing and
office supplies 52,600 73,836 45,541
Other 383,388 415,318 349,852
Total noninterest
expense 2,079,650 2,586,909 1,889,483
Earnings before income
taxes 843,903 581,424 788,388
Income tax expense 322,115 192,659 295,016
Net earnings $521,788 $388,765 $493,372
Net earnings per share $0.84 $0.62 $0.82
Dividends per share $0.1875 $0.1937 $0.1875
Average common and common
equivalent shares
outstanding 620,783 624,985 600,766
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
For the Three Months
Ended September 30,
1996 1995
<S> <C> <C>
Interest income:
Loans $1,440,229 $1,393,964
Investment securities 446,980 410,478
Other 38,581 64,704
Total interest income 1,925,790 1,869,146
Interest expense:
Deposits 972,082 958,374
Borrowed funds 45,893 58,792
Total interest expense 1,017,975 1,017,166
Net interest income 907,815 851,980
Provision for loan losses - 3,750
Net interest income after
provision for loan losses 907,815 848,230
Noninterest income:
Fees and service charges 135,106 99,552
Gains on sale of loans 25,787 31,493
Gain (loss) on sale of investment
securities (1,273) -
Other 20,701 4,830
Total noninterest income 180,321 135,875
Noninterest expense:
Compensation and benefits 309,865 312,469
Occupancy and equipment 98,682 86,810
Federal deposit insurance premiums 43,069 38,288
FDIC special assessment 449,000 -
Data processing 25,390 27,985
Amortization 27,500 27,348
Advertising 12,259 18,212
Professional Fees 20,345 71,555
Stationery, printing and office
supplies 11,908 15,646
Other 126,690 122,834
Total noninterest expense 1,124,708 721,147
Earnings before income taxes (36,572) 262,958
Income tax expense (benefit) (16,467) 91,437
Net earnings (loss) $(20,105) $171,521
Net earnings (loss) per share $(0.03) $0.28
Dividends per share $0.0656 $0.0656
Average common and common
equivalent shares outstanding 625,192 622,230
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
Net cash provided by operating
activities $1,240,602 $898,113
INVESTING ACTIVITIES
Net (increase) decrease in loans (1,787,268) 1,242,247
Maturities and prepayments of
investments held to maturity 5,826,991 6,277,256
Purchase of investment held to maturity (342,906) (4,657,702)
Maturities and prepayments of
investments available for sale 3,472,785 4,749,024
Purchase of investments available
for sale (11,049,923) (6,795,599)
Proceeds from sale of investment
securities available for sale 3,511,808 -
Proceeds from sales of other real
estate 5,279 90,972
Net cash received from Auburn acquisition - 380,829
Purchases of equipment and building
improvements (83,063) (95,137)
Net cash (used in) provided by investing
activities (446,297) 1,191,890
FINANCING ACTIVITIES
Net decrease of advances from FHLB (1,225,000) (4,000,000)
Net increase (decrease) in deposits (630,867) 5,412,425
Net increase in securities sold
under agreement to repurchase 200,000 -
Issuance of common stock under
stock option plan - 520
Cash dividends paid on common stock (116,138) (102,985)
Net cash (used in) provided by
financing activities (1,772,005) 1,309,960
Net increase (decrease) in cash and
cash equivalents (977,700) 3,399,963
Cash and cash equivalents at beginning
of period 2,924,017 1,611,229
Cash and cash equivalents at end
of period $1,946,317 $5,011,192
Supplemental disclosure of cash flow information:
Cash paid during period for interest $3,195,000 $2,859,000
Cash paid during period for taxes $384,000 $303,000
Supplemental disclosure of non-cash investing and financing activities:
Conversion of loans to real estate
owned: $26,600.00 $ -
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. Interim Financial Statements
The condensed consolidated financial statements of MNB Bancshares, Inc. and
subsidiary have been prepared in accordance with the instructions to Form 10-Q.
