SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 21549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE
REQUIRED)
For fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For transition period from to
Commission File Number 0-21878
MNB BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1121026
(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) 565-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
on which Registered None
Title of Each Class None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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. YesXNo ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this 10-K or
any amendment to this form 10-K. [ ]
The aggregate market value of voting common stock of Registrant
held by non-affiliates as of March 17, 1997 was $7,044,220.* At March
17, 1997, the total number of shares of common stock outstanding was
608,839.
Documents incorporated by Reference:
Portions of the 1996 Annual Report to Stockholders for the fiscal
year ended December 31, 1996, are incorporated by reference into Parts I
and II hereof, to the extent indicated herein. Portions of the Proxy
Statement for the Annual Meeting of Stockholders to be held May 19,
1997, are incorporated by reference in Part III hereof, to the extent
indicated herein.
* Based on the last reported price of actual transactions in
Registrant's common stock on March 17, 1997, and reports of beneficial
ownership prepared by all directors, executive officers and beneficial
owners of more than 5% of the outstanding shares of common stock of
Registrant; however, such determination of shares owned by affiliates does
not constitute an admission of affiliate status or beneficial interest in
shares of common stock of Registrant.
MNB BANCSHARES, INC.
1996 Form 10-K Annual Report
Table of Contents
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 20
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 20
ITEM 6. SELECTED FINANCIAL DATA 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 21
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT 21
ITEM 11. EXECUTIVE COMPENSATION 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERSAND MANAGEMENT 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K 22
SIGNATURES 24
PART I.
ITEM 1. BUSINESS
REGISTRANT AND ITS SUBSIDIARY
MNB Bancshares, Inc. (the "Company") is a bank holding company
incorporated
under the laws of the State of Delaware. Currently, the Company's business
consists
solely of the ownership of Security National Bank, Manhattan, Kansas (the
"Bank").
The Bank is a wholly-owned subsidiary of the Company and is the successor-
in-interest to
Manhattan National Bank, formerly Manhattan Federal Savings and Loan
Association
(the "Association"), which, on January 5, 1993, converted concurrently from a
federal
mutual savings association to a federal stock savings association (the "Stock
Conversion") and from a federal stock savings association to a national bank
(the "Bank
Conversion") (collectively, the "Conversion"). The Bank has no subsidiaries.
The term
"Bank", as used in this Form 10-K, sometimes refers to the Association during
the period
prior to the Conversion.
The Company was organized on August 27, 1992, at the direction of
the Board of
Directors of the Association to acquire all of the stock issued by the
Association upon
consummation of the Stock Conversion. On January 5, 1993, in connection
with the Stock Conversion, the Company issued and sold 462,875 shares of its
common stock, par value $0.01 per share, in a Subscription and Community
Offering to the Company's employee stock ownership plan, the Association's
members and the general public. Total net proceeds of the Subscription and
Community Offering, after Conversion expenses of approximately $600,000,
were approximately $4 million. The Company utilized $2 million of the net
proceeds to acquire all of the common stock, par value $1.00 per share,
issued by the Association in connection with the Stock Conversion. The
remaining net proceeds were then invested by the Company in interest
bearing deposit accounts at the Bank and in other investment securities.
On April 1, 1995, the Company acquired all of the issued and outstanding
stock of Auburn Security Bancshares, Inc. ("Auburn"), which had
consolidated assets of approximately $20 million. The $2 million purchase
price, including related costs of acquisition, included cash of approximately
$970,000 and 60,720 shares of the Company's common stock. Auburn was 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. On
December 31, 1995, the Company merged and consolidated Manhattan
National Bank and Security State Bank into Security National Bank. In
February, 1997, the Bank agreed to lease a facility at 6100 SW 21st Street in
Topeka, Kansas. The Bank expects to commence operations of this branch
facility in May, 1997.
As a bank holding company, the Company is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Company is also subject to various reporting requirements of
the Securities and Exchange Commission (the "SEC").
Pursuant to the Conversion, the Bank succeeded to all of the assets
and
liabilities of the Association. The Association was organized as a Kansas-
chartered mutual building and loan association in 1885, and converted to a
federally chartered mutual savings and loan association in 1938. The Bank is
principally engaged in the business of attracting deposits from the general
public and using such deposits, together with borrowings and other funds, to
originate one-to-four family residential mortgage loans, multi-family,
consumer and commercial loans, in the Bank's principal lending area,
consisting primarily of Manhattan, Kansas and Auburn, Kansas and the
surrounding communities in Riley, Pottawatomie, and Shawnee Counties in
Kansas. Since Conversion, the Bank has focused on originating greater
numbers and amounts of consumer, commercial, and agricultural loans.
Additionally, greater emphasis has been placed on diversification of the
deposit mix through expansion of core deposit accounts such as checking,
savings, and money market accounts. The Bank has also diversified its
geographical markets with the holding company acquisition of Auburn and
the merger of the two banks.
The results of operations of the Bank are dependent primarily upon net
interest income and, to a lesser extent, upon other income derived from loan
servicing fees and customer deposit services. Additional expenses of the
Bank include general and administrative expenses such as salaries, employee
benefits, federal deposit insurance premiums, occupancy and related
expenses.
Deposits of the Manhattan branch of the Bank are insured by the
Savings Association Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC") up to the maximum amount allowable
under applicable federal laws and regulations. Deposits of the Auburn branch
of the Bank are insured by the Bank Insurance Fund (the "BIF"). The Bank
is regulated by the Office of the Comptroller of the Currency (the "OCC"), as
the chartering authority for national banks, and the FDIC, as the
administrator of the SAIF and the BIF. The Bank is also subject to regulation
by the Federal Reserve Board with respect to reserves required to be
maintained against deposits and certain other matters. The Bank is a member
of the Federal Reserve Bank of Kansas City and the Federal Home Loan
Bank (the "FHLB") of Topeka.
The Company's executive office is located at 800 Poyntz Avenue,
Manhattan, Kansas 66502. Its telephone number is (913) 565-2000.
Market Area
The Bank's home office is located at 800 Poyntz Avenue, Manhattan,
Kansas, with a branch located at 1741 N. Washington, Auburn, Kansas.
Manhattan is located in east central Kansas, approximately 45 miles west of
Topeka, Kansas. Manhattan is the county seat and largest city in Riley
County, Kansas. Over the past decade, Riley County has experienced
population and household growth at an annual rate which is slightly higher
than the growth rates for Kansas in general. Auburn is located ten miles
southwest of Topeka, Kansas and in an area experiencing the growth and
expansion of the metropolitan Topeka area.
The Bank's primary deposit gathering and lending market consists of
Riley, Pottawatomie, and Shawnee Counties, Kansas. Riley County's
economy is significantly influenced by employment at Fort Riley Military
Base and Kansas State University, the second largest university in Kansas,
which is located in Manhattan. Shawnee County's economy is strongly
influenced by the City of Topeka, which is the state capital, and several major
private firms and public institutions.
Other sources of employment in the Manhattan branch's market area
are derived from a variety of service, trade and manufacturing employers
located in southern Riley County and western Pottawatomie County,
including the Unified School District, the Kansas Farm Bureau and the
McCall Pattern Company. Northern Riley County and eastern Pottawatomie
County are primarily rural, agricultural areas. Other sources of employment
in the Auburn and Topeka market areas are numerous manufacturing,
distribution, and retail centers located in Shawnee County. These include
Goodyear Tire & Rubber; Blue Cross/Blue Shield; Volume Shoe
Corporation; the Menninger Foundation; and Washburn University. Others in
the Topeka area include Frito-Lay, Inc.; Southwestern Bell Corporation; the
Veteran's Administration; and Hill's Pet Food.
Competition
The Bank faces strong competition both in attracting deposits and
making real estate and other loans. Its most direct competition for deposits
comes from commercial banks and other savings institutions located in its
principal market areas of Riley, Pottawatomie, and Shawnee Counties in
Kansas, including many large financial institutions which have greater
financial and marketing resources available to them. The ability of the Bank
to attract and retain deposits generally depends on its ability to provide a
rate
of return, liquidity and risk comparable to that offered by competing
investment opportunities. The Bank competes for loans principally through
the interest rates and loan fees it charges and the efficiency and quality of
services it provides borrowers. Additionally, competition may increase as a
result of the continuing reduction on restrictions on the interstate operations
of financial institutions. Pursuant to federal legislation which took effect
on
September 25, 1995, the Federal Reserve Board may allow a bank holding
company to acquire banks located in any state in the United States without
regard to geographic restrictions or reciprocity requirements imposed by
state
law, but subject to certain conditions, including certain deposit
concentration
limits. See "Supervision and Regulation - The Company - Investments and
Activities." Further, pursuant to a federal statute which will take effect
on
June 1, 1997, banks will be able to establish branch offices in other
states.
See "Supervision and Regulation - The Bank - Branching Authority."
Employees
At December 31, 1996, the Bank had a total of 42 employees (37 full
time equivalent employees). The Company has no direct employees.
Employees are provided with a comprehensive benefits program, including
basic and major medical insurance, life and disability insurance, sick leave,
an
employee stock ownership plan and a 401(k) profit sharing plan. Employees
are not represented by any union or collective bargaining group and the Bank
considers its employee relations to be good.
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management
decisions and general economic conditions, but also by the requirements of
applicable state and federal statutes and regulations and the policies of
various governmental regulatory authorities including, but not limited to,
the
OCC, the Federal Reserve Board, the FDIC, the Internal Revenue Service and
state taxing authorities and the SEC. The effect of such statutes,
regulations
and policies can be significant, and cannot be predicted with a high degree
of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Bank, regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and the Bank
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds
and the depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting
the Company and its subsidiaries are brief summaries thereof and do not
purport to be complete, and are qualified in their entirety by reference to
such
statutes and regulations. Any change in applicable law or regulations may
have a material effect on the business of the Company and the Bank. 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 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 was payable in full on November 27, 1996.
The Bank holds SAIF-assessable deposits acquired from the Association.
Thus, the Bank was subject to the special assessment with respect to those
deposits.
Under the DIFA, the amount of the special assessment payable by an
institution was 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 on March 31, 1995, but was no longer in existence on November 27,
1996. The DIFA provides for a 20% discount in calculating the SAIF-
assessable deposits of certain "Oakar" banks (i.e., BIF member banks that
hold
deposits acquired from a SAIF member that remain SAIF insured) and certain
"Sasser" banks (i.e., institutions that converted from thrift to bank
charters
but remain SAIF members). The FDIC determined that the Bank qualified
for the 20% discount provided by the DIFA for "Oakar" banks. 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. The amount of the special assessment paid by the Bank was
$449,000, the full amount of which was recorded as a charge against earnings
for the quarter ended September 30, 1996. 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 December 11, 1996, took
action to reduce regular semi-annual SAIF assessments from the range of
0.23% - 0.31% of deposits to a range of 0% - 0.27% of deposits. The new
rates were effective October 1, 1996 for Oakar and Sasser banks, but did not
take effect for other SAIF-assessable institutions until January 1, 1997.
From
October 1, 1996 through December 31, 1996, assessments payable by SAIF-
assessable institutions other than Oakar and Sasser banks ranged 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 were previously assessed at higher rates (i.e.,
0.23% -
0.31% of deposits) for the semi-annual period ending December 31, 1996, the
FDIC will refund or credit back 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. As a result of the FDIC's action, the deposit insurance
assessments
payable by the Bank with respect to its SAIF-assessable deposits have been
reduced substantially, to the same levels paid by the Bank with respect to
its BIF-assessable deposits.
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 "FSLIC"), 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. It has been estimated 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 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
off-site ATMs, 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 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 may reduce
compliance costs to some extent and allow the Company and the Bank
somewhat greater operating flexibility.
The Company
General. The Company, as the sole stockholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered
with, and is subject to regulation by, the Federal Reserve Board under the
Bank Holding Company Act, as amended (the "BHCA"). In accordance with
Federal Reserve Board policy, the Company is expected to act as a source of
financial strength to the Bank and to commit resources to support the Bank in
circumstances where the Company might not do so absent such policy.
Under the BHCA, the Company is subject to periodic examination by the
Federal Reserve Board and is required to file with the Federal Reserve Board
periodic reports of its operations and such additional information as the
Federal Reserve Board may require.
Investments and Activities. Under the BHCA, a bank holding company
must obtain Federal Reserve Board approval before: (i) acquiring, directly
or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than
5% of such shares (unless it already owns or controls the majority of such
shares); (ii) acquiring all or substantially all of the assets of another
bank; or
(iii) merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits
established
by the BHCA), the Federal Reserve Board may allow a bank holding
company to acquire banks located in any state of the United States without
regard to whether the acquisition is prohibited by the law of the state in
which
the target bank is located. In approving interstate acquisitions, however,
the
Federal Reserve Board is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution
affiliates in the state in which the target bank is located or which require
that
the target bank have been in existence for a minimum period of time (not to
exceed five years) before being acquired by an out-of-state bank holding
company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries. The principal exception
to
this prohibition allows bank holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the Federal
Reserve Board to be "so closely related to banking ... as to be a proper
incident thereto." Under current regulations of the Federal Reserve Board,
the Company and its non-bank subsidiaries are permitted to engage in, among
other activities, such banking- related businesses as the operation of a
thrift,
sales and consumer finance, equipment leasing, the operation of a computer
service bureau, including software development, and mortgage banking and
brokerage. The BHCA generally does not place territorial restrictions on the
activities of non-bank subsidiaries of bank holding companies.
Federal legislation also prohibits acquisition of "control" of a bank or
bank holding company, such as the Company, without prior notice to certain
federal bank regulators. "Control" is defined in certain cases as acquisition
of
10% of the outstanding shares of a bank or bank holding company.
Capital Requirements. Bank holding companies are required to
maintain minimum levels of capital in accordance with Federal Reserve Board
capital adequacy guidelines. If capital falls below minimum guideline
levels, a
bank holding company, among other things, may be denied approval to
acquire or establish additional banks or non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: a risk-
based requirement expressed as a percentage of total risk-weighted assets,
and a leverage requirement expressed as a percentage of total assets. The
risk-based requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital.
The leverage requirement consists of a minimum ratio of Tier 1 capital to
total assets of 3% for the most highly rated companies, with minimum
requirements of 4% to 5% for all others. For purposes of these capital
standards, Tier 1 capital consists primarily of permanent stockholders'
equity
less intangible assets (other than certain mortgage servicing rights and
purchased credit card relationships) and total capital means Tier 1 capital
plus
certain other debt and equity instruments which do not qualify as Tier 1
capital and a portion of the company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations.
Further, any banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios, including tangible
capital positions (i.e., Tier 1 capital less all intangible assets), well
above
the
minimum levels.
Under the Federal Reserve Board's guidelines, the capital standards
described above generally apply on a consolidated basis to bank holding
companies that have more than $150 million in total consolidated assets and
on a bank-only basis to bank holding companies that, like the Company, have
less than $150 million in total consolidated assets. The Company's total
capital of $11.3 million is, however, well in excess of the Federal Reserve
Board's consolidated minimum capital requirements.
Dividends. The Federal Reserve Board has issued a policy statement
with regard to the payment of cash dividends by bank holding companies. In
the policy statement, the Federal Reserve Board expressed its view that a
bank holding company should not pay cash dividends exceeding its net
income or which can only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve Board possesses enforcement powers over bank holding companies
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. In addition to the
restrictions on dividends that may be imposed by the Federal Reserve Board,
the Delaware General Corporation Law would allow the Company to pay
dividends only out of its surplus, or if the Company has no such surplus, out
of its net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year.
Federal Securities Regulation. The Company's common stock is
registered with the SEC under the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Consequently, the Company is subject to the information, proxy solicitation,
insider trading and other restrictions and requirements of the SEC under the
Exchange Act.
The Bank
General. The Bank is a national bank, chartered by the OCC under the
National Bank Act. The deposit accounts of the Bank are insured by the BIF
of the FDIC, and it is a member of the Federal Reserve System. As a BIF-
insured national bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the OCC, as the chartering
authority for national banks, and the FDIC, as administrator of the BIF. The
Bank is also a member of the FHLB, which provides a central credit facility
primarily for member institutions.
Deposit Insurance. As an FDIC-insured institution, the Bank is
required to pay deposit insurance premium assessments to the FDIC. The
FDIC has adopted a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their respective levels of capital and
supervisory evaluations. Institutions classified as well-capitalized (as
defined
by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the
FDIC)
and considered of substantial supervisory concern pay the highest premium.
Risk classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.
Although the Bank is a BIF member, approximately 80% of the Bank's
deposits (representing the portion of the Bank's deposit base acquired from
the Association which continues to be SAIF insured), are subject to
assessment at SAIF rates. During the year ended December 31, 1996, BIF
assessments ranged from 0% of deposits to 0.27% of deposits. The FDIC
has announced that for the semi-annual assessment period beginning January
1, 1997, BIF assessment rates will continue to range from 0% of deposits to
0.27% of deposits. During the period January 1, 1996 through September 30,
1996, SAIF assessments ranged from 0.23% of deposits to 0.31% of
deposits. As a result of the recapitalization of the SAIF, SAIF assessments
paid by Oakar banks, such as the Bank, were reduced effective October 1,
1996 to a range of 0% of deposits to 0.27% of deposits. See "--Recent
Regulatory Developments."
The FDIC may terminate the deposit insurance of any insured
depository institution if the FDIC determines, after a hearing, that the
institution has engaged or is engaging in unsafe or unsound practices, is in
an
unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order, or any condition imposed in writing by, or
written agreement with, the FDIC. The FDIC may also suspend deposit
insurance temporarily during the hearing process for a permanent termination
of insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of the Bank.
FICO Assessments. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments
due on the outstanding obligations of the FICO, the entity created to finance
the recapitalization of the FSLIC, the SAIF's predecessor insurance fund.
Pursuant to federal legislation enacted September 30, 1996, commencing
January 1, 1997, both SAIF members and BIF members will be subject to
assessments to cover the interest payment on outstanding FICO obligations.
Such FICO assessments will be in addition to amounts assessed by the FDIC
for deposit insurance. Until January 1, 2000, the FICO assessments made
against BIF members may not exceed 20% of the amount of the FICO
assessments made against SAIF members. It is estimated that SAIF members
will pay FICO assessments equal to 0.064% of deposits while BIF members
will pay FICO assessments equal to 0.013% of deposits. Between January 1,
2000 and the maturity of the outstanding FICO obligations in 2019, BIF
members and SAIF members will share the cost of the interest on the FICO
bonds on a pro rata basis. It is estimated that FICO assessments during this
period will be less than 0.025% of deposits.
OCC Assessments. National banks are required to pay supervisory
fees to the OCC to fund the operations of the OCC. The amount of such
supervisory fees is based upon each institution's total assets, including
consolidated subsidiaries, as reported to the OCC. During the year ended
December 31, 1996, the Bank paid supervisory fees to the OCC totaling
$39,139.
Capital Requirements. The OCC has established the following
minimum capital standards for national banks, such as the Bank: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total assets
of
3% for the most highly-rated banks with minimum requirements of 4% to 5%
for all others, and a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half
of which must be Tier 1 capital. For purposes of these capital standards,
Tier 1 capital and total capital consist of substantially the same components
as Tier 1 capital and total capital under the Federal Reserve Board's capital
guidelines for bank holding companies (see "--The Company--Capital
Requirements").
The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, the
regulations of the OCC provide that additional capital may be required to
take adequate account of interest rate risk or the risks posed by
concentrations of credit, nontraditional activities or securities trading
activities.
During the year ended December 31, 1996, the Bank was not required
by the OCC to increase its capital to an amount in excess of the minimum
regulatory requirements. As of December 31, 1996, the Bank exceeded its
minimum regulatory capital requirements with a leverage ratio of 8.70% and
a risk-based capital ratio of 18.22% compared to a required ratio of 4.00%
and 8.00%, respectively.
