17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number 0-20878
MNB BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1120026
- --------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
800 Poyntz Avenue, Manhattan, Kansas 66502
------------------------------------------
(Address of principal executive offices) (Zip Code)
(785) 565-2000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of the latest practicable
date: As of November 9, 1999, the Registrant had outstanding
1,449,303 shares of its common stock, $.01 par value per share.
<PAGE>
MNB BANCSHARES, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page Number
Item 1. Financial Statements and Related Notes 1 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 13
Item 3. Quantitative and Qualitative Disclosures about 14
Market Risk
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Form 10-Q Signature Page 17
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
September 30, December 31,
1999 1998
------------------
ASSETS
(Unaudited)
Cash and interest bearing deposits $4,704,688 $3,875,529
Investment securities:
Held-to-maturity at amortized cost 1,891,300 2,266,343
(estimated fair value of $1,896,000
and $2,296,000 respectively)
Available-for-sale at estimated fair value 45,674,128 48,384,518
Loans, net 82,976,469 75,052,990
Premises and equipment, net 2,181,673 2,231,850
Other assets 4,028,145 4,019,000
----------- -----------
Total assets $141,456,403 $135,830,230
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $112,038,717 $115,062,022
Other borrowings 14,702,355 6,529,501
Accrued expenses, taxes and other liabilities 1,485,784 997,034
--------- -------
Total liabilities 128,226,856 122,588,557
=========== ===========
Stockholders' equity:
Common stock, $.01 par, 3,000,000 shares
authorized,
1,449,303 and 1,367,976 shares issued and
outstanding at
1999 and 1998, respectively 14,493 13,680
Additional paid in capital 9,011,899 8,199,525
Retained earnings 4,672,478 5,021,547
Accumulated other comprehensive income/(loss) (259,119) 229,272
Unearned employee benefits (210,204) (222,351)
-------- --------
Total stockholders' equity 13,229,547 13,241,673
---------- ----------
Total liabilities and stockholders'equity $141,456,403 $135,830,230
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<S> <C> <C>
For the nine months
ended September 30,
1999 1998
----------------
Interest income:
Loans $5,000,638 5,642,154
Investment securities 1,974,827 1,923,880
Other 71,251 300,497
------ -------
Total interest income 7,046,716 7,866,531
Interest expense:
Deposits 3,225,794 3,860,201
Borrowed funds 446,814 433,243
------- -------
Total interest expense 3,672,608 4,293,444
Net interest income 3,374,108 3,573,087
Provision for loan losses - 90,000
--------- ------
Net interest income after 3,374,108 3,483,087
provision for loan losses
Noninterest income:
Fees and service charges 601,938 570,294
Gains on sale of loans 119,568 277,906
Gains on sale of investments 7,147 10,795
Other 35,037 67,139
------ ------
Total noninterest income 763,690 926,134
Noninterest expense:
Compensation and benefits 1,577,736 1,523,875
Occupancy and equipment 442,806 500,814
Federal deposit insurance premiums 34,465 39,907
Data processing 98,950 109,198
Amortization 170,526 185,775
Advertising 41,922 52,350
Professional fees 112,546 181,300
Stationery, printing and office supplies 74,526 76,017
Other 578,766 653,039
------- -------
Total noninterest expense 3,132,243 3,322,275
Earnings before income taxes 1,005,555 1,086,946
Income tax expense 341,357 333,610
------- -------
Net earnings $664,198 $753,336
======== ========
Earnings per share:
Basic $ 0.46 $ 0.55
========== ==========
Diluted $ 0.45 $ 0.53
========== ==========
Dividends per share $ 0.1875 $ 0.1875
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<S> <C> <C>
For the three months
ended September 30,
1999 1998
----------------
Interest income:
Loans $ 1,745,504 1,756,392
Investment securities 653,812 646,463
Other 18,879 82,544
------ ------
Total interest income 2,418,195 2,485,399
Interest expense:
Deposits 1,056,958 1,223,372
Borrowed funds 191,580 136,567
Total interest expense 1,248,538 1,359,939
