ITEM 1.	BUSINESS
REGISTRANT AND ITS SUBSIDIARIES
	MNB Bancshares, Inc. (the "Company") is a bank holding company incorporated under the laws of the State of Delaware. Currently, the Company's business consists solely of the ownership of Security National Bank, Manhattan, Kansas (the "Bank"). The Bank is a wholly-owned subsidiary of the Company and is the successor-in-interest to Manhattan National Bank, formerly Manhattan Federal Savings and Loan Association (the "Association"), which, on January 5, 1993, converted concurrently from a federal mutual savings association to a federal stock savings association (the "Stock Conversion") and from a federal stock savings association to a national bank (the "Bank Conversion") (collectively, the "Conversion"). The term "Bank", as used in this Form 10-K, sometimes refers to the Association during the period prior to the Conversion.
	The Company was organized on August 27, 1992, at the direction of the Board of Directors of the Association to acquire all of the stock issued by the Association upon consummation of the Stock Conversion. On January 5, 1993, in connection with the Stock Conversion, the Company issued and sold 925,750 shares of its common stock, par value $0.01 per share, in a Subscription and Community Offering to the Company's employee stock ownership plan, the Association's members and the general public. Total net proceeds of the Subscription and Community Offering, after Conversion expenses of approximately $600,000, were approximately $4 million. The Company utilized $2 million of the net proceeds to acquire all of the common stock, par value $1.00 per share, issued by the Association in connection with the Stock Conversion. The remaining net proceeds were then invested by the Company in interest bearing deposit accounts at the Bank and in other investment securities.
	On April 1, 1995, the Company acquired all of the issued and outstanding stock of Auburn Security Bancshares, Inc. ("Auburn"), which had consolidated assets of approximately $20 million. Auburn was a one-bank holding company which owned 99% of the outstanding stock of Security State Bank, Auburn, Kansas. Subsequent to the acquisition, the Company acquired all of the remaining stock of Security State Bank. On December 31, 1995, the Company merged and consolidated Manhattan National Bank and Security State Bank into Security National Bank. In May, 1997, a de novo branch was opened in Topeka, Kansas. On December 31, 1997, the Company acquired Freedom Bancshares, Inc., Osage City, Kansas ("Freedom"), the holding company for Citizens State Bank, Osage City, Kansas ("Citizens"), with a branch in Beloit, Kansas. Consolidated assets acquired in this transaction were approximately $43 million. On June 5, 1998, the Company sold the Beloit, Kansas branch.
	As a bank holding company, the Company is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Company is also subject to various reporting requirements of the Securities and Exchange Commission (the "SEC").
	Pursuant to the Conversion, the Bank succeeded to all of the assets and liabilities of the Association. The Association was organized as a Kansas- chartered mutual building and loan association in 1885, and converted to a federally chartered mutual savings and loan association in 1938. The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate consumer, commercial, multi-family, and one- to-four family residential mortgage loans in the Bank's principal lending areas, consisting primarily of Manhattan, Auburn, Topeka, and Osage City, Kansas and the surrounding communities in Riley, Pottawatomie, Shawnee and Osage Counties in Kansas. Since Conversion, the Bank has focused on originating greater numbers and amounts of consumer, commercial, and agricultural loans. Additionally, greater emphasis has been placed on diversification of the deposit mix through expansion of core deposit accounts such as checking, savings, and money market accounts. The Bank has also diversified its geographical markets with the holding company acquisitions of Auburn and Osage City and the new branch facility in Topeka.
	The results of operations of the Bank are dependent primarily upon net interest income and, to a lesser extent, upon other income derived from loan servicing fees and customer deposit services. Additional expenses of the Bank include general and administrative expenses such as salaries, employee benefits, federal deposit insurance premiums, data processing, occupancy and related expenses.
	Deposits of the Manhattan branch of the Bank are insured by the Savings Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount allowable under applicable federal laws and regulations. Deposits of the remaining branches of the Bank are insured by the Bank Insurance Fund (the "BIF"). The Bank is regulated by the Office of the Comptroller of the Currency (the "OCC"), as the chartering authority for national banks, and the FDIC, as the administrator of the SAIF and the BIF. The Bank is also subject to regulation by the Federal Reserve Board with respect to reserves required to be maintained against deposits and certain other matters. The Bank is a member of the Federal Reserve Bank of Kansas City and the Federal Home Loan Bank (the "FHLB") of Topeka.
	The Company's executive office is located at 800 Poyntz Avenue, Manhattan, Kansas 66505. Its telephone number is (785) 565-2000.
Market Area
	The Bank's home office is located at 800 Poyntz Avenue, Manhattan, Kansas, with branches located at 1741 N. Washington, Auburn, Kansas; 6100 SW 21st Street, Topeka, Kansas, and 102 S 6th, Osage City, Kansas. Manhattan is located in east central Kansas, approximately 45 miles west of Topeka. Manhattan is the county seat and largest city in Riley County. Over the past decade, Riley County has experienced population and household growth at an annual rate which is slightly higher than the growth rates for Kansas in general. Auburn is located ten miles southwest of Topeka and in an area experiencing the growth and expansion of the metropolitan Topeka area. Topeka is the state capital. Osage City is approximately 30 miles south of Topeka and has a population of 2,700.
	The Bank's primary deposit gathering and lending market consists of Riley, Osage, Pottawatomie, and Shawnee Counties, Kansas. Riley County's economy is significantly influenced by employment at Fort Riley Military Base and Kansas State University, the second largest university in Kansas, which is located in Manhattan. Shawnee County's economy is strongly influenced by the City of Topeka and several major private firms and public institutions. Osage County is primarily agricultural with small private industries and business firms.
	Other sources of employment in the Manhattan branch's market area are derived from a variety of service, trade and manufacturing employers located in southern Riley County and western Pottawatomie County, including the Unified School District, the Kansas Farm Bureau and the McCall Pattern Company. Northern Riley County and eastern Pottawatomie County are primarily rural, agricultural areas. Other sources of employment in the Auburn, Osage City, and Topeka market areas are numerous manufacturing, distribution, and retail centers located in Shawnee County. These include Goodyear Tire & Rubber; Blue Cross/Blue Shield; Volume Shoe Corporation; the Menninger Foundation; and Washburn University. Others in the Topeka area include Frito-Lay, Inc.; Southwestern Bell Corporation; the Veteran's Administration; and Hill's Pet Food. Major employers in Osage City are Kan-Build, Inc., a firm which specializes in manufactured housing, and Mussatto Brothers, Inc., a wholesale beverage distributor.
Competition
	The Bank faces strong competition both in attracting deposits and making real estate and other loans. Its most direct competition for deposits comes from commercial banks and other savings institutions located in its principal market areas of Riley, Osage, Pottawatomie and Shawnee Counties, including many large financial institutions which have greater financial and marketing resources available to them. The ability of the Bank to attract and retain deposits generally depends on its ability to provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities. The Bank competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers. Additionally, competition may increase as a result of the continuing reduction on restrictions on the interstate operations of financial institutions. Pursuant to federal legislation which took effect on September 25, 1995, the Federal Reserve Board may allow a bank holding company to acquire banks located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state law, but subject to certain conditions, including certain deposit concentration limits. See "Supervision and Regulation - The Company - Investments and Activities." Further, pursuant to a federal statute which took effect on June 1, 1997, banks are able to establish branch offices in other states. See "Supervision and Regulation - The Bank - Branching Authority."
Employees
	At December 31, 1998, the Bank had a total of 66 employees (54 full time equivalent employees). The Company has no direct employees. Employees are provided with a comprehensive benefits program, including basic and major medical insurance, life and disability insurance, sick leave, an employee stock ownership plan and a 401(k) profit sharing plan. Employees are not represented by any union or collective bargaining group and the Bank considers its employee relations to be good.
SUPERVISION AND REGULATION
General
	Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Office of the Comptroller of the Currency (the "OCC"), the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance Corporation (the "FDIC"), the Internal Revenue Service and state taxing authorities and the Securities and Exchange Commission (the "SEC"). The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty.
	Federal and state laws and regulations generally applicable to financial institutions, such as the Company and its subsidiaries, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and its subsidiaries establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC's deposit insurance funds and the depositors, rather than the shareholders, of financial institutions.
	The following is a summary of the material elements of the regulatory framework that applies to the Company and its subsidiaries. It does not describe all of the statutes, regulations and regulatory policies that apply to the Company and its subsidiaries, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to the applicable statutes, regulations and regulatory policies. Any change in applicable law, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries.
Recent Regulatory Developments
	Pending Legislation. Legislation has been introduced in the Congress that would allow bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. The expanded powers generally would be available to a bank holding company only if the bank holding company and its bank subsidiaries remain well-capitalized and well-managed. At this time, the Company is unable to predict whether the proposed legislation will be enacted and, therefore, is unable to predict the impact such legislation may have on the Company and the Bank.
The Company
	General. The Company, as the sole shareholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is also required to file with the Federal Reserve periodic reports of the Company's operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.
	Investments and Activities. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank; or (iii) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws which require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
	The BHCA also generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be "so closely related to banking ... as to be a proper incident thereto." Under current regulations of the Federal Reserve, the Company and its non-bank subsidiaries are permitted to engage in a variety of banking-related businesses, including the operation of a thrift, sales and consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.
	Federal law also prohibits any person or company from acquiring "control" of a bank or a bank holding company without prior notice to the appropriate federal bank regulator. "Control" is defined in certain cases as the acquisition of 10% of the outstanding shares of a bank or bank holding company.
	Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.
	The Federal Reserve's capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: a risk-based requirement expressed as a percentage of total risk- weighted assets, and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one- half of which must be Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders' equity less intangible assets (other than certain mortgage servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments which do not qualify as Tier 1 capital and a portion of the company's allowance for loan and lease losses.
	The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve's capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.
	Under the Federal Reserve's guidelines, the capital standards described above apply on a consolidated basis to bank holding companies that have more than $150 million in total consolidated assets, but generally apply on a bank-only basis to bank holding companies that, like the Company, have less than $150 million in total consolidated assets. Nevertheless, as of December 31, 1998, the Company's total capital of $13.2 million is well in excess of the Federal Reserve Board's consolidated minimum capital requirements.
	Dividends. The Delaware General Corporation Law (the "DGCL") allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company should not pay cash dividends which exceed its net income or which can only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
	Federal Securities Regulation. The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.
The Bank
	General. The Bank is a national bank, chartered by the OCC under the National Bank Act. The Bank is a member of the FDIC's Bank Insurance Fund ("BIF") (but a portion of its deposits are deemed to be insured by the FDIC's Savings Association Insurance Fund ("SAIF")). The Bank is also a member of the Federal Reserve System. As a federally- insured national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, as the chartering authority for national banks, and the FDIC, as administrator of the BIF and the SAIF. The Bank is also a member of the Federal Home Loan Bank System, which provides a central credit facility primarily for member institutions.
	Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.
	During the year ended December 31, 1998, BIF and SAIF assessments ranged from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period beginning January 1, 1999, BIF and SAIF assessment rates will continue to range from 0% of deposits to 0.27% of deposits.
	The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (i) has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe or unsound condition to continue operations or (iii) has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank.
	FICO Assessments. Since 1987, a portion of the deposit insurance assessments paid by SAIF members has been used to cover interest payments due on the outstanding obligations of the Financing Corporation ("FICO"). FICO was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, the SAIF's predecessor insurance fund. As a result of federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members and BIF members became subject to assessments to cover the interest payments on outstanding FICO obligations. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. Until January 1, 2000, the FICO assessments made against BIF members may not exceed 20% of the amount of the FICO assessments made against SAIF members. Between January 1, 2000 and the final maturity of the outstanding FICO obligations in 2019, BIF members and SAIF members will share the cost of the interest on the FICO bonds on a pro rata basis. During the year ended December 31, 1998, the FICO assessment rate for SAIF members ranged between approximately 0.061% of deposits and approximately 0.063% of deposits, while the FICO assessment rate for BIF members ranged between approximately 0.012% of deposits and approximately 0.013% of deposits. During the year ended December 31, 1998, the Bank paid FICO assessments totaling $51,000.
	Supervisory Assessments. All national banks are required to pay supervisory assessments to the OCC to fund the operations of the OCC. The amount of the assessment is calculated using a formula which takes into account the bank's size and its supervisory condition (as determined by the composite rating assigned to the bank as a result of its most recent OCC examination). During the year ended December 31, 1998, the Bank paid supervisory assessments to the OCC totaling $47,000.
	Capital Requirements. The OCC has established the following minimum capital standards for national banks, such as the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. For purposes of these capital standards, Tier 1 capital and total capital consist of substantially the same components as Tier 1 capital and total capital under the Federal Reserve's capital guidelines for bank holding companies (see "--The Company--Capital Requirements").
	The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations of the OCC provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.
	During the year ended December 31, 1998, the Bank was not required by the OCC to increase its capital to an amount in excess of the minimum regulatory requirement. As of December 31, 1998, the Bank exceeded its minimum regulatory capital requirements with a leverage ratio of 9.14% and a risk-based capital ratio of 17.35%.
	Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the institution to submit a capital restoration plan; limiting the institution's asset growth and restricting its activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions between the institution and its affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. As of December 31, 1998, the Bank was "well capitalized", as defined by OCC regulations.
	Dividends. The National Bank Act imposes limitations on the amount of dividends that may be paid by a national bank, such as the Bank. Generally, a national bank may pay dividends out of its undivided profits, in such amounts and at such times as the bank's board of directors deems prudent. Without prior OCC approval, however, a national bank may not pay dividends in any calendar year which, in the aggregate, exceed the bank's year-to-date net income plus the bank's retained net income for the two preceding years.
