<Page>
Independent Auditors' Report
The Board of Directors
MNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of MNB
Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2000 and
1999, 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, 2000. These
<Page>
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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Kansas City, Missouri
February 2, 2001
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Balance Sheets
December 31, 2000 and 1999
<Table>
<Caption>
Assets 2000 1999
----------------- -----------------
Cash and cash equivalents:
Cash $ 1,582,255 2,952,527
Interest-bearing deposits in
other financial institutions 2,251,438 1,362,486
------------------ ----------------
Total cash and cash
equivalents 3,833,693 4,315,013
Investment securities:
Held-to-maturity 914,309 1,603,268
Available-for-sale 46,734,252 43,402,200
Loans, net 93,676,854 86,969,008
Loans held for sale 380,250 751,193
Premises and equipment, net of 2,253,729 2,288,028
<Page>
Accrued interest and other assets 5,103,766 3,933,590
------------------ ----------------
Total assets $ 152,896,853 143,262,300
================== ================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest bearing demand $ 10,721,389 10,124,653
Money market and NOW 44,390,474 37,073,098
Savings 11,962,879 10,017,267
Time, $100,000 and greater 10,264,383 10,897,718
Time, other 52,846,935 44,223,593
------------------ ----------------
Total deposits 130,186,060 112,336,329
Federal Home Loan Bank
borrowings 5,632,870 15,655,010
Other borrowings 864,870 1,043,847
Accrued interest and expenses,
taxes, and other liabilities 1,537,127 936,730
------------------- ---------------
Total liabilities 138,220,927 129,971,916
------------------ ----------------
Stockholders' equity:
Common stock, $.01 par;
3,000,000 shares authorized;
1,534,828 and 1,449,303
shares issued and outstanding
at 2000 and 1999 15,348 14,493
Additional paid-in capital 9,634,291 9,011,899
Retained earnings 4,931,576 4,821,937
Unearned employee benefits (119,870) (173,847)
Accumulated other
comprehensive income (loss) 214,581 (384,098)
------------------ ----------------
Total stockholders' equity 14,675,926 13,290,384
Commitments and contingencies - -
------------------- ---------------
Total liabilities and
stockholders' equity $ 152,896,853 143,262,300
================== ================
See accompanying notes to consolidated financial statements.
</Table>
<Page>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Earnings
Years ended December 31, 2000, 1999, and 1998
<Table>
<Caption>
2000 1999 1998
---------- ---------- -----------
Interest income:
Loans $ 8,197,519 6,846,202 7,326,727
Investment securities 2,633,427 2,691,003 2,714,558
Other 53,944 13,329 248,150
------------ ---------- ----------
Total interest income 10,884,890 9,550,534 10,289,435
------------ --------- ----------
Interest expense:
Deposits 5,264,385 4,285,924 5,035,706
Other borrowings 771,022 701,778 557,267
------------- --------- ----------
Total interest expense 6,035,407 4,987,702 5,592,973
------------ ---------- ----------
Net interest income 4,849,483 4,562,832 4,696,462
Provision for loan losses 85,000 15,000 90,000
----------- ---------- -----------
Net interest income after
provision for loan losses 4,764,483 4,547,832 4,606,462
----------- --------- ----------
Noninterest income:
Fees and service charges 1,100,427 805,616 735,459
Gains on sales of loans 94,551 141,501 384,427
Other 17,554 55,392 92,402
------------ --------- -----------
Total noninterest income 1,212,532 1,002,509 1,212,288
------------ ---------- ----------
Noninterest expense:
Compensation and benefits 2,190,673 2,083,502 2,043,450
Occupancy and equipment 685,613 597,807 632,727
Amortization 237,919 226,113 245,958
Professional fees 121,170 138,716 212,424
Data processing 136,390 131,479 139,714
Other 1,049,256 1,005,168 1,084,307
------------ ---------- ----------
<Page>
Total noninterest expense 4,421,021 4,182,785 4,358,580
----------- ----------- ---------
Earnings before income taxes 1,555,994 1,367,556 1,460,170
Income taxes 476,059 463,317 478,142
----------- ---------- -----------
Net earnings $ 1,079,935 904,239 982,028
=========== ========== ===========
Earnings per share:
Basic $ 0.71 0.60 0.66
Diluted 0.70 0.58 0.63
=========== ========== ===========
See accompanying notes to consolidated financial statements.
