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, 1997
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 48-1120026
(State or other (IRS Employer
jurisdiction Identification
of incorporation Number)
or organization)
800 Poyntz Avenue, Manhattan, Kansas 66502
(Address of principal executive offices)
(785) 565-2000
(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.
Yes X No ___
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 27, 1998 was
$8,662,857.* At March 27, 1998, the total
number of shares of common stock
outstanding was 1,288,476.
Documents incorporated by Reference:
Portions of the 1997 Annual Report to
Stockholders for the fiscal year ended
December 31, 1997, 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 18, 1998,
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 27, 1998, 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.
1997 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 OWNERS AND
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 SUBSIDIARIES
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 a subsidiary,
SNB Holdings, Inc., which was formed for
the purpose of holding and managing
portions of the Bank's investment
portfolio. 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 925,750 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 121,440 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 May, 1997, a de novo
branch was opened in Topeka, Kansas. On
December 31, 1997, the Company acquired
Freedom Bancshares, Inc., Osage City,
Kansas ("Freedom"), the holding company
for Citizens State Bank, Osage City,
Kansas ("Citizens"), with a branch in
Beloit, Kansas. Consolidated assets
acquired in this transaction were
approximately $43 million.
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 consumer, commercial, multi-
family, and one-to-four family
residential mortgage loans in the Bank's
principal lending areas, consisting
primarily of Manhattan, Auburn, Topeka,
and Osage City, Kansas and the surrounding
communities in Riley, Pottawatomie,
Shawnee and Osage 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
acquisitions of Auburn and Osage City and
the new branch facility in Topeka.
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, data processing,
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
remaining branches 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
(785) 565-2000.
Market Area
The Bank's home office is located at
800 Poyntz Avenue, Manhattan, Kansas, with
branches located at 1741 N. Washington,
Auburn, Kansas; 6100 SW 21st Street,
Topeka, Kansas; 102 S 6th, Osage City,
Kansas; and 120 E Main, Beloit, 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.
Topeka, Kansas is the state capital.
Osage City is approximately 30 miles south
of Topeka, Kansas and has a population of
2,700.
The Bank's primary deposit gathering
and lending market consists of Riley,
Osage, 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 and
several major private firms and public
institutions. Osage County is primarily
agricultural with small private industries
and business firms.
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, Osage City, 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. Major employers in Osage City
are Kan-Build, Inc., a firm which
specializes in manufactured housing, and
Mussatto Brothers, Inc., a wholesale
beverage distributor.
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, Osage, 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, 1997, the Bank had a
total of 62 employees (57 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 Office of the Comptroller
of the Currency (the "OCC"), the Board of
Governors of the Federal Reserve System
(the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Internal
Revenue Service and state taxing
authorities and the Securities and
Exchange Commission (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 its subsidiaries, 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 its subsidiaries
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 its
subsidiaries.
Recent Regulatory Developments
Pending Legislation. Legislation is
pending in the Congress that would allow
bank holding companies to engage in a
wider range of nonbanking activities,
including greater authority to engage in
securities and insurance activities. The
expanded powers generally would be
available to a bank holding company only
if the bank holding company and its bank
subsidiaries remain well-capitalized and
well-managed. Additionally, the pending
legislation would eliminate the federal
thrift charter and merge the FDIC's Bank
Insurance Fund ("BIF") and Savings
Association Insurance Fund ("SAIF"). At
this time, the Company is unable to
predict whether the proposed legislation
will be enacted and, therefore, is unable
to predict the impact such legislation may
have on the operations of the Company and
the Bank.
The Company
General. The Company, as the sole
shareholder 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 FRB under the Bank
Holding Company Act, as amended (the
"BHCA"). In accordance with FRB 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 FRB and is required to
file with the FRB periodic reports of its
operations and such additional information
as the FRB may require.
Investments and Activities. Under
the BHCA, a bank holding company must
obtain FRB 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 FRB
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 FRB 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
(provided that those limits do not
discriminate against out-of-state
depository institutions or their holding
companies) 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 FRB to be "so
closely related to banking ... as to be a
proper incident thereto." Under current
regulations of the FRB, 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
domestic activities of non-bank
subsidiaries of bank holding companies.
Federal law also prohibits
acquisition of "control" of a bank, such
as the 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 FRB
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 FRB'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%, at least one-half of which 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. For
example, the FRB's capital guidelines
contemplate that additional capital may be
required to take adequate account of,
among other things, interest rate risk, or
the risks posed by concentrations of
credit, nontraditional activities or
securities trading activities. 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 FRB's guidelines, the
capital standards described above apply on
a consolidated basis to bank holding
companies that have more than $150 million
in total consolidated assets, but
generally apply on a bank-only basis to
bank holding companies that, like the
Company, have less than $150 million in
total consolidated assets. Nevertheless,
as of December 31, 1997, the Company's
total capital of $12.3 million is well in
excess of the Federal Reserve Board's
consolidated minimum capital requirements.
Dividends. The FRB has issued a
policy statement with regard to the
payment of cash dividends by bank holding
companies. In the policy statement, the
FRB expressed its view that a bank holding
company should not pay cash dividends
which exceed 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
FRB 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 FRB, the Delaware General
Corporation Law (the "DGCL") allows the
Company to pay dividends only out of its
surplus (as defined and computed in
accordance with the provisions of the
DGCL), 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 SAIF and
the BIF of the FDIC, and the Bank is a
member of the Federal Reserve System. As
a SAIF-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 SAIF. The Bank is
also a member of the Federal Home Loan
Bank System, 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 results of
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.
During the year ended December 31,
1997, SAIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the
semi-annual assessment period beginning
January 1, 1998, SAIF assessment rates
will continue to range from 0% of
deposits to 0.27% of deposits.
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 Federal Savings
and Loan Insurance Corporation, the SAIF's
predecessor insurance fund. Pursuant to
federal legislation enacted September 30,
1996, commencing January 1, 1997, both
SAIF members and BIF members became
subject to assessments to cover the
interest payments on outstanding FICO
obligations. Such FICO assessments are 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. 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. During the year ended December 31,
1997, the FICO assessment rate for SAIF
members was approximately 0.063% of
deposits while the FICO assessment rate
for BIF members was approximately 0.013%
of deposits. During the year ended
December 31, 1997, the Bank paid FICO
assessments totaling $47,116.
OCC Assessments. All 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, 1997,
the Bank paid supervisory fees to the OCC
totaling $39,620.
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
FRB'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, among other things,
interest rate risk or the risks posed by
concentrations of credit, nontraditional
activities or securities trading
activities.
During the year ended December 31,
1997, 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, 1997,
the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio
of 11.70% and a risk-based capital ratio
of 15.74%.
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, in the aggregate, 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 or its holding
company 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,
1997. Further, the 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 Bank's conversion from
the mutual to the stock form of ownership
in 1993. As of December 31, 1997,
approximately $.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, federal law 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
federal banking agencies have adopted
guidelines which establish operational and
managerial standards to promote the safety
and soundness of federally insured
depository institutions. 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 institution's
primary federal regulator may require the
institution to submit a plan for achieving
and maintaining compliance. The preamble
to the guidelines states that the agencies
expect 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 appropriate federal
regulator, 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 banks have the
authority to engage in interstate mergers
to the extent permitted by the Riegle-Neal
Act.
Federal Reserve System. FRB
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 $47.8 million or
less, the reserve requirement is 3% of
total transaction accounts; and for
transaction accounts aggregating in excess
of $47.8 million, the reserve requirement
is $1.434 million plus 10% of the
aggregate amount of total transaction
accounts in excess of $47.8 million. The
first $4.7 million of otherwise reservable
balances are exempted from the reserve
requirements. These reserve requirements
are subject to annual adjustment by the
FRB. 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.
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 1997 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>
Dec 1997 vs 1996 Dec 1996 vs 1995
Inc/(Decr) Inc/(Decr)
Attributable to Attributable to
Volume Rate Net Volume Rate Net
(Dollars in (Dollars in
thousands) thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Investment securities $(166) $ 73 $(93) $ 64 $(10) $ 54
Mortgage-backed securities 202 (25) 177 139 10 149
Loans 104 71 175 380 36 416
Total 140 119 259 583 36 619
Interest expense:
Deposits $ 27 $(36) $ (9) $ 419 $(148) $271
Other borrowings (20) 18 (2) (27) (15) (42)
Total 7 (18) (11) 392 (163) 229
Net interest income $ 133 $137 $270 $ 191 $ 199 $390
December 1995 vs 1994
Increase/(Decrease)
Attributable to
Volume Rate Net
(Dollars in thousands)
Interest income:
Investment securities $200 $183 $ 383
Mortgage-backed securities 74 76 150
Loans 710 397 1,107
Total 984 656 1,640
Interest expense:
Deposits $563 $612 $1,175
Other borrowings (155) 12 (143)
Total 408 624 1,032
Net interest income $576 $ 32 $ 608
</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,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Investment securities:
U.S. government and agency obligations $26,087 $16,965 $20,700
Mortgage-backed securities 11,401 11,734 8,717
Municipal bonds 3,097 2,962 1,968
Bankers' acceptances 108 491 0
FHLB, Federal Reserve, and
Bankers Bank of Kansas stock 1,386 1,087 944
Total $ 42,079 $33,239 $32,329
</TABLE>
As of December 31, 1997, the carrying value,
maturities and the weighted average yields
of investment securities were as follows:
<TABLE>
<CAPTION>
After 1 After 5
Year Years
1 Year Through 5 Through 10 After 10
or Less Years Years Years Total
Amt Yield Amt Yield Amt Yield Amt Yield Amt Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
securities $9,499 5.11% $15,127 6.18% $1,311 6.76% $150 8.35% $26,087 5.88%
Mortgage-
backed
securities 0 0.00 4,332 6.41 2,953 6.26 4,116 6.64 11,401 6.49
Municipal
bonds 285 5.60 2,052 4.59 760 4.70 0 0.00 3,097 4.73
Bankers'
acceptances 0 0.00 0 0.00 0 0.00 108 7.65 108 7.65
FHLB, Federal
Reserve, and
Bankers Bank of
Kansas stock 0 0.00 0 0.00 0 0.00 1,386 4.12 1,386 4.12
Total $9,784 5.16% $21,511 5.81% $5,024 5.70% $5,760 6.00% $42,079 5.67%
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, 1997.
</TABLE>
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
1997 1996 1995
%of % of % of
Amount Total Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4family(1) $37,218 41.95% $33,677 53.84% $34,678 55.41%
Multi-family 4,758 5.36 4,271 6.83 5,225 8.35
Commercial real estate 20,713 23.35 10,041 16.05 7,879 12.59
Total real estate loans(2) 62,689 70.66 47,989 76.72 47,782 76.35
Consumer loans 6,357 7.16 4,696 7.51 4,294 6.86
Commercial non-real estate loans 18,305 20.63 7,410 11.42 7,075 11.31
Student loans 2,887 3.25 3,709 5.93 4,428 7.08
Less:
Unearned fees, discounts and
premiums 120 0.18 151 0.24 159 0.25
undisbursed loan funds 59 0.01 14 0.02 12 0.01
Allowance for loan losses 1,335 1.51 820 1.32 826 0.90
Total loans $88,724 100.00% $62,549 100.00% $ 62,582 100.00%
(1) Includes loans held for sale totaling $743,762, $179,190 and $699,000 at
December 31, 1997, 1996 and 1995, respectively.
(2) Includes construction loans totaling $2,162,000, $2,706,000 and $1,195,000
at December 31, 1997, 1996 and 1995, respectively.
</TABLE>
The following table sets forth the
contractual maturities of loans at
December 31, 1997. The table does not
include unscheduled prepayments.
<TABLE>
<CAPTION>
At December 31, 1997
(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 $6,150 $2,486 $ 2,368 $ 9,140 $28,778 $10,885 $59,807
Other
loans 11,101 6,419 6,941 3,579 2,391 0 30,431
Total $17,251 $8,905 $ 9,309 $12,719 $31,169 $10,885 $90,238
Less:
Unearned
discounts
and
deferred
loan fees (120)
Undisbursed
loan funds (59)
Allowance
for loan
losses (1,335)
Loans, net $88,724
</TABLE>
The following table sets forth at
December 31, 1997 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 $11,910 $20,608 $32,518
Multi-family &
non-residential 5,273 15,866 21,139
Other 14,172 5,158 19,330
Total $31,355 $41,632 $72,987
</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, 1997,
interest earned on such loans during year
ended December 31, 1997 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,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total non-accrual
loans $172 $140 $ 39 $209 $138
Real estate
owned ("REO") 125 27 5 51 54
Total
nonperforming
assets $297 $167 $ 44 $260 $192
Nonperforming
assets to total
adjusted loans 0.34% 0.27% 0.07% 0.50% 0.38%
Nonperforming
assets to total
assets 0.21% 0.16% 0.04% 0.33% 0.24%
Allowance for
loan losses to
non-accrual
loans and REO 448.89% 490.88% 1,871.30% 269.60% 307.00%
</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,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 820 $826 $562 $587 $546
Provision for loan
losses:
Mortgage loans 18 4 23 0 0
Non-mortgage loans 42 11 17 5 75
Total provision for
loan losses 60 15 40 5 75
Allowance for loans
of acquired bank:
Allowance for
mortgage loans
of acquired bank 92 0 103 0 0
Allowance for
non-mortgage loans
of acquired bank 369 0 126 0 0
Total of allowance
for loans of acquired
bank 461 0 229 0 0
Recoveries:
Mortgage loans 1 0 8 12 0
Non-mortgage
loans 10 6 16 4 0
Total recoveries 11 6 24 16 0
Charge-offs:
Mortgage loans 0 1 10 16 34
Non-mortgage
loans 17 26 19 30 0
Total charge-offs 17 27 29 46 34
Balance at end
of year $1,335 $820 $826 $562 $587
Ratio of allowance
for loan losses to
total outstanding
loans (gross) 1.48% 1.29% 1.30% 1.07% 1.16%
Ratio of net charge-
offs during the year
to average loans
outstanding (gross)
during the year 0.01% 0.03% 0.01% 0.06% 0.06%
Ratio of allowance
for loan losses to
total non-performing
loans 773.92% 584.91% 2,107.57% 269.00% 307.00%
</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,
1997 1996 1995
% 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 $ 486 36% $ 375 46% $ 372 45%
Non-mortgage loans 849 64 445 54 454 55
Total $1,335 100% $ 820 100% $ 826 100%
</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,
1997 1996 1995
% of Average % of Average % of Average
Amount Total Rate Amount Total Rate Amount Total Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transaction
Accounts:
Checking/NOW $20,748 23.61% 2.44% $18,677 21.39% 2.64% $15,372 19.77% 2.74%
Money market
deposits 15,378 17.50 3.76 15,984 18.31 3.71 10,102 12.99 4.61
Savings 5,100 5.80 2.44 5,526 6.33 2.04 5,227 6.72 2.61
Total
transaction
accounts 41,226 46.91 2.93 40,187 46.03 3.04 30,701 39.48 3.33
Certificates
of deposit 46,666 53.09 5.66 47,113 53.97 5.60 47,062 60.52 5.45
Total deposits $87,892 100.00%4.38% $87,300 100.00% 4.42% $77,763 100.00%4.61%
</TABLE>
As of December 31, 1997, the aggregate
amount outstanding of jumbo certificates
of deposit (amounts of $100,000 or more)
was $11.6 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 $ 5,584
Over 3 months through 6 months 1,457
Over 6 months through 12 months 1,925
Over 12 months 2,664
Total $11,631
</TABLE>
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
At or for the years ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Return on average assets 1.03% 0.70% 0.78% 0.82% 0.86%
Return on average equity 9.18 6.54 7.48 7.39 7.99
Equity to total assets 8.48 10.96 10.68 11.72 10.84
Dividend payout ratio 31.00 27.43 19.08 18.94 13.02
Earnings per share before
extraordinary item,
basic(1) 0.84 0.56 0.61 0.61 0.59
Earnings per share before
extraordinary item,
diluted(1) 0.81 0.54 0.59 0.60 0.59
Net earnings per share,
basic(1) 0.84 0.56 0.61 0.58 0.59
Net earnings per share,
diluted(1) 0.81 0.54 0.59 0.57 0.59
(1) All per share amounts have been adjusted to give effect to the 5% stock
dividends paid by the Company in 1997, 1996, 1995 and 1994, and the
February, 1998 two-for-one stock split.