	The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 1998. Further, the Bank may not pay dividends in an amount which would reduce its capital below the amount required for the liquidation account established in connection with the Bank's conversion from the mutual to the stock form of ownership in 1993. As of December 31, 1998, approximately $.7 million was available to be paid as dividends to the Company by the Bank. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of any dividends by the Bank if the OCC determines such payment would constitute an unsafe or unsound practice. 	 	Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on extensions of credit to the Company and its subsidiaries, on investments in the stock or other securities of the Company and its subsidiaries and the acceptance of the stock or other securities of the Company or its subsidiaries as collateral for loans. Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company, and to "related interests" of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person becoming a director or officer of the Company or one of its subsidiaries or a principal stockholder of the Company may obtain credit from banks with which the Bank maintains a correspondent relationship.
	Safety and Soundness Standards. The federal banking agencies have adopted guidelines which establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In addition, in October 1998, the federal banking regulators issued safety and soundness standards for achieving Year 2000 compliance, including standards for developing and managing Year 2000 project plans, testing remediation efforts and planning for contingencies.
	In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution's primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator's order is cured, the regulator may restrict the institution's rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.
	Branching Authority. National banks headquartered in Kansas, such as the Bank, have the same branching rights in Kansas as banks chartered under Kansas law. Kansas law grants Kansas-chartered banks the authority to establish branches anywhere in the State of Kansas, subject to receipt of all required regulatory approvals.
	Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if specifically authorized by state law. The legislation allowed individual states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997. Kansas law permits interstate mergers to the extent authorized by the Riegle-Neal Act, so long as any Kansas bank involved has been in existence and operation for at least five years.
	Federal Reserve System. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $46.5 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $46.5 million, the reserve requirement is $1.395 million plus 10% of the aggregate amount of total transaction accounts in excess of $46.5 million. The first $4.9 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements.
Tax Matters
	Under applicable provisions of the Internal Revenue Code of 1986, as amended ("Code"), effective as of the date of the Association's conversion to a bank, a savings association that met certain definitional tests relating to the composition of its assets and the sources of its income ("qualifying savings association") was permitted to establish reserves for bad debts. A qualifying savings association generally was permitted to make annual additions to such reserves under either the experience method or the percentage of taxable income method. In 1996, the percentage of taxable income method was repealed and savings associations were generally required to recapture their tax bad debt reserves in excess of a base year amount.
	Delaware imposes a franchise tax on corporations, such as the Company, that are incorporated under the laws of the state of Delaware. The annual Delaware franchise tax is the least of three tax computations based on: (1) the number of shares of authorized capital stock, (2) the corporation's assumed capital, or (3) certain minimum and maximum limits.
	The state of Kansas imposes a privilege tax measured by net income on certain financial institutions, including both banks and savings and loan associations, doing business in Kansas. The privilege tax consists of a normal state tax on the bank's "net income" and a surtax based on the bank's "net income" in excess of $25,000. In general, "net income" subject to the Kansas privilege tax is based on the taxpayer's Federal taxable income. The Bank was also required to restate its tax bad debt reserves for purposes of the Kansas privilege tax. The tax and financial statement impact of this restatement has been reflected in the use of an assumed combined federal and state tax rate of 38% in calculating the estimated impact of the restatement for federal tax purposes.
I.	Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differentials
	The average balance sheets are incorporated by reference from the Company's 1998 Annual Report to Stockholders (attached as Exhibit 13.1 hereto). The following table describes the extent to which changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities affected the Bank's interest income and expense during the periods indicated. The table distinguishes between (i) changes attributable to rate (changes in rate multiplied by prior volume), (ii) changes attributable to volume (changes in volume multiplied by prior rate), and (iii) net change (the sum of the previous columns). The net changes attributable to the combined effect of volume and rate, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
II. Investment Portfolio
Investments
Investment Securities. The following table sets forth the carrying value of the investment securities portfolio at the dates indicated.
As of December 31, 1998, the carrying value, maturities and the weighted average yields of investment securities were as follows:
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.
	The following table sets forth the contractual maturities of loans at December 31, 1998. The table does not include unscheduled prepayments.
	The following table sets forth at December 31, 1998 the dollar amount of all loans due after December 31, 1999 and whether such loans had fixed interest rates or adjustable interest rates:
Nonperforming Assets. The following table sets forth information with respect to nonperforming assets, including non-accrual loans and real estate acquired through foreclosure or by deed in lieu of foreclosure ("real estate owned"). Under the original terms of the Bank's non-accrual loans at December 31, 1998, interest earned on such loans during the year ended December 31, 1998 would not have been significantly different than reported. For each year shown, the Company had no loans greater than 90 days past due which were still accruing interest.
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.
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.
V.	Average Deposits by Classification
	The following table sets forth the amounts of deposits by type of account at the dates indicated.
As of December 31, 1998, the aggregate amount outstanding of jumbo certificates of deposit (amounts of $100,000 or more) was $7.8 million. The following table presents the maturities of these time certificates of deposit at such date:
(Dollars in thousands)
3 months or less $3,663 Over 3 months through 6 months 859 Over 6 months through 12 months 2,305 Over 12 months 1,006 Total $7,833
VI.	Return on Equity and Assets
ITEM 2.
ITEM 2.	PROPERTIES
The following table sets forth information concerning the offices of the Bank.
ITEM 3.
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.
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5.
ITEM 5.	MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company incorporates by reference the information called for by Item 5 on this Form 10-K from the section captioned "Stock Price Information" of the Company's 1998 Annual Report to Stockholders for the fiscal year ended December 31, 1998 (attached as Exhibit 13.1 hereto).
ITEM 6.
ITEM 6.	SELECTED FINANCIAL DATA
The Company incorporates by reference the information called for by Item 6 of this Form 10-K from the sections entitled "Selected Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 1998 Annual Report to Stockholders for the fiscal year ended December 31, 1998 (attached as Exhibit 13.1 hereto).
ITEM 7.
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incorporates by reference the information called for by Item 7 of this Form 10-K from the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 1998 Annual Report to Stockholders for the fiscal year ended December 31, 1998 (attached as Exhibit 13.1 hereto).
ITEM 8.
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company incorporates by reference the information called for by Item 8 of this Form 10-K from the Financial Statements set forth in the Company's 1998 Annual Report to Stockholders for the fiscal year ended December 31, 1998 (attached as exhibit 13.1 hereto).
ITEM 9.
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Company incorporates by reference the information called for by Item 10 of this Form 10-K regarding directors of the Company from the section entitled "Election of Directors" of the Company's Proxy Statement for the annual meeting of stockholders to be held May 19, 1999 (the "1999 Proxy Statement") (attached as Exhibit 99.1 hereto).
Section 16(a) of the Exchange Act requires that the Company's executive officers, directors and persons who own more than 10% of their Company's Common Stock file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the exchange on which the Company's shares of Common Stock are traded. Such persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Company's review of the copies of such forms, the Company is not aware that any of its directors and executive officers or 10% stockholders failed to comply with the filing requirements of Section 16(a) during the period commencing January 1, 1998 through December 31, 1998.
Executive Officers
The executive officers of the Company, each of whom is also currently an executive officer of the Bank and both of whom serve at the discretion of the Board of Directors, are identified below:
ITEM 11.
ITEM 11.	EXECUTIVE COMPENSATION
The Company incorporates by reference the information called for by Item 11 of this Form 10-K from the section entitled "Executive Compensation" of the 1999 Proxy Statement, except for information contained under the headings "Compensation Committee Report on Executive Compensation" and "Performance Graph".
ITEM 12.
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information called for by Item 12 of this Form 10-K from the section entitled "Security Ownership of Certain Beneficial Owners" of the 1999 Proxy Statement.
ITEM 13.
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information called for by Item 13 of this Form 10-K from the section entitled "Transactions with Directors, Officers and Associates" of the 1999 Proxy Statement.
PART IV
ITEM 14.
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14(a)1 and 2. Financial Statements and Schedules
MNB BANCSHARES, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS
The following audited Consolidated Financial Statements of the Company and its subsidiaries and related notes and auditors' report are incorporated by reference from the Company's 1998 Annual Report to Stockholders for the fiscal year ended December 31, 1998 (attached as Exhibit 13.1 hereto).
	Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Earnings - Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
All schedules are omitted because they are not required or are not applicable or the required information is shown in the financial statements incorporated by reference or notes thereto.
Item 14(a)3.	Exhibits
The exhibits required by Item 601 of Regulation S-K are included with this Form 10-K and are listed on the "Index to Exhibits" immediately following the signature page.
Item 14(b).	Reports on Form 8-K
None.
*** Upon written request to the President of the Company, P.O. Box 308, Manhattan, Kansas 66505-0308, copies of the exhibits listed above are available to stockholders of the Company by specifically identifying each exhibit desired in the request. A fee of $.20 per page of exhibit will be charged to stockholders requesting copies to cover copying and mailing costs.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MNB BANCSHARES, INC. 	(Registrant)
By: /s/ Patrick L. Alexander 		By: /s/ Mark A. Herpich Patrick L. Alexander			 President and Chief Executive Officer Mark Herpich 	 Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
EXHIBIT 10.13
MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1.	A STOCK OPTION to acquire 2321 shares (hereinafter referred to as "Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as the "Company") is hereby granted to Mark Herpich (hereinafter referred to as the "Optionee"), subject in all respects to the terms and conditions of the MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to as the "Plan") and such other terms and conditions as are set forth herein.
	2.	This Option is not intended to constitute an Incentive Stock Option under Section 422 (b) of the Internal Revenue Code of 1986.
	3.	The option price as determined by the Board of Directors of the Company (the "Board") is Thirteen Dollars and 12.5/100 ($13.125) per Share.
4. This option may be exercised in accordance with the following table:
DATE NUMBER OF SHARES	 		 EXERCISABLE
11/4/1999				 	465 11/4/2000				 	464 11/4/2001				 	464 11/4/2002				 	464 11/4/2003				 	464
	In the event of a Change of Control, this Option shall become immediately and fully exercisable. A "Change of Control" shall be deemed to have occurred if:
	(i)	as a result of, or in connection with, any tender offer or 		 exchange offer, merger or other business combination, sale 			 of assets or contested election, or any combination of the 				 foregoing transaction (the "Transaction"), the persons who 			 were directors of the Company before the Transaction shall 				 cease to constitute a majority of the Board or any successor 				 to the Company, unless the election, or nomination for election by the stockholders, of any new director was	approved by a vote of a majority of the Board, then such	new director shall, for purposes of the Plan, be considered	as a member of the Board;
	(ii)	the Company is merged or consolidated with another 				 corporation and as a result of the merger or consolidation less than sixty-seven percent (67%) of the outstanding 			 voting securities of the surviving or resulting corporation 		 shall then be owned in the aggregate by the former 				 stockholders of the Company, other than (a) affiliates 				 within the meaning of the Securities and Exchange Act of 			 1934 or (b) any party to the merger or consolidation;
(iii)	a tender offer or exchange offer is made and consummated 		 for the ownership of securities of the Company 				 representing thirty-three percent (33%) or more of the 				 combined voting power of the Company's then outstanding 				 voting securities; or
	(iv)	the Company transfers substantially all of its assets to 		 another corporation which is not a wholly-owned 				 subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities are acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintaining for employees benefit plans maintained for employees of the Company or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock immediately prior to such acquisition.
	5.	This Option may not be exercised if the issuance of Shares upon such exercise would constitute a violation of any applicable federal or state securities law, or any other valid law or regulation. As a condition to the exercise of this Option, the Optionee shall represent to the Company that the Shares being acquired under this Option are for investment and not with a present view for distribution or resale, unless counsel for the Company is then of the opinion that such a representation is not required under any applicable law, regulation or rule of any governmental agency.
	6.	This Option may not be transferred in any manner and may be exercised during the lifetime of the Optionee only by him. The terms of this Option shall be binding upon the Optionee's executors, administrators, heirs, assigns and successors.
	7.	This Option may not be exercised more than 10 years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan.
Dated: November 4, 1998.
						MNB BANCSHARES, INC.
						BY: _____________________ Chairman of the Board
ATTEST:
	The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: November 4, 1998
						BY: ____________________ 	Optionee
(To be executed in duplicate)
EXHIBIT 10.14
MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
	1.	A STOCK OPTION to acquire 500 shares (hereinafter referred to as "Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as the "Company") is hereby granted to Dean R. Thibault (hereinafter referred to as the "Optionee"), subject in all respects to the terms and conditions of the MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to as the "Plan") and such other terms and conditions as are set forth herein.
	2.	This Option is not intended to constitute an Incentive Stock Option under Section 422 (b) of the Internal Revenue Code of 1986.
	3.	The option price as determined by the Board of Directors of the Company (the "Board") is Thirteen Dollars and 12.5/100 ($13.125) per Share.
	4.	This Option may be exercised in accordance with the following table:
DATE 	NUMBER OF SHARES 	 EXERCISABLE
	11/4/1999					 100 11/4/2000				 	 100 	11/4/2001 	100 	11/4/2002 	100 	11/4/2003 	100
	In the event of a Change of Control, this Option shall become immediately and fully exercisable. A "Change of Control" shall be deemed to have occurred if:
	(i)	as a result of, or in connection with, any tender offer or 		 exchange offer, merger or other business combination, sale 			 of assets or contested election, or any combination of the 				 foregoing transaction (the "Transaction"), the persons who 			 were directors of the Company before the Transaction shall 				 cease to constitute a majority of the Board or any successor 				 to the Company, unless the election, or nomination for 				 election by the stockholders, of any new director was 				 approved by a vote of a majority of the Board, then such	new director shall, for purposes of the Plan, be considered as a member of the Board;
	(ii)	the Company is merged or consolidated with another 				 corporation and as a result of the merger or consolidation less than sixty-seven percent (67%) of the outstanding 			 voting securities of the surviving or resulting corporation 		 shall then be owned in the aggregate by the former 				 stockholders of the Company, other than (a) affiliates 				 within the meaning of the Securities and Exchange Act of 			 1934 or (b) any party to the merger or consolidation;
	(iii)	a tender offer or exchange offer is made and consummated 		 for the ownership of securities of the Company 				 representing thirty-three percent (33%) or more of the 				 combined voting power of the Company's then outstanding 				 voting securities; or
	(iv)	the Company transfers substantially all of its assets to 		 another corporation which is not a wholly-owned 				 subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities are acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintaining for employees benefit plans maintained for employees of the Company or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock immediately prior to such acquisition.