To the extent that information and footnotes required by generally accepted
accounting principles for complete financial statements are contained in or
consistent with the audited financial statements incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December 31,
1995, such information and footnotes have not been duplicated herein. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of financial
statements have been reflected herein. The December 31, 1995 condensed
consolidated balance sheet has been derived from the audited balance sheet as
of that date. The results of the period ended September 30, 1996 are not
necessarily indicative of the results expected for the year ended December
31, 1996.
2. Earnings Per Share
Net earnings per share have been computed based on the average number of
shares and common equivalent shares outstanding during the period. All
periods presented reflect retroactive adjustment of the 5% stock dividends
declared by the Company on August 12, 1996 and April 17, 1995.
3. Acquisition
On April 1, 1995, the Company acquired Auburn Security Bancshares, Inc.
("Auburn"), and its wholly-owned subsidiary, Security State Bank.
Subsequently, Manhattan National Bank and Security State Bank, the Company's
wholly-owned subsidiaries, were merged and renamed Security National Bank.
Auburn had consolidated assets of approximately $20 million at the
acquisition date. The Company acquired 100% of the outstanding common stock
of Auburn for approximately $2 million. The purchase price, including
related costs of acquisition, included cash of approximately $970,000 and
60,270 shares of the Company's common stock. The acquisition, which was
accounted for as a purchase, resulted in a core deposit intangible asset and
goodwill of approximately $461,000 and $512,000, respectively.
The consolidated operating results of the Company for the nine months ended
September 30, 1995, on a proforma basis as though the acquisition had
occurred on January 1, 1995, are as shown on the condensed consolidated
statements of earnings.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. MNB Bancshares, Inc. (the "Company") is a bank holding company
incorporated under the laws of the State of Delaware and is engaged in the
banking business through its wholly-owned subsidiary, Security National Bank
(the "Bank"). The Company's results of operations depend primarily on net
interest income, which is the difference between interest income from
interest-earning assets and interest expense on interest-bearing liabilities.
The Company's operations are also affected by non-interest income, such as
service charges, loan fees and gains and losses from the sale of newly
originated loans. The Company's principal operating expenses, aside from
interest expense, consist of compensation and employee benefits, occupancy
costs, federal deposit insurance, data processing, and the provision for loan
losses.
On April 1, 1995, the Company acquired all of the issued and outstanding
stock of Auburn Security Bancshares, Inc., a one-bank holding company which
owned 99% of the outstanding stock of Security State Bank, Auburn, Kansas.
Subsequent to the acquisition, the Company acquired all of the remaining
stock of Security State Bank. Consolidated assets acquired in this
transaction were approximately $20 million. This acquisition, which was
accounted for using the purchase method of accounting, is reflected in the
September 30, 1996 consolidated balance sheet and the consolidated
statement of earnings compared to 1995. On December 31, 1995, the Company
merged and consolidated Manhattan National Bank and Security State Bank, and
the resulting institution was named Security National Bank. The home office
for the Bank is Manhattan, Kansas, with a branch operating in Auburn, Kansas.
Net earnings for the first nine months of 1996 decreased to $388,765 compared
to $493,372 for the first nine months of 1995. This decrease is a result of
an accrual of $449,000 which was made as an estimated amount of the Company's
assessment to fund the Federal Deposit Insurance Corporation's (the "FDIC")
recapitalization of the Savings Association Insurance Fund (the "SAIF") as
mandated by the Omnibus Appropriations bill signed into law on September 30,
1996. Absent this accrual, earnings, net of tax, would have been $667,345,
an increase of 35.3%, or $173,973 over the prior year. Net interest income
after provision for loan losses increased $391,823, or 16.9%, to $2,708,183.