</TABLE>
ITEM 2. PROPERTIES
The following table sets forth information
concerning the offices of the Bank.
<TABLE>
<CAPTION>
Year Opened Square
Address or Acquired Square Title
<S> <C> <C> <C>
800 Poyntz Avenue
Manhattan, KS 66502 1974 12,000 Owned
1741 N. Washington
Auburn, KS 66402 1991 8,000 Owned
6100 SW 21st Street
Topeka, KS 1989 3,500 Leased
102 S 6th
Osage City, KS 1997 7,932 Owned
120 E. Main
Beloit, KS 1997 7,236 Owned
</TABLE>
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
1997 Annual Report to Stockholders for the
fiscal year ended December 31, 1997
(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 1997 Annual
Report to Stockholders for the fiscal year
ended December 31, 1997 (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 1997 Annual
Report to Stockholders for the fiscal year
ended December 31, 1997 (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 1997 Annual
Report to Stockholders for the fiscal year
ended December 31, 1997 (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 18, 1998 (the
"1998 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, 1997 through
December 31, 1997.
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:
<TABLE>
<CAPTION>
Name Age Positions With the Company
<S> <C> <C>
Patrick L. Alexander 45 President and Chief Executive Officer
Susan E. Roepke 58 Vice President, Secretary and Treasurer
</TABLE>
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 1998 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 1998 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 1998 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 SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following audited Consolidated
Financial Statements of the Company and
its subsidiaries and related notes and
auditors' report are incorporated by
reference from the Company's 1997 Annual
Report to Stockholders for the fiscal year
ended December 31, 1997 (attached as
Exhibit 13.1 hereto).
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31,
1997 and 1996
Consolidated Statements of Earnings -
Years Ended December 31, 1997, 1996 and
1995
Consolidated Statements of Stockholders'
Equity - Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and
1995
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
Reports on Form 8-K were filed on the
following dates: October 22, 1997 and
December 31, 1997.
On October 22, 1997, a report on 8-K to
report under Item 5 the signing of an
Agreement and Plan of merger with Freedom
Bancshares, Inc., a Kansas corporation.
On December 31, 1997, a report on 8-K to
report under Item 2 the acquisition of all
of the issued and outstanding stock of
Freedom Bancshares, Inc., a Kansas
corporation.
***
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
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.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
<S> <C> <C>
/s/ Patrick L. Alexander March 18, 1998 President, Chief Executive
Officer and Director
/s/ Susan E. Roepke March 18, 1998 Chief Financial Officer,
Chief Accounting Officer,
and Director
/s/ Brent A. Bowman March 18, 1998 Chairman of the Board
/s/ Joseph L. Downey March 18, 1998 Director
/s/ Rolla W. Goodyear March 18, 1998 Director
/s/ Charles D. Green March 18, 1998 Director
/s/ Vernon C. Larson March 18, 1998 Director
/s/ Jerry R. Pettle March 18, 1998 Director
/s/ Donald J. Wissman March 18, 1998 Director
</TABLE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
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 Jerry R. Pettle-Incorporated by
reference from Exhibit 10.9 to Form 10-K dated
March 26, 1994
10.7 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
10.8 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
10.9 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
10.10 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
10.11 Security National Bank Deferred Compensation N/A
Plan, dated December 21, 1994-Incorporated
by reference from Exhibit 10.20 dated March 26,
1994
10.12 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
10.13 Stock Option Agreement between the Company N/A
and Michael E. Scheopner,Dated May 13, 1996-
Incorporated by reference from Exhibit 10.15
to Form 10-K dated March 31, 1997.
10.14 Agreement and Plan of Merger between the N/A
Company and Freedom Bancshares, Inc.,
dated September 16, 1997-Incorporated by
reference from Exhibit 2.1 to Form 8-K dated
September 18, 1997.
13.1 1997 Annual Report to Stockholders of the Company
for the fiscal year ended December 31, 1997
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 18, 1998
EXHIBIT 13.1
ANNUAL REPORT TO STOCKHOLDERS OF THE
COMPANY FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
CORPORATE PROFILE
MNB Bancshares, Inc. (the "Company") is a
holding company which is headquartered in
Manhattan, Kansas. Its wholly-owned
subsidiary, Security National Bank (the
"Bank"), also has its home office in
Manhattan, Kansas, with branch offices
operating in Auburn, Beloit, Osage City
and Topeka, Kansas. The Bank is dedicated
to providing quality services to its local
communities and continues to originate
commercial real estate and non real estate
loans, small business loans, residential
mortgage loans, consumer loans, home
equity loans and student loans.
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 was accounted
for using the purchase method of
accounting. 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.
On December 31, 1997, the Company acquired
Freedom Bancshares, Inc., Osage City,
Kansas ("Freedom"), the holding company
for Citizens State Bank, Osage City,
("Citizens"), with a branch in Beloit,
Kansas. Consolidated assets acquired in
this transaction were approximately $43
million. This acquisition, which was
accounted for using the purchase method of
accounting, is reflected in the December
31, 1997 consolidated balance sheet.
However, Freedom's results of operations
are not reflected in the Company's 1997
results of operations.
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
TO OUR STOCKHOLDERS, CUSTOMERS AND FRIENDS
I am excited to report once again that
your Company has experienced another
record-breaking year in 1997. Net earnings
exceeded $1 million, which resulted in a
return on average assets of 1.03%. Cash
dividends continued at the rate of fifty
cents per share, twenty-five cents per
share as adjusted for the 1998 two-for-one
stock split, and we also continued our
annual five percent stock dividend. We
opened a new banking facility in Topeka,
Kansas and acquired Freedom Bancshares,
Inc., with banks in Osage City and Beloit,
Kansas. Total assets grew to approximately
$144.8 million. Finally, reflecting our
continued growth and profitability, a two-
for-one stock split was declared in
January of 1998 and paid in February. All
of these significant achievements reflect
the growth and success of your Company.
This success continues to strengthen our
resources and allows us to gain increased
momentum in the delivery of financial
services in a community bank environment.
All of this translates into enhanced value
for you, our stockholders.
Net earnings for the year grew to $1.1
million, or diluted earnings per share of
$1.61 ($.81 adjusted for the stock split).
This increase was driven by growth in net
interest income to $3.9 million in 1997
versus $3.6 million in 1996, an increase
of 7.5%. Noninterest income remained
steady at $690,000. Exclusive of the FDIC
assessment recorded in 1996 to
recapitalize the insurance fund,
noninterest expense rose a modest $193,000
in 1997 due in large part to the opening
of the Topeka branch in May, 1997.
These financial performance achievements
are the result of the efficiencies we have
garnered as we have integrated our bank
facilities into one comprehensive
organization. This concentration of effort
allows us to remain focused on the person-
to-person delivery of community banking
services to our customers. The ability of
our customers to deal with decision makers
allows us to continue diversifying our
balance sheet to have less dependence on
residential real estate lending and
increasing emphasis on consumer and
commercial lending. Additionally, we
continue to grow and expand our core
deposit base which provides us with
lower-cost funds and loyal customers.
We are extremely excited about the
reception Security National Bank has
received in the Topeka, Kansas market. On
May 5, 1997, we opened a de novo branch at
the commercial hub of 21st and Wanamaker
Streets in Topeka. Normally, the expense
associated with opening a new facility
would decrease a company's performance in
its first year of operation. The Topeka
bank, however, was virtually a turnkey
operation and our physical facility and
occupancy costs were minimal. Since
opening its doors, the Topeka branch has
performed extremely well and has generated
over $5 million of commercial and consumer
loans and approximately $2 million in
deposits. We are very pleased by these
results and the commitment of our staff to
making our Topeka presence grow and be
felt throughout the Topeka marketplace. We
look for this momentum to continue to
accelerate in 1998.
Adding to our growth and enthusiasm in the
northeast Kansas market was our year-end
acquisition of Freedom Bancshares, Inc.,
the holding company for Citizens State
Bank, Osage City, Kansas. With
approximately $43 million in assets,
Citizens State Bank had the dominant
banking market share in Osage City. The
acquisition of Citizens State Bank, now a
part of Security National Bank, provides
us with another attractive community bank
that will complement our efforts in Topeka
and Auburn. The former Citizens State Bank
staff will provide us with continuity in
the Osage City market, and the resources
of Security National Bank will allow for
improved delivery of financial services to
the community. Additionally, the
acquisition of this bank via an all-cash
transaction allowed us to further leverage
our balance sheet and provide a better
allocation of our capital resources in
order to achieve an improved return on
equity for our stockholders.
Over the last three years, your Company
has doubled in size from $77.8 million to
$144.8 million in total assets. Net
earnings have increased from $655,000 to
$1.1 million. This dramatic increase in
assets and earnings was accomplished
without corresponding incremental
increases in our managerial
infrastructure. In order to continue to
achieve our goals of sustained asset and
earnings growth, it will be necessary to
add to our managerial resources and talent
pool. We plan to selectively and carefully
augment our managerial resources in order
to continue our growth and expansion
efforts. Although the attraction of top-
quality banking talent is not an
inexpensive venture, we feel that this
investment will pay handsome dividends in
the long-term growth and profitability of
the Company.
There has been much media coverage
recently regarding the Year 2000 and the
impact this event will have on data
processing in general and banking in
particular. Year 2000 issues have been
given the highest priority and are being
vigorously addressed by your Company's
senior management group. Resources have
been dedicated to the timely and thorough
resolution of any Year 2000 compliance
issues. Additionally, alarms, elevators,
heating and cooling systems, and other
computer-controlled mechanical devices on
which the Company relies are being
evaluated. Those found not to be in
compliance will be modified or replaced
with a compliant product. While we know
there will be some expense associated with
remediation of any existent problems, at
this time we have not identified any
situations that will require material cost
expenditures to become fully compliant. We
are also communicating with key bank
customers to evaluate whether they are
properly prepared for the Year 2000 and
will not suffer serious adverse
consequences.
MNB Bancshares, Inc. is extremely well
positioned to continue the growth and
successes of the past several years. There
are more than 400 banks in the state of
Kansas. Most are family owned and have
management succession issues which need to
be addressed. We feel these families will
be more comfortable joining our community-
oriented organization than selling out to
a large, possibly out-of-state based
institution. The trend in the banking
industry is toward consolidation and
increasing size in order to compete
effectively. As one of only two publicly
traded bank holding companies domiciled in
Kansas, we are extremely excited about the
potential and prospects for continued
growth and acquisitions. It is imperative
that we continue to expand, but we do not
intend to do so to the detriment of our
existing stockholder base. We will
continue to look for strategic
acquisitions that will enhance our market
presence and create value for our
stockholders. We feel we have a banking
strategy that will accomplish that goal.
As we continue to grow, we will not lose
sight of the importance and value of
maintaining and developing relationships
with our customers. We will stay focused
on the delivery of financial services to
our customers in a community bank setting.
Our customers will continue to be able to
deal with professional bankers who can
answer their questions and provide
solutions to their financial services
needs. We must continue to differentiate
ourselves as a community bank that is
quick, flexible, innovative and
responsive.
People have been the key ingredient to our
past successes and will continue to be the
key to our future. I would like to
personally thank all of our associates
whose efforts have brought about your
Company's successes. I would also like to
thank our customers who have placed their
confidence in us to meet their banking
needs. Finally, I would like to thank you,
our stockholders, for your investment and
belief in our efforts and our vision. I am
excited about our opportunities and
prospects for the future.
Sincerely,
Patrick L. Alexander
President and Chief Executive Officer
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA OF
MNB BANCSHARES, INC.
At or for the years ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands,
except per share amounts
and percentages)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $144,752 $103,420 $101,185 $77,797 $80,265
Loans, net (1) 88,724 62,549 62,582 51,882 50,141
Mortgage-backed securities 11,401 11,734 8,717 5,569 5,098
Deposits 122,209 86,710 86,399 61,440 61,351
Borrowings 9,099 3,615 2,881 6,694 9,130
Stockholders' equity 12,276 11,334 10,810 9,114 8,702
Book value per share (2) 9.56 8.92 8.51 7.93 7.60
Selected Operating Data:
Total interest income $ 7,929 $ 7,670 $ 7,051 $ 5,411 $ 5,513
Total interest expense 4,038 4,049 3,820 2,788 3,060
Net interest income 3,891 3,621 3,231 2,623 2,453
Provision for loan losses 60 15 40 5 75
Net interest income after
provision for loan losses 3,831 3,606 3,191 2,618 2,378
Gains on sales of loans 99 75 95 79 389
Other noninterest income 591 608 432 264 198
Total noninterest income 690 683 527 343 587
Total noninterest expense 2,977 3,233 2,618 1,869 1,884
Income tax expense 471 339 347 398 413
Net earnings before
extraordinary item 1,073 717 753 694 668
Extraordinary item 0 0 0 39 0
Net earnings $ 1,073 $ 717 $ 753 $ 655 $ 668
Net earnings per share
before extraordinary
item (2):
Basic .84 .56 .61 .61 .59
Diluted (3) .81 .54 .59 .60 .59
Net earnings per share (2):
Basic .84 .56 .61 .58 .59
Diluted (3) .81 .54 .59 .57 .59
Dividends per share (2) .25 .15 .11 .11 .08
Other Data:
Return on average assets 1.03% 0.70% 0.78% 0.82% 0.86%
Return on average equity 9.18 6.54 7.48 7.39 7.99
Equity to total assets 8.48 10.96 10.68 11.72 10.84
Net interest rate spread (4) 3.49 3.28 3.02 2.96 2.86
Net yield on average
interest-earning assets (5) 3.89 3.67 3.55 3.38 3.23
Average interest-earning assets
to average interest-bearing
liabilities 109.82 109.56 112.58 111.67 109.30
Other expenses to average
assets 2.86 3.15 2.71 2.34 2.42
Nonperforming loans to total
loans 0.19 0.22 0.06 0.40 0.28
Net charge-offs to average
loans 0.01 0.03 0.01 0.06 0.07
Nonperforming assets to total
assets 0.21 0.16 0.04 0.33 0.24
Dividend payout ratio 31.00 27.43 19.08 18.94 13.02
Number of full service banking
offices 5 2 2 1 1
(1) Loans are presented after adjustments for undisbursed loan funds,
unearned fees and discounts and the allowance for losses.