	5.	This Option may not be exercised if the issuance of Shares upon such exercise would constitute a violation of any applicable federal or state securities law, or any other valid law or regulation. As a condition to the exercise of this Option, the Optionee shall represent to the Company that the Shares being acquired under this Option are for investment and not with a present view for distribution or resale, unless counsel for the Company is then of the opinion that such a representation is not required under any applicable law, regulation or rule of any governmental agency.
	6.	This Option may not be transferred in any manner and may be exercised during the lifetime of the Optionee only by him. The terms of this Option shall be binding upon the Optionee's executors, administrators, heirs, assigns and successors.
	7.	This Option may not be exercised more than 10 years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan.
Dated: November 4, 1998.
					MNB BANCSHARES, INC.
						BY: _____________________ Chairman of the Board
ATTEST:
	The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: November 4, 1998
					BY: ____________________ 	Optionee
(To be executed in duplicate)
EXHIBIT 10.15
MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
	1.	A STOCK OPTION to acquire 500 shares (hereinafter referred to as "Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as the "Company") is hereby granted to David Salisbury (hereinafter referred to as the "Optionee"), subject in all respects to the terms and conditions of the MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to as the "Plan") and such other terms and conditions as are set forth herein.
	2.	This Option is not intended to constitute an Incentive Stock Option under Section 422 (b) of the Internal Revenue Code of 1986.
	3.	The option price as determined by the Board of Directors of the Company (the "Board") is Thirteen Dollars and 12.5/100 ($13.125) per Share.
	4.	This Option may be exercised in accordance with the following table:
DATE 	NUMBER OF SHARES	 EXERCISABLE
			11/4/1999				 	100 			11/4/2000				 	100 			11/4/2001				 	100 			11/4/2002				 	100 			11/4/2003				 	100
	In the event of a Change of Control, this Option shall become immediately and fully exercisable. A "Change of Control" shall be deemed to have occurred if:
	(i)	as a result of, or in connection with, any tender offer or 		 exchange offer, merger or other business combination, sale 			 of assets or contested election, or any combination of the 				 foregoing transaction (the "Transaction"), the persons who 			 were directors of the Company before the Transaction shall 				 cease to constitute a majority of the Board or any successor 				 to the Company, unless the election, or nomination for 				 election by the stockholders, of any new director was 				 approved by a vote of a majority of the Board, then such new director shall, for purposes of the Plan, be considered	as a member of the Board;
	(ii)	the Company is merged or consolidated with another 				 corporation and as a result of the merger or consolidation less than sixty-seven percent (67%) of the outstanding 			 voting securities of the surviving or resulting corporation 		 shall then be owned in the aggregate by the former 				 stockholders of the Company, other than (a) affiliates 				 within the meaning of the Securities and Exchange Act of 			 1934 or (b) any party to the merger or consolidation;
	(iii)	a tender offer or exchange offer is made and consummated 		 for the ownership of securities of the Company 				 representing thirty-three percent (33%) or more of the 				 combined voting power of the Company's then outstanding 				 voting securities; or
	(iv)	the Company transfers substantially all of its assets to 		 another corporation which is not a wholly-owned 				 subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities are acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintaining for employees benefit plans maintained for employees of the Company or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock immediately prior to such acquisition.
	5.	This Option may not be exercised if the issuance of Shares upon such exercise would constitute a violation of any applicable federal or state securities law, or any other valid law or regulation. As a condition to the exercise of this Option, the Optionee shall represent to the Company that the Shares being acquired under this Option are for investment and not with a present view for distribution or resale, unless counsel for the Company is then of the opinion that such a representation is not required under any applicable law, regulation or rule of any governmental agency.
	6.	This Option may not be transferred in any manner and may be exercised during the lifetime of the Optionee only by him. The terms of this Option shall be binding upon the Optionee's executors, administrators, heirs, assigns and successors.
	7.	This Option may not be exercised more than 10 years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan.
Dated: November 4, 1998.
						MNB BANCSHARES, INC.
						BY: _____________________ Chairman of the Board
ATTEST:
	The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: November 4, 1998
						BY: ____________________ 	Optionee
(To be executed in duplicate)
EXHIBIT 10.16
MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
	1.	A STOCK OPTION to acquire 500 shares (hereinafter referred to as "Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as the "Company") is hereby granted to Sandra Falen (hereinafter referred to as the "Optionee"), subject in all respects to the terms and conditions of the MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to as the "Plan") and such other terms and conditions as are set forth herein.
	2.	This Option is not intended to constitute an Incentive Stock Option under Section 422 (b) of the Internal Revenue Code of 1986.
	3.	The option price as determined by the Board of Directors of the Company (the "Board") is Thirteen Dollars and 12.5/100 ($13.125) per Share.
	4.	This Option may be exercised in accordance with the following table:
DATE NUMBER OF SHARES EXERCISABLE
		11/4/1999				 	100 		11/4/2000 	100 		11/4/2001 	100 		11/4/2002 100 		11/4/2003 100
	In the event of a Change of Control, this Option shall become immediately and fully exercisable. A "Change of Control" shall be deemed to have occurred if:
	(i)	as a result of, or in connection with, any tender offer or 		 exchange offer, merger or other business combination, sale 			 of assets or contested election, or any combination of the 				 foregoing transaction (the "Transaction"), the persons who 			 were directors of the Company before the Transaction shall 				 cease to constitute a majority of the Board or any successor 				 to the Company, unless the election, or nomination for 				 election by the stockholders, of any new director was 				 approved by a vote of a majority of the Board, then such	new director shall, for purposes of the Plan, be considered	as a member of the Board;
	(ii)	the Company is merged or consolidated with another 				 corporation and as a result of the merger or consolidation less than sixty-seven percent (67%) of the outstanding 			 voting securities of the surviving or resulting corporation 		 shall then be owned in the aggregate by the former 				 stockholders of the Company, other than (a) affiliates 				 within the meaning of the Securities and Exchange Act of 			 1934 or (b) any party to the merger or consolidation;
	(iii)	a tender offer or exchange offer is made and consummated 		 for the ownership of securities of the Company 				 representing thirty-three percent (33%) or more of the 				 combined voting power of the Company's then outstanding 				 voting securities; or
	(iv)	the Company transfers substantially all of its assets to 		 another corporation which is not a wholly-owned 				 subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities are acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintaining for employees benefit plans maintained for employees of the Company or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock immediately prior to such acquisition.
	5.	This Option may not be exercised if the issuance of Shares upon such exercise would constitute a violation of any applicable federal or state securities law, or any other valid law or regulation. As a condition to the exercise of this Option, the Optionee shall represent to the Company that the Shares being acquired under this Option are for investment and not with a present view for distribution or resale, unless counsel for the Company is then of the opinion that such a representation is not required under any applicable law, regulation or rule of any governmental agency.
	6.	This Option may not be transferred in any manner and may be exercised during the lifetime of the Optionee only by him. The terms of this Option shall be binding upon the Optionee's executors, administrators, heirs, assigns and successors.
	7.	This Option may not be exercised more than 10 years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan.
Dated: November 4, 1998.
MNB BANCSHARES, INC.
						BY: _____________________ 	Chairman of the Board
ATTEST:
	The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: November 4, 1998
						BY: ____________________ 	Optionee
(To be executed in duplicate)
EXHIBIT 10.17
MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
	1.	A STOCK OPTION to acquire 250 shares (hereinafter referred to as "Shares") of Common Stock of MNB BANCSHARES, INC. (hereinafter referred to as the "Company") is hereby granted to Marcia Kemper (hereinafter referred to as the "Optionee"), subject in all respects to the terms and conditions of the MNB BANCSHARES, INC. 1992 STOCK OPTION PLAN (hereinafter referred to as the "Plan") and such other terms and conditions as are set forth herein.
	2.	This Option is not intended to constitute an Incentive Stock Option under Section 422 (b) of the Internal Revenue Code of 1986.
	3.	The option price as determined by the Board of Directors of the Company (the "Board") is Thirteen Dollars and 12.5/100 ($13.125) per Share.
	4.	This Option may be exercised in accordance with the following table:
DATE 	NUMBER OF SHARES EXERCISABLE
			11/4/1999				 	50 			11/4/2000				 	50 			11/4/2001				 	50 			11/4/2002				 	50 			11/4/2003				 	50
	In the event of a Change of Control, this Option shall become immediately and fully exercisable. A "Change of Control" shall be deemed to have occurred if:
	(i)	as a result of, or in connection with, any tender offer or 		 exchange offer, merger or other business combination, sale 			 of assets or contested election, or any combination of the 				 foregoing transaction (the "Transaction"), the persons who 			 were directors of the Company before the Transaction shall 				 cease to constitute a majority of the Board or any successor 				 to the Company, unless the election, or nomination for 				 election by the stockholders, of any new director was 				 approved by a vote of a majority of the Board, then such new director shall, for purposes of the Plan, be considered	as a member of the Board;
(ii)	the Company is merged or consolidated with another 				 corporation and as a result of the merger or consolidation less than sixty-seven percent (67%) of the outstanding 			 voting securities of the surviving or resulting corporation 		 shall then be owned in the aggregate by the former 				 stockholders of the Company, other than (a) affiliates 				 within the meaning of the Securities and Exchange Act of 			 1934 or (b) any party to the merger or consolidation;
	(iii)	a tender offer or exchange offer is made and consummated 		 for the ownership of securities of the Company 				 representing thirty-three percent (33%) or more of the 				 combined voting power of the Company's then outstanding 				 voting securities; or
	(iv)	the Company transfers substantially all of its assets to 		 another corporation which is not a wholly-owned 				 subsidiary of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities are acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintaining for employees benefit plans maintained for employees of the Company or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock immediately prior to such acquisition.
	5.	This Option may not be exercised if the issuance of Shares upon such exercise would constitute a violation of any applicable federal or state securities law, or any other valid law or regulation. As a condition to the exercise of this Option, the Optionee shall represent to the Company that the Shares being acquired under this Option are for investment and not with a present view for distribution or resale, unless counsel for the Company is then of the opinion that such a representation is not required under any applicable law, regulation or rule of any governmental agency.
	6.	This Option may not be transferred in any manner and may be exercised during the lifetime of the Optionee only by him. The terms of this Option shall be binding upon the Optionee's executors, administrators, heirs, assigns and successors.
	7.	This Option may not be exercised more than 10 years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan.
Dated: November 4, 1998.
MNB BANCSHARES, INC.
						BY: _____________________ 	Chairman of the Board
ATTEST:
	The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: November 4, 1998
						BY: ____________________ 	Optionee
(To be executed in duplicate)
EXHIBIT 13.1
CORPORATE PROFILE
	MNB Bancshares, Inc. (the "Company") is a bank holding company which is headquartered in Manhattan, Kansas. Its wholly-owned subsidiary, Security National Bank (the "Bank"), also has its home office in Manhattan, Kansas, with branch offices operating in Auburn, Osage City, and Topeka, Kansas. The Bank is dedicated to providing quality services to its local communities and continues to originate commercial real estate and non real estate loans, small business loans, residential mortgage loans, consumer loans, home equity loans, and student loans. 	 	The Company was first listed on the Nasdaq Stock Market Small-Cap Market System in 1993 (symbol "MNBB", with a newspaper abbreviation of "MNB Bn"). The Company was formed in 1992 to become the holding company for the Bank, which was converted from a federal mutual savings association.
	Since its listing on Nasdaq, the Company has nearly doubled in size and has entered numerous markets outside of Manhattan through a series of acquisitions and start-up branches. The Company's continuing focus is to concentrate on being the premier community banking organization in the markets it currently serves and is continuing to explore and evaluate opportunities to expand and provide its services to new complimentary markets, through strategic acquisitions and establishing de novo branches where appropriate, in an effort to enhance its asset base, long-term earnings and resources.
TO OUR STOCKHOLDERS, CUSTOMERS, AND FRIENDS
	1998 was a year of preparation for MNB Bancshares, Inc. as we positioned your company for continued growth, profitability, and financial strength in a financial services environment that is changing at an unprecedented pace. During this year we have dramatically strengthened our management team, enhanced our asset quality and underwriting standards, and assimilated our December 31, 1997 acquisition of Freedom Bancshares, Inc. into our company's operations. Additionally, we have evaluated, tested and made all of our mission critical computer systems and software applications compliant for the Year 2000. While we feel very good about these accomplishments, we were disappointed that earnings slipped approximately 8%, to slightly under $1 million. However, we feel confident that these investments in people and systems infrastructure will serve us well and provide the foundation for continued growth and profitability in the future.
	The decision was made in the latter part of 1997 that our management team needed to be enhanced and strengthened if we were to continue to grow and diversify our balance sheet, build a portfolio of high quality loans, and improve profitability. Our goal was to establish high caliber, experienced leadership in all of our banking markets to execute our strategy of personalized service and local decision making in each of our community banks. We accomplished this goal and now have outstanding leadership in place throughout our organization who subscribe to our vision of responsive, personalized community banking. While the investment required to attract these individuals was not inexpensive, we felt that it was a sound and proper allocation of corporate resources that will yield dividends in the future.
