SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 21549
FORM 10-K
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, 1999
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.
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(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
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(Address of principal executive offices) (Zip Code)
(785) 565-2000
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
None 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 28, 2000 was $5,588,171.* At March 28, 2000, the
total number of shares of common stock outstanding was 1,443,622.
Documents incorporated by Reference:
Portions of the 1999 Annual Report to Stockholders for the fiscal year
ended December 31, 1999, 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 17, 2000, 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 28, 2000, 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.
<PAGE>
MNB BANCSHARES, INC.
1999 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
<PAGE>
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. On January 6, 2000, the Company
opened an in-store supermarket branch in Manhattan, Kansas. On March 29, 2000
the Company announced an agreement to purchase the Wamego and Osage City,
Kansas branches of Commercial Federal Bank, with total deposits of approximately
$17 million.
As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Company is also subject to various reporting requirements of the Securities
and Exchange Commission (the "SEC").
Pursuant to the Conversion, the Bank succeeded to all of the assets and
liabilities of the Association. The Association was organized as a
Kansas-chartered mutual building and loan association in 1885, and converted to
a federally chartered mutual savings and loan association in 1938. The Bank is
principally engaged in the business of attracting deposits from the general
public and using such deposits, together with borrowings and other funds, to
originate consumer, commercial, multi-family, and one-to-four family residential
mortgage loans in the Bank's principal lending areas, consisting primarily of
Manhattan, Auburn, Topeka, and Osage City, Kansas and the surrounding
communities in Riley, Pottawatomie, Shawnee and Osage Counties in Kansas. Since
Conversion, the Bank has focused on originating greater numbers and amounts of
consumer, commercial, and agricultural loans. Additionally, greater emphasis has
been placed on diversification of the deposit mix through expansion of core
deposit accounts such as checking, savings, and money market accounts. The Bank
has also diversified its geographical markets with the acquisitions of Auburn
and Osage City and the establishment of the branch facility in Topeka.
The results of operations of the Bank are dependent primarily upon net
interest income and, to a lesser extent, upon other income derived from loan
servicing fees and customer deposit services. Additional expenses of the Bank
include general and administrative expenses such as salaries, employee benefits,
federal deposit insurance premiums, data processing, occupancy and related
expenses.
Deposits of the Manhattan branch of the Bank are insured by the Savings
Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum amount allowable under applicable
federal laws and regulations. Deposits of the remaining branches of the Bank are
insured by the Bank Insurance Fund (the "BIF"). The Bank is regulated by the
Office of the Comptroller of the Currency (the "OCC"), as the chartering
authority for national banks, and the FDIC, as the administrator of the SAIF and
the BIF. The Bank is also subject to regulation by the Federal Reserve Board
with respect to reserves required to be maintained against deposits and certain
other matters. The Bank is a member of the Federal Reserve Bank of Kansas City
and the Federal Home Loan Bank (the "FHLB") of Topeka.
The Company's executive office is located at 800 Poyntz Avenue, Manhattan,
Kansas 66502. Its telephone number is (785) 565-2000.
MARKET AREA
The Bank's home office is located at 800 Poyntz Avenue, Manhattan, Kansas,
with branches located at 1741 N. Washington, Auburn, Kansas; 6100 SW 21st
Street, Topeka, Kansas, 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 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. Under
the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, securities firms
and insurance companies that elect to become financial holding companies may
acquire banks and other financial institutions. The Gramm-Leach-Bliley Act may
significantly change the competitive environment in which the Company and the
Bank conduct business. The financial services industry is also likely to become
more competitive as further technological advances enable more companies to
provide financial services. These technological advances may diminish the
importance of depository institutions and other financial intermediaries in the
transfer of funds between parties.
EMPLOYEES
At December 31, 1999, the Bank had a total of 64 employees (60 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
On November 12, 1999, President Clinton signed legislation that will 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, 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 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.
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, 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.
At this time, it is not possible to predict the impact the Act may have on
the Company. Various bank regulatory agencies have just begun issuing
regulations as mandated by the Act. The Federal Reserve has issued an interim
rule that sets forth procedures by which bank holding companies may become
financial holding companies, the criteria necessary for such a conversion, and
the Federal Reserve's enforcement powers should a holding company fail to
maintain compliance with the criteria. The OCC has issued a final rule
discussing the procedures by which national banks may establish financial
subsidiaries as well as the qualifications and safeguards that will be required.
In addition, in February, 2000, all federal bank regulatory agencies jointly
issued a proposed rule that would implement the financial privacy provisions of
the Act.
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 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,
1999, the Company's total capital of $13.3 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 Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company
is subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is a national bank, chartered by the OCC under the
National Bank Act. The 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, 1999, BIF and SAIF assessments ranged
from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 2000, 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 BIF
members and SAIF 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. 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, 1999, the FICO assessment rate
for SAIF members ranged between approximately 0.058% of deposits and
approximately 0.061% of deposits, while the FICO assessment rate for BIF members
ranged between approximately 0.0116% of deposits and approximately 0.0122% of
deposits. During the year ended December 31, 1999, the Bank paid FICO
assessments totaling $45,000.
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, 1999, the Bank paid supervisory assessments to the OCC
totaling $46,000.
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, 1999, 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, 1999, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 8.88% and a risk-based capital
ratio of 14.84%.
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, 1999, 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, 1999. 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, 1999, approximately $.4
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. Since the fourth quarter of 1998, and through the first quarter of
2000, the federal banking regulators have 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 banks have
the authority to engage in interstate mergers to the extent permitted by the
Riegle-Neal Act.
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 $44.3 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $44.3 million, the reserve
requirement is $1.329 million plus 10% of the aggregate amount of total
transaction accounts in excess of $44.3 million. The first $5.0 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.
<PAGE>
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 1999 Annual Report to Stockholders (attached as Exhibit 13.1). 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 1999 VS 1998 DECEMBER 1998 VS 1997
INCREASE/(DECREASE) ATTRIBUTABLE TO INCREASE/(DECREASE) ATTRIBUTABLE TO
-------------- ------------
<S> <C> <C> <C> <C> <C> <C>
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
(Dollars in thousands) (Dollars in thousands)
Interest income:
Investment securities $(113) $(144) $(257) $ 992 $ (80) $ 912
Loans (70) (411) (481) 1,429 19 1,448
------ ----- ------ ------ --- -----
Total (183) (555) (738) 2,421 (61) 2,360
------ ----- ------ ------ ---- -----
Interest expense:
Deposits $(296) $(454) $(750) $1,296 $(111) $1,185
Other borrowings 198 (53) 145 334 36 370
---- ----- ---- ---- --- ---
Total (98) (507) (605) 1,630 (75) 1,555
----- ----- ------ ------ ---- -----
NET INTEREST INCOME $ (85) $ (48) $ (133) $ 791 $ 14 $ 805
======= ======== ========= ========= ======= =======
</TABLE>
<PAGE>
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,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Investment securities:
U.S. government and agency obligations $ 18,622 $18,062 $26,087
Mortgage-backed securities 16,088 21,121 11,401
Municipal bonds 8,861 8,690 3,097
Bankers' acceptances - 1,140 108
FHLB, Federal Reserve, and Bankers Bank of
KANSAS STOCK 1,434 1,638 1,386
------ ------ -----
TOTAL $45,005 $50,651 $42,079
======= ======= =======
</TABLE>
As of December 31, 1999, 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 Through Five Through Ten Total
Less Years Years
------------ -------------- --------------- ------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<C> <S> <S> <S> <S> <S> <S> <S> <S>
U.S. government and agency securities $ 8,704 6.00% $ 9,919 6.40% $ - - $ 18,622 6.22%
Mortgage-backed securities 5,621 6.00% 9,751 6.05% 716 6.60% 16,088 6.06%
Municipal bonds 1,422 4.13% 7,043 4.21% 395 4.71% 8,861 4.22%
FHLB, FEDERAL RESERVE, AND BANKERS
Bank of Kansas Stock - -% - - 1,434 7.00% 1,434 7.00%
----- ---- ------ ------ ----- ----- ----- -----
TOTAL $15,747 5.84% $26,713 5.70% $2,545 6.70% $45,005 5.79%
====== ===== ======= ===== ====== ===== ======= =====
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, 1999.
</TABLE>
<PAGE>
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
1999 1998 1997
---------------------- ---------------------- ---------------------
Percent Percent Percent
of of of
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential one-to-four family (1) $ 27,877 31.78% $ 25,814 34.39% $ 37,218 41.95%
Multi-family 8,185 9.33 4,355 5.80 4,758 5.36
COMMERCIAL REAL ESTATE(2) 23,450 26.73 21,118 28.14 20,713 23.35
------ ----- ------- -------- ------- -----
Total real estate loans 59,512 67.84 51,287 68.33 62,689 70.66
Consumer loans 7,169 8.17 5,818 7.75 6,357 7.16
Commercial non-real estate loans 20,483 23.35 17,131 22.83 18,305 20.63
Student loans 1,877 2.14 2,388 3.18 2,887 3.25
Less:
Unearned fees, discounts and premiums 67 0.08 88 0.12 120 0.18
Undisbursed loan funds 5 0.01 191 0.25 59 0.01
ALLOWANCE FOR LOAN LOSSES 1,249 1.42 1,292 1.72 1,335 1.51
----- ---- ------ ------- ------ ----
TOTAL LOANS $87,720 100.00% $ 75,053 100.00% $ 88,724 100.00%
======= ======= ====== ======= ======= ======
(1) Includes loans held for sale totaling $751,000, $756,000 and $744,000
at December 31, 1999, 1998 and 1997, respectively.
