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, 1998
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 jurisdiction
(I.R.S. Employer
Identification Number)
of incorporation or organization)
800 Poyntz Avenue, Manhattan, Kansas
66505 (Address of principal executive offices)
(Zip Code)
(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 29, 1999 was
$8,922,563.* At March 29, 1999, the total
number of shares of common stock outstanding
was 1,367,976.
Documents incorporated by Reference:
Portions of the 1998 Annual Report to
Stockholders for the fiscal year ended
December 31, 1998, are incorporated by
reference into Parts I and II hereof, to the
extent indicated herein. Portions of the
Proxy Statement for the Annual Meeting of
Stockholders to be held May 19, 1999, 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 29, 1999, 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.
1998 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
21
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 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. 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. On June 5, 1998, the Company sold
the Beloit, Kansas branch.
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 66505. 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, and 102 S 6th, Osage City, Kansas.
Manhattan is located in east central Kansas,
approximately 45 miles west of Topeka.
Manhattan is the county seat and largest
city in Riley County. 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 and in an area
experiencing the growth and expansion of the
metropolitan Topeka area. Topeka is the
state capital. Osage City is approximately
30 miles south of Topeka 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, 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 took effect on June 1, 1997,
banks are able to establish branch offices
in other states. See "Supervision and
Regulation - The Bank - Branching
Authority."
Employees
At December 31, 1998, the Bank had a
total of 66 employees (54 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 the Office of the Comptroller of
the Currency (the "OCC"), the Board of
Governors of the Federal Reserve System (the
"Federal Reserve"), 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
applicable statutes, regulations and
regulatory 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 is a summary of the
material elements of the regulatory
framework that applies to the Company and
its subsidiaries. It does not describe all
of the statutes, regulations and regulatory
policies that apply to the Company and its
subsidiaries, nor does it restate all of the
requirements of the statutes, regulations
and regulatory policies that are described.
As such, the following is qualified in its
entirety by reference to the applicable
statutes, regulations and regulatory
policies. Any change in applicable law,
regulations or regulatory policies may have
a material effect on the business of the
Company and its subsidiaries.
Recent Regulatory Developments
Pending Legislation. Legislation has
been introduced 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.
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 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 Federal Reserve under
the Bank Holding Company Act, as amended
(the "BHCA"). In accordance with Federal
Reserve 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 otherwise do so. Under the BHCA,
the Company is subject to periodic
examination by the Federal Reserve. The
Company is also required to file with the
Federal Reserve periodic reports of the
Company's operations and such additional
information regarding the Company and its
subsidiaries as the Federal Reserve may
require.
Investments and Activities. Under the
BHCA, a bank holding company must obtain
Federal Reserve approval before: (i)
acquiring, directly or indirectly, ownership
or control of any voting shares of another
bank or bank holding company if, after the
acquisition, it would own or control more
than 5% of the shares of the other bank or
bank holding company (unless it already owns
or controls the majority of such shares);
(ii) acquiring all or substantially all of
the assets of another bank; or (iii) merging
or consolidating with another bank holding
company. Subject to certain conditions
(including certain deposit concentration
limits established by the BHCA), the Federal
Reserve may allow a bank holding company to
acquire banks located in any state of the
United States without regard to whether the
acquisition is prohibited by the law of the
state in which the target bank is located.
In approving interstate acquisitions,
however, the Federal Reserve 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) and
state laws 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 generally prohibits 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. This general
prohibition is subject to a number of
exceptions. The principal exception allows
bank holding companies to engage in, and to
own shares of companies engaged in, certain
businesses found by the Federal Reserve to
be "so closely related to banking ... as to
be a proper incident thereto." Under
current regulations of the Federal Reserve,
the Company and its non-bank subsidiaries
are permitted to engage in a variety of
banking-related businesses, including 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 any person
or company from acquiring "control" of a
bank or a bank holding company without prior
notice to the appropriate federal bank
regulator. "Control" is defined in certain
cases as the acquisition of 10% of the
outstanding shares of a bank or bank holding
company.
Capital Requirements. Bank holding
companies are required to maintain minimum
levels of capital in accordance with Federal
Reserve capital adequacy guidelines. If
capital falls below minimum guideline
levels, a bank holding company, among other
things, may be denied approval to acquire or
establish additional banks or non-bank
businesses.
The Federal Reserve'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
a minimum requirement of 4% 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). Total capital
consists primarily of 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.
Higher capital levels will be required if
warranted by the particular circumstances or
risk profiles of individual banking
organizations. For example, the Federal
Reserve'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 Federal Reserve'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,
1998, the Company's total capital of $13.2
million is well in excess of the Federal
Reserve Board's consolidated minimum capital
requirements.
Dividends. 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. Additionally, the
Federal Reserve has issued a policy
statement with regard to the payment of cash
dividends by bank holding companies. The
policy statement provides 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. The Federal Reserve
also 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.
Federal Securities Regulation. The
Company's common stock is registered with
the SEC under 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 Bank is a member of the FDIC's
Bank Insurance Fund ("BIF") (but a portion
of its deposits are deemed to be insured by
the FDIC's Savings Association Insurance
Fund ("SAIF")). The Bank is also a member of
the Federal Reserve System. As a federally-
insured national bank, the Bank is subject
to the examination, supervision, reporting
and enforcement requirements of the OCC, as
the chartering authority for national banks,
and the FDIC, as administrator of the BIF
and 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,
1998, BIF and SAIF assessments ranged from
0% of deposits to 0.27% of deposits. For
the semi-annual assessment period beginning
January 1, 1999, BIF and 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 (i) has
engaged or is engaging in unsafe or unsound
practices, (ii) is in an unsafe or unsound
condition to continue operations or (iii)
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 Financing Corporation
("FICO"). FICO was created in 1987 to
finance the recapitalization of the Federal
Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. As a
result of federal legislation enacted in
1996, beginning as of January 1, 1997, both
SAIF members and BIF members became subject
to assessments to cover the interest
payments on outstanding FICO obligations.
These 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 final
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, 1998, the FICO assessment
rate for SAIF members ranged between
approximately 0.061% of deposits and
approximately 0.063% of deposits, while the
FICO assessment rate for BIF members ranged
between approximately 0.012% of deposits and
approximately 0.013% of deposits. During
the year ended December 31, 1998, the Bank
paid FICO assessments totaling $51,000.
Supervisory Assessments. All national
banks are required to pay supervisory
assessments to the OCC to fund the
operations of the OCC. The amount of the
assessment is calculated using a formula
which takes into account the bank's size and
its supervisory condition (as determined by
the composite rating assigned to the bank as
a result of its most recent OCC
examination). During the year ended
December 31, 1998, the Bank paid supervisory
assessments to the OCC totaling $47,000.
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 a minimum requirement of at least 4%
for all others, and a risk-based capital
requirement consisting of a minimum ratio of
total capital to total risk-weighted assets
of 8%, at least one-half of which must be
Tier 1 capital. For purposes of these
capital standards, Tier 1 capital and total
capital consist of substantially the same
components as Tier 1 capital and total
capital under the Federal Reserve'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,
1998, the Bank was not required by the OCC
to increase its capital to an amount in
excess of the minimum regulatory
requirement. As of December 31, 1998, the
Bank exceeded its minimum regulatory capital
requirements with a leverage ratio of 9.14%
and a risk-based capital ratio of 17.35%.
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," in each case
as defined by regulation. Depending upon
the capital category to which an institution
is assigned, the regulators' corrective
powers include: requiring the institution
to submit a capital restoration plan;
limiting the institution's asset growth and
restricting its activities; requiring the
institution to issue additional capital
stock (including additional voting stock) or
to be acquired; restricting transactions
between the institution and its 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. As of December 31, 1998,
the Bank was "well capitalized", as defined
by OCC regulations.
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 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, 1998. 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, 1998,
approximately $.7 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
federal law 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 addition, in
October 1998, the federal banking regulators
issued safety and soundness standards for
achieving Year 2000 compliance, including
standards for developing and managing Year
2000 project plans, testing remediation
efforts and planning for contingencies.
In general, the safety and soundness
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. If an
institution fails to submit an acceptable
compliance plan, or fails in any material
respect to implement a compliance plan that
has been accepted by its primary federal
regulator, the regulator is required to
issue an order directing the institution to
cure the deficiency. Until the deficiency
cited in the regulator's order is cured, the
regulator may restrict the institution's
rate of growth, require the institution to
increase its capital, restrict the rates the
institution pays on deposits or require the
institution to take any action the regulator
deems appropriate under the circumstances.
Noncompliance with the standards established
by the safety and soundness guidelines may
also constitute grounds for other
enforcement action by the federal banking
regulators, including cease and desist
orders and civil money penalty assessments.
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.
Under the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), both state and
national banks are allowed 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 new 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 allowed individual
states to "opt-out" of certain provisions of
the Riegle-Neal Act by enacting appropriate
legislation prior to June 1, 1997. Kansas
law permits interstate mergers to the extent
authorized by the Riegle-Neal Act, so long
as any Kansas bank involved has been in
existence and operation for at least five
years.
Federal Reserve System. Federal
Reserve 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 $46.5
million or less, the reserve requirement is
3% of total transaction accounts; and for
transaction accounts aggregating in excess
of $46.5 million, the reserve requirement is
$1.395 million plus 10% of the aggregate
amount of total transaction accounts in
excess of $46.5 million. The first $4.9
million of otherwise reservable balances are
exempted from the reserve requirements.
These reserve requirements are subject to
annual adjustment by the Federal Reserve.
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
1998 Annual Report to Stockholders (attached
as Exhibit 13.1 hereto). The following
table describes the extent to which changes
in interest income and interest expense for
major components of interest-earning assets
and interest-bearing liabilities affected
the Bank's interest income and expense
during the periods indicated. The table
distinguishes between (i) changes
attributable to rate (changes in rate
multiplied by prior volume), (ii) changes
attributable to volume (changes in volume
multiplied by prior rate), and (iii) net
change (the sum of the previous columns).
The net changes attributable to the combined
effect of volume and rate, which cannot be
segregated, have been allocated
proportionately to the change due to volume
and the change due to rate.
<TABLE>
<CAPTION>
December 1998 vs 1997 December 1997 vs 1996
Inc/(Decr) Inc/(Decr)
Attributable to Attributable to
Volume Rate Net Volume Rate Net
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Investment securities $992 $(80) $912 $14 $70 $84
Loans 1,429 19 1,448 104 71 175
Total 2,421 (61) 2,360 118 141 259
Interest expense:
Deposits $1,296 $(111) $1,185 $(31) $22 $(9)
Other borrowings 334 36 370 (20) 18 (2)
Total 1,630 (75) 1,555 (51) 40 (11)
Net interest income $ 791 $ 14 $ 805 $169 $101 $ 270
</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,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Investment securities:
U.S. government and agency
obligations $18,062 $ 26,087 $ 16,965
Mortgage-backed securities 21,121 11,401 11,734
Municipal bonds 8,690 3,097 2,962
Bankers' acceptances 1,140 108 491
FHLB, Federal Reserve,
and Bankers Bank of
Kansas stock 1,638 1,386 1,087
Total $50,651 $ 42,079 $ 33,239
</TABLE>
As of December 31, 1998, the carrying value,
maturities and the weighted average yields
of investment securities were as follows:
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
securities $6,798 5.85% $11,264 5.84% $- - $18,062 5.84%
Mortgage-
backed
securities 1,446 6.44% 19,149 6.07% 527 6.97% 21,122 6.12%
Municipal
bonds 714 6.14% 7,018 5.89% 957 5.89% 8,690 5.97%
Bankers'
acceptances 1,140 5.22% - - - - 1,140 5.22%
FHLB, Federal
Reserve, and
Bankers Bank of
Kansas stock 444 7.00% - - 1,194 7.00% 1,638 7.00%
Total $10,542 5.93% $37,431 5.97% $2,678 6.80% $50,651 6.00%
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, 1998.
</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
1998 1997 1996
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family(1) $25,814 34.39% $37,218 41.95% $33,677 53.84%
Multi-family $4,355 5.80 4,758 5.36 4,271 6.83
Commercial real estate(2) $21,118 28.14 20,713 23.35 10,041 16.05
Total real estate loans $51,287 68.33 62,689 70.66 47,989 76.72
Consumer loans $5,818 7.75 6,357 7.16 4,696 7.51
Commercial non-real
estate loans $17,131 22.83 18,305 20.63 7,410 11.42
Student loans $2,388 3.18 2,887 3.25 3,709 5.93
Less:
Unearned fees,
discounts and premiums 88 0.12 120 0.18 151 0.24
Undisbursed loan fund 191 0.25 59 0.01 14 0.02
Allowance for loan losses 1,292 1.72 1,335 1.51 820 1.32
Total loans $75,053 100.00% $88,724100.00% $62,549 100.00%
(1) Includes loans held for sale totaling
$756,000, $744,000 and $180,000 at December
31, 1998, 1997 and 1996, respectively.
(2) Includes construction loans totaling
$3,569,000, $2,162,000 and $2,706,000 at
December 31, 1998, 1997 and 1996
respectively.
</TABLE>
The following table sets forth the
contractual maturities of loans at December
31, 1998. The table does not include
unscheduled prepayments.