	MNB Bancshares, Inc. has a tradition of high asset quality. Your company, as well as the rest of the nation, has enjoyed an extended period of economic prosperity. During this period of time competition for loans has intensified. During 1998, banking regulators issued industry warnings concerning a nationwide trend toward deteriorating credit standards and underwriting practices. We also noticed these industry trends and made a conscious decision in the latter part of 1997 to not only maintain our high credit standards, but to further enhance them to positively position us for any adverse economic developments. As we grew and expanded into additional markets, we implemented enhanced loan underwriting and analysis standards. Additionally, in 1998, we further improved and refined our independent loan review function. As a result of these credit administration enhancements, we targeted and moved out of our loan portfolio over three million dollars in commercial and commercial real estate loans that did not meet our lending standards. While this had a short term adverse impact on earnings, we felt that it was an opportune time to improve our overall credit quality.
	The economic cycle has not only fostered an extended period of economic prosperity but has also created another period of extremely low, long term interest rates. These rates have caused residential mortgage loan rates to fall to their lowest level in three decades. As a result of these lower rates, the industry has experienced an extremely high level of home loan mortgage refinancing. Additionally, borrowers generally have preferred to acquire long term, fixed rate loans as they have refinanced. Your company was not immune to these market forces. In spite of the fact that we originated approximately $36 million in first mortgage residential loans, the residential 1-4 family mortgage loan portfolio declined $10 million dollars as we sold our fixed rate residential loan originations to the secondary market. This decline in residential loans held in portfolio, while consistent with our long term strategy to diversify the balance sheet, occurred much more rapidly than we had anticipated. This rapid decline also adversely impacted earnings. However, we have the talent in place to grow our commercial and consumer loan portfolio which, over time, will lead to a more diversified loan portfolio and higher interest margins than the residential loans we have historically relied upon.
	Year 2000 (Y2K) is an upcoming event that is placing special demands upon all businesses due to the potential impact it may have on data processing and the delivery of services in a business environment that is heavily dependent upon computers. MNB Bancshares, Inc. aggressively addressed this issue in 1998. We completed evaluations of all our data processing equipment, software applications, outside suppliers, vendors, and counterparties. We have renovated or upgraded all mission critical computer systems and found them to be compliant. Additionally, we have evaluated both funds depositors and credit customers to determine the risk that they might pose as a result of Y2K so that we can take appropriate steps to mitigate those risks. Policies, plans, and procedures have been developed to guide contingency business resumption efforts in the event of some unforeseen development, such as power or telecommunications failure. Like all companies, we face the uncertainty of external influences on our operations at the Year 2000. However, the substantial investment of time and resources we have made in this area allows us to look forward to the new millennium with confidence.
	We feel good about our entry into the Osage City market via the acquisition of Freedom Bancshares, Inc. on December 31, 1997. We have assimilated this organization into our company and merged their operations with ours. The enhanced credit administration and underwriting procedures spoken of earlier have been implemented in this market and we feel good about the progress we have made. We continue to deliver quality, personalized community banking to the Osage City community with the strength and resources of a larger banking organization. The enhanced resources allow us to more easily fulfill our customers' diverse loan requirements, whether commercial, consumer, or residential. With the acquisition of Freedom Bancshares, Inc. we also acquired a small branch located in Beloit, Kansas. This branch had approximately $6 million in deposits and $3.5 million in loans. Due to the size of this branch, in a market outside our targeted market area, the decision was made to sell this facility, along with its loans and deposits. The divestiture of our Beloit branch was consummated in June, 1998.
	It is important to note the December 31, 1998 retirement of Susan E. Roepke, Senior Vice President and Chief Financial Officer who served this organization for over forty years. Susan was a tremendous asset whose contributions to the organization are immeasurable. She witnessed many changes within the financial services industry and played a key role in how our organization adapted and responded to those changes. She was instrumental in the 1993 conversion of our company from a thrift to a national bank charter. While her daily presence and contributions will be missed, she has provided for an orderly transition of her responsibilities to Mark Herpich, our new Chief Financial Officer who joined us in September, 1998. We are pleased that Susan has agreed to remain on the Board of Directors to allow us to benefit from her wealth of experience and knowledge with our company.
	I am excited about the future for MNB Bancshares, Inc. Our organization is very well positioned to grow both internally and through acquisition. Our management team and talent is deeper and stronger than at any time in the history of our company. Our efforts to diversify the balance sheet through the establishment of commercial relationships with our customers is accelerating at a pace we have not previously witnessed. Our asset quality is extremely high. The company has enjoyed significant growth in both assets and earnings over the last years. We have a foundation in place to continue this growth over the foreseeable future.
	Last year I mentioned that over 400 banks remain in the state of Kansas. It is expected that the pace of consolidation will continue as it becomes necessary to spread increasing fixed costs over a larger asset base. MNB Bancshares, Inc. intends to play a role in the consolidation trend by taking advantage of strategic market opportunities when possible to do so in a way that enhances franchise and shareholder value. We feel that our approach to community banking will fit well with other banks with a history of community service that are looking for a way to more effectively cope with the changing financial services environment. We expect that these banks and their owners will be comfortable in joining our community-oriented organization. MNB Bancshares, Inc. offers an attractive alternative to enable these community banks to continue to effectively compete against larger organizations with more centralized decision making structures. We continue to stress the importance of market based banking where local decision makers can respond to customer needs in a timely, professional manner. We must continue to differentiate ourselves as a community bank that values relationships and recognizes the role we play in enhancing the prosperity of our customers and the communities in which we serve.
	I would like to thank all of my associates for the key role they have played in our success over the years. Their tireless efforts are responsible for our growth and progress. I would also like to thank our customers for their faith and confidence in allowing us to meet their banking needs. And of course, I would like to thank you, our stockholders, for your investment and belief in our efforts and vision. We will continue our efforts to grow and diversify your company, with the goal of enhancing shareholder value. We look forward to the challenges and opportunities of 1999 and beyond.
Sincerely,
Patrick L. Alexander President and Chief Executive Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
	MNB Bancshares, Inc. (the "Company") is a one-bank holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly-owned subsidiary, Security National Bank (the "Bank"). On December 31, 1995, the Company merged and consolidated its two banking subsidiaries, Manhattan National Bank and Security State Bank, to form Security National Bank. On December 31, 1997, the Company acquired Freedom Bancshares, Inc. ("Freedom"), the holding company for Citizens State Bank, Osage City ("Citizens"), with a branch in Beloit, Kansas. The branch facility located in Beloit, Kansas was sold on June 5, 1998.
The Company achieved net earnings of $982,028 in 1998, a decline of $90,516, or 8.4%, over 1997. 1998 earnings declined as the Company repositioned itself for continued growth, profitability and financial strength through strengthening of the management team while assimilating the Freedom acquisition. The return on average assets was .69% compared to 1.03% in 1997. Return on average equity was 7.73% and diluted net earnings per share was $.70. Consistent with 1997, the Board of Directors declared cash dividends of twenty-five cents per share and a five percent stock dividend in 1998.
The tradition of quality assets continues and management's ongoing strategy to diversify the deposit and loan portfolios in order to increase profitability in the future has been successful. Focusing on customers' needs and the development of full service banking relationships has been instrumental to the Company's success. Management believes that the strong capital position of the Company puts it on solid ground and provides an excellent base for further growth and expansion.
The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate commercial and consumer loans, multi-family residential mortgage loans and one-to-four family residential mortgage loans.
Deposits of the Bank are insured by both the Savings Association Insurance Fund (the "SAIF") and the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount allowed by applicable federal law and regulation. The Bank's primary regulator is the Office of the Comptroller of the Currency (the "OCC"). Additionally, the Bank is subject to regulation by the FDIC, as administrator of the SAIF and the BIF and by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") with respect to reserves required to be maintained against deposits and certain other matters. The Bank is a member of the Federal Home Loan Bank of Topeka (the "FHLB") and the Federal Reserve Bank of Kansas City.
As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve Board. The Company is also subject to various reporting and other requirements under the federal securities laws and the regulations of the Securities and Exchange Commission (the "SEC").
	Currently, the Company's business consists of ownership of the Bank, with its main office in Manhattan and branch offices in Auburn, Osage City and Topeka, Kansas. The Company plans to continue exploring and evaluating opportunities to expand and enter complementary markets in an effort to enhance its asset base, long-term earnings and resources.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
GENERAL. Net earnings for 1998 decreased 8.4% to $982,028 compared to $1.1 million for 1997. This decrease in net earnings is the result of a decrease in loans outstanding related to increased levels of home mortgage refinancing due to lower interest rates. Additionally, expenses have increased due to the acquisition of Freedom, along with new personnel and Year 2000 expenses. Net interest income after provision for loan losses increased $775,303, or 20.2%, to $4.6 million. Gains on sale of loans increased 286.8%, or $285,046, to $384,427, fees and service charges increased $228,560 or 45.1%, to 735,459; and non-interest expense increased $1.4 million or 46.4%, to $4.4 million. The increase in gains on sale of loans resulted from increased loan originations due to refinancings.
INTEREST INCOME. Interest income increased by $2.4 million, or 29.8%, to $10.3 million in 1998. Average interest-earning assets increased from $100.1 million in 1997 to $133.5 million in 1998. The average yield on interest-earning assets decreased slightly from 7.9% in 1997 to 7.7% in 1998. Interest income on loans increased $1.5 million, or 24.6%, to 7.3 million. Interest earned on securities and other investments increased $913,042, or 44.5%, to $3.0 million. The increase in interest income was due to an increase in average loans and investments, primarily due to the Freedom acquisition, which more than offset the decline in rates experienced as interest- earning assets repriced during 1998. The Company experienced a significant 31.3%, or $11.4 million, decline in one-to-four family loans during 1998 as a result of borrowers taking advantage of declining mortgage loan interest rates. In accordance with the Company's interest rate risk guidelines, the majority of the long-term fixed rate mortgage loans originated in 1998 were sold to secondary market investors. While the Company was able to fund other types of loans as the loans on one-to-four family residences were refinanced, the volume of refinancings was so great that a significant amount of the funds available for investment were invested in relatively short term investment securities, which typically carry lower interest rates than can be obtained on commercial and consumer loans. Interest income on other investments also increased substantially as a result of an increase in funds available for short-term overnight interest bearing deposits.
INTEREST EXPENSE. Interest expense increased from $4.0 million in 1997 to $5.6 million in 1998, or 38.5%. Deposit interest expense increased 30.8% to $5.0 million compared to $3.9 million for 1997. Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Topeka (the "FHLB") and funds borrowed for the acquisition of Freedom increased $370,445, or 198.3% during this time period. Average interest-bearing liabilities increased $33.0 million from $83.9 million in 1997 to $116.9 million in 1998, while the respective average cost remained relatively constant at 4.8%. The increased expense on deposits was a direct result of the acquisition. Interest on borrowed funds increased as a result of the funds borrowed for the acquisition and the additional Freedom borrowings assumed.
NET INTEREST INCOME. Net interest income represents the difference between income derived from interest-earning assets and the expense on interest-bearing liabilities. Net interest income is affected by both (a) the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing liabilities ("interest rate spread") and (b) the relative amounts of interest-earning assets and interest-bearing liabilities.
	Net interest income increased to $4.7 million in 1998 compared to $3.9 million in 1997. This was the result of the average balance of interest-earning assets increasing $33.4 million during 1998 as a result of the Freedom acquisition. The yield on interest-earning assets declined from 7.9% in 1997 to 7.7% in 1998, while the cost of interest-bearing liabilities remained constant at 4.8% in 1998 and 1997. The Company's ratio of interest-earning assets to interest-bearing liabilities decreased from 119.3% in 1997 to 114.17% in 1998, which also contributed to a decline in the net interest margin from 3.9% in 1997 to 3.5% in 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased to $90,000 during 1998 compared to $60,000 in 1997. The increased provision resulted from the general increase in the Company's loan portfolio as a result of the Freedom acquisition. At December 31, 1998, the allowance for loan losses was $1.3 million, or 1.7% of gross loans outstanding, compared to $1.3 million, or 1.5%, at December 31, 1997. Management has included within the ongoing process of assessing and analyzing the loan portfolio a Year 2000 credit risk component.
NONINTEREST INCOME. Noninterest income increased $522,179, or 75.7%, to $1.2 million in 1998. Fees and service charge income increased from $506,899 to $735,459, or by 45.1%. Gains on sale of loans increased $285,046, or 286.8% to $384,427. A loss on sale of investment securities available for sale of $21,309 was incurred in 1997 compared to a gain of $10,795 in 1998 as the Company sought to reposition its portfolio. The gains on sale of loans were a result of increased loan originations due to refinancing because of lower interest rates. The increase in fees and service charge income was primarily a result of the acquisition.
NONINTEREST EXPENSE. Noninterest expense increased to $4.4 million for 1998. This large increase was due in part to the Freedom acquisition. Amortization of goodwill increased 130.3% from $106,816 to $245,958 as a result of the acquisition. Compensation and benefits increased 42.9% from $1.4 million to $2.0 million along with occupancy and equipment expense which increased $201,617 to $632,727, both primarily as a result of the acquisition and the first full year of operating the Topeka branch facility which opened in May 1997. Professional fees increased $94,416 from $118,008 to $212,424 as a result of the acquisition, expenses related to Year 2000 issues and fees incurred for professional services used for acquiring new personnel. Other operating expense increased 39.4% to $937,164 due primarily to the acquisition.