Net interest income 1,169,657 1,125,460
Provision for loan losses - 30,000
-------- ------
Net interest income after 1,169,657 1,095,460
provision for loan losses
Noninterest income:
Fees and service charges 206,847 171,063
Gains on sale of loans 30,377 107,606
Other 9,526 23,861
----- ------
Total noninterest income 246,750 302,530
Noninterest expense:
Compensation and benefits 535,494 484,878
Occupancy and equipment 148,729 161,315
Federal deposit insurance premiums 10,931 8,361
Data processing 31,725 31,038
Amortization 55,588 60,129
Advertising 9,440 21,439
Professional fees 32,806 70,514
Stationery, printing and office supplies 21,761 15,919
Other 192,283 224,764
------- -------
Total noninterest expense 1,038,757 1,078,357
Earnings before income taxes 377,650 319,633
------- -------
Income tax expense 127,415 125,803
------- -------
Net earnings $ 250,235 193,830
========= =======
Earnings per share:
Basic $ 0.17 $ 0.14
Diluted $ 0.17 $ 0.13
========= =========
Dividends per share $ 0.0625 $ 0.0625
========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MNB BANCSHAES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the nine months
ended September 30,
1999 1998
-------------------
<S> <C> <C>
Net cash provided by operating activities $ 1,948,311 2,260,820
INVESTING ACTIVITIES
Net (increase) decrease in loans (8,225,514) 10,230,550
Maturities and prepayments of
investments held to maturity 274,654 3,667,504
Maturities and prepayments of
investments available for sale 11,012,480 9,854,520
Purchase of investments available for sale (14,182,740) (20,438,296)
Proceeds from sale of investments held
to maturity 102,317 -
Proceeds from sale of investments
available for sale 5,049,734 1,228,736
Proceeds from sales of foreclosed assets 50,000 70,515
Net proceeds from Beloit Sale - 973,283
Purchases of equipment and building
improvements (161,699) (158,494)
-------- --------
Net cash provided by (used in)
investing activities (6,080,768) 5,428,318
FINANCING ACTIVITIES
FHLB advances (repayment) 8,835,001 (964,284)
Net decrease in deposits (3,023,305) (3,724,657)
Net decrease in securities sold under
agreements to repurchase - (523,032)
Issuance of common stock under stock
option plan 62,882 75,013
Repayment on note payable (650,000) -
Cash dividends paid on common stock (262,962) (248,627)
-------- --------
Net cash provided by (used in)
financing activities 4,961,616 (5,385,587)
--------- ----------
Net increase (decrease) in cash 829,159 (2,303,551)
Cash at beginning of period 3,875,529 6,698,451
--------- ---------
Cash at end of period $ 4,704,688 9,002,002
=============== =========
Supplemental disclosure of cash flow
information:
Cash paid during period for interest $ 3,647,000 4,267,000
=============== =========
Cash paid during period for taxes $ 158,000 838,000
=============== =======
Supplemental disclosure of noncash
investing activities:
Transfer of loans to real estate owned $ $105,000 10,000
=============== ======
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. Interim Financial Statements
The condensed consolidated financial statements of MNB
Bancshares, Inc. (the "Company") and subsidiaries have been prepared
in accordance with the instructions to Form 10-Q. To the extent that
information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or
consistent with the audited financial statements incorporated by
reference in the Company's Form 10-K for the year ended December 31,
1998, such information and footnotes have not been duplicated
herein. In the opinion of management, all adjustments, consisting of
normal recurring accruals, considered necessary for a fair
presentation of financial statements have been reflected herein. The
December 31, 1998 condensed consolidated balance sheet has been
derived from the audited balance sheet as of that date. The results
of the interim periods ended September 30, 1999 are not necessarily
indicative of the results expected for the year ended December 31,
1999.
2. 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. Earnings per share for all periods
presented have been adjusted retroactively to give effect to the 5%
stock dividends paid by the Company annually since 1994.