<TABLE>
<CAPTION>
At December 31, 1998
(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>
Real Estate loans $5,587 $2,716 $3,000 $10,240 $22,664 $7,080 $51,287
Other loans 9,662 6,415 6,009 2,890 361 - 25,337
Total $ 15,249 $9,131 $9,009 $13,130 $23,025 $7,080 $76,624
Less:
Unearned
discounts
and
deferred
loan fees 88
Undisbursed
loan funds 191
Allowance
for loan
losses 1,292
Loans, net $ 75,053
</TABLE>
The following table sets forth at
December 31, 1998 the dollar amount of all
loans due after December 31, 1999 and
whether such loans had fixed interest rates
or adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable Total
(Dollars in thousands)
<S> <C> <C> <C>
Real Estate loans $13,496 $28,204 $45,700
Other loans 10,874 4,801 15,675
Total $24,370 $33,005 $61,375
</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, 1998, interest earned
on such loans during the year ended December
31, 1998 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,
1998 1997 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total non-
accrual loans $144 $172 $140 $39 $209
Real estate
owned ("REO") - 125 27 5 51
Total
nonperforming
assets $144 $297 $167 $44 $260
Nonperforming
assets to total
adjusted loans 0.19% 0.34% 0.27% 0.07% 0.50%
Nonperforming
assets to
total assets 0.11% 0.21% 0.16% 0.04% 0.33%
Allowance for
loan losses
to non-accrual
loans and REO 897.22% 448.89% 490.88% 1,871.30% 216.15%
</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,
1998 1997 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year $1,335 $820 $826 $562 $587
Provision for
loan losses:
Mortgage loans 17 18 4 23 -
Non-mortgage loans 73 42 11 17 5
Total provision
for loan losses 90 60 15 40 5
Allowance for loans
of acquired bank:
Allowance for
mortgage loans
of acquired bank - 92 - 103 -
Allowance for
non-mortgage loans
of acquired bank - 369 - 126 -
Total of allowance
for loans of acquired
bank - 461 - 229 -
Recoveries:
Mortgage loans 15 1 - 8 12
Non-mortgage loans 23 10 6 16 4
Total recoveries 38 11 6 24 16
Charge-offs:
Mortgage loans 9 - 1 10 16
Non-mortgage loans 162 17 26 19 30
Total charge-offs 171 17 27 29 46
Balance at end
of year $1,292 $1,335 $820 $826 $562
Ratio of allowance
for loan losses
to total out-
standing
loans (gross) 1.70% 1.48% 1.29% 1.30% 1.07%
Ratio of net
charge-offs
during the year
to average loans
outstanding
during the year 0.16% 0.01% 0.03% 0.01% 0.06%
Ratio of allowance
for loan losses
to totalnon-
performing loans 897.22% 773.92% 584.91% 2,107.57% 269.00%
</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,
1998 1997 1996
% 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 $509 39% $486 36% $375 46%
Non-mortgage
loans 783 61 849 64 445 54
Total $ 1,292 100% $1,335 100% $820 100%
</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,
1998 1997 1996
Average % of Average Average % of Average Average % of Average
Balance Total Rate Balance Total Rate Balance Total Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest
demand $10,677 8.94% 0.00% $7,235 8.23% 0.00% $5,995 6.87% 0.00%
Money market
deposits 17,866 14.97% 3.63% 15,378 17.50% 3.76% 15,984 18.31% 3.72%
Checking
/NOW 23,217 19.45% 3.73% 13,513 15.37% 3.75% 12,682 14.53% 3.87%
Savings 9,357 7.84% 3.11% 5,100 5.80% 2.44% 5,526 6.33% 2.48%
Certificates
of deposit 58,261 48.80% 5.54% 46,666 53.09% 5.66% 47,113 53.97% 5.60%
Total
deposits $119,378 100.00% 4.22% $87,892 100.00% 4.38% $87,300 100.00% 4.42%
</TABLE>
As of December 31, 1998, the aggregate
amount outstanding of jumbo certificates of
deposit (amounts of $100,000 or more) was
$7.8 million. The following table presents
the maturities of these time certificates of
deposit at such date:
(Dollars in thousands)
3 months or less $3,663
Over 3 months through 6 months 859
Over 6 months through 12 months 2,305
Over 12 months 1,006
Total $7,833
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
At or for the years ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Return on average assets 0.69% 1.03% 0.70% 0.78% 0.82%
Return on average equity 7.73 9.18 6.54 7.48 7.39
Equity to total assets 9.75 8.48 10.96 10.68 11.72
Dividend payout ratio 35.71 31.00 27.43 19.08 18.94
Earnings per share before
extraordinary item, basic(1) 0.72 0.80 0.53 0.58 0.58
Earnings per share before
extraordinary item, diluted(1) 0.70 0.77 0.51 0.56 0.57
Net earnings per share, basic(1) 0.72 0.80 0.53 0.58 0.55
Net earnings per share, diluted(1) 0.70 0.77 0.51 0.56 0.54
(1) All per share amounts have been
adjusted to give effect to the 5% stock
dividends paid by the Company annually since
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
Address or Acquired Square Footage Title
<S> <C> <C> <C>
800 Poyntz Avenue
Manhattan, KS 66505 1974 12,000 Owned
1741 N. Washington
Auburn, KS 66402 1991 8,000 Owned
6100 SW 21st Street
Topeka, KS 66667 1997 3,500 Leased
102 S 6th
Osage City, KS 66523 1997 7,932 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 section captioned "Stock
Price Information" of the Company's 1998
Annual Report to Stockholders for the fiscal
year ended December 31, 1998 (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 1998 Annual
Report to Stockholders for the fiscal year
ended December 31, 1998 (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 1998 Annual
Report to Stockholders for the fiscal year
ended December 31, 1998 (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 1998 Annual Report to
Stockholders for the fiscal year ended
December 31, 1998 (attached as exhibit 13.1
hereto).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Directors
The Company incorporates by reference the
information called for by Item 10 of this
Form 10-K regarding directors of the Company
from the section entitled "Election of
Directors" of the Company's Proxy Statement
for the annual meeting of stockholders to be
held May 19, 1999 (the "1999 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, 1998
through December 31, 1998.
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>
<S> <C> <C>
Name Age Positions with the Company
Patrick L. Alexander 46 President and Chief Executive Officer
Mark A. Herpich 31 Vice President, Secretary,
Chief Financial Officer
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 1999 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 1999 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 1999 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 1998 Annual Report to
Stockholders for the fiscal year ended
December 31, 1998 (attached as Exhibit 13.1
hereto).
Report of Independent Public
Accountants
Consolidated Balance Sheets - December
31, 1998 and 1997
Consolidated Statements of Earnings -
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of
Stockholders' Equity - Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996
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
None.
***
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
By: /s/ Mark A. Herpich
Patrick L. Alexander
President and Chief Executive Officer
Mark Herpich
Principal Financial and Accounting 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 19, 1999 President,
Chief Executive Officer
and Director
/s/ Susan E. Roepke March 19, 1999 Director
/s/ Brent A. Bowman March 19, 1999 Chairman of the Board
/s/ Joseph L. Downey March 19, 1999 Director
/s/ Charles D. Green March 19, 1999 Director
/s/ Vernon C. Larson March 19, 1999 Director
/s/ Jerry R. Pettle March 19, 1999 Director
/s/ Donald J. Wissman March 19, 1999 Director
</TABLE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
3.1 Articles of Incorporation of the N/A
Company-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 N/A
the 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company 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 N/A
Company, 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 N/A
Compensation Plan, dated December 21, 1994-
Incorporated by reference from Exhibit 10.20 dated
March 26, 1994
10.12 Stock Option Agreement between the N/A
Company and Michael E. Scheopner-Dated May 13,
1996 Incorporated by reference from Exhibit
10.15 to Form 10-K dated March 31, 1997.
10.13 Stock Option Agreement between the
Company and Mark A. Herpich-Dated November 4,
1998
10.14 Stock Option Agreement between the
Company and Dean R. Thibault-Dated November 4,
1998
10.15 Stock Option Agreement between the
Company and David Salisbury-Dated November 4,
1998
10.16 Stock Option Agreement between the
Company and Sandra Falen-Dated November 4, 1998
10.17 Stock Option Agreement between the
Company and Marcia Kemper-Dated November 4,
1998
13.1 1998 Annual Report to Stockholders of
the Company for the fiscal year ended December 31,
1998
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
99.1 Proxy Statement of the Company for the
Annual Meeting of Stockholders to be held May
19, 1999
</TABLE>
EXHIBIT 10.13
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION to acquire 2321
shares (hereinafter referred to as "Shares")
of Common Stock of MNB BANCSHARES, INC.
(hereinafter referred to as the "Company")
is hereby granted to Mark Herpich
(hereinafter referred to as the "Optionee"),
subject in all respects to the terms and
conditions of the MNB BANCSHARES, INC. 1992
STOCK OPTION PLAN (hereinafter referred to
as the "Plan") and such other terms and
conditions as are set forth herein.
2. This Option is not intended to
constitute an Incentive Stock Option under
Section 422 (b) of the Internal Revenue Code
of 1986.
3. The option price as determined by
the Board of Directors of the Company (the
"Board") is Thirteen Dollars and 12.5/100
($13.125) per Share.
4. This option may be exercised in
accordance with the following table:
DATE NUMBER OF SHARES
EXERCISABLE
11/4/1999 465
11/4/2000 464
11/4/2001 464
11/4/2002 464
11/4/2003 464
In the event of a Change of Control,
this Option shall become immediately and
fully exercisable. A "Change of Control"
shall be deemed to have occurred if:
(i) as a result of, or in
connection with, any tender offer or
exchange offer, merger or
other business combination, sale
of assets or contested election,
or any combination of the
foregoing transaction (the
"Transaction"), the persons who
were directors of the Company
before the Transaction shall
cease to constitute a majority of the
Board or any successor
to the Company, unless the election, or
nomination for election by the stockholders, of any
new director was approved by a vote of a majority of the
Board, then such new director shall, for purposes of the Plan, be
considered as a member of the Board;
(ii) the Company is merged or
consolidated with another
corporation and as a result of the
merger or consolidation less than sixty-seven
percent (67%) of the outstanding
voting securities of the surviving or resulting corporation
shall then be owned in the aggregate by the former
stockholders of the Company, other than (a) affiliates
within the meaning of the Securities and Exchange Act of
1934 or (b) any party to the merger or consolidation;
(iii) a tender offer or exchange offer is made and consummated
for the ownership of securities of the Company
representing thirty-three percent (33%) or more of the
combined voting power of the Company's then outstanding
voting securities; or
(iv) the Company transfers
substantially all of its assets to
another corporation which is not a wholly-owned
subsidiary of the Company.
Notwithstanding the foregoing, a Change of
Control shall not be deemed to occur solely
because thirty-three percent (33%) or more
of the combined voting power of the
Company's then outstanding voting securities
are acquired by (a) a trustee or other
fiduciary holding securities under one or
more employee benefit plans maintaining for
employees benefit plans maintained for
employees of the Company or (b) any
corporation which, immediately prior to such
acquisition, is owned directly or indirectly
by the stockholders of the Company in the
same proportion as their ownership of stock
immediately prior to such acquisition.
5. This Option may not be exercised
if the issuance of Shares upon such exercise
would constitute a violation of any
applicable federal or state securities law,
or any other valid law or regulation. As a
condition to the exercise of this Option,
the Optionee shall represent to the Company
that the Shares being acquired under this
Option are for investment and not with a
present view for distribution or resale,
unless counsel for the Company is then of
the opinion that such a representation is
not required under any applicable law,
regulation or rule of any governmental
agency.
6. This Option may not be transferred
in any manner and may be exercised during
the lifetime of the Optionee only by him.
The terms of this Option shall be binding
upon the Optionee's executors,
administrators, heirs, assigns and
successors.
7. This Option may not be exercised
more than 10 years after the date indicated
below and may be exercised during such term
only in accordance with the terms and
conditions set forth in the Plan.
Dated: November 4, 1998.
MNB
BANCSHARES, INC.
BY:
_____________________
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has
received a copy of the Plan and is familiar
with the terms and conditions set forth
therein. The Optionee agrees to accept as
binding, conclusive, and final all decisions
and interpretations of the Committee. As a
condition to the exercise of this Option,
the Optionee authorizes the Company to
withhold from any regular cash compensation
payable by the Company any taxes required to
be withheld under any federal, state or
local law as a result of exercising this
Option.
Dated: November 4, 1998
BY:
____________________
Optionee
(To be executed in duplicate)
EXHIBIT 10.14
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION to acquire 500
shares (hereinafter referred to as "Shares")
of Common Stock of MNB BANCSHARES, INC.
(hereinafter referred to as the "Company")
is hereby granted to Dean R. Thibault
(hereinafter referred to as the "Optionee"),
subject in all respects to the terms and
conditions of the MNB BANCSHARES, INC. 1992
STOCK OPTION PLAN (hereinafter referred to
as the "Plan") and such other terms and
conditions as are set forth herein.
2. This Option is not intended to
constitute an Incentive Stock Option under
Section 422 (b) of the Internal Revenue Code
of 1986.
3. The option price as determined by
the Board of Directors of the Company (the
"Board") is Thirteen Dollars and 12.5/100
($13.125) per Share.
4. This Option may be exercised in
accordance with the following table:
DATE NUMBER OF SHARES
EXERCISABLE
11/4/1999 100
11/4/2000 100
11/4/2001 100
11/4/2002 100
11/4/2003 100
In the event of a Change of Control,
this Option shall become immediately and
fully exercisable. A "Change of Control"
shall be deemed to have occurred if:
(i) as a result of, or in
connection with, any tender offer or
exchange offer, merger or
other business combination, sale
of assets or contested election,
or any combination of the
foregoing transaction (the
"Transaction"), the persons who
were directors of the Company
before the Transaction shall
cease to constitute a majority of the
Board or any successor
to the Company, unless the election, or
nomination for
election by the stockholders, of any
new director was
approved by a vote of a majority of the
Board, then such new
director shall, for purposes of the Plan, be
considered as a
member of the Board;
(ii) the Company is merged or
consolidated with another
corporation and as a result of the
merger or consolidation
less than sixty-seven
percent (67%) of the outstanding
voting securities of the
surviving or resulting corporation
shall then be owned in
the aggregate by the former
stockholders of the Company,
other than (a) affiliates
within the meaning of the
Securities and Exchange Act of
1934 or (b) any party to the
merger or consolidation;
(iii) a tender offer or
exchange offer is made and consummated
for the ownership of
securities of the Company
representing thirty-three
percent (33%) or more of the
combined voting power of the
Company's then outstanding
voting securities; or
(iv) the Company transfers
substantially all of its assets to
another corporation
which is not a wholly-owned
subsidiary of the Company.
Notwithstanding the foregoing, a Change of
Control shall not be deemed to occur solely
because thirty-three percent (33%) or more
of the combined voting power of the
Company's then outstanding voting securities
are acquired by (a) a trustee or other
fiduciary holding securities under one or
more employee benefit plans maintaining for
employees benefit plans maintained for
employees of the Company or (b) any
corporation which, immediately prior to such
acquisition, is owned directly or indirectly
by the stockholders of the Company in the
same proportion as their ownership of stock
immediately prior to such acquisition.
5. This Option may not be exercised
if the issuance of Shares upon such exercise
would constitute a violation of any
applicable federal or state securities law,
or any other valid law or regulation. As a
condition to the exercise of this Option,
the Optionee shall represent to the Company
that the Shares being acquired under this
Option are for investment and not with a
present view for distribution or resale,
unless counsel for the Company is then of
the opinion that such a representation is
not required under any applicable law,
regulation or rule of any governmental
agency.
6. This Option may not be transferred
in any manner and may be exercised during
the lifetime of the Optionee only by him.
The terms of this Option shall be binding
upon the Optionee's executors,
administrators, heirs, assigns and
successors.
7. This Option may not be exercised
more than 10 years after the date indicated
below and may be exercised during such term
only in accordance with the terms and
conditions set forth in the Plan.
Dated: November 4, 1998.
MNB
BANCSHARES, INC.
BY:
_____________________
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has
received a copy of the Plan and is familiar
with the terms and conditions set forth
therein. The Optionee agrees to accept as
binding, conclusive, and final all decisions
and interpretations of the Committee. As a
condition to the exercise of this Option,
the Optionee authorizes the Company to
withhold from any regular cash compensation
payable by the Company any taxes required to
be withheld under any federal, state or
local law as a result of exercising this
Option.
Dated: November 4, 1998
BY:
____________________
Optionee
(To be executed in duplicate)
EXHIBIT 10.15
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION to acquire 500
shares (hereinafter referred to as "Shares")
of Common Stock of MNB BANCSHARES, INC.
(hereinafter referred to as the "Company")
is hereby granted to David Salisbury
(hereinafter referred to as the "Optionee"),
subject in all respects to the terms and
conditions of the MNB BANCSHARES, INC. 1992
STOCK OPTION PLAN (hereinafter referred to
as the "Plan") and such other terms and
conditions as are set forth herein.
2. This Option is not intended to
constitute an Incentive Stock Option under
Section 422 (b) of the Internal Revenue Code
of 1986.
3. The option price as determined by
the Board of Directors of the Company (the
"Board") is Thirteen Dollars and 12.5/100
($13.125) per Share.
