-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B3o7uUE28JCVroYrC2qkuhRnJdQWhy9zggIlyfGohgdBee9iYIPTAWyceOb60n5f iYloa7Bjm1K6iWhqb8R+Gw== 0000891284-00-000008.txt : 20000331 0000891284-00-000008.hdr.sgml : 20000331 ACCESSION NUMBER: 0000891284-00-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MNB BANCSHARES INC CENTRAL INDEX KEY: 0000891284 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 481120026 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20878 FILM NUMBER: 584147 BUSINESS ADDRESS: STREET 1: 800 POYNTZ AVE CITY: MANHATTAN STATE: KS ZIP: 66502 BUSINESS PHONE: 7855652000 MAIL ADDRESS: STREET 1: 800 POYNTZ AVENUE CITY: MANHATTAN STATE: KS ZIP: 66052 10-K 1 YEAR END EARNINGS 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. -------------------- (Exact name of Registrant as specified in its charter) DELAWARE 48-1120026 - -------- ---------- (State or other jurisdiction (I.R.S.Employer Identification Number) of incorporation or organization) 800 POYNTZ AVENUE, MANHATTAN, KANSAS 66505 ------------------------------------------ (Address of principal executive offices) (Zip Code) (785) 565-2000 -------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of Each Exchange 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. 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 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. 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.
DECEMBER 1999 VS 1998 DECEMBER 1998 VS 1997 INCREASE/(DECREASE) ATTRIBUTABLE TO INCREASE/(DECREASE) ATTRIBUTABLE TO -------------- ------------ 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 ======= ======== ========= ========= ======= =======
II. INVESTMENT PORTFOLIO INVESTMENTS INVESTMENT SECURITIES. The following table sets forth the carrying value of the investment securities portfolio at the dates indicated.
At December 31, 1999 1998 1997 ---- ---- ---- (Dollars in thousands) 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 ======= ======= =======
As of December 31, 1999, the carrying value, maturities and the weighted average yields of investment securities were as follows:
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) 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.
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.
At December 31 1999 1998 1997 ---------------------- ---------------------- --------------------- Percent Percent Percent of of of AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL ------ ----- ------ ----- ------ ----- (Dollars in thousands) 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.
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 ------- -------- ------- -------- --------- -------- ------- 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 =======
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:
FIXED ADJUSTABLE TOTAL ----- ---------- ----- (Dollars in thousands) Real Estate loans $ 6,918 $ 30,831 $ 47,749 OTHER LOANS 13,340 8,082 21,422 ------ ------ ------- TOTAL $30,258 $ 38,913 $ 69,171 ========== ========== =========
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.
At December 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands) 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%
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.
At December 31, 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% ======= ======= ====== ======= ========
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.
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) 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% ======== ==== ======= ==== ======= ====
V. AVERAGE DEPOSITS BY CLASSIFICATION The following table sets forth the amounts of deposits by type of account at the dates indicated.
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) 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% ======== ============ ======== ======= ===== ======= ======= ====
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:
(Dollars in thousands) 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 ===============
VI. RETURN ON EQUITY AND ASSETS At or for the years ended December 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- 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.
ITEM 2. PROPERTIES The following table sets forth information concerning the offices of the Bank.
YEAR OPENED ADDRESS OR ACQUIRED SQUARE FOOTAGE TITLE 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
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:
NAME AGE POSITIONS WITH THE COMPANY Patrick L. Alexander 47 President and Chief Executive Officer Mark A. Herpich 32 Vice President, Secretary, Chief Financial Officer and Treasurer
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. 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.