The shares used in the calculation of basic and diluted income
per share are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the quarters ended For the nine months
September 30, ended September 30,
1999 1998 1999 1998
---------------------------------------------
Weighted
average common
shares outstanding 1,449,303 1,433,138 1,443,264 1,428,431
Stock options 39,830 52,700 45,401 57,275
------ ------ ------ ------
Total 1,489,133 1,485,838 1,488,665 1,485,705
========= ========= ========= =========
</TABLE>
3. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income", in the first quarter of 1998. SFAS No. 130 requires the
reporting of comprehensive income and its components. 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 the unrealized holding gains and losses on
available for sale securities.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the quarters For the nine months
ended September 30, ended September 30,
1999 1998 1999 1998
-----------------------------------
Net income $250,235 193,830 664,198 753,336
Unrealized holding gains (losses) (188,363) 295,044 (780,580) 310,363
Less - reclassification adjustment
for gain included in net earnings - - 7,147 10,795
------- ------- ----- ------
Net unrealized gains
(losses) on securities (188,363) 295,044 (787,727) 299,568
Income tax expense (benefit) (71,578) 112,128 (299,336) 113,847
------- ------- -------- -------
Total comprehensive income $133,450 $376,746 $175,807 939,057
======== ======== ======== =======
</TABLE>
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. MNB Bancshares, Inc. (the "Company") is a bank holding
company incorporated under the laws of the State of Delaware and is
engaged in the banking business through its wholly-owned subsidiary,
Security National Bank (the "Bank"). The home office for the Bank is
Manhattan, Kansas, with branches operating in Auburn, Osage City, and
Topeka, Kansas. The Company sold a branch in Beloit, Kansas during
June 1998, which included approximately $3.3 million of loans and
$2.8 million of deposits. In addition, just prior to the sale,
public funds of approximately $3.0 million were withdrawn from the
Beloit branch. The Company's results of operations depend primarily
on net interest income, which is the difference between interest
income from interest-earning assets and interest expense on
interest-bearing liabilities. The Company's operations are also
affected by non-interest income, such as service charges, loan fees
and gains and losses from the sale of newly originated loans. The
Company's principal operating expenses, aside from interest expense,
consist of compensation and employee benefits, occupancy costs,
federal deposit insurance costs, data processing expenses and
provision for loan losses.
Net earnings for the third quarter of 1999 increased 29.1% to
$250,235 in comparison to the same period in 1998. Net interest
income after provision for loan losses increased from $1,095,460 to
$1,169,657, or 6.8%, during this period. Noninterest income
decreased 18.4% to $246,750 compared to $302,530 as a result of gains
on sale of loans declining. Noninterest expense declined $39,600, or
3.7%.
Net earnings for the first nine months of 1999 decreased
$89,138, or 11.8%, to $664,198 as compared to the first nine months
of 1998. Net interest income after provision for loan losses
decreased $108,979, or 3.3%, from $3,483,087, to $3,374,108.
Noninterest income decreased $162,444, or 17.5%, from $926,134 to
$763,690, due to a decrease in gains on sale of loans. Noninterest
expense decreased $190,032 or 5.7%.
Interest Income. Interest income decreased $819,815, or 10.4%,
to $7.0 million from $7.9 million in the first nine months of 1998.
While the September 30, 1999 loan totals were $8.5 million higher
than September 30, 1998, the average balance for the first nine
months of 1999 was slightly lower at $78.1 million compared to $82.7
million for the first nine months of 1998. These numbers reflect the
significant decrease in residential real estate loans outstanding,
beginning in the second quarter of 1998, as borrowers refinanced into
lower fixed rate loans which the Company sold into the secondary
market. Interest income for the third quarter of 1999 decreased by
$67,204, or 2.7% compared to the same period of 1998.
Interest Expense. As compared to the same period a year
earlier, interest expense during the first nine months of 1999
decreased by $620,836, or 14.5%. Interest expense on deposits
decreased $634,407, or 16.4% while interest expense on borrowings,
consisting of advances from the Federal Home Loan Bank of Topeka (the
"FHLB") and funds borrowed for acquisitions increased $13,571, or
3.1%, during this time period. Interest expense decreased as a
result of a decline in interest rates, a decline in deposits
resulting from the Beloit branch sale, and the principal repayments
on the Company's note payable. These items were offset slightly by
the interest on increased FHLB borrowings.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest expense for the third quarter of 1999 decreased 8.2% to
$1.2 million from $1.4 million in 1998. Deposit interest expense
decreased $166,414, or 13.6%, to $1.1 million. These decreases were
the result of the decline in interest rates, the sale of the Beloit
branch ($6.8 million in deposits) and the principal repayments on the
Company's note payable, offset by increased FHLB borrowings.
Provision for Loan Losses. The Company did not make a provision
for loan losses for the first nine months of 1999, primarily as a
result of the strong credit quality of the loan portfolio, which is
discussed in the Asset Quality and Distribution section below. The
provision for loan losses was $90,000 in the first nine months of
1998. At September 30, 1999, the allowance for loan losses was
$1,235,237, or 1.5% of gross loans outstanding, compared to
$1,351,399, or 1.8% of gross loans outstanding, at September 30,
1998. The allowance for loan losses was $1.3 million at December 31,
1998, or 1.7% of gross loans outstanding.