4. This Option may be exercised in
accordance with the following table:
DATE NUMBER OF SHARES
EXERCISABLE
11/4/1999 100
11/4/2000 100
11/4/2001 100
11/4/2002 100
11/4/2003 100
In the event of a Change of Control,
this Option shall become immediately and
fully exercisable. A "Change of Control"
shall be deemed to have occurred if:
(i) as a result of, or in
connection with, any tender offer or
exchange offer, merger or
other business combination, sale
of assets or contested election,
or any combination of the
foregoing transaction (the
"Transaction"), the persons who
were directors of the Company
before the Transaction shall
cease to constitute a majority of the
Board or any successor
to the Company, unless the election, or
nomination for
election by the stockholders, of any
new director was
approved by a vote of a majority of the
Board, then such new
director shall, for purposes of the Plan, be
considered as a
member of the Board;
(ii) the Company is merged or
consolidated with another
corporation and as a result of the
merger or consolidation
less than sixty-seven
percent (67%) of the outstanding
voting securities of the
surviving or resulting corporation
shall then be owned in
the aggregate by the former
stockholders of the Company,
other than (a) affiliates
within the meaning of the
Securities and Exchange Act of
1934 or (b) any party to the
merger or consolidation;
(iii) a tender offer or
exchange offer is made and consummated
for the ownership of
securities of the Company
representing thirty-three
percent (33%) or more of the
combined voting power of the
Company's then outstanding
voting securities; or
(iv) the Company transfers
substantially all of its assets to
another corporation
which is not a wholly-owned
subsidiary of the Company.
Notwithstanding the foregoing, a Change of
Control shall not be deemed to occur solely
because thirty-three percent (33%) or more
of the combined voting power of the
Company's then outstanding voting securities
are acquired by (a) a trustee or other
fiduciary holding securities under one or
more employee benefit plans maintaining for
employees benefit plans maintained for
employees of the Company or (b) any
corporation which, immediately prior to such
acquisition, is owned directly or indirectly
by the stockholders of the Company in the
same proportion as their ownership of stock
immediately prior to such acquisition.
5. This Option may not be exercised
if the issuance of Shares upon such exercise
would constitute a violation of any
applicable federal or state securities law,
or any other valid law or regulation. As a
condition to the exercise of this Option,
the Optionee shall represent to the Company
that the Shares being acquired under this
Option are for investment and not with a
present view for distribution or resale,
unless counsel for the Company is then of
the opinion that such a representation is
not required under any applicable law,
regulation or rule of any governmental
agency.
6. This Option may not be transferred
in any manner and may be exercised during
the lifetime of the Optionee only by him.
The terms of this Option shall be binding
upon the Optionee's executors,
administrators, heirs, assigns and
successors.
7. This Option may not be exercised
more than 10 years after the date indicated
below and may be exercised during such term
only in accordance with the terms and
conditions set forth in the Plan.
Dated: November 4, 1998.
MNB
BANCSHARES, INC.
BY:
_____________________
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has
received a copy of the Plan and is familiar
with the terms and conditions set forth
therein. The Optionee agrees to accept as
binding, conclusive, and final all decisions
and interpretations of the Committee. As a
condition to the exercise of this Option,
the Optionee authorizes the Company to
withhold from any regular cash compensation
payable by the Company any taxes required to
be withheld under any federal, state or
local law as a result of exercising this
Option.
Dated: November 4, 1998
BY:
____________________
Optionee
(To be executed in duplicate)
EXHIBIT 10.16
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION to acquire 500
shares (hereinafter referred to as "Shares")
of Common Stock of MNB BANCSHARES, INC.
(hereinafter referred to as the "Company")
is hereby granted to Sandra Falen
(hereinafter referred to as the "Optionee"),
subject in all respects to the terms and
conditions of the MNB BANCSHARES, INC. 1992
STOCK OPTION PLAN (hereinafter referred to
as the "Plan") and such other terms and
conditions as are set forth herein.
2. This Option is not intended to
constitute an Incentive Stock Option under
Section 422 (b) of the Internal Revenue Code
of 1986.
3. The option price as determined by
the Board of Directors of the Company (the
"Board") is Thirteen Dollars and 12.5/100
($13.125) per Share.
4. This Option may be exercised in
accordance with the following table:
DATE NUMBER OF SHARES
EXERCISABLE
11/4/1999 100
11/4/2000 100
11/4/2001 100
11/4/2002 100
11/4/2003 100
In the event of a Change of Control,
this Option shall become immediately and
fully exercisable. A "Change of Control"
shall be deemed to have occurred if:
(i) as a result of, or in
connection with, any tender offer or
exchange offer, merger or
other business combination, sale
of assets or contested election,
or any combination of the
foregoing transaction (the
"Transaction"), the persons who
were directors of the Company
before the Transaction shall
cease to constitute a majority of the
Board or any successor
to the Company, unless the election, or
nomination for
election by the stockholders, of any
new director was
approved by a vote of a majority of the
Board, then such new
director shall, for purposes of the Plan, be
considered as a
member of the Board;
(ii) the Company is merged or
consolidated with another
corporation and as a result of the
merger or consolidation
less than sixty-seven
percent (67%) of the outstanding
voting securities of the
surviving or resulting corporation
shall then be owned in
the aggregate by the former
stockholders of the Company,
other than (a) affiliates
within the meaning of the
Securities and Exchange Act of
1934 or (b) any party to the
merger or consolidation;
(iii) a tender offer or
exchange offer is made and consummated
for the ownership of
securities of the Company
representing thirty-three
percent (33%) or more of the
combined voting power of the
Company's then outstanding
voting securities; or
(iv) the Company transfers
substantially all of its assets to
another corporation
which is not a wholly-owned
subsidiary of the Company.
Notwithstanding the foregoing, a Change of
Control shall not be deemed to occur solely
because thirty-three percent (33%) or more
of the combined voting power of the
Company's then outstanding voting securities
are acquired by (a) a trustee or other
fiduciary holding securities under one or
more employee benefit plans maintaining for
employees benefit plans maintained for
employees of the Company or (b) any
corporation which, immediately prior to such
acquisition, is owned directly or indirectly
by the stockholders of the Company in the
same proportion as their ownership of stock
immediately prior to such acquisition.
5. This Option may not be exercised
if the issuance of Shares upon such exercise
would constitute a violation of any
applicable federal or state securities law,
or any other valid law or regulation. As a
condition to the exercise of this Option,
the Optionee shall represent to the Company
that the Shares being acquired under this
Option are for investment and not with a
present view for distribution or resale,
unless counsel for the Company is then of
the opinion that such a representation is
not required under any applicable law,
regulation or rule of any governmental
agency.
6. This Option may not be transferred
in any manner and may be exercised during
the lifetime of the Optionee only by him.
The terms of this Option shall be binding
upon the Optionee's executors,
administrators, heirs, assigns and
successors.
7. This Option may not be exercised
more than 10 years after the date indicated
below and may be exercised during such term
only in accordance with the terms and
conditions set forth in the Plan.
Dated: November 4, 1998.
MNB BANCSHARES, INC.
BY:
_____________________
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has
received a copy of the Plan and is familiar
with the terms and conditions set forth
therein. The Optionee agrees to accept as
binding, conclusive, and final all decisions
and interpretations of the Committee. As a
condition to the exercise of this Option,
the Optionee authorizes the Company to
withhold from any regular cash compensation
payable by the Company any taxes required to
be withheld under any federal, state or
local law as a result of exercising this
Option.
Dated: November 4, 1998
BY:
____________________
Optionee
(To be executed in duplicate)
EXHIBIT 10.17
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION to acquire 250
shares (hereinafter referred to as "Shares")
of Common Stock of MNB BANCSHARES, INC.
(hereinafter referred to as the "Company")
is hereby granted to Marcia Kemper
(hereinafter referred to as the "Optionee"),
subject in all respects to the terms and
conditions of the MNB BANCSHARES, INC. 1992
STOCK OPTION PLAN (hereinafter referred to
as the "Plan") and such other terms and
conditions as are set forth herein.
2. This Option is not intended to
constitute an Incentive Stock Option under
Section 422 (b) of the Internal Revenue Code
of 1986.
3. The option price as determined by
the Board of Directors of the Company (the
"Board") is Thirteen Dollars and 12.5/100
($13.125) per Share.
4. This Option may be exercised in
accordance with the following table:
DATE NUMBER OF SHARES
EXERCISABLE
11/4/1999 50
11/4/2000 50
11/4/2001 50
11/4/2002 50
11/4/2003 50
In the event of a Change of Control,
this Option shall become immediately and
fully exercisable. A "Change of Control"
shall be deemed to have occurred if:
(i) as a result of, or in
connection with, any tender offer or
exchange offer, merger or
other business combination, sale
of assets or contested election,
or any combination of the
foregoing transaction (the
"Transaction"), the persons who
were directors of the Company
before the Transaction shall
cease to constitute a majority of the
Board or any successor
to the Company, unless the election, or
nomination for
election by the stockholders, of any
new director was
approved by a vote of a majority of the
Board, then such new
director shall, for purposes of the Plan, be
considered as a
member of the Board;
(ii) the Company is merged or
consolidated with another
corporation and as a result of the
merger or consolidation
less than sixty-seven
percent (67%) of the outstanding
voting securities of the
surviving or resulting corporation
shall then be owned in
the aggregate by the former
stockholders of the Company,
other than (a) affiliates
within the meaning of the
Securities and Exchange Act of
1934 or (b) any party to the
merger or consolidation;
(iii) a tender offer or
exchange offer is made and consummated
for the ownership of
securities of the Company
representing thirty-three
percent (33%) or more of the
combined voting power of the
Company's then outstanding
voting securities; or
(iv) the Company transfers
substantially all of its assets to
another corporation
which is not a wholly-owned
subsidiary of the Company.
Notwithstanding the foregoing, a Change of
Control shall not be deemed to occur solely
because thirty-three percent (33%) or more
of the combined voting power of the
Company's then outstanding voting securities
are acquired by (a) a trustee or other
fiduciary holding securities under one or
more employee benefit plans maintaining for
employees benefit plans maintained for
employees of the Company or (b) any
corporation which, immediately prior to such
acquisition, is owned directly or indirectly
by the stockholders of the Company in the
same proportion as their ownership of stock
immediately prior to such acquisition.
5. This Option may not be exercised
if the issuance of Shares upon such exercise
would constitute a violation of any
applicable federal or state securities law,
or any other valid law or regulation. As a
condition to the exercise of this Option,
the Optionee shall represent to the Company
that the Shares being acquired under this
Option are for investment and not with a
present view for distribution or resale,
unless counsel for the Company is then of
the opinion that such a representation is
not required under any applicable law,
regulation or rule of any governmental
agency.
6. This Option may not be transferred
in any manner and may be exercised during
the lifetime of the Optionee only by him.
The terms of this Option shall be binding
upon the Optionee's executors,
administrators, heirs, assigns and
successors.
7. This Option may not be exercised
more than 10 years after the date indicated
below and may be exercised during such term
only in accordance with the terms and
conditions set forth in the Plan.
Dated: November 4, 1998.
MNB BANCSHARES, INC.
BY:
_____________________
Chairman of the Board
ATTEST:
The Optionee acknowledges that he has
received a copy of the Plan and is familiar
with the terms and conditions set forth
therein. The Optionee agrees to accept as
binding, conclusive, and final all decisions
and interpretations of the Committee. As a
condition to the exercise of this Option,
the Optionee authorizes the Company to
withhold from any regular cash compensation
payable by the Company any taxes required to
be withheld under any federal, state or
local law as a result of exercising this
Option.
Dated: November 4, 1998
BY:
____________________
Optionee
(To be executed in duplicate)
EXHIBIT 13.1
CORPORATE PROFILE
MNB Bancshares, Inc. (the "Company") is
a bank 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, 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 first listed on the
Nasdaq Stock Market Small-Cap Market System
in 1993 (symbol "MNBB", with a newspaper
abbreviation of "MNB Bn"). The Company was
formed in 1992 to become the holding company
for the Bank, which was converted from a
federal mutual savings association.
Since its listing on Nasdaq, the
Company has nearly doubled in size and has
entered numerous markets outside of
Manhattan through a series of acquisitions
and start-up branches. The Company's
continuing focus is to concentrate on being
the premier community banking organization
in the markets it currently serves and is
continuing to explore and evaluate
opportunities to expand and provide its
services to new complimentary markets,
through strategic acquisitions and
establishing de novo branches where
appropriate, in an effort to enhance its
asset base, long-term earnings and
resources.
TO OUR STOCKHOLDERS, CUSTOMERS, AND FRIENDS
1998 was a year of preparation for MNB
Bancshares, Inc. as we positioned your
company for continued growth, profitability,
and financial strength in a financial
services environment that is changing at an
unprecedented pace. During this year we
have dramatically strengthened our
management team, enhanced our asset quality
and underwriting standards, and assimilated
our December 31, 1997 acquisition of Freedom
Bancshares, Inc. into our company's
operations. Additionally, we have
evaluated, tested and made all of our
mission critical computer systems and
software applications compliant for the Year
2000. While we feel very good about these
accomplishments, we were disappointed that
earnings slipped approximately 8%, to
slightly under $1 million. However, we feel
confident that these investments in people
and systems infrastructure will serve us
well and provide the foundation for
continued growth and profitability in the
future.
The decision was made in the latter
part of 1997 that our management team needed
to be enhanced and strengthened if we were
to continue to grow and diversify our
balance sheet, build a portfolio of high
quality loans, and improve profitability.
Our goal was to establish high caliber,
experienced leadership in all of our banking
markets to execute our strategy of
personalized service and local decision
making in each of our community banks. We
accomplished this goal and now have
outstanding leadership in place throughout
our organization who subscribe to our vision
of responsive, personalized community
banking. While the investment required to
attract these individuals was not
inexpensive, we felt that it was a sound and
proper allocation of corporate resources
that will yield dividends in the future.
MNB Bancshares, Inc. has a tradition of
high asset quality. Your company, as well
as the rest of the nation, has enjoyed an
extended period of economic prosperity.
During this period of time competition for
loans has intensified. During 1998, banking
regulators issued industry warnings
concerning a nationwide trend toward
deteriorating credit standards and
underwriting practices. We also noticed
these industry trends and made a conscious
decision in the latter part of 1997 to not
only maintain our high credit standards, but
to further enhance them to positively
position us for any adverse economic
developments. As we grew and expanded into
additional markets, we implemented enhanced
loan underwriting and analysis standards.
Additionally, in 1998, we further improved
and refined our independent loan review
function. As a result of these credit
administration enhancements, we targeted and
moved out of our loan portfolio over three
million dollars in commercial and commercial
real estate loans that did not meet our
lending standards. While this had a short
term adverse impact on earnings, we felt
that it was an opportune time to improve our
overall credit quality.
The economic cycle has not only
fostered an extended period of economic
prosperity but has also created another
period of extremely low, long term interest
rates. These rates have caused residential
mortgage loan rates to fall to their lowest
level in three decades. As a result of
these lower rates, the industry has
experienced an extremely high level of home
loan mortgage refinancing. Additionally,
borrowers generally have preferred to
acquire long term, fixed rate loans as they
have refinanced. Your company was not
immune to these market forces. In spite of
the fact that we originated approximately
$36 million in first mortgage residential
loans, the residential 1-4 family mortgage
loan portfolio declined $10 million dollars
as we sold our fixed rate residential loan
originations to the secondary market. This
decline in residential loans held in
portfolio, while consistent with our long
term strategy to diversify the balance
sheet, occurred much more rapidly than we
had anticipated. This rapid decline also
adversely impacted earnings. However, we
have the talent in place to grow our
commercial and consumer loan portfolio
which, over time, will lead to a more
diversified loan portfolio and higher
interest margins than the residential loans
we have historically relied upon.