</Table>
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 2000, 1999, and 1998
<Table>
<Caption>
Accumulated
Additional Unearned other
Common paid-in Retained Treasury employee comprehensive
stock capital earnings stock benefits income (loss) Total
------- --------- -------- ------- --------- ------------- -----
Balance at December 31, $12,845 7,122,795 5,341,952 - (271,187) 69,444 12,275,849
------- --------- --------- ------- --------- ------ ----------
Comprehensive income:
Net earnings - - 982,028 - - - 982,028
Change in fair value of
securities
available-for-sale,
net of tax - - - - - 159,828 159,828
------- --------- -------- ------- --------- ------- ----------
Total comprehensive
income - - 982,028 - - 159,828 1,141,856
------- --------- -------- ------- --------- -------- ----------
<Page>
Dividends paid ($.23 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
securities
available-for-sale,
net of tax - - - - - (613,370) (613,370)
------- -------- -------- --------- --------- --------- -----------
Total comprehensive
income (loss) - - 904,239 - - (613,370) 290,869
------- -------- --------- ------- -------- --------- -----------
Dividends paid ($.24 per
share) - - (353,544) - - - (353,544)
Reduction of unearned employee
benefits - - - - 48,504 - 48,504
Issuance of 12,419 shares under
stock compensation plans 124 62,758 - - - - 62,882
5% stock dividend (68,908
shares) 689 749,616 (750,305) - - - -
------- -------- --------- ------- -------- --------- ----------
Balance at December 31, 1999 14,493 9,011,899 4,821,937 - (173,847) (384,098) 13,290,384
Comprehensive income:
Net earnings - - 1,079,935 - - - 1,079,935
Change in fair value of
securities
available-for-sale,
net of tax - - - - - 598,679 598,679
------- -------- ---------- ------ -------- -------- -----------
Total comprehensive
income - - 1,079,935 - - 598,679 1,678,614
------- -------- --------- ------ -------- -------- --------------
Dividends paid ($.25 per
share) - - (371,238) - - - (371,238)
Reduction of unearned employee
benefits - - - - 53,977 - 53,977
Issuance of 19,112 shares under
stock compensation plans 191 69,446 - - - - 69,637
Purchase of treasury shares
(5,681 shares) - - - (45,448) - - (45,448)
<Page>
5% stock dividend (72,094
shares) 664 552,946 (599,058) 45,448 - - -
------- -------- --------- ------- -------- -------- --------------
Balance at December 31, 2000 $15,348 9,634,291 4,931,576 - (119,870) 214,581 14,675,926
======= ========= ======== ======= ========= ======= ==========
</Table>
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999, and 1998
<Table>
<Caption>
2000 1999 1998
-------------------------------------
Cash flows from operating activities:
Net earnings $ 1,079,935 904,239 982,028
Adjustments to reconcile net
earnings provided by operating
activities:
Provision for loan losses 85,000 15,000 90,000
Depreciation and amortization 549,538 509,395 561,196
Amortization of loan fees (13,706) (35,343) (55,232)
Deferred income taxes 26,600 47,400 (129,400)
Net (gain) loss on sales of investment
securities available-for-sale,
premises and equipment, and
other real estate 30,368 (7,147) (11,068)
Net gain on sales of loans (94,551) (141,501) (384,427)
Proceeds from sale of loans 8,674,665 12,397,598 33,323,344
Origination of loans for sale (8,209,171)(12,251,543) (32,950,902)
Accretion of discounts and
amortization of premiums on
investment securities, net 38,140 78,119 43,173
Changes in assets and
liabilities:
Accrued interest and other
assets (347,658) (81,103) 94,175
Accrued expenses, taxes, and
<Page>
other liabilities 118,318 268,232 (121,929)
------------- ----------- -------------
Net cash provided by
operating activities 1,937,478 1,703,346 1,440,958
------------ ----------- -----------
Cash flows from investing activities:
Net (increase) decrease in loans (6,407,724)(12,756,422) 10,368,287
Maturities and prepayments of investment
securities held-to-maturity 684,328 552,959 4,344,489
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 13,248,519 13,920,118 13,864,202
Purchases of investment