Noninterest Income. Noninterest income decreased $162,444, or
17.5%, for the first nine months of 1999 to $763,690 compared to the
same period in 1998, as gains on sales of loans in the first nine
months declined $158,338 below the comparable period in 1998.
Noninterest income for the third quarter of 1999 decreased 18.4% to
$246,750 compared to $302,530 for the third quarter in 1998.
Contributing to this decrease was a decline in gains on sale of loans
of $77,229, offset by an increase in fee and service charge and other
income of $21,449.
Noninterest Expense. Noninterest expense decreased $190,032, or
5.7%, to $3.1 million for the first nine months of 1999 over the same
period in 1998. Noninterest expense decreased $39,600, or 3.7% for
the third quarter of 1999 compared to the same period in 1998. These
decreases primarily resulting from reduced expenses for occupancy and
equipment and professional fees, along with a general decline in most
categories due to closely monitoring expenses.
Asset Quality and Distribution. The Company's total assets
remained stable at $141.5 million at September 30, 1999 compared to
$135.8 million at December 31, 1998. The Company's primary ongoing
sources of funds are deposits, FHLB borrowings, 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 mortgage, consumer, and commercial loans and the
purchase of investment and mortgage backed securities. Generally,
the Company originates long term fixed rate residential mortgage
loans for immediate sale and does not warehouse loans to speculate on
interest rates.
Management believes that the quality of the loan portfolio
continues to be strong, as evidenced by the small number and amount
of loans past due one month or more which have remained at
approximately the same levels as at December 31, 1998. As of
September 30, 1999, fourteen real estate loans were more than one
month past due with a total balance of $709,859, which was 0.9% of
total loans outstanding. Seven of these loans, totaling $467,569,
were on non-accrual status as of September 30, 1999.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
With the exception of guaranteed student loans, seven consumer loans
totaling $59,516 or 0.1%, were over one month past due as of
September 30, 1999 and one of these loans with a balance of $5,241
were on non-accrual. Additionally, nine commercial loans totaling
$346,124, or 0.4%, were past due. No commercial loans were on
non-accrual status.
During the nine months ended September 30, 1999, the Company
purchased investment securities available for sale in the amount of
$14.2 million. These activities were funded primarily by maturities
and sales of investment securities of $16.4 million.
Liability Distribution. At September 30, 1999, total deposits
had a net decrease of $3.0 million from December 31, 1998, while
borrowings increased $8.2 million. The change in the liability mix
was primarily related to daily fluctuations experienced on the
deposit balances maintained by the Company's public funds providers.
Noninterest bearing demand accounts at the end of the third
quarter of 1999 totaled $10.4 million, or 9.3% of deposits, compared
to approximately 8.1%, or $9.3 million at December 31, 1998.
Certificates of deposit increased to $55.5 million at September 30,
1999 from $54.2 million, or 2.4%. Money market and NOW accounts
decreased 12.4% from December 31, 1998 to $36.1 million from $41.2
million, and were 32.2% of total deposits, while savings accounts
decreased slightly from $10.3 million to $10.0 million. The decrease
in money market and NOW accounts primarily resulted from the
fluctuating balances of public funds providers accounts.
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
September 30, 1999, and December 31, 1998 respectively, these liquid
assets totaled $50.4 million and $52.3 million. During periods in
which the Company is not able to originate a sufficient amount of
loans and/or periods of high principal prepayments, the Company
increases its liquid assets by investing in short-term U. S.
Government and agency securities.
Liquidity management is both a daily and long-term function of
management strategy. Excess funds are generally invested in
short-term investments. In the event the Company requires funds
beyond its ability to generate them internally, additional funds are
generally available through the use of FHLB advances, a line of
credit with the FHLB or through sales of securities. At September
30, 1999, the Company had outstanding FHLB advances of $10.4 million
and had $3.1 million outstanding on its $17.5 million line of
credit. Additionally, the Company has guaranteed a loan made to the
Company's Employee Stock Ownership Plan (the "ESOP") with an
outstanding balance of $210,204 at September 30, 1999, to fund the
ESOP's purchase of shares in the Company's common stock offering in
1993. The total borrowings by the Company were $14.7 million at
September 30, 1999, compared to $6.5 million at December 31, 1998.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 September 30, 1999, the Bank continued to maintain a sound
Tier 1 capital ratio of 8.64% and a risk based capital ratio of
15.56%. As shown by the following table, the Bank's capital exceeded
the minimum capital requirements (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, 1999
------------------
Amount Percent Required
---------------------------------
Tier 1 Capital $12,216 8.64% 4.00%
Risk Based Capital 13,283 15.56% 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.