Gains on sale of loans decreased 20.1%, or $13,321, to $53,039; and non-
interest expense increased $697,426, or 36.9%, to $2,586,909. A major factor
in the increase for the first nine months of both net interest income and
fees and service charges is due to the fact that operating results of Auburn
are not reflected in the Company's results for the first quarter of the nine
month period ending September 30, 1995. The increase in non-interest expense
is also due to this fact, along with one-time expenses of approximately
$80,000 associated with the subsidiary consolidation and change of name, as
well as to the FDIC special assessment.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net earnings for the third quarter of 1996 decreased 111.7%, or $191,626, to
a loss of $20,105 in comparison to the same period in 1995. This was due to
the accrual for the FDIC special assessment of $449,000. Absent this
accrual, earnings, net of tax, would have been $258,475, an increase of
$86,954, or 50.7%, over the prior year. Net interest income, after provision
for loan losses, showed an increase from $848,230 to $907,815, or 7.0%,
during this period. Total noninterest income increased $44,446, or 32.7%, due
primarily to an increase of $35,554 in fees and service charges. Decreased
gains on sale of loans of $5,706, losses on sale of investment securities
available for sale of $1,273, and increased non-interest expenses due
primarily to the FDIC special assessment offset these increases.
Interest Income. Interest income increased by $617,202, or 12.0%, to $5.8
million during the first nine months of 1996. This increase was the result
of an increase in interest on loans of 10.5%, or $406,284, and interest on
investment securities of $227,111, or 20.5%. Interest on loans was higher due
to both an increase in average loans outstanding and loans repricing at
higher rates. Interest earned on securities increased as securities
matured and were reinvested in securities yielding higher interest rates. The
results were impacted by the inclusion of Auburn's operating results for the
entire nine months ended September 30, 1996, as compared to only six months'
results being included in the nine month period ended September 30, 1995.
Interest income for the third quarter of 1996 increased by $56,644, or 3.0%,
compared to the same period of 1995. Interest on loans and investment
securities increased as the loan outstandings increased $2.8 million, or
4.7%, over the same quarter last year, loans repriced to higher interest
rates, and the proceeds from maturing securities were reinvested in
securities with higher rates. Interest income on loans increased
$46,265, to $1,440,229 from $1,393,964, or 3.3% and investment securities
increased $36,502, or 8.9%, to $446,980. Other interest income decreased
$26,123, or 40.4%, because higher loan demand decreased the funds available
for investment in short-term overnight interest-bearing deposits.
Interest Expense. Interest expense rose by $262,879, or 9.4% to $3.0 million
during the first nine months of 1996. This increase was due in large part
to the acquisition of Auburn on April 1, 1995 and increases in interest rates
paid on deposits. Deposit interest expense increased from $2.6 million to
$2.9 million, or by 11.3%. Interest expense on borrowings, consisting of
securities sold under agreements to repurchase and advances from the Federal
Home Loan Bank of Topeka (the "FHLB"), declined $30,096, or 16.2% during this
time period, as these liabilities have been liquidated as they matured.
Interest expense for the third quarter of 1996 remained at $1,017,975
compared to the third quarter of 1995 which was $1,017,166. Deposit
interest expense increased
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
$13,708, or 1.4%, to $972,082. This was offset by a decrease of $12,899 on
borrowings to $45,893. This decrease was a result of liquidation of
borrowings as they matured.
Provision for Loan Losses. No provision for loan losses was made during the
first nine months of 1996 as compared to $37,500 for 1995. Management
determined that an increased provision was prudent during 1995 as a result of
discussions by the Department of Defense regarding downsizing of the Armed
Forces and the potential downsizing or closure of Fort Riley, which is
located near Manhattan, Kansas, by the 1995 Base Realignment and Closure
Commission. The downsizing of Fort Riley which occurred did not have a
materially adverse impact on the Company's portfolio or collateral values,
therefore the provision was reduced during the third quarter of 1995.
Beginning in 1996, it was decided that no provision was necessary due to the
quality and performance of the portfolio and an analysis of economic
conditions. No provision was made during the third quarter of 1996 compared
to a provision of $3,750 for third quarter 1995. Management will continue to
assess all factors on a continuing basis and further changes in the provision
will be made if circumstances warrant. The loan loss reserve at September 30,
1996 was $811,653, or 1.2% of the gross loans outstanding and loans held for
sale compared to 1.3% at December 31, 1995.