Federal law provides the federal banking regulators with broad power
to take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an
institution is assigned, the regulators' corrective powers include: requiring
the
submission of a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
capital
stock (including additional voting stock) or to be acquired; restricting
transactions with affiliates; restricting the interest rate the institution
may pay
on deposits; ordering a new election of directors of the institution;
requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of
principal
or interest on subordinated debt; and ultimately, appointing a receiver for
the
institution.
Dividends. The National Bank Act imposes limitations on the amount
of dividends that may be paid by a national bank, such as the Bank.
Generally,
a national bank may pay dividends out of its undivided profits, in such
amounts and at such times as the bank's board of directors deems prudent.
Without prior OCC approval, however, a national bank may not pay
dividends in any calendar year which exceed the bank's year- to-date net
income plus the bank's adjusted retained net income for the two preceding
years.
The payment of dividends by any financial institution is affected by the
requirement to maintain adequate capital pursuant to applicable capital
adequacy guidelines and regulations, and a financial institution generally is
prohibited from paying any dividends if, following payment thereof, the
institution would be undercapitalized. As described above, the Bank
exceeded its minimum capital requirements under applicable guidelines as of
December 31, 1996. Further, Bank may not pay dividends in an amount
which would reduce its capital below the amount required for the liquidation
account established in connection with the Association's conversion from the
mutual to the stock form of ownership in 1993.As of December 31, 1996,
approximately $0.8 million was available to be paid as dividends to the
Company by the Bank. Notwithstanding the availability of funds for
dividends, however, the OCC may prohibit the payment of any dividends by
the Bank if the OCC determines such payment would constitute an unsafe or
unsound practice.
Insider Transactions. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the Company
and its subsidiaries, on investments in the stock or other securities of the
Company and its subsidiaries and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans.
Certain
limitations and reporting requirements are also placed on extensions of
credit
by the Bank to its directors and officers, to directors and officers of the
Company and its subsidiaries, to principal stockholders of the Company, and
to "related interests" of such directors, officers and principal
stockholders. In
addition, such legislation and regulations may affect the terms upon which
any person becoming a director or officer of the Company or one of its
subsidiaries or a principal stockholder of the Company may obtain credit
from
banks with which the Bank maintains a correspondent relationship.
Safety and Soundness Standards. The OCC has adopted guidelines
which establish operational and managerial standards to promote the safety
and soundness of national banks. The guidelines set forth standards for
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each
institution
is responsible for establishing its own procedures to achieve those goals.
If an
institution fails to comply with any of the standards set forth in the
guidelines,
the OCC may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the OCC
expects to require a compliance plan from an institution whose failure to
meet
one or more of the guidelines is of such severity that it could threaten the
safety and soundness of the institution. Failure to submit an acceptable
plan,
or failure to comply with a plan that has been accepted by the OCC, would
constitute grounds for further enforcement action.
Branching Authority. National banks headquartered in Kansas, such
as the Bank, have the same branching rights in Kansas as banks chartered
under Kansas law. Kansas law grants Kansas-chartered banks the authority to
establish branches anywhere in the State of Kansas, subject to receipt of all
required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the
acquisition
of individual branches of a bank in another state (rather than the
acquisition
of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act
only
if specifically authorized by state law. The legislation allows individual
states
to "opt- out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Kansas not yet enacted
legislation either authorizing interstate branching or opting out of the
Riegle-
Neal Act.
Federal Reserve System. Federal Reserve Board regulations, as
presently in effect, require depository institutions to maintain non-interest
earning reserves against their transaction accounts (primarily NOW and
regular checking accounts), as follows: for transaction accounts aggregating
$49.3 million or less, the reserve requirement is 3% of total transaction
accounts; and for transaction accounts aggregating in excess of $49.3
million,
the reserve requirement is $1.479 million plus 10% of the aggregate amount
of total transaction accounts in excess of $49.3 million. The first $4.4
million
of otherwise reservable balances are exempted from the reserve requirements.
These reserve requirements are subject to annual adjustment by the Federal
Reserve Board. The Bank is in compliance with the foregoing requirements.
Tax Matters
Under applicable provisions of the Internal Revenue Code of 1986, as
amended ("Code"), effective as of the date of the Association's conversion to
a bank, a savings association that met certain definitional tests relating to
the
composition of its assets and the sources of its income ("qualifying savings
association") was permitted to establish reserves for bad debts. A
qualifying
savings association generally was permitted to make annual additions to such
reserves under either the experience method or the percentage of taxable
income method. In 1996, the percentage of taxable income method was
repealed and savings associations were generally required to recapture their
tax bad debt reserves in excess of a base year amount.
As a result of the availability of the percentage of income bad debt
deduction, the amount of tax bad debt reserves that qualifying savings
associations were permitted to maintain may have exceeded the amount of tax
bad debt reserves that a bank of comparable size and portfolio composition
may maintain. Consequently, applicable provisions of Internal Revenue
Service regulations require that a savings association that converts to a
bank
must restate its tax reserve for bad debts as of the first day of the year
of the
conversion. The restated balance of the reserve is determined by multiplying
the savings association's total outstanding loans at the end of the year
before
the year of conversion to a bank by the weighted average ratio of the savings
association's actual loan charge-offs during the six years preceding the
year in
which the conversion occurs to total loans outstanding during such six-year
period. In general, the excess of the institution's tax reserve for bad
debts as
of the close of the taxable year immediately preceding the year of conversion
over the restated reserve level is required to be included in income ratably
over six years, beginning with the year of conversion. As of December 31,
1992, the Association's actual tax bad debt reserves exceeded the Bank's
restated reserves by approximately $1,262,000, which is being included in the
Bank's taxable income ratably over a six year period at the rate of
approximately $210,300 per year. Thus, the restatement gives rise to an
additional tax liability of approximately $79,900 per year during the years
1993 through 1998 (assuming a combined federal and state tax rate of 38%).
For financial statement purposes, the Bank recorded a deferred tax liability
equal to the amount by which the Association's tax bad debt reserve exceeded
the allowance for loan losses maintained by the Association in accordance
with applicable regulatory requirements. As of December 31, 1996, this
deferred tax liability has been reduced to approximately $160,000 by the
1993, 1994, 1995 and 1996 payments of approximately $79,900 each year,
attributable to the bad debt reserve recapture.
Delaware imposes a franchise tax on corporations, such as the
Company, that are incorporated under the laws of the state of Delaware. The
annual Delaware franchise tax is the least of three tax computations based
on:
(1) the number of shares of authorized capital stock, (2) the corporation's
assumed capital, or (3) certain minimum and maximum limits.
The state of Kansas imposes a privilege tax measured by net income
on certain financial institutions, including both banks and savings and loan
associations, doing business in Kansas. The privilege tax consists of a
normal
state tax on the bank's "net income" and a surtax based on the bank's "net
income" in excess of $25,000. In general, "net income" subject to the Kansas
privilege tax is based on the taxpayer's Federal taxable income. The Bank
was also required to restate its tax bad debt reserves for purposes of the
Kansas privilege tax. The tax and financial statement impact of this
restatement has been reflected in the use of an assumed combined federal and
state tax rate of 38% in calculating the estimated impact of the restatement
for federal tax purposes.
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differentials
The average balance sheets are incorporated by reference from the
Company's 1996 Annual Report to Stockholders (attached as Exhibit 13.1
hereto). The following table describes the extent to which changes in
interest
income and interest expense for major components of interest-earning assets
and interest-bearing liabilities affected the Bank's interest income and
expense
during the periods indicated. The table distinguishes between (i) changes
attributable to rate (changes in rate multiplied by prior volume), (ii)
changes
attributable to volume (changes in volume multiplied by prior rate), and (iii)
net change (the sum of the previous columns). The net changes attributable
to the combined effect of volume and rate, which cannot be segregated, have
been allocated proportionately to the change due to volume and the change
due to rate.
<TABLE>
<CAPTION>
December 1996 vs 1995 December 1995
vs 1994
Increase/(Decrease) Attributable to
Volume Rate
Net Volume Rate Net
(Dollars in
thousands)
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Investment securities $64 $(10) $54 $200 $183 $383
Mortgage-backed securities 139 10 149 74 76 150
Loans 380 36 416 710 397 1,107
Total 583 36 619 984 656 1,640
Interest expense:
Deposits $419 (148) 271 $563 $612 $1,175
Other borrowings (27) (15) (42) (155) 12 (143)
Total 392 (163) 229 408 624 1,032
Net interest income $191 $199 $390 $576 $32 $608
</TABLE>
<TABLE>
<CAPTION>
December 1994 vs 1993
Increase/(Decrease) Attributable to
Volume Rate Net
(Dollars in thousands)
<S> <C> <C> <C>
Interest income:
Investment securities $17 (38) $(21)
Mortgage-backed securities 83 5 88
Loans (19) (149) (168)
Total 81 (182) (101)
Interest expense:
Deposits $175 $(234) $(59)
Other borrowings (239) 26 (213)
Total (64) (208) (272)
Net interest income $145 $ 26 $171
</TABLE>
II. Investment Portfolio
Investments
Investment Securities. The following table sets forth the carrying value
of the investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
(Dollars in thousands)
Investment securities:
<S> <C> <C> <C>
U.S. government and agency
obligations $16,965 $20,700 $15,338
Mortgage-backed securities 11,734 8,717 5,568
Municipal bonds 2,962 1,968 520
Bankers' acceptances 491 0 0
FHLB, Federal Reserve,
and Bankers
Bank of Kansas stock 1,087 944 930
Total $33,239 $32,329 $22,356
</TABLE>
As of December 31, 1996, the carrying value, maturities and the weighted
average yields of investment securities were as follows:
<TABLE>
<CAPTION>
After 1
Year After 5 Years
1 Year or Less Through 5 Years Through 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
securities $5,646 4.18% $11,319 5.90% $0 0.00% $0 0.00% $16,965 5.32%
Mortgage-
backed
securities 0 0.00 3,935 6.37 2,189 5.81 5,610 5.71 11,734 5.41
Municipal
bonds 405 0.04 1,927 0.04 630 0.05 0 0.00 2,962 0.04
Bankers'
acceptances 491 5.19 0 0.00 0 0.00 0 0.00 491 5.19
FHLB, Federal
Reserve, and
Bankers Bank
of Kansas
stock 0 0.00 0 0.00 0 0.00 1,087 6.28 1,087 6.28
Total $6,542 3.85% $17,181 5.83% $2,819 5.57% $6,697 5.81% $33,239 5.41%
</TABLE>
With the exception of U.S. government and federal agency obligations, there
were no investment securities of any single issuer the
book value of which exceeded 10% of consolidated stockholders' equity at
December 31, 1996.
III. Loan Portfolio
Loan Portfolio Composition. The following table sets forth the composition
of the loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
At December 31
1996 1995 1994
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential one-to-four
family(1) $33,677 53.84% $34,678 55.41% $29,285 56.45%
Multi-family 4,271 6.83 5,225 8.35 5,029 9.69
Commercial real
estate 10,041 16.05 7,879 12.59 6,429 8.66
Total real estate
loans(2) 47,989 76.72 47,782 76.35 40,743 78.53
Consumer loans 4,696 7.51 4,294 6.86 3,650 7.04
Commercial non-
real estate loans 7,410 11.42 7,075 11.31 3,170 6.11
Student loans 3,709 5.93 4,428 7.08 5,037 9.71
Less:
Unearned fees,
discounts and
premiums 151 0.24 159 0.25 148 0.29
Undisbursed loan
funds 14 0.02 12 0.01 8 0.02
Allowance for
loan losses 820 1.32 826 0.90 562 1.08
Total loans $62,549 100.00% $62,582 100.00% $51,882 100.00%
<FN>
<FN1>
(1) Includes loans held for sale totaling $179,190; $699,000; and $0 at
December 31, 1996, 1995 and 1994, respectively.
(2) Includes construction loans totaling $2,706,000; $1,195,000; and
$598,000 at December 31, 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
The following table sets forth the final contractual maturities of loans at
December 31, 1996. The table does not include unscheduled prepayments.
<TABLE>
<CAPTION>
At December 31, 1996
(Dollars in thousands)
Up to After 1 After 3 After 5 10 through Beyond
1 year to 3 years to 5 years to 10 years 20 years 20 years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage
loans $4,748 $1,619 $2,443 $5,829 $21,242 $12,108 $47,989
Other loans 4,710 3,027 4,681 1,814 1,313 0 15,545
Total $9,458 $4,646 $7,124 $7,643 $22,555 $12,108 $63,534
Less:
Unearned discounts
and deferred loan
fees (151)
Undisbursed loan
funds (14)
Allowance for loan losses (820)
Loans, net $62,549
</TABLE>
The following table sets forth at December 31, 1996 the dollar amount
of all
loans due after December 31, 1997 and whether such loans had fixed interest
rates or
adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable Total
(Dollars in thousands)
<S> <C> <C> <C>
Residential 1 - 4 family $7,717 $22,667 $30,384
Multi-family & non-residential 1,849 11,008 12,857
Other 8,910 1,925 10,835
Total $18,476 $35,600 $54,076
</TABLE>
Nonperforming Assets. The following table sets forth information with respect
to
nonperforming assets, including non-accrual loans and real estate acquired
through
foreclosure or by deed in lieu of foreclosure ("real estate owned"). Under the
original
terms of the Bank's non-accrual loans at December 31, 1996, interest earned
on such
loans during year ended December 31, 1996 would not have been significantly
different
than reported. For each year shown, the Company had no loans greater than
90 days past
due which were still accruing interest.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total non-accrual loans $140 $39 $209 $138 $44
Real estate owned ("REO") 27 5 51 54 0
Total nonperforming assets $167 $44 $260 $192 $44
Nonperforming assets to
total adjusted loans 0.27% 0.07% 0.50% 0.38% 0.09%
Nonperforming assets to
total assets 0.16% 0.04% 0.33% 0.24% 0.06%
Allowance for loan losses
to non-accrual loans and
REO 490.88% 1,871.30% 269.60% 307.00% 1,247.70%
</TABLE>
IV. Summary of Loan Loss Experience
Allowance for Losses on Loans and Real Estate. The following table sets
forth an
analysis of the allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
year $826 $562 $587 $546 $369
Provision for loan losses:
Mortgage loans 4 23 0 0 23
Non-mortgage loans 1 17 5 75 154
Total provision for loan
losses 15 40 5 75 177
Allowance for loans of acquired
bank:
Allowance for mortgage loans
of acquired bank 0 103 0 0 0
Allowance for non-mortgage
loans of acquired bank 0 126 0 0 0
Total of allowance for loans
of acquired bank 0 229 0 0 0
Recoveries:
Mortgage loans 0 8 12 0 0
Non-mortgage loans 6 16 4 0 0
Total recoveries 6 24 16 0 0
Charge-offs:
Mortgage loans 1 10 16 34 0
Non-mortgage loans 26 19 30 0 0
Total charge-offs 27 29 46 34 0
Balance at end of year $820 $826 $562 $587 $546
Ratio of allowance for loan
losses to total
outstanding loans (gross) 1.29% 1.30% 1.07% 1.16% 1.06%
Ratio of net charge-offs
(recoveries) during
the year to average loans
outstanding(gross) during the
year 0.03% 0.01% 0.06% 0.06% 0.00%
Ratio of allowance for loan
losses to total non-
performing loans 584.91% 2,107.57% 269.00% 307.00% 1,247.70%
</TABLE>
The following table sets forth the allocation of the allowance for loan losses
at the dates
indicated by category of loans. This allocation reflects management's
judgment
as to
risks inherent in the types of loans indicated, but the general reserves
included
in the table
are not restricted and are available to absorb all loan losses. The amount
allocated in the
following table to any category should not be interpreted as an indication of
expected
actual charge-offs in that category.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
% of Loans % of Loans % of Loans
in Each in Each in Each
Category to Category to Category to
Total Total Total
Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allocated to:
Mortgage loans $375 46% $372 45% $265 47%
Non-mortgage loans 444 54 454 55 297 53
Total $820 100% $826 100% $562 100%
</TABLE>
V. Average Deposits by Classification
The following table sets forth the amounts of deposits by type of
account at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995
Percent of Average Percent of Average
Amount Total Rate Amount Total Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction
Accounts:
Checking/NOW $18,677 21.39% 2.64% $15,372 19.77% 2.74%
Money market
deposits 15,984 18.31 3.71 10,102 12.99 4.61
Savings 5,526 6.33 2.04 5,227 6.72 2.61
Total transaction
accounts 40,187 46.03 3.04 30,701 39.48 3.33
Certificates of
deposit 47,113 53.97 5.60 47,062 60.52 5.45
Total deposits $87,300 100.00% 4.42% $77,763 100.00% 4.61%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
Percent of
Average
Amount Total Rate
(Dollars in thousands)
<S> <C> <C> <C>
Transaction Accounts:
Checking/NOW $9,999 15.57% 2.40%
Money market deposits 10,897 16.96 2.91
Savings 3,956 6.16 2.59
Total transaction
accounts 24,852 38.69 2.66
Certificates of
deposit 39,383 61.31 4.45
Total deposits $64,235 100.00% 3.76%
</TABLE>
As of December 31, 1996, the aggregate amount outstanding of jumbo
certificates of
deposit (amounts of $100,000 or more) was $6.8 million. The following table
presents
the maturities of these time certificates of deposit at such date:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
3 months or less $1,843
Over 3 months through 6 months 607
Over 6 months through 12 months 3,591
Over 12 months 719
Total $6,760
</TABLE>
<TABLE>
<CAPTION>
VI. Return on Equity and Assets
At or for the years ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Return on average assets 0.70% 0.78% 0.82% 0.86% 0.41%
Return on average equity 6.54 7.48 7.39 7.99 7.13
Equity to total assets 10.96 10.68 11.72 10.84 5.89
Dividend payout ratio 27.43 19.08 18.94 13.02 0
Earnings per share before
extraordinary item(1)(2) 1.14 1.24 1.27 1.26 0.57
Earnings per share(1)(2) 1.14 1.24 1.20 1.26 0.57
<FN>
<FN1>
(1) All per share amounts have been adjusted to give effect to the 5%
stock dividends paid by the Company in 1996, 1995 and 1994.
<FN2>
(2) Net earnings per share for years prior to the 1993 conversion are
proforma and assume the common shares have been outstanding for 1992.
</FN>
</TABLE>
ITEM 2. PROPERTIES
The following table sets forth information concerning the offices of the Bank.
Address Year Opened Square Footage Title
800 Poyntz Avenue
Manhattan, KS 66502 1974 12,000 Owned
1741 N. Washington
Auburn, KS 66402 1991 8,000 Owned
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or the Bank is
a party,
other than ordinary routine litigation incidental to the Bank's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company incorporates by reference the information called for by Item 5
on this Form
10-K from the sections captioned "Stock Price Information" of the Company's
1996
Annual Report to Stockholders for the fiscal year ended December 31, 1996
(attached as Exhibit 13.1 hereto).
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information called for by Item 6
of this Form
10-K from the sections entitled "Selected Financial and Other Data" and
"Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the
Company's 1996 Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (attached as Exhibit 13.1 hereto).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incorporates by reference the information called for by Item 7
of this Form 10-K from the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's
1996 Annual Report to Stockholders for the fiscal year ended December 31,
1996 (attached as Exhibit 13.1 hereto).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company incorporates by reference the information called for by Item 8
of this Form 10-K from the Financial Statements set forth in the Company's
1996 Annual Report to Stockholders for the fiscal year ended December 31,
1996 (attached as Exhibit 13.1 hereto).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Company incorporates by reference the information called for by Item 10
of this Form 10-K regarding directors of the Company from the section
entitled "Election of Directors" of the Company's Proxy Statement for the
annual meeting of stockholders to be held May 19, 1997 (the "1997 Proxy
Statement") (attached as Exhibit 99.1 hereto).