Year 2000 (Y2K) is an upcoming event
that is placing special demands upon all
businesses due to the potential impact it
may have on data processing and the delivery
of services in a business environment that
is heavily dependent upon computers. MNB
Bancshares, Inc. aggressively addressed this
issue in 1998. We completed evaluations of
all our data processing equipment, software
applications, outside suppliers, vendors,
and counterparties. We have renovated or
upgraded all mission critical computer
systems and found them to be compliant.
Additionally, we have evaluated both funds
depositors and credit customers to determine
the risk that they might pose as a result of
Y2K so that we can take appropriate steps to
mitigate those risks. Policies, plans, and
procedures have been developed to guide
contingency business resumption efforts in
the event of some unforeseen development,
such as power or telecommunications failure.
Like all companies, we face the uncertainty
of external influences on our operations at
the Year 2000. However, the substantial
investment of time and resources we have
made in this area allows us to look forward
to the new millennium with confidence.
We feel good about our entry into the
Osage City market via the acquisition of
Freedom Bancshares, Inc. on December 31,
1997. We have assimilated this organization
into our company and merged their operations
with ours. The enhanced credit
administration and underwriting procedures
spoken of earlier have been implemented in
this market and we feel good about the
progress we have made. We continue to
deliver quality, personalized community
banking to the Osage City community with the
strength and resources of a larger banking
organization. The enhanced resources allow
us to more easily fulfill our customers'
diverse loan requirements, whether
commercial, consumer, or residential. With
the acquisition of Freedom Bancshares, Inc.
we also acquired a small branch located in
Beloit, Kansas. This branch had
approximately $6 million in deposits and
$3.5 million in loans. Due to the size of
this branch, in a market outside our
targeted market area, the decision was made
to sell this facility, along with its loans
and deposits. The divestiture of our Beloit
branch was consummated in June, 1998.
It is important to note the December
31, 1998 retirement of Susan E. Roepke,
Senior Vice President and Chief Financial
Officer who served this organization for
over forty years. Susan was a tremendous
asset whose contributions to the
organization are immeasurable. She
witnessed many changes within the financial
services industry and played a key role in
how our organization adapted and responded
to those changes. She was instrumental in
the 1993 conversion of our company from a
thrift to a national bank charter. While
her daily presence and contributions will be
missed, she has provided for an orderly
transition of her responsibilities to Mark
Herpich, our new Chief Financial Officer who
joined us in September, 1998. We are
pleased that Susan has agreed to remain on
the Board of Directors to allow us to
benefit from her wealth of experience and
knowledge with our company.
I am excited about the future for MNB
Bancshares, Inc. Our organization is very
well positioned to grow both internally and
through acquisition. Our management team
and talent is deeper and stronger than at
any time in the history of our company. Our
efforts to diversify the balance sheet
through the establishment of commercial
relationships with our customers is
accelerating at a pace we have not
previously witnessed. Our asset quality is
extremely high. The company has enjoyed
significant growth in both assets and
earnings over the last years. We have a
foundation in place to continue this growth
over the foreseeable future.
Last year I mentioned that over 400
banks remain in the state of Kansas. It is
expected that the pace of consolidation will
continue as it becomes necessary to spread
increasing fixed costs over a larger asset
base. MNB Bancshares, Inc. intends to play
a role in the consolidation trend by taking
advantage of strategic market opportunities
when possible to do so in a way that
enhances franchise and shareholder value.
We feel that our approach to community
banking will fit well with other banks with
a history of community service that are
looking for a way to more effectively cope
with the changing financial services
environment. We expect that these banks and
their owners will be comfortable in joining
our community-oriented organization. MNB
Bancshares, Inc. offers an attractive
alternative to enable these community banks
to continue to effectively compete against
larger organizations with more centralized
decision making structures. We continue to
stress the importance of market based
banking where local decision makers can
respond to customer needs in a timely,
professional manner. We must continue to
differentiate ourselves as a community bank
that values relationships and recognizes the
role we play in enhancing the prosperity of
our customers and the communities in which
we serve.
I would like to thank all of my
associates for the key role they have played
in our success over the years. Their
tireless efforts are responsible for our
growth and progress. I would also like to
thank our customers for their faith and
confidence in allowing us to meet their
banking needs. And of course, I would like
to thank you, our stockholders, for your
investment and belief in our efforts and
vision. We will continue our efforts to
grow and diversify your company, with the
goal of enhancing shareholder value. We
look forward to the challenges and
opportunities of 1999 and beyond.
Sincerely,
Patrick L. Alexander
President and Chief Executive Officer
<TABLE>
SELECTED FINANCIAL AND OTHER DATA OF MNB
BANCSHARES, INC.
<CAPTION>
At or for the years ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands,
except per share amounts
and percentages)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $135,830 $144,752 $103,420 $101,185 $77,797
Loans (1) 75,053 88,724 62,549 62,582 51,882
Investment
securities 50,651 42,079 33,239 32,329 22,356
Deposits 115,062 122,209 86,710 86,399 61,440
Borrowings 6,530 9,099 3,615 2,881 6,694
Stockholders'
equity 13,242 12,276 11,334 10,810 9,114
Book value per
share (2) 9.68 9.12 8.50 8.10 7.55
Selected Operating Data:
Total interest
income $10,289 $7,929 $7,670 $7,051 $5,411
Total interest
expense 5,593 4,038 4,049 3,820 2,788
Net interest
income 4,696 3,891 3,621 3,231 2,623
Provision for
loan losses 90 60 15 40 5
Net interest
income after
provision for
loan losses 4,606 3,831 3,606 3,191 2,618
Gains on sales
of loans 384 99 75 95 79
Other non-
interest income 828 591 608 432 264
Total noninterest
income 1,212 690 683 527 343
Total noninterest
expense 4,358 2,977 3,233 2,618 1,869
Income tax
expense 478 471 339 347 398
Net earnings before
extraordinary
item 982 1,073 717 753 694
Extraordinary item - - - - 39
Net earnings $982 $1,073 $717 $753 $655
Net earnings per
share before
extraordinary item (2):
Basic .72 .80 .53 .58 .58
Diluted (3) .70 .77 .51 .56 .57
Net earnings per share (2):
Basic .72 .80 .53 .58 .55
Diluted (3) .70 .77 .51 .56 .54
Dividends per
share (2) .25 .24 .14 .11 .10
Other Data:
Return on
average assets .69% 1.03% 0.70% 0.78% 0.82%
Return on
average equity 7.73 9.18 6.54 7.48 7.39
Equity to
total assets 9.75 8.48 10.96 10.68 11.72
Net interest
rate spread(4) 2.93 3.11 2.95 2.78 2.85
Net yield on average
interest-earning
assets (5) 3.52 3.89 3.67 3.55 3.38
Average interest-earning assets to
average interest-bearing liabilities
114.17 119.29 117.37 114.73 118.38
Other expenses
to average
assets 3.07 2.86 3.15 2.71 2.34
Nonperforming
loans to total
loans 0.19 0.19 0.22 0.06 0.40
Net charge-offs
to average
loans 0.16 0.01 0.03 0.01 0.06
Nonperforming
assets to
total assets 0.11 0.21 0.16 0.04 0.33
Dividend payout
ratio 35.71 31.00 27.43 19.08 18.94
Number of full
service banking
offices 4 5 2 2 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 annually since
1994 and the February, 1998 two-for-one
stock split.
(3) Diluted net earnings per share, before
FDIC special assessment (net of tax) was
$0.72 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"), the holding
company for Citizens State Bank, Osage City
("Citizens"), with a branch in Beloit,
Kansas. The branch facility located in
Beloit, Kansas was sold on June 5, 1998.
The Company achieved net earnings of
$982,028 in 1998, a decline of $90,516, or
8.4%, over 1997. 1998 earnings declined as
the Company repositioned itself for
continued growth, profitability and
financial strength through strengthening of
the management team while assimilating the
Freedom acquisition. The return on average
assets was .69% compared to 1.03% in 1997.
Return on average equity was 7.73% and
diluted net earnings per share was $.70.
Consistent with 1997, the Board of Directors
declared cash dividends of twenty-five cents
per share and a five percent stock dividend
in 1998.
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, Osage City and Topeka, Kansas.
The Company plans to continue exploring and
evaluating opportunities 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, 1998 AND 1997
GENERAL. Net earnings for 1998 decreased
8.4% to $982,028 compared to $1.1 million
for 1997. This decrease in net earnings is
the result of a decrease in loans
outstanding related to increased levels of
home mortgage refinancing due to lower
interest rates. Additionally, expenses have
increased due to the acquisition of Freedom,
along with new personnel and Year 2000
expenses. Net interest income after
provision for loan losses increased
$775,303, or 20.2%, to $4.6 million. Gains
on sale of loans increased 286.8%, or
$285,046, to $384,427, fees and service
charges increased $228,560 or 45.1%, to
735,459; and non-interest expense increased
$1.4 million or 46.4%, to $4.4 million. The
increase in gains on sale of loans resulted
from increased loan originations due to
refinancings.
INTEREST INCOME. Interest income increased
by $2.4 million, or 29.8%, to $10.3 million
in 1998. Average interest-earning assets
increased from $100.1 million in 1997 to
$133.5 million in 1998. The average yield
on interest-earning assets decreased
slightly from 7.9% in 1997 to 7.7% in 1998.
Interest income on loans increased $1.5
million, or 24.6%, to 7.3 million. Interest
earned on securities and other investments
increased $913,042, or 44.5%, to $3.0
million. The increase in interest income
was due to an increase in average loans and
investments, primarily due to the Freedom
acquisition, which more than offset the
decline in rates experienced as interest-
earning assets repriced during 1998. The
Company experienced a significant 31.3%, or
$11.4 million, decline in one-to-four family
loans during 1998 as a result of borrowers
taking advantage of declining mortgage loan
interest rates. In accordance with the
Company's interest rate risk guidelines, the
majority of the long-term fixed rate
mortgage loans originated in 1998 were sold
to secondary market investors. While the
Company was able to fund other types of
loans as the loans on one-to-four family
residences were refinanced, the volume of
refinancings was so great that a significant
amount of the funds available for investment
were invested in relatively short term
investment securities, which typically carry
lower interest rates than can be obtained on
commercial and consumer loans. Interest
income on other investments also increased
substantially as a result of an increase in
funds available for short-term overnight
interest bearing deposits.
INTEREST EXPENSE. Interest expense
increased from $4.0 million in 1997 to $5.6
million in 1998, or 38.5%. Deposit interest
expense increased 30.8% to $5.0 million
compared to $3.9 million for 1997. Interest
expense on borrowings, consisting of
advances from the Federal Home Loan Bank of
Topeka (the "FHLB") and funds borrowed for
the acquisition of Freedom increased
$370,445, or 198.3% during this time period.
Average interest-bearing liabilities
increased $33.0 million from $83.9 million
in 1997 to $116.9 million in 1998, while the
respective average cost remained relatively
constant at 4.8%. The increased expense on
deposits was a direct result of the
acquisition. Interest on borrowed funds
increased as a result of the funds borrowed
for the acquisition and the additional
Freedom borrowings assumed.
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 (a)
the difference between the rates of interest
earned on interest-earnings assets and the
rates paid on interest-bearing liabilities
("interest rate spread") and (b) the
relative amounts of interest-earning assets
and interest-bearing liabilities.
Net interest income increased to $4.7
million in 1998 compared to $3.9 million in
1997. This was the result of the average
balance of interest-earning assets
increasing $33.4 million during 1998 as a
result of the Freedom acquisition. The
yield on interest-earning assets declined
from 7.9% in 1997 to 7.7% in 1998, while the
cost of interest-bearing liabilities
remained constant at 4.8% in 1998 and 1997.
The Company's ratio of interest-earning
assets to interest-bearing liabilities
decreased from 119.3% in 1997 to 114.17% in
1998, which also contributed to a decline in
the net interest margin from 3.9% in 1997 to
3.5% in 1998.
PROVISION FOR LOAN LOSSES. The provision
for loan losses increased to $90,000 during
1998 compared to $60,000 in 1997. The
increased provision resulted from the
general increase in the Company's loan
portfolio as a result of the Freedom
acquisition. At December 31, 1998, the
allowance for loan losses was $1.3 million,
or 1.7% of gross loans outstanding, compared
to $1.3 million, or 1.5%, at December 31,
1997. Management has included within the
ongoing process of assessing and analyzing
the loan portfolio a Year 2000 credit risk
component.
NONINTEREST INCOME. Noninterest income
increased $522,179, or 75.7%, to $1.2
million in 1998. Fees and service charge
income increased from $506,899 to $735,459,
or by 45.1%. Gains on sale of loans
increased $285,046, or 286.8% to $384,427.
A loss on sale of investment securities
available for sale of $21,309 was incurred
in 1997 compared to a gain of $10,795 in
1998 as the Company sought to reposition its
portfolio. The gains on sale of loans were
a result of increased loan originations due
to refinancing because of lower interest
rates. The increase in fees and service
charge income was primarily a result of the
acquisition.
<TABLE>
<CAPTION>
Noninterest Income: 1998 1997 1996
<S> <C> <C> <C>
Fees and service charges $735,459 $506,899 $517,124
Gains on sales of loans 384,427 99,381 75,450
Other 92,402 83,829 90,723
Total noninterest income: $1,212,288 $690,109 $683,297
</TABLE>
NONINTEREST EXPENSE. Noninterest expense
increased to $4.4 million for 1998. This
large increase was due in part to the
Freedom acquisition. Amortization of
goodwill increased 130.3% from $106,816 to
$245,958 as a result of the acquisition.
Compensation and benefits increased 42.9%
from $1.4 million to $2.0 million along with
occupancy and equipment expense which
increased $201,617 to $632,727, both
primarily as a result of the acquisition and
the first full year of operating the Topeka
branch facility which opened in May 1997.
Professional fees increased $94,416 from
$118,008 to $212,424 as a result of the
acquisition, expenses related to Year 2000
issues and fees incurred for professional
services used for acquiring new personnel.
Other operating expense increased 39.4% to
$937,164 due primarily to the acquisition.