Recent Regulatory Developments/Pending Legislation. On November
4, 1999, the United States Congress approved legislation 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. Under the Gramm-Leach-Bliley Act (the"Act"), a
bank holding company that elects to become a financial holding
company may engage in any activity that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines by
regulation or order is (i) financial in nature, (ii) incidental to
any such financial activity, or (iii) complementary to any such
financial activity and does not pose a substantial risk to the safety
or soundness of depository institutions or the financial system
generally. The Act specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring,
investing for others, or safeguarding money or securities;
underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a
market in, securities; and any activity currently permitted for bank
holding companies by the Federal Reserve Board under section 4(c)(8)
of the Bank Holding Company Act. A bank holding company may elect to
be treated as a financial holding company only if all depository
institution subsidiaries of the holding company are well-capitalized,
well-managed and have at least a satisfactory rating under the
Community Reinvestment Act.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for a
financial holding company (as described above) and any activity that
the Secretary of the Treasury, in consultation with the Federal
Reserve Board, determines is financial in nature or incidental to any
such financial activity, except (i) insurance underwriting, (ii) real
estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio
investments and (iv) merchant banking. The authority of a national
bank to invest in a financial subsidiary is subject to a number of
conditions, including, among other things, requirements that the bank
must be well-managed and well-capitalized (after deducting from
capital the bank's outstanding investments in financial
subsidiaries). The Act provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same conditions
that apply to national bank investments in financial subsidiaries.
The Act must be signed by the President before it will take
effect. At this time, the Company is unable to predict the impact the
Act may have on the Company and its subsidiaries.
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. Testing on non-mission critical
items was completed as of 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 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.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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
and tested by the Company to provide for reducing the business
interruption of normal business operation in the event of a Year 2000
related failure. This plan continues to be evaluated and revised if
necessary, based on testing results and vendor notifications.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
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 August 31, 1999
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 for the next 12 month period as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$ change in net % of net
Scenario interest income int. income
------------------- ----------
200 basis point rising ($379,080) (7.74%)
200 basis point falling $468,960 9.58%
</TABLE>
The Company believes that no significant changes in its interest
rate sensitivity position have occurred since August 31, 1999. 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.
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995. This quarterly report contains certain forward
looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project" or similar expressions.
The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which
could have a material adverse affect on the operations and future
prospects of the Company and the subsidiary include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the
U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market
area and accounting principles, policies and guidelines. These risks
and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its
business, including additional factors that could materially affect
the company's financial results, is included in the Company's filings
with the Securities and Exchange Commission.
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Company or its subsidiaries is a party other than
ordinary routine litigation incidental to their respective
businesses.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
Exhibit 27. Financial Data Schedule.
B. Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MNB BANCSHARES, INC.
Date: November 10, 1999 __________________________________
Patrick L. Alexander
President and Chief Executive Officer
Date: November 10, 1999 __________________________________
Mark A. Herpich
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,404,688
<INT-BEARING-DEPOSITS> 2,300,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,674,128
<INVESTMENTS-CARRYING> 1,891,300
<INVESTMENTS-MARKET> 1,897,000
<LOANS> 84,211,706
<ALLOWANCE> 1,235,237
<TOTAL-ASSETS> 141,456,403
<DEPOSITS> 112,038,717
<SHORT-TERM> 7,085,000
<LIABILITIES-OTHER> 1,485,784
<LONG-TERM> 7,617,355
0
0
<COMMON> 14,493
<OTHER-SE> 13,215,054
<TOTAL-LIABILITIES-AND-EQUITY> 141,456,403
<INTEREST-LOAN> 5,000,638
<INTEREST-INVEST> 1,974,827
<INTEREST-OTHER> 71,251
<INTEREST-TOTAL> 7,046,716
<INTEREST-DEPOSIT> 3,225,794
<INTEREST-EXPENSE> 3,672,608
<INTEREST-INCOME-NET> 3,374,108
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 7,147
<EXPENSE-OTHER> 3,132,243
<INCOME-PRETAX> 1,005,555
<INCOME-PRE-EXTRAORDINARY> 664,198
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,198
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 3.49
<LOANS-NON> 472,810
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,291,901
<CHARGE-OFFS> 100,342
<RECOVERIES> 43,678
<ALLOWANCE-CLOSE> 1,235,237
<ALLOWANCE-DOMESTIC> 941,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 293,644
</TABLE>