Section 16(a) of the Exchange Act requires that the Company's executive
officers, directors and persons who own more than 10% of their Company's
Common Stock file reports of ownership and changes in ownership with the
Securities and Exchange Commission and with the exchange on which the
Company's shares of Common Stock are traded. Such persons are also
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on the Company's review of the copies of such forms, the
Company is not aware that any of its directors and executive officers or 10%
stockholders failed to comply with the filing requirements of Section 16(a)
during the period commencing January 1, 1996 through December 31, 1996.
Executive Officers
The executive officers of the Company, each of whom is also currently an
executive officer of the Bank and both of whom serve at the discretion of the
Board of Directors, are identified below:
Name Age Positions With the Company
Patrick L. Alexander 44 President and Chief Executive Officer
Susan E. Roepke 57 Vice President, Secretary and Treasurer
The business experience for the past five years of each of the executive
officers who is not a director of the Company is as follows:
Susan E. Roepke became Vice President of the Company on August 28, 1992
and Senior Vice President, Secretary and Cashier of the Bank on January 5,
1993. She was elected Secretary of the Association in 1992 and became Vice
President/Operations Division of the Association in 1991, and had been
Treasurer of the Association since 1970. She held these positions with the
Association until the Conversion in 1993.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information called for by Item 11
of this Form 10-K from the section entitled "Executive Compensation" of the
1997 Proxy Statement, except for information contained under the headings
"Compensation Committee Report on Executive Compensation" and
"Performance Graph".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The Company incorporates by reference the information called for by Item 12
of this Form 10-K from the section entitled "Security Ownership of Certain
Beneficial Owners" of the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Company incorporates by reference the information called for by Item 13
of this Form 10-K from the section entitled "Transactions with Directors,
Officers and Associates" of the 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
ITEM 14(a)1 and 2. Financial Statements and Schedules
MNB BANCSHARES, INC. AND SUBSIDIARY LIST OF FINANCIAL
STATEMENTS
The following audited Consolidated Financial Statements of the Company and
its subsidiary and related notes and auditors' report are incorporated by
reference from the Company's 1996 Annual Report to Stockholders for the
fiscal year ended December 31, 1996 (attached as Exhibit 13.1 hereto).
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Earnings - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
All schedules are omitted because they are not required or are not applicable
or the required information is shown in the financial statements incorporated
by reference or notes thereto.
Item 14(a)3. Exhibits
The exhibits required by Item 601 of Regulation S-K are included with this
Form 10-K and are listed on the "Index to Exhibits" immediately following
the signature page.
Item 14(b). Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
***
Upon written request to the President of the Company, P.O. Box 308,
Manhattan, Kansas 66505-0308, copies of the exhibits listed above are
available to stockholders of the Company by specifically identifying each
exhibit desired in the request. A fee of $.20 per page of exhibit will be
charged to stockholders requesting copies to cover copying and mailing
costs.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/ Patrick L. Alexander
Patrick L. Alexander
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE
DATE
TITLE
/s/ Patrick L. Alexander
March 19, 1997
President, Chief Executive Officer
and Director
/s/ Susan E. Roepke
March 19, 1997
Chief Financial Officer, Chief
Accounting Officer, and Director
/s/ Brent A. Bowman
March 19, 1997
Chairman of the Board
/s/ Joseph L. Downey
March 19, 1997
Director
/s/ Rolla W. Goodyear
March 19, 1997
Director
/s/ Charles D. Green
March 19, 1997
Director
/s/ Vernon C. Larson
March 19, 1997
Director
/s/ Dennis A. Mullin
March 19, 1997
Director
/s/ Jerry R. Pettle
March 19, 1997
Director
/s/ Donald J. Wissman
March 19, 1997
Director
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
3.1 Articles of Incorporation of the Company_
N/A
Incorporated by reference from Exhibit 3.1 of
the Form S-1 of the Company, as amended,
filed on September 3, 1992 (Registration No.
33-51710)
3.2 Bylaws of the Company_Incorporated by
N/A
reference from Exhibit 3.2 of the Form S-1
of the Company, as amended, filed on
September 3, 1992 (Registration No. 33-51710)
4.1 Specimen Common Stock Certificate of the
N/A
Company_Incorporated by Reference from
Exhibit 4.1 of the Form S-1 of the Company,
as amended, filed on September 3, 1994
(Registration No. 33-51710)
10.1 MNB Bancshares, Inc. 1992 Stock Option
N/A
Plan_Incorporated by reference from
Exhibit A to the Company's Proxy Statement
for the Annual Meeting of Stockholders held
May 17, 1994
10.2 Stock Option Agreement between the Company
N/A
and Patrick L. Alexander_Incorporated by
reference from Exhibit 10.2 to Form 10-K dated
March 26, 1994
10.3 Stock Option Agreement between the Company
N/A
and Vernon C. Larson_Incorporated by
reference from Exhibit 10.3 to Form 10-K dated
March 26, 1994
10.4 Stock Option Agreement between the Company
N/A
and Brent A. Bowman_Incorporated by
reference from Exhibit 10.4 to Form 10-K dated
March 26, 1994
10.5 Stock Option Agreement between the Company
N/A
and Charles D. Green_Incorporated by
reference from Exhibit 10.6 to Form 10-K dated
March 26, 1994
10.6 Stock Option Agreement between the Company
N/A
and Dennis A. Mullin_Incorporated by
reference from Exhibit 10.4 to Form 10-K dated
March 26, 1994
10.7 Stock Option Agreement between the Company
N/A
and Jerry R. Pettle_Incorporated by
reference from Exhibit 10.9 to Form 10-K dated
March 26, 1994
10.8 Stock Option Agreement between the Company
N/A
and Susan E. Roepke_Incorporated by
reference from Exhibit 10.11 to Form 10-K dated
March 26, 1994
10.9 Stock Option Agreement between the Company
N/A
and Michael R. Toy_Incorporated by
reference from Exhibit 10.13 to Form 10-K dated
March 26, 1994
10.10 Stock Option Agreement between the Company
N/A
and Dennis D. Wohler_Incorporated by
reference from Exhibit 10.14 to Form 10-K dated
March 26, 1994
10.11 Employment Agreement among the Company,
N/A
Security National Bank and Patrick L.
Alexander_Incorporated by reference from
Exhibit 10.15 to Form 10-K dated March 26,
1994
10.12 Security National Bank Deferred Compensation
N/A
Plan, dated December 21, 1994_Incorporated
by reference from Exhibit 10.20 dated March 26,
1994
10.13 Agreement and Plan of Merger between the
N/A
Company and Auburn Security Bancshares, Inc.,
dated November 10, 1994_Incorporated by
reference from Exhibit 2.1 to Form 8-K dated
November 10, 1994
10.14 Employment Agreement among the Company and
N/A
Rolla W. Goodyear _ Incorporated by reference
from Exhibit 10.1 to Form 10-Q dated August 11,
1995
10.15 Stock Option Agreement between the Company
and Michael E. Scheopner_Dated May 13, 1996
13.1 1996 Annual Report to Stockholders of the Company
for the fiscal year ended December 31, 1996
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
99.1 Proxy Statement of the Company for the Annual
Meeting of Stockholders to be held May 19, 1997
EXHIBIT 10.15
STOCK OPTION AGREEMENT
BETWEEN THE COMPANY AND
MICHAEL E. SCHEOPNER DATED
MAY 13, 1996
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
1. A STOCK OPTION to acquire 4,000 shares (hereinafter referred to
as "Shares")
of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as
the
"Company") is hereby granted to Michael E. Scheopner (hereinafter referred
to
as the
"Optionee"), subject in all respects to the terms and conditions of the MNB
BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to
as the
"Plan") and such other terms and conditions as are set forth herein.
2. This Option is not intended to constitute an Incentive Stock Option
under
Section
422(b) of the Internal Revenue Code of 1986.
3. The option price as determined by the Board of Directors of the
Company (the
"Board") is Twenty-One Dollars ($21.00) per Share, the average of bid and
ask
prices as
of May 8, 1996,
4. This Option may be exercised in accordance with the following table:
Date Number of Shares
Exercisable
May 13, 1997 800
May 13, 1998 800
May 13, 1999 1,200
May 13, 2000 1,200
In the event of a Change of Control, this Option shall become immediately and
fully
exercisable. A "Change of Control" shall be deemed to have occurred if:
(i) as a result of, or in connection with, any tender offer or exchange offer,
merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions (the
"Transaction"), the persons who were directors of the Company shall
cease to constitute a majority of the Board or any successor to the
Company, unless the election, or nomination for election by the
stockholders, of any new director was approved by a majority of the
Board, then such new director shall, for purposes of the Plan, be
considered as a member of the Board;
(ii) the Company is merged or consolidated with another corporation and
as a result of the merger or consolidation less than sixty-seven percent
(67%) of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of the Company, other than (a) affiliates within the
meaning of the Securities and Exchange Act of 1934 or (b) any party to
the merger or consolidation;
(iii) a tender offer or exchange offer is made and consummated for the
ownership of securities of the Company representing thirty-three
percent (33%) or more of the combined voting power of the
Company's then outstanding voting securities; or
(iv) the Company transfers substantially all of its assets to another
corporation which is not a wholly-owned subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely
because thirty-three percent (33%) or more of the combined voting power of
the
company's then outstanding voting securities are acquired by (a) a trustee or
other
fiduciary holding securities under one or more employee benefit plans
maintaining for
employees benefit plans maintained for employees of the Company or (b) any
corporation
which, immediately prior to such acquisition, is owned directly or indirectly
by the
stockholders of the Company in the same proportion as their ownership of
stock
immediately prior to such acquisition.
5. This Option may not be exercised if the issuance of Shares upon such
exercise
would constitute a violation of any applicable federal or state securities
law, or any other
valid law or regulation. As a condition to the exercise of this Option, the
Optionee shall
represent to the Company that the shares being acquired under this Option
are for
investment and not with a present view for distribution or resale, unless
counsel for the
Company is then of the opinion that such a representation is not required
under any
applicable law, regulation or rule of any governmental agency.
6. This Option may not be transferred in any manner and may be
exercised
during the
lifetime of the Optionee only by him. The terms of this Option shall be
binding upon the
Optionee's executors, administrators, heirs, assigns and successors.
7. This Option may not be exercised more than 10 years after the
effective
date
indicated below and may be exercised during such term only in accordance
with the terms
and conditions set forth in the plan.
Effective Date: May 8, 1996
MNB BANCSHARES, INC.
BY:/s/ Brent A. Bowman
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has received a copy of the plan
and is familiar
with the terms and conditions set forth therein. The Optionee agrees to
accept as binding,
conclusive, and final all decisions and interpretations of the Committee.
As a condition to
the exercise of this Option, the Optionee authorizes the Company to withhold
from any
regular cash compensation payable by the Company any taxes required to be
withheld
under any federal, state, or local law as a result of exercising this Option.
Dated:
BY:/s/ Michael E. Scheopner
Michael E. Scheopner
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
The only subsidiary of the Company is Security National Bank, a
national
banking association with its main office located in Manhattan, Kansas, and
with a branch office in Auburn, Kansas.
EXHIBIT 13.1
1996 ANNUAL REPORT TO STOCKHOLDERS OF THE
COMPANY FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
Corporate Profile
MNB Bancshares, Inc. (the "Company") was formed on August 27, 1992
to become the holding company for Manhattan Federal Savings and Loan
Association (the "Association") in the conversion of the Association from a
federal mutual savings association to a national bank. The Association
completed its conversion to a national bank on January 5, 1993, and
operated as Manhattan National Bank. As part of that conversion, the
Company became the sole stockholder of Manhattan National Bank.
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 December 31, 1996 and
1995 consolidated balance sheets and statements of earnings since the
acquisition date.
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 "Bank"). The home office for the Bank
is Manhattan, Kansas, with a branch office operating in Auburn, Kansas.
The Bank is dedicated to providing quality services to its local communities
and continues to originate residential mortgage loans, consumer loans,
home equity loans, student loans, commercial real estate and non real
estate loans, and small business loans.
The common stock of the Company is listed on the Nasdaq Stock Market
Small-Cap Market System under the symbol "MNBB". The newspaper
abbreviation is "MNB Bn".
Contents
Letter To Stockholders 2
Selected Financial and Other Data 4
Management's Discussion and Analysis 5
Independent Auditors' Report 17
Consolidated Financial Statements 18
Notes to Consolidated Financial Statements 22
Corporate Information 32
February, 1996
To our Stockholders, Customers, And Friends
1996 was an outstanding year for MNB Bancshares, Inc. and its
shareholders. Net earnings before the one-time FDIC Savings Association
Insurance Fund (the OSAIFO) special assessment exceeded $1 million. We
continued our practice of declaring a five percent stock dividend. Our cash
dividend doubled from an annual rate of 25 cents per share to an
annualized rate of 50 cents per share. Total assets at year end were $103.4
million. All of these facts reflect the continuing and accelerating success
that your company enjoys. Competing as a community bank, we are
dedicated to meeting the needs of our customers, the communities we
serve, and our shareholders. I will briefly address
key issues that impacted your company in 1996 and which will influence us
in 1997 and beyond.
A Congressional mandate in the third quarter of 1996 (the Omnibus
Appropriations bill) to recapitalize the SAIF resulted in a one-time
$449,000 charge against earnings. We are gratified that the significant
disparity in FDIC insurance premiums between SAIF and Bank Insurance
Fund (BIF) deposits is finally resolved. Going forward, the resolution of
this issue will have the effect of reducing the total deposit insurance
expense of MNB Bancshares, Inc. by approximately $100,000 annually.
The significantly higher deposit insurance premium we had to pay in the
past, as compared to institutions with primarily BIF-insured deposits,
placed us at a competitive disadvantage regarding our ability to attract
deposits and produce earnings at a level comparable to those of our peers.
The resolution of this issue closes the final lingering chapter that your
company has dealt with regarding its transition in 1993 from a thrift
institution to a commercial banking organization.
Net earnings for the year, before the one-time FDIC special assessment,
were $1,006,032 or $1.59 per share, compared to $1.24 per share in 1995.
These record operating results were achieved through an increase of net
interest income of approximately $390,000 and an increase in noninterest
income of approximately $157,000. This was accomplished without
comparable increases in noninterest expenses, which increased by only
$166,000, absent the SAIF assessment. These achievements resulted from
the added efficiencies we were able to realize throughout 1996, improved
product pricing, and the continuing transition of our balance sheet to more
closely resemble that of a commercial bank. After the FDIC special
assessment, net earnings were $716,530 in 1996, compared to $753,406 in
1995.
Considerable time and effort was put into the creation of Security National
Bank as we combined our two subsidiaries, Manhattan National Bank and
Security State Bank. These efforts resulted in a larger, more efficient
commercial bank with combined resources, abilities, and efficiencies that
exceed those of the two subsidiary banks taken separately. By combining
the two banks, we are utilizing the resources of one organization to meet
the demands and requirements of multiple communities. Our enhanced
strengths and capabilities mean that we can more easily fulfill our
customers diverse loan requirements, whether commercial, consumer, or
residential. Additionally, we can offer all of our customers direct access to
modern automated banking services day or night through
telephone/personal computer banking, debit cards, and revolving lines of
credit. The combination of the two banks also allowed us to add insurance
services to our product mix. We acquired the Goodyear Insurance Agency
of Auburn, Kansas in January of 1997 and can now offer a full line of
insurance products to our entire customer base. We expect this to evolve
into a very profitable and complementary product line as we implement an
aggressive marketing program for insurance services. In keeping with our
strategic plan, we continue to seek out community banks for acquisition to
expand our asset base, enhance our geographic diversification, and
ultimately provide increased returns to our shareholders. This search has
not been an easy process, as possible sellers expectations remain high.
Although we think it is imperative to continue to expand, we will not do so
to the detriment of our existing shareholder base. We continue to look for
strategic acquisitions that will enhance our market presence and create
value for our shareholders.
Acquisition is not the only vehicle for entry into other markets. In
February 1997, we negotiated an agreement with a regional banking
organization to assume their land lease on a fully equipped branch bank
facility at 21st and Wanamaker in Topeka, Kansas. This lease assumption
allows us to formally enter the Topeka market with minimal capital outlay
and controlled occupancy expense.
The entry into Topeka is a natural expansion of our banking center
activities in nearby Auburn, Kansas. Not only will it complement our
efforts in Auburn and strengthen existing customer relationships, it will
allow us to effectively penetrate the metropolitan Topeka market by
locating in a vibrant business corridor. This branch location is ideally
situated to take advantage of the expanding economy in southwest Topeka.
While we anticipate this facility will have a negative impact on earnings in
1997, it should provide a solid base for earnings and asset growth in 1998
and beyond.
As I stated at the beginning of this letter, 1996 was an outstanding year for
your company, but not just from an earnings perspective. 1996 saw the
unification of our two subsidiary banks into a single entity dedicated to
meeting the multiple and diverse needs of the communities we serve. As
community bankers, we know the importance and value of fostering and
maintaining relationships with our customers. The incursion of large
regional and national banking institutions into our communities creates new
competitive challenges. We must differentiate ourselves as a community
bank dedicated to meeting the needs of our customers in a personal, timely
manner. This competition requires us to be quick, flexible, innovative, and
responsive. It is a challenge we accept with enthusiasm and confidence in
our abilities.
Please take a moment to review this annual report. It details the progress
we have made as a company dedicated to meeting the needs of our
customers and our shareholders. The financial services industry is
changing rapidly. We are confident that your organization is properly
prepared to meet these changes and prosper as we go forward. I thank my
associates for their continued hard work and dedication to the successful
implementation of our goals. I especially thank our customers for placing
their trust in us to meet their banking and financial services needs. And
finally, I thank our shareholders for their continued enthusiastic support
and confidence in the future of MNB Bancshares, Inc. I am excited about
our prospects and opportunities in 1997 and beyond.
Sincerely,
/s/Patrick L. Alexander
President and Chief Executive Officer
<TABLE>
<CAPTION>
Selected Financial And Other Data Of
MNB Bancshares, Inc.
At or for the years ended December 31,
1996 1995 1994 1993 1992(1)
(Dollars in thousands, except per share
amounts and percentages)
Selected Financial Data:
<S> <C> <C> <C> <C> <C>
Total assets $103,420 $101,185 $77,797 $80,265 $77,205
Loans, net (2) 62,549 62,582 51,882 50,141 50,744
Mortgage backed securities 11,734 8,717 5,569 5,098 2,582
Deposits 86,710 86,399 61,440 61,351 64,479
Borrowings 3,615 2,881 6,694 9,130 7,000
Stockholders' equity 11,334 10,810 9,114 8,702 4,546
Book value per share (3) 18.73 17.86 16.93 16.24 000
Selected Operating Data:
Total interest income $7,670 $7,051 $5,411 $5,513 $6,136
Total interest expense 4,049 3,820 2,788 3,060 3,972
Net interest income 3,621 3,231 2,623 2,453 2,164
Provision for loan losses 15 40 5 75 177
Net interest income after
provision for loan losses 3,606 3,191 2,618 2,378 1,987
Gains on sales of loans 75 95 79 389 392
Other noninterest income 608 432 264 198 108
Total noninterest income 683 527 343 587 500
Total noninterest expense 3,233 2,618 1,869 1,884 1,547
Income tax expense 339 347 398 413 635
Net earnings before
extraordinary item 717 753 694 668 305
Extraordinary item 000 000 39 000 000
Net earnings $717 $753 $655 $668 $305
Net earnings per share
before extraordinary
item(3)(4)(7) 1.14 1.24 1.27 1.26 .57
Net earnings per
share(3)(4)(7) 1.14 1.24 1.20 1.26 .57
Dividends per share (3) 0.32 0.24 0.23 0.16 000
Other Data:
Return on average assets 0.70% 0.78% 0.82% 0.86% 0.41%
Return on average equity 6.54 7.48 7.39 7.99 7.13
Equity to total assets 10.96 10.68 11.72 10.84 5.89
Net interest rate
spread (5) 3.28 3.02 2.96 2.86 2.63
Net yield on average
interest-earning
assets (6) 3.67 3.55 3.38 3.23 2.94
Average interest-earning
assets to
average interest-bearing
liabilities 109.56 112.58 111.67 109.30 105.55
Other expenses to average
assets 3.15 2.71 2.34 2.42 2.09
Nonperforming loans to
total loans 0.22 0.06 0.40 0.28 0.09
Net charge-offs to average
loans 0.03 0.01 0.06 0.07 0.00
Nonperforming assets to
total assets 0.16 0.04 0.33 0.24 0.06
Dividend payout ratio 27.43 19.08 18.94 13.02 000
Number of full service
banking offices 2 2 1 1 1
<FN>
<FN1>
(1) Information for periods prior to 1993 relates to Manhattan Federal
Savings and Loan Association.