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, 1998, 1997 and
1996. 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 12/31/98 Year Ended 12/31/97 Year Ended 12/31/96
Average Average Average Average Average Average
Bal Int Yield/Rate Bal Int Yield/Rate Bal Int Yield/Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets
Investment
securities (1) $52,686 $2,962 5.62% $35,001 $2,050 5.86% $34,758 $1,966 5.66%
Loans
receivable,
net (2) 80,788 7,327 9.07 65,057 5,879 9.04 63,894 5,704 8.93
Total
interest-
earning assets 133,474 10,289 7.71% 100,058 7,929 7.92% 98,652 7,670 7.77%
Non interest-
earning assets 8,402 4,111 4,065
Total $141,876 $104,169 $102,717
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Certificates
of deposit $58,261 $3,230 5.54% $46,666 $2,642 5.66% $47,113 $2,638 5.60%
Money market
deposits 17,866 648 3.63 15,378 578 3.76 15,984 594 3.71
Other deposits 32,574 1,158 3.55 18,613 631 3.39 18,208 628 3.45
FHLB advances
and other
borrowings 8,212 557 6.78 3,221 187 5.81 2,746 189 6.88
Total interest-
bearing
liabilities 116,913 5,593 4.78% 83,878 4,038 4.81% 84,051 4,049 4.82%
Non interest-
bearing\
liabilities 12,254 8,609 7,710
Stockholders'
equity 12,709 11,682 10,956
Total $141,876 $104,169 $102,717
Net interest
income $4,696 $3,891 $3,621
Interest rate
spread (3) 2.93% 3.11% 2.95%
Net interest
margin (4) 3.52% 3.89% 3.67%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 114.17% 119.29% 117.37%
(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-acccrual 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 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 earnings, net of tax would
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
remained constant at 4.8%. The Company's
ratio of interest-earning assets to
interest-bearing liabilities increased to
119.3% in 1997 versus 117.4% 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 of 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.
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 also 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%.
CAPITAL RESOURCES AND LIQUIDITY
ASSET QUALITY AND DISTRIBUTION. The
Company's total assets were $135.8 million
at December 31, 1998 compared to $144.8
million at December 31, 1997. This decrease
was partially a result of the sale of the
Beloit branch, which was completed June 5,
1998. Additionally, loans outstanding for
1-4 family homes decreased due to the
refinancing and sale of those loans to the
secondary market. The Company's primary
ongoing sources of funds are deposits,
proceeds from principal and interest
payments on loans and investment securities
and proceeds from the sale of mortgage loans
and investment securities. While maturities
and scheduled amortization of loans are a
predictable source of funds, deposit flows
and mortgage prepayments are greatly
influenced by general interest rates,
economic conditions, competition, and the
restructuring of the financial services
industry.
The primary investing activities of the
Company are the origination of loans and the
purchase of investment securities. During
the years ended December 31, 1998, 1997 and
1996, the Company purchased investment
securities in the amount of $27.1 million,
$9.3 million and $15.6 million,
respectively. These purchases were funded
primarily by deposits, proceeds from the
sale of fixed rate mortgage loans and
maturing securities. 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, 1998, 1997 and
1996, the Company originated loans for sale
of approximately $33.0 million, $14.7
million and $9.7 million, respectively.
During the years ended December 31, 1997 and
1996, the Company's ability to originate
quality loans for retention in the portfolio
exceeded the volume of loans originated for
sale. The dramatic increase in the volume
of fixed rate mortgage loans originated for
resale in 1998, many of which were
refinances out of the Company's existing
loan portfolio, resulted in a decline in net
loans of $10.4 million, while the excess
available funds were invested in investment
securities. Management will continue its
efforts to diversify the loan portfolio.
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION COMPARISON
Balance Balance
Type 12/31/98 12/31/97 %Change
<S> <C> <C> <C>
1-4 Family Residence $25,058,459 $36,474,564 (31.30%)
Commercial
Real Estate 25,473,084 25,470,886 0.01%
Consumer &
Commercial
Non-Mortgage 25,336,172 27,549,571 (8.03%)
$75,867,715 $89,495,021
</TABLE>
Management believes that the quality of
the loan portfolio continues to be strong.
As of December 31, 1998, twenty-three real
estate loans were more than 30 days past
due, with a total balance of $1,018,869,
which was 1.3% of total loans outstanding.
Additionally, four residential mortgage
loans totaling $79,902 were on non-accrual
status as of December 31, 1998. Excluding
guaranteed student loans, there were nine
consumer loans in the amount of $18,901, or
less than 0.1% of the portfolio over 30 days
past due and six on non-accrual with a
balance of $26,103. Nine commercial loans
totaling $151,675, or 0.2% of the total loan
portfolio, were past due over 30 days. Six
commercial loans with a balance of $38,304
were on non-accrual.
LIABILITY DISTRIBUTION. At December 31,
1998, total deposits decreased $7.1 million
from December 31, 1997 with the sale of the
Beloit branch making up $2.8 million of this
amount, along with approximately $3.0
million in public funds withdrawn just prior
to the sale. Borrowings decreased $821,427
as FHLB advances were paid in full as they
matured and quarterly payments were made on
others. In addition, $1,150,000 was paid on
funds borrowed for the acquisition and there
was a decrease of $549,615 in securities
sold under agreement to repurchase.
The deposit base continues to diversify
consistent with management's overall efforts
to lower interest costs. Noninterest-
bearing demand deposits and NOW accounts at
the end of 1998 totaled $32.9 million, or
28.6% of deposits, compared to $34.2
million, or 28.0% of deposits at December
31, 1997. Money market deposit accounts
were 15.3% of the portfolio and totaled
$17.7 million, compared to $18.7 million at
December 31, 1997 and savings accounts
totaled $10.3 million compared to $7.0
million at December 31, 1997. Certificates
of deposit were $54.2 million, or 47.1% of
the portfolio compared to $62.4 million, or
51.0% at December 31, 1997. The decreases
were primarily due to the sale of the Beloit
branch.
Certificates of deposit at December 31,
1998, which were scheduled to mature in one
year or less totaled $40.4 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.
<TABLE>
<CAPTION>
DEPOSIT PORTFOLIO COMPOSITION COMPARISON
<S> <C> <C> <C>
Balance Balance
Type 12/31/98 12/31/97 % Change
DDA $9,307,879 $12,882,942 (27.75%)
NOW 23,595,955 21,299,194 10.78%
MMDA 17,653,265 18,671,116 (5.45%)
Savings 10,327,847 6,974,204 48.09%
Certificates 54,177,076 62,381,081 (13.15%)
$115,062,022 $122,208,537
</TABLE>
CASH FLOWS. Cash flows provided by operating
activities equalled $1.4 million for the
year ended December 31, 1998, compared to
cash flows used in operating activities
equalling $110,458 in 1997. This increase
in cash flows provided by operating
activities resulted from the increased
depreciation and amortization, the
stabilization of loans held for sale and
accrued expenses and other liabilities.
Net cash provided by investing
activities was $2.9 million in 1998 compared
to net cash used in investing activities of
$1.1 million in 1997. Net loans decreased
approximately $10.4 million in 1998 versus
an increase of $1.5 million in 1997.
Maturities and prepayments of investment
securities held-to-maturity were $3.7
million in 1998 versus $4.6 million in 1997.
Maturities and prepayments of investment
securities available-for-sale were $13.9
million in 1998 versus $4.5 million in 1997.
No purchases of securities held-to-maturity
were made in 1998 or 1997. Purchases of
securities available-for-sale in 1998 were
$27.1 million compared to $9.3 million in
1997.
Net cash used in financing activities
was $7.1 million in 1998 compared to $3.4
million provided in 1997. Exclusive of the
sale of the Beloit branch and the withdrawal
of Beloit's public funds of approximately
$3.0 million just prior to the sale,
deposits decreased $1.4 million in 1998
compared to an increase of $1.4 million in
1997 and FHLB advances decreased $821,427 in
1998 compared to a decrease of $800,000 in
1997. In addition, $1,150,000 was paid on
the line of credit utilized 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 level of
these assets are dependent on the Company's
operating, financing, lending and investing
activities during any given period. At
December 31, 1998 and 1997, these liquid
assets totaled $52.3 million and $42.1
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 or high grade municipal
securities.
Liquidity management is both a daily
and long-term function of management's
strategy. Excess funds are generally
invested in short-term investments. In the
event the Company requires funds beyond its
ability to generate them internally,
additional funds are available through the
use of FHLB advances, a line of credit with
the FHLB or through sales of securities. At
December 31, 1998, the Company had
outstanding FHLB advances of $4.6 million
and no borrowing was outstanding on its $15
million line of credit with the FHLB.
Additionally, the Company has guaranteed a
loan made to the Company's Employee Stock
Ownership Plan (the "ESOP"), with an
outstanding balance of $222,351 at December
31, 1998, to fund the ESOP's purchase of
shares in the Company's 1993 common stock
offering. The total borrowings by the
Company were $6.5 million at December 31,
1998, which included $1.7 million borrowed
by the Company for the acquisition of
Freedom, compared to $9.1 million at
December 31, 1997.
At December 31, 1998, the Company had
outstanding loan commitments of $16.4
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.
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 $13.2 million is, however, well in excess
of the Federal Reserve Board's consolidated
minimum capital requirements.
At December 31, 1998, the Bank continued to
maintain a sound Tier 1 capital ratio of
9.14% and a risk based capital ratio of
17.35%. As shown by the following table, the
Bank's capital exceeded the minimum capital
requirements: (dollars in thousands)
<TABLE>
<CAPTION>
Amount Percent Required
<S> <C> <C> <C>
Tier 1 Leverage
Capital $12,250 9.14% 4.00%
Risk Based
Capital $13,201 17.35% 8.00%
</TABLE>
Banks and bank holding companies are
generally expected to operate at or above
the minimum capital requirements. The above
ratios are well in excess of regulatory
minimums and should allow the Company to
operate without capital adequacy concerns.
The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a bank
rating system based on the capital levels of
banks. The Bank is rated "well capitalized",
which is the highest rating available under
this capital-based rating system.
DIVIDENDS
During 1998, dividends of $.25 per
share were paid to the stockholders and a 5%
stock dividend was paid during August 1998.
The cash and stock dividends are consistent
with those paid during 1997.
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,
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. As of December
31, 1998, approximately $733,000 was
available to be paid as dividends to the
Company by the Bank.
RECENT ACCOUNTING DEVELOPMENTS
The Company adopted 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. The adoption of SFAS
Nos. 125 and 127 did not have a material
effect on the financial statements.
SFAS No. 130, "Reporting Comprehensive
Income", adopted by the Company during 1998,
requires the reporting of comprehensive
income and its components in 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 only component of
other comprehensive income is unrealized
holding gains and losses on available for
sale securities.
The Company also adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information", which 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 did not require
any additional disclosure.
The Financial Accounting Standards
Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities", in June 1998. SFAS No.
133 establishes accounting and reporting
standards for derivative instruments,
including certain derivative instruments
embedded in other contracts, and for hedging
activities. It requires that an entity
recognize all derivatives as either assets
or liabilities in the statement of financial
position and measure those instruments at
fair value. This Statement is effective for
all fiscal quarters of fiscal years
beginning after June 15, 1999. Management
believes adoption of SFAS No. 133 will not
have a material effect on the Company's
financial position or results of operations,
nor will adoption require additional capital
resources.
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 established a committee
and 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 providing mission critical
systems and software which have been
contacted have indicated their hardware
and/or software is Year 2000 compliant.
Testing of the mission critical systems and
software was completed as of December 31,
1998 with all final testing on non-mission
critical items to be completed by March 31,
1999. Additionally, alarms, elevators,
heating and cooling systems, and other
computer-controlled mechanical devices on
which the Company relies have been evaluated
and no significant problems are anticipated
with such systems.
While there will be expenses incurred
during the next year, the Company has not
identified any situations at this time that
it anticipates will require material
expenditures in order to become fully
compliant. It is currently estimated that
total Year 2000 costs could be approximately
$150,000, almost all of which has already
been recognized and of which a material
component was the reallocation of existing
employee time to the Year 2000 project. In
the event utility company services to the
Company are significantly curtailed or
interrupted, it would have an adverse effect
on the Company's ability to conduct its
business. However, the Year 2000 problem is
pervasive and complex and can potentially
affect any computer process. Accordingly,
no assurance can be given that Year 2000
compliance can be achieved without
additional unanticipated expenditures and
uncertainties that might affect future
financial results.
An analysis has been done of the
Company's borrowing customers. The Company
has initiated a program to communicate with
identified key bank customers to ensure they
are properly prepared for the Year 2000.
The Company does not anticipate that these
credit customers will cause serious adverse
consequences on the operations of the
Company. This same analysis has been
performed for large depositors and funds
providers with similar results.
A contingency and business resumption
plan has been developed for the Company to
provide for reducing the business
interruption of normal business operation in
the event of a Y2K-related failure. This
plan continues to be evaluated and revised
if necessary, based on testing results and
vendor notifications.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company's assets and liabilities
are principally financial in nature and the
resulting net interest income thereon is
subject to changes in market interest rates
and the mix of various assets and
liabilities. Interest rates in the
financial markets affect the Company's
decision on pricing its assets and
liabilities which impacts net interest
income, a significant cash flow source for
the Company. As a result, a substantial
portion of the Company's risk management
activities relates to managing interest rate
risk.
The Company's Asset/Liability
Management Committee monitors the interest
rate sensitivity of the Company's balance
sheet using earnings simulation models and
interest sensitivity GAP analysis. 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.
Simulation models are prepared to determine
the impact on net interest income for the
coming twelve months, including one using
rates at December 31, 1998 and forecasting
volumes for the twelve month projection.
This position is then subjected to a shift
in interest rates of 200 basis points rising
and 200 basis points falling with an impact
to the Company's net interest income on a
one year horizon as follows:
<TABLE>
<CAPTION>
$ change in net interest % of net
Scenario income int. income
<S> <C> <C>
200 basis point rising $16,800 0.31%
200 basis point falling ($86,400) (1.61%)
</TABLE>
The Company also believes it 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.
ASSET/LIABILITY 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. The Company's mortgage backed
securities included published prepayment
assumptions, while all other investments
assume no prepayments. All assets are
reflected at amortized cost.
Certificates of deposit reflect
contractual maturities only. Money market
accounts are rate sensitive and accordingly,
a higher percentage of the accounts 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 a significant
percentage of the accounts are reflected in
the 2 to 5 years category.
The Company has been successful in
meeting the interest sensitivity objectives
set forth in its policy. This has been
accomplished primarily by managing the
assets and liabilities while maintaining the
traditional high credit standards of the
Company.
Management believes the Company is
appropriately positioned for future interest
rate movements, although it may experience
some fluctuations in net interest income due
to short term timing differences between the
repricing of assets and liabilities.
<TABLE>
(CAPTION>
INTEREST-EARNING ASSETS AND INTEREST-BEARING
LIABILITIES REPRICING SCHEDULE ("GAP" TABLE)
At December 31, 1998
(dollars in thousands)
3 months More than 3 More than 1 Over 5 Total
or less to 12 to 5 years years
months
<S> <C> <C> <C> <C> <C>
Interest-earning
assets:
Overnight
investments $2,703 $- $- $- $2,703
Investment
securities 3,155 10,014 35,758 1,354 50,281
Loans 12,637 27,438 20,871 14,922 75,868
Total interest-
earning assets $18,495 $37,452 $56,629 $16,276 $128,852
Interest-bearing
liabilities
Certificates
of deposit $14,524 $25,853 $13,800 $- $54,177
Money market
deposit accounts 9,303 - 8,350 - 17,653
Savings and
NOW accounts 4,913 - 29,011 - 33,924
Borrowed money 1,700 - 3,830 1,000 6,530
Total interest-
bearing liabilities $30,440 $25,853 $54,991 $1,000 $112,284
Interest sensitivity
gap per period $(11,945) $11,599 $1,638 $15,276 $16,568
Cumulative
interest
sensitivity gap $(11,945) $(346) $1,292 $16,568
Cumulative gap
as a percent of
total interest-
earning assets (9.27%) (.27%) 1.00% 12.86%
Cumulative interest
sensitive assets
as a percent of
cumulative interest
sensitive
liabilities 60.76% 99.39% 101.16% 114.76%
</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 1993, as
amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The
Company intends such forward-looking
statement 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 place 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, 1998 and 1997
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, 1998. 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,
1998 and 1997 and the results of its
operations and its cash flows for each of
the years in the three-year period ended
December 31, 1998, in conformity with
generally accepted accounting principles.