Noninterest Income. Noninterest income increased $98,639, or 27.3%, for the
first nine months of 1996. An increase of $121,069, or 44.2%, in fees and
service charges from $273,993 to $395,062 was the result of the acquisition
of Auburn and a restructuring of fees and service charges on deposit
accounts. This was partially offset by a decrease in the gains on sale of
loans of $13,321 from $66,360 to $53,039, or 20.1%, and a loss on sale of
investment securities available for sale of $15,213 as the Company sought to
reposition its portfolio and lengthen its maturities. Some lower-yield,
short-term securities were sold and the proceeds reinvested in intermediate
securities. The analysis done on these transactions indicated that they will
be income-neutral for 1996.
Noninterest income for the third quarter of 1996 compared to 1995 increased
$44,446, or by 32.7%. Fees and service charges increased $35,554, or 35.7%,
to $135,106, due to the previously mentioned restructuring of fees and
service charges on deposit accounts. This increase was partially offset by
decreased gains on sale of 18.1% from $31,493 to $25,787. This decrease in
gains on sale of loans was a result of a declining profit margin of loans
sold to the secondary market as a result of increased competition and rising
interest rates. Loss on sale of investment securities of $1,273 was incurred
during this quarter as part of the repositioning of the securities portfolio
mentioned above. Increased other income of $15,871, from $4,830 to $20,701,
is a result of increased income from early withdrawals of certificates of
$6,524 from $888 to $7,412, and gross income from office building of $3,250
for rental of space in the Auburn facility.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Also increasing $6,529 was miscellaneous income as a result of funds received
from a previous data processor as a pro-rata share of the sale of the company.
Noninterest Expense. Noninterest expense increased $697,426, or 36.9% to
$2,586,909 for the first nine months of 1996. Of this increase, $449,000 was
attributable to the accrual of the estimated FDIC special assessment. The
inclusion of Auburn's operating results for the full nine months and several
one-time expenses totaling approximately $80,000 due to the consolidation of
the two banks also contributed substantially to this increase. The
amortization of goodwill and core deposit intangibles related to the
acquisition of Auburn increased $29,900, or 54.7%. Stationery, printing and
office supplies increased $28,295, or 62.1%, as a result of the change of
name and the consolidation of the bank subsidiaries. Occupancy and equipment
expense increased $49,288, or 21.2%, and data processing increased 15.3% to
$90,619 as the Auburn acquisition was reflected for the entire nine months
ended September 30, 1996, and several one-time expenses were incurred during
the conversion of the Auburn branch to the same data processing system as the
main Manhattan facility. Other operating expense increased $65,466, or
18.7%, from $349,852 to $415,318, also reflecting the acquisition. Partially
offsetting these increases were decreases in professional fees of $27,486, or
21.2%, from $129,797 to $102,311, and advertising of $7,568, or 13.6%, from
$55,735 to $48,167.
Total noninterest expense increased 56.0% to $1,124,708 for the third quarter
of 1996. This was due to the estimated accrual of the FDIC special assessment
of $449,000. Occupancy and equipment expense increased $11,872, or 13.7%, to
$98,682. These were offset by decreases in professional fees from $71,555 to
$20,345, or 71.6%, and stationery, printing and office supplies of $3,738, or
23.9%, to $11,908.
Asset Quality and Distribution. The Company's total assets decreased
slightly to $100.3 million at September 30, 1996 compared $101.2 million at
December 31, 1995. The Company's primary ongoing sources of funds are
deposits, proceeds from principal and interest payments on loans and
investment securities and proceeds from the sale of mortgage loans and
investment securities. While maturities and scheduled amortization of loans
are a predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions,
competition, and the restructuring of the financial services industry.
The primary investing activities of the Company are the origination of loans
and the purchase of investment securities. During the first nine months of
1996, the Company originated mortgage loans in the amount of $23.6 million
compared to $14.6 million during the first nine months of 1995. Generally,
the Company originates fixed rate
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
residential mortgage loans for immediate sale and does not warehouse loans to
speculate on interest rates. During the first nine months of 1996, the
Company originated consumer and commercial non-mortgage loans of $8.7 million
compared to $4.5 million during the same time period for 1995.