securities available-for-sale (17,959,385)(15,895,185) (27,114,772)
Proceeds from sale of investment
available-for-sale 2,280,547 5,904,906 560,024
Proceeds from sales of foreclosed
assets 29,636 50,000 142,879
Purchases of premises and equipment, net (273,973) (339,460) (260,359)
Improvements of other real estate (8,659) (4,600) -
Net cash received in branch
acquisitions 13,063,585 - -
------------ ------------ ------------
Net cash provided by (used
in) investing activities $ 4,656,874 (8,465,367) 2,878,034
------------ ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in
deposits $ 3,418,517 (2,725,693) (4,396,004)
Net decrease in securities sold
under agreements to repurchase - - (549,615)
Federal Home Loan Bank borrowings
(repayments), net (10,022,140) 11,047,860 (821,427)
Repayments on note payable (125,000) (830,000) (1,150,000)
Issuance of common stock under stock
option plan 69,637 62,882 109,023
Payment of dividends (371,238) (353,544) (333,891)
Purchase of treasury stock (45,448) - -
------------- ------------ ------------
Net cash provided by (used
in) financing activities (7,075,672) 7,201,505 (7,141,914)
------------- ---------- --------------
Net increase (decrease) in
cash and cash equivalents (481,320) 439,484 (2,822,922)
Cash and cash equivalents at
beginning of year 4,315,013 3,875,529 6,698,451
------------- ----------- -------------
<Page>
Cash and cash equivalents at end
of year $ 3,833,693 4,315,013 3,875,529
============= =========== =============
Supplemental disclosure of cash flow information:
Cash paid during the year for
income taxes $ 424,000 240,000 702,000
============ ============ =============
Cash paid during the year for
interest $ 5,957,000 4,978,000 5,623,000
============ ============ =============
Supplemental schedule of noncash
investing and
financing activities:
Transfer of loans to real
estate owned $ 369,000 105,000 39,000
Branch acquisitions:
Liabilities assumed 13,827,000 - -
Fair value of assets acquired 764,000 - -
============ =========== ==============
Branch sale:
Liabilities sold $ - - 2,769,000
Assets sold - - 3,742,000
============ =========== =============
</Table>
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
(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). Intercompany balances and
transactions have been eliminated in consolidation.
<Page>
(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
<Page>
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
2000, 1999, or 1998.
Goodwill and core deposit amortization was $237,919, $226,113, and
$245,958 in 2000, 1999, and 1998, respectively. The remaining
unamortized balances of such assets at December 31, 2000 and 1999
aggregated $2,847,836 and $2,298,997, 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
consolidated 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 accounting principles generally
accepted in the United States of America. Actual results could differ
from those estimates.
<Page>
(j)Comprehensive Income
The Company's only component of other comprehensive income is the
unrealized holding gains and losses on available-for-sale securities as
shown below:
<Table>
<Caption>
For the years ended
December 31
-----------------------
2000 1999 1998
------- ------- ------
Unrealized holding gains (losses) $935,242 (982,160) 268,694
Less reclassification adjustment for gains
(losses)included in net income (30,368) 7,147 10,795
------- ------- ------
Net unrealized gains (losses) on
securities 965,610 (989,307) 257,899
Income tax expense (benefit) 366,931 (375,937) 98,071
------- ------- ------
Other comprehensive income $598,679 (613,370) 159,828
======= ======= ======
</Table>
(k)Earnings Per Share
Basic earnings per share have been computed based upon the weighted
average number of common shares outstanding during each year. Diluted
earnings per share include the effect of all potential common shares
outstanding during each year. Earnings per share for all periods
presented have been adjusted to give effect to the 5% stock dividends
paid by the Company annually since 1994, and the two-for-one stock split
declared on January 21, 1998.