(2) Includes construction loans totaling $3,807,000, $3,807,000 and $2,162,000
at December 31, 1999, 1998 and 1997 respectively.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the contractual maturities of loans at
December 31, 1999. The table does not include unscheduled prepayments.
At December 31, 1999
----------------------------------------------------------------
(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 $ 9,327 $1,890 $4,013 $10,736 $24,029 $7,081 $57,076
Other loans 10,543 6,693 11,671 2,347 619 92 31,965
------- ------ ------- ------ ------ ------ -------
TOTAL $19,870 $8,583 $15,684 $13,083 $24,648 $7,173 $89,041
------- ------ ------- ------- ------- ------ -------
Less:
Unearned Discounts and
deferred loan fees 67
Undisbursed loan funds 5
Allowance for LOAN LOSSES 1,249
-----
LOANS, NET $87,720
=======
</TABLE>
The following table sets forth at December 31, 1999 the dollar amount of
all loans due after December 31, 2000 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 $ 6,918 $ 30,831 $ 47,749
OTHER LOANS 13,340 8,082 21,422
------ ------ -------
TOTAL $30,258 $ 38,913 $ 69,171
========== ========== =========
</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, 1999,
interest earned on such loans during the year ended December 31, 1999 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,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total non-accrual loans $ 466 $ 144 $ 172 $ 140 $ 39
Real estate owned ("REO") 60 - 125 27 5
--- ---- ---- --- --
TOTAL NONPERFORMING ASSETS $ 526 $ 144 $ 297 $ 167 $ 44
====== ===== ====== ====== ======
Nonperforming assets to
total adjusted loans 0.60% 0.19% 0.34% 0.27% 0.07%
Nonperforming assets to total assets 0.37% 0.11% 0.21% 0.16% 0.04%
total assets
Allowance for loan
losses to non-Performing assets 237.45% 897.22% 448.89% 490.88% 1,871.30%
</TABLE>
<PAGE>
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,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of year $ 1,292 $ 1,335 $ 820 $ 826 $ 562
Provision for loan losses:
Mortgage loans - 17 18 4 23
Non-mortgage loans 15 73 42 11 17
-- --- --- --- --
Total provision for loan losses 15 90 60 15 40
-- --- --- --- --
Allowance for loans of acquired bank:
Allowance for mortgage loans
of acquired bank - - 92 - 103
Allowance for non-mortgage loans - - 369 - 126
of accquired bank ----- ---- ---- ---- ---
Total of allowance for loans of - - 461 - 229
acquired bank ---- ---- ---- ---- ---
Recoveries:
Mortgage loans 29 15 1 - 8
Non-mortgage loans 27 23 10 6 16
-- --- --- -- --
Total recoveries 56 38 11 6 24
-- --- --- -- --
Charge-offs:
Mortgage loans 26 9 - 1 10
Non-mortgage loans 88 162 17 26 19
-- ---- --- --- --
Total charge-offs 114 171 17 27 29
--- ---- --- --- --
BALANCE AT END OF YEAR $1,249 $1,292 $1,335 $820 $826
====== ====== ====== ==== =====
Ratio of allowance for loan losses
to total outstanding loans (gross) 1.41% 1.70% 1.48% 1.29% 1.30%
Ratio of net charge-offs during the
year to average loans outstanding
during the year 0.07% 0.16% 0.01% 0.03% 0.01%
Ratio of allowance for loan losses
to total NON-PERFORMING LOANS 268.03% 897.22% 773.92% 584.91% 2107.57%
======= ======= ====== ======= ========
</TABLE>
<PAGE>
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,
-----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to to to
Total Total Total
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allocated to:
Mortgage loans $ 512 41% $ 509 39% $ 486 36%
Non-mortgage loans 737 59 783 61 849 64
--- --- ---- ---- --- ---
TOTAL 1,249 100% $ 1,292 100% $ 1,335 100%
======== ==== ======= ==== ======= ====
</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,
---------------------------------------------------------------
1999 1998 1997
----------------------- ---------------------- ----------------------
Average Percent AverageAverage PercentAverage AveragePercent Average
of of of
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 $ 9,950 8.88% 0.00% $10,677 8.94% 0.00% $7,235 8.23% 0.00%
Money market deposits 16,311 14.56% 3.62% 17,866 14.97% 3.63% 15,378 17.50% 3.76%
Checking/NOW 20,851 18.62% 2.73% 23,217 19.45% 3.73% 13,513 15.37% 3.75%
Savings 10,561 9.43% 3.21% 9,357 7.84% 3.11% 5,100 5.80% 2.44%
CERTIFICATES OF deposit 54,334 48.51% 5.13% 58,261 48.80% 5.54% 46,666 53.09% 5.66%
------ ------ ----- ------ ------ ----- ------ ------ -----
TOTAL DEPOSITS $112,007 100.00% 3.83% $119,378 100.00% 4.22% $87,892 100.00% 4.38%
======== ============ ======== ======= ===== ======= ======= ====
</TABLE>
<PAGE>
As of December 31, 1999, the aggregate amount outstanding of jumbo certificates
of deposit (amounts of $100,000 or more) was $10.9 million. The following table
presents the maturities of these time certificates of deposit at such date:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
3 months or less $ 3,749
Over 3 months through 6 months 1,311
Over 6 months through 12 months 2,823
Over 12 months 3,015
------
TOTAL $ 10,898
===============
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
<TABLE>
At or for the years ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Return on average assets .... 0.65 0.69 1.03 0.70 0.78%
Return on average equity .... 6.82 7.73 9.18 6.54 7.48
Equity to total assets ...... 9.28 9.75 8.48 10.96 10.68
Dividend payout ratio ....... 40.98 35.71 31.00 27.43 19.08
Net earnings per share, basic (1) $ .63 $ .69 $ .76 $ .50 $ .55
Net earnings per share, diluted(1) .61 .66 .73 .49 .53
(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>
<PAGE>
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 1999 Annual Report to Stockholders for the fiscal year ended December
31, 1999 (attached as Exhibit 13.1).
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 1999 Annual Report to Stockholders for the fiscal
year ended December 31, 1999 (attached as Exhibit 13.1).
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 1999 Annual
Report to Stockholders for the fiscal year ended December 31, 1999 (attached as
Exhibit 13.1).
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 1999
Annual Report to Stockholders for the fiscal year ended December 31, 1999
(attached as Exhibit 13.1).
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 17, 2000 (the "2000 Proxy Statement") (attached
as Exhibit 99.1).
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 1999.
EXECUTIVE OFFICERS
The executive officers of the Company, each of whom is also currently an
executive officer of the Bank and both of whom serve at the discretion of the
Board of Directors, are identified below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
<S> <C> <C>
Patrick L. Alexander 47 President and Chief Executive Officer
Mark A. Herpich 32 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 2000
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 2000 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 2000 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 1999 Annual Report to Stockholders for the fiscal
year ended December 31, 1999 (attached as Exhibit 13.1).
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Earnings - Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997
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. The Company's filings with
the Securities and Exchange Commission are also available via the Internet at
www.sec.gov.
<PAGE>
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 Mark A. Herpich
President and Chief Executive Officer 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 TITLE
<S> <C> <C>
/s/ Patrick L. Alexander March 22, 2000 President, Chief Executive
Officer and Director
- ------------------------------ ----------------
Patrick L. Alexander Date
/s/ Brent A. Bowman March 22, 2000 Chairman of the Board
- ------------------------------ ----------------
Brent A. Bowman Date
/s/ Joseph L. Downey March 22, 2000 Director
- ------------------------------ ----------------
Joseph L. Downey Date
/s/ Charles D. Green March 22, 2000 Director
- ------------------------------ ----------------
Charles D. Green Date
/s/ Vernon C. Larson March 22, 2000 Director
- ------------------------------ ----------------
Vernon C. Larson Date
/s/ Jerry R. Pettle March 22, 2000 Director
- ------------------------------ ----------------
Jerry R. Pettle Date
/s/Susan E. Roepke March 22, 2000 Director
- ------------------------------ ----------------
Susan E. Roepke Date
/s/ Donald J. Wissman March 22, 2000 Director
- ------------------------------ ----------------
Donald J. Wissman Date
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
<S> <C> <C>
3.1 Articles of Incorporation of the Company-- N/A
Incorporated by reference from Exhibit 3.1
of the Form S-1 of the Company, as amended,
filed on September 3, 1992 (Registration No.
33-51710)
3.2 Bylaws of the Company--Incorporated by N/A
reference from Exhibit 3.2 of the
Form S-1 of the Company, as amended,
filed on September 3, 1992
(Registration No. 33-51710)
4.1 Specimen Common Stock Certificate of the N/A
Company--Incorporated by Reference from
Exhibit 4.1 of the Form S-1 of the Company,
as amended, filed on September 3, 1994
(Registration No. 33-51710)
10.1 MNB Bancshares, Inc. 1992 Stock Option N/A
Plan--Incorporated by reference from
Exhibit A to the Company's Proxy
Statement for the Annual Meeting of
Stockholders held May 17, 1994
10.2 Stock Option Agreement between the Company N/A
and Patrick L. Alexander--Incorporated by
reference from Exhibit 10.2 to Form 10-K dated
March 26, 1994
10.3 Stock Option Agreement between the Company N/A
and Vernon C. Larson--Incorporated by
reference from Exhibit 10.3 to Form 10-K dated
March 26, 1994
10.4 Stock Option Agreement between the Company N/A
and Brent A. Bowman--Incorporated by
reference from Exhibit 10.4 to Form 10-K dated
March 26, 1994
<PAGE>
10.5 Stock Option Agreement between the Company N/A
and Charles D. Green--Incorporated by
reference from Exhibit 10.6 to Form 10-K dated
March 26, 1994
10.6 Stock Option Agreement between the Company N/A
and Jerry R. Pettle--Incorporated by
reference from Exhibit 10.9 to Form 10-K dated
March 26, 1994
10.7 Stock Option Agreement between the Company N/A
and Susan E. Roepke--Incorporated by
reference from Exhibit 10.11 to Form 10-K dated
March 26, 1994
10.8 Stock Option Agreement between the Company N/A
and Michael R. Toy--Incorporated by
reference from Exhibit 10.13 to Form 10-K dated
March 26, 1994
10.9 Stock Option Agreement between the Company N/A
and Dennis D. Wohler--Incorporated by
reference from Exhibit 10.14 to Form 10-K dated
March 26, 1994
10.10 Employment Agreement among the Company, N/A
Security National Bank and Patrick L.