AVERAGE ASSETS/LIABILITIES. The following table sets forth information relating to average balances of interest-earning assets and interest-bearing liabilities for the years ended December 31, 1998, 1997 and 1996. This table reflects the average yields on assets and average costs of liabilities for the periods indicated (derived by dividing income or expense by the monthly average balance of assets or liabilities, respectively) as well as the "net interest margin" (which reflects the effect of the net earnings balance) for the periods shown.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL. 	Net earnings for 1997 increased 49.7% to $1.1 million from $716,530 in 1996. In 1996, the Company had an expense of $449,000, a one-time assessment to recapitalize the SAIF of the FDIC. Absent this expense, net earnings, net of tax would have been $1.0 million in 1996. Net interest income increased $270,400 or 7.5% to $3.9 million, compared to $3.6 million in 1996. Gains on sale of loans increased 31.7%, or $23,931, to $99,381, while fees and service charges decreased $10,225, or 2.0%, to $506,899. Non-interest expense increased $193,389, exclusive of the FDIC special assessment recorded in 1996, or 6.9%, to $3.0 million. This increase was due in large part to the opening of the new branch facility in Topeka in May, 1997.
INTEREST INCOME. Interest income increased $258,961, or 3.4% to $7.9 million from $7.7 million in 1996. Average interest-earning assets increased from $98.7 million in 1996 to $100.1 million in 1997. The average yield on interest-earning assets increased slightly from 7.8% to 7.9% in 1997. Interest income on loans increased $175,174, or 3.1% to $5.9 million. The increase in interest income on loans was higher due to both an increase in average loans outstanding and loans which repriced at higher rates. Interest earned on securities increased as securities matured and the proceeds were reinvested in higher yielding securities. Loans on one-to-four family residences held in the portfolio increased 8.9% to $36.5 million from $33.5 million while commercial real estate increased 78.0% to $25.5 million from $14.3 million. Additionally, consumer, student and non-mortgage commercial loans outstanding at December 31, 1997 increased 77.2% to $27.5 million from $15.5 million. Prior to the Freedom acquisition, loans on one-to-four family residences held in the portfolio decreased 11.4% to $29.7 million from $33.5 million. Commercial real estate loans increased from $14.3 million to $17.5 million, or 22.2%, and consumer and commercial non-mortgage loans increased 14.2% from $15.5 million to $17.7 million. Interest income on investment and mortgage- backed securities increased 4.3% to $2.1 million from $2.0 million in 1996.
INTEREST EXPENSE. Interest expense decreased $11,439, or 0.3%, compared to 1996. Deposit interest expense remained level at $3.9 million in 1997. Interest on borrowings, consisting of advances from the FHLB, declined 1.3% to $186,822, despite an increase in the average balances from $2.7 million to $3.2 million. Freedom had borrowings from the FHLB of $2.9 million which the Company assumed, and the Company also borrowed an additional $2.9 million for the Freedom acquisition. These amounts contributed to the increased total borrowings of $9.1 million at December 31, 1997.
NET INTEREST INCOME. Net interest income represents the difference between income derived from interest-earning assets and the expense on interest-bearing liabilities. Net interest income is affected by both (i) the difference between the rates of interest earned on interest-earning assets and the rates paid on interest-bearing liabilities ("interest rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities.
Net interest income increased to $3.9 million in 1997 compared to $3.6 million in 1996. This was the result of the yield on interest-earning assets increasing slightly from 7.8% in 1996 to 7.9% in 1997, while the cost of interest-bearing liabilities remained constant at 4.8%. The Company's ratio of interest-earning assets to interest-bearing liabilities increased to 119.3% in 1997 versus 117.4% in 1996, which also contributed to the net interest margin increasing from 3.7% in 1996 to 3.9% in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased from $15,000 during 1996 to $60,000 in 1997. At December 31, 1997, the allowance for loan losses was $1.3 million, which was 1.5% of gross loans outstanding. The acquisition of Freedom caused the allowance for loan losses to increase by $461,389 as Freedom's allowance for loan losses was combined with the Company's allowance. At December 31, 1996, the ratio of the allowance to gross loans outstanding was 1.3%. No provision for loan losses was made during the first nine months of 1996. After reviewing the portfolio and completing an economic analysis, a provision of $5,000 per month was resumed during the fourth quarter of 1996 and continued in 1997. This was due to the Bank's plans to expand its commercial lending activities. At the same time, new guidelines for credit risk evaluation and documentation were created and implemented in response to the Bank's plans to increase its commercial loan portfolio. These factors will continue to be assessed and further changes in the provision will be made if circumstances warrant such changes. Net charge-offs in 1997 were $6,025, compared to $21,704 in 1996.
NONINTEREST INCOME. Noninterest income increased 1.0% to $690,109 in 1997 from $683,297 in 1996. The increase resulted from an increase of 31.7% in gains on sale of loans from $75,450 in 1996 to $99,381 in 1997. The decrease of 7.6% to $83,829 for other income included a receipt of $69,808 in 1996 in interest on an income tax refund for tax years of 1978 and 1979. Absent this refund, other noninterest income would have increased $62,914, or 300.8%. These increases were partially offset by a decrease in fees and service charge income of $10,225 from $517,124 to $506,899, or 2.0%, and a loss of sale of investment securities available for sale of $21,309 as the Company sought to reposition its portfolio and lengthen its maturities. Some lower-yield, short-term securities were sold and the proceeds reinvested in intermediate maturity securities with higher yields.
NONINTEREST EXPENSE. Noninterest expense decreased $255,611, or 7.9%, to $3.0 million primarily due to the $449,000 one-time 1996 FDIC assessment. Stationery, printing and office supplies also decreased $14,516, or 17.0%, as a result of the change of name and the consolidation of the bank subsidiaries in 1996. Additionally, there were decreases in professional fees of $33,033, or 21.9%, from $151,041 in 1996 to $118,008 in 1997, and regular FDIC premiums from $121,633 in 1996 to $47,116, or 61.3% in 1997. Partially offsetting these decreases was a 14.4% increase in occupancy and equipment expense to $431,110 in 1997 from $376,823 in 1996, due in large part to the new Topeka branch facility opened in May. Compensation and benefits increased from $1.2 million in 1996 to $1.4 million, also largely due to the new branch. Other operating expenses increased $70,833, or 11.8%.
CAPITAL RESOURCES AND LIQUIDITY
ASSET QUALITY AND DISTRIBUTION. The Company's total assets were $135.8 million at December 31, 1998 compared to $144.8 million at December 31, 1997. This decrease was partially a result of the sale of the Beloit branch, which was completed June 5, 1998. Additionally, loans outstanding for 1-4 family homes decreased due to the refinancing and sale of those loans to the secondary market. The Company's primary ongoing sources of funds are deposits, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition, and the restructuring of the financial services industry.
	The primary investing activities of the Company are the origination of loans and the purchase of investment securities. During the years ended December 31, 1998, 1997 and 1996, the Company purchased investment securities in the amount of $27.1 million, $9.3 million and $15.6 million, respectively. These purchases were funded primarily by deposits, proceeds from the sale of fixed rate mortgage loans and maturing securities. Generally, the Company originates fixed rate mortgage loans for immediate sale and does not originate and warehouse those loans for resale in order to speculate on interest rates. During the years ended December 31, 1998, 1997 and 1996, the Company originated loans for sale of approximately $33.0 million, $14.7 million and $9.7 million, respectively. During the years ended December 31, 1997 and 1996, the Company's ability to originate quality loans for retention in the portfolio exceeded the volume of loans originated for sale. The dramatic increase in the volume of fixed rate mortgage loans originated for resale in 1998, many of which were refinances out of the Company's existing loan portfolio, resulted in a decline in net loans of $10.4 million, while the excess available funds were invested in investment securities. Management will continue its efforts to diversify the loan portfolio.
	Management believes that the quality of the loan portfolio continues to be strong. As of December 31, 1998, twenty-three real estate loans were more than 30 days past due, with a total balance of $1,018,869, which was 1.3% of total loans outstanding. Additionally, four residential mortgage loans totaling $79,902 were on non-accrual status as of December 31, 1998. Excluding guaranteed student loans, there were nine consumer loans in the amount of $18,901, or less than 0.1% of the portfolio over 30 days past due and six on non-accrual with a balance of $26,103. Nine commercial loans totaling $151,675, or 0.2% of the total loan portfolio, were past due over 30 days. Six commercial loans with a balance of $38,304 were on non-accrual.
LIABILITY DISTRIBUTION. At December 31, 1998, total deposits decreased $7.1 million from December 31, 1997 with the sale of the Beloit branch making up $2.8 million of this amount, along with approximately $3.0 million in public funds withdrawn just prior to the sale. Borrowings decreased $821,427 as FHLB advances were paid in full as they matured and quarterly payments were made on others. In addition, $1,150,000 was paid on funds borrowed for the acquisition and there was a decrease of $549,615 in securities sold under agreement to repurchase.
	The deposit base continues to diversify consistent with management's overall efforts to lower interest costs. Noninterest- bearing demand deposits and NOW accounts at the end of 1998 totaled $32.9 million, or 28.6% of deposits, compared to $34.2 million, or 28.0% of deposits at December 31, 1997. Money market deposit accounts were 15.3% of the portfolio and totaled $17.7 million, compared to $18.7 million at December 31, 1997 and savings accounts totaled $10.3 million compared to $7.0 million at December 31, 1997. Certificates of deposit were $54.2 million, or 47.1% of the portfolio compared to $62.4 million, or 51.0% at December 31, 1997. The decreases were primarily due to the sale of the Beloit branch.
	Certificates of deposit at December 31, 1998, which were scheduled to mature in one year or less totaled $40.4 million. Historically, maturing deposits have remained and management believes that a significant portion of the deposits maturing in one year or less will remain with the Company upon maturity.
CASH FLOWS. Cash flows provided by operating activities equalled $1.4 million for the year ended December 31, 1998, compared to cash flows used in operating activities equalling $110,458 in 1997. This increase in cash flows provided by operating activities resulted from the increased depreciation and amortization, the stabilization of loans held for sale and accrued expenses and other liabilities. 	 	Net cash provided by investing activities was $2.9 million in 1998 compared to net cash used in investing activities of $1.1 million in 1997. Net loans decreased approximately $10.4 million in 1998 versus an increase of $1.5 million in 1997. Maturities and prepayments of investment securities held-to-maturity were $3.7 million in 1998 versus $4.6 million in 1997. Maturities and prepayments of investment securities available-for-sale were $13.9 million in 1998 versus $4.5 million in 1997. No purchases of securities held-to-maturity were made in 1998 or 1997. Purchases of securities available-for-sale in 1998 were $27.1 million compared to $9.3 million in 1997.
	Net cash used in financing activities was $7.1 million in 1998 compared to $3.4 million provided in 1997. Exclusive of the sale of the Beloit branch and the withdrawal of Beloit's public funds of approximately $3.0 million just prior to the sale, deposits decreased $1.4 million in 1998 compared to an increase of $1.4 million in 1997 and FHLB advances decreased $821,427 in 1998 compared to a decrease of $800,000 in 1997. In addition, $1,150,000 was paid on the line of credit utilized by the Company to finance the purchase of Freedom.
LIQUIDITY. The Company's most liquid assets are cash and cash equivalents and investment securities available for sale. The level of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At December 31, 1998 and 1997, these liquid assets totaled $52.3 million and $42.1 million, respectively. During periods in which the Company is not able to originate a sufficient amount of loans and/or periods of high principal prepayments, the Company increases its liquid assets by investing in short-term U.S. Government and agency securities or high grade municipal securities.
	Liquidity management is both a daily and long-term function of management's strategy. Excess funds are generally invested in short-term investments. In the event the Company requires funds beyond its ability to generate them internally, additional funds are available through the use of FHLB advances, a line of credit with the FHLB or through sales of securities. At December 31, 1998, the Company had outstanding FHLB advances of $4.6 million and no borrowing was outstanding on its $15 million line of credit with the FHLB. Additionally, the Company has guaranteed a loan made to the Company's Employee Stock Ownership Plan (the "ESOP"), with an outstanding balance of $222,351 at December 31, 1998, to fund the ESOP's purchase of shares in the Company's 1993 common stock offering. The total borrowings by the Company were $6.5 million at December 31, 1998, which included $1.7 million borrowed by the Company for the acquisition of Freedom, compared to $9.1 million at December 31, 1997.
	At December 31, 1998, the Company had outstanding loan commitments of $16.4 million. Management anticipates that sufficient funds will be available to meet current loan commitments. These commitments consist of letters of credit, unfunded lines of credit and commitments to finance real estate loans.
CAPITAL. The Federal Reserve Board has established capital requirements for bank holding companies which generally parallel the capital requirements for national banks under the Office of the Comptroller of the Currency (the "OCC ") regulations. The regulations provide that such standards will generally be applied on a bank-only (rather than a consolidated) basis in the case of a bank holding company with less than $150 million in total consolidated assets, such as the Company. The Company's total capital of $13.2 million is, however, well in excess of the Federal Reserve Board's consolidated minimum capital requirements.
At December 31, 1998, the Bank continued to maintain a sound Tier 1 capital ratio of 9.14% and a risk based capital ratio of 17.35%. As shown by the following table, the Bank's capital exceeded the minimum capital requirements: (dollars in thousands)
	Banks and bank holding companies are generally expected to operate at or above the minimum capital requirements. The above ratios are well in excess of regulatory minimums and should allow the Company to operate without capital adequacy concerns. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a bank rating system based on the capital levels of banks. The Bank is rated "well capitalized", which is the highest rating available under this capital-based rating system.
DIVIDENDS
	During 1998, dividends of $.25 per share were paid to the stockholders and a 5% stock dividend was paid during August 1998. The cash and stock dividends are consistent with those paid during 1997.
		The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 1998. The National Bank Act imposes limitations on the amount of dividends that a national bank may pay without prior regulatory approval. Generally, the amount is limited to the bank's current year's net earnings plus the adjusted retained earnings for the two preceding years. As of December 31, 1998, approximately $733,000 was available to be paid as dividends to the Company by the Bank.