The quality of the loan portfolio continued to be strong as evidenced by the
small number and amount of loans past due 30 days or more. As of September
30, 1996, nine real estate loans were more than 30 days past due, with a
total balance of $312,871, which was 0.5% of total loans outstanding.
Additionally, three residential mortgage loans totaling $50,017 were on non-
accrual status as of September 30, 1996. Excluding guaranteed student loans,
there were four consumer loans in the amount of $14,123, or 0.02% of the
portfolio over 30 days past due and one on non-accrual with a balance of
$5,500. Additionally, two commercial loans totaling $62,290, or 0.1% of the
total loan portfolio, were past due over 30 days. One SBA loan with a
balance of $86,297 was on non-accrual. At September 30, 1996, the Company had
outstanding loan commitments of $5.0 million. Management of the Company
believes sufficient funds will be available to meet existing loan commitments.
During the nine months ended September 30, 1996, the Company purchased
securities to be held to maturity in the amount of $.3 million and available
for sale in the amount of $11.0 million. These purchases were funded
primarily by deposits, proceeds from the sale of fixed rate mortgage loans
totaling $6.9 million, and $3.5 million of securities being held as available
for sale which either matured or were sold.
Liability Distribution. At September 30, 1996, total deposits and borrowings
had a net decrease of $1.6 million from December 31, 1995 with deposits
decreasing $.6 million and borrowings decreasing $1.0 million as FHLB
advances were paid in full as they matured.
Checking and NOW accounts at the end of the first nine months of 1996 totaled
$19.9 million, or 23.2% of deposits, compared to $17.8 million, or 20.6% of
deposits at December 31, 1995. Money market deposit accounts were 15.6% of
the portfolio and totaled $13.4 million, compared to $13.9 million and
savings accounts totaled $5.3 million compared to $5.9 million at December
31, 1995. Certificates of deposit were $47.1 million, or 55.0% of the
portfolio compared to $48.7 million, or 56.4% at December 31, 1995.
Liquidity. The Company's most liquid assets are cash and cash equivalents
and investment securities available for sale. The level of these assets are
dependent on the Company's operating, financing, lending and investing
activities during any given period.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At September 30, 1996, and December 31, 1995, these liquid assets totaled
$22.0 million and $18.8 million respectively. During periods in which the
Company is not able to originate a sufficient amount of loans and/or periods
of high principal prepayments, the Company increases its liquid assets by
investing in short-term U.S. government and agency securities.
Liquidity management is both a daily and long-term function of management's
strategy. Excess funds are generally invested in short-term investments.
In the event the Company requires funds beyond its ability to generate them
internally, additional funds are available through the use of FHLB advances,
a line of credit with the FHLB or through sales of securities. At September
30, 1996, the Company had outstanding FHLB advances of $1.3 million, no
borrowings were outstanding on its $12 million line of credit with the
FHLB, and $200,000 in repurchase agreements. Additionally, the Company has
guaranteed a loan made to the Company's Employee Stock Ownership Plan (the
"ESOP"), with an outstanding balance of $355,915 at September 30, 1996 to
fund the ESOP's purchase of shares in the Company's 1993 common stock
offering. The total of these borrowings by the Company was approximately
$1.9 million at September 30, 1996.
Capital. The Federal Reserve Board has established capital requirements for
bank holding companies which generally parallel the capital requirements for
national banks under the Office of the Comptroller of the Currency (the
"OCC") regulations. The regulations provide that such standards will
generally be applied on a bank-only basis (rather than a consolidated basis)
in the case of a bank holding company with less than $150 million in total
consolidated assets, such as the Company. The Company's total capital of
$11.0 million is, however, well in excess of the Federal Reserve Board's
consolidated minimum capital requirements.