Alexander--Incorporated by reference from
Exhibit 10.15 to Form 10-K dated March 26,
1994
10.11 Security National Bank Deferred Compensation N/A
Plan, dated December 21, 1994--Incorporated by reference
from Exhibit 10.20 dated March 26, 1994
<PAGE>
10.12 Stock Option Agreement between the Company N/A
and Michael E. Scheopner--Dated
May 13, 1996
Incorporated by reference from
Exhibit 10.15 to Form
10-K dated March 31, 1997.
10.13 Stock Option Agreement between the Company N/A
and Mark A. Herpich--Dated November 4, 1998
10.14 Stock Option Agreement between the Company N/A
and Dean R. Thibault--Dated November 4, 1998
10.15 Stock Option Agreement between the Company N/A
and David Salisbury--Dated November 4, 1998
10.16 Stock Option Agreement between the Company N/A
and Sandra Falen--Dated November 4, 1998
10.17 Stock Option Agreement between the Company N/A
and Marcia Kemper--Dated November 4, 1998
10.18 Stock Option Agreement between the Company
and Kerry L.Thompson - Dated August 31, 1999
13.1 1999 Annual Report to Stockholders of the Company
for the fiscal year ended December 31, 1999
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 17, 2000
</TABLE>
<PAGE>
EXHIBIT 10.18
MNB BANCSHARES, INC.
1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. A STOCK OPTION TO ACQUIRE 262 shares (hereinafter referred to as
"Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as
THE "COMPANY") IS HEREBY GRANTED TO KERRY THOMPSON (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 Twelve Dollars and 38.1/100 ($12.381) per Share.
4. This Option may be exercised in accordance with the following
table:
NUMBER OF SHARES
DATE EXERCISABLE
------ -----------
1/25/2000 53
1/25/2001 53
1/25/2002 52
1/25/2003 52
1/25/2004 52
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: August 31, 1999.
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: August 31, 1999
BY: ____________________
Optionee
(To be executed in duplicate)
<PAGE>
CORPORATE PROFILE
MNB Bancshares, Inc. is a bank holding company which is headquartered in
Manhattan, Kansas. Its wholly-owned subsidiary, Security National Bank, also has
its home office in Manhattan, Kansas, with branch offices operating in Auburn,
Osage City, and Topeka, Kansas. Security National 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.
MNB Bancshares 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 Security
National Bank, which was converted from a federal mutual savings association.
Since its listing on Nasdaq, MNB Bancshares 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 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.
<PAGE>
TO OUR STOCKHOLDDERS, CUSTOMERS, AND FRIENDS:
The completion of a solid foundation was accomplished in 1999 that will
enable MNB Bancshares, Inc. to leverage its resources and resume its history of
growth and enhancement of stockholder value. We have assembled an extraordinary
management team, witnessed outstanding growth in our loan portfolio, maintained
high asset quality, and are prepared to launch several new financial services in
the year 2000. On January 6, 2000 we opened our first in-store supermarket
branch bank. We announced on March 29, 2000 an agreement to purchase bank
branches in Wamego and Osage City, Kansas. We were disappointed that 1999
earnings fell slightly from the previous year to $904,000. However, I think that
you too will be excited about our future as you review this report and hear
about our upcoming plans.
Net loans outstanding at year-end 1999 totaled $87.7 million versus $75.1
million at year-end 1998. This is an increase of 17 percent. This growth
reflects the efforts of our talented lending staff and the success that they
have had in developing relationships with both our retail and commercial
customers and prospects. Commercial and commercial real estate loans grew from
$42.6 million to $52.1 million during the last 12 months. Consumer and home
equity loans, exclusive of student loans, grew from $6.7 million at December 31,
1998 to $8.8 million at year-end 1999. This is an annual growth rate of 22 and
32 percent respectively on these two portfolios. At the same time this growth
was occurring we were successful in reducing classified loans from $2.0 million
at year-end 1998 to $0.8 million at year-end 1999. Classified loans equaled .92
percent of total loans at December 31, 1999. The continued diversification of
our loan portfolio further reduces our dependence upon 1-4 family residential
loans and the resultant volatility in earnings as originations, pre-payments,
and gains on sale of these loans fluctuate dramatically with changes in interest
rates. The growth of our consumer and commercial loan portfolios in 1999 should
position us well for continued advances in core earnings for the upcoming years.
While it may be difficult to duplicate these outstanding growth rates in 2000,
we feel confident that this momentum will continue and should contribute
significantly to enhance long term profitability.
As we expect to experience continued loan growth, it will be imperative
that we find ways to grow our core deposit base in a cost effective manner in
order to fund these loans. Deposit growth has become a top priority for your
company. This was a key consideration as we committed to opening our first
in-store supermarket branch bank in the Dillons Supermarket located in the
Westloop Shopping Center in Manhattan, Kansas. We felt that this would be an
outstanding opportunity to differentiate ourselves based upon convenience and an
aggressive retail sales culture. We have staffed this facility with
enthusiastic, outgoing individuals who are dedicated to establishing banking
relationships with the numerous people who frequent this leading supermarket in
the Manhattan area. We are confident that their efforts will allow us to expand
our deposit base in a cost effective manner and also provide numerous
opportunities to cross sell other bank services to these patrons. We anticipate
that we will continue to explore additional in-store branch banking
opportunities to assist us in expanding our penetration into the retail banking
market and contribute to the growth of our core deposits.
The acquisition of the Wamego and Osage City branches presents an
outstanding opportunity for your company. The Wamego branch, with $7 million in
deposits, will be an excellent complement to our Manhattan locations as the
Highway 24 corridor continues to develop with the completion of the four-lane
project between the two communities. Many people who live in Wamego work and
shop in Manhattan as it takes less than 15 minutes to travel from Manhattan to
Wamego. As a result of the development of this transportation corridor, the
residential and commercial growth that is taking place between the two
communities is significant and accelerating. We expect that having banking
locations in both communities will allow our bank to take a leadership role in
providing banking services to this expanding market. The Osage City branch
provides us with approximately $10 million in deposits which we will be able to
assimilate into our existing branch with very little in additional overhead or
expense. The acquisition of this branch will further strengthen our dominant
position in the Osage City market. In addition to the strategic value that these
branches provide to us, the acquisition of approximately $17 million in deposits
will offer liquidity to assist in our funding needs as we anticipate continued
asset growth in the future.
In March we unveiled our Internet banking program and services. This
initiative will give both our retail and commercial banking customers tremendous
convenience and flexibility in accessing their banking accounts and in the
management of their financial affairs. This service will allow for automated
bill payment, cash management, loan applications and new account openings, as
well as providing access to several other financial products and management
tools. Our program will also interface with several of the popular money
management software programs on the market today. Not only will this service
provide the convenience that many of our customers have requested, it will also
allow us to market ourselves to the ever increasing number of people who do more
and more of their shopping and market research on the Internet. We feel that
this service properly positions us for the increasingly important role that
technology will play in our lives, financial and otherwise.
Over the past year we have made tremendous strides in the diversification
of our asset base, and over the last several years have greatly reduced our
dependence upon one to four family residential loans. However, as I am sure you
are aware, competition remains keen in the financial service market place.
Competition for loans and deposits is having the effect of reducing net interest
margins. This development makes it imperative that we find ways to grow our
operations, and at the same time have minimal increases in non-interest expense.
We feel that we have the talent in place to do that and will focus on
accomplishing that goal. It will also be critical that we find ways to enhance
our non-interest income through the sales of financial products that create fee
income. One of our goals in 2000 is to identify and implement the sales of
products and services that will positively impact our fee income with minimal
incremental expense. In March we initiated an overdraft privilege program to
enhance our checking account services and protect our customers from having
checks returned in the event that they inadvertently overdraw their checking
account. We will manage this service in a very disciplined manner and expect
that the fees we receive will more than compensate for the higher losses we
incur from increased overdraft activity. We also anticipate that we will explore
avenues to introduce securities brokerage services and the sale of insurance
products to our customers without incurring significant incremental expenses in
the implementation of these services.
Profitable growth is imperative for your company to prosper in the
upcoming years. The customer will require that we have the financial products to
meet their needs in a competitive manner. We intend to provide these products to
our customers. However, the concept of market based banking and local decision
making remains a principal upon which your company operates daily. It is
imperative that we maintain our focus on the customer and meet their needs
responsively and timely. Our staff is dedicated to community banking and the
delivery of all the benefits that a community bank can offer. Not only are we
dedicated to our customers, but we are also dedicated to the communities in
which we serve. We recognize that when our customers and communities prosper, so
does your company.
In February 2000 your Board of Directors approved a stock repurchase
program authorizing your company to repurchase up to five percent of our
outstanding stock. The last year has not been kind to the valuations of
financial institution stocks, as we have seen industry stock values decline
significantly. MNB Bancshares, Inc. has not been immune to these influences. We
feel very confident in the future of your Company and feel that our stock
represents an extremely good value. That is why we feel that it is in your
Company's and our stockholder's best interests to implement this repurchase
program.