RECENT ACCOUNTING DEVELOPMENTS
	The Company adopted Statement of Financial Accounting Standard (SFAS) Nos. 125 and 127 relating to transfers and servicing of financial assets and extinguishments of liabilities during 1997 and 1998, according to the required implementation dates. The adoption of SFAS Nos. 125 and 127 did not have a material effect on the financial statements.
	SFAS No. 130, "Reporting Comprehensive Income", adopted by the Company during 1998, requires the reporting of comprehensive income and its components in 1998 financial statements. Comprehensive income is defined as the change in equity from transactions and other events and circumstances from non- owner sources, and excludes investments by and distributions to owners. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. The Company's only component of other comprehensive income is unrealized holding gains and losses on available for sale securities.
	The Company also adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires reporting about operating segments, products and services, geographic areas and major customers. Its objective is to provide information about the different types of business activities and economic environments in which businesses operate. The adoption of SFAS No. 131 did not require any additional disclosure.
	The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", in June 1998. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management believes adoption of SFAS No. 133 will not have a material effect on the Company's financial position or results of operations, nor will adoption require additional capital resources.
EFFECTS OF INFLATION
	The Company's financial statements and accompanying footnotes have been prepared in accordance with GAAP (generally accepted accounting principles), which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation can be found in the increased cost of the Company's operations because the assets and liabilities of the Company are primarily monetary and interest rates have a greater impact on the Company's performance than do the effects of inflation.
YEAR 2000 COMPLIANCE
	The Company utilizes and is dependent upon data processing systems and software to conduct its business. The data processing systems and software include those developed and maintained by the Company's data processing provider and purchased software which is run on in-house computer networks. In 1997, the Company established a committee and initiated a review and assessment of all hardware and software to confirm that it will function properly in the Year 2000.
	The Company's data processing provider and those vendors providing mission critical systems and software which have been contacted have indicated their hardware and/or software is Year 2000 compliant. Testing of the mission critical systems and software was completed as of December 31, 1998 with all final testing on non-mission critical items to be completed by March 31, 1999. Additionally, alarms, elevators, heating and cooling systems, and other computer-controlled mechanical devices on which the Company relies have been evaluated and no significant problems are anticipated with such systems.
	While there will be expenses incurred during the next year, the Company has not identified any situations at this time that it anticipates will require material expenditures in order to become fully compliant. It is currently estimated that total Year 2000 costs could be approximately $150,000, almost all of which has already been recognized and of which a material component was the reallocation of existing employee time to the Year 2000 project. In the event utility company services to the Company are significantly curtailed or interrupted, it would have an adverse effect on the Company's ability to conduct its business. However, the Year 2000 problem is pervasive and complex and can potentially affect any computer process. Accordingly, no assurance can be given that Year 2000 compliance can be achieved without additional unanticipated expenditures and uncertainties that might affect future financial results.
	An analysis has been done of the Company's borrowing customers. The Company has initiated a program to communicate with identified key bank customers to ensure they are properly prepared for the Year 2000. The Company does not anticipate that these credit customers will cause serious adverse consequences on the operations of the Company. This same analysis has been performed for large depositors and funds providers with similar results.
	A contingency and business resumption plan has been developed for the Company to provide for reducing the business interruption of normal business operation in the event of a Y2K-related failure. This plan continues to be evaluated and revised if necessary, based on testing results and vendor notifications.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	The Company's assets and liabilities are principally financial in nature and the resulting net interest income thereon is subject to changes in market interest rates and the mix of various assets and liabilities. Interest rates in the financial markets affect the Company's decision on pricing its assets and liabilities which impacts net interest income, a significant cash flow source for the Company. As a result, a substantial portion of the Company's risk management activities relates to managing interest rate risk.
	The Company's Asset/Liability Management Committee monitors the interest rate sensitivity of the Company's balance sheet using earnings simulation models and interest sensitivity GAP analysis. The Company has set policy limits of interest rate risk to be assumed in the normal course of business and monitors such limits through its simulation process.
	The Company has been successful in meeting the interest rate sensitivity objectives set forth in its policy. Simulation models are prepared to determine the impact on net interest income for the coming twelve months, including one using rates at December 31, 1998 and forecasting volumes for the twelve month projection. This position is then subjected to a shift in interest rates of 200 basis points rising and 200 basis points falling with an impact to the Company's net interest income on a one year horizon as follows:
	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.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
This annual report, including the President's Letter to Stockholders, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statement to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward- looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiary include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be place on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.
Independent Auditors' Report
The Board of Directors MNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of MNB Bancshares, Inc. and subsidiaries (the Company) as of December 31, 1998 and 1997 and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three- year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles.
(Insert Electronic Signature Here)
January 19, 1999
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES MANHATTAN, KANSAS
	(1)	Summary of Significant Accounting Policies
(a)	Principles of Consolidation The accompanying consolidated financial statements include the accounts of MNB Bancshares, Inc. (the Company) and its wholly-owned subsidiaries, principally Security National Bank (the Bank, including the merger with the former Citizens State Bank on December 31, 1997). Intercompany balances and transactions have been eliminated in consolidation.
(b)	Investment Securities The Company classifies its investment securities portfolio as held-to-maturity, which are recorded at amortized cost, or available-for-sale, which are recorded at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity until realized. Premiums and discounts are amortized over the estimated lives of the securities using a method which approximates the interest method. Gains and losses on sales are calculated using the specific identification method.
(c)	Loans and Related Earnings Management determines at the time of origination whether loans will be held for the portfolio or sold in the secondary market. Generally, fixed rate mortgage loans are originated and underwritten for resale in the secondary mortgage market. That decision depends on a number of factors, including the yield on the loan and the term of the loan, market conditions and the current gap position.
Mortgage loans originated and intended for sale in the secondary market are recorded at the lower of aggregate cost or estimated fair value. Fees received on such loans are deferred and recognized in income as part of the gain or loss on sale. Net unrealized losses are recognized in a valuation allowance by charges to income. Fees received on other loans in excess of amounts representing the estimated costs of origination are deferred and credited to interest income using the interest method.
Accrual of interest on nonperforming loans is suspended when, in the opinion of management, the collection of such interest or the related principal is less than probable. Any interest received on nonaccrual loans is credited to principal.
(d)	Allowance for Loan Losses Provisions for losses on loans are based upon management's estimate of the amount required to maintain an adequate allowance for losses, relative to the risk in the loan portfolio. The estimate is based on reviews of the loan portfolio, including assessment of the estimated net realizable value of the related underlying collateral, and upon consideration of past loss experience, current economic conditions and such other factors which, in the opinion of management, deserve current recognition. Amounts are charged off as soon as probability of loss is established, taking into consideration such factors as the borrower's financial condition, underlying collateral and guarantees. Loans are also subject to periodic examination by regulatory agencies. Such agencies may require charge-offs or additions to the allowance based upon their judgments about information available at the time of their examination.
(e)	Stock in Federal Home Loan Bank and Federal Reserve Bank The Bank is a member of the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank (FRB) systems. As a FHLB member, the Bank is required to purchase and hold stock in the FHLB of Topeka in an amount equal to the greater of (a) 1% of unpaid residential loans, (b) 5% of outstanding FHLB advances, or (c) 0.3% of total assets. FHLB and FRB stock are included in available-for-sale securities.
(f)	Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided principally using the straight- line method over the estimated useful lives, ranging from 3 to 31.5 years, of the assets. Major replacements and betterments are capitalized while maintenance and repairs are charged to expense when incurred. Gains or losses on dispositions are reflected in current operations.
(g)	Intangible Assets The Company's core deposit intangible asset and goodwill is being amortized over ten (accelerated) and fifteen (straight-line) years, respectively. When facts and circumstances indicate potential impairment, the Company evaluates the recoverability of asset carrying values, including intangible assets, using estimates of undiscounted future cash flows over remaining asset lives. When impairment is indicated, any impairment loss is measured by the excess of carrying values over fair values. No impairment losses have been recorded during 1998, 1997, or 1996.
Goodwill and core deposit amortization was $245,958 and $106,816 in 1998 and 1997, respectively. The remaining unamortized balances of such assets at December 31, 1998 and 1997 aggregated $2,533,443 and $2,899,067, respectively.
(h)	Income Taxes The Company files a consolidated federal income tax return with its subsidiaries, and records deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(i)	Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(j)	Comprehensive Income Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. Comprehensive income is defined as the change in equity from transactions and other events and circumstances from nonowner sources, and excludes investments by and distributions to owners. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. The Company's only component of other comprehensive income is the unrealized holding gains and losses on available-for- sale securities as shown below.
(k)	Segment Information Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 requires public business enterprises to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision- maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has one reportable operating segment. The adoption of SFAS No. 131 had no effect on the Company's consolidated financial statements.
(l)	Earnings Per Share Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each year. Diluted earnings per share include the effect of all potential common shares outstanding during each year. Earnings per share for all periods presented have been adjusted to give effect to the 5% stock dividends paid by the Company annually since 1994 and the two-for-one stock split declared on January 21, 1998.
The shares used in the calculation of basic and diluted income per share, which have been restated for the annual 5% stock dividends and the 1998 stock split, are shown below:
	(2)	Acquisitions On December 31, 1997, the Company acquired 100% of the outstanding common stock of Freedom Bancshares, Inc. (Freedom) and its wholly-owned subsidiary, Citizens State Bank, with branches in Osage City and Beloit, Kansas. Subsequently, Security National Bank and Citizens State Bank were merged. Freedom had consolidated assets of approximately $43 million. The purchase price, including related costs of acquisition, consisted of cash of approximately $5.3 million. The acquisition, which was accounted for as a purchase, resulted in goodwill of approximately $2.2 million. The Company sold the Beloit branch in 1998. The sale of the branch included approximately $3.3 million of loans and $2.8 million of deposits. A premium of approximately $120,000, net of tax, was received from the buyer and offset against the goodwill recorded in the Freedom acquisition. Pro forma 1997 revenues, net earnings, and diluted earnings per share amounts, as if the Freedom acquisition had been consummated January 1, 1997, are as follows:
Net interest income plus other income $6,060,979 Net earnings 1,002,733 Diluted earnings per share .75
	(3)	Investment Securities A summary of investment securities information is as follows:
Maturities of investment securities at December 31, 1998 are as follows:
Except for U. S. government and agency obligations, no investment in a single issuer exceeded 10% of stockholders' equity.
At December 31, 1998 and 1997, securities pledged to secure public funds on deposit had a carrying value of approximately $28 million and $30 million, respectively.
	(4)	Loans Loans consist of the following at December 31:
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:
At December 31, 1998 and 1997, impaired loans, including nonaccrual loans, as defined by SFAS No. 114, aggregated approximately $144,000 and $172,000.
The Bank serviced loans for others of $18.7 million and $24.4 million at December 31, 1998 and 1997. Because the Bank sold substantially all loans originated for sale on a servicing released basis, no additional gains on sales or related mortgage servicing assets, as required under SFAS No. 122, were recorded during 1998 or 1997.
The Bank had loans to directors and officers at December 31, 1998, which carry terms similar to those for other loans. A summary of such loans is as follows:
Balance at beginning of year $1,859,515 New loans 404,954 Payments (1,232,425) Balance at end of year $1,032,044
	(5)	Premises and Equipment Premises and equipment consist of the following at December 31:
	(6)	Time Deposits Maturities of time deposits are as follows at December 31, 1998:
Year Amount 1999 $40,376,961 2000 8,367,551 2001 3,657,052 2002 1,680,318 2003 95,194 Total $54,177,076
During 1996, the Federal Deposit Insurance Corporation imposed a one-time special assessment on Savings Association Insurance Fund (SAIF) assessable deposits. The assessment on the Company's SAIF deposits was $449,000 and is included in federal deposit insurance premiums in the accompanying 1996 consolidated statement of earnings.
	(7)	Federal Home Loan Bank Advances Long-term advances from the FHLB at December 31, 1998 and 1997 amount to $4,607,150 and $5,428,577, respectively. Maturities of such advances at December 31, 1998 are summarized as follows:
The Bank has a $15,000,000 line of credit, renewable annually in September, with the FHLB under which there were no borrowings outstanding at December 31, 1998 and 1997. Interest on any outstanding balances on the line of credit accrues at the federal funds rate plus .15% (5.65% at December 31, 1998).
Although no loans are specifically pledged, the FHLB requires the Company to maintain eligible collateral that has a lending value at least equal to its required collateral. Eligible collateral includes single and multifamily first mortgage loans, mortgage- backed securities, U. S. government and agency obligations, stock in the FHLB and FHLB overnight deposits.
	(8)	Other Borrowings Other borrowings include a note payable relating to the Company's Employee Stock Ownership Plan (the ESOP) (see note 10) with an unrelated financial institution and a line of credit with another unrelated financial institution. The ESOP loan of $222,351 and $271,187 at December 31, 1998 and 1997, respectively, bears interest at the prime rate (7.75% at December 31, 1998), is due in 2002 and is secured by the 39,168 unallocated shares of Company common stock held by the ESOP. The Company's line of credit had outstanding balances of $1,700,000 and $2,850,000 at December 31, 1998 and 1997, respectively, bears interest at the prime rate less .5%, is due December 31, 2002 and is secured by all of the Bank stock owned by the Company.
	(9)	Income Taxes Total income tax expense for 1998, 1997, and 1996 is allocated as follows:
The components of income tax expense allocated to earnings are as follows:
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:
The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as follows:
	(10)	Employee Benefit Plans Qualified employees of the Company and the Bank may participate in an employee stock ownership plan. The ESOP borrowed under a bank loan agreement (note 8) with the proceeds used to acquire the Company's common stock. Contributions, along with dividends on unallocated shares of common stock, are used by the ESOP to make payments of principal and interest on the bank loan. Because the Company has guaranteed the ESOP's borrowing, the outstanding note payable balance is recorded as unearned compensation, which is presented as a reduction of stockholders' equity in the accompanying consolidated balance sheets. Unearned compensation is reduced as the related note payable is reduced. ESOP contributions by the Bank charged to compensation and benefits expense in 1998, 1997, and 1996 were approximately $55,000, $50,000, and $57,000, respectively.