At September 30, 1996, the Bank continued to maintain a sound Tier 1 capital
ratio of 8.9% and a risk based capital ratio of 16.7%. As shown by the
following table, the Company's capital exceeded the minimum capital
requirements: (dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1996
Amount Percent Required
<S> <C> <C> <C>
Tier 1 Capital $8,842 8.9% 3.0%
Risk Based Capital 9,504 16.7% 8.0%
</TABLE>
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Banks and bank holding companies are generally expected to operate at or above
the minimum capital requirements. The above ratios are well in excess of
regulatory minimums and should allow the Company to operate without capital
adequacy concerns. The Federal Deposit Insurance Corporation Act of 1991
established a bank rating system based on capital levels of banks. The
Bank is rated "well capitalized", which is the highest rating available under
this capital-based rating system.
Recent Regulatory Developments. On September 30, 1996, President Clinton
signed into law the "Economic Growth and Regulatory Paperwork Reduction Act of
1996" (the "Regulatory Reduction Act"). Subtitle G of the Regulatory
Reduction Act consists of the "Deposit Insurance Funds Act of 1996" (the
"DIFA"). The DIFA provides for a one-time special assessment on each
depository institution holding deposits subject to assessment by the FDIC for
the Savings Association Insurance Fund (the "SAIF") in an amount which, in
the aggregate, will increase the designated reserve ratio of the SAIF (i.e.,
the ratio of the insurance reserves of the SAIF to total SAIF-insured
deposits) to 1.25% on October 1, 1996. Subject to certain exceptions, the
special assessment is payable in full on November 27, 1996. As a SAIF-
member, the Bank is subject to the special assessment.
Under the DIFA, the amount of the special assessment payable by an
institution is to be determined on the basis of the amount of SAIF-assessable
deposits held by the institution on March 31, 1995, or acquired by the
institution after March 31, 1995 from another institution which held the
deposits as of that date but is no longer in existence on November 27, 1996.
The DIFA provides for a 20% discount in calculating the SAIF-assessable
deposits of certain "Oaker" banks, (i.e., the Bank Insurance Fund ("BIF")
member banks that hold deposits acquired from a SAIF member that are deemed
to remain SAIF insured) and certain "Sasser" banks (i.e., banks that
converted from thrift to bank charters but remain SAIF members.) Although
the Bank is a "Sasser" bank, the Bank does not meet the requirements
established in the DIFA to qualify for this 20% discount. The DIFA also
exempts certain institutions from payment of the special assessment
(including institutions that are undercapitalized or that would become
undercapitalized as a result of payment of the special assessment), and
allows an institution to pay the special assessment in two installments if
there is a significant risk that by paying the special assessment in a lump
sum, the institution or its holding company would be in default under or in
violation of terms or conditions of debt obligations or preferred stock
issued by the institution or its holding company and outstanding on
September 13, 1995.
On October 8, 1996, the FDIC adopted a final regulation implementing the SAIF
special assessment. In that regulation, the FDIC set the special assessment
rate at 0.657% of SAIF-assessable deposits held on March 31, 1995. As a
result of the special assessment, the Bank had taken a charge against
earnings for the quarter ended September
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
30, 1996, in the amount of $449,000. As discussed below, however, the
recapitalization of the SAIF resulting from the special assessment should
significantly reduce the Bank's ongoing deposit insurance expense.
In light of the recapitalization of the SAIF pursuant to the special
assessment authorized by the DIFA, the FDIC, on October 8, 1996, issued a
proposed rule that would reduce regular semi-annual SAIF assessments from the
current range of 0.23%_0.31% of deposits to a range of 0%_0.27% of deposits.
Under the proposal, the new rates would be effective October 1, 1996 for
Oaker and Sasser banks, but would not take effect for other SAIF-assessable
institutions until January 1, 1997. From October 1, 1996 through
December 31, 1996, SAIF-assessable institutions other than Oaker and Sasser
banks would, under the proposal, be assessed at rates ranging from 0.18% to
0.27% of deposits, which represents the amount the FDIC calculates as
necessary to cover the interest due for that period on outstanding
obligations of the Financing Corporation (the "FICO"), discussed below.