We are excited about your company and its future. The tireless efforts of
all of my associates have made this success, growth, and excitement possible. I
would like to personally thank them for their contributions. I also would 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
stockholder value. We look forward to the opportunities and the challenges of
2000.
Sincerely,
Patrick L. Alexander
President and Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA OF MNB BANCSHARES, INC.
At or for the years
ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except
per share amounts and percentages)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
- -----------------------
Total assets $143,262 $135,830 $144,752 $103,420 $101,185
Loans (1) 87,720 75,053 88,724 62,549 62,582
Investment securities 45,005 50,651 42,079 33,239 32,329
Deposits 112,336 115,062 122,209 86,710 86,399
Borrowings 16,699 6,530 9,099 3,615 2,881
Stockholders' equity 13,290 13,242 12,276 11,334 10,810
Book value per share (2) 9.17 9.22 8.69 8.10 7.71
SELECTED OPERATING DATA:
Total interest income $9,551 $10,289 $7,929 $7,670 $7,051
Total interest expense 4,988 5,593 4,038 4,049 3,820
Net interest income 4,563 4,696 3,891 3,621 3,231
Provision for loan losses 15 90 60 15 40
Net interest income after
provision for loan losses 4,548 4,606 3,831 3,606 3,191
Gains on sales of loans 141 384 99 75 95
Other noninterest income 861 828 591 608 432
Total noninterest income 1,002 1,212 690 683 527
Total noninterest expense 4,183 4,358 2,977 3,233 2,618
Income tax expense 463 478 471 339 347
Net earnings $904 $982 $1,073 $ 717 $ 753
Net earnings per share (2):
Basic .63 .69 .76 .50 .55
Diluted (3) .61 .66 .73 .49 .53
Dividends per share (2) .25 .24 .23 .13 .10
OTHER DATA:
Return on average assets .65% .69% 1.03% 0.70% 0.78%
Return on average equity 6.82 7.73 9.18 6.54 7.48
Equity to total assets 9.28 9.75 8.48 10.96 10.68
Net interest rate spread(4) 2.92 2.93 3.11 2.95 2.78
Net yield on average
interest-earning assets (5) 3.49 3.52 3.89 3.67 3.55
Average interest-earning assets to
average interest-bearing liabilities 114.85 114.17 119.29 117.37 114.73
Other expenses to average assets 3.03 3.07 2.86 3.15 2.71
Nonperforming loans to total loans 0.53 0.19 0.19 0.22 0.06
Net charge-offs to average loans 0.07 0.16 0.01 0.03 0.01
Nonperforming assets to total assets 0.33 0.11 0.21 0.16 0.04
Dividend payout ratio 40.98 35.71 31.00 27.43 19.08
Number of full service banking offices 4 4 5 2 2
(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 $0.69 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>
<PAGE>
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. On January 6, 2000, the Company
opened an in-store supermarket branch in Manhattan, Kansas. The Company also
announced an agreement to purchase the Wamego and Osage City, Kansas branches of
Commercial Federal Bank on March 29, 2000.
The Company achieved net earnings of $904,239 in 1999, a decline of $77,789,
or 7.9%, over 1998. 1999 earnings declined as the Company repositioned itself
for continued growth, profitability and financial strength through the continued
strengthening of management and systems infrastructure directed to the
development of core earnings with less reliance on residential mortgage loan
origination and the resulting gains on sale of loans. The return on average
assets was .65% compared to .69% in 1998. Return on average equity was 6.82% and
diluted net earnings per share was $.61. Consistent with 1998, the Board of
Directors declared cash dividends of twenty-five cents per share and a five
percent stock dividend in 1999. On March 16, 2000, the Company announced the
approval of a stock repurchase program enabling the Company to repurchase up to
72,465 shares of its outstanding stock in the open market or through privately
negotiated transactions.
The tradition of quality assets continues and management's ongoing strategy
to diversify the deposit and loan portfolios in order to increase profitability
continues to progress and show results. 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 either 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, Manhattan, 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.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
GENERAL. Net earnings for 1999 decreased 7.9% to $904,239 compared to $982,028
for 1998. This decrease in net earnings was primarily the result of a decrease
in average loans outstanding. Gains on sale of loans also decreased as a result
of reduced mortgage loan originations, which offset by fee and service charge
initiatives and non-interest expense savings related to the assimilation of
Freedom. Net interest income after provision for loan losses decreased $58,630,
or 1.3%, to $4.5 million. Gains on sale of loans decreased 63.2%, or $242,926,
to $141,501, fees and service charges increased $70,157 or 9.5%, to $805,616,
and non-interest expense decreased $175,795 or 4.0%, to $4.2 million.
INTEREST INCOME. Interest income decreased by $738,901, or 7.2%, to $9.6 million
in 1999. Average interest-earning assets decreased from $133.5 million in 1998
to $130.6 million in 1999. The average yield on interest-earning assets
decreased from 7.7% in 1998 to 7.3% in 1999. Interest income on loans decreased
$480,525, or 6.6%, to 6.8 million. Interest earned on securities and other
investments decreased $258,376, or 8.7%, to $2.7 million. The decrease in
interest income was due to a decrease in average loans and investments, which
was coupled with the decline in rates experienced as interest-earning assets
repriced during 1999. 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. The Company was able to counter 1998's decline in loans during
1999 by increasing commercial, commercial real estate and consumer loans by
$10.9 million. This growth was a result of successful relationships developed by
the Company's management team. Interest income on other investments decreased
substantially as a result of a decrease in funds available for short-term
overnight interest bearing deposits.
INTEREST EXPENSE. Interest expense decreased from $5.6 million in 1998 to $5.0
million in 1999, or 10.8%. Deposit interest expense decreased 14.9% to $4.3
million compared to $5.0 million for 1998. 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 $144,511, or 25.9%
during 1999. Average interest-bearing liabilities decreased $3.2 million from
$116.9 million in 1998 to $113.7 million in 1999, while the average cost
declined from 4.8% in 1998 to 4.4% in 1999. The decreased expense on deposits
was due to lower average balances and the reduction in interest rates. Interest
on borrowed funds increased as a result of borrowing to fund the Company's loan
growth.
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 decreased to $4.6 million in 1999 compared to $4.7
million in 1998. This was primarily the result of the average balance of
interest-earning assets decreasing $2.8 million during 1999. The yield on
interest-earning assets declined from 7.7% in 1998 to 7.3% in 1999, while the
cost of interest-bearing liabilities also declined forty basis points from 4.8%
in 1998 to 4.4% in 1999. The Company's ratio of interest-earning assets to
interest-bearing liabilities increased slightly from 114.2% in 1998 to 114.9% in
1999, which ultimately resulted in the net interest margin remaining flat at
3.5% in 1999 and 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased to $15,000
during 1999 compared to $90,000 in 1998. The decreased provision resulted from
some of the loans previously identified as potential concerns either paying off
or refinancing at other financial institutions during 1999. At December 31,
1999, the allowance for loan losses was $1.2 million, or 1.4% of gross loans
outstanding, compared to $1.3 million, or 1.7%, at December 31, 1998.
NONINTEREST INCOME. Noninterest income decreased $209,779, or 17.3%, to $1.0
million in 1999. Fees and service charge income increased from $735,459 to
805,616, or by 9.5%. Gains on sale of loans decreased $242,926, or 63.2% to
$141,501. Gains on sale of investment securities available for sale were
realized in the amount of $10,795 in 1998 and $7,147 in 1999 as the Company
sought to reposition its portfolio. The reduction of gains on sale of loans was
a result of decreased loan originations due to fewer higher interest rates
during the latter part of the year. The increase in fees and service charge
income was primarily a result of analyzing the fee structure of products and
services offered, making adjustments where necessary.
<TABLE>
<CAPTION>
NONINTEREST INCOME: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fees and service charges $805,616 $735,459 $506,899
Gains on sales of loans 141,501 384,427 99,381
OTHER 55,392 92,402 83,829
------ ------ ------
TOTAL NONINTEREST income: $1,002,509 $1,212,288 $690,109
========== ========== ========
</TABLE>
NONINTEREST EXPENSE. Noninterest expense decreased 4.0% to $4.2 million for
1999. This decrease was due in part to the continued assimilation of the Freedom
acquisition. Amortization of goodwill decreased 8.1% from $245,958 to $226,113
resulting from reduced core deposit amortization. Professional fees decreased
$73,708 from $212,424 to $138,716 as a result of expenses incurred in 1998 which
were not encountered in 1999 relating to the acquisition, expenses related to
Year 2000 issues and fees incurred for professional services used for acquiring
new personnel during 1998. Other operating expense decreased 7.1% to $959,875
due primarily to cost savings associated with 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, 1999, 1998 and 1997. This table reflects the
average yields on assets and average costs of liabilities for the periods
indicated (derived by dividing income or expense by the monthly average balance
of assets or liabilities, respectively) as well as the "net interest margin"
(which reflects the effect of the net earnings balance) for the periods shown.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS-AVERAGE YIELDS AND RATES
Year Ended December 31, 1999 Year Ended December 31, 1998 Year Ended December 31, 1997
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
======================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets
Investment securities (1) $50,613 $2,705 5.34% $52,686 $2,962 5.62% $35,001 $2,050 5.86%
LOANS RECEIVABLE, net (2) 80,019 6,846 8.56% 80,788 7,327 9.07 65,057 5,879 9.04
------ ----- ------ ------ ------ ----- ------ ----- ------
TOTAL INTEREST-EARNING assets 130,632 9,551 7.31% 133,474 10,289 7.71% 100,058 7,929 7.92%
------- ------- ------ ------- ------
Non interest-earning assets 7,552 8,402 4,111
------ ------ -----
TOTAL $138,184 $141,876 $104,169
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposit $54,334 $2,788 5.13% $58,261 $3,230 5.54% $46,666 $2,642 5.66%
Money market deposits 16,311 590 3.62% 17,866 648 3.63 15,378 578 3.76
Other deposits 31,413 908 2.89% 32,574 1,158 3.55 18,613 631 3.39
FHLB ADVANCES AND
Other borrowings 11,684 702 6.01% 8,212 557 6.78 3,221 187 5.81
------ ---- ----- ------ ----- ---- ------ ----- ----
TOTAL INTEREST-BEARING
liabilities 113,742 4,988 4.39% 116,913 5,593 4.78% 83,878 4,038 4.81%
------- ----- ----- ------- ----- ----- ------ ------ -----
Non interest-bearing
liabilities 11,193 12,254 8,609
Stockholders' equity 13,249 12,709 11,682
------- ------- ------
TOTAL $138,184 $141,876 $104,169
========= ======== ========
NET INTEREST INCOME $4,563 4,696 3,891
======= ====== =====
Interest rate spread (3) 2.93% 2.93% 3.11%
Net interest margin (4) 3.49% 3.52% 3.89%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 114.85% 114.17% 119.29%
======= ======= =======
(1) Income on investment securities includes all securities, interest bearing
deposits in other financial institutions and stock owned in the FHLB and the
Federal Reserve.