<FN2>
(2) Loans are presented after adjustments for undisbursed loan funds,
unearned fees and discounts, and the allowance for losses.
<FN3>
(3) All per share amounts have been adjusted to give effect to the 5%
stock dividends paid by the Company in 1996, 1995, and 1994.
<FN4>
(4) Net earnings per share for years prior to the 1993 conversion are
pro forma and assume the common shares have been outstanding for 1992.
<FN5>
(5) Represents the difference between the average yield on interest-
earning assets and the average cost of interest-bearing liabilities.
<FN6>
(6) Represents net interest income as a percentage of average interest-
earning assets.
<FN7>
(7) Net earnings per share, before the 1996 FDIC Special Assessment
(net of tax) was $1.59 per share
</FN>
</TABLE>
Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Overview
MNB Bancshares, Inc. (the "Company") is a one-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"). On December 31, 1995, the Company merged and
consolidated Manhattan National Bank and Security State Bank to form
Security National Bank.
While core earnings increased, due to the one-time special SAIF
assessment of $449,000, earnings remained flat in comparison to 1995.
The Company realized net earnings in 1996 of $716,530 compared to
$753,406 in 1995. The return on average assets amounted to .70%
compared to .78% in 1995. Return on average equity was 6.54% and net
earnings per share was $1.14. Based on this financial performance, the
Board of Directors declared dividends totaling 32 cents per share in 1996,
and a 5% stock dividend in August of 1996.
The tradition of quality assets continues and management's ongoing
strategy to diversify the deposit and loan portfolios in order to increase
profitability in the future has been successful. Focusing on customers' needs
and the development of full service banking relationships has been
instrumental to the Company's success. Management believes that the
strong capital position of the Company puts it on solid ground and
provides an excellent base for further growth and expansion.
The Bank is principally engaged in the
business of attracting deposits from the general public and using such
deposits, together with borrowings and other
funds, to originate one-to-four family residential mortgage loans, multi-
family residential mortgage loans and consumer and commercial loans.
Deposits of the Bank are insured by both the SAIF and the Bank Insurance
Fund (the "BIF") of the Federal Deposit Insurance Corporation (the
"FDIC") up to the maximum amount allowed by applicable federal law and
regulation. The Bank's primary regulator is the Office of the Comptroller of
the Currency (the "OCC"). Additionally, the Bank is subject to regulation
by the FDIC, as administrator of the SAIF and the BIF and by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
with respect to reserves required to be maintained against deposits and
certain other matters. The Bank is a member of the Federal Home Loan
Bank of Topeka (the "FHLB") and the Federal Reserve Bank of Kansas
City.
As a bank holding company, the Company is subject to regulation and
supervision by the Federal Reserve Board. The Company is also subject to
various reporting and other requirements under the federal securities laws
and the regulations of the Securities and Exchange Commission (the
"SEC").
Currently, the Company's business consists solely of the ownership of the
Bank, with its main office in Manhattan, Kansas and a branch office in
Auburn, Kansas a community ten miles southwest of Topeka, Kansas. The
acquisition of Auburn Security Bancshares, Inc. and its wholly-owned
subsidiary, Security State Bank located in Auburn, Kansas ("Auburn") was
completed on April 1, 1995. The acquisition, which was accounted for
using the purchase method of accounting, is reflected in the December 31,
1995 and 1996 consolidated balance sheet and consolidated statements of
earnings since the acquisition date. In February, 1997, the Bank agreed to
lease a facility at 6100 SW 21st Street in Topeka, Kansas. The Bank
expects to commence operations of this branch facility in May, 1997. The
Company's plan is to continue to enter complementary markets in an effort
to enhance its asset base, long term earnings and resources.
Comparison Of Operating Results For The Years Ended December 31,
1996 And 1995
General. Net earnings for 1996 decreased 4.9% to $716,530 from
$753,406 in 1995. Contributing to this decrease was an expense of
$449,000 for the Company's one-time special assessment to fund the
FDIC's recapitalization of the SAIF as mandated by the Omnibus
Appropriations bill which was signed into law on September 30, 1996.
With the recapitalization of the fund, expense for insurance of accounts will
be reduced by approximately $100,000 per year for the current deposit
account base assuming there are no increases in the insurance assessment
rates. Absent this expense, earnings, net of tax would have been
$1,006,032, an increase of $252,626, or 33.5%, over 1995. Net interest
income after provision for loan losses increased $414,640 or 13.0% to
$3,605,759. Gains on sale of loans decreased 20.9%, or $19,975, to
$75,450, while fees and service charges increased $125,810, or 32.2%, to
$517,124. Non-interest expense increased $615,366, or 23.5%, to
$3,233,192. A major factor in the increase of both net interest income and
fees and service charges was that operating results of Auburn are not
reflected in the Company's results for the first quarter of 1995. The
acquisition of Auburn also contributed to the increase in non interest
expense, along with one-time expenses of approximately $60,000
associated with the consolidation of the subsidiary as well as the FDIC
special assessment.
Interest Income. Interest income increased $619,146, or 8.8% to $7.7
million. Average interest-earning assets increased from $91.1 million in
1995 to $98.7 million in 1996. The average yield on interest-earning assets
increased slightly from 7.7% to 7.8% in 1996. Interest income on loans
increased $.4 million, or 7.9%, to $5.7 million. The increase in interest
income on loans was higher due to both an increase in average loans
outstanding and loans which repriced at higher rates. Interest earned on
securities increased as securities matured and the proceeds were reinvested
in higher yielding securities. Loans on one-to-four family residences held in
the portfolio decreased 1.4% to $33.5 million from $34.0 million while
commercial real estate increased 9.2% to $14.3 million. Additionally,
consumer, student and non-mortgage commercial loans outstanding at
December 31, 1996 decreased 1.6% to $15.5 million from $15.8 million.
Interest income on investment and mortgage-backed securities increased
11.5% to $2.0 million from $1.8 million
in 1995.
Interest Expense. Interest expense increased $229,256, or 6.0%, compared
to 1995. This increase was due in large part to a full year of expense at the
Auburn facility and increased balances of interest-bearing liabilities.
Deposit interest expense increased from $3.6 million in 1995 to $3.9
million in 1996, or 7.6%, due to an increase in average interest-bearing
deposits of $9.5 million. Interest on borrowings, consisting of advances
from the FHLB, declined 18.1% to $189,312, as these average balances
outstanding declined $376,000.
Net Interest Income. Net interest income represents the difference between
income derived from interest-earning assets and the expense on interest-
bearing liabilities. Net interest income is affected by both (i) the difference
between the rates of interest earned on interest-earning assets and the rates
paid on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing liabilities.
Net interest income increased 12.1% to $3.6 million in 1996 compared to
$3.2 million in 1995. This was the result of the yield on interest-earning
assets remaining steady at approximately 7.7% while the cost of interest-
bearing liabilities decreased from 4.7% to 4.5%. The Company has a ratio
of interest-earning assets to interest-bearing liabilities of 109.6% which
resulted in the net interest margin increasing from 3.6% in 1995 to 3.7% in
1996.
Provision For Loan Losses. The provision for loan losses decreased from
$39,750 in 1995 to $15,000 in 1996. At December 31, 1996, the allowance
for loan losses was $819,660, which was 1.3% of gross loans outstanding.
At December 31, 1995, this ratio was also 1.3%. No provision for loan
losses was made during the first nine months of 1996. After the quarterly
review of the portfolio and completing an economic analysis, a provision of
$5,000 per month was resumed during the fourth quarter of 1996. This
was due to the Bank's plans to expand its commercial lending activities.
At the same time, new guidelines for credit risk evaluation and
documentation were created and implemented in response to the Bank's
plans to increase its commercial loan portfolio. These factors will continue
to be assessed and further changes in the provision will be made if
circumstances warrant such changes. Net charge-offs in 1996 were
$21,704, compared to $4,835 in 1995.
Noninterest Income. Noninterest income increased 29.7% to $683,297 in
1996 from $526,660 in 1995. The increase resulted from an increase of
32.2% in fees and service charges for deposit accounts and fees on loans to
$517,124 from $391,314 in 1995 as a result of the acquisition of Auburn
and a restructuring of fees and service charges on deposit accounts. The
increase of 127.3% to $90,723 for other income includes the receipt of
$69,808 in interest on an income tax refund related to the tax years of
1978 and 1979. This increase was partially offset by a decrease in the gains
on sale of loans of $19,975 from $95,425 to $75,450, or 20.9%, and a loss
of 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 available-for-sale securities were sold and the
proceeds reinvested in intermediate securities. The analysis done on these
transactions indicated that they would be income-neutral for 1996.
Noninterest Expense. Noninterest expense increased $615,366, or 23.5%,
to $3.2 million. Of this amount, $449,000 was attributable to the SAIF
assessment. The inclusion of Auburn's operating results for the full year
and several one-time expenses totaling approximately $60,000 due to
consolidation of the subsidiary also contributed to this increase. The
amortization of goodwill and core deposit intangibles related to the
acquisition of Auburn increased $30,052, or 36.6%. Stationery, printing
and office supplies increased $25,886, or 43.5%, as a result of the change
of name and the consolidation of the bank subsidiaries. Occupancy and
equipment expense increased 20.7% to $376,823, as the Auburn
acquisition was reflected for the entire year 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 expenses
increased $27,806, or 4.8%, also reflecting the acquisition. Partially
offsetting these increases were decreases in advertising from $75,078 in
1995 to $61,151 in 1996 or by 18.6%. Absent the special assessment of
$449,000, FDIC premiums decreased $39,395 as a refund of the premium
for the fourth quarter was received as a result of the recapitalization of the
SAIF fund
Average Assets/Liabilities. The following table sets forth information
relating to average balances of interest-earning assets and interest-bearing
liabilities for the years ended December 31, 1996, 1995 and 1994. This
table reflects the average yields on assets and average costs of liabilities
for
the periods indicated (derived by dividing income or expense by the
monthly average balance of assets or liabilities, respectively) as well as the
"net interest margin" (which reflects the effect of the net earnings balance)
for the periods shown.
<TABLE>
<CAPTION>
Average Balance Sheets-Average Yields And Rates
Year Ended December 31, 1996 Year Ended December 31, 1995
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning
assets:
Investment
securities(1) $26,149 $1,385 5.30% $24,914 $1,331 5.34%
Mortgage-backed
and
mortgage-
derivative
securities 8,609 581 6.75 6,541 432 6.60
Loans receivable,
net(2) 63,894 5,704 8.93 59,603 5,288 8.87
Total interest-
earning assets 98,652 7,670 7.77 91,058 7,051 7.74
Noninterest-
earning assets 4,065 5,415
Total $102,717 $96,473
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Certificates of
deposit $47,113 $2,638 5.60% $47,062 $2,566 5.45%
Money market deposits 15,984 594 3.71 10,102 466 4.61
Other deposits 24,203 628 2.59 20,599 557 2.70
FHLB advances and
other borrowings(3) 2,746 189 6.88 3,122 231 7.40
Total interest-bearing
liabilities 90,046 4,049 4.49 80,885 3,820 4.72
Noninterest-bearing
liabilities 1,715 5,519
Stockholders' equity 10,956 10,069
Total $102,717 $96,473
Net interest income $3,621 $3,231
Interest rate
spread (4) 3.28% 3.02%
Net interest margin (5) 3.67% 3.55%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 109.56% 112.58%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Average Average
Balance Interest Yield/Rate
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Investment securities (1) $20,884 $948 4.54%
Mortgage-backed and
mortgage-derivative
securities 5,295 282 5.33
Loans receivable, net (2) 51,375 4,181 8.14
Total interest-earning assets 77,554 5,411 6.98
Noninterest-earning assets 2,224
Total $79,778
Liabilities and Stockholders'
Equity:
Interest-bearing
liabilities:
Certificates of deposit $39,382 $1,753 4.45%
Money market deposits 10,897 318 2.92
Other deposits 13,955 343 2.46
FHLB advances and
other borrowings (3) 5,215 374 7.17
Total interest-bearing
liabilities 69,449 2,788 4.01
Noninterest-bearing
liabilities 1,470
Stockholders' equity 8,859
Total $79,778
Net interest income $2,623
Interest rate spread (4) 2.96%
Net interest margin (5) 3.38%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 111.67%
<FN>
<FN1>
(1) Income on investment securities includes all securities, interest
bearing deposits in other financial institutions and stock owned in
the FHLB and the Federal Reserve.
<FN2>
(2) Includes non-accrual loans.
<FN3>
(3) During the third quarter of 1994, the Company prepaid $1.5 million
of its FHLB advances and incurred prepayment penalties of $61,000.
<FN4>
(4) Interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of
interest-bearing liabilities.
<FN5>
(5) Net interest margin represents net interest income divided by
average interest-earning assets.
Comparison Of Operating Results For The Years Ended December 31,
1995 And 1994
</FN>
</TABLE>
General. Net earnings for 1995 increased 15.0% to $753,406 from
$654,951 in 1994. Included in this increase were net earnings from Auburn
of $98,253. Although 1995 results reflected a continued improvement in
net interest income of $607,549, or 23.2%, the increase in noninterest
expense of $748,148, or 40.0%, and increased provision for loan losses of
$34,750 offset this increase. Noninterest income increased $183,781, or
53.6%, which included an increase in gains on sale of loans of 20.6% to
$95,425 compared to $79,136 in 1994 and an increase of 54.6% in fee and
service charge income to $391,314 for 1995.
Interest Income. Interest income increased $1,639,455, or 30.3% to $7.1
million. Average interest-earning assets increased from $77.6 million in
1994 to $91.1 million in 1995. The average yield on interest-earning assets
increased from 7.0% to 7.7% in 1995. Interest income on loans increased
$1.1 million, or 26.5% to $5.3 million. While the acquisition of Auburn
contributed a total of $774,049 to the interest income increase on loans,
the interest on loans was also higher as loans repriced at higher rates.
Interest earned on securities increased as securities matured and the
proceeds were reinvested in higher yielding securities along with the
acquisition which contributed $348,245. Loans on one-to-four family
residences held in the portfolio increased 16.0% to $34.0 million while
commercial real estate increased 14.4% to $13.1 million. Additionally,
consumer, student and non-mortgage commercial loans outstanding at
December 31, 1995 increased $3.9 million. Interest income on investment
and mortgage backed securities increased 38.3% to $1.6 million from $1.2
million in 1994.
Interest Expense. Interest expense increased $1.0 million, or 37.0%,
compared to 1994. This increase was due in large part (by approximately
$550,000) to the acquisition of Auburn, and increased interest rates paid on
deposits. Deposit interest expense increased from $2.4 million in 1994 to
$3.6 million in 1995, or 48.7%, while interest on borrowings, consisting of
advances from the FHLB declined 38.3% to $231,154, as those liabilities
were paid as they matured.
Net Interest Income. Net interest income represents the difference between
income derived from interest earning assets and the expense on interest-
bearing liabilities. Net interest income is affected by both (i) the difference
between the rates of interest earned on interest-earning assets and the rates
paid on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing liabilities.
Net interest income increased $607,549, or 23.2%, to $3.2 million in 1995
compared to $2.6 million in 1994. This was the result of the yield on
interest-earning assets increasing from 7.0% to 7.7% while the cost on
interest-bearing liabilities increased from 4.0% to 4.7%. The Company had
a ratio of interest-earning assets to interest-bearing liabilities of 112.6%,
therefore, the net interest margin increased from 3.4% to 3.6% in 1995.
Provision For Loan Losses. The provision for loan losses increased
$34,750 from $5,000 in 1994 to $39,750 in 1995. At December 31, 1995,
the allowance for loan losses was $826,364, which was 1.3% of gross
loans outstanding. At December 31, 1994, this ratio was 1.1%. Provisions
for 1995 increased due in part to the Auburn acquisition and in part to the
uncertainty surrounding the possible downsizing of Ft. Riley, a military
base in the Manhattan market. In May, 1995, the Base Realignment and
Closure Commission and Congress determined that a downsizing of
approximately one-third of total troop strength would occur at Ft. Riley. It
was not felt that this would have a materially adverse impact on the
Company's loan portfolio. Management determined, after an assessment of
these and other factors, including the quality of the portfolio, to reduce the
provision during the third and fourth quarters of 1995. These factors will
continue to be assessed and further changes in the provision will be made if
circumstances warrant. Net charge-offs in 1995 declined to $4,835,
compared to $30,164
in 1994.
Noninterest Income. Noninterest income increased 53.6% to $526,660
from $342,879 in 1994. The increase resulted from an increase in gains on
the sale of loans from $79,136 in 1994 to $95,425 in 1995 and a significant
increase of 54.6% in fees and service charges for deposit accounts and fees
on loans to $391,314 from $253,049 in 1994. Of the increases in fees,
$66,811 was attributed to the Auburn acquisition. The increase of $29,227
from 1994 for other income included a gain on the sale of some securities
which were held in available-for-sale of $5,470 along with an increase of
$6,523 in certificate of deposit early withdrawal penalty income.
Additionally, the acquisition of Auburn contributed $9,630 to this increase
in other income.
Noninterest Expense. Noninterest expense increased $748,148, or 40.0%,
to $2.6 million. Of this amount, $537,486 was attributable to the Auburn
acquisition, of which $82,045 was the amortization of goodwill and core
deposit intangibles due to the purchase accounting method utilized in the
acquisition. Compensation and benefits increased $356,542, or 44.1%,
including incentive plan accruals of $55,500 in 1995 compared to $16,900
in 1994. Other expenses increased $139,872 or 32.3%, due to a number of
factors as well as due to the acquisition, which contributed $102,380 to
this amount. Professional fees increased from $97,575 to $139,848. This
increase included $44,926 for a consulting study conducted in an effort to
review, standardize and consolidate operating activities performed by the
Company's subsidiaries. Because of the steps taken as a result of the study,
the Company believes it will enhance earnings and reduce expenses during
the coming years. Data processing increased $14,580 compared to 1994
and Federal Deposit Insurance premiums increased 10.2% to $161,028.
Occupancy and equipment expenses increased $80,299, or 34.6%, due to
the acquisition and increased depreciation expense for new data processing
equipment.
Capital Resources And Liquidity
Assets. The Company's total assets increased to $103.4 million at
December 31, 1996 compared to $101.2 million at December 31, 1995.
The primary ongoing sources of funds of the Company are deposits,
proceeds from principal and interest payments on loans and mortgage-
backed securities and proceeds from the sale of mortgage loans and
mortgage-backed 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 years ended
December 31, 1996, 1995 and 1994, the Company originated mortgage
loans in the amounts of $29 million, $20 million, and $15 million,
respectively. Mortgage loans originated for retention in the Company's
portfolio, which includes commercial real estate loans, amounted to $19.9
million, $9.5 million and $9.0 million for the years ended December 31,
1996, 1995 and 1994, respectively. The balance of the loans originated
were sold in the secondary market. Generally, the Company originates
fixed rate mortgage loans for immediate sale and does not originate and
warehouse those loans for resale in order to speculate on interest rates.