The shares used in the calculation of basic and diluted income per
share, which have been restated for the annual 5% stock dividends and
the 1998 stock split, are shown below:
<Table>
<Caption>
For the years ended
December 31
<Page>
------------------------------
2000 1999 1998
----- ----- -----
Weighted average common
shares outstanding 1,517,815 1,516,880 1,501,863
Stock options 35,950 41,972 58,109
------- ------- --------
1,553,765 1,558,852 1,559,972
========= ========= =========
</Table>
(2) Acquisitions
On July 31, 2000, the Company acquired two branches from Commercial Federal
Savings Bank in Osage City and Wamego, Kansas. The Company acquired the
assets and assumed the liabilities of the branches, which consisted mainly
of deposit accounts. The Company received $13.1 million cash in the
transaction because the liabilities assumed exceeded the assets received.
The acquisition was accounted for as a purchase and resulted in goodwill of
approximately $787,000.
The Company sold a branch in Beloit, Kansas 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 previously recorded goodwill.
(3) Investment Securities
A summary of investment securities information is as follows:
<Table>
<Caption>
December 31, 2000
-----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal obligations $ 830,186 1,336 697 830,825
Mortgage-backed securities 84,123 958 -- 85,081
----------- ----------- ----------- -----------
Total $ 914,309 2,294 697 915,906
=========== =========== =========== ===========
<Page>
Available-for-sale:
U. S. government and agency
obligations $16,328,869 252,065 12,994 16,567,940
Municipal obligations 12,567,754 158,727 20,049 12,706,432
Mortgage-backed securities 15,447,731 66,407 98,058 15,416,080
FHLB stock 1,136,100 -- -- 1,136,100
Other investments 907,700 -- -- 907,700
----------- ----------- ----------- -----------
Total $46,388,154 477,199 131,101 46,734,252
=========== =========== =========== ===========
</Table>
<Table>
<Caption>
December 31, 1999
-----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal obligations $ 1,506,837 1,503 3,952 1,504,388
Mortgage-backed securities 96,431 1,265 -- 97,696
----------- ----------- ----------- -----------
Total $ 1,603,268 2,768 3,952 1,602,084
=========== =========== =========== ===========
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
=========== =========== =========== ===========
</Table>
Maturities of investment securities at December 31, 2000 are as follows:
<Table>
<Caption>
Amortized Estimated
cost fair value
----------- -----------
Held-to-maturity:
Due in less than one year $ 473,380 $ 473,181
Due after one year but within five years 356,806 357,644
Mortgage-backed securities 84,123 85,081
----------- -----------
<Page>
Total $ 914,309 $ 915,906
=========== ===========
Available-for-sale:
Due in less than one year $ 5,068,555 $5,059,11
Due after one year but within five years 18,728,798 18,988,303
Due after five years 5,099,269 5,226,956
Mortgage-backed securities and other
investments 17,491,532 17,459,880
----------- -----------
Total $46,388,154 $46,734,252
=========== ===========
</Table>
Except for U.S. government and agency obligations, no investment in a
single issuer exceeded 10% of stockholders' equity.
At December 31, 2000 and 1999, securities pledged to secure public funds on
deposit had a carrying value of approximately $32 million and $30 million,
respectively.
(4) Loans
Loans consist of the following at December 31:
<Table>
<Caption>
2000 1999
------- ------
Real estate loans:
One-to-four family residential $28,539,735 27,125,681
Commercial 32,050,399 31,635,398
Commercial loans 24,326,775 20,482,825
Consumer loans 8,686,434 7,168,702
Student loans 1,500,635 1,876,948
--------- ----------
Total 95,103,978 88,289,554
Less:
Loans in process 77,672 5,159
Deferred loan fees 72,194 66,629
Allowance for loan losses 1,277,258 1,248,758
--------- ---------
Loans, net $93,676,854 86,969,008
========== ==========
</Table>
<Page>
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.