(2) Includes non-accrual loans.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 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 was the result of a decrease in
loans outstanding related to increased levels of home mortgage refinancing due
to lower interest rates. Additionally, expenses 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.
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.
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 39.0% to
$1,032,965 due primarily to the acquisition.
CAPITAL RESOURCES AND LIQUIDITY
ASSET QUALITY AND DISTRIBUTION. The Company's total assets were $143.3 million
at December 31, 1999 compared to $135.8 million at December 31, 1998. This
increase was primarily attributable to the 17% increase in loans experienced
during 1999, which was funded by investment proceeds and FHLB advances. 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,
1999, 1998 and 1997, the Company purchased investment securities in the amount
of $15.9 million, $27.1 million and $9.3 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, 1999, 1998 and 1997, the Company originated loans for sale of
approximately $12.3 million, $33.0 million and $14.7 million, respectively.
During the year ended December 31, 1997, 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. During 1999, the origination of fixed rate mortgage loans for resale
declined to more customary levels, however the Company was able to generate
significant commercial, commercial real estate and consumer loans resulting in
an increase in net loans of $12.8 million. During the past two years, management
has diversified the loan portfolio which will ultimately enhance the Company's
loan portfolio yields.
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION COMPARISON
Balance Balance
<S> <C> <C> <C>
TYPE 12/31/99 12/31/98 % CHANGE
- ---- -------- -------- --------
1-4 Family Residence $27,125,681 $25,058,459 8.25%
Commercial Real Estate 31,635,398 25,473,084 24.19%
Consumer & commercial 29,528,475 25,336,172 16.55%
---------- ----------
Non-Mortgage $88,289,554 $75,867,715
=========== ===========
</TABLE>
Management believes that the quality of the loan portfolio continues to be
strong. As of December 31, 1999, nineteen real estate loans were more than 30
days past due, with a total balance of $1,124,284, which was 1.3% of total loans
outstanding. Six of these loans totaling $408,838 were on non-accrual status as
of December 31, 1999. Excluding guaranteed student loans, there were twenty
consumer loans in the amount of $122,640, or less than 0.1% of the total loan
portfolio, over 30 days past due and two of these loans with a balance of $4,702
were on non-accrual. Additionally, six commercial loans totaling $232,219, or
0.2% of the total loan portfolio, were past due over 30 days. One of these
commercial loans, with a balance of $58,565, was on non-accrual.
LIABILITY DISTRIBUTION. At December 31, 1999, total deposits decreased $2.7
million from December 31, 1998. Borrowings increased $11,047,860 as FHLB
advances were obtained by the Company to fund the loan growth experienced in
1999. In addition, $830,000 was paid on funds borrowed for the Freedom
acquisition.
The deposit base has remained relatively consistent with prior year.
Noninterest-bearing demand deposits and NOW accounts at the end of 1999 totaled
$30.9 million, or 27.5% of deposits, compared to $32.9 million, or 28.6% of
deposits at December 31, 1998. Money market deposit accounts were 14.5% of the
portfolio and totaled $16.3 million, compared to $17.7 million at December 31,
1998 and savings accounts totaled $10.0 million compared to $10.3 million at
December 31, 1998. Certificates of deposit were $55.1 million, or 49.1% of the
portfolio compared to $54.2 million, or 47.1% at December 31, 1997.
Certificates of deposit at December 31, 1999, which were scheduled to mature
in one year or less totaled $40.3 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 12/31/99 12/31/98 % CHANGE
- ---- -------- -------- --------
DDA $10,124,653 $ 9,307,879 8.78%
NOW 20,819,388 23,595,955 (11.77%)
MMDA 16,253,710 17,653,265 (7.93%)
Savings 10,017,267 10,327,847 3.01%
CERTIFICATES 55,121,311 54,177,076 1.74%
---------- ----------
$112,336,329 $115,062,022
=========== ===========
</TABLE>
CASH FLOWS. Cash flows provided by operating activities equalled $1.7 million
for the year ended December 31, 1999, compared to $1.4 million in 1998. This
increase in cash flows provided by operating activities resulted from the
stabilization of loans held for sale and accrued expenses, taxes and other
liabilities.
Net cash used in investing activities was $8.5 million in 1999 compared to
net cash provided by investing activities of $2.9 million in 1998. Net loans
increased approximately $12.8 million in 1999 versus a decrease of $10.4 million
in 1998. Maturities and prepayments of investment securities held-to-maturity
were $.6 million in 1999 versus $4.3 million in 1998. Proceeds from sales of
investment securities available-for-sale were $5.9 million in 1999 versus $.6
million in 1998. No purchases of securities held-to-maturity were made in 1999
or 1998. Purchases of securities available-for-sale in 1999 were $15.9 million
compared to $27.1 million in 1997, a decrease corresponding to the increase in
net loans.
Net cash provided by financing activities was $7.2 million in 1999 compared
to $7.1 million used in 1998. Deposits decreased $2.7 million in 1999 and FHLB
advances increased $11,047,860 in 1999 compared to a decrease of $821,427 in
1998. In addition, $830,000 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, 1999 and 1998, these liquid
assets totaled $47.7 million and $52.3 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, 1999, the
Company had outstanding FHLB advances of $14,690,010 and $965,000 outstanding on
its $17.5 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 $173,847 at December 31, 1999, to fund
the ESOP's purchase of shares in the Company's 1993 common stock offering. The
total borrowings by the Company were $16.7 million at December 31, 1999, which
included $870,000 borrowed by the Company for the acquisition of Freedom,
compared to $6.5 million at December 31, 1998.
At December 31, 1999, 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 $13.3 million is, however, well
in excess of the Federal Reserve Board's consolidated minimum capital
requirements.
At December 31, 1999, the Bank continued to maintain a sound Tier 1 capital
ratio of 8.88% and a risk based capital ratio of 14.84%. As shown by the
following table, the Bank's capital exceeded the minimum capital requirements:
(dollars in thousands)
AMOUNT PERCENT REQUIRED
Tier 1 Leverage Capital $12,395 8.88% 4.00%
Risk Based Capital $13,535 14.84% 8.00%
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. The above ratios are well in excess of
regulatory minimums and should allow the Company to operate without capital
adequacy concerns. The Federal Deposit Insurance Corporation Improvement Act of
1991 establishes a bank rating system based on the capital levels of banks. The
Bank is rated "well capitalized", which is the highest rating available under
this capital-based rating system.
DIVIDENDS
During 1999, dividends of $.25 per share were paid to the stockholders and a
5% stock dividend was paid during August 1999. The cash and stock dividends are
consistent with those paid during 1998.
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, 1999. 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,
1999, approximately $419,000 was available to be paid as dividends to the
Company by the Bank.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("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, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal beginning after June 15, 2000. Management believes
adoption of SFAS Nos. 133 and 137 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 Year 2000 posed a unique set of challenges to companies reliant of
information technology. The Company utilizes and is depenndent upon data
processing systems and software to conduct its business. In 1997, the Company
established a Year 2000 committee and initiated a review and assessment of all
hardware and software issues related to the Year 2000 and the potential for
those issues to adversely affect the Company's operations.
As a result of the Company's efforts, the Company has not experienced any
business interruptions or encountered any credit or deposit customers who have
experienced adverse consequences resulting from the Year 2000. Among the
benefits derived from the time, effort and costs related to Year 2000 was a
complete review and update of the Company's disaster recovery and contingency
plans. As a result, the Company is now better prepared to deal with technical or
natural disasters which could threaten the Company's operations. The Company
will continue to remain aware of dates during 2000 which are considered
critical, such as 10/10/2000, and will address issues with the aforementioned
contingency plan should the need arise.
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, 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 on a one year horizon as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$ change in net % of net
SCENARIO INTEREST INCOME INT. INCOME
- -------- --------------- -----------
200 basis point rising $(121,000) (2.53%)
200 basis point falling $197,000 4.11%
</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.