During the years ended December 31, 1996, 1995 and 1994, the Company
originated a total of consumer, commercial non-mortgage, and guaranteed
student loans of approximately $11.1 million, $9.4 million, and $12.3
million, respectively. Management will continue its efforts to diversify the
loan portfolio.
During the years ended December 31, 1996, 1995 and 1994, the Company
purchased securities to be held-to-maturity and available-for-sale in the
amounts of $15.6 million, $16.1 million, and $8.4 million, respectively.
This was funded primarily by deposits, maturities of existing securities and
by the sale of fixed-rate mortgage loans totaling $10.3 million, $10.6
million, and $6.5 million, in 1996, 1995 and 1994, respectively.
The quality of the loan portfolio continues to be strong as evidenced by the
small number and amount of loans past due 30 days or more. As of
December 31, 1996, three real estate loans were more than 30 days past
due with a total balance of $95,586, which is 0.2% of total loans
outstanding. Additionally, four residential loans totaling $53,916 were on
non-accrual status as of December 31, 1996. Excluding guaranteed student
loans, there were six consumer loans over 30 days past due in the amount
of $10,431, which was less than 0.1% of total loans outstanding. Three
commercial loans with a balance of $173,197, or 0.3% of the portfolio,
were over 30 days past due. One SBA loan with a balance of $86,217 was
on non-accrual. During 1996, approximately $19,000 was charged off on
this loan and the remaining amount of $86,217 is the guaranteed portion
and will be recovered.
Liabilities. Interest-bearing liabilities at December 31, 1996 totaled $85.1
million. This is a slight increase from $84.6 million at December 31, 1995.
The deposit base continues to diversify consistent with management's
overall efforts to lower interest costs. Noninterest-bearing demand deposits
increased $.6 million from December 31, 1995 to $5.3 million, or 6.1% of
total deposits at December 31, 1996. NOW account deposits increased
$2.0 million to $15.2 million at the end of 1996 from $13.2 million at
December 31, 1995 and represented 17.5% of the deposit base at
December 31, 1996, compared to 15.2% at December 31, 1995. Savings
accounts represented 6.0%, compared to 6.8% at the end of 1995, and
certificates of deposit represented 54.6% of the deposit base at December
31, 1996, compared to 56.4% of the deposit base at the end
of 1995.
Certificates of deposit at December 31, 1996 which were scheduled to
mature in one year or less totaled $34.7 million. Historically, maturing
deposits have remained and management believes that a significant portion
of the deposits maturing in one year or less will remain with the Company
upon maturity.
Cash Flows. Cash flow from operating activities was $2.4 million for the
year ended December 31, 1996, compared to $0.5 million for 1995.
Net cash used in investing activities was $1.6 million in 1996 compared to
$1.2 million in 1995. Net loans decreased approximately $0.5 million in
1996 versus an increase of $0.9 million in 1995 and a decline of $2.3
million in 1994. Maturities and prepayments of investment securities held-
to-maturity were $6.9 million in 1996 versus $7.5 million in 1995 and $8.8
million in 1994. Purchases of securities held-to-maturity declined to $0.9
million in 1996 compared to $6.3 million in 1995. Purchases of securities
available-for-sale in 1996 were $14.7 million compared to $9.8 million in
1995.
Net cash provided by financing activities was $0.9 million in 1996
compared to $2.0 million provided in 1995. Deposits increased $.3 million
in 1996 compared to $5.9 million in 1995. FHLB advances increased $.8
million in 1996 compared to a decrease of $3.8 million
in 1995.
Liquidity. The Company's most liquid assets are cash and cash equivalents
and investment securities available-for-sale. The levels of these assets are
dependent on the Company's operating, financing, lending and investing
activities during any given period. At December 31, 1996, and 1995 these
assets totaled $27.7 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 strategy. Excess funds are generally invested in short-term
investments. In the event that 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 December 31, 1996, the Company had outstanding FHLB
advances of $3.3 million, and no borrowings were outstanding on its $12.0
million line of credit with the FHLB. Additionally, the Company has
guaranteed a loan made to the Company's Employee Stock Ownership
Plan (the "ESOP") with a balance at December 31, 1996 of $315,020. The
loan was made to fund the ESOP's purchase of shares in the Company's
common stock offering in 1993. The total other borrowings by the
Company were $3.6 million at December 31, 1996, compared to $2.9
million at December 31, 1995.
At December 31, 1996, the Company had outstanding loan commitments
of $6.9 million. Management anticipates that sufficient funds will be
available to meet current loan commitments. These commitments consist of
letters of credit, unfunded lines of credit and commitments to finance real
estate loans. The following table shows the commitments outstanding for
each category.
<TABLE>
<CAPTION>
LOAN COMMITMENTS
Amount
<S> <C>
Letters of credit $386,350
Unfunded lines of credit 4,149,374
Real Estate Loans:
Construction 1,964,720
Purchases 365,879
Total $6,866,323
</TABLE>
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 (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 $11.3 million is, however, well in excess of the
Federal Reserve Board's consolidated minimum capital requirements.
At December 31, 1996, the Bank continued to maintain a sound Tier 1
capital ratio of 8.70% and a risk based capital ratio of 18.22%. As shown
by the following table, the Bank's capital exceeded the minimum capital
requirements: (dollars in thousands)
<TABLE>
<CAPTION>
Amount Percent
Required
<S> <C> <C> <C>
Tier 1 Leverage Capital $8,956 8.70% 4.00%
Risk Based Capital $9,616 18.22% 8.00%
</TABLE>
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 Improvement Act of 1991 establishes a bank rating system
based on the capital levels of banks. The Bank is rated "well capitalized",
which is the highest rating available under this capital-based rating system.
Dividends
During 1996, dividends of $.32 per share were paid to the stockholders and
a 5% stock dividend was paid August 12, 1996 to all stockholders of
record on July 29, 1996. The cash dividend is an increase from 1995 of
$.08 per share.
The National Bank Act imposes limitations on the amount of dividends that
a national bank may pay without prior regulatory approval. Generally, the
amount is limited to the bank's current year's net earnings plus the adjusted
retained earnings for the two preceding years.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital
pursuant to applicable capital adequacy guidelines and regulations. As
described above, the Bank exceeded its minimum capital requirements
under applicable guidelines as of December 31, 1996. As of December 31,
1996, approximately $.8 million was available to be paid as dividends to the
Company by the Bank.
Impact Of Recently Issued Accounting Standards
In 1996, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 122 related to mortgage loan origination costs in
1996 and the related impact on the financial statements was immaterial.
The Company also adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" in 1996. The Company has chosen not to apply the
accounting provisions of SFAS No. 123 in its financial statements, but
rather to disclose proforma amounts if materially different from reported
results.
The Company will adopt SFAS Nos. 125 and 127 relating to transfers and
servicing of financial assets and extinguishments of liabilities during 1997
and 1998, according to the effective dates required by SFAS No. 125 and
127. The adoption of the statements is not expected to have a material
effect on the financial statements.
Effects Of Inflation
The Company's financial statements and accompanying footnotes have been
prepared in accordance with GAAP (generally accepted accounting
principles), which generally requires the measurement of financial position
and operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to
inflation. The impact of inflation can be found in the increased cost of the
Company's operations because the assets and liabilities of the Company are
primarily monetary and interest rates have a greater impact on the
Company's performance than do the effects of inflation.
Asset/Liability Management
Since the mid 1980s, the Bank has emphasized the origination of adjustable
rate mortgages for portfolio retention to reduce the sensitivity of its
earnings to interest rate fluctuations. Interest rate "gap" analysis is a
common, though imperfect, measure of interest rate risk which measures
the relative dollar amounts of interest-earning assets and interest-bearing
liabilities which reprice within a specific time period, either through
maturity or rate adjustment. The "gap" is the difference between the
amounts of such assets and liabilities that are subject to such repricing. A
"positive" gap for a given period means that the amount of interest-earning
assets maturing or otherwise repricing within that period exceeds the
amount of interest-bearing liabilities maturing or otherwise repricing during
that same period. In a rising interest rate environment, an institution with a
positive gap would generally be expected, absent the effects of other
factors, to experience a greater increase in the yield of its assets relative
to
the cost of its liabilities. Conversely, the cost of funds for an institution
with a positive gap would generally be expected to decline less quickly than
the yield on its assets in a falling interest rate environment. Changes in
interest rates generally have the opposite effect on an institution with a
"negative" gap.
Following is the "static gap" schedule for the Company. All loans are based
on scheduled repricing, with no prepayment assumptions. Mortgage-
backed securities are based on assumed maturities. All assets are reflected
at amortized cost.
Certificates of deposit reflect contractual maturities only. Money market
accounts are rate sensitive and have been included as repricing immediately
in the first period. Savings and NOW accounts are not as rate sensitive as
money market accounts and for that reason are not included in the
calculation.
The Company has been successful in meeting the interest sensitivity
objectives set forth in its policy. This has been accomplished primarily by
managing the assets and liabilities while maintaining the traditional high
credit standards of the Company.
Management believes the Company is appropriately positioned for future
interest rate movements, although it may experience some fluctuations in
net interest income due to short term timing differences between the
repricing of assets and liabilities.
<TABLE>
<CAPTION>
Interest-Earning Assets And Interest-Bearing Liabilities Repricing Schedule
("GAP" Table)
At December 31, 1996
(dollars in thousands)
More than More than
3 months 3 to 6 6 to 12 1 to 3 3 to 5 Over
or less months months years years 5 years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Overnight investments $3,956 $0 $0 $0 $0 $0 $3,956
Investment securities 3,185 1,972 2,453 9,442 3,822 631 21,505
Mortgage-backed
securities 993 67 3,328 6,644 702 0 11,734
Loans 15,934 8,748 15,849 12,119 4,530 5,991 63,171
Total interest-earning
assets $24,068 $10,787 $21,630 $28,205 $9,054 $6,622 $100,366
Interest-bearing
liabilities
Certificates of deposit $9,015 $7,714 $17,947 $10,673 $2,002 $0 $47,351
Money market deposit
accounts 13,785 0 0 0 0 0 13,785
Borrowed money 500 300 2,044 597 112 62 3,615
Total interest-bearing
liabilities $23,300 $8,014 $19,991 $11,270 $2,114 $62 $64,751
Interest sensitivity gap
per period $768 $2,773 $1,639 $16,935 $6,940 $6,560 $35,615
Cumulative interest
sensitivity gap $768 $3,541 $5,180 $22,115 $29,055 $35,615 0
Cumulative gap as a
percent of total
interest earning assets 0.77% 3.53% 5.16% 22.03% 28.95% 35.49%
Cumulative interest
sensitive assets
as a percent of
cumulative interest
sensitive liabilities 103.30% 111.31% 110.10% 135.34% 144.91% 155.00%
</TABLE>
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995
This annual report, including the President's Letter to Stockholders,
contains certain forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act
of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors which could
have a material adverse affect on the operations and future prospects of the
Company and the subsidiary include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of
the U.S. Treasury and the Federal Reserve Board, the quality or
composition of the loan or investment portfolios, demand for loan
products, deposit flows, competition, demand for financial services in the
Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-
looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the company's
financial results, is included in the Company's filings with the Securities
and Exchange Commission.
Independent Auditors' Report
The Board of Directors
MNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of MNB
Bancshares, Inc. and subsidiary (the Company) as of December 31, 1996
and 1995 and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December
31, 1996 and 1995 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Kansas City, Missouri
January 31, 1997
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets December 31, 1996 and1995
Assets 1996 1995
<S> <C> <C>
Cash and cash equivalents:
Cash $2,670,159 $2,136,418
Interest-bearing deposits
in other financial
institutions 1,900,000 787,599
Total cash and cash
equivalents 4,570,159 2,924,017
Investment securities:
Held-to-maturity 10,113,010 16,403,035
Available-for-sale 23,125,844 15,925,916
Loans, net 62,369,858 61,883,135
Loans held-for-sale 179,190 699,129
Premises and equipment,
net of accumulated
depreciation 1,325,798 1,384,052
Accrued interest and other
assets 1,736,565 1,965,652
Total assets $103,420,424 $101,184,936
Liabilities and
Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $5,260,221 $4,651,830
Money market and NOW 28,936,080 27,121,850
Savings 5,162,275 5,908,323
Time, $100,000 and greater 6,760,011 7,317,517
Time, other 40,591,363 41,399,923
Total deposits 86,709,950 86,399,443
Federal funds purchased 0 325,000
Other borrowings 3,615,020 2,555,915
Accrued interest and
expenses, taxes and other
liabilities 1,761,289 1,094,329
Total liabilities 92,086,259 90,374,687
Stockholders' equity:
Common stock, $.01 par,
1,500,000 shares authorized;
605,215 and 576,514 shares
issued and outstanding at
1996 and 1995 6,052 5,765
Additional paid-in capital 6,321,016 5,726,704
Retained earnings 5,340,873 5,410,733
Unearned employee benefits (315,020) (355,915)
Unrealized gain (loss) on
investment securities available-
for-sale, net of tax (18,756) 22,962
Total stockholders' equity 11,334,165 10,810,249
Commitments and contingencies 0 0
Total liabilities and
stockholders' equity $103,420,424 $101,184,936
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings Years ended December 31, 1996, 1995
and1994
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans $5,704,030 $5,287,738 $4,180,899
Investment securities 1,852,665 1,595,203 1,153,027
Other 13,214 167,822 77,382
Total interest income 7,669,909 7,050,763 5,411,308
Interest expense:
Deposits 3,859,838 3,588,740 2,413,619
Other borrowings 189,312 231,154 374,369
Total interest expense 4,049,150 3,819,894 2,787,988
Net interest income 3,620,759 3,230,869 2,623,320
Provision for loan losses 15,000 39,750 5,000
Net interest income after
provision for loan losses 3,605,759 3,191,119 2,618,320
Noninterest income:
Fees and service charges 517,124 391,314 253,049
Gains on sales of loans 75,450 95,425 79,136
Other 90,723 39,921 10,694
Total noninterest income 683,297 526,660 342,879
Noninterest expense:
Compensation and benefits 1,220,615 1,165,023 808,481
Occupancy and equipment 376,823 312,224 231,925
Federal deposit insurance
premiums 570,633 161,028 146,138
Data processing 115,312 124,679 110,099
Amortization 112,097 82,045 0
Stationery, printing and
office supplies 85,405 59,519 41,872
Professional fees 151,041 139,848 97,575
Other 601,266 573,460 433,588
Total noninterest expense 3,233,192 2,617,826 1,869,678
Earnings before income taxes 1,055,864 1,099,953 1,091,521
Income taxes 339,334 346,547 397,610
Earnings before
extraordinary item 716,530 753,406 693,911
Extraordinary loss on early
retirement of
other borrowings, net of tax 0 0 38,960
Net earnings $716,530 $753,406 $654,951
Earnings per share:
Before extraordinary loss $1.14 $1.24 $1.27
Extraordinary loss on early
retirement of
other borrowings 0 0 0.07
Net earnings per share $1.14 $1.24 $1.20
Average common and common
equivalent shares
outstanding 630,864 606,320 547,551
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity Years ended December 31,
1996, 1995 and 1994
Net
Additional Unearned unrealized gain
Common paid-in Retained employee (loss) on
stock capital earnings benefits securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 $4,629 3,998,943 5,127,919 (429,662) 0 8,701,829
January 1, 1994
adoption of Statement
of Financial Accounting
Standards No. 115 -
unrealized loss on
investment securities
available-for-sale,
net of tax 0 0 0 0 (278) (278)
Net earnings 0 0 654,951 0 0 654,951
Dividends paid ($.23
per share) 0 0 (119,834) 0 0 (119,834)
Reduction of unearned
employee benefits 0 0 0 35,595 0 35,595
Issuance of 2,375 shares
under stock option
plan 24 23,726 0 0 0 23,750
5% stock dividend
(23,150 shares) 231 373,156 (373,387) 0 0 0
Changes in fair value
of investment
securities available-
for-sale, net of tax 0 0 0 0 (181,977) (181,977)
Balance at December 31,
1994 4,884 4,395,825 5,289,649 (394,067) (182,255) 9,114,036
Net earnings 0 0 753,406 0 0 753,406
Dividends paid ($.24
per share) 0 0 (139,018) 0 0 (139,018)
Reduction of unearned
employee benefits 0 0 0 38,152 0 38,152
Issuance of 52 shares
under stock option
plan 1 519 0 0 0 520
5% stock dividend
(27,342 shares) 273 493,031 (493,304) 0 0 0
Issuance of 60,720 shares
in purchase
acquisition 607 837,329 0 0 0 837,936
Change in fair value of
investment securities
available-for-sale,
net of tax 0 0 0 0 205,217 205,217
Balance at December 31,
1995 5,765 5,726,704 5,410,733 (355,915) 22,962 10,810,249
Net earnings 0 0 716,530 0 0 716,530
Dividends paid ($.32
per share) 0 0 (191,791) 0 0 (191,791)
Reduction of unearned
employee benefits 0 0 0 40,895 0 40,895
5% stock dividend
(28,701 shares) 287 594,312 (594,599) 0 0 0
Change in fair value
of investment securities
available-for-sale,
net of tax 0 0 0 0 (41,718) (41,718)
Balance at December 31,
1996 $6,052 6,321,016 5,340,873 (315,020) (18,756) 11,334,165
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows Years ended
December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $716,530 $753,406 $654,951
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Provision for loan losses 15,000 39,750 5,000
Depreciation and amortization 315,757 241,850 124,860
Amortization of loan fees (44,858) (36,798) (44,390)
Deferred income taxes (53,365) (194,727) (23,762)
Net (gain) loss on sales of
investment securities available
- -for-sale 15,213 (5,470) 0
Net gain on sales of loans (75,450) (95,425) (79,136)
Loss on sale of premises and
equipment 7,454 0 0
Proceeds from sale of loans 10,316,625 10,630,608 6,510,198
Origination of loans for sale (9,721,236) (11,234,312) (5,941,709)
Accretion of discounts and
amortization of premiums on
investment securities, net 12,969 (34,399) 77,310
Changes in assets and liabilities:
Accrued interest and other assets 138,334 57,908 (33,524)
Accrued expenses, taxes and other
liabilities 744,068 364,626 (397,928)
Net cash provided by operating
activities 2,387,041 487,017 851,870
Cash flows from investing
activities:
Net (increase) decrease in loans (485,488) 878,548 (2,266,854)
Maturities and prepayments of
investment
securities held-to-maturity 6,905,474 7,538,050 8,807,120
Purchases of investment securities
held-to-maturity (898,789) (6,253,745) (8,377,811)
Maturities and prepayments of
investment
securities available-for-sale 4,159,394 5,036,531 134,480
Purchases of investment securities
available-for-sale (14,681,433) (9,831,440) 0
Proceeds from sale of investment
securities
available-for-sale 3,511,808 1,139,674 0
Proceeds from sales of foreclosed
assets 7,279 90,972 78,929
Purchases of premises and equipment,
net (152,860) (97,193) (115,273)
Net cash received from Auburn
acquisition 0 317,115 0
Net cash used in investing
activities (1,634,615) (1,181,488) (1,739,409)
Cash flows from financing
activities:
Net increase in deposits 310,507 5,920,757 89,068
Net decrease in securities sold
under agreements to repurchase 0 0 (3,000,000)
Federal Home Loan Bank advances
(repayment) and federal funds
purchased, net 775,000 (3,775,000) 600,000
Issuance of common stock under stock
option plan 0 520 23,750
Payment of dividends (191,791) (139,018) (119,834)
Net cash provided by (used in)
financing activities 893,716 2,007,259 (2,407,016)
Net increase (decrease) in cash and
cash equivalents 1,646,142 1,312,788 (3,294,555)
Cash and cash equivalents at
beginning of year 2,924,017 1,611,229 4,905,784
Cash and cash equivalents at end
of year $4,570,159 $2,924,017 $1,611,229
Supplemental disclosure of cash
flow information:
Cash paid during the year for
income taxes $531,000 $522,000 $568,000
Cash paid during the year for
interest $4,206,000 $3,860,000 $2,820,000
Supplemental schedule of
noncash investing activities-
transfer of loans to real estate
owned $ 29,000 $0 $76,000
See accompanying notes to consolidated financial statements.
</TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of MNB Bancshares, Inc. (the Company) and its wholly-owned subsidiary,
Security National Bank (formerly Manhattan National Bank and Security
State Bank which were merged on December 31, 1995). Intercompany
balances and transactions have been eliminated in consolidation.
(b) Investment Securities
The Company classifies its investment securities portfolio as held-to-
maturity, which are recorded at amortized cost, or available-for-sale, which
are recorded at fair value with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity
until realized, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Pursuant to SFAS No. 115 implementation
guidance issued in 1995 by the Financial Accounting Standards Board
(FASB), the Company reclassified certain held-to-maturity securities with
aggregate cost and fair value of approximately $1,443,000 and $1,447,000,
respectively, to available-for-sale in December 1995.
Premiums and discounts are amortized over the estimated lives of the
securities using a method which approximates the interest method. Gains
and losses on sales are calculated using the specific identification method.
(c) Loans, Loans Serviced for Others and Related Earnings
Management determines at the time of origination whether loans will be
held for the portfolio or sold in the secondary market. Generally, fixed rate
mortgage loans are originated and underwritten for resale in the secondary
mortgage market. That decision depends on a number of factors, including
the yield on the loan and the term of the loan, market conditions and the
current gap position.
Mortgage loans originated and intended for sale in the secondary market
are recorded at the lower of aggregate cost or estimated fair value. Fees
received on such loans are deferred and recognized in income as part of the
gain or loss on sale. Net unrealized losses are recognized in a valuation
allowance by charges to income. Fees received on other loans in excess of
amounts representing the estimated costs of origination are deferred and
credited to interest income using the interest method.
The FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," in 1993 and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan- Income Recognition and
Disclosures," in 1994. SFAS No. 114 requires that impaired loans be
measured based on the present value of expected future cash flows
discounted at the loan's interest rate, at the loan's observable market
price or at the fair value of the loan's collateral. A loan is considered
impaired when, based on current information and events, it is probable that
a creditor will be unable to collect all amounts due according to the original
terms of the loan agreement. The Company adopted the provisions of
SFAS Nos. 114 and 118 on January 1, 1995. The impact of these
statements on the consolidated financial statements of the Company was
immaterial.
Accrual of interest on nonperforming loans is suspended when, in the
opinion of management, the collection of such interest or the related
principal is less than probable. Any interest received on non-accrual loans is
credited to principal.
The Company adopted the provisions of SFAS No. 122, "Accounting for
Mortgage Servicing Rights," effective
January 1, 1996. Under the provisions of SFAS No. 122, the value of
servicing rights are capitalized when the related loan is sold with servicing
retained, and the resulting asset is amortized over the expected life of the
loan. The adoption of SFAS No. 122 was not material to the Company's
reported results.
(d) Allowance for Loan Losses
Provisions for losses on loans are based upon management's estimate of
the amount required to maintain an adequate allowance for losses, relative
to the risk in the loan portfolio. The estimate is based on reviews of the
loan portfolio, including assessment of the estimated net realizable value of
the related underlying collateral, and upon consideration of past loss
experience, current economic conditions and such other factors which, in
the opinion of management, deserve current recognition. Amounts are
charged off as soon as probability of loss is established, taking into
consideration such factors as the borrower's financial condition,
underlying collateral and guarantees. Loans are also subject to periodic
examination by regulatory agencies. Such agencies may require charge-
offs or additions to the allowance based upon their judgments about
information available at the time of their examination.
(e) Stock in Federal Home Loan Bank and Federal Reserve Bank
The Bank is a member of the Federal Home Loan Bank (FHLB) and the
Federal Reserve Bank (FRB) systems. As a FHLB member, the Bank is
required to purchase and hold stock in the FHLB of Topeka in an amount
equal to the greater of (a) 1% of unpaid residential loans, (b) 5% of
outstanding FHLB advances, or (c) 0.3% of total assets. FHLB and FRB
stock are included in available-for-sale securities.
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided principally using the straight-line method over the
estimated useful lives, ranging from 3 to 31.5 years, of the assets. Major
replacements and betterments are capitalized while maintenance and repairs
are charged to expense when incurred. Gains or losses on dispositions are
reflected in current operations.
(g) Intangible Assets
The core deposit intangible asset and goodwill arising from the acquisition
of Auburn Security Bancshares, Inc. (see note 2) is being amortized over
ten (accelerated) and fifteen (straight-line) years, respectively. When facts
and circumstances indicate potential impairment, the Company evaluates
the recoverability of asset carrying values, including intangible assets, using
estimates of undiscounted future cash flows over remaining asset lives.
When impairment is indicated, any impairment loss is measured by the
excess of carrying values over fair values.
(h) Income Taxes
The Company records deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
income tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in
income in the period that includes the enactment date.
(i) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(j) Earnings Per Share
Earnings per share have been computed based upon the average number of
common and common equivalent shares outstanding during each year.
Earnings per share for all periods presented have been adjusted to give
effect to the
5% stock dividends paid by the Company in 1994, 1995 and 1996.
(k) Stock-based Compensation
The Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-based Compensation," in 1996. SFAS No. 123 requires that the
value of options and similar stock-based compensation awarded to
employees be recorded as compensation expense. Alternatively, SFAS No.
123 allows pro forma disclosure of net earnings and earnings per share as if
the accounting provisions had been applied. The Company has chosen not
to apply the accounting provisions of SFAS No. 123 in its consolidated
financial statements but rather to disclose pro forma amounts if materially
different from reported results.
(l) Reclassification
Certain amounts have been reclassified to conform to the current year
presentation.
(2) 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 were
merged. Auburn had consolidated assets of approximately $20 million.
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 60,720 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.
Pro forma revenues, net earnings and earnings per share amounts, as if the
acquisition had been consummated
January 1, 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net interest income plus other
income $3,963,462 $3,621,412
Net earnings before extraordinary
loss 781,822 752,246
Net earnings per share before
extraordinary loss 1.27 1.22
</TABLE>
(3) Investment Securities
<TABLE>
<CAPTION>
A summary of investment securities information is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
<S> <C> <C> <C> <C>
December 31, 1996:
Held-to-maturity:
U.S. government
and agency obligations
maturing:
In less than one year $3,093,600 13,000 0 3,106,000
After one year but within
five years 2,001,757 18,000 0 2,020,000
Subtotal 5,095,357 31,000 0 5,126,000
Municipal obligations
maturing:
In less than one year 6,000 0 0 6,000
After one year but within
five years 1,927,195 5,000 8,000 1,924,000
After five years but
within ten years 369,860 2,000 1,000 371,000
Subtotal 2,303,055 7,000 9,000 2,301,000
Mortgage-backed
securities 2,714,598 16,000 4,000 2,727,000
Total $10,113,010 54,000 13,000 10,154,000
Available-for-sale:
U.S. government and agency
obligations maturing:
In less than one year $2,533,787 19,389 1,199 2,551,977
After one year but within
five years 9,346,028 18,317 47,050 9,317,295
Subtotal 11,879,815 37,706 48,249 11,869,272
Municipal obligations
maturing:
In less than one year 400,000 0 934 399,066
After five years but within
ten years 260,684 0 938 259,746
Subtotal 660,684 0 1,872 658,812
Mortgage-backed securities 9,036,473 28,036 44,982 9,019,527
FHLB stock 941,700 0 0 941,700
Other stock 637,461 0 928 636,533
Total $23,156,133 65,742 96,031 23,125,844
December 31, 1995:
Held-to-maturity:
U.S. government and agency
obligations maturing:
In less than one year $5,752,027 27,000 3,000 5,776,000
After one year but within
five years 6,101,371 73,000 4,000 6,170,000
Subtotal 11,853,398 100,000 7,000 11,946,000
Municipal obligations
maturing:
In less than one year 56,000 0 0 56,000
After one year but within
five years 1,035,600 6,000 2,000 1,040,000
After five years but
within ten years 376,218 1,000 5,000 372,000
Subtotal 1,467,818 7,000 7,000 1,468,000
Mortgage-backed securities 3,081,819 14,000 15,000 3,081,000
Total $16,403,035 121,000 29,000 16,495,000
Available-for-sale:
U.S. government and agency
obligations maturing:
In less than one year 3,701,090 64,385 15,767 3,749,708
After one year but within
five years $5,580,890 21,139 5,102 5,596,927
Subtotal 9,281,980 85,524 20,869 9,346,635
Mortgage-backed securities 5,665,064 21,085 50,568 5,635,581
FHLB stock 883,700 0 0 883,700
FRB stock 60,000 0 0 60,000
Total $15,890,744 106,609 71,437 15,925,916
</TABLE>
Except for U. S. government and agency obligations, no investment in a
single issuer exceeded 10% of stockholders' equity.
At December 31, 1996 and 1995, securities pledged to secure public funds
on deposit had a carrying value of approximately $20,315,000 and
$17,065,000
(4) Loans
<TABLE>
<CAPTION>
Loans consist of the following at December 31:
1996 1995
<S> <C> <C>
Mortgage loans:
One-to-four family residential $33,498,175 33,979,182
Commercial 14,311,542 13,104,277
Commercial loans 7,139,729 7,075,165
Consumer loans 4,696,385 4,293,951
Student loans 3,708,718 4,428,373
Total 63,354,549 62,880,948
Less:
Loans in process 14,031 12,430
Deferred loan fees 151,000 159,019
Allowances for loan losses 819,660 826,364
Loans, net $62,369,858 61,883,135
</TABLE>
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend credit.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
Company's exposure to credit loss in the event of nonperformance by the
other party is represented by the contractual amount of those instruments.
The Company does generally require collateral or other security on
unfunded loan commitments. However, collateral is normally obtained with
regard to irrevocable letters of credit. The Company's outstanding
commitments to originate and sell loans are immaterial.
The Company is exposed to varying risks associated with concentrations of
credit relating primarily to lending activities in specific geographic areas.
The Company's principal lending area consists of Manhattan, Kansas,
Auburn, Kansas and the surrounding communities, and substantially all of
the Company's loans are to residents of, or secured by, properties located
in its principal lending area. Accordingly, the ultimate collectibility of the
Company's loan portfolio is dependent upon market conditions in those
areas. These geographic concentrations are considered in management's
establishment of the allowance for loan losses.
<TABLE>
<CAPTION>
A summary of the activity in the allowance for loan losses is as follows:
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $826,364 562,041 587,205
Provision 15,000 39,750 5,000
Allowance for loan loss of
acquired bank 0 229,408 0
Charge-offs (27,136) (28,608) (45,732)
Recoveries 5,432 23,773 15,568
Balance at end of year $819,660 826,364 562,041
</TABLE>
At December 31, 1996 and 1995, impaired loans, as defined by SFAS No.
114, aggregated approximately $145,000
and $39,000.
The Bank serviced loans for others of $25,901,000 and $20,958,000 at
December 31, 1996 and 1995. Because the Bank sold significantly all loans
originated for sale on a servicing released basis, no additional gains on sales
or related mortgage servicing assets, as required under SFAS 122, were
recorded during 1996.
The Bank had loans to directors and officers at December 31, 1996 and
1995 which carry terms similar to those for other loans. A summary of
such loans is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of year $114,036 602,640
New loans 1,265,583 50,135
Payments (45,470) (538,739)
Balance at end of year $1,334,149 114,036
</TABLE>
(5) Premises and Equipment
<TABLE>
<CAPTION>
Premises and equipment consist of the following at December 31:
1996 1995
<S> <C> <C>
Land $253,412 253,412
Office buildings and improvements 1,272,000 1,251,451
Furniture and equipment 1,024,330 1,023,893
Automobiles 128,572 69,453
Total 2,678,314 2,598,209
Less accumulated depreciation 1,352,516 1,214,157
Total $1,325,798 1,384,052
</TABLE>
(6) Time Deposits
<TABLE>
<CAPTION>
Maturity of time deposits are as follows at December 31, 1996:
Year Amount
<S> <C>
1997 $34,676,551
1998 8,253,317
1999 2,419,797
2000 2,001,709
Total $47,351,374
</TABLE>
During 1996, the Federal Deposit Insurance Corporation imposed a one-
time special assessment on Savings Association Insurance Fund (SAIF)
assessable deposits. The assessment on the Company's SAIF deposits was
$449,000 and is included in federal deposit insurance premiums in the
accompanying consolidated statements of earnings.
(7) Other Borrowings
Other borrowings include a note payable relating to the Company's
Employee Stock Ownership Plan (the ESOP) (see note 9) with an
unrelated financial institution and advances from the FHLB. The ESOP
loan of $315,020 and $355,915 at December 31, 1996 and 1995,
respectively, bears interest at the prime rate (8.25% at December 31,
1996), is due in 2002 and is secured by the 36,448 unallocated shares of
Company common stock held by the ESOP. Long-term advances from the
FHLB at December 31, 1996 and 1995 amount to $3,300,000 and
$1,800,000, respectively. Maturities of such advances at December 31,
1996 are summarized as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount Rates
<S> <C> <C>
1997 $2,800,000 5.66% to 8.10%
1998 500,000 5.21%
$3,300,000
</TABLE>
The Company elected to prepay certain long-term FHLB advances during
1994, resulting in an extraordinary loss, net of tax, of $38,960 in the
accompanying consolidated 1994 statement of earnings.
The Bank has a $12,000,000 line of credit, renewable annually in
September, with the FHLB, under which there were borrowings
outstanding of $400,000 at December 31, 1995. Interest on any
outstanding balances on the line of credit accrues at the federal funds rate
plus .15% (7.15% at December 31, 1996).
Although no loans are specifically pledged, the FHLB requires the Bank to
maintain eligible collateral that has a lending value at least equal to its
required collateral. Eligible collateral includes single and multifamily
first
mortgage loans, mortgage-backed securities, U.S. government and agency
obligations, stock in the FHLB and FHLB overnight deposits.
(8) Income Taxes
<TABLE>
<CAPTION>
Total income tax expense for 1996, 1995 and 1994 is allocated as follows:
1996 1995 1994
<S> <C> <C> <C>
Operations $339,334 346,547 397,610
Extraordinary loss 0 0 (22,365)
Stockholders' equity (23,743) 123,915 (111,705)
$315,591 470,462 263,540
</TABLE>
The components of income tax expense allocated to earnings before
extraordinary loss are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $392,699 524,692 421,372
Deferred (53,365) (178,145) (23,762)
$339,334 346,547 397,610
Federal $271,070 346,547 335,332
State 68,264 0 62,278
$339,334 346,547 397,610
</TABLE>
The reasons for the difference between actual income tax expense and
expected income tax expense allocated to earnings before extraordinary
loss at the 34% statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected income tax expense
at statutory rate $358,994 373,984 371,117
Tax-exempt interest (37,838) (14,707) (7,528)
Nondeductible amortization 11,752 6,522 0
State income taxes 45,064 0 41,103
Other, net (38,628) (19,252) (7,082)
$339,334 346,547 397,610
</TABLE>
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and liabilities at December31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment
securities available-for-sale $11,533 0
Allowance for loan losses 108,646 39,260
Other 18,895 8,463
Total deferred tax assets 139,074 47,723
Deferred tax liabilities:
Unrealized gain on investment
securities available-for-sale 0 12,210
Core deposit intangible 109,006 135,367
FHLB stock dividends 167,994 143,446
Premises and equipment 7,294 10,356
State taxes 21,645 0
Other 38,931 29,248
Total deferred tax liabilities 344,870 330,627
Net deferred tax liability $205,796 282,904
</TABLE>
(9) Employee Benefit Plans
Qualified employees of the Company and the Bank may participate in an
employee stock ownership plan (the ESOP). The ESOP has borrowed
under a bank loan agreement (note 7), the proceeds of which were used to
acquire the Company's common stock. Contributions, along with
dividends on unallocated shares of common stock, are used by the ESOP
to make payments of principal and interest on the bank loan. Because the
Company has guaranteed the ESOP's borrowing, the outstanding note
payable balance is recorded as unearned compensation, which is presented
as a reduction of stockholders' equity in the accompanying consolidated
balance sheets. Unearned compensation is reduced as the related note
payable is reduced. ESOP contributions by the Bank charged to
compensation and benefits expense in 1996 and 1995 were approximately
$57,000 and $70,000, respectively.
The Company has a stock option plan for directors and selected officers
and employees. The exercise price of options granted under the plan is at
least equal to the fair market value on the date of grant. At December 31,
1996, 46,287 shares of common stock have been reserved for issuance
under the plan. The options vest over varying periods of time and are
exercisable for up to ten years. Information with respect to option activity
(as adjusted for all stock dividends) is as follows:
<TABLE>
<CAPTION>
Weighted average
Number of exercise price
shares per share
<S> <C> <C>
Outstanding at January 1, 1994 46,287 $10.00
Issued 0 0
Issued through 5% stock dividend 1,978 0
Exercised 2,375 10.00
Canceled 5,322 10.00
Outstanding at December 31, 1994 40,568 9.51
Issued 0 0
Issued through 5% stock dividend 2,018 0
Exercised 52 9.51
Canceled 0 0
Outstanding at December 31, 1995 42,534 9.06
Issued 4,000 21.00
Issued through 5% stock dividend 2,321 0
Exercised 0 0
Canceled 0 0
Outstanding at December 31, 1996 48,855 9.61
Options exercisable at
December 31, 1996 37,420 $8.64
</TABLE>
Options outstanding at December 31, 1996 were exercisable at prices
ranging from $8.64 to $20.00.
Pro forma net earnings and net earnings per share for 1996 and 1995,
applying the disclosure provisions of SFAS 123, would not be materially
different than such amounts as reflected in the accompanying consolidated
statements of earnings.
The Company has adopted a cash incentive program whereby bonuses are
awarded if certain annual profitability thresholds are achieved. The
incentive program also allows for discretionary bonuses. The Company
recorded bonuses under the incentive programs of approximately $53,000,
$56,000 and $17,000 in 1996, 1995 and 1994, respectively.
(10) Fair Value of Financial Instruments
Fair value estimates of the Company's financial instruments as of
December 31, 1996 and 1995, including methods and assumptions utilized,
are set forth below (in thousands):
<TABLE>
<CAPTION>
1996 1995
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
Investment securities $33,238,854 33,280,000 32,328,951 32,421,000
Loans, net of unearned
fees and allowance for
loan losses $62,369,858 60,785,000 61,883,135 58,713,000
Noninterest-bearing
demand deposits $ 5,260,221 5,260,000 4,651,830 4,652,000
Money market and
NOW deposits 28,936,080 28,936,000 27,121,850 27,122,000
Savings deposits 5,162,275 5,162,000 5,908,323 5,908,000
Time deposits 47,351,374 47,493,000 48,717,440 48,823,000
Total deposits $86,709,950 86,851,000 86,399,443 86,505,000
Other borrowed funds $ 3,615,020 3,620,000 2,880,915 2,886,000
</TABLE>
Methods and Assumptions Utilized
The carrying amount of cash and cash equivalents, loans held for sale,
federal funds sold, accrued interest receivable and payable are considered
to approximate fair value.