In the normal course of business, there are various commitments and
contingent liabilities, such as guarantees, commitments to extend credit,
letters of credit, and lines of credit, which are properly not recorded in
the accompanying consolidated financial statements. The Company generally
requires collateral or other security on unfunded loan commitments and
irrevocable letters of credit. Commitments to extend credit and lines of
credit aggregated approximately $14.7 million and $16.4 million at December
31, 2000 and 1999, respectively.
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, Wamego, and Osage City, Kansas and the
surrounding communities, and substantially all of the Company's loans are
to residents of or secured by properties located in its principal lending
area. Accordingly, the ultimate collectibility of the Company's loan
portfolio is dependent upon market conditions in those areas. These
geographic concentrations are considered in management's establishment of
the allowance for loan losses.
A summary of the activity in the allowance for loan losses is as follows:
<Table>
<Caption>
2000 1999 1998
------- ------- --------
Balance at beginning of year $ 1,248,758 1,291,901 1,335,024
Provision 85,000 15,000 90,000
Charge-offs (72,310) (114,101) (170,977)
Recoveries 15,810 55,958 37,854
----------- ----------- -----------
Balance at end of year $ 1,277,258 1,248,758 1,291,901
=========== =========== ===========
</Table>
At December 31, 2000 and 1999, impaired loans, including nonaccrual loans,
aggregated approximately $406,000 and $466,000, respectively.
The Bank serviced loans for others of $13.3 million and $15.2 million at
December 31, 2000 and 1999, 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 2000, 1999, or 1998.
<Page>
The Bank had loans to directors and officers at December 31, 2000, which
carry terms similar to those for other loans. A summary of such loans is as
follows:
<Table>
<Caption>
Balance at beginning $1,756,916
New loans 354,422
Payments (169,357)
--------
Balance at end of year $ 1,941,981
=========
</Table>
(5) Premises and Equipment
Premises and equipment consist of the following at December 31:
<Table>
<Caption>
2000 1999
-------- --------
Land $ 353,412 353,412
Office buildings and improvements 2,175,737 2,131,167
Furniture and equipment 2,076,769 1,877,026
Automobiles 186,565 171,760
-------- --------
Total 4,792,483 4,533,365
Less accumulated depreciation 2,538,754 2,245,337
--------- ---------
Total $2,253,729 2,288,028
========= =========
</Table>
The Company has multiyear operating lease agreements for several of its
branch locations. The Company's minimum lease commitments in future years
are:
<Table>
<Caption>
<Page>
Year ending
December 31, Amount
------------ ------
2001 $ 95,184
2002 95,184
2003 95,184
2004 95,184
2005 54,332
--------
Total $ 435,068
=========
</Table>
Total rent expense for the years ended December 31, 2000, 1999, and 1998
was $85,797, $42,601, and $42,540, respectively.
(6) Time Deposits
Maturities of time deposits are as follows at December 31, 2000:
<Table>
<Caption>
Year Amount
------ ---------
2001 $51,761,295
2002 6,811,066
2003 2,379,004
2004 1,859,066
2005 300,887
-----------
Total $63,111,318
===========
</Table>
(7) Federal Home Loan Bank Advances
There were no short-term advances outstanding at December 31, 2000.
Short-term advances from the FHLB at December 31, 1999 were $7,440,000,
with rates ranging from 5.40% to 5.97%. Long-term advances from the FHLB at
December 31, 2000 and 1999 amount to $3,892,870 and $7,250,010,
respectively. Maturities of such advances at December 31, 2000 are
summarized as follows:
<Table>
<Caption>
Year ending
December 31, Amount Rates
------------- ------- ------------
<Page>
2002 $ 2,285,720 6.24% - 6.95%
2003 607,150 6.83% - 7.23%
2004 1,000,000 6.44%
-------
$ 3,892,870
=========
</Table>
The Bank has a line of credit, renewable annually in September, with the
FHLB under which there were outstanding borrowings of $1,740,000 and
$965,000 at December 31, 2000 and 1999, respectively. Interest on any
outstanding balances on the line of credit accrues at the federal funds
rate plus .15% (6.90% at December 31, 2000).