Because SAIF-assessable institutions have already been assessed at
current rates (i.e., 0.23%_0.31% of deposits) for the semi-annual period
ending December 31, 1996, the proposal contemplates that the FDIC will refund
the amount collected from such institutions for the period from October 1,
1996 through December 31, 1996 which exceeds the amount due for that period
under the reduced assessment schedule. Assuming the proposal is adopted as
proposed, and assuming the Bank retains its current risk classification under
the FDIC's risk-based assessment system, the deposit insurance assessments
payable by the Bank will be reduced significantly, to the same level
currently paid by the Bank's BIF-member competitors.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
FICO, the entity created in 1987 to finance the recapitalization of the
Federal Savings and Loan Insurance Corporation, the SAIF's predecessor
insurance fund. Pursuant to the DIFA, the interest due on outstanding FICO
bonds will be covered by assessments against both SAIF and BIF member
institutions beginning January 1, 1997. Between January 1, 1997 and
December 31, 1999, FICO assessments against BIF-member institutions cannot
exceed 20% of the FICO assessments charged SAIF-member institutions. From
January 1, 2000 until the FICO bonds mature in 2019, FICO assessments will be
shared by all FDIC-insured institutions on a pro rata basis. The FDIC
estimates that the FICO assessments for the period January 1, 1997 through
December 31, 1999 will be approximately 0.013% of deposits for BIF members
versus approximately 0.064% of deposits for SAIF members, and will be less
than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1,
1999, provided there are no state or federally chartered, FDIC-insured
savings associations existing on that date. To facilitate the merger of the
BIF and the SAIF, the DIFA directs
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
the Treasury Department to conduct a study on the development of a common
charter and to submit a report, along with appropriate legislative
recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new
nonbanking activities by bank holding companies, eliminates the need for
national banks to obtain OCC approval to establish an off-site ATM, excludes
ATM closures and certain branch office relocations from the prior notice
requirements applicable to branch closings and significantly expands the
authority of well-capitalized and well-managed national banks to invest in
office premises without prior regulatory approval. The Regulatory Reduction
Act also clarifies the liability of a financial institution, when acting as a
lender or in a fiduciary capacity, under the federal environmental clean-up
laws. Although the full impact of the Regulatory Reduction Act on the
operations of the Company and the Bank cannot be determined at this time,
management believes that the legislation will reduce compliance costs to
some extent and allow the Company and the Bank somewhat greater operating
flexibility.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
its subsidiary are a party other than ordinary routine litigation incidental
to their respective businesses.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-4
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MNB BANCSHARES, INC.
Date: November 8, 1996
/s/Patrick L. Alexander
President and Chief Executive Officer
Date: November 8, 1996
/s/Susan E. Roepke
Vice President, Secretary,
Treasurer and Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGE
NUMBER
27 Financial Date Schedule 17
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000891284
<NAME> SUSAN E ROEPKE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,446,317
<INT-BEARING-DEPOSITS> 500,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,035,413
<INVESTMENTS-CARRYING> 10,638,808
<INVESTMENTS-MARKET> 10,646,000
<LOANS> 65,379,504
<ALLOWANCE> 805,818
<TOTAL-ASSETS> 100,250,013
<DEPOSITS> 85,768,576
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 1,674,396
<LONG-TERM> 855,914
0
0
<COMMON> 6,052
<OTHER-SE> 10,945,075
<TOTAL-LIABILITIES-AND-EQUITY> 100,250,013
<INTEREST-LOAN> 4,292,648
<INTEREST-INVEST> 1,334,096
<INTEREST-OTHER> 126,215
<INTEREST-TOTAL> 5,752,959
<INTEREST-DEPOSIT> 2,889,377
<INTEREST-EXPENSE> 3,044,776
<INTEREST-INCOME-NET> 2,708,183
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (15,213)
<EXPENSE-OTHER> 2,586,909
<INCOME-PRETAX> 581,424
<INCOME-PRE-EXTRAORDINARY> 581,424
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 388,765
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 3.67
<LOANS-NON> 151,305
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 826,364
<CHARGE-OFFS> 23,583
<RECOVERIES> 3,037
<ALLOWANCE-CLOSE> 805,818
<ALLOWANCE-DOMESTIC> 752,775
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 58,323
</TABLE>