The estimated fair value of investment securities, except certain obligations
of states and political subdivisions, is based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
The fair value of certain obligations of states and political subdivisions is
not readily available through market sources other than dealer quotations,
so fair value estimates are based upon quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and
the instruments being valued.
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by collateral type, interest terms and maturities. In
estimating the fair value of each category of loans, the carrying amount of
the loan is reduced by an allocation of the allowance for loan losses. Such
allocation is based on management's loan classification system which is
designed to measure the credit risk inherent in each classification category.
The estimated fair value of performing variable rate loans is the carrying
value of such loans, reduced by an allocation of the allowance for loan
losses. The estimated fair value of performing fixed rate loans is calculated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the interest rate risk inherent in
the loan, reduced by an allocation of the allowance for loan losses. The
estimate of maturity is based on the Company's historical experience with
repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions. The fair
value for significant nonperforming loans is the estimated fair value of the
underlying collateral based on recent external appraisals or other available
information, which generally approximates carrying value, reduced by an
allocation of the allowance for loan losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market accounts and
NOW accounts, is equal to the amount payable on demand. The fair value
of interest-bearing time deposits is based on the discounted value of
contractual cash flows of such deposits. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
The carrying amount of other borrowed funds (including federal funds
purchased) approximates fair value because such funds are purchased for
relatively short periods.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future loss experience, current economic conditions,
risk characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments.
(11) Regulatory Capital Requirements
Current regulatory capital regulations require financial institutions to meet
three different regulatory capital requirements. Institutions are required to
have minimum leverage capital equal to 4% of total average assets,
minimum Tier 1 risk-based capital equal to 4% of total risk-weighted assets
and total qualifying capital equal to 8% of total risk-weighted assets in
order to be considered "adequately capitalized." The following is a
comparison of the Company's regulatory capital to minimum capital
requirements at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Leverage Tier 1 risk- Total risk-
capital based capital based capital
<S> <C> <C> <C>
Bank capital $8,956 8,956 9,616
Minimum capital
requirement 4,043 2,111 4,222
Bank capital in excess
of minimum capital
requirement $4,913 6,845 5,394
Minimum capital
requirement-percent 4.0% 4.0 8.0
Bank capital 8.7% 17.0 18.2
</TABLE>
(12) Parent Company Condensed Financial Statements
Following is condensed financial information of the Company as of and for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
<S> <C> <C>
Cash $1,582,283 1,096,675
Investment securities 416,566 499,933
Investment in subsidiary 9,625,100 9,566,046
Other 31,972 5,328
Total assets $11,655,921 11,167,982
Liabilities and
Stockholders' Equity
Borrowed funds $315,020 355,915
Other 6,736 1,818
Stockholders' equity 11,334,165 10,810,249
Total liabilities and
stockholders' equity $11,655,921 11,167,982
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Earnings
Years ended December 31, 1996 and 1995
1996 1995 1994
<S> <C> <C> <C>
Dividends from subsidiary $ 650,194 778,842 317,109
Interest income 66,749 54,897 70,111
Other expense, net (115,386) (103,082) (79,102)
Interest before equity in
undistributed earnings
of subsidiary 601,557 730,657 308,118
Increase (decrease) in
undistributed equity of
subsidiary 100,485 (22,405) 330,833
Net earnings before income
taxes 702,042 708,252 638,951
Income tax benefit 14,488 45,154 16,000
Net earnings $ 716,530 753,406 654,951
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 716,530 753,406 654,951
(Increase) decrease in
undistributed equity of
subsidiary (100,485) 22,405 (330,833)
Other (21,509) 18,170 (43,683)
Net cash provided by
operating activities 594,536 793,981 280,435
Cash flows from investing
activities:
Purchase of investment
securities (867,137) (501,110) 0
Maturity of investment
securities 950,000 0 1,250,000
Investment in subsidiary 0 (1,378,193) 0
Net cash provided by (used in)
investing activities 82,863 (1,879,303) 1,250,000
Cash flows from financing
activities:
Issuance of 52 common
shares under the stock option
plan 0 520 23,750
Payment of dividends (191,791) (139,018) (119,834)
Net cash used in
financing activities (191,791) (138,498) (96,084)
Net increase (decrease) in
cash 485,608 (1,223,820) 1,434,351
Cash at beginning of year 1,096,675 2,320,495 886,144
Cash at end of year $1,582,283 1,096,675 2,320,495
</TABLE>
Dividends paid by the Company are provided through subsidiary Bank
dividends. At December 31, 1996,
the Bank could distribute dividends of up to $827,000 without regulatory
approvals.
Corporate Information
DIRECTORS OF MNB BANCSHARES, INC. AND SECURITY
NATIONAL BANK
Brent A. Bowman, Chairman
President
Brent A. Bowman and
Associates Architects, P.A.
Patrick L. Alexander
President and Chief Executive Officer
MNB Bancshares, Inc. and
Security National Bank
William F. Caton*
President
Kansas Development Finance Authority
Rolla W. Goodyear
President, Auburn Branch
Security National Bank
Joseph L. Downey
Senior Consultant and Director
Dow Chemical Company
Chairman, DowElanco
Director, DowBrands, Inc.
Charles D. Green
Retired Attorney
Arthur, Green, Arthur,
Conderman & Stutzman
Vernon C. Larson
Retired Assistant Provost and
Director of International Programs
Kansas State University
Dennis A. Mullin
President
Steel and Pipe Supply Co., Inc.
Jerry R. Pettle
Dentist
Dental Associates of Manhattan, PA.
Donald J. Wissman
Chairman, DPRA, Inc.
President, Grain Industry Alliance
*Bank Director only
EXECUTIVE OFFICERS OFMNB BANCSHARES, INC.
Patrick L. Alexander
President and Chief Executive Officer
Susan E. Roepke
Vice President, Secretary and Treasurer
EXECUTIVE OFFICERS OF SECURITY NATIONAL BANK
Patrick L. Alexander
President and Chief Executive Officer
Rolla W. Goodyear
Auburn Branch President
Susan E. Roepke
Senior Vice President, Secretary and Cashier
Michael E. Scheopner
Senior Vice President
Michael R. Toy
Senior Vice President
Dennis D. Wohler
Senior Vice President
STOCK PRICE INFORMATION
The Company's common stock trades on The Nasdaq Small-Cap Market
tier of The Nasdaq Stock Market under the symbol "MNBB". At
December 31, 1996, the Company had approximately 420 stockholders of
record. Set forth below are the reported high and low bid prices of the
common stock and dividends paid during the past two years. Information
presented below has been restated to give effect to the 5% stock dividends
paid in 1995.
<TABLE>
<CAPTION>
1996 High Low Dividends
<S> <C> <C> <C>
First Quarter $20.50 $19.75 $0.0625
Second Quarter 20.50 20.00 0.0656
Third Quarter 20.00 19.00 0.0656
Fourth Quarter 23.00 19.00 0.1250
1995
First Quarter $17.50 $17.25 $0.0595
Second Quarter 16.75 16.50 0.0595
Third Quarter 19.75 16.75 0.0595
Fourth Quarter 20.00 19.50 0.0595
</TABLE>
CORPORATE HEADQUARTERS
800 Poyntz Avenue
Manhattan, Kansas 66502
ANNUAL MEETING
The annual meeting of stockholders will be held at the Kansas State
University Student Union, Big 12 Conference Room, Manhattan, Kansas
66506, on Monday, May 19, 1997 at 2:00 PM.
FORM 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and
Exchange Commission may be obtained by stockholders without charge on
written request to Patrick L. Alexander, President and Chief Executive
Officer, MNB Bancshares, Inc., PO Box 308, Manhattan, Kansas 66505-
0308
REGISTRAR AND TRANSFER AGENT
Boatmen's Trust Company
Corporate Trust Division
510 Locust Street
P.O. Box 14737
St. Louis, Missouri 63178-4737
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
1000 Walnut, Suite 1600
Kansas City, Missouri 64199
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
The only subsidiary of the Company is Security National Bank, a
national banking association with its main office located in Manhattan,
Kansas, and with a branch office in Auburn, Kansas.
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
MNB Bancshares, Inc.
We consent to incorporation by reference in the registration statement (No.
33-51710) on Form S-8 of MNB Bancshares, Inc. of our report, dated
January 31, 1997, relating to the consolidated balance sheets of MNB
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual report on
Form 10-K of MNB Bancshares, Inc.
/s/ KPMG Peat Marwick
Kansas City, Missouri
March 26, 1997
EXHIBIT 99.1
PROXY STATEMENT OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1997
MNB Bancshares, Inc.
800 Poyntz Avenue
Manhattan, Kansas 66502
(913) 565-2000
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1997
To the stockholders of
MNB BANCSHARES, INC.
The Annual Meeting of the Stockholders of MNB Bancshares, Inc., a
Delaware
corporation (the "Company"), will be held at the Kansas State University
Student Union,
17th and Anderson Avenue, Manhattan, Kansas, 66506, on Monday, May 19,
1997, at 2:00 p.m., local time, for the following purposes:
1. to elect two (2) Class II directors for a term of three years.
2. to approve the appointment of KPMG Peat Marwick LLP as
independent public accountants for the Company for the fiscal year
ending December 31, 1997.
3. to transact such other business as may properly be brought
before the meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 4,
1997, as the record date for the determination of stockholders entitled
to notice of, and to vote at, the meeting.
By order of the Board of Directors
/s/Patrick L. Alexander
President and Chief Executive Officer
Manhattan, Kansas
April 18, 1997
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board
of Directors of MNB Bancshares, Inc. (the "Company") of proxies to be voted
at the Annual Meeting of Stockholders to be held at the Kansas State
University Student Union, 17th and Anderson Avenue, Manhattan, Kansas, 66506,
on Monday, May 19, 1997, at 2:00 p.m., local time, and at any adjournments or
postponements thereof.
The Board of Directors would like to have all stockholders represented at the
meeting. If you do not expect to be present, please sign and mail your proxy
card in the enclosed self-addressed, stamped envelope to MNB Bancshares,
Inc., P.O. Box 308, Manhattan, Kansas 66505-0308, Attention: Mr. Patrick L.
Alexander. You have the power to revoke your proxy at any time before it is
voted, by giving written notice to the Secretary of the Company, provided
such written notice is received by the Secretary prior to the annual meeting
or any adjournments or postponements thereof, by submitting a later
dated proxy or by attending the annual meeting and choosing to vote in
person. The giving of a proxy will not affect your right to vote in person
if you attend the meeting.
The Company's principal executive office is located at 800 Poyntz
Avenue, Manhattan, Kansas and its mailing address is P.O. Box 308,
Manhattan, Kansas 66505-0308. This Proxy Statement and the accompanying
proxy card are being mailed to
stockholders on or about April 18, 1997. The 1996 Annual Report of the
Company,
which includes consolidated financial statements of the Company and its
subsidiary, is enclosed.
The Company is the holding company for Security National Bank,
Manhattan,
Kansas (the "Bank"). The Bank is the successor-in-interest to Manhattan
Federal Savings
and Loan Association, Manhattan, Kansas (the "Association"), which on
January 5, 1993,
concurrently converted from a federal mutual savings association to a federal
stock
savings association and then to a national bank known at that time as
Manhattan National
Bank (the "Conversion"). On April 1, 1995, the Company acquired Auburn
Security
Bancshares, Inc., the parent company of The Security State Bank in Auburn,
Kansas. On
December 31, 1995, Manhattan National Bank and Security State Bank were
consolidated
to form the Bank. The Bank is presently the Company's only operating
subsidiary, and the
Company's business presently consists solely of the ownership of the Bank.
The term
"Bank" as used in this Proxy Statement sometimes refers to the Association
during the
time period prior to consummation of the Conversion.
Only holders of record of the Company's Common Stock at the close
of business
on April 4, 1997, will be entitled to vote at the annual meeting or any
adjournments or
postponements of such meeting. On April 4, 1997, the Company had 608,839
shares of
Common Stock, par value $0.01 per share, issued and outstanding. In the
election of
directors, and for all other matters to be voted upon at the annual meeting,
each issued
and outstanding share is entitled to one vote.
All shares of Common Stock represented at the annual meeting by
properly
executed proxies received prior to or at the annual meeting, and not revoked,
will be
voted at the annual meeting in accordance with the instructions thereon. If
no instructions
are indicated, properly executed proxies will be voted for the nominees and
for
adoption of the proposals set forth in this Proxy Statement.
A majority of the shares of the Common Stock, present in person or
represented
by proxy, shall constitute a quorum for purposes of the annual meeting.
Abstentions and
broker non-votes will be counted for purposes of determining a quorum.
Directors shall
be elected by a plurality of the votes present in person or represented by
proxy at the
meeting and entitled to vote. In all matters other than the election of
directors, the
affirmative vote of a majority of shares required to constitute a quorum and
voting on the
subject matter shall be required to constitute stockholder approval.
Abstentions will be
counted as votes against a proposal and broker non-votes will have no effect
on the vote.
ELECTION OF DIRECTORS
At the Annual Meeting of the Stockholders to be held on May 19,
1997, the
stockholders will be entitled to elect two (2) Class II directors for a term
expiring in 2000.
The directors of the Company are divided into three classes having staggered
terms of
three years. Of the nominees for election as Class II directors, Donald J.
Wissman is an
incumbent director and Susan E. Roepke has been newly nominated to fill the
vacancy
caused by the retirement of C. Clyde Jones. Dennis A. Mullin, whose term as
a Class II
director expires at the 1997 Annual Meeting, is also retiring from the board at
that time.
The Board of Directors has not nominated an individual to replace Mr. Mullin.
The
Company has no knowledge that either of the nominees will refuse or be
unable to serve,
but if either of the nominees becomes unavailable for election, the holders of
the proxies
reserve the right to substitute another person of their choice as a nominee
when voting at
the meeting. Set forth below is information concerning the nominees for
election and for
the other persons whose terms of office will continue after the meeting,
including the age,
year first elected a director and business experience during the previous five
years as of
April 4, 1997. The two nominees, if elected at the Annual Meeting of
Stockholders, will
serve as Class II directors for three year terms expiring in 2000.
NOMINEES
Name Age Position
with the Company
and the Bank Director Since
CLASS II
(Term Expires 2000)
Susan E. Roepke 57 Director (since 1997) of the Company 1997
and the Bank; Vice President, Secretary
and Treasurer (since 1992) of the Company;
and Senior Vice President and Cashier
(since 1993) of the Bank
Donald J. Wissman 59 Director of the Company and the Bank 1994
CONTINUING DIRECTORS
CLASS III
(Term Expires 1998)
Brent A. Bowman 47 Chairman of the Board of the Company and 1987
the Bank
Charles D. Green 71 Director of the Company and the Bank 1957
Vernon C. Larson 73 Director of the Company and the Bank 1974
CLASS I
(Term Expires 1999)
Patrick L. Alexander 44 President, Chief Executive Officer 1990
and Director of the Company and the Bank
Joseph L. Downey 60 Director of the Company and the Bank 1996
Rolla W. Goodyear 39 President of Auburn Branch since January, 1995
1996; Director of the Company and the Bank
Jerry R. Pettle 58 Director of the Company and the Bank 1978
All of the Company's directors will hold office for the terms indicated, or
until their
earlier death, resignation, removal or disqualification, and until their
respective successors
are duly elected and qualified, and all executive officers hold office for a
term of one year.
There are no arrangements or understandings between any of the directors,
executive
officers or any other person pursuant to which any of the Company's directors
or
executive officers have been selected for their respective positions, except
that the
Company and the Bank have entered into employment contracts with Messrs.
Alexander
and Goodyear. No director is related to any other director or executive
officer of the
Company or the Bank by blood, marriage or adoption, except that Mr.
Goodyear is the
brother-in-law of Mr. William F. Caton, who is a director of the Bank.
The business experience of each of the nominees and continuing
directors for
the
past five years is as follows:
Patrick L. Alexander became President and Chief Executive Officer of
the
Association in 1990, and became the President and Chief Executive Officer of
the
Company and the Bank on August 28, 1992 and January 5, 1993,
respectively.
From
1986 to 1990, Mr. Alexander served as President of the Kansas State Bank of
Manhattan,
Manhattan, Kansas. Mr. Alexander serves as a member of the Boards of
Directors
of the
Big Lakes Foundation, Inc., the Kansas State University Finance Advisory
Board, and the
Kansas Chamber of Commerce and Industry.
Brent A. Bowman has been President of Brent Bowman and
Associates Architects,
P.A., an architectural firm in Manhattan, Kansas, since 1979. Mr. Bowman
serves on the
Manhattan Historic District Review Board, the Board of Directors of the Big
Lakes
Foundation, Inc., and is an adjunct professor of Architecture at Kansas State
University.
Joseph L. Downey has been a director of Dow Chemical Co. since
1989 and a
Dow Senior Consultant since 1995 after having served in a variety of
executive
positions
with that company, including Senior Vice President from 1991 to 1994.
Rolla W. Goodyear was the Chairman of the Board of Auburn Security
Bancshares, Inc. and President and Chief Executive Officer of Security State
Bank from
1983 until its acquisition by the Company in April 1995. Mr. Goodyear
presently serves
as President of the Auburn branch of the Bank. Mr. Goodyear is also the
owner of the
Goodyear Agency, a real estate agency located in Topeka, Kansas.
Charles D. Green is a former partner in the Manhattan, Kansas law
firm of
Arthur,
Green, Arthur, Conderman & Stutzman from 1950 to July 1, 1993. Mr.
Green
formerly
served as a director of the Commerce Bank, NA, a wholly-owned subsidiary
of
CBI-
Central Kansas, Inc., which is a wholly owned subsidiary of Commerce
Bancshares, Inc., Kansas City, Missouri.
Vernon C. Larson was the Assistant Provost and Director of
International
Programs at Kansas State University, Manhattan, Kansas from 1962 until his
retirement in 1991.
Jerry R. Pettle is a dentist who has practiced with Dental Associates of
Manhattan,
P.A., in Manhattan, Kansas, since 1970. Dr. Pettle is a member of the Board
of Directors
of the Manhattan Medical Center and is an examiner for the Kansas Dental
Board. Dr.
Pettle is also a member of the Friends of the Konza Prairie and is a past
member of the
Kansas State University Foundation.
Susan E. Roepke became Vice President of the Company on August
28, 1992 and
Senior Vice President, Secretary and Cashier of the Bank on January 5, 1993.
She was
elected Secretary of the Association in 1992 and became Vice President/
Operations
Division of the Association in 1991, and had been Treasurer of the
Association since
1970. She held these positions with the Association until the Conversion in
1993.
Donald J. Wissman is President of the Grain Industry Alliance, having
been
appointed to the position in June, 1996. He serves as the Chairman of DPRA
Incorporated, an environmental/economic research and consulting firm
headquartered in
Manhattan, Kansas. Dr. Wissman has been with DPRA since 1965, having
previously
served as a Senior Vice President and Vice President involved in consulting
projects
regarding economic and environmental regulatory issues. He is a past
Chairman
and
director of the Manhattan Chamber of Commerce and currently serves on the
Board of
Directors of the Kansas State University Research Foundation.
Board Committees and Meetings
Committees of the Board of Directors of the Company include a Stock
Option
Committee which administers the Company's Stock Option Plan and an Audit
Committee.
The full Board of Directors considers nominations to the Board, and will
consider
nominations made by stockholders if such nominations are in writing and
otherwise
comply with Section 3.1 of the Company's bylaws. The Board of Directors of
the Bank
has an Executive Committee and a Directors' Loan Committee.
The Executive Committee consists of Directors Bowman (Chairman),
Alexander,
Larson, Roepke, Wissman and Mr. William F. Caton, a director of the Bank.
The
Executive Committee has authority to perform policy reviews, oversee and
direct
compensation and personnel functions, monitor marketing and CRA activities,
review and
approve the budget and asset/liability position and undertake other
organizational issues
and planning discussions as deemed appropriate. The committee meets
monthly
on a
regularly scheduled basis and more frequently if necessary. During 1996 the
committee met 12 times.