Although no loans are specifically pledged, the FHLB requires the Bank to
maintain eligible collateral (qualifying loans and investment securities)
that has a lending value at least equal to its required collateral. At
December 31, 2000, the Bank's total borrowing capacity with the FHLB was
approximately $26.4 million.
(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 $119,870 and $173,847 at December
31, 2000 and 1999, respectively, bears interest at the prime rate (9.50% at
December 31, 2000), is due in 2002, and is secured by the 21,923
unallocated shares of Company common stock held by the ESOP. The Company's
line of credit had outstanding balances of $745,000 and $870,000 at
December 31, 2000 and 1999, 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 2000, 1999, and 1998 is allocated as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Operations $476,059 463,317 478,142
Stockholders' equity 366,931 (375,937) 98,071
-------- -------- --------
$842,990 87,380 576,213
======== ======== ========
</Table>
<Page>
The components of income tax expense allocated to earnings are as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Current $449,459 415,917 607,542
Deferred 26,600 47,400 (129,400)
-------- -------- --------
$476,059 463,317 478,142
======== ======== ========
Federal $401,059 392,917 429,736
State 75,000 70,400 48,406
-------- -------- --------
$476,059 463,317 478,142
======== ======== ========
</Table>
The reasons for the difference between actual income tax expense and
expected income tax expense allocated to earnings before extraordinary loss
at the 34% statutory federal income tax rate are as follows:
<Table>
<Caption>
2000 1999 1998
--------- --------- ---------
Expected income tax expense at statutory rate $ 529,038 464,969 496,458
Tax-exempt interest (135,182) (108,974) (63,000)
Nondeductible amortization 40,182 40,182 59,565
State income taxes 49,500 46,464 31,947
Tax credit (28,700) (15,900) --
Other, net 21,221 36,576 (46,828)
--------- --------- ---------
$ 476,059 463,317 478,142
========= ========= =========
</Table>
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and liabilities at December 31, 2000
and 1999 are as follows:
<Page>
<Table>
<Caption>
2000 1999
------- -------
Deferred tax assets:
Unrealized loss on investment securities
available-for-sale $ - 235,400
Allowance for loan losses 384,000 376,000
State taxes 800 -
Other 8,300 23,000
------- -------
Total deferred tax assets 393,100 634,400
------- -------
Deferred tax liabilities:
Unrealized gain on investment securities
available-for-sale 131,500 -
Core deposit intangible 32,000 47,000
FHLB stock dividends 255,000 255,000
Premises and equipment 27,000 15,500
State taxes - 4,000
Other 70,500 95,500
------- -------
Total deferred tax liabilities 516,000 417,000
------- -------
Net deferred tax asset(liability) $(122,900) 217,400
======= =======
</Table>
A valuation allowance for deferred tax assets was not necessary at December
31, 2000 or 1999.
(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. At December 31, 2000, the ESOP held 112,703 shares of Company 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 2000, 1999, and 1998 were
approximately $46,000, $45,000, and $55,000, respectively.
<Page>
The Company has a stock option plan for directors and selected officers and
employees. The exercise price of options granted under the plan is at least
equal to the fair market value on the date of grant. The options vest over
varying periods of time and are exercisable for up to ten years.
Information with respect to option activity (as adjusted for stock
dividends and split) is as follows:
<Table>
<Caption>
Number Weighted average
of exercise price
shares per share
------- --------------
Outstanding at December 31, 1997 86,200 $ 4.65
Effect of 5% stock dividend 3,635 -
Issued 4,071 13.13
Exercised (17,192) 5.20
-------
Outstanding at December 31, 1998 76,714 4.75
Effect of 5% stock dividend 3,223 -
Issued 250 13.00
Exercised (12,419) 5.06
-------
Outstanding at December 31, 1999 67,768 4.50
Effect of 5% stock dividend 4,854 -
Issued 29,400 8.38
Exercised (18,713) 3.55
-------
Outstanding at December 31, 2000 83,309 5.84
======= ========
Options exercisable at December 31, 2000 52,047 $ 4.34
======= ========
</Table>
Options outstanding at December 31, 2000 were exercisable at prices ranging
from $3.55 to $11.90.