SIGNATURE TITLE /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
INDEX TO EXHIBITS EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. 3.1 Articles of Incorporation of the Company-- N/A Incorporated by reference from Exhibit 3.1 of the Form S-1 of the Company, as amended, filed on September 3, 1992 (Registration No. 33-51710) 3.2 Bylaws of the Company--Incorporated by N/A reference from Exhibit 3.2 of the Form S-1 of the Company, as amended, filed on September 3, 1992 (Registration No. 33-51710) 4.1 Specimen Common Stock Certificate of the N/A Company--Incorporated by Reference from Exhibit 4.1 of the Form S-1 of the Company, as amended, filed on September 3, 1994 (Registration No. 33-51710) 10.1 MNB Bancshares, Inc. 1992 Stock Option N/A Plan--Incorporated by reference from Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held May 17, 1994 10.2 Stock Option Agreement between the Company N/A and Patrick L. Alexander--Incorporated by reference from Exhibit 10.2 to Form 10-K dated March 26, 1994 10.3 Stock Option Agreement between the Company N/A and Vernon C. Larson--Incorporated by reference from Exhibit 10.3 to Form 10-K dated March 26, 1994 10.4 Stock Option Agreement between the Company N/A and Brent A. Bowman--Incorporated by reference from Exhibit 10.4 to Form 10-K dated March 26, 1994 10.5 Stock Option Agreement between the Company N/A and Charles D. Green--Incorporated by reference from Exhibit 10.6 to Form 10-K dated March 26, 1994 10.6 Stock Option Agreement between the Company N/A and Jerry R. Pettle--Incorporated by reference from Exhibit 10.9 to Form 10-K dated March 26, 1994 10.7 Stock Option Agreement between the Company N/A and Susan E. Roepke--Incorporated by reference from Exhibit 10.11 to Form 10-K dated March 26, 1994 10.8 Stock Option Agreement between the Company N/A and Michael R. Toy--Incorporated by reference from Exhibit 10.13 to Form 10-K dated March 26, 1994 10.9 Stock Option Agreement between the Company N/A and Dennis D. Wohler--Incorporated by reference from Exhibit 10.14 to Form 10-K dated March 26, 1994 10.10 Employment Agreement among the Company, N/A Security National Bank and Patrick L. Alexander--Incorporated by reference from Exhibit 10.15 to Form 10-K dated March 26, 1994 10.11 Security National Bank Deferred Compensation N/A Plan, dated December 21, 1994--Incorporated by reference from Exhibit 10.20 dated March 26, 1994 10.12 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
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) 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. 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
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) 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.
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. 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.
NONINTEREST INCOME: 1999 1998 1997 ---- ---- ---- 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. 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.
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 ====================================================================== 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.
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.
LOAN PORTFOLIO COMPOSITION COMPARISON Balance Balance 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 =========== ===========
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.
DEPOSIT PORTFOLIO COMPOSITION COMPARISON 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 =========== ===========
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:
$ 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%
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.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES REPRICING SCHEDULE ("GAP" TABLE) AT DECEMBER 31, 1999 -------------------- (dollars in thousands) 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%
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. 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
MNB BANCSHARES, INC. AND SUBSIDIARIES MANHATTAN, KANSAS Consolidated Balance Sheets December 31, 1999 and 1998 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 ========= ==========
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES MANHATTAN, KANSAS Consolidated Statements of Earnings Years ended December 31, 1999, 1998, and 1997 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.
MNB BANCSHARES, INC. AND SUBSIDIARIES MANHATTAN, KANSAS Consolidated Statements of Stockholders' Equity and Comprehensive Income Years ended December 31, 1999, 1998, and 1997 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 ======== ======== ========= ======== =========== ==========
MNB BANCSHARES, INC. AND SUBSIDIARIES MANHATTAN, KANSAS Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998, and 1997 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.
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. (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. (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:
For the years ended December 31 -------------------------- 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 ======== ======= =======
(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:
For the years ended December 31 ----------------------------- 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 ======== ========= =========
(2) ACQUISITIONS On December 31, 1997, the Company acquired 100% of the outstanding common stock of Freedom Bancshares, Inc. (Freedom) and its wholly owned subsidiary, Citizens State Bank, with branches in Osage City and Beloit, Kansas. Subsequently, Security National Bank and Citizens State Bank were merged. Freedom had consolidated assets of approximately $43 million. The purchase price, including related costs of acquisition, consisted of cash of approximately $5.3 million. The acquisition, which was accounted for as a purchase, resulted in goodwill of approximately $2.2 million. The Company sold the Beloit branch in 1998. The sale of the branch included approximately $3.3 million of loans and $2.8 million of deposits. A premium of approximately $120,000, net of tax, was received from the buyer and offset against the goodwill recorded in the Freedom acquisition. Pro forma 1997 revenues, net earnings, and diluted earnings per share amounts, as if the Freedom acquisition had been consummated January 1, 1997, are as follows:
Net interest income plus other income $ 6,060,979 Net earnings 1,002,733 Diluted earnings per share .71 ==========
(3) INVESTMENT SECURITIES A summary of investment securities information is as follows:
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 ========== ========== ========= ==========
Maturities of investment securities at December 31, 1999 are as follows:
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 ========= ==========
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. (4) LOANS Loans consist of the following at December 31:
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 ========== ==========