(2) All per share amounts have been adjusted to give effect to the 5%
stock dividends paid by the Company in 1997, 1996, 1995 and 1994
and the February, 1998 two-for-one stock split.
(3) Diluted net earnings per share, before FDIC special assessment
(net of tax) was $0.76 in 1996.
(4) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(5) Represents net interest income as a percentage of average interest-
earning assets.
</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 its two banking subsidiaries,
Manhattan National Bank and Security State
Bank, to form Security National Bank. On
December 31, 1997, the Company acquired
Freedom Bancshares, Inc. ("Freedom"),
Osage City, the holding company for
Citizens State Bank, Osage City, Kansas,
("Citizens"), with a branch in Beloit,
Kansas. Consolidated assets acquired in
this transaction were approximately $43
million and are reflected in the December
31, 1997 consolidated balance sheet. This
acquisition, which was accounted for using
the purchase method of accounting, is
reflected in the December 31, 1997
consolidated balance sheet. However,
Freedom's results of operations are not
reflected in the Company's 1997 results of
operations.
The Company had record net earnings of
$1.1 million in 1997, an increase of
$356,014, or 49.7%, over 1996. The return
on average assets was 1.03% compared to
.70% in 1996. Return on average equity was
9.18% and diluted net earnings per share
was $1.61. Based on this financial
performance, the Board of Directors
declared dividends of fifty cents per
share in 1997, a five percent stock
dividend in May, and in February, 1998, a
two-for-one stock split was paid to
stockholders of record on January 28,
1998. 1997 earnings per share, adjusted
for this stock split, was $.81. Adjusted
dividends per share, was $.25 in 1997.
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 commercial and consumer
loans, multi-family residential mortgage
loans and one-to-four family residential
mortgage loans.
Deposits of the Bank are insured by both
the Savings Association Insurance Fund
(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
of ownership of the Bank, with its main
office in Manhattan and branch offices in
Auburn, Beloit, Osage City and Topeka,
Kansas. In January of 1997, the Bank
acquired the Goodyear Insurance Agency of
Auburn, Kansas. This acquisition allows
the Bank to offer a full line of insurance
products to its entire customer base. The
Company plans to continue to expand and
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, 1997 AND 1996
GENERAL. Net earnings for 1997 increased
49.7% to $1.1 million from $716,530 in
1996. In 1996, the Company had an expense
of $449,000, a one-time assessment to
recapitalize the SAIF of the FDIC. Absent
this expense, net earningswould have been
$1.0 million in 1996. Net interest income
increased $270,400 or 7.5% to $3.9 million
compared to $3.6 million in 1996. Gains on
sale of loans increased 31.7%, or $23,931,
to $99,381, while fees and service charges
decreased $10,225, or 2.0%, to $506,899.
Non-interest expense increased $193,389,
exclusive of the FDIC special assessment
recorded in 1996, or 6.9%, to $3.0
million. This increase was due in large
part to the opening of the new branch
facility in Topeka in May, 1997.
INTEREST INCOME. Interest income increased
$258,961, or 3.4% to $7.9 million from
$7.7 million in 1996. Average interest-
earning assets increased from $98.7
million in 1996 to $100.1 million in 1997.
The average yield on interest-earning
assets increased slightly from 7.8% to
7.9% in 1997. Interest income on loans
increased $175,174, or 3.1%, to $5.9
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 increased 8.9% to
$36.5 million from $33.5 million while
commercial real estate increased 78.0% to
$25.5 million from $14.3 million.
Additionally, consumer, student and non-
mortgage commercial loans outstanding at
December 31, 1997 increased 77.2% to $27.5
million from $15.5 million. Prior to the
Freedom acquisition, loans on one-to-four
family residences held in the portfolio
decreased 11.4% to $29.7 million from
$33.5 million. Commercial real estate
loans increased from $14.3 million to
$17.5 million, or 22.2%, and consumer and
commercial non-mortgage loans increased
14.2% from $15.5 million to $17.7 million.
Interest income on investment and
mortgage-backed securities increased 4.3%
to $2.1 million from $2.0 million in 1996.
INTEREST EXPENSE. Interest expense
decreased $11,439, or 0.3%, compared to
1996. Deposit interest expense remained
level at $3.9 million in 1997. Interest on
borrowings, consisting of advances from
the FHLB, declined 1.3% to $186,822,
despite an increase in the average
balances from $2.7 million to $3.2
million. Freedom had borrowings from the
FHLB of $2.9 million which the Company
assumed, and the Company also borrowed an
additional $2.9 million for the Freedom
acquisition. These amounts contributed to
the increased total borrowings of $9.1
million at December 31, 1997.
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 to $3.9
million in 1997 compared to $3.6 million
in 1996. This was the result of the yield
on interest-earning assets increasing
slightly from 7.8% in 1996 to 7.9% in
1997, while the cost of interest-bearing
liabilities decreased from 4.5% in 1996 to
4.4% in 1997. The Company's ratio of
interest-earning assets to interest-
bearing liabilities increased to 109.8% in
1997 versus 109.6% in 1996, which also
contributed to the net interest margin
increasing from 3.7% in 1996 to 3.9% in
1997.
PROVISION FOR LOAN LOSSES. The provision
for loan losses increased from $15,000
during 1996 to $60,000 in 1997. At
December 31, 1997, the allowance for loan
losses was $1.3 million, which was 1.5% of
gross loans outstanding. The acquisition
of Freedom caused the allowance for loan
losses to increase by $461,389 as
Freedom's allowance for loan losses was
combined with the Company's allowance. At
December 31, 1996, the ratio of the
allowance to gross loans outstanding was
1.3%. No provision for loan losses was
made during the first nine months of 1996.
After reviewing the portfolio and
completing an economic analysis, a
provision of $5,000 per month was resumed
during the fourth quarter of 1996 and
continued in 1997. 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 1997 were
$6,025, compared to $21,704
in 1996.
NONINTEREST INCOME. Noninterest income
increased 1.0% to $690,109 in 1997 from
$683,297 in 1996. The increase resulted
from an increase of 31.7% in gains on sale
of loans from $75,450 in 1996 to $99,381
in 1997. The decrease of 7.6% to $83,829
for other income included a receipt of
$69,808 in 1996 in interest on an income
tax refund for tax years of 1978 and 1979.
Absent this refund, other noninterest
income would have increased $62,914, or
300.8%. These increases were partially
offset by a decrease in fees and service
charge income of $10,225 from $517,124 to
$506,899, or 2.0%, and a loss on sale of
investment securities available for sale
of $21,309 as the Company sought to
reposition its portfolio and lengthen its
maturities. Some lower-yield, short-term
securities were sold and the proceeds
reinvested in intermediate maturity
securities with higher yields.
<TABLE>
<CAPTION>
Noninterest Income: 1997 1996 1995
<S> <C> <C> <C>
Fees and service charges $506,899 $517,124 $391,314
Gains on sales of loans 99,381 75,450 95,425
Other 83,829 90,723 39,921
Total noninterest income $690,109 $683,297 $526,660
</TABLE>
NONINTEREST EXPENSE. Noninterest expense
decreased $255,611, or 7.9%, to $3.0
million, primarily due to the $449,000
one-time 1996 FDIC assessment. Stationery,
printing and office supplies decreased
$14,516, or 17.0%, as a result of the
change of name and the consolidation of
the bank subsidiaries in 1996.
Additionally, there were decreases in
professional fees of $33,033, or 21.9%,
from $151,041 in 1996 to $118,008 in 1997,
and regular FDIC premiums from $121,633 in
1996 to $47,116, or 61.3% in 1997.
Partially offsetting these decreases was a
14.4% increase in occupancy and equipment
expense to $431,110 in 1997 from $376,823
in 1996, due in large part to the new
Topeka branch facility opened in May.
Compensation and benefits increased from
$1.2 million in 1996 to $1.4 million, also
largely due to the new branch. Other
operating expenses increased $70,833, or
11.8%.
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, 1997,
1996 and 1995. 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 12/31/97 Year Ended 12/31/96 Year Ended 12/31/95
Average Average Average Average Average Average
Bal Int Yield/ Bal Int Yield/ Bal Int Yield/
Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning
assets:
Investment
securities (1) $23,232 $1,292 5.56% $26,149 $1,385 5.30% $24,914 $1,331 5.34%
Mortgage-
backed and
mortgage-
derivative
securities 11,769 758 6.44 8,609 581 6.75 6,541 432 6.60
Loans
receivable,
net (2) 65,057 5,879 9.04 63,894 5,704 8.93 59,603 5,288 8.87
Total interest-
earning
assets 100,058 7,929 7.92 98,652 7,670 7.77 91,058 7,051 7.74
Noninterest-
earning
assets 4,111 4,065 5,415
Total $104,169 $102,717 $96,473
Liabilities and
Stockholders'
Equity:
Interest-bearing
liabilities:
Certificates
of deposit $46,666 $2,642 5.66% $47,113 $2,638 5.60% $47,062 $2,566 5.45%
Money market
deposits 15,378 578 3.76 15,984 594 3.71 10,102 466 4.61
Other
deposits 25,847 631 2.44 24,203 628 2.59 20,599 557 2.70
FHLB
advances
and
other
borrowings 3,221 187 5.81 2,746 189 6.88 3,122 231 7.40
Total interest-
bearing
liabilities 91,112 4,038 4.43 90,046 4,049 4.49 80,885 3,820 4.72
Noninterest-
bearing
liabilities 1,375 1,715 5,519
Stockholders'
equity 11,682 10,956 10,069
Total $104,169 $102,717 $96,473
Net interest
income $3,891 $3,621 $3,231
Interest rate spread (3) 3.49% 3.28% 3.02%
Net interest margin (4) 3.89% 3.67% 3.55%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 109.82% 109.56% 112.58%
(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.
(2) Includes non-accrual loans.
(3) Interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS
ENDED DECEMBER 31, 1997 AND 1996
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.
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 were not
reflected in the Company's results for the
first quarter of 1995. The acquisition of
Auburn also contributed to the increase in
noninterest 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 had a ratio of interest-
earning assets to interest-bearing
liabilities of 109.6% in 1996 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 reviewing 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. 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 for 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 securities were sold and the proceeds
reinvested in intermediate securities.
NONINTEREST EXPENSE. Noninterest expense
increased $615,366, or 23.5%, to $3.2
million. Of this amount, $449,000 was
attributable to the FDIC 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 from $312,224 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 to $61,151, 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.
CAPITAL RESOURCES AND LIQUIDITY
ASSETS. The Company's total assets
increased to $144.8 million at December
31, 1997 compared to $103.4 million at
December 31, 1996. This significant
increase was largely due to the December
31, 1997 acquisition of Freedom. 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, 1997,
1996 and 1995, the Company originated
mortgage loans in the amounts of $30
million, $29 million and $20 million,
respectively. Mortgage loans originated
for retention in the Company's portfolio,
which includes commercial real estate
loans, amounted to $16.0 million, $19.9
million and $9.5 million, for the years
ended December 31, 1997, 1996 and 1995,
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, 1997, 1996 and
1995, the Company originated a total of
consumer, commercial non-mortgage, and
guaranteed student loans of approximately
$19.3 million, $11.1 million and $9.4
million, respectively. Management will
continue its efforts to diversify the loan
portfolio.
The quality of the loan portfolio
continues to be strong. As of December 31,
1997, eight real estate loans were more
than 30 days past due with a total balance
of $223,970, which is 0.3% of total loans
outstanding. Additionally, four
residential loans totaling $38,601 were on
non-accrual status as of December 31,
1997. Excluding guaranteed student loans,
there were twenty-four consumer loans over
30 days past due in the amount of
$115,363, which was 0.1% of total loans
outstanding, and nine loans totaling
$39,243 were on non-accrual. Six
commercial loans totaling $54,566, or 0.1%
of total loans outstanding, were over 30
days past due, and six loans totaling
$94,657 were on non-accrual.
During the years ended December 31, 1997,
1996, and 1995, the Company purchased
securities to be held-to-maturity and
available-for-sale in the amounts of $9.3
million, $15.6 million and $16.1 million,
respectively. This was funded primarily by
deposits and maturities of existing
securities
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION COMPARISON
Balance Balance
(after (before % Change
acquisition) acquisition) Balance (after
Type 12/31/97 12/31/97 12/31/96 acquisition)
<S> <C> <C> <C> <C>
1-4 Family Residential $36,474,564 $29,683,874 $33,498,175 8.89%
Commercial Real Estate 25,470,886 17,486,395 14,311,542 77.97%
Consumer & Commercial
Non-Mortgage 27,549,571 17,474,473 15,544,832 77.23%
$89,495,021 $64,917,743 $63,354,549
</TABLE>
LIABILITIES. Interest-bearing liabilities
at December 31, 1997 totaled $118.4
million. This increased from $85.1 million
at December 31, 1996 due to the Freedom
acquisition.
The deposit base continues to diversify
consistent with management's overall
efforts to lower interest costs.
Noninterest-bearing demand deposits
increased $7.6 million from December 31,
1996 to $12.9 million, or 10.6% of total
deposits at December 31, 1997. NOW account
deposits increased $6.1 million to $21.3
million at the end of 1997 from $15.2
million at December 31, 1996 and
represented 17.4% of the deposit base at
December 31, 1997. Money market accounts
increased $4.9 million to $18.7 million in
1997 compared to $13.8 million in 1996 and
remained steady at 15.3% of the portfolio.
Savings accounts remained steady at 5.7%
and certificates of deposit represented
51.0% of the deposit base at December 31,
1997, compared to 54.6% of the deposit
base at the end of 1996. The acquisition
of Freedom was responsible for most of the
increases.