The Company has a stock option plan for directors and selected officers and employees. The exercise price of options granted under the plan is at least equal to the fair market value on the date of grant. The options vest over varying periods of time and are exercisable for up to ten years. Information with respect to option activity (as adjusted for stock dividends and split) is as follows:
Options outstanding at December 31, 1998 were exercisable at prices ranging from $3.92 to $13.13
In accordance with SFAS No. 123, Accounting for Stock-based Compensation, the Company has chosen not to apply the accounting provision of SFAS No. 123 in its consolidated financial statements but rather to disclose pro forma amounts. The fair value of the options granted in 1996 and 1998 were estimated utilizing the following assumptions: dividend yields of 1.2% and 1.8%, volatility of 4.7% and 17.2%, risk- free interest rate of 7.0% and 6.5%, and expected lives of 5 years, respectively. Pro forma net earnings and earnings per share for 1998, 1997, and 1996, applying the disclosure provisions of SFAS No. 123, would be the same as those amounts reflected in the accompanying consolidated statements of earnings.
The Company has adopted an incentive program whereby bonuses are awarded if certain annual profitability thresholds are achieved. The incentive program also allows for discretionary bonuses. The Company recorded bonuses under the incentive programs of approximately $6,000, $75,000, and $53,000 in 1998, 1997, and 1996, respectively. In 1998, accrued bonuses payable were used to purchase 1,480 shares of common stock from the Company for $19,703.
	(11)	Fair Value of Financial Instruments
Fair value estimates of the Company's financial instruments as of December 31, 1998 and 1997, including methods and assumptions utilized, are set forth below:
Methods and Assumptions Utilized The carrying amount of cash and cash equivalents, loans held for sale, federal funds sold, and accrued interest receivable and payable are considered to approximate fair value.
The estimated fair value of investment securities, except certain obligations of states and political subdivisions, is based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain obligations of states and political subdivisions is not readily available through market sources other than dealer quotations, so fair value estimates are based upon quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued.
The estimated fair value of the Company's loan portfolio is based on the segregation of loans by collateral type, interest terms and maturities. In estimating the fair value of each category of loans, the carrying amount of the loan is reduced by an allocation of the allowance for loan losses. Such allocation is based on management's loan classification system which is designed to measure the credit risk inherent in each classification category. The estimated fair value of performing variable rate loans is the carrying value of such loans, reduced by an allocation of the allowance for loan losses. The estimated fair value of performing fixed rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan, reduced by an allocation of the allowance for loan losses. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. The fair value for significant nonperforming loans is the estimated fair value of the underlying collateral based on recent external appraisals or other available information, which generally approximates carrying value, reduced by an allocation of the allowance for loan losses. The estimated fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, savings, money market accounts and NOW accounts, is equal to the amount payable on demand. The fair value of interest-bearing time deposits is based on the discounted value of contractual cash flows of such deposits. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
The carrying amounts of FHLB advances and other borrowings approximate fair value because such borrowings have relatively short terms or adjustable interest rates. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
	(12)	Regulatory Capital Requirements Current regulatory capital regulations require financial institutions to meet three different regulatory capital requirements. Institutions are required to have minimum leverage capital equal to 4% of total average assets, minimum Tier I risk-based capital equal to 4% of total risk-weighted assets, and total qualifying capital equal to 8% of total risk-weighted assets in order to be considered "adequately capitalized." Management believes that, as of December 31, 1998, the Company meets all capital adequacy requirements to which it is subject. The following is a comparison of the Company's regulatory capital to minimum capital requirements at December 31, 1998 (dollars in thousands):
	(13)	Parent Company Condensed Financial Statements Following is condensed financial information of the Company as of and for the years ended December 31, 1998 and 1997:
Dividends paid by the Company are provided through subsidiary Bank dividends. At December 31, 1998, the Bank could distribute dividends of up to $733,000 without regulatory approvals.
CORPORATE INFORMATION
DIRECTORS OF MNB BANCSHARES, INC. AND SECURITY NATIONAL BANK
Brent A. Bowman, Chairman President Brent A. Bowman and Associates Architects, P.A.
Patrick L. Alexander President and Chief Executive Officer MNB Bancshares, Inc. and Security National Bank
William F. Caton* Representative BLC Financial Network of Mid-America, Inc.
Joseph L. Downey Senior Consultant and Director Dow Chemical Company
Charles D. Green Retired Attorney Arthur-Green LLP
Vernon C. Larson Retired Assistant Provost and Director of International Programs Kansas State University
Jerry R. Pettle Dentist Dental Associates of Manhattan, PA.
Susan E. Roepke Retired Vice President, Secretary and Treasurer, MNB Bancshares, Inc. Retired Senior Vice President/Secretary/Cashier, Security National Bank
Donald J. Wissman Retired President, Grain Industry Alliance
*Bank Director only
EXECUTIVE OFFICERS OF MNB BANCSHARES, INC.
Patrick L. Alexander President and Chief Executive Officer
Mark Herpich Chief Financial Officer Vice President, Secretary and Treasurer
EXECUTIVE OFFICERS OF SECURITY NATIONAL BANK
Patrick L. Alexander President and Chief Executive Officer
Mark A. Herpich Senior Vice President, Secretary and Cashier
Michael E. Scheopner Executive Vice President, Credit Risk Manager
Dean R. Thibault Executive Vice President
Dennis D. Wohler Senior Vice President
STOCK PRICE INFORMATION
The Company's common stock trades on the Nasdaq Small-Cap Market tier of the Nasdaq Stock Market under the symbol "MNBB". At December 31, 1998, the Company had approximately 450 stockholders of record. Set forth below are the reported high and low bid prices of the common stock and dividends paid during the past two years. Information presented below has been restated to give effect to the 5% stock dividends paid in 1998 and 1997.
CORPORATE HEADQUARTERS 800 Poyntz Avenue Manhattan, Kansas 66502
ANNUAL MEETING
	The annual meeting of stockholders will be held at the Kansas State University Student Union, Room 212 Conference Room, Manhattan, Kansas 66506, on Wednesday, May 19, 1999 at 2:00 PM.
FORM 10-K 	A copy of the Annual Report on Form 10- K filed with the Securities and Exchange Commission may be obtained by stockholders without charge on written request to Patrick L. Alexander, President and Chief Executive Officer, MNB Bancshares, Inc., PO Box 308, Manhattan, Kansas 66505-0308
REGISTRAR AND TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016-3572
INDEPENDENT ACCOUNTANTS KPMG LLP 1000 Walnut, Suite 1600 Kansas City, Missouri 64199
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
	The only subsidiaries of the Company are MNB Acquisition Corporation, Inc. and Security National Bank, a national banking association with its main office located in Manhattan, Kansas, and with branch offices located in Auburn, Osage City, and Topeka, Kansas.
EXHIBIT 23.1 CONSENT OF KPMG LLP
The Board of Directors MNB Bancshares, Inc.:
We consent to incorporation by reference in the registration statement (No. 33-51710) on Form S-8 of MNB Bancshares, Inc. of our report, dated January 19, 1999, relating to the consolidated balance sheets of MNB Bancshares, Inc. and subsidiaries of December 31, 1998 and 1997 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 annual report on Form 10-K of MNB Bancshares, Inc.
Kansas City, Missouri March 29, 1999
EXHIBIT 99.1
	800 Poyntz Avenue 	Manhattan, Kansas 66505 	(785) 565-2000
	April 16, 1999
Dear Stockholder:
	On behalf of the Board of Directors and management of MNB Bancshares, Inc., we cordially invite you to attend the Annual Meeting of Stockholders of MNB Bancshares, Inc., to be held at 2:00 p.m. on Wednesday, May 19, 1999, at the Kansas State University Student Union, 17th and Anderson Avenue, Manhattan, Kansas. The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement discuss the business to be conducted at the meeting. At the meeting we shall report on Company operations and the outlook for the year ahead.
	Your Board of Directors has nominated three persons to serve as Class I directors, each of whom are incumbent directors. The Company's Board of Directors has selected and recommends that you ratify the appointment of KPMG LLP to continue as the Company's independent public accountants for the year ending December 31, 1999.
	We recommend that you vote your shares for the director nominees and in favor of the proposal.
	We encourage you to attend the meeting in person. Whether or not you plan to attend, however, please complete, sign and date the enclosed proxy and return it in the accompanying postpaid return envelope as promptly as possible. This will ensure that your shares are represented at the meeting.
	 We look forward with pleasure to seeing and visiting with you at the meeting.
Very truly yours,
MNB BANCSHARES, INC.
Patrick L. Alexander President and Chief Executive Officer
	800 Poyntz Avenue 	Manhattan, Kansas 66505 	(785) 565-2000
	NOTICE OF 	ANNUAL MEETING OF STOCKHOLDERS 	TO BE HELD MAY 19, 1999
To the stockholders of
MNB BANCSHARES, INC.
	The Annual Meeting of the Stockholders of MNB Bancshares, Inc., a Delaware corporation (the "Company"), will be held at the Kansas State University Student Union, 17th and Anderson Avenue, Manhattan, Kansas, 66506, on Wednesday, May 19, 1999, at 2:00 p.m., local time, for the following purposes:
	1.	to elect three (3) Class I directors for a term of three years. 	 	2.	to approve the appointment of KPMG LLP as independent public accountants for the Company for the fiscal year ending December 31, 1999.
	3.	to transact such other business as may properly be brought before the meeting and any adjournments or postponements thereof.
	The Board of Directors has fixed the close of business on April 2, 1999, as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors
Patrick L. Alexander President and Chief Executive Officer
Manhattan, Kansas April 16, 1999
	PROXY STATEMENT
	This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of MNB Bancshares, Inc. (the "Company") of proxies to be voted at the Annual Meeting of Stockholders to be held at the Kansas State University Student Union, 17th and Anderson Avenue, Manhattan, Kansas, 66506, on Wednesday, May 19, 1999, at 2:00 p.m., local time, and at any adjournments or postponements thereof.
	The Board of Directors would like to have all stockholders represented at the meeting. If you do not expect to be present, please sign and return your proxy card in the enclosed self-addressed, stamped envelope. You have the power to revoke your proxy at any time before it is voted, by giving written notice to the Secretary of the Company, provided such written notice is received by the Secretary prior to the annual meeting or any adjournments or postponements thereof, by submitting a later dated proxy or by attending the annual meeting and choosing to vote in person. The giving of a proxy will not affect your right to vote in person if you attend the meeting.
	The Company's principal executive office is located at 800 Poyntz Avenue, Manhattan, Kansas and its mailing address is P.O. Box 308, Manhattan, Kansas 66505. This Proxy Statement and the accompanying proxy card are being mailed to stockholders on or about April 16, 1999. The 1998 Annual Report of the Company, which includes consolidated financial statements of the Company and its subsidiary, is enclosed.
	The Company is the holding company for Security National Bank, Manhattan, Kansas (the "Bank"). In addition to its main office in Manhattan, the Bank also has branch offices in Topeka, Auburn and Osage City.
	Only holders of record of the Company's Common Stock at the close of business on April 2, 1999, will be entitled to vote at the annual meeting or any adjournments or postponements of such meeting. On April 2, 1999, the Company had 1,367,976 shares of Common Stock, par value $0.01 per share, issued and outstanding. In the election of directors, and for all other matters to be voted upon at the annual meeting, each issued and outstanding share is entitled to one vote.
	All shares of Common Stock represented at the annual meeting by properly executed proxies received prior to or at the annual meeting, and not revoked, will be voted at the annual meeting in accordance with the instructions thereon. If no instructions are indicated, properly executed proxies will be voted for the nominees and for adoption of the proposals set forth in this Proxy Statement.
	A majority of the shares of the Common Stock, present in person or represented by proxy, shall constitute a quorum for purposes of the annual meeting. Abstentions and broker non-votes will be counted for purposes of determining a quorum. Directors shall be elected by a plurality of the votes present in person or represented by proxy at the meeting and entitled to vote. In all other matters, the affirmative vote of a majority of shares required to constitute a quorum and voting on the subject matter shall be required to constitute stockholder approval. Abstentions will be counted as votes against a proposal and broker non- votes will have no effect on the vote.
	ELECTION OF DIRECTORS
	At the Annual Meeting of the Stockholders to be held on May 19, 1999, the stockholders will be entitled to elect three (3) Class I directors for a term expiring in 2002. The directors of the Company are divided into three classes having staggered terms of three years. The nominees for election as Class I directors are incumbent directors. The Company has no knowledge that any of the nominees will refuse or be unable to serve, but if any of the nominees becomes unavailable for election, the holders of the proxies reserve the right to substitute another person of their choice as a nominee when voting at the meeting. Set forth below is information concerning the nominees for election and for the other persons whose terms of office will continue after the meeting, including the age, year first elected a director and business experience during the previous five years as of April 2, 1999. The three nominees, if elected at the Annual Meeting of Stockholders, will serve as Class I directors for three year terms expiring in 2002. The Board of Directors unanimously recommends that stockholders vote FOR each of the nominees for director.
	All of the Company's directors will hold office for the terms indicated, or until their earlier death, resignation, removal or disqualification, and until their respective successors are duly elected and qualified, and all executive officers hold office for a term of one year. There are no arrangements or understandings between any of the directors, executive officers or any other person pursuant to which any of the Company's directors or executive officers have been selected for their respective positions, except that the Company and the Bank have entered into an employment contract with Mr. Alexander. No director is related to any other director or executive officer of the Company or the Bank by blood, marriage or adoption.