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet customer financing needs. These financial instruments consist principally of commitments to extend credit. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company's exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The Company generally requires collateral or other security on unfunded loan commitments and irrevocable letters of credit. The Company's outstanding commitments to originate and sell loans are immaterial. The Company is exposed to varying risks associated with concentrations of credit relating primarily to lending activities in specific geographic areas. The Company's principal lending area consists of the cities of Manhattan, Auburn, Topeka, and Osage City, Kansas and the surrounding communities, and substantially all of the Company's loans are to residents of or secured by properties located in its principal lending area. Accordingly, the ultimate collectibility of the Company's loan portfolio is dependent upon market conditions in those areas. These geographic concentrations are considered in management's establishment of the allowance for loan losses. A summary of the activity in the allowance for loan losses is as follows:
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 ========= ========= =========
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:
Balance at beginning of year $1,032,044 New loans 12,870 Payments (22,061) --------- Balance at end of year $ 1,022,853 =========
(5) PREMISES AND EQUIPMENT Premises and equipment consist of the following at December 31:
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 ========= =========
(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:
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 =========
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. (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:
1999 1998 1997 -------- ------- -------- Operations $ 463,317 478,142 471,143 StockholderS' equity (375,937) 98,071 53,984 -------- ------- -------- $ 87,380 576,213 525,127 ======== ======= ========
The components of income tax expense allocated to earnings are as follows:
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 ======= ======== ========
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:
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 ======== ======= =======
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: 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 -------- --------
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) ======== ========
A valuation allowance for deferred tax assets was not necessary at December 31, 1999 or 1998. (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:
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 ======== =================
Options outstanding at December 31, 1999 were exercisable at prices ranging from $3.73 to $12.50. 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:
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 ========== ========== =========== ==========
METHODS AND ASSUMPTIONS UTILIZED The carrying amount of cash and cash equivalents, loans held for sale, federal funds sold, and accrued interest receivable and payable are considered to approximate fair value. The estimated fair value of investment securities, except certain obligations of states and political subdivisions, is based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain obligations of states and political subdivisions is not readily available through market sources other than dealer quotations, so fair value estimates are based upon quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. The estimated fair value of the Company's loan portfolio is based on the segregation of loans by collateral type, interest terms, and maturities. In estimating the fair value of each category of loans, the carrying amount of the loan is reduced by an allocation of the allowance for loan losses. Such allocation is based on management's loan classification system which is designed to measure the credit risk inherent in each classification category. The estimated fair value of performing variable rate loans is the carrying value of such loans, reduced by an allocation of the allowance for loan losses. The estimated fair value of performing fixed rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan, reduced by an allocation of the allowance for loan losses. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. The fair value for significant nonperforming loans is the estimated fair value of the underlying collateral based on recent external appraisals or other available information, which generally approximates carrying value, reduced by an allocation of the allowance for loan losses. The estimated fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, savings, money market accounts, and NOW accounts, is equal to the amount payable on demand. The fair value of interest-bearing time deposits is based on the discounted value of contractual cash flows of such deposits. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The carrying amounts of FHLB advances and other borrowings approximate fair value because such borrowings have relatively short terms or adjustable interest rates. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. (12) REGULATORY CAPITAL REQUIREMENTS Current regulatory capital regulations require financial institutions to meet three different regulatory capital requirements. Institutions are required to have minimum leverage capital equal to 4% of total average assets, minimum Tier 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):
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 ======== ====== ======== ===== ======== ======
(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 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 ========== =========
CONDENSED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 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 ========== ========= ==========
CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 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 ========== ========= ==========
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. 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.
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
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 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. 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 EX-27 2 FDS --
9 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. 0000891284 MNB Bancshares, Inc. 1 12-MOS Dec-31-1999 Dec-31-1999 2,952,527 1,362,486 0 0 43,402,200 1,603,268 1,602,000 88,968,959 1,248,758 143,262,300 112,336,329 8,405,000 936,730 8,293,857 0 0 14,493 13,275,891 143,262,300 6,846,202 2,691,003 13,329 9,550,534 4,285,924 4,987,702 4,562,832 15,000 7,147 4,182,785 1,367,556 904,239 0 0 904,239 0.63 0.61 3.50 466,000 0 0 0 1,291,901 114,101 55,958 1,248,758 935,828 0 312,930
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