The Directors' Loan Committee consists of Directors Mullin
(Chairman),
Alexander, Downey, Goodyear, Green and Pettle. The Directors' Loan
Committee
is
responsible for policy review and oversight of the loan and investment
functions. It has
the authority to approve loans in excess of the Officers' Loan Committee
lending authority
up to legal lending limits, subject to certain exceptions which apply to
certain levels of
unsecured and insider loans which must be approved by the entire Board of
Directors.
The committee reviews the loan loss reserve for adequacy and reviews in
detail lending
and investment activities. The committee meets monthly on a regularly
scheduled basis
and more frequently if necessary. During 1996 the committee met 13 times.
The Audit Committee consists of Directors Pettle (Chairman), Larson,
Mullin,
Wissman and Mr. William F. Caton, a director of the Bank. The Audit
Committee is
responsible for overseeing the internal and external audit functions. It
approves internal
audit staffing, salaries and programs. The Internal Auditor reports directly
to the
committee on audit and compliance matters. The committee also reviews and
approves
the scope of the annual external audit and consults with the independent
auditors
regarding the results of their auditing procedures. The committee normally
meets
quarterly. During 1996 the committee met three times.
The Stock Option Committee consists of Directors Larson (Chairman) and
Pettle.
The Stock Option Committee administers the Stock Option Plan and has the
authority,
among other things, to select the employees to whom options will be granted,
to
determine the terms of each option, to interpret the provisions of the Stock
Option Plan
and to make all determinations that it may deem necessary or advisable for the
administration of the Stock Option Plan. During 1996 the committee met
once.
A total of 12 regularly scheduled and special meetings were held by
the
Board of
Directors of the Company during 1996. During 1996, all directors attended at
least 75
percent of the meetings of the Board and the committees on which they serve,
with the
exception of Mr. Wissman, who attended 66 percent of the Executive
Committee
meetings.
Directors of the Company receive no fees for attendance at regularly
scheduled
meetings of the Board of Directors of the Company and they receive $100 for
attendance
at special meetings. Directors of the Bank receive fees of $400 per month
plus $100 per
meeting for attendance at regularly scheduled meetings of the Board of
Directors of the
Bank and $100 per month for attendance at regularly scheduled meetings of
committees,
except that Messrs. Alexander and Goodyear and Mrs. Roepke do not receive
additional
amounts for attendance at committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation
paid or
granted to the Company's Chief Executive Officer for the past three fiscal
years. None of
the remaining executive officers of the Company or the Bank had an aggregate
salary and
bonus which exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
Name and
Principal Position
Year Securities
Ended Underlying All Other
December 31, Salary($)(1) Bonus($) Options/SARs(#) Compensation($)(2)
<S> <C> <C> <C> <C> <C>
Patrick L. Alexander
President and Chief
Executive Officer 1996 $114,993 $30,473 0 $1,186
1995 108,648 18,000 0 1,114
1994 103,474 0 0 10,374
<FN>
<FN1>
(1) Includes amounts deferred.
<FN2>
(2) Represents contributions made to the MNB Bancshares, Inc.
Employee Stock Ownership Plan (the "ESOP"), of which the
1995 and 1996 contributions have not yet been determined, and
also includes premium payments for an insurance policy purchased
to fund a supplemental disability and death benefit. For 1994,
the amount of the contribution to the ESOP was $9,391 and,
for 1994, 1995 and 1996, the amount of the insurance premium
paid was $983, $1,114, and $1,186.
</FN>
</TABLE>
The following table sets forth certain information concerning the
number and value of stock options at December 31, 1996 held by
the Chief Executive Officer.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs
FY-End (#) at FY-End ($)
<S> <C> <C> <C> <C> <C> <C>
Name Shares Acquired on Value
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Patrick L
Alexander 0 $0 18,108(1) 0 $278,139 $0
<FN>
(1) Includes options resulting from stock dividends paid by the
Company.
</FN>
</TABLE>
Employment Agreement In January, 1993 the Company and the Bank
entered into
an employment agreement with Patrick L. Alexander. The employment
agreement initially
provided for an initial base salary of $94,605, which may be increased but not
decreased,
and an initial term of three years, with one year extensions thereafter
unless the agreement
has been terminated or the Company or Mr. Alexander has provided a notice
of non-
renewal prior thereto. Notwithstanding any such notice, the term of the
agreement will be
extended to three years upon any change in control of the Company or the
Bank, as
defined in the agreement. The employment agreement will terminate upon the
death or
disability of Mr. Alexander, in the event of certain regulatory actions or
upon notice by
either the Company or Mr. Alexander, with or without cause. The
employment agreement
will be suspended in the event of a regulatory suspension of Mr. Alexander's
employment.
In the event of termination of Mr. Alexander's employment due to disability
or without
cause, the Company will be obligated to pay or to provide to him, as
applicable, continued
salary and benefits until the earlier of the expiration of the term of the
agreement or his
death. In the event Mr. Alexander's employment discontinues following a
change in
control of the Company or the Bank, the successor to the Company or the
Bank is
obligated to make a lump sum payment to him equal to three times his then
annual salary
and to continue benefits until the earlier of three years or his death. For
purposes of the
employment agreement, Mr. Alexander's employment will be considered
terminated
following a change in control in the event his right to retain his position
with the Bank or
to exercise fully the authority, duties and responsibilities of such position
is changed or
terminated. The employment agreement includes a covenant which will limit
the ability of
Mr. Alexander to compete with the Bank in an area encompassing a fifty mile
radius from
the Bank's main office for a period of one year following the termination
of his
employment with the Bank. The geographic area covered by this provision
constitutes a portion of the Bank's primary service area.
The Executive Committee has furnished the following report on
executive
compensation. The incorporation by reference of this Proxy Statement into
any document
filed with the Securities and Exchange Commission by the Company shall not
be deemed
to include the report unless the report is specifically stated to be
incorporated by reference into such document.
Executive Committee Report on Executive Compensation
The Executive Committee of the Board of Directors of the Bank is
composed of
six directors and is responsible for recommendations to the Board of Directors
of the
Company for compensation of executive officers of the Bank and the
Company. At this
time no separate salary is paid to the officers of the Company. In
determining
compensation, the following factors are generally taken into consideration:
1. The performance of the executive officers in achieving the
short and long term goals of the Company.
2. Payment of compensation commensurate with the ability and
expertise of the executive officers.
3. Attempt to structure compensation packages so that they are
competitive with similar companies.
The committee considers the foregoing factors, as well as others, in
determining
compensation. There is no assigned weight given to any of these factors.
Additionally, the Executive Committee considers various benefits,
such as the
ESOP and the Stock Option Plan, together with perquisites in determining
compensation.
The committee believes that the benefits provided through the stock based
plans more
closely tie the compensation of the officers to the interests of the
stockholders and provide
significant additional performance incentives for the officers which directly
benefit the stockholders through an increase in the stock value.
Annually, the Executive Committee evaluates four primary areas of
performance in
determining Mr. Alexander's level of compensation. These areas are: long-
range strategic
planning and implementation; Company financial performance; Company
compliance with
regulatory requirements and relations with regulatory agencies; and
effectiveness of
managing relationships with stockholders and the Board of Directors. When
evaluating
the financial performance of the Company, the committee considers
profitability, asset
growth and risk management. The primary evaluation criteria are considered
to be
essential to the long-term viability of the Company and are given equal
weight in the
evaluation. Finally, the committee reviews compensation packages of peer
institutions to
ensure that Mr. Alexander's compensation is competitive and commensurate
with his level of performance.
The 1996 compensation of Mr. Alexander was based upon the factors
described
above and his substantial experience and length of service with the
organization. During
1996, Mr. Alexander successfully headed the Company's acquisition program,
which
included planning, analysis and contacting a number of financial
institutions. The
Executive Committee also considered the continuing additional duties
required in
completing the transition of the Bank from a mutual savings association to a
stock
institution. Neither Mr. Alexander nor Mrs. Roepke participated in any
decisions pertaining to Mr. Alexander's compensation.
Members of the Executive Committee are:
Brent A. Bowman, Chairman
Patrick L. Alexander
Vernon C. Larson
Susan E. Roepke
Donald J. Wissman
William F. Caton
Performance Graph
The incorporation by reference of this Proxy Statement into any document
filed
with the Securities and Exchange Commission by the Company shall not be
deemed to
include the following performance graph and related information unless the
graph and
related information are specifically stated to be incorporated by reference
into the document.
The following graph shows a four year comparison of cumulative total
returns for
the Company, the Nasdaq Stock Market (U.S. Companies) and the Nasdaq
Bank Stocks
index. The Common Stock of the Company was first listed for quotation on
the Nasdaq
National Market System on January 6, 1993. The initial price of the Company
Common
Stock shown in the graph below is based upon the price to the public of $10
per share in
the Company's initial public offering on January 5, 1993. The closing price
quoted on
Nasdaq at the close of business on January 6, 1993, was $14.25 per share.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON JANUARY 6, 1993
*Total return assumes reinvestment of dividends
1/6/93 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C>
MNB Bancshares, Inc. $100 $136 $172 $209 $241
Nasdaq Market - U.S. $100 $114 $111 $157 $194
Nasdaq Bank Stocks $100 $114 $113 $169 $223
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
Company's
Common Stock beneficially owned on April 1, 1997 with respect to all
persons known to
the Company to be the beneficial owner of more than five percent of the
Company's
Common Stock, each director and nominee, each executive officer named in
the Summary
Compensation Table and all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Individual and
Number of Persons in Group Amount and Nature of Percent of
Beneficial Ownership(1) Class
First Save Associates, L.P.
Second First Save Associates,
L.P.
c/o First Manhattan Co.
437 Madison Avenue
New York, New York 10022 47,225 (2) 7.8%
MNB Bancshares, Inc.
Employee Stock Ownership Plan
800 Poyntz Avenue
Manhattan, Kansas 66502 53,054 (3) 8.7%
Jack Goldstein
555 Poyntz Avenue
Manhattan, Kansas 66502 42,557 (4) 7.0%
Patrick L. Alexander
2801 Brad Lane
Manhattan, Kansas 66502 42,791 (5) 6.8%
Mr. Rolla Goodyear
8840 Hanover
Auburn, Kansas 66402 45,643 (6) 7.5%
Susan E. Roepke
2600 Sumac Drive
Manhattan, Kansas 66502 42,211 (7) 6.9%
Directors
Brent A. Bowman 2,365 (8) *
Joseph L. Downey 2,904 *
Charles D. Green 12,784 (8) 2.1%
Vernon C. Larson 4,317 (9) *
Jerry R. Pettle 6,995 (8) 1.1%
Donald J. Wissman 1,213 *
All directors and executive officers
as a group (13 persons) 187,614 (10) 29.1%
*Less than 1%.
<FN>
<FN1>
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of
the designated
group. The nature of beneficial ownership for shares shown in this column is
sole voting
and investment power, except as set forth in the footnotes below. Inclusion
of shares in
this table shall not be deemed to be an admission of beneficial ownership of
such shares.
Amounts shown include shares issued pursuant to a stock dividend paid by the
Company in August, 1996.
<FN2>
(2) Pursuant to an Amendment No. 2, dated May 13, 1996, to a Schedule
13D
filed by First Manhattan CO., as general partner of First Save Associates,
L.P. and Second
First Save Associates, L.P., as increased to reflect shares received as a
result of a stock
dividend paid by the Company in August, 1996.
<FN3>
(3) Includes 10,801 shares which have been allocated to participants'
accounts
under the Company's ESOP.
<FN4>
(4) Pursuant to a Schedule 13D dated November 1 1996.
<FN5>
(5) Includes 2,144 shares held in an IRA of which the power to vote such
shares is shared with the IRA administrator, 19,075 shares over which voting
and
investment power is shared with his spouse, and 1,100 shares over which Mr.
Alexander
has sole investment and voting power. Also includes 18,108 shares presently
obtainable
through the exercise of options granted under the Company's Stock Option
Plan, over
which shares Mr. Alexander has no voting and sole investment power.
<FN6>
(6) Includes 1,014 shares held by Mr. Goodyear's spouse, over which
shares
Mr. Goodyear has no voting or investment power.
<FN7>
(7) Includes 8,721 shares held in an Investment Retirement Account
("IRA"),
of which the power to vote such shares is shared with the IRA administrator,
1,352 shares
held by her spouse and over which Ms. Roepke has shared voting and
investment power
and 6,160 shares presently obtainable through the exercise of options granted
under the
Company's Stock Option Plan, over which shares Ms. Roepke has no voting
and
sole
investment power.
<FN8>
(8) Includes an aggregate of 1,208 shares presently obtainable through the
exercise of options granted under the Company's Stock Option Plan for each
named
individual, over which shares each such person has no voting and sole
investment power.
<FN9>
(9) Includes 4,317 shares held jointly with his spouse and over which Mr.
Larson has shared voting and investment power.
<FN10>
(10) Includes an aggregate of 37,046 shares presently obtainable through
the
exercise of options granted under the Company's Stock Option Plan.
</FN>
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's
executive officers, directors and persons who own more than 10% of the
Company's
Common Stock file reports of ownership and changes in ownership with the
Securities and
Exchange Commission and with the exchange on which the Company's shares
of Common
Stock are traded. Such persons are also required to furnish the Company with
copies of
all Section 16(a) forms they file. Based solely on the Company's review of
the copies of
such forms, the Company is not aware that any of its directors, executive
officers or 10%
stockholders failed to comply with the filing requirements of Section 16(a)
during the
period commencing January 1, 1996 through December 31, 1996, except that
Form 3 for Joseph L. Downey was inadvertently filed late.
TRANSACTIONS WITH MANAGEMENT
Directors and officers of the Company and the Bank and their associates were
customers of and had transactions with the Company and the Bank during
1996.
Additional transactions are expected to take place in the future. All
outstanding loans,
commitments to loan, and certificates of deposit and depository relationships,
in the
opinion of management, were made in the ordinary course of business, on
substantially the
same terms, 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 collectibility or present other unfavorable features.
INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to approve the appointment of KPMG Peat
Marwick
LLP as the Company's independent public accountants for the year ending
December 31,
1997. A proposal will be presented at the annual meeting to ratify the
appointment of
KPMG Peat Marwick LLP. If the appointment of KPMG Peat Marwick LLP
is not
ratified, the matter of the appointment of independent public accountants
will be
considered by the Board of Directors. Representatives of KPMG Peat
Marwick
LLP are
expected to be present at the meeting and will be given the opportunity to
make a
statement if they desire to do so and will be available to respond to
appropriate questions.
The Board of Directors unanimously recommends a vote FOR this
appointment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal which a stockholder of the Company wishes to have
included in the
proxy materials of the Company relating to the next annual meeting of
stockholders of the
Company, which is scheduled to be held in May 1998, must be received at the
principal
executive offices of the Company (MNB Bancshares, Inc., 800 Poyntz
Avenue,
Manhattan, Kansas 66502, attention: Mr. Patrick L. Alexander, President) no
later than
December 19, 1997, and must otherwise comply with the notice and other
provisions of the Company's Bylaws.
GENERAL
Your proxy is solicited by the Board of Directors and the cost of
solicitation will
be paid by the Company. In addition to the solicitation of proxies by use of
the mails,
officers, directors and regular employees of the Company or the Bank, acting
on the
Company's behalf, may solicit proxies by telephone, telegraph or personal
interview. The
Company will, at its expense, upon the receipt of a request from brokers and
other
custodians, nominees and fiduciaries, forward proxy soliciting material to the
beneficial
owners of shares held of record by such persons.
OTHER BUSINESS
It is not anticipated that any action will be asked of the stockholders
other than
that set forth above, but if other matters properly are brought before the
meeting, the
persons named in the proxy will vote in accordance with their best judgment.
FAILURE TO INDICATE CHOICE
If any stockholder fails to indicate a choice in items (1) or (2) on the
proxy card,
the shares of such stockholder shall be voted (FOR) in each instance.
REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH
PERSON
REPRESENTING THAT HE OR SHE WAS A BENEFICIAL OWNER OF
THE
COMPANY'S COMMON STOCK AS OF THE RECORD DATE FOR THE
MEETING,
UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL
REPORT
ON FORM 10-K. SUCH WRITTEN REQUEST SHOULD BE SENT TO
MR. PATRICK L. ALEXANDER, MNB BANCSHARES, INC., P.O. BOX 308,
MANHATTAN, KANSAS 66505.
By order of the Board of Directors
/s/
Patrick L. Alexander
President and Chief Executive Officer
Manhattan, Kansas
April 18, 1997
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAIL THEIR PROXIES PROMPTLY
PROXY FOR COMMON SHARES ON BEHALF OF BOARD OF
DIRECTORS
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF
MNB BANCSHARES, INC. TO BE HELD MAY 19, 1997
The undersigned hereby appoints Patrick L. Alexander and Rolla W.
Goodyear, or
either of them acting in the absence of the other, with power of substitution,
attorneys and
proxies, for and in the name and place of the undersigned, to vote the number
of shares of
Common Stock that the undersigned would be entitled to vote if then
personally present at
the Annual Meeting of the Stockholders of MNB Bancshares, Inc., to be held
at the
Kansas State University Student Union, 17th and Anderson Avenue,
Manhattan, Kansas
66506, on Monday, May 19, 1997, at 2:00 p.m., local time, or any
adjournments or
postponements thereof, upon the matters set forth in the Notice of Annual
Meeting and
Proxy Statement, receipt of which is hereby acknowledged, as follows:
1. ELECTION OF DIRECTORS:
FOR all nominees listed below WITHHOLD
AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN
THE LIST BELOW.)
Class II (term expires 2000): Susan E. Roepke and Donald J. Wissman
2. APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK
LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 1997:
For Against Abstain
3. In accordance with their discretion, upon all other matters that may
properly come
before said meeting and any adjournment or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED UNDER PROPOSAL 1 AND FOR PROPOSAL 2.
Dated:, 1997
Signature(s)
NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR
NAMES
APPEAR ABOVE. ALL JOINT OWNERS OF SHARES SHOULD SIGN.
STATE
FULL TITLE WHEN SIGNING AS EXECUTOR, ADMINISTRATOR,
TRUSTEE,
GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE
ENCLOSED ENVELOPE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,670,159
<INT-BEARING-DEPOSITS> 1,900,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,125,844
<INVESTMENTS-CARRYING> 10,113,010
<INVESTMENTS-MARKET> 10,154,000
<LOANS> 63,533,739
<ALLOWANCE> 819,660
<TOTAL-ASSETS> 103,420,424
<DEPOSITS> 86,709,950
<SHORT-TERM> 2,800,000
<LIABILITIES-OTHER> 1,761,289
<LONG-TERM> 815,020
0
0
<COMMON> 6,052
<OTHER-SE> 11,328,113
<TOTAL-LIABILITIES-AND-EQUITY> 103,420,424
<INTEREST-LOAN> 5,704,030
<INTEREST-INVEST> 1,852,665
<INTEREST-OTHER> 113,214
<INTEREST-TOTAL> 7,669,909
<INTEREST-DEPOSIT> 3,859,838
<INTEREST-EXPENSE> 4,049,150
<INTEREST-INCOME-NET> 3,620,759
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> (15,213)
<EXPENSE-OTHER> 3,233,192
<INCOME-PRETAX> 1,055,864
<INCOME-PRE-EXTRAORDINARY> 1,055,864
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716,530
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 3.67
<LOANS-NON> 140,134
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 826,364
<CHARGE-OFFS> 27,136
<RECOVERIES> 5,432
<ALLOWANCE-CLOSE> 819,660
<ALLOWANCE-DOMESTIC> 611,659
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 208,001
</TABLE>