<PAGE>
<TABLE>
<CAPTION>
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES REPRICING SCHEDULE
("GAP" TABLE)
AT DECEMBER 31, 1999
--------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
3 months More than More than Over 5
or less 3 to 12 1 to 5 years years Total
months
Interest-earning assets:
Interest-bearing deposits $1,362 $ - $ - $ - $1,362
Investment securities 3,803 12,160 27,008 2,654 46,625
LOANS 31,554 31,459 20,654 4,623 88,290
------ ------ ------ ------ ------
TOTAL INTEREST-EARNING assets $36,719 $43,619 $47,662 $7,277 $135,277
====== ====== ====== ====== =======
Interest-bearing liabilities
Certificates of deposit $14,104 $26,185 $14,382 $ - $55,121
Money market deposit accounts 8,618 - 7,636 - 16,254
Savings and NOW accounts 13,055 - 17,782 - 30,837
Borrowed money 6,405 2,000 8,294 - 16,699
------ ------- ------- ------- -------
TOTAL INTEREST-BEARING liabilities $42,182 $28,185 $48,544 - $118,911
======= ======= ====== $====== ========
Interest sensitivity gap per period $(5,463) $15,434 $(882) $7,277 $16,366
Cumulative interest sensitivity gap $(5,463) $9,971 $9,089 $16,366
Cumulative gap as a percent
of total interest-earning assets (4.04%) (7.37%) 6.72% 12.10%
Cumulative interest sensitive assets
as a percent of cumulative
interest sensitive liabilities 87.05% 114.17% 107.64% 113.76%
</TABLE>
<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 Report 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 effect on
operations and future prospects of the Company and the subsidiaries 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, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems 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>
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, 1999 and
1998 and the related consolidated statements of earnings, stockholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999. 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, 1999 and 1998 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting
principles.
(Insert Electronic Signature Here)
January 27, 2000
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Balance Sheets
December 31, 1999 and 1998
<S> <C> <C>
ASSETS 1999 1998
--------- ----------
Cash and cash equivalents:
Cash $ 2,952,527 1,172,229
Interest-bearing deposits in other financial institutions 1,362,486 2,703,300
--------- ----------
Total cash and cash equivalents 4,315,013 3,875,529
Investment securities:
Held-to-maturity 1,603,268 2,266,343
Available-for-sale 43,402,200 48,384,518
Loans, net 86,969,008 74,297,243
Loans held for sale 751,193 755,747
Premises and equipment, net of accumulated depreciation 2,288,028 2,231,850
Accrued interest and other assets 3,933,590 4,019,000
--------- ----------
Total assets $143,262,300 135,830,230
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing demand $ 10,124,653 9,307,879
Money market and NOW 37,073,098 41,249,220
Savings 10,017,267 10,327,847
Time, $100,000 and greater 10,897,718 7,832,855
Time, other 44,223,593 46,344,221
--------- ----------
Total deposits 112,336,329 115,062,022
Federal Home Loan Bank borrowings 15,655,010 4,607,150
Other borrowings 1,043,847 1,922,351
Accrued interest and expenses, taxes, and other liabilities 936,730 997,034
--------- ----------
Total liabilities 129,971,916 122,588,557
--------- ----------
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 14,493 13,680
Additional paid-in capital 9,011,899 8,199,525
Retained earnings 4,821,937 5,021,547
Unearned employee benefits (173,847) (222,351)
Accumulated other comprehensive income (384,098) 229,272
--------- ----------
Total stockholders' equity 13,290,384 13,241,673
Commitments and contingencies --------- ----------
Total liabilities and stockholders' equity $143,262,300 135,830,230
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Earnings
Years ended December 31, 1999, 1998, and 1997
<S> <C> <C> <C>
1999 1998 1997
-------- --------- -------
Interest income:
Loans $ 6,846,202 7,326,727 5,879,204
Investment securities 2,691,003 2,714,558 1,944,663
Other 13,329 248,150 105,003
-------- --------- -------
Total interest income 9,550,534 10,289,435 7,928,870
-------- --------- -------
Interest expense:
Deposits 4,285,924 5,035,706 3,850,889
Other borrowings 701,778 557,267 186,822
-------- --------- -------
Total interest expense 4,987,702 5,592,973 4,037,711
-------- --------- -------
Net interest income 4,562,832 4,696,46 3,891,159
Provision for loan losses 15,000 90,000 60,000
-------- --------- -------
Net interest income after provision for
loan losses 4,547,832 4,606,462 3,831,159
--------- --------- ---------
Noninterest income:
Fees and service charges 805,616 735,459 506,899
Gains on sales of loans 141,501 384,427 99,381
Other 55,392 92,402 83,829
-------- --------- -------
Total noninterest income 1,002,509 1,212,288 690,109
-------- --------- -------
Noninterest expense:
Compensation and benefits 2,083,502 2,043,450 1,429,665
Occupancy and equipment 597,807 632,727 431,110
Amortization 226,113 245,958 106,816
Professional fees 138,716 212,424 118,008
Data processing 131,479 139,714 101,878
Federal deposit insurance premiums 45,293 51,342 47,116
Other 959,875 1,032,965 742,988
-------- --------- -------
Total noninterest expense 4,182,785 4,358,580 2,977,581
-------- --------- -------
Earnings before income taxes 1,367,556 1,460,170 1,543,687
Income taxes 463,317 478,142 471,143
-------- --------- -------
Net earnings $ 904,239 982,028 1,072,544
======== ========= =======
Earnings per share:
Basic $ 0.63 0.69 0.76
Diluted 0.61 0.66 0.73
======== ========= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
<S> <C> <C> <C> <C> <C> <C>
ACCUMULATED
ADDITIONAL UNEARNED OTHER
COMMON PAID-IN RETAINED EMPLOYEE COMPREHENSIVE
STOCK CAPITAL EARNINGS BENEFITS INCOME (LOSS) TOTAL
------- -------- ---------- -------- ------------- -----
Balance at December 31, 1996 $12,104 6,314,964 5,340,873 (315,020) (18,756) 11,334,165
Comprehensive income:
Net earnings -- -- 1,072,544 -- -- 1,072,544
Change in fair value of
investment securities
available-for-sale,
net of tax -- -- -- -- 88,200 88,200
------- -------- ------- -------- ----------- --------
Total comprehensive income -- -- 1,072,544 -- 88,200 1,160,744
------- -------- ------- -------- ----------- --------
Dividens paid ($.23 per share) -- -- (319,866) -- -- (319,866)
Reduction of unearned employee
benefits -- -- -- 43,833 -- 43,833
Issuance of 13,488 shares
under option plan 135 56,838 -- -- -- 56,973
5% stock dividend (60,542 shares)606 750,993 (751,599) -- -- --
------- -------- ------- -------- ----------- --------
Balance at December 31, 1997 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 ($.24 per share) -- -- (333,891) -- -- (333,891)
Reduction of unearned employee
benefits -- -- -- 48,836 -- 48,836
Issuance of 18,672 shares
under stock
compensation plans 187 108,836 -- -- -- 109,023
5% stock dividend (64,844)
shares) 648 967,894 (968,542) -- -- --
------- -------- ------- -------- ---------- --------
Balance at December 31, 1998 13,680 8,199,525 5,021,547 (222,351) 229,272 13,241,673
Comprehensive income:
Net earnings -- -- 904,239 -- -- 904,239
Change in fair value of
investment securities
available-for-sale,
net of tax -- -- -- -- (613,370) (613,370)
------- -------- ------- -------- ----------- --------
Total comprehensive income
(loss) -- -- 904,239 -- (613,370) 290,869
------- -------- ------- -------- ----------- --------
Dividends paid ($.25 per share) -- -- (353,544) -- -- (353,544)
Reduction of unearned
employee benefits -- -- -- 48,504 -- 48,504
Issuance of 12,419 shares
under stock
compensation plans 124 62,758 -- -- -- 62,882
5% stock dividend (68,908
shares) 689 749,616 (750,305) -- -- --
------- -------- ------- -------- ----------- --------
Balance at December 31, 1999 $14,493 9,011,899 4,821,937 (173,847) (384,098) 13,290,384
======== ======== ========= ======== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<S> <C> <C> <C>
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net earnings $ 904,239 982,028 1,072,544
Adjustments to reconcile net earnings to
net cash
provided by operating activities:
Provision for loan losses 15,000 90,000 60,000
Depreciation and amortization 509,395 561,196 211,635
Amortization of loan fees (35,343) (55,232) (67,873)
Deferred income taxes 47,400 (129,400) (116,878)
Net gain on sales of investment
securities available-for-sale, premises
and equipment, and other real estate (7,147) (11,068) (9,907)
Net gain on sales of loans (141,501) (384,427) (99,381)
Proceeds from sale of loans 12,397,598 33,323,344 14,260,381
Origination of loans for sale (12,251,543)(32,950,902)(14,725,572)
Accretion of discounts and
amortization of premiums
on investment securities, net 78,119 43,173 (40,931)
Changes in assets and liabilities:
Accrued interest and other assets (81,103) 94,175 100,857
Accrued expenses, taxes, and other
liabilities 268,232 (121,929) (755,333)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 1,703,346 1,440,958 (110,458)
---------- ---------- ----------
Cash flows from investing activities:
Net (increase) decrease in loans (12,756,422)10,368,287 (1,476,399)
Maturities and prepayments of investment
securities held-to-maturity 552,959 4,344,489 4,583,747
Proceeds from sale of investment
securities held-to-maturity 102,317 -- --
Proceeds from sale of branch -- 973,284 --
Maturities and prepayments of investment
securities available-for-sale 13,920,118 13,864,202 4,465,881
Purchases of investment securities
available-for-sale (15,895,185)(27,114,772)(9,340,259)
Proceeds from sale of investment
securities available-for-sale 5,904,906 560,024 2,582,280
Proceeds from sales of foreclosed assets 50,000 142,879 53,922
Purchases of premises and equipment, net (339,460) (260,359) (352,578)
Improvements of other real estate (4,600) -- --
Net cash paid in acquisitions -- -- (1,650,353)
---------- ---------- ----------
Net cash provided by (used in)
investing activities (8,465,367) 2,878,034 (1,133,759)
---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits (2,725,693) (4,396,004) 1,435,787
Net increase (decrease) in securities
sold under agreements to repurchase -- (549,615) 149,615
Federal Home Loan Bank borrowings
(repayment), net 11,047,860 (821,427) (800,000)
Proceeds (repayments) from notes payable (830,000) (1,150,000) 2,850,000
Issuance of common stock under stock
option plan 62,882 109,023 56,973
Payment of dividends (353,544) (333,891) (319,866)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 7,201,505 (7,141,914) 3,372,509
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 439,484 (2,822,922) 2,128,292
Cash and cash equivalents at beginning of year 3,875,529 6,698,451 4,570,159
---------- ---------- ----------
Cash and cash equivalents at end of year $ 4,315,013 3,875,529 6,698,451
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 240,000 702,000 619,000
========== ========== ==========
Cash paid during the year for interest $ 4,978,000 5,623,000 3,949,000
========== ========== ==========
Supplemental schedule of noncash investing
and financing activities:
Transfer of loans to real estate owned $ 105,000 39,000 --
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>
<PAGE>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(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.