<TABLE>
<CAPTION>
DEPOSIT PORTFOLIO COMPOSITION COMPARISON
Balance Balance
(after (before % Change
acquisition) acquisition) Balance (after
Type 12/31/97 12/31/97 12/31/96 acquisition)
<S> <C> <C> <C> <C>
DDA $ 12,882,942 $ 9,585,815 $ 5,260,221 144.91%
NOW 21,299,194 13,946,563 15,151,441 40.58%
MMDA 18,671,116 14,674,565 13,784,369 35.45%
Savings 6,974,204 4,850,860 5,162,275 35.10%
Certificates 62,381,081 45,087,425 47,351,374 31.74%
$122,208,537 $88,145,228 $86,709,950
</TABLE>
Certificates of deposit at December 31,
1997, which were scheduled to mature in
one year or less totaled $41.7 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 flows used in operating
activities was $110,458 for the year ended
December 31, 1997, compared to cash flows
provided by operating activities of $2.4
million in 1996.
Net cash used in investing activities was
$1.1 million in 1997 compared to $1.6
million in 1996, exclusive of the December
31, 1997 acquisition of Freedom. Net loans
increased approximately $1.5 million in
1997 versus an increase of $485,488 in
1996. Maturities and prepayments of
investment securities held-to-maturity
were $4.6 million in 1997 versus $6.9
million in 1996. No purchases of
securities held-to-maturity were made in
1997 compared to $898,789 in 1996.
Purchases of securities available-for-sale
in 1997 were $9.3 million compared to
$14.7 million in 1996.
Net cash provided by financing activities
was $3.4 million in 1997 compared to
$893,716 provided in 1996. Exclusive of
the acquisition, deposits increased $1.4
million in 1997 compared to $310,507 in
1996 and FHLB advances decreased $800,000
in 1997 compared to an increase of
$775,000 in 1996. In addition, $2.9
million of a $3.5 million line of credit
was borrowed by the Company to finance the
purchase of Freedom.
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, 1997 and
1996 these assets totaled $42.1 million
and $27.7 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, 1997, the
Company had outstanding FHLB advances of
$5.4 million, and no borrowings were
outstanding on its $15.0 million line of
credit with the FHLB. FHLB borrowings of
$2.9 million were acquired in the Freedom
acquisition. Additionally, the Company
has guaranteed a loan made to the
Company's Employee Stock Ownership Plan
(the "ESOP") with a balance at December
31, 1997 of $271,187. The loan was made to
fund the ESOP's purchase of shares in the
Company's common stock offering in 1994.
The total borrowings by the Company were
$9.1 million at December 31, 1997 compared
to $3.6 million at December 31, 1996. This
includes the $2.9 million borrowed by the
Company for the acquisition of Freedom.
At December 31, 1997, the Company had
outstanding loan commitments of $15.5
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.
LOAN COMMITMENTS
Amount
Letters of credit $591,400
Unfunded lines of credit 11,358,647
Real Estate Loans:
Construction 3,104,719
Purchases 450,075
Total $15,504,841
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
$12.3 million is, however, well in excess
of the Federal Reserve Board's
consolidated minimum capital requirements.
At December 31, 1997, the Bank continued
to maintain a sound Tier 1 capital ratio
of 11.70% and a risk based capital ratio
of 15.74%. As shown by the following
table, the Bank's capital exceeded the
minimum capital requirements: (dollars in
thousands)
Amount Percent Required
Tier 1 Leverage
Capital $12,109 11.70% 4.00%
Risk Based
Capital $13,153 15.74% 8.00%
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 1997, dividends of $.25 per share
were paid to the stockholders and a 5%
stock dividend was paid May 15, 1997 to
all stockholders of record on May 1, 1997.
The cash dividend is an increase of $.10
per share over 1996 which was $.15 per
share. In addition, a two-for-one stock
split was paid February 9, 1998, to
stockholders of record January 28, 1998.
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, 1997. As of December 31, 1997,
approximately $869,000 was available to be
paid as dividends to the Company by the
Bank.
RECENT ACCOUNTING DEVELOPMENTS
The Company will adopt Statement of
Financial Accounting Standard (SFAS) Nos.
125 and 127 relating to transfers and
servicing of financial assets and
extinguishments of liabilities during 1997
and 1998, according to the required
implementation dates. SFAS No. 125,
adopted January 1, 1997, did not have a
material effect on the financial
statements. The adoption of SFAS No. 127
is not expected to have a material effect
on the financial statements.
SFAS No. 130, "Reporting Comprehensive
Income", requires the reporting of
comprehensive income and its components in
the fiscal 1998 financial statements.
Comprehensive income is defined as the
change in equity from transactions and
other events and circumstances from non-
owner sources, and excludes investments by
and distributions to owners.
Comprehensive income includes net income
and other items of comprehensive income
meeting the above criteria. The Company's
most significant component of other
comprehensive income is unrealized holding
gains and losses on available for sale
securities.
SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information",
requires reporting about operating
segments, products and services,
geographic areas and major customers. Its
objective is to provide information about
the different types of business activities
and economic environments in which
businesses operate. The adoption of SFAS
No. 131 is not expected to require any
additional disclosure in fiscal 1998.
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.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon
data processing systems and software to
conduct its business. The data processing
systems and software include those
developed and maintained by the Company's
data processing provider and purchased
software which is run on in-house computer
networks. In 1997, the Company initiated
a review and assessment of all hardware
and software to confirm that it will
function properly in the year 2000. The
Company's data processing provider and
those vendors which have been contacted
have indicated that their hardware and/or
software will be Year 2000 compliant by
the end of 1998. This will allow time for
compliance testing. Additionally, alarms,
elevators, heating and cooling systems,
and other computer-controlled mechanical
devices on which the Company relies are
being evaluated. Those found not to be in
compliance will be modified or replaced
with a compliant product. While there will
be expenses incurred during the next two
years, the Company has not identified any
situations at this time that will require
material cost expenditures to become fully
compliant. An unknown element at this time
is the impact of the Year 2000 on the
Company's borrowing customers and their
ability to repay. The Company has
initiated a program to communicate with
key bank customers to evaluate whether
they are properly prepared for the Year
2000 and will not suffer serious adverse
consequences.
ASSET/LIABLILITY MANAGEMENT
Since the mid 1980s, the Bank has
emphasized the origination of adjustable
rate mortgages for portfolio retention
along with shorter-term consumer and
commercial loans 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. 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.
The Company also evaluates its interest
rate risk position using simulation
models. Such models are prepared using a
variety of assumptions and interest rate
scenarios. The Company has set policy
limits of interest rate risk to be assumed
in the normal course of business and
monitors such limits through its
simulation process. The Company has been
successful in meeting the interest rate
sensitivity objectives set forth in its
policy. At December 31, 1997, the
simulation model indicates the impact of
an immediate 100 basis point rise or fall
in interest rates would be approximately
1% of net interest income.
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>
At December 31, 1997
(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 $ 4,576 $ 0 $ 0 $ 0 $ 0 $ 0 $ 4,576
Investment
securities 6,268 5,110 5,159 20,161 4,241 1,140 42,079
Loans 21,727 12,411 22,789 16,267 5,460 11,599 90,253
Total interest-
earning assets $32,571 $17,521 $27,948 $36,428 $9,701 $12,739 $136,908
Interest-
bearing liabilities
Certificates of
deposit $16,955 $ 8,466 $16,298 $17,115 $3,218 $ 329 $ 62,381
Money market
deposit
accounts 18,672 0 0 0 0 0 18,672
Borrowed money 535 292 1,231 1,958 3,974 1,109 9,099
Total interest-
bearing
liabilities $36,162 $ 8,758 $17,529 $19,073 $7,192 $ 1,438 $90,152
Interest
sensitivity
gap per period $(3,591) $8,763 $10,419 $17,355 $2,509 $11,301 $46,756
Cumulative
interest
sensitivity gap $(3,591) $5,172 $15,591 $32,946 $35,455 $46,756
Cumulative gap as
a percent of
total interest-
earning assets (2.62%) 3.78% 11.39% 24.06% 25.90% 34.15%
Cumulative interest
sensitive assets
as a percent of
cumulative interest
sensitive
liabilities 90.07% 111.51% 124.97% 140.41% 139.97% 151.86%
</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 subsidiaries (the
Company) as of December 31, 1997 and 1996
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, 1997. These
consolidated 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 consolidated
financial statements are free of material
misstatement. An audit includes examining,
on a test basis, evidence supporting the
amounts and disclosures in the
consolidated financial statements. An
audit also includes assessing the
accounting principles used and significant
estimates made by management, as well as
evaluating the overall consolidated
financial statement presentation. We
believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present
fairly, in all material respects, the
financial position of the Company as of
December 31, 1997 and 1996 and the results
of its operations and its cash flows for
each of the years in the three-year period
ended December 31, 1997, in conformity
with generally accepted accounting
principles.
January 30, 1998
Kansas City, Missouri
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets 1997 1996
<S> <C> <C>
Cash and cash equivalents:
Cash $3,398,451 $2,670,159
Interest-bearing deposits
in other financial
institutions 3,300,000 1,900,000
Total cash and cash equivalents 6,698,451 4,570,159
Investment securities:
Held-to-maturity 6,669,809 10,113,010
Available-for-sale 35,409,475 23,125,844
Loans, net 87,980,366 62,369,858
Loans held for sale 743,762 179,190
Premises and equipment,
net of accumulated
depreciation 2,597,658 1,325,798
Accrued interest and
other assets 4,652,570 1,736,565
Total assets $144,752,091 $103,420,424
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest bearing demand $ 12,882,942 $ 5,260,221
Money market and NOW 39,970,310 28,936,080
Savings 6,974,204 5,162,275
Time, $100,000 and greater 11,631,384 6,760,011
Time, other 50,749,697 40,591,363
Total deposits 122,208,537 86,709,950
Federal Home Loan Bank
advances 5,428,577 3,300,000
Other borrowings 3,670,802 315,020
Accrued interest and
expenses, taxes and other
liabilities 1,168,326 1,761,289
Total liabilities 132,476,242 92,086,259
Stockholders' equity:
Common stock, $.01 par;
1,500,000 shares authorized;
1,284,460 and 1,210,430
shares issued and outstanding
at 1997 and 1996 12,845 12,104
Additional paid-in capital 7,122,795 6,314,964
Retained earnings 5,341,952 5,340,873
Unearned employee benefits (271,187) (315,020)
Unrealized gain (loss) on
investment securities available-
for-sale, net of tax 69,444 (18,756)
Total stockholders' equity 12,275,849 11,334,165
Commitments and contingencies
Total liabilities and stockholders'
equity $144,752,091 $103,420,424
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Loans $5,879,204 5,704,030 5,287,738
Investment securities 1,944,663 1,852,665 1,595,203
Other 105,003 113,214 167,822
Total interest income 7,928,870 7,669,909 7,050,763
Interest expense:
Deposits 3,850,889 3,859,838 3,588,740
Other borrowings 186,822 189,312 231,154
Total interest expense 4,037,711 4,049,150 3,819,894
Net interest income 3,891,159 3,620,759 3,230,869
Provision for loan losses 60,000 15,000 39,750
Net interest income after
provision for loan losses 3,831,159 3,605,759 3,191,119
Noninterest income:
Fees and service charges 506,899 517,124 391,314
Gains on sales of loans 99,381 75,450 95,425
Other 83,829 90,723 39,921
Total noninterest income 690,109 683,297 526,660
Noninterest expense:
Compensation and benefits 1,429,665 1,220,615 1,165,023
Occupancy and equipment 431,110 376,823 312,224
Federal deposit insurance
premiums 47,116 570,633 161,028
Data processing 101,878 115,312 124,679
Amortization 106,816 12,097 82,045
Stationery, printing and
office supplies 70,889 85,405 59,519
Professional fees 118,008 151,041 139,848
Other 672,099 601,266 573,460
Total noninterest expense 2,977,581 3,233,192 2,617,826
Earnings before income taxes 1,543,687 1,055,864 1,099,953
Income taxes 471,143 339,334 346,547
Net earnings $1,072,544 $716,530 $753,406
Earnings per share:
Basic $.84 $.56 $.61
Diluted $.81 $.54 $.59
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net
unrealized
Additional Unearned 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,
1994 $9,768 4,390,941 5,289,649 (394,067) (182,255) 9,114,036
Net earnings 0 0 753,406 0 0 753,406
Dividends paid
($.11 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 104
shares under stock
option plan 1 519 0 0 0 520
5% stock dividend
(54,684 shares) 547 492,757 (493,304) 0 0 0
Issuance of
121,440 shares
in purchase
acquisition 1,214 836,722 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 11,530 5,720,939 5,410,733 (355,915) 22,962 10,810,249
Net earnings 0 0 716,530 0 0 716,530
Dividends paid
($.15 per share) 0 0 (191,791) 0 0 (191,791)
Reduction of
unearned employee
benefits 0 0 0 40,895 0 40,895
5% stock dividend
(57,402 shares) 574 594,025 (594,599) 0 0 0
Change in fair
value of investment
securities available
- -for-sale,
net of tax 0 0 0 0 (41,718) (41,718)
Balance at
December 31,
1996 12,104 6,314,964 5,340,873 (315,020) (18,756) 11,334,165
Net earnings 0 0 1,072,544 0 0 1,072,544
Dividends paid
($.25 per share) 0 0 (319,866) 0 0 (319,866)
Reduction of
unearned employee
benefits 0 0 0 43,833 0 43,833
Issuance of 13,488
shares under stock
option plan 135 56,838 0 0 0 56,973
5% stock dividend
(60,542 shares) 606 750,993 (751,599) 0 0 0
Change in fair
value of investment
securities
available-for-
sale,net of tax 0 0 0 0 88,200 88,200
Balance at
December 31,
1997 $12,845 7,122,795 5,341,952 (271,187) 69,444 12,275,849
See accompanying notes to consolidated financial statements.
</TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $1,072,544 716,530 753,406
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Provision for loan losses 60,000 15,000 39,750
Depreciation and amortization 211,635 315,757 241,850
Amortization of loan fees (67,873) (44,858) (36,798)
Deferred income taxes (116,929) (53,365) (194,727)
Net (gain) loss on sales
of investment securities
available-for-sale,
premises and equipment and
other real estate (9,907) 22,667 (5,470)
Net gain on sales of loans (99,381) (75,450) (95,425)
Proceeds from sale of loans 14,260,381 10,316,625 10,630,608
Origination of loans for
sale (14,725,572) (9,721,236) (11,234,312)
Accretion of discounts
and amortization of
premiums on investment
securities, net (40,931) 12,969 (34,399)
Changes in assets and
liabilities:
Accrued interest and
other assets 100,857 138,334 57,908
Accrued expenses, taxes
and other liabilities (755,282) 744,068 364,626
Net cash provided by
(used in) operating
activities (110,458) 2,387,041 487,017
Cash flows from investing
activities:
Net (increase) decrease in
loans (1,476,399) (485,488) 878,548
Maturities and prepayments
of investment securities
held-to-maturity 4,583,747 6,905,474 7,538,050
Purchases of investment
securities held-to-
maturity 0 (898,789) (6,253,745)
Maturities and prepayments
of investment securities
available-for-sale 4,465,881 4,159,394 5,036,531
Purchases of investment
securities available-
for-sale (9,340,259) (14,681,433) (9,831,440)
Proceeds from sale of
investment securities
available-for-sale 2,582,280 3,511,808 1,139,674
Proceeds from sales of
foreclosed assets 53,922 7,279 90,972
Purchases of premises
and equipment, net (352,578) (152,860) (97,193)
Net cash (paid) received
in acquisitions (1,650,353) 0 317,115
Net cash used in investing
activities (1,133,759) (1,634,615) (1,181,488)
Cash flows from financing
activities:
Net increase in deposits 1,435,787 310,507 5,920,757
Net increase in securities
sold under agreements
to repurchase 149,615 0 0
Federal Home Loan Bank
advances (repayment) and
federal funds purchased, net (800,000) 775,000 (3,775,000)
Proceeds from notes payable 2,850,000 0 0
Issuance of common stock under
stock option plan 56,973 0 520
Payment of dividends (319,866) (191,791) (139,018)
Net cash provided by financing
activities 3,372,509 893,716 2,007,259
Net increase in cash and cash
equivalents 2,128,292 1,646,142 1,312,788
Cash and cash equivalents at
beginning of year 4,570,159 2,924,017 1,611,229
Cash and cash equivalents at
end of year $6,698,451 $4,570,159 $2,924,017
Supplemental disclosure of cash
flow information:
Cash paid during the year for
income taxes $619,000 $531,000 $522,000
Cash paid during the year for
interest $3,949,000 $4,206,000 $3,860,000
Supplemental schedule of noncash
investing and financing
activities:
Transfer of loans to
real estate owned $0 $29,000 $0
Bank acquisitions:
Liabilities assumed 37,617,000 0 19,290,000
Fair value of assets
acquired 39,267,000 0 19,865,000
See accompanying notes to consolidated financial statements.
</TABLE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 subsidiaries, principally
Security National Bank (the Bank,
including the merger with the former
Citizens State Bank on December 31, 1997).
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. 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.
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
nonaccrual 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 Company's core deposit intangible
asset and goodwill 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) Stock Split
On January 21, 1998, the Company declared
a two-for-one stock split of the Company's
common stock for all issued shares. All
share and per share data has been restated
for the stock split.
(k) Earnings Per Share
Basic earnings per share have been
computed based upon the weighted average
number of common shares outstanding during
each year. Diluted earnings per share
include the effect of all potential common
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 1995, 1996 and 1997, the
adoption of SFAS No. 128 in 1997 and the
two-for-one stock split declared on
January 21, 1998.
The shares used in the calculation of
basic and diluted income per share, which
have been restated for the annual 5% stock
dividends and the 1998 stock split, are
shown below:
<TABLE>
<CAPTION>
For the years ended
December 31,
1997 1996 1995
<S> <C> <C> <C>
Weighted average common shares
outstanding 1,277,700 1,270,972 1,238,164
Stock options 52,388 53,842 30,246
1,330,088 1,324,814 1,268,410
</TABLE>
(2) ACQUISITIONS
On December 31, 1997, the Company acquired
100% of the outstanding common stock of
Freedom Bancshares, Inc. (Freedom) and its
wholly-owned subsidiary, Citizens State
Bank. Subsequently, Security National Bank
and Citizens State Bank were merged.
Freedom had consolidated assets of
approximately $43 million. The purchase
price, including related costs of
acquisition, consisted of cash of
approximately $5.3 million. The
acquisition, which was accounted for as a
purchase, resulted in goodwill of
approximately $2.2 million.
Pro forma revenues, net earnings and
diluted earnings per share amounts, as if
the Freedom acquisition had been
consummated January 1, 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net interest income plus other income $10,158,690 $9,827,290
Net earnings 1,002,733 565,421
Diluted earnings per share .75 .43
</TABLE>
On April 1, 1995, the Company acquired
Auburn Security Bancshares, Inc. (Auburn)
and its wholly-owned subsidiary, Security
State Bank. Security State Bank was
subsequently merged with Security National
Bank. Auburn had consolidated assets of
approximately $20 million. The purchase
price, including related costs of
acquisition, included cash of
approximately $970,000 and 121,440 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.
(3) INVESTMENT SECURITIES
A summary of investment securities
information is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1997 cost gains losses fair value
<S> <C> <C> <C> <C>
Held-to-maturity:
U. S. government and
agency obligations $3,026,592 4,000 0 3,031,000
Municipal obligations 2,286,210 16,000 2,000 2,300,000
Mortgage-backed securities 1,249,202 4,000 0 1,253,000
Other investments 107,805 0 0 108,000
Total $6,669,809 24,000 2,000 6,692,000
Available-for-sale:
U. S. government and
agency obligations $23,010,128 58,460 7,835 23,060,753
Municipal obligations 800,963 11,472 1,521 810,914
Mortgage-backed
securities 10,100,389 63,612 12,293 10,151,708
FHLB stock 1,223,000 0 0 1,223,000
Other investments 163,100 0 0 163,100
Total $35,297,580 133,544 21,649 35,409,475
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1997 cost gains losses fair value
<S> <C> <C> <C> <C>
Held-to-maturity:
U. S. government and
obligations $5,095,357 31,000 0 5,126,000
Municipal obligations 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 $11,879,815 37,706 48,249 11,869,272
Municipal obligations 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 investments 637,461 0 928 636,533
Total $23,156,133 65,742 96,031 23,125,844
</TABLE>
<TABLE>
<CAPTION>
Maturities of investment
securities at December 31,
1997 are as follows:
Amortized Estimated
cost fair value
<S> <C> <C>
Held-to-maturity:
Due in less than one year $ 2,432,821 2,437,299
Due after one year but within
five years 2,153,766 2,166,129
Due after five years but within
ten years 726,215 727,554
Mortgage-backed securities and
other investments 1,357,007 1,360,854
Total $6,669,809 6,691,836
Available-for-sale:
Due in less than one year $7,357,618 7,356,458
Due after one year but within
five years 15,173,395 15,225,381
Due after five years but within
ten years 1,280,078 1,289,828
Mortgage-backed securities
and other investments 11,486,489 11,537,808
Total $35,297,580 35,409,475
</TABLE>
Except for U. S. government and agency
obligations, no investment in a single
issuer exceeded 10% of stockholders'
equity.
At December 31, 1997 and 1996, securities
pledged to secure public funds on deposit
had a carrying value of approximately
$29.9 million and $20.3 million.
(4) LOANS
Loans consist of the following at December
31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Mortgage loans:
One-to-four family residential $36,474,564 33,498,175
Commercial 25,470,886 14,311,542
Commercial loans 18,305,041 7,139,729
Consumer loans 6,357,088 4,696,385
Student loans 2,887,442 3,708,718
Total 89,495,021 63,354,549
Less:
Loans in process 59,678 14,031
Deferred loan fees 119,953 151,000
Allowance for loan losses 1,335,024 819,660
Loans, net $87,980,366 62,369,858
</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
generally requires collateral or other
security on unfunded loan commitments and
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 the cities of Manhattan, Auburn, Topeka
and Osage City, 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.
A summary of the activity in the allowance
for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 819,660 826,364 562,041
Provision 60,000 15,000 39,750
Allowance for loan loss of
acquired bank 461,389 0 229,408
Charge-offs (17,398) (27,136) (28,608)
Recoveries 11,373 5,432 23,773
Balance at end of year $1,335,024 819,660 826,364
</TABLE>
At December 31, 1997 and 1996, impaired
loans, as defined by SFAS No. 114,
aggregated approximately $172,000 and
$145,000.
The Bank serviced loans for others of
$24.4 million and $25.9 million at
December 31, 1997 and 1996. Because the
Bank sold substantially all loans
originated for sale on a servicing
released basis, no additional gains on
sales or related mortgage servicing
assets, as required under SFAS No. 122,
were recorded during 1997 or 1996.
The Bank had loans to directors and
officers at December 31, 1997 and 1996,
which carry terms similar to those for
other loans. A summary of such loans is as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance at beginning of year $1,255,689 114,036
New loans 693,869 1,185,983
Payments (90,043) (44,330)
Balance at end of year $1,859,515 1,255,689
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 323,912 253,412
Office buildings and improvements 2,451,193 1,272,000
Furniture and equipment 1,615,459 1,024,330
Automobiles 128,572 128,572
Total 4,519,136 2,678,314
Less accumulated depreciation 1,921,478 1,352,516
Total $2,597,658 1,325,798
</TABLE>
(6) TIME DEPOSITS
Maturities of time deposits are as follows
at December 31, 1997:
Year Amount
1998 $41,725,868
1999 10,393,567
2000 6,716,743
2001 2,872,003
2002 344,285
Thereafter 328,615
Total $ 62,381,081
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 1996 consolidated statement
of earnings.
(7) FEDERAL HOME LOAN BANK ADVANCES
Long-term advances from the FHLB at
December 31, 1997 and 1996 amount to
$5,428,577 and $3,300,000, respectively.
Maturities of such advances at December
31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount Rates
<S> <C> <C>
1998 $ 500,000 5.21%
1999 0 0
2000 0 0
2001 0 0
2002 2,714,288 6.24 to 6.95%
Thereafter 2,214,289 6.44 to 7.23%
$5,428,577
</TABLE>
The Bank has a $15,000,000 line of credit,
renewable annually in September, with the
FHLB under which there were no borrowings
outstanding at December 31, 1997 and 1996.
Interest on any outstanding balances on
the line of credit accrues at the federal
funds rate plus .15% (6.90% at December
31, 1997).
Although no loans are specifically
pledged, the FHLB requires the Company 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) OTHER BORROWINGS
Other borrowings include a note payable
relating to the Company's Employee Stock
Ownership Plan (the ESOP) (see note 10)
with an unrelated financial institution
and a note payable to another unrelated
financial institution and securities sold
under agreements to repurchase of
$549,615. The ESOP loan of $271,187 and
$315,020 at December 31, 1997 and 1996,
respectively, bears interest at the prime
rate (8.5% at December 31, 1997), is due
in 2002 and is secured by the 63,006
unallocated shares of Company common stock
held by the ESOP. The Company's other note
payable of $2,850,000 at December 31,
1997, bearing interest at the prime rate
less .5%, is due December 31, 2002 and is
secured by all of the Bank stock owned by
the Company.
(9) INCOME TAXES
Total income tax expense for 1997, 1996 and 1995 is allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operations $471,143 339,334 346,547
Stockholders' equity 53,984 (23,743) 123,915
$525,127 315,591 470,462
</TABLE>
The components of income tax expense
allocated to earnings are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current $588,072 392,699 524,692
Deferred (116,929) (53,365) (178,145)
$471,143 339,334 346,547
Federal $434,143 271,070 346,547
State 37,000 68,264 0
$471,143 339,334 346,547
</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>
1997 1996 1995
<S> <C> <C> <C>
Expected income tax expense at
statutory rate $524,854 358,994 373,984
Tax-exempt interest (31,900) (37,838) (14,707)
Nondeductible amortization 9,406 11,752 6,522
State income taxes 24,420 56,188 0
Other, net (55,637) (49,762) (19,252)
$471,143 339,334 346,547
</TABLE>
The tax effects of temporary differences
that give rise to the significant portions
of the deferred tax assets and liabilities
at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Deferred tax assets:
Unrealized loss on investment
securities available-for-sale $ 0 11,533 0
Allowance for loan losses 198,400 108,646 39,260
Other 18,400 18,895 8,463
Total deferred tax assets 216,800 139,074 47,723
Deferred tax liabilities:
Unrealized gain on investment
securities available-for-sale 42,451 0 12,210
Core deposit intangible 85,500 109,006 135,367
FHLB stock dividends 191,800 167,994 143,446
Premises and equipment 1,000 7,294 10,356
State taxes 21,800 21,645 0
Other 17,100 38,931 29,248
Total deferred tax liabilities 359,651 344,870 330,627
Net deferred tax liability $142,851 205,796 282,904
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
Qualified employees of the Company
and the Bank may participate in an
employee stock ownership plan. The ESOP
borrowed under a bank loan agreement (note
8) with the proceeds 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 1997,
1996 and 1995 were approximately $50,000,
$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. 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 stock
dividends and split) is as follows:
<TABLE>
<CAPTION>
Number of Weighted average
shares exercise price per share
<S> <C> <C>
Outstanding at January 1, 1995 81,136 $4.76
Effect of 5% stock dividend 4,036 0
Exercised (104) 4.76
Outstanding at December 31, 1995 85,068 4.53
Issued 8,000 10.50
Effect of 5% stock dividend 4,642 0
Outstanding at December 31, 1996 97,710 4.81
Effect of 5% stock dividend 4,514 0
Exercised (13,488) 4.81
Outstanding at December 31, 1997 88,736 $4.65
Options exercisable at
December 31, 1997 74,102 $4.24
</TABLE>
Options outstanding at December 31, 1997
were exercisable at prices ranging from
$4.11 to $9.52.
In accordance with SFAS No. 123,
Accounting for Stock-based Compensation,
the Company has chosen not to apply the
accounting provision of SFAS No. 123 in
its consolidated financial statements but
rather to disclose pro forma amounts. The
fair value of the options granted in 1996
was established utilizing the following
assumptions: dividend yield of 1.2%,
volatility of 4.7%, risk-free interest
rate of 7.0% and an expected life of five
years. Pro forma net earnings and earnings
per share for 1996, applying the
disclosure provisions of SFAS No. 123,
would be the same as those amounts
reflected in the accompanying consolidated
statements of earnings.
The Company has adopted an 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
$75,000, $53,000 and $56,000 in 1997, 1996
and 1995, respectively.