(Insert Electronic Signature Here)
January 19, 1999
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
<S> <C> <C>
Cash and cash equivalents:
Cash $3,875,529 3,398,451
Interest-bearing
deposits in other
financial
institutions -- 3,300,000
Total cash and
cash equivalents 3,875,529 6,698,451
Investment securities:
Held-to-maturity 2,266,343 6,669,809
Available-for-sale 48,384,518 35,409,475
Loans, net 74,297,243 87,980,366
Loans held for sale 755,747 743,762
Premises and equipment,
net of accumulated
depreciation 2,231,850 2,597,658
Accrued interest
and other assets 4,019,000 4,652,570
Total assets $135,830,230 144,752,091
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest bearing
demand $9,307,879 12,882,942
Money market and NOW 41,249,220 39,970,310
Savings 10,327,847 6,974,204
Time, $100,000 and
greater 7,832,855 11,631,384
Time, other 46,344,221 50,749,697
Total deposits 115,062,022 122,208,537
Federal Home
Loan Bank advances 4,607,150 5,428,577
Other borrowings 1,922,351 3,670,802
Accrued interest
and expenses,
taxes, and
other liabilities 997,034 1,168,326
Total liabilities 122,588,557 132,476,242
Stockholders' equity:
Common stock,
$.01 par;
3,000,000 shares
authorized;
1,367,976 and
1,284,460 shares
issued and
outstanding at
1998 and 1997 13,680 12,845
Additional paid-in
capital 8,199,525 7,122,795
Retained earnings 5,021,547 5,341,952
Unearned employee
benefits (222,351) (271,187)
Accumulated other
comprehensive income 229,272 69,444
Total stockholders'
equity 13,241,673 12,275,849
Commitments and contingencies
Total liabilities
and stockholders'
equity $135,830,230 144,752,091
</TABLE>
See accompanying notes to consolidated
financial statements.
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Earnings
Years ended December 31, 1998, 1997,
and 1996
1998 1997 1996
<S> <C> <C> <C>
Interest income:
Loans $7,326,727 5,879,204 5,704,030
Investment
securities 2,714,558 1,944,663 1,852,665
Other 248,150 105,003 113,214
Total interest
income 10,289,435 7,928,870 7,669,909
Interest
expense:
Deposits 5,035,706 3,850,889 3,859,838
Other
borrowings 557,267 186,822 189,312
Total interest
expense 5,592,973 4,037,711 4,049,150
Net interest
income 4,696,462 3,891,159 3,620,759
Provision for
loan losses 90,000 60,000 15,000
Net interest
income after
provision for
loan losses 4,606,462 3,831,159 3,605,759
Noninterest income:
Fees and
service
charges 735,459 506,899 517,124
Gains on sales
of loans 384,427 99,381 75,450
Other 92,402 83,829 90,723
Total non-
interest
income 1,212,288 690,109 683,297
Noninterest expense:
Compensation
and benefits 2,043,450 1,429,665 1,220,615
Occupancy
and equipment 632,727 431,110 376,823
Federal deposit
insurance
premiums 51,342 47,116 570,633
Data processing 139,714 101,878 115,312
Amortization 245,958 106,816 112,097
Stationery,
printing and
office supplies 95,801 70,889 85,405
Professional fees 212,424 118,008 151,041
Other 937,164 672,099 601,266
Total noninterest
expense 4,358,580 2,977,581 3,233,192
Earnings before
income taxes 1,460,170 1,543,687 1,055,864
Income taxes 478,142 471,143 339,334
Net earnings $982,028 1,072,544 716,530
Earnings per share:
Basic $.72 .80 .53
Diluted .70 .77 .51
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, 1998, 1997,
and 1996
Accumulated
Additional Unearned other
Common paid-in Retained employee comprehensive
stock capital earnings benefits income Total
<S> <C> <C> <C> <C> <C> <C>
Balance
at 12/31/95 $11,530 5,720,939 5,410,733 (355,915) 22,962 10,810,249
Comprehensive income:
Net earnings - - 716,530 - - 716,530
Change in fair value of investment
securities
available-
for-sale,
net of tax - - - - (41,718) (41,718)
Total compre-
hensive income - - 716,530 - (41,718) 674,812
Dividends paid
($.14 per share) - - (191,791) - - (191,791)
Reduction of
unearned employee
benefits - - - 40,895 - 40,895
5% stock dividend
(57,402 shares) 574 594,025 (594,599) - - -
Balance at
12/31/96 12,104 6,314,964 5,340,873 (315,020) (18,756) 11,334,165
Comprehensive income:
Net earnings - - 1,072,544 - - 1,072,544
Change in fair
value of investment
securities
available-for-sale,
net of tax - - - - 88,200 88,200
Total compre-
hensive income - - 1,072,544 - 88,200 1,160,744
Dividends paid
($.24 per share) - - (319,866) - - (319,866)
Reduction of
unearned
employee benefits - - - 43,833 - 43,833
Issuance of 13,488
shares under stock
option plan 135 56,838 - - - 56,973
5% stock dividend
(60,542 shares) 606 750,993 (751,599) - - -
Balance at
12/31/97 12,845 7,122,795 5,341,952 (271,187) 69,444 12,275,849
Comprehensive income:
Net earnings - - 982,028 - - 982,028
Change in fair
value of investment
securities
available-for-sale,
net of tax - - - - 159,828 159,828
Total
comprehensive
income - - 982,028 - 159,828 1,141,856
Dividends paid
($.25 per share) - - (333,891) - - (333,891)
Reduction of
unearned employee
benefits - - - 48,836 - 48,836
Issuance of 18,672
shares under stock
compensation plans 187 108,836 - - - 109,023
5% stock dividend
(64,844 shares) 648 967,894 (968,542) - - -
Balance at
12/31/98 $13,680 8,199,525 5,021,547 (222,351) 229,272 13,241,673
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, 1998, 1997,
and 1996
1998 1997 1996
<S> <C> <C> <C>
Cash flows
from operating
activities:
Net earnings $982,028 1,072,544 716,530
Adjustments
to reconcile
net earnings
to net cash
provided by
operating
activities:
Provision for
loan losses 90,000 60,000 15,000
Depreciation and
amortization 561,196 211,635 315,757
Amortization
of loan fees (55,232) (67,873) (44,858)
Deferred
income taxes (114,600) (116,929) (53,365)
Net (gain)
loss on sales
of investment
securities
available-
for-sale,
premises and
equipment and
other
real estate (11,068) (9,907) 22,667
Net gain on
sales of loans (384,427) (99,381) (75,450)
Proceeds from
sale of loans 33,323,344 14,260,381 10,316,625
Origination of
loans for sale (32,950,902) (14,725,572) (9,721,236)
Accretion of
discounts and
amortization of
premiums on
investment
securities, net 43,173 (40,931) 12,969
Changes in assets and liabilities:
Accrued interest
and other assets 94,175 100,857 138,334
Accrued expenses,
taxes and other
liabilities (136,729) (755,282) 744,068
Net cash provided
by (used in) operating
activities 1,440,958 (110,458) 2,387,041
Cash flows from
investing activities:
Net (increase)
decrease in loans 10,368,287 (1,476,399) (485,488)
Maturities and
prepayments of investment
securities
held-to-maturity 4,344,489 4,583,747 6,905,474
Purchases of
investment securities
held-to-maturity - - (898,789)
Proceeds from
sale of branch 973,284 - -
Maturities and prepayments of investment
securities
available-for-sale 13,864,202 4,465,881 4,159,394
Purchases of investment securities
available-for-sale (27,114,772) (9,340,259) (14,681,433)
Proceeds from sale of investment securities
available-for-sale 560,024 2,582,280 3,511,808
Proceeds from sales
of foreclosed assets 142,879 53,922 7,279
Purchases of
premises and
equipment, net (260,359) (352,578) (152,860)
Net cash paid
in acquisitions - (1,650,353) -
Net cash provided by (used in)
investing activities $2,878,034 (1,133,759) (1,634,615)
Cash flows from financing activities:
Net increase
(decrease)
in deposits $(4,396,004) 1,435,787 310,507
Net increase
(decrease) in
securities sold
under agreements
to repurchase (549,615) 149,615 -
Federal Home Loan Bank advances (repayment)
and federal
funds
purchased, net (821,427) (800,000) 775,000
Proceeds (repayments)
from notes payable (1,150,000) 2,850,000 -
Issuance of common
stock under stock
option plan 109,023 56,973 -
Payment of dividends (333,891) (319,866) (191,791)
Net cash provided
by (used in) financing
activities (7,141,914) 3,372,509 893,716
Net increase (decrease) in
cash and cash equivalents (2,822,922) 2,128,292 1,646,142
Cash and cash
equivalents at
beginning of year 6,698,451 4,570,159 2,924,017
Cash and cash
equivalents at
end of year $3,875,529 6,698,451 4,570,159
Supplemental disclosure of cash flow
information:
Cash paid during
the year for
income taxes $702,000 619,000 531,000
Cash paid during
the year for interest $5,623,000 3,949,000 4,206,000
Supplemental schedule of noncash investing
and financing
activities:
Transfer of loans
to real estate owned $39,000 - 29,000
Bank acquisition:
Liabilities assumed - 37,617,000 -
Fair value of
assets acquired - 39,267,000 -
Branch sale:
Liabilities sold $2,769,000 - -
Assets sold 3,742,000 - -
See accompanying notes to consolidated
financial statements.
</TABLE>
(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 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.
(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. No
impairment losses have been recorded during
1998, 1997, or 1996.
Goodwill and core deposit amortization was
$245,958 and $106,816 in 1998 and 1997,
respectively. The remaining unamortized
balances of such assets at December 31, 1998
and 1997 aggregated $2,533,443 and
$2,899,067, respectively.
(h) Income Taxes
The Company files a consolidated federal
income tax return with its subsidiaries, and
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) Comprehensive Income
Effective January 1, 1998, the Company
adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income.
Comprehensive income is defined as the
change in equity from transactions and other
events and circumstances from nonowner
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 only component of
other comprehensive income is the unrealized
holding gains and losses on available-for-
sale securities as shown below.
<TABLE>
<CAPTION>
For the years ended December 31
<S> <C> <C> <C>
1998 1997 1996
Unrealized holding gains (losses) $268,694 120,875 (80,674)
Less - reclassification
adjustment for gains
included in net income 10,795 (21,309) (15,213)
Net unrealized gains (losses)
on securities 257,899 142,184 (65,461)
Income tax expense (benefit) 98,071 53,984 (23,743)
Other comprehensive income (loss) $159,828 88,200 (41,718)
</TABLE>
(k) Segment Information
Effective January 1, 1998, the Company
adopted the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise
and Related Information. SFAS No. 131
requires public business enterprises to
report financial and descriptive information
about its reportable operating segments.
Operating segments are components of an
enterprise about which separate financial
information is available that is evaluated
regularly by the chief operating decision-
maker in deciding how to allocate resources
and in assessing performance. Generally,
financial information is required to be
reported on the basis that it is used
internally for evaluating segment
performance and deciding how to allocate
resources to segments. The Company has one
reportable operating segment. The adoption
of SFAS No. 131 had no effect on the
Company's consolidated financial statements.
(l) 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 annually since
1994 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,
1998 1997 1996
<S> <C> <C> <C>
Weighted average common
shares outstanding 1,360,925 1,341,585 1,334,521
Stock options 51,967 55,007 56,534
1,412,892 1,396,592 1,391,055
</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, with branches in Osage City and
Beloit, Kansas. 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. The Company sold the Beloit branch
in 1998. The sale of the branch included
approximately $3.3 million of loans and $2.8
million of deposits. A premium of
approximately $120,000, net of tax, was
received from the buyer and offset against
the goodwill recorded in the Freedom
acquisition. Pro forma 1997 revenues, net
earnings, and diluted earnings per share
amounts, as if the Freedom acquisition had
been consummated January 1, 1997, are as
follows:
Net interest income plus other income $6,060,979
Net earnings 1,002,733
Diluted earnings per share .75
(3) Investment Securities
A summary of investment securities
information is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1998 cost gains losses fair value
<S> <C> <C> <C> <C>
Held-to-maturity:
Municipal obligations 2,143,997 26,000 - 2,170,000
Mortgage-backed
securities 122,346 4,000 - 126,000
Total $2,266,343 30,000 - 2,296,000
Available-for-sale:
U. S. government and agency
obligations $17,837,191 225,305 - 18,062,496
Municipal obligations 6,502,706 56,572 12,925 6,546,353
Mortgage-backed securities 20,899,389 103,714 4,757 20,998,346
FHLB stock 1,315,500 - - 1,315,500
Other investments 1,459,938 1,885 - 1,461,823
Total $48,014,724 387,476 17,682 48,384,518
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimate
cost gains losses fair value
December 31, 1997
<S> <C> <C> <C> <C>
Held-to-maturity:
U. S. government and agency
obligations $3,026,592 4,000 - 3,031,000
Municipal obligations 2,286,210 16,000 2,000 2,300,000
Mortgage-backed securities 1,249,202 4,000 - 1,253,000
Other investments 107,805 - - 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 - - 1,223,000
Other investments 163,100 - - 163,100
Total $35,297,580 133,544 21,649 35,409,475
</TABLE>
Maturities of investment securities at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
<S> <C> <C>
Held-to-maturity:
Due in less than one year $529,300 533,771
Due after one year
but within five years 1,614,697 1,636,694
Mortgage-backed securities 122,346 125,898
Total $2,266,343 2,296,363
Available-for-sale:
Due in less than one year $6,833,873 6,875,618
Due after one year
but within five years 16,563,240 16,768,710
Due after five years 942,784 964,521
Mortgage-backed securities
and other investments 23,674,827 23,775,660
Total $48,014,724 48,384,509
</TABLE>
Except for U. S. government and agency
obligations, no investment in a single
issuer exceeded 10% of stockholders' equity.
At December 31, 1998 and 1997, securities
pledged to secure public funds on deposit
had a carrying value of approximately $28
million and $30 million, respectively.
(4) Loans
Loans consist of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Mortgage loans:
One-to-four family residential $25,058,459 36,474,564
Commercial 25,473,084 25,470,886
Commercial loans 17,130,905 18,305,041
Consumer loans 5,817,509 6,357,088
Student loans 2,387,758 2,887,442
Total 75,867,715 89,495,021
Less:
Loans in process 191,015 59,678
Deferred loan fees 87,556 119,953
Allowance for loan losses 1,291,901 1,335,024
Loans, net $74,297,243 87,980,366
</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>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $1,335,024 819,660 826,364
Provision 90,000 60,000 15,000
Allowance for loan
loss of acquired bank - 461,389 -
Charge-offs (170,977) (17,398) (27,136)
Recoveries 37,854 11,373 5,432
Balance at end of year $1,291,901 1,335,024 819,660
</TABLE>
At December 31, 1998 and 1997, impaired
loans, including nonaccrual loans, as
defined by SFAS No. 114, aggregated
approximately $144,000 and $172,000.