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, 1999, and 2000 were estimated
utilizing the following assumptions: dividend yields of 1.8%, 1.9%, and
1.9%; volatility of 17.2%, 17.2%, and 17.2%; risk-free interest rate of
<Page>
6.5%, 7.0%, and 7.0%; and expected lives of five years, respectively. Pro
forma net earnings and diluted net earnings per share for 2000, applying
the disclosure provisions of SFAS No. 123, would have been approximately
$1,059,000 and $.68. Pro forma net earnings and earnings per share for 1999
and 1998, 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 $7,000, $31,000, and $6,000 in
2000, 1999, and 1998, respectively. In 2000 and 1998, accrued bonuses
payable were used to purchase 399 shares and 1,480 shares of common stock
from the Company for $3,142 and $19,703, respectively.
(11) Fair Value of Financial Instruments
Fair value estimates of the Company's financial instruments as of December
31, 2000 and 1999, including methods and assumptions utilized, are set
forth below:
<Table>
<Caption>
2000 1999
------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------- --------- --------- ---------
Investment securities $ 47,648,561 47,650,000 45,005,468 45,004,000
=========== =========== ========== ==========
Loans, net of unearned fees
and allowance for loan
losses $ 93,676,854 92,474,000 86,969,008 83,182,000
=========== =========== ========== ==========
Noninterest bearing demand
deposits $ 10,721,389 10,721,000 10,124,653 10,125,000
Money market and NOW
deposits 44,390,474 44,390,000 37,073,098 37,073,000
Savings deposits 11,962,879 11,963,000 10,017,267 10,017,000
Time deposits 63,111,318 62,855,000 55,121,311 54,981,000
----------- ----------- ----------- -----------
Total deposits $130,186,060 129,929,000 112,336,329 112,196,000
=========== =========== =========== ===========
FHLB advances $ 5,632,870 5,687,000 15,655,010 15,456,000
=========== =========== =========== ===========
Other borrowings $ 864,870 865,000 1,043,847 1,044,000
=========== =========== =========== ===========
</Table>
<Page>
Methods and Assumptions Utilized
The carrying amount of cash and cash equivalents, loans held for sale,
federal funds sold, and accrued interest receivable and payable are
considered to approximate fair value.
The estimated fair value of investment securities, except certain
obligations of states and political subdivisions, is based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain obligations of states and
political subdivisions is not readily available through market sources
other than dealer quotations, so fair value estimates are based upon quoted
market prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by collateral type, interest terms, and maturities. In
estimating the fair value of each category of loans, the carrying amount of
the loan is reduced by an allocation of the allowance for loan losses. Such
allocation is based on management's loan classification system which is
designed to measure the credit risk inherent in each classification
category. The estimated fair value of performing variable rate loans is the
carrying value of such loans, reduced by an allocation of the allowance for
loan losses. The estimated fair value of performing fixed rate loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the interest
rate risk inherent in the loan, reduced by an allocation of the allowance
for loan losses. The estimate of maturity is based on the Company's
historical experience with repayments for each loan classification,
modified, as required, by an estimate of the effect of current economic and
lending conditions. The fair value for significant nonperforming loans is
the estimated fair value of the underlying collateral based on recent
external appraisals or other available information, which generally
approximates carrying value, reduced by an allocation of the allowance for
loan losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, money market accounts, and
NOW accounts, is equal to the amount payable on demand. The fair value of
interest-bearing time deposits is based on the discounted value of
contractual cash flows of such deposits. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
The carrying amounts of FHLB advances and other borrowings approximate fair
value because such borrowings have relatively short terms or adjustable
interest rates.