Fair value estimates of the Company's(11)
FAIR VALUE OF FINANCIAL INSTRUMENTS
financial instruments as of December 31,
1997 and 1996, including methods and
assumptions utilized, are set forth below:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
Investment securities $ 42,079,284 42,101,000 33,238,854 33,280,000
Loans, net of unearned
fees and allowance for
loan losses $ 87,980,366 85,988,000 62,369,858 60,785,000
Noninterest bearing
demand deposits $ 12,882,942 12,883,000 5,260,221 5,260,000
Money market and NOW
deposits 39,970,310 39,970,000 28,936,080 28,936,000
Savings deposits 6,974,204 6,974,000 5,162,275 5,162,000
Time deposits 62,381,081 62,449,000 47,351,374 47,493,000
Total deposits $122,208,537 122,276,000 86,709,950 86,851,000
FHLB advances $ 5,428,577 5,439,000 3,300,000 3,305,000
Other borrowings $ 3,670,802 3,671,000 315,020 315,000
</TABLE>
Methods and Assumptions Utilized
The carrying amount of cash and cash
equivalents, loans held for sale, federal
funds sold and 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 amounts of FHLB advances and
other borrowings approximate fair value
because such borrowings have relatively
short terms or adjustable interest rates.
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.
(12) 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 I
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. Management
believes that, as of December 31, 1997,
the Company meets all capital adequacy
requirements to which it is subject. The
following is a comparison of the Company's
regulatory capital to minimum capital
requirements at December 31, 1997 (dollars
in thousands):
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31,
1997:
Total Capital
(to Risk Weighted
Assets) $13,153 15.7% $6,684 8.0% $8,354 10.0%
Tier I Capital
(to Risk Weighted
Assets) 12,109 14.5 3,342 4.0 5,013 6.0
Tier I Capital
(to Average Assets) 12,109 11.7 4,139 4.0 5,174 5.0
As of December 31,
1996:
Total Capital
(to Risk Weighted
Assets) $9,616 18.2% $4,222 8.0% $5,278 10.0%
Tier I Capital
(to Risk Weighted
Assets) 8,956 17.0 2,111 4.0 3,167 6.0
Tier I Capital
(to Average Assets) 8,956 8.7 4,043 4.0 5,054 5.0
</TABLE>
(13) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial
information of the Company as of and for
the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets 1997 1996
<S> <C> <C>
Cash $ 129,987 1,582,283
Investment securities 171,403 416,566
Investment in subsidiary 15,086,801 9,625,100
Other 8,337 31,972
Total assets $15,396,528 11,655,921
Liabilities and Stockholders'
Equity
Borrowed funds $ 3,121,187 315,020
Other (508) 6,736
Stockholders' equity 12,275,849 11,334,165
Total liabilities and
stockholders' equity $15,396,528 11,655,921
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Dividends from subsidiary $ 937,242 650,194 778,842
Interest income 86,582 66,749 54,897
Other expense, net (69,898) (115,386) (103,082)
Income before equity in
undistributed earnings of
subsidiary 953,926 601,557 730,657
Increase (decrease) in
undistributed equity of
subsidiary 43,000 100,485 (22,405)
Net earnings before income
taxes 996,926 702,042 708,252
Income tax benefit 75,618 14,488 45,154
Net earnings $1,072,544 716,530 753,406
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 1,072,544 716,530 753,406
(Increase) decrease in
undistributed equity
of subsidiary (43,000) (100,485) 22,405
Other 18,215 (21,509) 18,170
Net cash provided by
operating activities 1,047,759 594,536 793,981
Cash flows from investing
activities:
Purchase of investment
securities (154,907) (867,137) (501,110)
Maturity of investment
securities 400,000 950,000 0
Investment in subsidiary (5,332,255) 0 (1,378,193)
Net cash provided by
(used in) investing
activities (5,087,162) 82,863 (1,879,303)
Cash flows from financing
activities:
Issuance of 13,488 common
shares under stock option
plan 56,973 0 520
Proceeds from note
payable 2,850,000 0 0
Payment of dividends (319,866) (191,791) (139,018)
Net cash provided by
(used in) financing
activities 2,587,107 (191,791) (138,498)
Net increase (decrease) in
cash (1,452,296) 485,608 (1,223,820)
Cash at beginning of year 1,582,283 1,096,675 2,320,495
Cash at end of year $ 129,987 1,582,283 1,096,675
</TABLE>
Dividends paid by the Company are
provided through subsidiary Bank
dividends. At December 31, 1997, the Bank
could distribute dividends of up to
$869,000 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., MNB Acquisition
Corporation and Security National Bank
William F. Caton*
President
Kansas Development Finance Authority
Rolla W. Goodyear
Chief Financial Officer, Financial Institutions
Technology, dba Suntell
Joseph L. Downey
Senior Consultant and Director
Dow Chemical Company
Chairman, DowAgroSciences
Charles D. Green
Retired Attorney
Arthur, Green, Arthur,
Conderman & Stutzman
Vernon C. Larson
Retired Assistant Provost and
Director of International Programs
Kansas State University
Jerry R. Pettle
Dentist
Dental Associates of Manhattan, PA.
Susan E. Roepke
Vice President, Secretary and Treasurer,
MNB Bancshares, Inc. and MNB Acquisition
Corporation; and Senior Vice President/
Secretary/Cashier, Security National Bank
Donald J. Wissman
President, Grain Industry Alliance
*Bank Director only
EXECUTIVE OFFICERS OF
MNB 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
Susan E. Roepke
Vice President, Secretary and Treasurer
EXECUTIVE OFFICERS OF SECURITY NATIONAL BANK
Patrick L. Alexander
President and Chief Executive Officer
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, 1997, the Company had
approximately 420 stockholders of record.
Set forth below are the reported high and
low prices of the common stock and
dividends paid during the past two years.
Information presented below has not been
restated to give effect to the 5% stock
dividends paid in 1997 and 1996 or the
two-for-one stock split announced by the
Company in January of 1998.
<TABLE>
<CAPTION>
1997 High Low Dividends
<S> <C> <C> <C>
First Quarter $22.75 $22.75 $0.125
Second Quarter 22.75 20.00 0.125
Third Quarter 23.50 21.00 0.125
Fourth Quarter 26.00 23.50 0.125
1996
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 22.75 19.00 0.1250
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, Room 212 Conference Room,
Manhattan, Kansas 66506, on Monday, May
18, 1998 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
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
1000 Walnut, Suite 1600
Kansas City, Missouri 64199
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
The only subsidiaries of the Company are
MNB Acquisition Corporation, Inc. and
Security National Bank, a national banking
association with its main office located
in Manhattan, Kansas, and with branch
offices located in Auburn, Beloit, Osage
City, and Topeka, 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 30,
1998, relating to the consolidated
balance sheets of MNB Bancshares, Inc.
and subsidiaries as of December 31, 1997
and 1996 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, 1997, which report appears
in the December 31, 1997 annual report
on Form 10-K of MNB Bancshares, Inc.
Kansas City, Missouri
March 27, 1998
EXHIBIT 99.1
PROXY STATEMENT OF THE COMPANY FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 1998
MNB Bancshares, Inc.
800 Poyntz Avenue
Manhattan, Kansas 66502
(785) 565-2000
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1998
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
18, 1998, at 2:00 p.m., local time, for the following
purposes:
1. to elect three (3) Class III directors for a term of
three years.
2. to amend the Certificate of Incorporation of the Company
to increase the authorized common stock to 3,000,000 shares.
3. to approve the MNB Bancshares, Inc. 1998 Stock Incentive
Plan.
4. to approve the appointment of KPMG Peat Marwick LLP as
independent public accountants for the Company for the
fiscal year ending December 31, 1998.
5. 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 3, 1998, 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 17, 1998
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 18, 1998, 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 return your proxy card in the
enclosed self-addressed, stamped envelope. 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. This Proxy Statement and the accompanying proxy card are
being mailed to stockholders on or about April 17, 1998. The 1997 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"). In addition to its
main office in Manhattan, the Bank also has branch offices
in Topeka, Auburn, Osage City and Beloit, Kansas.
Only holders of record of the Company's Common Stock at the
close of business on April 3, 1998, will be entitled to vote
at the annual meeting or any adjournments or postponements
of such meeting. On April 3, 1998, the Company had
1,288,476 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. Approval of the amendment to
the Company's Certificate of Incorporation requires the
approval of a majority of the outstanding shares of Common
Stock. In all other matters, 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
18, 1998, the stockholders will be entitled to elect three
(3) Class III directors for a term expiring in 2001. The
directors of the Company are divided into three classes
having staggered terms of three years. The nominees for
election as Class III directors are incumbent directors.
The Company has no knowledge that any of the nominees will
refuse or be unable to serve, but if any 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 3, 1998. The three
nominees, if elected at the Annual Meeting of Stockholders,
will serve as Class III directors for a three year term
expiring in 2001. The Board of Directors recommends you
vote your shares FOR the nominees.
</TABLE>
<TABLE>
<CAPTION>
NOMINEES
<S> <C> <C> <C>
Name Age Position with the Director Since
Company and the Bank
CLASS III
(Term Expires 2001)
Brent A. Bowman 48 Chairman of the Board
of the Company and the
Bank 1987
Charles D. Green 72 Director of the Company
and the Bank 1957
Vernon C. Larson 74 Director of the Company
and the Bank 1974
CONTINUING DIRECTORS
CLASS I
(Term Expires 1999)
Patrick L. Alexander 45 President, Chief Executive
Officer and Director of
the Company and the Bank 1990
Joseph L. Downey 61 Director of the Company
and the Bank 1996
Rolla W. Goodyear 40 Director of the Company
and the Bank 1995
Jerry R. Pettle 59 Director of the Company
and the Bank 1978
CLASS II
(Term Expires 2000)
Susan E. Roepke 58 Director, Vice President,
Secretary and Treasurer of
the Company and Director,
Senior Vice President and
Cashier of the Bank 1997
Donald J. Wissman 60 Director of the Company and
the Bank 1994
</TABLE>
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 an employment
contract with Mr. Alexander. 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 nominee and continuing
director for the past five years is as follows:
Patrick L. Alexander became President and Chief Executive
Officer of the Manhattan Federal Savings and Loan
Association (the predecessor-in-interest to the Bank) 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 Board of
Directors of the Big Lakes Foundation, Inc. Mr. Alexander
serves on the Economic Development Committee for the
Manhattan Chamber of Commerce.
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.
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
served as President of the Auburn branch of the Bank from
January, 1996 through July, 1997. In August, 1997, Mr.
Goodyear joined Financial Institutions Technology, dba
Suntell, as Chief Financial Officer.
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, N.A., 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 serves on the Board of Directors of the
Manhattan Medical Center and is an examiner for the Kansas
Dental Board. Dr. Pettle is a past member of the Board of
Directors of the Friends of the Konza Prairie and 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, a consortium of Kansas State University, American
Institute of Baking, DPRA Incorporated and the USDA Grain
Marketing and Production Research Center. He was Chairman
of DPRA from 1987 to 1998, an independent
environmental/economic research firm headquartered in
Manhattan, Kansas. Dr. Wissman was with DPRA since 1965,
having served in a variety of positions, including Senior
Vice President and Senior Economist. He is a past Chairman
and Director of the Manhattan Chamber of Commerce, past
Director of Kansas State University Research Foundation and
a Director of the mid American Commercialization
Corporation.
Board Committees and Meetings
There presently are two committees of the Board of Directors
of the Company, 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, 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 1997 the committee met
12 times.
The Directors' Loan Committee consists of Directors Green
(Chairman), Alexander, Downey, Goodyear, Larson 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 1997 the committee met 14
times.
The Audit Committee consists of Directors Pettle (Chairman),
Bowman, Larson, 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 1997 the committee met 4 times.
The Stock Option Committee consists of Directors Bowman
(Chairman) Pettle and Wissman. 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 1997 the committee did not meet.
A total of 12 regularly scheduled and special meetings were
held by the Board of Directors of the Company during 1997.
During 1997, all directors attended at least 75 percent of
the meetings of the Board and the committees on which they
serve.
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 Mr. Alexander 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 $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
Securities
Name and Underlying All other
Principal Year ended Options/ Compensation
Position December 31 Salary($)(1) Bonus($) SARs(3) ($)(2)
Patrick L. 1997 $119,957 $32,045 --- $12,975
Alexander 1996 114,993 30,473 --- 13,105
President/ 1995 108,648 18,000 --- 12,994
CEO
1. Includes amounts deferred.
2. Represents contributions made to the MNB Bancshares,
Inc. Employee Stock Ownership Plan (the "ESOP"), of which
the 1997 contributions have not yet been determined, and
also includes premium payments for an insurance policy
purchased for disability and death benefit available to all
employees. The contribution to the ESOP was $11,880 for
1995, $11,919 for 1996, and is expected to be approximately
$12,000 for 1997.
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth certain information
concerning the number and value of stock options at December
31, 1997 held by the Chief Executive Officer.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exer- Unexer- Exer- Unexer-
Name Exercise(#) Realized cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
Patrick L.
Alexander 6,240 $56,232 31,786(1) --- $286,440 $---
(1) Includes options resulting from stock dividends paid by
the Company.
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 five 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 1997 compensation of Mr. Alexander was based upon the
factors described above and his substantial experience and
length of service with the organization. During 1997, Mr.
Alexander successfully headed the Company's acquisition
program, which included planning, analysis, contacting a
number of financial institutions and completing the
acquisition of Freedom Bancshares, Inc. The Executive
Committee also considered the continuing additional duties
required in completing the transition of the Bank from a
mutual savings association to a commercial bank which is a
stock institution. Mr. Alexander did not participate in any
decisions pertaining to his compensation.
Members of the Executive Committee are:
Brent A. Bowman, Chairman
Patrick L. Alexander
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 five 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.
</TABLE>
<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 12/31/97
<S> <C> <C> <C> <C> <C> <C>
MNB Bancshares, Inc. $100 $123 $156 $190 $230 $274
Nasdaq Market - U.S. $100 $114 $111 $157 $194 $238
Nasdaq Bank Stocks $100 $114 $113 $169 $223 $377
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSThe following table sets
forth certain information regarding the Company's Common Stock beneficially
owned on April 3, 1998 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>
Name of Individual and Amount and Nature of Percent of
Number of Persons in Group Beneficial Ownership(1) Class
<S> <C> <C>
First Manhattan Co. 94,096(2) 7.3%
437 Madison Avenue
New York, New York 10022
MNB Bancshares, Inc. 109,700(3) 8.5%
Employee Stock Ownership Plan
800 Poyntz Avenue
Manhattan, Kansas 66502
Jack Goldstein 89,368(4) 6.9%
555 Poyntz Avenue
Manhattan, Kansas 66502
Patrick L. Alexander 96,095(5) 7.3%
2801 Brad Lane
Manhattan, Kansas 66502
Mr. Rolla Goodyear 110,140(6) 8.6%
8840 Hanover
Auburn, Kansas 66402
Susan E. Roepke 99,905(7) 7.7%
2600 Sumac Drive
Manhattan, Kansas 66502
Directors
Brent A. Bowman 4,964(8) *
Joseph L. Downey 6,098 *
Charles D. Green 26,844(8) 2.1%
Vernon C. Larson 9,064(9) *
Jerry R. Pettle 14,688 1.1%
Donald J. Wissman 3,546(10) *
All directors and executive
officers as a group (12 persons) 436,418(11) 32.0%
*Less than 1%.