The Bank serviced loans for others of $18.7
million and $24.4 million at December 31,
1998 and 1997. 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 1998 or 1997.
The Bank had loans to directors and officers
at December 31, 1998, which carry terms
similar to those for other loans. A summary
of such loans is as follows:
Balance at beginning of year $1,859,515
New loans 404,954
Payments (1,232,425)
Balance at end of year $1,032,044
(5) Premises and Equipment
Premises and equipment consist of the
following at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $353,412 353,412
Office buildings and
improvements 2,043,942 2,421,693
Furniture and
equipment 1,750,643 1,601,511
Automobiles 142,520 142,520
Total 4,290,517 4,519,136
Less accumulated depreciation 2,058,667 1,921,478
Total $2,231,850 2,597,658
</TABLE>
(6) Time Deposits
Maturities of time deposits are as follows
at December 31, 1998:
Year Amount
1999 $40,376,961
2000 8,367,551
2001 3,657,052
2002 1,680,318
2003 95,194
Total $54,177,076
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, 1998 and 1997 amount to $4,607,150 and
$5,428,577, respectively. Maturities of such
advances at December 31, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
Year ending December 31,
Amount Rates
<S> <C> <C>
2002 $2,571,432 6.24 - 6.95%
2003 1,035,718 6.83 - 7.23
Thereafter 1,000,000 6.44
$4,607,150
</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, 1998 and 1997.
Interest on any outstanding balances on the
line of credit accrues at the federal funds
rate plus .15% (5.65% at December 31, 1998).
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
line of credit with another unrelated
financial institution. The ESOP loan of
$222,351 and $271,187 at December 31, 1998
and 1997, respectively, bears interest at
the prime rate (7.75% at December 31, 1998),
is due in 2002 and is secured by the 39,168
unallocated shares of Company common stock
held by the ESOP. The Company's line of
credit had outstanding balances of
$1,700,000 and $2,850,000 at December 31,
1998 and 1997, respectively, bears 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 1998, 1997, and
1996 is allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operations $478,142 471,143 339,334
Stockholders' equity 98,071 53,984 (23,743)
$576,213 525,127 315,591
</TABLE>
The components of income tax expense
allocated to earnings are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $592,742 588,072 392,699
Deferred (114,600) (116,929) (53,365)
$478,142 471,143 339,334
Federal $429,736 434,143 271,070
State 48,406 37,000 68,264
$478,142 471,143 339,334
</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>
1998 1997 1996
<S> <C> <C> <C>
Expected income
tax expense at statutory
rate $496,458 524,854 358,994
Tax-exempt interest (63,000) (31,900) (37,838)
Nondeductible amortization 59,565 9,406 11,752
State income taxes 31,947 24,420 56,188
Other, net (46,828) (55,637) (49,762)
$478,142 471,143 339,334
</TABLE>
The tax effects of temporary differences
that give rise to the significant portions
of the deferred tax assets and liabilities
at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Deferred tax assets:
Unrealized loss on investment
securities available-for-sale
$- - 11,533
Allowance for
loan losses 412,000 198,400 108,646
Other 20,300 18,400 18,895
Total deferred
tax assets 432,300 216,800 139,074
Deferred tax liabilities:
Unrealized gain on investment
securities
available-for-sale 125,700 42,451 -
Core deposit intangible 64,800 85,500 109,006
FHLB stock dividends 232,300 191,800 167,994
Premises and equipment - 1,000 7,294
State taxes 8,400 21,800 21,645
Other 112,600 17,100 38,931
Total deferred tax
liabilities 543,800 359,651 344,870
Net deferred tax liability $111,500 142,851 205,796
</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 1998,
1997, and 1996 were approximately $55,000,
$50,000, and $57,000, 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
December 31, 1995 85,068 $ 4.53
Issued 8,000 10.50
Effect of 5% stock dividend 4,642 -
Outstanding at
December 31, 1996 97,710 4.22
Effect of 5% stock dividend 4,514 -
Exercised (13,488) 4.22
Outstanding at
December 31, 1997 88,736 4.65
Effect of 5% stock dividend 3,761 -
Issued 4,071 13.13
Exercised (17,192) 5.20
Outstanding at
December 31, 1998 79,376 $4.75
Options exercisable
at December 31, 1998 69,790 $3.92
</TABLE>
Options outstanding at December 31, 1998
were exercisable at prices ranging from $3.92 to $13.13
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 and
1998 were estimated utilizing the following
assumptions: dividend yields of 1.2% and
1.8%, volatility of 4.7% and 17.2%, risk-
free interest rate of 7.0% and 6.5%, and
expected lives of 5 years, respectively. Pro
forma net earnings and earnings per share
for 1998, 1997, and 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 $6,000, $75,000,
and $53,000 in 1998, 1997, and 1996,
respectively. In 1998, accrued bonuses
payable were used to purchase 1,480 shares
of common stock from the Company for
$19,703.
(11) Fair Value of Financial
Instruments
Fair value estimates of the Company's
financial instruments as of December 31,
1998 and 1997, including methods and
assumptions utilized, are set forth below:
<TABLE>
<CAPTION>
1998 1997
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
Investment securities $50,650,861 50,681,000 42,079,284 42,101,000
Loans, net of unearned fees
and allowance for loan
losses $74,297,243 73,581,000 87,980,366 85,988,000
Noninterest bearing demand
deposits $9,307,879 9,308,000 12,882,942 12,883,000
Money market and NOW
deposits 41,249,220 41,249,000 39,970,310 39,970,000
Savings deposits 10,327,847 10,328,000 6,974,204 6,974,000
Time deposits 54,177,076 54,548,000 62,381,081 62,449,000
Total deposits $115,062,022 115,433,000 122,208,537 122,276,000
FHLB advances $4,607,150 4,761,000 5,428,577 5,439,000
Other borrowings $1,922,351 1,922,000 3,670,802 3,671,000
</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,
1998, 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, 1998 (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, 1998:
Total Capital
(to Risk Weighted Assets) $13,201 17.35% $6,085 8.00% $7,607 10.00%
Tier I Capital
(to Risk Weighted Assets) 12,250 16.10 3,043 4.00 4,564 6.00
Tier I Capital
(to Average Assets) 12,250 9.14 5,359 4.00 6,699 5.00
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
$13,153 15.70% $6,684 8.00% $8,354 10.00%
Tier I Capital
(to Risk Weighted Assets) 12,109 14.50 3,342 4.00 5,013 6.00
Tier I Capital
(to Average Assets) 12,109 11.70 4,139 4.00 5,174 5.00
</TABLE>
(13) Parent Company Condensed Financial
Statements
Following is condensed financial information
of the Company as of and for the years ended
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1998 and 1997
<S> <C> <C>
Assets 1998 1997
Cash $77,102 129,987
Investment securities 17,500 171,403
Investment in subsidiary 15,049,128 15,086,801
Other - 8,337
Total assets $15,143,730 15,396,528
Liabilities and Stockholders' Equity
Borrowed funds $1,922,351 3,121,187
Other (20,294) (508)
Stockholders' equity 13,241,673 12,275,849
Total liabilities and stockholders' equity $15,143,730 15,396,528
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Earnings
Years ended December 31, 1998, 1997, and
1996
<S> <C> <C> <C>
1998 1997 1996
Dividends from subsidiary $1,357,335 937,242 650,194
Interest income 10,400 86,582 66,749
Interest expense (209,485) - -
Other expense, net (98,998) (69,898) (115,386)
Income before equity in undistributed
earnings of subsidiary 1,059,252 953,926 601,557
Increase (decrease) in undistributed equity
of subsidiary (224,227) 43,000 100,485
Net earnings before income taxes 835,025 996,926 702,042
Income tax benefit 147,003 75,618 14,488
Net earnings $982,028 1,072,544 716,530
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31, 1998, 1997, and
1996
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net earnings $982,028 1,072,544 716,530
(Increase) decrease in undistributed equity
of subsidiary 224,227 (43,000) (100,485)
Other (8,683) 18,215 (21,509)
Net cash provided by operating activities 1,197,572 1,047,759 594,536
Cash flows from investing activities:
Purchase of investment securities - (154,907) (867,137)
Maturity of investment securities 150,000 400,000 950,000
Investment in subsidiary (25,589) (5,332,255) -
Net cash provided by (used in) investing
activities 124,411 (5,087,162) 82,863
Cash flows from financing activities:
Issuance of shares under stock option plan 109,023 56,973 -
Proceeds (repayments) from note payable (1,150,000) 2,850,000 -
Payment of dividends (333,891) (319,866) (191,791)
Net cash provided by (used in) financing
activities (1,374,868) 2,587,107 (191,791)
Net increase (decrease) in cash (52,885) (1,452,296) 485,608
Cash at beginning of year 129,987 1,582,283 1,096,675
Cash at end of year $77,102 129,987 1,582,283
</TABLE>
Dividends paid by the Company are provided
through subsidiary Bank dividends. At
December 31, 1998, the Bank could distribute
dividends of up to $733,000 without
regulatory approvals.
CORPORATE INFORMATION
DIRECTORS OF MNB BANCSHARES, INC. AND
SECURITY NATIONAL BANK
Brent A. Bowman, Chairman
President
Brent A. Bowman and
Associates Architects, P.A.
Patrick L. Alexander
President and Chief Executive Officer
MNB Bancshares, Inc. and Security National
Bank
William F. Caton*
Representative
BLC Financial Network of Mid-America, Inc.
Joseph L. Downey
Senior Consultant and Director
Dow Chemical Company
Charles D. Green
Retired Attorney
Arthur-Green LLP
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
Retired Vice President, Secretary and
Treasurer, MNB Bancshares, Inc.
Retired Senior Vice
President/Secretary/Cashier, Security
National Bank
Donald J. Wissman
Retired President, Grain Industry Alliance
*Bank Director only
EXECUTIVE OFFICERS OF
MNB BANCSHARES, INC.
Patrick L. Alexander
President and Chief Executive Officer
Mark Herpich
Chief Financial Officer
Vice President, Secretary and Treasurer
EXECUTIVE OFFICERS OF SECURITY NATIONAL BANK
Patrick L. Alexander
President and Chief Executive Officer
Mark A. Herpich
Senior Vice President, Secretary and Cashier
Michael E. Scheopner
Executive Vice President, Credit Risk
Manager
Dean R. Thibault
Executive 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, 1998, the Company had
approximately 450 stockholders of record.
Set forth below are the reported high and
low bid prices of the common stock and
dividends paid during the past two years.
Information presented below has been
restated to give effect to the 5% stock
dividends paid in 1998 and 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 High Low Dividends
First Quarter $17.50 $12.00 $0.0625
Second Quarter 16.25 14.00 0.0625
Third Quarter 14.81 12.00 0.0625
Fourth Quarter 13.50 11.00 0.0625
1997 High Low Dividends
First Quarter $11.38 $11.38 $0.0595
Second Quarter 11.38 10.00 0.0595
Third Quarter 11.75 10.50 0.0595
Fourth Quarter 13.00 11.75 0.0595
</TABLE>
CORPORATE HEADQUARTERS
800 Poyntz Avenue
Manhattan, Kansas 66502
ANNUAL MEETING
The annual meeting of stockholders will
be held at the Kansas State University
Student Union, Room 212 Conference Room,
Manhattan, Kansas 66506, on Wednesday, May
19, 1999 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 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, Osage City, and Topeka,
Kansas.
EXHIBIT 23.1
CONSENT OF KPMG 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 19, 1999, relating to
the consolidated balance sheets of MNB
Bancshares, Inc. and subsidiaries of
December 31, 1998 and 1997 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, 1998, which report appears in
the December 31, 1998 annual report on Form
10-K of MNB Bancshares, Inc.
Kansas City, Missouri
March 29, 1999
EXHIBIT 99.1
800 Poyntz Avenue
Manhattan, Kansas 66505
(785) 565-2000
April 16, 1999
Dear Stockholder:
On behalf of the Board of Directors and
management of MNB Bancshares, Inc., we
cordially invite you to attend the Annual
Meeting of Stockholders of MNB Bancshares,
Inc., to be held at 2:00 p.m. on Wednesday,
May 19, 1999, at the Kansas State University
Student Union, 17th and Anderson Avenue,
Manhattan, Kansas. The accompanying Notice
of Annual Meeting of Stockholders and Proxy
Statement discuss the business to be
conducted at the meeting. At the meeting we
shall report on Company operations and the
outlook for the year ahead.
Your Board of Directors has nominated
three persons to serve as Class I directors,
each of whom are incumbent directors. The
Company's Board of Directors has selected
and recommends that you ratify the
appointment of KPMG LLP to continue as the
Company's independent public accountants for
the year ending December 31, 1999.
We recommend that you vote your shares
for the director nominees and in favor of
the proposal.
We encourage you to attend the meeting
in person. Whether or not you plan to
attend, however, please complete, sign and
date the enclosed proxy and return it in the
accompanying postpaid return envelope as
promptly as possible. This will ensure that
your shares are represented at the meeting.
We look forward with pleasure to
seeing and visiting with you at the meeting.
Very truly yours,
MNB BANCSHARES, INC.
Patrick L. Alexander
President and Chief Executive Officer
800 Poyntz Avenue
Manhattan, Kansas 66505
(785) 565-2000
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
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 Wednesday, May 19, 1999, at 2:00
p.m., local time, for the following
purposes:
1. to elect three (3) Class I
directors for a term of three years.
2. to approve the appointment of KPMG
LLP as independent public accountants for
the Company for the fiscal year ending
December 31, 1999.
3. to transact such other business as
may properly be brought before the meeting
and any adjournments or postponements
thereof.
The Board of Directors has fixed the
close of business on April 2, 1999, 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
Patrick L. Alexander
President and Chief
Executive Officer
Manhattan, Kansas
April 16, 1999
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 Wednesday, May 19, 1999,
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 16, 1999. The 1998 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 and Osage
City.
Only holders of record of the Company's
Common Stock at the close of business on
April 2, 1999, will be entitled to vote at
the annual meeting or any adjournments or
postponements of such meeting. On April 2,
1999, the Company had 1,367,976 shares of
Common Stock, par value $0.01 per share,
issued and outstanding. In the election of
directors, and for all other matters to be
voted upon at the annual meeting, each
issued and outstanding share is entitled to
one vote.
All shares of Common Stock represented
at the annual meeting by properly executed
proxies received prior to or at the annual
meeting, and not revoked, will be voted at
the annual meeting in accordance with the
instructions thereon. If no instructions
are indicated, properly executed proxies
will be voted for the nominees and for
adoption of the proposals set forth in this
Proxy Statement.
A majority of the shares of the Common
Stock, present in person or represented by
proxy, shall constitute a quorum for
purposes of the annual meeting. Abstentions
and broker non-votes will be counted for
purposes of determining a quorum. Directors
shall be elected by a plurality of the votes
present in person or represented by proxy at
the meeting and entitled to vote. In all
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 19, 1999, the
stockholders will be entitled to elect three
(3) Class I directors for a term expiring in
2002. The directors of the Company are
divided into three classes having staggered
terms of three years. The nominees for
election as Class I 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 2, 1999. The three nominees, if
elected at the Annual Meeting of
Stockholders, will serve as Class I
directors for three year terms expiring in
2002. The Board of Directors unanimously
recommends that stockholders vote FOR each
of the nominees for director.