<PAGE>
(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
1999, 1998, or 1997.
Goodwill and core deposit amortization was $226,113, $245,958, and
$106,816 in 1999, 1998, and 1997, respectively. The remaining
unamortized balances of such assets at December 31, 1999 and 1998
aggregated $2,298,997 and $2,533,443, respectively.
<PAGE>
(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
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>
1999 1998 1997
-------- ------- -------
Unrealized holding gains (losses) $ (982,160) 268,694 120,875
Less reclassification adjustment for gains
included in net income 7,147 10,795 (21,309)
-------- ------- -------
Net unrealized gains (losses)
on securities (989,307) 257,899 142,184
Income tax expense (benefit) (375,937) 98,071 53,984
-------- ------- -------
Other comprehensive income (loss) (613,370) 159,828 88,200
======== ======= =======
</TABLE>
(K)EARNINGS PER SHARE
Basic earnings per share have been computed based upon the weighted
average number of common shares outstanding during each year. Diluted
earnings per share include the effect of all potential common shares
outstanding during each year. Earnings per share for all periods
presented have been adjusted to give effect to the 5% stock dividends
paid by the Company 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
-----------------------------
<S> <C> <C> <C>
1999 1998 1997
-------- --------- ---------
Weighted average common shares outstanding 1,444,786 1,430,346 1,408,664
Stock options 41,973 55,342 57,758
-------- --------- ---------
1,486,759 1,485,688 1,466,422
======== ========= =========
</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:
<TABLE>
<CAPTION>
<S> <C>
Net interest income plus other income $ 6,060,979
Net earnings 1,002,733
Diluted earnings per share .71
==========
</TABLE>
<PAGE>
(3) INVESTMENT SECURITIES
A summary of investment securities information is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1999 cost gains losses fair value
- --------------------------- ---------- ---------- --------- ----------
Held-to-maturity:
Municipal obligations $ 1,506,837 1,000 4,000 1,504,000
Mortgage-backed securities 96,431 2,000 - 98,000
---------- ---------- --------- ----------
Total $ 1,603,268 3,000 4,000 1,602,000
========== ========== ========= ==========
Available-for-sale:
U. S. government and agency
obligations $ 18,811,540 4,400 193,295 18,622,645
Municipal obligations 7,453,267 810 100,178 7,353,899
Mortgage-backed securities 16,323,006 1,396 332,646 15,991,756
FHLB stock 1,111,200 - - 1,111,200
Other investments 322,700 - - 322,700
---------- ---------- --------- ----------
Total $ 44,021,713 6,606 626,119 43,402,200
========== ========== ========= ==========
December 31, 1998
- ---------------------------
Held-to-maturity:
Municipal obligations $ 2,143,997 26,000 - 2,169,997
Mortgage-backed securities 122,346 4,000 - 126,346
---------- ---------- --------- ----------
Total $ 2,266,343 30,000 - 2,296,343
========== ========== ========= ==========
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>
<PAGE>
Maturities of investment securities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Amortized Estimated
cost fair value
--------- ----------
Held-to-maturity:
Due in less than one year $ 672,478 673,000
Due after one year but within five years 834,359 831,000
Mortgage-backed securities 96,431 98,000
--------- ----------
Total $ 1,603,268 1,602,000
========= ==========
Available-for-sale:
Due in less than one year $ 9,327,894 9,314,293
Due after one year but within five years 16,530,661 16,261,526
Due after five years 406,252 400,725
Mortgage-backed securities and other
investments 17,756,906 17,425,656
--------- ----------
Total $ 44,021,713 43,402,200
========= ==========
</TABLE>
Except for U. S. government and agency obligations, no investment in a
single issuer exceeded 10% of stockholders' equity.
At December 31, 1999 and 1998, securities pledged to secure public funds
on deposit had a carrying value of approximately $30 million and $28
million, respectively.
<PAGE>
(4) LOANS
Loans consist of the following at December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------- ----------
Mortgage loans:
One-to-four family residential $27,125,681 25,058,459
Commercial 31,635,398 25,473,084
Commercial loans 20,482,825 17,130,905
Consumer loans 7,168,702 5,817,509
Student loans 1,876,948 2,387,758
---------- ----------
Total 88,289,554 75,867,715
Less:
Loans in process 5,159 191,015
Deferred loan fees 66,629 87,556
Allowance for loan losses 1,248,758 1,291,901
---------- ----------
Loans, net $ 86,969,008 74,297,243
========== ==========
</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.
<PAGE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Balance at beginning of year $1,291,901 1,335,024 819,660
Provision 15,000 90,000 60,000
Allowance for loan loss of acquired bank - - 461,389
Charge-offs (114,101) (170,977) (17,398)
Recoveries 55,958 37,854 11,373
--------- --------- ---------
Balance at end of year $1,248,758 1,291,901 1,335,024
========= ========= =========
</TABLE>
At December 31, 1999 and 1998, impaired loans, including nonaccrual loans,
aggregated approximately $466,000 and $144,000, respectively.
The Bank serviced loans for others of $15.2 million and $18.7 million at
December 31, 1999 and 1998, respectively. 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 were
recorded during 1999, 1998, or 1997.
The Bank had loans to directors and officers at December 31, 1999, which
carry terms similar to those for other loans. A summary of such loans is
as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of year $1,032,044
New loans 12,870
Payments (22,061)
---------
Balance at end of year $ 1,022,853
=========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------- ---------
Land $ 353,412 353,412
Office buildings and improvements 2,131,167 2,043,942
Furniture and equipment 1,877,026 1,750,643
Automobiles 171,760 142,520
--------- ---------
Total 4,533,365 4,290,517
Less accumulated depreciation 2,245,337 2,058,667
--------- ---------
Total $ 2,288,028 2,231,850
========= =========
</TABLE>
<PAGE>
(6) TIME DEPOSITS
Maturities of time deposits are as follows at December 31, 1999:
Year Amount
- ------ ---------
2000 $ 40,289,523
2001 11,049,407
2002 2,604,577
2003 610,985
2004 566,819
---------
Total $ 55,121,311
=========
(7) FEDERAL HOME LOAN BANK ADVANCES
Short-term advances from the FHLB at December 31, 1999 were $7,440,000,
with rates ranging from 5.40% to 5.97%. There were no short-term advances
outstanding at December 31, 1998. Long-term advances from the FHLB at
December 31, 1999 and 1998 amount to $7,250,010 and $4,607,150,
respectively. Maturities of such advances at December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ending
December 31, Amount Rates
- -------------- --------- -------------
2002 $ 2,428,576 6.24% - 6.95%
2003 821,434 6.83% - 7.23%
2004 4,000,000 5.62% - 6.44%
---------
$ 7,250,010
=========
</TABLE>
The Bank has a $17,500,000 line of credit, renewable annually in
September, with the FHLB under which there were outstanding borrowings of
$965,000 and $0 at December 31, 1999 and 1998, respectively. Interest on
any outstanding balances on the line of credit accrues at the federal
funds rate plus .15% (5.00% at December 31, 1999).
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, stock in the FHLB, and FHLB overnight
deposits.
<PAGE>
(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 $2,500,000 line of credit with another unrelated
financial institution. The ESOP loan of $173,847 and $222,351 at December
31, 1999 and 1998, respectively, bears interest at the prime rate (8.50%
at December 31, 1999), is due in 2002, and is secured by the 30,668
unallocated shares of Company common stock held by the ESOP. The Company's
line of credit had outstanding balances of $870,000 and $1,700,000 at
December 31, 1999 and 1998, 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 1999, 1998, and 1997 is allocated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
-------- ------- --------
Operations $ 463,317 478,142 471,143
StockholderS' equity (375,937) 98,071 53,984
-------- ------- --------
$ 87,380 576,213 525,127
======== ======= ========
</TABLE>
The components of income tax expense allocated to earnings are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------- -------- --------
Current $ 415,917 607,542 588,021
Deferred 47,400 (129,400) (116,878)
------- -------- --------
$ 463,317 478,142 471,143
======= ======== ========
Federal $ 392,917 429,736 434,143
State 70,400 48,406 37,000
------- -------- --------
$ 463,317 478,142 471,143
======= ======== ========
</TABLE>
<PAGE>
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>
<S> <C> <C> <C>
1999 1998 1997
-------- ------- -------
Expected income tax expense at
statutory rate 464,969 496,458 524,854
Tax-exempt interest (108,974) (63,000) (31,900)
Nondeductible amortization 40,182 59,565 9,406
State income taxes 46,464 31,947 24,420
Other, net 20,676 (46,828) (55,637)
-------- ------- -------
$ 463,317 478,142 471,143
======== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 1998
-------- --------
Unrealized loss on investment securities
available-for-sale $ 235,400 -
Allowance for loan losses 376,000 412,000
Other 23,000 20,300
-------- --------
Total deferred tax assets 634,400 432,300
-------- --------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Unrealized gain on investment securities
available-for-sale - 140,500
Core deposit intangible 47,000 64,800
FHLB stock dividends 255,000 232,300
Premises and equipment 15,500 -
State taxes 4,000 8,400
Other 95,500 97,800
-------- --------
Total deferred tax liabilities 417,000 543,800
-------- --------
Net deferred tax asset (liability) $ 217,400 (111,500)
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not necessary at
December 31, 1999 or 1998.