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 dividends paid by the Company and the two-for-one
stock split declared in January of 1998.
2. Pursuant to an Amendment dated February 9, 1998, to a
Schedule 13D filed by First Manhattan Co.
3. Includes 49,982 shares which have been allocated to
participants' accounts under the Company's ESOP.
4. Pursuant to a Schedule 13D dated November 1, 1996.
5. Includes 4,502 shares held in an IRA of which the power
to vote such shares is shared with the IRA administrator and
39,742 shares over which voting and investment power is
shared with his spouse. Also includes 31,786 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.
6. Includes 2,128 shares held by Mr. Goodyear's spouse,
over which shares Mr. Goodyear has no voting or investment
power.
7. This includes 18,914 shares held in
an Investment Retirement Account ("IRA"), of which the power
to vote such shares is shared with the IRA administrator,
30,166 shares held by her spouse and over which Ms. Roepke
has shared voting and investment power and 16,166 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.
8. Includes an aggregate of 2,536 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.
9. Represents 9,064 shares held jointly with his spouse and
over which Mr. Larson has shared voting and investment
power.
10. Includes 1,460 shares held by his spouse and over which
Mr. Wissman has shared voting and investment power.
11. Includes an aggregate of 76,628 shares presently
obtainable through the exercise of options granted under the
Company's Stock Option Plan.
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, 1997 through December 31, 1997.
</TABLE>
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 1997. 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.
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has unanimously
approved an amendment (the "Amendment") to Article IV of the
Company's Certificate of Incorporation (the "Certificate")
that would increase the number of authorized shares of the
Company's Common Stock, $.01 par value per share, from
1,500,000 shares to 3,000,000 shares. As of April 3, 1998,
the Company had 1,288,476 shares of Common Stock issued and
outstanding following a two-for-one stock split effected in
February, 1998.
The Board of Directors has proposed adoption of the
Amendment for several reasons, including those set forth
below. First, the Amendment will provide additional shares
of Common Stock following the effectuation of the stock
split in February. As a result of the stock split, the
number of shares of Common Stock owned by each of the
Company's stockholders as of the record date for the stock
split doubled, and each such share then had approximately
half of the per share value of Common Stock prior to the
stock split. The decrease in the per share value of Common
Stock has lead to a commensurate decrease in the per share
market price, thus making an investment in Common Stock by
existing or potential stockholders of the Company more
readily possible. Following the stock split, only 211,524
shares of authorized and unissued (and unreserved) Common
Stock remained for future issuance by the Company.
Second, the additional shares authorized by the Amendment
will provide management with enough shares of Common Stock
to enter into certain transactions involving the use of
Common Stock that may be advisable from time to time. Such
transactions could include, but are not limited to, the
acquisition by the Company of additional branch locations,
subsidiaries or bank or thrift holding companies. Although
no such transactions are planned for the immediate future,
management and the Board of Directors believe that it is in
the Company's best interests to have available a sufficient
number of authorized shares of Common Stock if such
transactions become advisable.
Third, the additional shares of Common Stock authorized by
the Amendment could be used to raise additional working
capital for the Company or the Bank. The Board of Directors
does not currently have any plans to raise capital through
the issuance of additional shares or otherwise, but these
shares would be available for that purpose.
The increase in the number of shares of Common Stock
authorized by the Amendment will allow for the possibility
of substantial dilution of the voting power of current
stockholders of the Company, although no dilution occurred
as a direct result of the stock split. The degree of any
such dilution which would occur following the issuance of
any additional shares of Common Stock, including any newly
authorized Common Stock, would depend upon the number of
shares of Common Stock that are actually issued in the
future, which number cannot be determined at this time.
Issuance of a large number of such shares could
significantly dilute the voting power of existing
stockholders.
The existence of a substantial number of authorized and
unissued shares of Common Stock could also impede an attempt
to acquire control of the Company because the Company would
have the ability to issue additional shares of Common Stock
in response to any such attempt. The Company is not aware
of any such attempt to acquire control at this time, and no
decision has been made as to whether any or all newly
authorized but unissued shares of Common Stock would be
issued in response to any such attempt.
To be approved by the Company's stockholders, the Amendment
must receive the affirmative vote of a majority of the
outstanding shares of Common Stock.
The Board of Directors recommends that you vote your shares
FOR the Amendment.
PROPOSAL TO ADOPT STOCK INCENTIVE PLAN
On January 21, 1998, the Board of Directors unanimously
adopted resolutions approving the MNB Bancshares, Inc. 1998
Stock Incentive Plan (the "Incentive Plan"), subject to
stockholder approval, to promote equity ownership of the
Company by directors of the Company and selected officers
and employees of the Bank, to increase their proprietary
interest in the success of the Company, and to encourage
them to remain in the employ of the Company.
Administration
The Incentive Plan is to be administered by the MNB
Bancshares, Inc. Stock Option Plan Administrative
Committee which is composed of three non-employee
directors appointed by the Board of Directors (the
"Stock Option Committee"). The Stock Option Committee
will have the authority, subject to approval by the Board of
Directors, to select the employees to whom awards may be
granted, to determine the terms of each award, to interpret
the provisions of the Incentive Plan and to make all other
determinations that it may deem necessary or advisable for
the administration of the Incentive Plan.
The Incentive Plan provides for the grant of "incentive
stock options," as defined under Section 422(b) of the
Internal Revenue Code of 1986, as amended, options that do
not so qualify (referred to herein as "nonstatutory
options"), restricted stock and stock appreciation rights
("SARs"), as determined in each individual case by the Stock
Option Committee. The Board of Directors has reserved
100,000 shares of Common Stock for issuance under the
Incentive Plan. In general, if any award (including an award
granted to a non-employee director) granted under the
Incentive Plan expires, terminates, is forfeited or is
canceled for any reason, the shares of Common Stock
allocable to such award may again be made subject to an
award granted under the Incentive Plan.
Awards
Directors of the Company and key policy-making employees of
the Bank are eligible to receive grants under the Incentive
Plan. Directors may receive nonstatutory options based upon
a formula. Employee awards may be granted subject to a
vesting requirement and in any event will become fully
vested upon a merger or change of control of the Company.
The exercise price of incentive stock options granted under
the Incentive Plan must at least equal the fair market value
of the Common Stock subject to the option (determined as
provided in the plan) on the date the option is granted. The
exercise price of nonstatutory options and SARs will be
determined by the Stock Option Committee.
An incentive stock option granted under the Incentive Plan
to an employee owning more than 10% of the total combined
voting power of all classes of capital stock of the Company
is subject to the further restriction that such option must
have an exercise price of at least 110% of the fair market
value of the shares of Common Stock issuable upon exercise
of the option (determined as of the date the option is
granted) and may not have an exercise term of more than five
years. Incentive stock options are also subject to the
further restriction that the aggregate fair market value
(determined as of the date of grant) of Common Stock as to
which any such incentive stock option first becomes
exercisable in any calendar year, is limited to $100,000. To
the extent options covering more than $100,000 worth of
Common Stock first become exercisable in any one calendar
year, the excess will be nonstatutory options. For purposes
of determining which, if any, options have been granted in
excess of the $100,000 limit, options will be considered to
become exercisable in the order granted.
Each director and key employee eligible to participate in
the Incentive Plan will be notified by the Stock Option
Committee. To receive an award under the Incentive Plan, an
award agreement must be executed which specifies the type of
award to be granted, the number of shares of Common Stock
(if any) to which the award relates, the terms and
conditions of the award and the date granted. In the case of
an award of options, the award agreement will also specify
the price at which the shares of Common Stock subject to the
option may be purchased, the date(s) on which the option
becomes exercisable and whether the option is an incentive
stock option or a nonstatutory option.
The full exercise price for all shares of Common Stock
purchased upon the exercise of options granted under the
Incentive Plan must be paid by cash, personal check,
personal note, award surrender or Common Stock owned at the
time of exercise. Incentive stock options granted to
employees under the Incentive Plan may remain outstanding
and exercisable for ten years from the date of grant or
until the expiration of ninety days (or such lesser period
as the Stock Option Committee may determine) from the
date on which the person to whom they were granted ceases to
be employed by the Company. Nonstatutory options and SARs granted
under the Incentive Plan remain outstanding and
exercisable for such period as the Stock Option Committee
may determine.
No awards have been made by the Stock Option Committee
pursuant to the Stock Incentive Plan at this time.
Income Tax
Incentive stock options granted under the Incentive Plan
have certain advantageous tax attributes to the recipient
under the income tax laws. No taxable income is recognized
by the option holder for income tax purposes at the time of
the grant or exercise of an incentive stock option, although
neither is there any income tax deduction available to the
Company as a result of such a grant or exercise. Any gain or
loss recognized by an option holder on the later disposition
of shares of Common Stock acquired pursuant to the exercise
of an incentive stock option generally will be treated as
capital gain or loss if such disposition does not occur
prior to one year after the date of exercise of the option, or
two years after the date the option was granted.
As in the case of incentive stock options, the grant of
nonstatutory stock options, restricted stock or SARs will
not result in taxable income for income tax purposes to the
recipient of the awards, nor will the Company be entitled to
an income tax deduction. Upon the exercise of nonstatutory
stock options or SARs, or the lapse of restrictions on
restricted stock, the award holder will generally recognize
ordinary income for income tax purposes equal to the
difference between the exercise price and the fair market
value of the shares of Common Stock acquired or deemed
acquired on the date of exercise, and the Company will be
entitled to an income tax deduction in the amount of the
ordinary income recognized by the option holder. In general,
any gain or loss realized by the option holder on the
subsequent disposition of such shares will be a capital gain
or loss.
Amendment and Termination
The Stock Incentive Plan expires ten years after its
adoption, unless sooner terminated by the Board of
Directors. The Board of Directors has authority to amend the
Stock Incentive Plan in such manner as it deems advisable,
except that the Board of Directors is not permitted without
stockholder approval to amend the plan in a manner which
would prevent the grant of incentive stock options or
increase the number of shares of Common Stock available. The
Incentive Plan provides for appropriate adjustment, as
determined by the Stock Option Committee, in the number
and kind of shares subject to unexercised options, in the
event of any change in the outstanding shares of Common
Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization,
merger or similar event.
Required Affirmative Vote
The affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy at the
1998 Annual Meeting is required to approve the Incentive
Plan.
The Board of Directors unanimously recommends a vote FOR the
proposed Incentive Plan.
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, 1998. 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 1999, 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 18, 1998, 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),
(2), (3) or (4) 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 17, 1998
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 18, 1998
The undersigned hereby appoints Patrick L. Alexander and
Brent A. Bowman, 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 18, 1998, 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 (except as marked to the contrary below)
WITHHOLD AUTHORITYto 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 III (term expires 2001): Brent A. Bowman,
Charles D. Green and Vernon C. Larson
2. AMEND THE CERTIFICATE OF INCORPORATION OF THE COMPANY
TO INCREASE THE AUTHORIZED COMMON STOCK TO 3,000,000 SHARES:
For ____ Against ____ Abstain _____
3. APPROVE THE MNB BANCSHARES, INC. 1998 STOCK INCENTIVE
PLAN:
For ____ Against ____ Abstain _____
4. APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1998:
For ____ Against _____ Abstain _____
5. 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 PROPOSALS 2, 3 and
4.
Dated: ________________________, 1998
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.
EXHIBIT A
MNB BANCSHARES, INC.
STOCK INCENTIVE PLAN
1. Purpose of the Plan
The MNB BANCSHARES, INC., 1998 STOCK INCENTIVE PLAN (hereinafter
referred to as the "Plan") is intended to provide a means whereby directors,
employees, consultants and advisors of MNB BANCSHARES, INC., and its
Related Corporations may sustain a sense of proprietorship and personal
involvement in the continued development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company, thereby advancing the interests of the Company and
its shareholders. Accordingly, the Company may permit certain directors,
employees, consultants and advisors to acquire Shares or otherwise
participate in the financial success of the Company, on the terms and
conditions established herein.
2. Definitions
The following terms shall be defined as set forth below:
(a) Board. Shall mean the Board of Directors of the Company.
(b) Cause. Shall mean the commitment of fraud, the misappropriation of
or intentional material damage to the property or business of the Company,
the substantial failure to fulfill the duties and responsibilities of a
regular position and/or comply with Company policies, rules or regulations,
or the conviction of a felony.
(c) Change of Control. Shall mean:
(i) the consummation of the acquisition by any person (as such term is
defined in Section 13(d) or 14(d) of the '34 Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the '34 Act) of fifty
percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Company other than through the receipt of Shares
pursuant to the Plan; or
(ii) the individuals who, as of the date hereof, are members of the Board
cease for any reason to constitute a majority of the Board, unless the
election, or nomination for election by the stockholders of the Company, of
any new director was approved by a vote of a majority of the Board, and such
new director shall, for purposes of this Agreement, be considered as a
member of the Board; or
(iii) approval by stockholders of the Company of: (1) a merger or
consolidation if the stockholders, immediately before such merger or
consolidation, do not, as a result of such merger or consolidation, own,
directly or indirectly, more than fifty percent (50%) of the combined voting
power of the then outstanding voting securities of the entity resulting from
such merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities of the
Company outstanding immediately before such merger or consolidation; or
(2) a complete liquidation or dissolution or an agreement for the sale or
other disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting power
of the then outstanding securities of the Company are acquired by: (1) a
trustee or other fiduciary holding securities under one or more employee
benefit plans maintained for employees of the Company; or (2) 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 of the Company immediately prior to such acquisition.
(d) Code. Shall mean the Internal Revenue Code of 1986, and any amendments
thereto.
(e) Committee. Shall mean a committee appointed by the Board in accordance
with Section 3 hereof.
(f) Company. Shall mean MNB Bancshares, Inc.
(g) Compete. Shall mean within a period of one (1) year after the
termination of service, the direct or indirect competition with the business
of the Company and its Related Corporations, including, but not by way of
limitation, the direct or indirect owning, managing, operating, controlling,
financing or serving as an officer, employee, director or consultant to, or
by soliciting or inducing, or attempting to solicit or induce, any employee
or agent of the Company or a Related Corporation to terminate employment and
become employed by any person, firm, partnership, corporation, trust or other
entity which owns or operates, a business similar to that of the Company and
its Related Corporations, within the counties in which the Company and its
Related Corporations is operating, except with the express prior
written consent of the Company.
(h) Disability. Shall mean a physical or mental disability (within the
meaning of Section 22(e)(3) of the Code) which impairs the individual's
ability to substantially perform his or her current duties for a period of
at least twelve (12) consecutive months, as determined by the Committee.