<TABLE>
<CAPTION>
NOMINEES
<S> <C> <C> <C>
Name Age Position with the Director
Company and the Bank Since
CLASS I
(Term Expires 2002)
Patrick L. Alexander 46 President, Chief Executive
Officer and Director of the
Company and the Bank 1990
Joseph L. Downey 62 Director of the Company
and the Bank 1996
Jerry R. Pettle 60 Director of the Company
and the Bank 1978
CLASS II
(Term Expires 2000)
Susan E. Roepke 59 Director of the Company
and the Bank 1997
Donald J. Wissman 61 Director of the Company
and the Bank 1994
CLASS III
(Term Expires 2001)
Brent A. Bowman 49 Chairman of the Board
of the Company and the Bank 1987
Charles D. Green 73 Director of the Company
and the Bank 1957
Vernon C. Larson 75 Director of the Company
and the Bank 1974
</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.
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 of 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. He serves on the Big
Lakes Developmental Center 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.
Charles D. Green is a former partner in
the Manhattan, Kansas law firm of Arthur-
Green LLP 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
1965. Dr. Pettle is a member of the
Manhattan Medical Center Board of Directors
and is an examiner for the Kansas Dental
Board.
Susan E. Roepke is a former Vice
President of the Company, serving in that
capacity from its inception in 1992 until
she retired as an officer of the Company and
the Bank at the end of 1998. She also
served in a number of senior management
positions with the Bank since 1970,
including Senior Vice President, Secretary
and Cashier since 1993.
Donald J. Wissman is the former
Chairman of DPRA Incorporated, an
environmental/economic research and
consulting firm headquartered in Manhattan,
Kansas. He served in that capacity from
1987 to 1998. Dr. Wissman began his service
with the firm in 1965 and service as Vice
President and Senior Vice President involved
in economic and environmental regulatory
consulting assignments. He was the founder
and served as President of the Grain
Industry Alliance from 1996-1998. He served
as Chairman and Director of the Manhattan
Chamber of Commerce and on the Board of
Directors of the Kansas State University
Research Foundation.
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 1998 the committee met 11
times.
The Directors' Loan Committee consists
of Directors Green (Chairman), Alexander,
Downey, 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
1998 the committee met 8 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 1998 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 1998 the
committee met one time.
A total of 13 regularly scheduled and
special meetings were held by the Board of
Directors of the Company during 1998.
During 1998, 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
does 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 $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
Securities
Underlying All Other
Name and Year ended Options/ Composition
Principal Position 12/31 Salary Bonus ($) SAR (#) ($)(2)
Patrick L. Alexander 1998 $145,315 --- --- ---
President and Chief 1997 119,957 32,045 --- 12,975
Executive Officer 1996 114,993 30,473 --- 13,105
(1) Includes amounts deferred.
(2) Represents contributions made to
the MNB Bancshares, Inc. Employee Stock
Ownership Plan (the "ESOP"), and also
includes premium payments for an insurance
policy purchased to fund a supplemental
disability and death benefit. The
contribution to the ESOP was $11,919 for
1996, $13,651 for 1997 and is expected to be
approximately $13,000 for 1998.
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth certain
information concerning the number and value
of stock options at December 31, 1998 held
by the Chief Executive Officer.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
<S> <C> <C> <C> <C> <C> <C>
Name Shares Value Exer- Unexer- Exer- Unexer-
Acquired on Realized cisable cisable cisable cisable
Exercise (#) ($)
Patrick L. Alexander --- $--- 33,375(1) --- $292,695 $---
(1) Includes options resulting from
stock dividends paid by the Company.
</TABLE>
Employment Agreement In January, 1993
the Company and the Bank entered into an
employment agreement with Patrick L.
Alexander. The employment agreement
initially provided for an initial base
salary of $94,605, which may be increased
but not decreased, and an initial term of
three years, with one year extensions
thereafter unless the agreement has been
terminated or the Company or Mr. Alexander
has provided a notice of non-renewal prior
thereto. Notwithstanding any such notice,
the term of the agreement will be extended
to three years upon any change in control of
the Company or the Bank, as defined in the
agreement. The employment agreement will
terminate upon the death or disability of
Mr. Alexander, in the event of certain
regulatory actions or upon notice by either
the Company or Mr. Alexander, with or
without cause. The employment agreement
will be suspended in the event of a
regulatory suspension of Mr. Alexander's
employment. In the event of termination of
Mr. Alexander's employment due to disability
or without cause, the Company will be
obligated to pay or to provide to him, as
applicable, continued salary and benefits
until the earlier of the expiration of the
term of the agreement or his death. In the
event Mr. Alexander's employment
discontinues following a change in control
of the Company or the Bank, the successor to
the Company or the Bank is obligated to make
a lump sum payment to him equal to three
times his then annual salary and to continue
benefits until the earlier of three years or
his death. For purposes of the employment
agreement, Mr. Alexander's employment will
be considered terminated following
a change in control in the event his right
to retain his position with the Bank or to
exercise fully the authority, duties and
responsibilities of such position is changed
or terminated. The employment agreement
includes a covenant which will limit the
ability of Mr. Alexander to compete with the
Bank in an area encompassing a fifty mile
radius from the Bank's main office for a
period of one year following the termination
of his employment with the Bank. The
geographic area covered by this provision
constitutes a portion of the Bank's primary
service area.
The Executive Committee has furnished
the following report on executive
compensation. The incorporation by
reference of this Proxy Statement into any
document filed with the Securities and
Exchange Commission by the Company shall not
be deemed to include the report unless the
report is specifically stated to be
incorporated by reference into such
document.
Executive Committee Report on Executive
Compensation
The Executive Committee of the Board of
Directors of the Bank is composed of 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.
The Executive Committee felt it would
be beneficial to shareholders to have
executive officers take a portion of
incentive pay in the form of shares of MNB
Bancshares, Inc. stock. As a result of this
thought process, in the Spring of 1998 the
committee authorized Mr. Alexander, Ms.
Roepke and Mr. Scheopner to receive a
portion or all of their 1997 after tax
incentive compensation in stock.
Additionally, the committee changed the
incentive program for 1998 and beyond to
include all executive officers being
required to take a minimum of 50% of their
after tax incentive payment in the form of
Company stock and have the option of taking
up to 100% of their after tax incentive
payment in the form of Company stock.
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 1998 compensation of Mr. Alexander
was based upon the factors described above
and his substantial experience and length of
service with the organization. During 1998,
Mr. Alexander successfully headed the
Company's acquisition program, which
included planning, analysis, and contacting
a number of financial institutions. The
Executive Committee also considered the
additional duties required in completing the
assimilation of the December 31, 1997
acquisition of Freedom Bancshares, Inc. into
the Company's corporate and operating
structure. 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 graph was prepared at the Company's
request by Research Data Group, Inc.,
San Francisco, California.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON DECEMBER 31, 1993
*Total return assumes reinvestment of
dividends and reflects the Company's prior
stock split and stock dividends.
<S> <C> <C> <C> <C> <C> <C>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
MNB Bancshares, Inc. $100 $127 $154 $187 $223 $207
Nasdaq Market - U.S. $100 $98 $138 $170 $208 $294
Nasdaq Bank Stocks $100 $100 $148 $196 $328 $325
</TABLE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following table sets forth certain
information regarding the Company's Common
Stock beneficially owned on April 2, 1999
with respect to all persons known to the
Company to be the beneficial owner of more
than five percent of the Company's Common
Stock, each director and nominee, each
executive officer named in the Summary
Compensation Table and all directors and
executive officers of the Company as a
group.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Individual and Amount and Nature of Percent
Number of Persons in Group Beneficial Ownership(1) of Class
5% Stockholders
First Manhattan Co.
437 Madison Avenue
New York, New York 10022 98,799(2) 7.22%
MNB Bancshares, Inc.
Employee Stock Ownership Plan
800 Poyntz Avenue
Manhattan, Kansas 66502 113,627(3) 8.31%
Jack Goldstein
555 Poyntz Avenue
Manhattan, Kansas 66502 94,361(4) 6.89%
Patrick L. Alexander
2801 Brad Lane
Manhattan, Kansas 66502 103,465(5) 7.38%
Rolla Goodyear
4009 Saltburn Drive
Plano, Texas 75093 115,782(6) 8.46%
Susan E. Roepke
2600 Sumac Drive
Manhattan, Kansas 66502 106,232(7) 7.67%
Directors
Brent A. Bowman 5,211 *
Joseph L. Downey 6,402 *
Charles D. Green 28,185(8) 2.06%
Vernon C. Larson 9,517(9) *
Jerry R. Pettle 15,418(10) 1.13%
Donald J. Wissman 3,923(11) *
All directors and executive officers as a
group (12 persons) 323,523(12) 22.59%
____________________________________
*Less than 1%.
</TABLE>
(1) The information contained in this
column is based upon information furnished
to the Company by the persons named above
and the members of the designated group.
The nature of beneficial ownership for
shares shown in this column is sole voting
and investment power, except as set forth in
the footnotes below. Inclusion of shares in
this table shall not be deemed to be an
admission of beneficial ownership of such
shares. Amounts shown include shares issued
pursuant to a stock dividend paid by the
Company in August, 1998. Amounts shown
reflect the 2 for 1 stock split effected in
February, 1998.
(2) Pursuant to an Amendment dated
February 11, 1999, to a Schedule 13D filed
by First Manhattan Co.
(3) Includes 74,459 shares which have
been allocated to participants' accounts
under the Company's ESOP.
(4) Pursuant to a Schedule 13D dated
May 13, 1998.
(5) Includes 4,727 shares held in an
IRA of which the power to vote such shares
is shared with the IRA administrator and
41,728 shares over which voting and
investment power is shared with his spouse.
Also includes 33,375 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 2,234 shares held by Mr.
Goodyear's spouse, over which shares Mr.
Goodyear has no voting or investment power.
(7) Ms. Roepke is a retired Vice
President and the Chief Financial Officer of
the Company. She currently is a member of
the Board of Directors. This includes
19,859 shares held in an Investment
Retirement Account ("IRA"), of which the
power to vote such shares is shared with the
IRA administrator, 3,084 shares held in her
spouse's IRA and over which Ms. Roepke has
shared voting and investment power, 2,549
shares held in a living trust of which Ms.
Roepke is a co-trustee and over which Ms.
Roepke has shared voting and investment
power, 28,589 shares held in her spouse's
living trust and over which Ms. Roepke has
shared voting and investment power, and
16,974 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 2,662 shares presently
obtainable through the exercise of options
granted under the Company's Stock Option
Plan, over which shares Mr. Green has no
voting and sole investment power.
(9) Represents 9,517 shares held
jointly with his spouse and over which Mr.
Larson has shared voting and investment
power.
(10) Includes 6,338 shares held in
Dental Association Profit Sharing Plan and
over which Mr. Pettle has full voting and
investment power.
(11) Includes 1,533 shares held by his
spouse and over which Mr. Wissman has shared
voting and investment power.
(12) Includes an aggregate of 64,466
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, 1998 through
December 31, 1998.
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 1998.
Additional transactions are expected to take
place in the future. All outstanding loans,
commitments to loan, and certificates of
deposit and depository relationships, in the
opinion of management, were made in the
ordinary course of business, on
substantially the same terms, including
interest rates and collateral, as those
prevailing at the time for comparable
transactions with other persons and did not
involve more than the normal risk of
collectibility or present other unfavorable
features.
INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to approve
the appointment of KPMG LLP as the Company's
independent public accountants for the year
ending December 31, 1999. A proposal will
be presented at the annual meeting to ratify
the appointment of KPMG LLP. If the
appointment of KPMG LLP is not ratified, the
matter of the appointment of independent
public accountants will be considered by the
Board of Directors. Representatives of KPMG
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 2000, must be received at the principal
executive offices of the Company (MNB
Bancshares, Inc., 800 Poyntz Avenue,
Manhattan, Kansas 66505, attention: Mr.
Patrick L. Alexander, President) no later
than December 17, 1999, 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) and (2) on the proxy
card, the shares of such stockholder shall
be voted (FOR) in each instance.
REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO
EACH PERSON REPRESENTING THAT HE OR SHE WAS
A BENEFICIAL OWNER OF THE COMPANY'S COMMON
STOCK AS OF THE RECORD DATE FOR THE MEETING,
UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K. SUCH
WRITTEN REQUEST SHOULD BE SENT TO MR.
PATRICK L. ALEXANDER, MNB BANCSHARES, INC.,
P.O. BOX 308, MANHATTAN, KANSAS 66505.
By order of the Board of Directors
Patrick L. Alexander
President and Chief
Executive Officer
Manhattan, Kansas
April 16, 1999
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAIL THEIR PROXIES PROMPTLY
PROXY FOR COMMON SHARES ON BEHALF OF
BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE
STOCKHOLDERS OF
MNB BANCSHARES, INC. TO BE HELD MAY 19,
1999
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 Wednesday, May 19, 1999, 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 AUTHORITY
to vote for all nominees listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.)
Class I (term expires 2002): Patrick L.
Alexander, Joseph L. Downey and Jerry R.
Pettle
2. APPROVE THE APPOINTMENT OF KPMG LLP AS
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE YEAR ENDING DECEMBER 31, 1999:
For Against Abstain
3. In accordance with their discretion,
upon all other matters that may properly
come before said meeting and any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED UNDER PROPOSAL 1 AND FOR
PROPOSAL 2.
Dated: ____________, 1999
Signature(s)
NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY
AS NAME OR NAMES APPEAR ABOVE. ALL JOINT
OWNERS OF SHARES SHOULD SIGN. STATE FULL
TITLE WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC.
PLEASE RETURN SIGNED PROXY IN THE ENCLOSED
ENVELOPE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000891284
<NAME> MNB BANCSHARES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,875,529
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,384,518
<INVESTMENTS-CARRYING> 2,266,343
<INVESTMENTS-MARKET> 2,296,000
<LOANS> 76,623,462
<ALLOWANCE> 1,291,901
<TOTAL-ASSETS> 135,830,230
<DEPOSITS> 115,062,022
<SHORT-TERM> 0
<LIABILITIES-OTHER> 997,034
<LONG-TERM> 6,529,501
0
0
<COMMON> 13,680
<OTHER-SE> 13,227,993
<TOTAL-LIABILITIES-AND-EQUITY> 135,830,230
<INTEREST-LOAN> 7,326,727
<INTEREST-INVEST> 2,714,558
<INTEREST-OTHER> 248,150
<INTEREST-TOTAL> 10,289,435
<INTEREST-DEPOSIT> 5,035,706
<INTEREST-EXPENSE> 5,592,973
<INTEREST-INCOME-NET> 4,696,462
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 10,795
<EXPENSE-OTHER> 4,358,580
<INCOME-PRETAX> 1,460,170
<INCOME-PRE-EXTRAORDINARY> 1,460,170
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 982,028
<EPS-PRIMARY> .72
<EPS-DILUTED> .70
<YIELD-ACTUAL> 3.52
<LOANS-NON> 144,309
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,335,024
<CHARGE-OFFS> 170,977
<RECOVERIES> 37,854
<ALLOWANCE-CLOSE> 1,291,901
<ALLOWANCE-DOMESTIC> 902,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 389,039
</TABLE>