<PAGE>
(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 1999, 1998, and 1997 were
approximately $45,000, $55,000, and $50,000, 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>
<S> <C> <C>
Number Weighted average
of exercise price
shares per share
-------- -----------------
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
Effect of 5% stock dividend 3,356 -
Issued 250 13.00
Exercised (12,419) 5.06
--------
Outstanding at December 31, 1999 70,563 4.50
======== =================
Options exercisable at December 31, 1999 63,988 $ 3.85
======== =================
</TABLE>
Options outstanding at December 31, 1999 were exercisable at prices
ranging from $3.73 to $12.50.
<PAGE>
In accordance with Statement of Financial Accounting Standards (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 1998 and 1999 were estimated utilizing the
following assumptions: dividend yields of 1.8% and 1.9%, volatility of
17.2% and 17.2%, risk-free interest rate of 6.5% and 7.0%, and expected
lives of five years, respectively. Pro forma net earnings and earnings per
share for 1999, 1998, and 1997, 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 $31,000, $6,000, and
$75,000 in 1999, 1998, and 1997, 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, 1999 and 1998, including methods and assumptions utilized, are set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
---------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
---------- ---------- ----------- ----------
Investment securities $ 45,005,468 45,004,000 50,650,861 50,681,000
========== ========== =========== ==========
Loans, net of unearned fees
and allowance for loan
losses $ 86,969,008 83,182,000 74,297,243 73,581,000
========== ========== =========== ==========
Noninterest bearing demand
deposits $ 10,124,653 10,125,000 9,307,879 9,308,000
Money market and NOW
deposits 37,073,098 37,073,000 41,249,220 41,249,000
Savings deposits 10,017,267 10,017,000 10,327,847 10,328,000
Time deposits 55,121,311 54,981,000 54,177,076 54,548,000
---------- ---------- ----------- ----------
Total deposits $ 112,336,329 112,096,000 115,062,022 115,433,000
========== ========== =========== ==========
FHLB advances $ 15,655,010 15,456,000 4,607,150 4,761,000
========== ========== =========== ==========
Other borrowings $ 1,043,847 1,044,000 1,922,351 1,922,000
========== ========== =========== ==========
</TABLE>
<PAGE>
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.
<PAGE>
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 1 risk-based capital equal to 4% of total
risk-weighted assets, and total qualifying capital equal to 8% of total
risk-weighted assets in order to be considered "adequately capitalized."
Management believes that, as of December 31, 1999, 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, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
To be well-
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
--------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
As of December 31, 1999:
Total capital
(to risk-weighted assets $13,535 14.84 % => $7,297 => 8.00 % => $ 9,121 => 10.00 %
Tier 1 capital
(to risk-weighted assets 12,395 13.59 => 3,648 => 4.00 => 5,473 => 6.00
Tier 1 capital
(to average assets) 12,395 8.88 => 5,582 => 4.00 => 6,978 => 5.00
======== ====== ======== ===== ======== ======
As of December 31, 1998:
Total capital
(to risk-weighted assets $13,201 17.35 % => $6,085 => 8.00 % => $ 7,607 => 10.00 %
Tier 1 capital
(to risk-weighted asset 12,250 16.10 => 3,043 => 4.00 => 4,564 => 6.00
Tier 1 capital
(to average assets) 12,250 9.14 => 5,359 => 4.00 => 6,699 => 5.00
======== ====== ======== ===== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(13) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial information of the Company as of and for
the years ended December 31, 1999 and 1998:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<S> <C> <C>
Assets 1999 1998
---------- ---------
Cash $ 25,293 77,102
Investment securities 17,500 17,500
Investment in subsidiary 14,310,313 15,049,128
---------- ---------
Total assets $ 14,353,106 15,143,730
========== =========
Liabilities and Stockholders' Equity
Borrowed funds $ 1,043,847 1,922,351
Other 18,875 (20,294)
Stockholders' equity 13,290,384 13,241,673
---------- ---------
Total liabilities and stockholders' 14,353,106 15,143,730
========== =========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<S> <C> <C> <C>
1999 1998 1997
---------- --------- ----------
Dividends from subsidiary $ 1,111,352 1,357,335 937,242
Interest income 3,187 10,400 86,582
Interest expense (86,048) (209,485) -
Other expense, net (102,180) (98,998) (69,898)
---------- --------- ----------
Income before equity in undistributed
earnings of subsidiary 926,311 1,059,252 953,926
Increase (decrease) in undistributed equity
of subsidiary (89,243) (224,227) 43,000
---------- --------- ----------
Earnings before income taxes 837,068 835,025 996,926
Income tax benefit 67,171 147,003 75,618
---------- --------- ----------
Net earnings $ 904,239 982,028 1,072,544
========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<S> <C> <C> <C>
1999 1998 1997
---------- --------- ----------
Cash flows from operating activities:
Net earnings $ 904,239 982,028 1,072,544
(Increase) decrease in undistributed equity
of subsidiary 89,243 224,227 (43,000)
Other 75,371 (8,683) 18,215
---------- --------- ----------
Net cash provided by operating activities 1,068,853 1,197,572 1,047,759
---------- --------- ----------
Cash flows from investing activities:
Purchase of investment securities - - (154,907)
Maturity of investment securities - 150,000 400,000
Investment in subsidiary - (25,589) (5,332,255)
---------- --------- ----------
Net cash provided by (used in) investing
activities - 124,411 (5,087,162)
---------- --------- ----------
Cash flows from financing activities:
Issuance of shares under stock option plan 62,882 109,023 56,973
Proceeds (repayments) from note payable (830,000) (1,150,000) 2,850,000
Payment of dividends (353,544) (333,891) (319,866)
---------- --------- ----------
Net cash provided by (used in) financing
activities (1,120,662) (1,374,868) 2,587,107
---------- --------- ----------
Net decrease in cash (51,809) (52,885) (1,452,296)
Cash at beginning of year 77,102 129,987 1,582,283
---------- --------- ----------
Cash at end of year $ 25,293 77,102 129,987
========== ========= ==========
</TABLE>
Dividends paid by the Company are provided through subsidiary Bank
dividends. At December 31, 1999, the Bank could distribute dividends of up
to $419,000 without regulatory approvals.
<PAGE>
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*
Broker, Senior Vice-President
Chapman Securities, Inc.
Joseph L. Downey
Retired Senior Consultant, Director and Executive
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
Retired 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 Chairman
DPRA Incorporated
*Bank Director only
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, 1999, 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 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 HIGH LOW DIVIDENDS
FIRST QUARTER $12.50 11.00 $0.0625
SECOND QUARTER 12.38 8.75 0.0625
THIRD QUARTER 10.50 9.06 0.0625
FOURTH QUARTER 9.50 8.25 0.0625
1998 HIGH LOW DIVIDENDS
FIRST QUARTER $17.50 $12.00 $0.0595
SECOND QUARTER 16.25 14.00 0.0595
THIRD QUARTER 14.81 12.00 0.0595
FOURTH QUARTER 13.50 11.00 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 17, 2000 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. The report is also
available via the Internet at www.sec.gov.
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
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
The only subsidiaries of the Company are 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 and
MNB Acquisition Corporation, Inc., a Kansas Corporation.
<PAGE>
EXHIBIT 23.1
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 27,
2000, relating to the consolidated balance sheets of MNB Bancshares, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of earnings, stockholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 1999,
which report appears in the December 31, 1999 annual report of Form 10-K of MNB
Bancshares, Inc.
(insert electronic signature)
Kansas City, Missouri
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from MNB
Bancshares, Inc. 12/31/99 Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000891284
<NAME> MNB Bancshares, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 2,952,527
<INT-BEARING-DEPOSITS> 1,362,486
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,402,200
<INVESTMENTS-CARRYING> 1,603,268
<INVESTMENTS-MARKET> 1,602,000
<LOANS> 88,968,959
<ALLOWANCE> 1,248,758
<TOTAL-ASSETS> 143,262,300
<DEPOSITS> 112,336,329
<SHORT-TERM> 8,405,000
<LIABILITIES-OTHER> 936,730
<LONG-TERM> 8,293,857
0
0
<COMMON> 14,493
<OTHER-SE> 13,275,891
<TOTAL-LIABILITIES-AND-EQUITY> 143,262,300
<INTEREST-LOAN> 6,846,202
<INTEREST-INVEST> 2,691,003
<INTEREST-OTHER> 13,329
<INTEREST-TOTAL> 9,550,534
<INTEREST-DEPOSIT> 4,285,924
<INTEREST-EXPENSE> 4,987,702
<INTEREST-INCOME-NET> 4,562,832
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 7,147
<EXPENSE-OTHER> 4,182,785
<INCOME-PRETAX> 1,367,556
<INCOME-PRE-EXTRAORDINARY> 904,239
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 904,239
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 3.50
<LOANS-NON> 466,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,291,901
<CHARGE-OFFS> 114,101
<RECOVERIES> 55,958
<ALLOWANCE-CLOSE> 1,248,758
<ALLOWANCE-DOMESTIC> 935,828
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 312,930
</TABLE>