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
<Page>
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, 2000, the Company and the Bank
meet all capital adequacy requirements to which they are subject. The
following is a comparison of the Company's regulatory capital to minimum
capital requirements at December 31, 2000 (dollars in thousands):
<Table>
<Caption>
To be well-
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
------------- -------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 2000:
Total capital
(to risk-weighted assets) 12,828 13.21% $=> 7,771 => 8.00% $=> 9,714 => 10.00%
Tier 1 capital
(to risk-weighted assets) 11,614 11.96 => 3,885 => 4.00 => 5,828 => 6.00
Tier 1 capital
(to average assets) 11,614 7.90 => 5,883 => 4.00 => 7,354 => 5.00
======= ===== ======= ===== ======= =====
As of December 31, 1999:
Total capital
(to risk-weighted assets) 12,515 13.72% $=> 7,297 => 8.00% $=> 9,122 => 10.00%
Tier 1 capital
(to risk-weighted assets) 11,375 12.47 => 3,649 => 4.00 => 5,473 => 6.00
Tier 1 capital
(to average assets) 11,375 8.15 => 5,583 => 4.00 => 6,979 => 5.00
====== ===== ======== ===== ======= =====
</Table>
<Page>
(13) Parent Company Condensed Financial Statements
Following is condensed financial information of the Company as of and for
the years ended December 31, 2000 and 1999:
<Table>
<Caption>
Condensed Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
--------- --------
Cash $ 8,014 25,293
Investment securities 17,500 17,500
Investment in subsidiary 15,532,720 14,310,313
---------- ----------
Total assets $ 15,558,234 14,353,106
========== ==========
Liabilities and Stockholders' Equity
Borrowed funds $ 864,870 1,043,847
Other 17,438 18,875
Stockholders' equity 14,675,926 13,290,384
----------- ----------
Total liabilities and stockholders' equity $ 15,558,234 14,353,106
=========== ==========
</Table>
Condensed Statements of Earnings
Years ended December 31, 2000, 1999, and 1998
<Table>
<Caption>
2000 1999 1998
----------- ----------- -----------
Dividends from subsidiary $ 552,298 1,111,352 1,357,335
Interest income 1,119 3,187 10,400
Interest expense (82,004) (86,048) (209,485)
Other expense, net (80,112) (102,180) (98,998)
----------- ----------- -----------
<Page>
Income before equity in undistributed
earnings of subsidiary 391,301 926,311 1,059,252
Increase (decrease) in undistributed equity
of subsidiary 623,728 (89,243) (224,227)
----------- ----------- -----------
Earnings before income taxes 1,015,029 837,068 835,025
Income tax benefit 64,906 67,171 147,003
----------- ----------- -----------
Net earnings $ 1,079,935 904,239 982,028
=========== =========== ===========
</Table>
<Table>
<Caption>
Condensed Statements of Cash Flows
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 1,079,935 904,239 982,028
(Increase) decrease in undistributed equity
of subsidiary (623,728) 89,243 224,227
Other (1,437) 75,371 (8,683)
----------- ----------- -----------
Net cash provided by operating activities 454,770 1,068,853 1,197,572
----------- ----------- -----------
Cash flows from investing activities:
Maturity of investment securities -- -- 150,000
Investment in subsidiary -- -- (25,589)
----------- ----------- -----------
Net cash provided by investing activities -- -- 124,411
----------- ----------- -----------
Cash flows from financing activities:
Issuance of shares under stock option plan 69,637 62,882 109,023
Repayments on note payable (125,000) (830,000) (1,150,000)
Purchase of treasury stock (45,448) -- --
Payment of dividends (371,238) (353,544) (333,891)
----------- ----------- -----------
Net cash used in financing activities (472,049) (1,120,662) (1,374,868)
----------- ----------- -----------
<Page>
Net decrease in cash (17,279) (51,809) (52,885)
Cash at beginning of year 25,293 77,102 129,987
----------- ----------- -----------
Cash at end of year $ 8,014 25,293 77,102
=========== =========== ===========
</Table>
Dividends paid by the Company are provided through subsidiary Bank
dividends. At December 31, 2000, the Bank could distribute dividends of up
to $311,000 without prior regulatory approvals.