(i) ERISA. Shall mean the Employee Retirement Income Security Act of 1974,
and any amendment thereto.
(j) Incentive Stock Option. Shall mean an award under the Plan that satisfies
the general requirements of Code Section 422, namely: (i) grantees must be
employees; (ii) the exercise price may not be less than the fair market value
of the underlying Shares at the date of grant; (iii) no more than $100,000
worth of Shares may become exercisable in any year; (iv) the maximum duration
of an award may be ten (10) years; (v) awards must be exercised within three
(3) months after termination of employment, except in the event of Disability
or death; and (vi) Shares received upon exercise must be retained for the
greater of two (2) years from the date of grant or one (1) year from the
date of exercise.
(k) Nonqualified Options. Shall mean an option award under the Plan that
is not an Incentive Stock Option.
(l) Related Corporation. Shall mean Security National Bank and any
corporation which would be a parent or subsidiary corporation with respect
to the Company as defined in Section 424(e) or
(f), respectively, of the Code.
(m) Retirement. Shall have the same meaning as is provided under the MNB
Bancshares, Inc. Employee Stock Ownership Plan, and shall mean termination of
service, other than for Cause, after attainment of age sixty (60) for
directors, consultants and advisors.
(n) Restricted Stock. Shall mean an award of Shares under the Plan that are
restricted as to transfer and subject to forfeiture.
(o) Rule 16b-3. Shall mean Rule 16b-3 promulgated under the '34 Act, and any
amendments thereto.
(p) Shares. Shall mean common stock of the Company.
(q) Stock Appreciation Rights. Shall mean rights entitling the grantee to
receive the appreciation in the market value of a stated number of Shares.
(r) '33 Act. Shall mean the Securities Act of 1933, and any amendments
thereto.
(s) '34 Act. Shall mean the Securities Exchange Act of 1934, and any
amendments thereto.
3. Administration of the Plan
The Plan shall be administered by the Board, or a Committee appointed by the
Board. The Board, or the appointed Committee, shall have sole authority to:
(a) select the directors, employees, consultants and advisors to whom
awards shall be granted under the Plan;
(b) establish the amount and conditions of each such award;
(c) prescribe any legend to be affixed to certificates representing such
awards;
(d) interpret the Plan; and
(e) adopt such rules, regulations, forms and agreements, not inconsistent
with the provisions of the Plan, as it may deem advisable to carry out the
Plan.
All decisions made by the Board, or the Committee, in administering the
Plan shall be final.
4. Shares Subject to the Plan
The aggregate number of Shares that may be obtained by directors, employees,
consultants and advisors under the Plan shall be 100,000 Shares. Any Shares
that remain unissued at the termination of the Plan shall cease to be subject
to the Plan, but until termination of the Plan, the Company shall at all
times make available sufficient Shares to meet the requirements of the Plan.
5. Stock Options
(a) Type of Options. The Company may issue options that constitute Incentive
Stock Options to employees and Nonqualified Options to directors, employees,
consultants and advisors under the Plan. The grant of each option shall be
confirmed by a stock option agreement that shall be executed by the Company
and the optionee as soon as practicable after such grant. The stock option
agreement shall expressly state or incorporate by reference the provisions of
the Plan and state whether the option is an Incentive Option or a
Nonqualified Option.
(b) Terms of Options. Except as provided in Subparagraphs (c) and (d) below,
each option granted under the Plan shall be subject to the terms and conditions
set forth by the Board in the stock option agreement including, but not
limited to, option price and option term.
(c) Additional Terms Applicable to All Options. Each option shall be
subject to the following terms and conditions:
(i) Written Notice. An option may be exercised only by giving written
notice to the Company specifying the number of Shares to be purchased.
(ii) Method of Exercise. The aggregate option price may be paid in any
one or a combination of cash, personal check, Shares already owned or Plan
awards which the optionee has an immediate right to exercise, as provided by
the Board.
(iii) Term of Option. An option shall be exercisable as provided under the
Plan or by the Board.
(iv) Disability or Death of Optionee. If an optionee terminates service
due to Retirement, Disability or death prior to exercise in full of any
options, he or she or his or her beneficiary, executor, administrator or
personal representative shall have the right to exercise the options within
a period of twelve (12) months after the date of such termination to the
extent that the right was exercisable at the date of such termination as
provided in the stock option agreement, or as may otherwise be provided
by the Board.
(v) Transferability. No option may be transferred, assigned or encumbered
by an optionee, except: (A) by will or the laws of descent and distribution;
(B) by gifting for the benefit of descendants for estate planning purposes;
or (C) pursuant to a certified domestic relations order.
(d) Additional Terms Applicable to Incentive Options. Each Incentive
Option shall be subject to the following terms and conditions:
(i) Option Price. The option price per Share shall be 100% of the fair
market value of a Share on the date the option is granted. Notwithstanding
the preceding sentence, the option price per Share granted to an individual
who, at the time such option is granted, owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company
(hereinafter referred to as a "10% Shareholder") shall not be less than 110%
of the fair market value of a Share on the date the option is granted.
(ii) Term of Option. No option may be exercised more than ten (10) years
after the date of grant. No option granted to a 10% Shareholder may be
exercised more than five (5) years after the date of grant. Notwithstanding
any other provisions hereof, no option may be exercised more than three (3)
months after the optionee terminates employment with the Company, except in
the event of death or Disability as provided under Subparagraph (c)(iv) above.
(iii) Annual Exercise Limit. The aggregate fair market value of Shares
which first become exercisable during any calendar year shall not exceed
$100,000. For purposes of the preceding sentence, the fair market value of
each Share shall be determined on the date the option with respect to such
Share is granted.
(iv) Transferability. No option may be transferred, assigned or encumbered
by an optionee, except by will or the laws of descent and distribution, and
during the optionee's lifetime an option may only be exercised by him or her.
6. Restricted Stock Awards
(a) Grants. Restricted Stock Awards ("RSAs") under the Plan shall be
evidenced by restricted stock agreements in such form and consistent with
the Plan as the Board shall approve from time to time.
(b) Restriction Period. RSAs awarded under the Plan shall be subject to
such terms, conditions, and restrictions, including without limitation:
prohibitions against transfer; substantial risks of forfeiture; attainment
of performance objectives; repurchase by the Company or right of first
refusal for such period or periods as shall be determined by the Board at
the time of grant. The Board shall have the power to permit, in its
discretion, anacceleration of the expiration of the applicable restriction
period with respect to any part or all of the RSAs awarded to a grantee.
(c) Restrictions Upon Transfer. RSAs awarded, and the right to vote
underlying Shares and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered during the restriction period applicable to such Shares, except:
(i) by will or the laws of descent and distribution; (ii) by gifting for the
benefit of descendants for estate planning purposes; or (iii) pursuant to a
certified domestic relations order. Subject to the foregoing, and except as
otherwise provided in the Plan, the grantee shall have all the other rights
of a stockholder including, but not limited to, the right to receive
dividends and the right to vote such Shares.
(d) Certificates. Each certificate issued in respect of RSAs awarded to a
grantee shall be deposited with the Company, or its designee, and shall bear
the following legend:
"This certificate and the shares represented hereby are subject to the
terms and conditions (including forfeiture and restrictions against transfer)
contained in the MNB Bancshares, Inc. 1998 Stock Incentive Plan and an
Agreement entered into by the registered owner. Release from such terms and
conditions shall be obtained only in accordance with the provisions of the
Plan and Agreement, a copy of each of which is on file in the office of the
Secretary of said Company."
(e) Lapse of Restrictions. The Agreement shall specify the terms and
conditions upon which any restrictions upon Shares awarded under the Plan
shall lapse, as determined by the Board. Upon the lapse of such
restrictions, Shares, free of the foregoing restrictive legend, shall be
issued to the grantee or his or her legal representative.
(f) Termination Prior to Lapse of Restrictions. In the event of a grantee's
termination of service prior to the lapse of restrictions applicable to any
RSAs awarded to such grantee, all Shares as to which there still remain
restrictions shall be forfeited by such grantee without payment of any
consideration to the grantee, and neither the grantee nor any successors,
heirs, assigns, or personal representatives of such grantee shall thereafter
have any further rights or interest in such Shares or certificates.
7. Stock Appreciation Rights
(a) Grants. Stock Appreciation Rights ("SARs") may be granted separately
or in tandem with or by reference to an option granted prior to or
simultaneously with the grant of such rights, to such eligible directors,
employees, consultants and advisors as may be selected by the Board.
(b) Terms of Grant. SARs may be granted in tandem with or with reference
to a related option, in which event the grantee may elect to exercise either
the option or the SAR, but not both, as to the same Share subject to the
option and the SAR, or the SAR may be granted independently of a related
option. SARs shall not be transferable, except: (i) by will or the laws of
descent and distribution; (ii) by gifting for the benefit of descendants
for estate planning purposes; or (iii) pursuant to a certified domestic
relations order.
(c) Payment on Exercise. Upon exercise of a SAR, the grantee shall be paid
the excess of the then fair market value of the number of Shares to which the
SAR relates over the fair market value of such number of Shares at the date
of grant of the SAR or of the related option, as the case may be. Such
excess shall be paid in cash or in Shares having a fair market value equal
to such excess or in such combination thereof as the Board shall determine.
8. Amendment or Termination of the Plan
The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, but (except as provided in Section 13 hereof) no amendment
shall be made without approval of the stockholders of the Company which
shall: (i) materially increase the aggregate number of Shares with respect
to which Incentive Stock Option awards may be made under the Plan; or (ii)
change the class of persons eligible to receive Incentive Stock Option awards
under the Plan; provided, however, that no amendment, suspension or
termination shall impair the rights of any individual, without his or her
consent, in any award theretofore made pursuant to the Plan.
9. Term of Plan
The Plan shall be effective upon the date of its adoption by the Board;
provided that, Incentive Options may be granted only if the Plan is approved
by the shareholders within twelve (12) months before or after the date of
adoption. Unless sooner terminated under the provisions of Section 9,
Shares and SARs shall not be granted under the Plan after the expiration of
ten (10) years from the effective date of the Plan. However, awards may be
exercisable after the end of the term of the Plan.
10. Rights as Shareholder
Upon delivery of any Share to a director, employee, consultant or advisor,
such person shall have all of the rights of a shareholder of the Company
with respect to such Share, including the right to vote such Share and to
receive all dividends or other distributions paid with respect to such Share.
11. Merger or Consolidation
In the event the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, the surviving corporation
may agree to exchange options and SARs issued under this Plan for options
and SARs (with the same aggregate option price) to acquire and participate
in that number of shares in the surviving corporation that have a fair
market value equal to the fair market value (determined on the date of such
merger or consolidation) of Shares that the grantee is entitled to acquire
and participate in under this Plan on the date of such merger or
consolidation. In the event of a Change of Control, options, Restricted
Stock and SARs shall become immediately and fully exercisable.
12. Changes in Capital and Corporate Structure
The aggregate number of Shares and interests awarded and which may be
awarded under the Plan shall be adjusted to reflect a change in the
outstanding Shares of the Company by reason of a recapitalization,
reclassification, reorganization, stock split, reverse stock split,
combination of shares, stock dividend or similar transaction. The
adjustment shall be made in an equitable manner which will cause
the awards to remain unchanged as a result of the applicable transaction.
13. Service
An individual shall be considered to be in the service of the Company or a
Related Corporation as long as he or she remains a director, employee,
consultant or advisor of the Company or such Related Corporation. Nothing
herein shall confer on any individual the right to continued service with
the Company or a Related Corporation or affect the right of the Company or
such Related Corporation to terminate such service.
14. Withholding of Tax
To the extent the award, issuance or exercise of Shares or SARs results
in the receipt of compensation by a director, employee, consultant or
advisor, the Company is authorized to withhold a portion of such Shares
receivable or any cash compensation then or thereafter payable to such
person to pay any tax required to be withheld by reason of the receipt of
the compensation. Alternatively, the director, employee, consultant or
advisor may tender Shares with a value equal to, or a personal check in
the amount of, the tax required to be withheld.
15. Delivery and Registration of Stock
The Company's obligation to deliver Shares with respect to an award shall,
if the Board so requests, be conditioned upon the receipt of a representation
as to the investment intention of the individual to whom such Shares are to
be delivered, in such form as the Board shall determine to be necessary or
advisable to comply with the provisions of the '33 Act or any other federal,
state or local securities legislation or regulation. It may be
provided that any representation requirement shall become inoperative upon a
registration of the Shares or other action eliminating the necessity of such
representation under securities legislation. The Company shall not be
required to deliver any Shares under the Plan prior to (i) the admission of
such Shares to listing on any stock exchange on which Shares may then be
listed, and (ii) the completion of such registration or other qualification of
such Shares under any state or federal law, rule or regulation, as the Board
shall determine to be necessary or advisable. The Plan is intended to
comply with Rule 16b-3, if applicable. any provision of the Plan which is
inconsistent with said rule should to the extent of such inconsistency, be
inoperative and shall not affect the validity of the remaining provisions
of the Plan.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000891284
<NAME> MNB BANCSHARES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 3,398,451
<INT-BEARING-DEPOSITS> 3,300,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,409,475
<INVESTMENTS-CARRYING> 6,669,809
<INVESTMENTS-MARKET> 6,692,000
<LOANS> 90,238,783
<ALLOWANCE> 1,335,024
<TOTAL-ASSETS> 144,752,091
<DEPOSITS> 122,208,537
<SHORT-TERM> 1,049,615
<LIABILITIES-OTHER> 1,168,326
<LONG-TERM> 8,049,764
0
0
<COMMON> 12,845
<OTHER-SE> 12,263,004
<TOTAL-LIABILITIES-AND-EQUITY> 144,752,091
<INTEREST-LOAN> 5,879,204
<INTEREST-INVEST> 1,944,663
<INTEREST-OTHER> 105,003
<INTEREST-TOTAL> 7,928,870
<INTEREST-DEPOSIT> 3,850,889
<INTEREST-EXPENSE> 4,037,711
<INTEREST-INCOME-NET> 3,891,159
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> (21,309)
<EXPENSE-OTHER> 2,977,581
<INCOME-PRETAX> 1,543,687
<INCOME-PRE-EXTRAORDINARY> 1,543,687
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,072,544
<EPS-PRIMARY> .84
<EPS-DILUTED> .81
<YIELD-ACTUAL> 2.87
<LOANS-NON> 172,501
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 32
<ALLOWANCE-OPEN> 819,660
<CHARGE-OFFS> 17,655
<RECOVERIES> 11,630
<ALLOWANCE-CLOSE> 1,335,024
<ALLOWANCE-DOMESTIC> 1,219,994
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 115,030
</TABLE>