	The business experience of each nominee and continuing director for the past five years is as follows:
	Patrick L. Alexander became President and Chief Executive Officer of the Manhattan Federal Savings and Loan Association (the predecessor-in-interest to the Bank) in 1990, and became the President and Chief Executive Officer of the Company and the Bank on August 28, 1992 and January 5, 1993, respectively. From 1986 to 1990, Mr. Alexander served as President of the Kansas State Bank of Manhattan, Manhattan, Kansas. Mr. Alexander serves as a member of the Board of Directors of the Big Lakes Foundation, Inc. Mr. Alexander serves on the Economic Development Committee of the Manhattan Chamber of Commerce.
	Brent A. Bowman has been President of Brent Bowman and Associates Architects, P.A., an architectural firm in Manhattan, Kansas, since 1979. He serves on the Big Lakes Developmental Center Board.
	Joseph L. Downey has been a director of Dow Chemical Co. since 1989 and a Dow Senior Consultant since 1995 after having served in a variety of executive positions with that company, including Senior Vice President from 1991 to 1994.
	Charles D. Green is a former partner in the Manhattan, Kansas law firm of Arthur- Green LLP from 1950 to July 1, 1993. Mr. Green formerly served as a director of the Commerce Bank, N.A., a wholly-owned subsidiary of CBI-Central Kansas, Inc., which is a wholly owned subsidiary of Commerce Bancshares, Inc., Kansas City, Missouri.
	Vernon C. Larson was the Assistant Provost and Director of International Programs at Kansas State University, Manhattan, Kansas from 1962 until his retirement in 1991.
	Jerry R. Pettle is a dentist who has practiced with Dental Associates of Manhattan, P.A., in Manhattan, Kansas, since 1965. Dr. Pettle is a member of the Manhattan Medical Center Board of Directors and is an examiner for the Kansas Dental Board.
	Susan E. Roepke is a former Vice President of the Company, serving in that capacity from its inception in 1992 until she retired as an officer of the Company and the Bank at the end of 1998. She also served in a number of senior management positions with the Bank since 1970, including Senior Vice President, Secretary and Cashier since 1993.
	Donald J. Wissman is the former Chairman of DPRA Incorporated, an environmental/economic research and consulting firm headquartered in Manhattan, Kansas. He served in that capacity from 1987 to 1998. Dr. Wissman began his service with the firm in 1965 and service as Vice President and Senior Vice President involved in economic and environmental regulatory consulting assignments. He was the founder and served as President of the Grain Industry Alliance from 1996-1998. He served as Chairman and Director of the Manhattan Chamber of Commerce and on the Board of Directors of the Kansas State University Research Foundation.
Board Committees and Meetings
	There presently are two committees of the Board of Directors of the Company, a Stock Option Committee, which administers the Company's Stock Option Plan, and an Audit Committee. The full Board of Directors considers nominations to the Board, and will consider nominations made by stockholders if such nominations are in writing and otherwise comply with Section 3.1 of the Company's bylaws. The Board of Directors of the Bank has an Executive Committee and a Directors' Loan Committee.
	The Executive Committee consists of Directors Bowman (Chairman), Alexander, Roepke, Wissman and Mr. William F. Caton, a director of the Bank. The Executive Committee has authority to perform policy reviews, oversee and direct compensation and personnel functions, monitor marketing and CRA activities, review and approve the budget and asset/liability position and undertake other organizational issues and planning discussions as deemed appropriate. The committee meets monthly on a regularly scheduled basis and more frequently if necessary. During 1998 the committee met 11 times.
	The Directors' Loan Committee consists of Directors Green (Chairman), Alexander, Downey, Larson and Pettle. The Directors' Loan Committee is responsible for policy review and oversight of the loan and investment functions. It has the authority to approve loans in excess of the Officers' Loan Committee lending authority up to legal lending limits, subject to certain exceptions which apply to certain levels of unsecured and insider loans which must be approved by the entire Board of Directors. The committee reviews the loan loss reserve for adequacy and reviews in detail lending and investment activities. The committee meets monthly on a regularly scheduled basis and more frequently if necessary. During 1998 the committee met 8 times.
	The Audit Committee consists of Directors Pettle (Chairman), Bowman, Larson, Wissman and Mr. William F. Caton, a director of the Bank. The Audit Committee is responsible for overseeing the internal and external audit functions. It approves internal audit staffing, salaries and programs. The Internal Auditor reports directly to the committee on audit and compliance matters. The committee also reviews and approves the scope of the annual external audit and consults with the independent auditors regarding the results of their auditing procedures. The committee normally meets quarterly. During 1998 the committee met 4 times.
	The Stock Option Committee consists of Directors Bowman (Chairman) Pettle and Wissman. The Stock Option Committee administers the Stock Option Plan and has the authority, among other things, to select the employees to whom options will be granted, to determine the terms of each option, to interpret the provisions of the Stock Option Plan and to make all determinations that it may deem necessary or advisable for the administration of the Stock Option Plan. During 1998 the committee met one time.
	A total of 13 regularly scheduled and special meetings were held by the Board of Directors of the Company during 1998. During 1998, all directors attended at least 75 percent of the meetings of the Board and the committees on which they serve.
	Directors of the Company receive no fees for attendance at regularly scheduled meetings of the Board of Directors of the Company and they receive $100 for attendance at special meetings. Directors of the Bank receive fees of $400 per month plus $100 per meeting for attendance at regularly scheduled meetings of the Board of Directors of the Bank and $100 per month for attendance at regularly scheduled meetings of committees, except that Mr. Alexander does not receive additional amounts for attendance at committee meetings.
	EXECUTIVE COMPENSATION
	The following table sets forth information concerning the compensation paid or granted to the Company's Chief Executive Officer for the past three fiscal years. None of the remaining executive officers of the Company or the Bank had an aggregate salary and bonus which exceeded $100,000.
	Employment Agreement In January, 1993 the Company and the Bank entered into an employment agreement with Patrick L. Alexander. The employment agreement initially provided for an initial base salary of $94,605, which may be increased but not decreased, and an initial term of three years, with one year extensions thereafter unless the agreement has been terminated or the Company or Mr. Alexander has provided a notice of non-renewal prior thereto. Notwithstanding any such notice, the term of the agreement will be extended to three years upon any change in control of the Company or the Bank, as defined in the agreement. The employment agreement will terminate upon the death or disability of Mr. Alexander, in the event of certain regulatory actions or upon notice by either the Company or Mr. Alexander, with or without cause. The employment agreement will be suspended in the event of a regulatory suspension of Mr. Alexander's employment. In the event of termination of Mr. Alexander's employment due to disability or without cause, the Company will be obligated to pay or to provide to him, as applicable, continued salary and benefits until the earlier of the expiration of the term of the agreement or his death. In the event Mr. Alexander's employment discontinues following a change in control of the Company or the Bank, the successor to the Company or the Bank is obligated to make a lump sum payment to him equal to three times his then annual salary and to continue benefits until the earlier of three years or his death. For purposes of the employment agreement, Mr. Alexander's employment will be considered terminated following a change in control in the event his right to retain his position with the Bank or to exercise fully the authority, duties and responsibilities of such position is changed or terminated. The employment agreement includes a covenant which will limit the ability of Mr. Alexander to compete with the Bank in an area encompassing a fifty mile radius from the Bank's main office for a period of one year following the termination of his employment with the Bank. The geographic area covered by this provision constitutes a portion of the Bank's primary service area.
	The Executive Committee has furnished the following report on executive compensation. The incorporation by reference of this Proxy Statement into any document filed with the Securities and Exchange Commission by the Company shall not be deemed to include the report unless the report is specifically stated to be incorporated by reference into such document.
Executive Committee Report on Executive Compensation
	The Executive Committee of the Board of Directors of the Bank is composed of five directors and is responsible for recommendations to the Board of Directors of the Company for compensation of executive officers of the Bank and the Company. At this time no separate salary is paid to the officers of the Company. In determining compensation, the following factors are generally taken into consideration:
	1.	The performance of the executive officers in achieving the short and long term goals of the Company. 	2.	Payment of compensation commensurate with the ability and expertise of the executive officers. 	3.	Attempt to structure compensation packages so that they are competitive with similar companies.
The committee considers the foregoing factors, as well as others, in determining compensation. There is no assigned weight given to any of these factors.
	Additionally, the Executive Committee considers various benefits, such as the ESOP and the Stock Option Plan, together with perquisites in determining compensation. The committee believes that the benefits provided through the stock based plans more closely tie the compensation of the officers to the interests of the stockholders and provide significant additional performance incentives for the officers which directly benefit the stockholders through an increase in the stock value.
	The Executive Committee felt it would be beneficial to shareholders to have executive officers take a portion of incentive pay in the form of shares of MNB Bancshares, Inc. stock. As a result of this thought process, in the Spring of 1998 the committee authorized Mr. Alexander, Ms. Roepke and Mr. Scheopner to receive a portion or all of their 1997 after tax incentive compensation in stock. Additionally, the committee changed the incentive program for 1998 and beyond to include all executive officers being required to take a minimum of 50% of their after tax incentive payment in the form of Company stock and have the option of taking up to 100% of their after tax incentive payment in the form of Company stock.
	Annually, the Executive Committee evaluates four primary areas of performance in determining Mr. Alexander's level of compensation. These areas are: long-range strategic planning and implementation; Company financial performance; Company compliance with regulatory requirements and relations with regulatory agencies; and effectiveness of managing relationships with stockholders and the Board of Directors. When evaluating the financial performance of the Company, the committee considers profitability, asset growth and risk management. The primary evaluation criteria are considered to be essential to the long- term viability of the Company and are given equal weight in the evaluation. Finally, the committee reviews compensation packages of peer institutions to ensure that Mr. Alexander's compensation is competitive and commensurate with his level of performance.
	The 1998 compensation of Mr. Alexander was based upon the factors described above and his substantial experience and length of service with the organization. During 1998, Mr. Alexander successfully headed the Company's acquisition program, which included planning, analysis, and contacting a number of financial institutions. The Executive Committee also considered the additional duties required in completing the assimilation of the December 31, 1997 acquisition of Freedom Bancshares, Inc. into the Company's corporate and operating structure. Mr. Alexander did not participate in any decisions pertaining to his compensation.
	Members of the Executive Committee are:
	Brent A. Bowman, Chairman 	Patrick L. Alexander 	Susan E. Roepke 	Donald J. Wissman 	William F. Caton
Performance Graph
	The incorporation by reference of this Proxy Statement into any document filed with the Securities and Exchange Commission by the Company shall not be deemed to include the following performance graph and related information unless the graph and related information are specifically stated to be incorporated by reference into the document.
	The following graph shows a five year comparison of cumulative total returns for the Company, the Nasdaq Stock Market (U.S. Companies) and the Nasdaq Bank Stocks index. The graph was prepared at the Company's request by Research Data Group, Inc., San Francisco, California.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	The following table sets forth certain information regarding the Company's Common Stock beneficially owned on April 2, 1999 with respect to all persons known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock, each director and nominee, each executive officer named in the Summary Compensation Table and all directors and executive officers of the Company as a group.
	(1)	The information contained in this column is based upon information furnished to the Company by the persons named above and the members of the designated group. The nature of beneficial ownership for shares shown in this column is sole voting and investment power, except as set forth in the footnotes below. Inclusion of shares in this table shall not be deemed to be an admission of beneficial ownership of such shares. Amounts shown include shares issued pursuant to a stock dividend paid by the Company in August, 1998. Amounts shown reflect the 2 for 1 stock split effected in February, 1998.
	(2)	Pursuant to an Amendment dated February 11, 1999, to a Schedule 13D filed by First Manhattan Co.
	(3)	Includes 74,459 shares which have been allocated to participants' accounts under the Company's ESOP.
	(4)	Pursuant to a Schedule 13D dated May 13, 1998.
	(5)	Includes 4,727 shares held in an IRA of which the power to vote such shares is shared with the IRA administrator and 41,728 shares over which voting and investment power is shared with his spouse. Also includes 33,375 shares presently obtainable through the exercise of options granted under the Company's Stock Option Plan, over which shares Mr. Alexander has no voting and sole investment power.
	(6)	Includes 2,234 shares held by Mr. Goodyear's spouse, over which shares Mr. Goodyear has no voting or investment power.
	(7)	Ms. Roepke is a retired Vice President and the Chief Financial Officer of the Company. She currently is a member of the Board of Directors. This includes 19,859 shares held in an Investment Retirement Account ("IRA"), of which the power to vote such shares is shared with the IRA administrator, 3,084 shares held in her spouse's IRA and over which Ms. Roepke has shared voting and investment power, 2,549 shares held in a living trust of which Ms. Roepke is a co-trustee and over which Ms. Roepke has shared voting and investment power, 28,589 shares held in her spouse's living trust and over which Ms. Roepke has shared voting and investment power, and 16,974 shares presently obtainable through the exercise of options granted under the Company's Stock Option Plan, over which shares Ms. Roepke has no voting and sole investment power.
	(8)	Includes 2,662 shares presently obtainable through the exercise of options granted under the Company's Stock Option Plan, over which shares Mr. Green has no voting and sole investment power.
	(9)	Represents 9,517 shares held jointly with his spouse and over which Mr. Larson has shared voting and investment power.
	(10)	Includes 6,338 shares held in Dental Association Profit Sharing Plan and over which Mr. Pettle has full voting and investment power.
	(11)	Includes 1,533 shares held by his spouse and over which Mr. Wissman has shared voting and investment power.
	(12)	Includes an aggregate of 64,466 shares presently obtainable through the exercise of options granted under the Company's Stock Option Plan.
	Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's executive officers, directors and persons who own more than 10% of the Company's Common Stock file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the exchange on which the Company's shares of Common Stock are traded. Such persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Company's review of the copies of such forms, the Company is not aware that any of its directors, executive officers or 10% stockholders failed to comply with the filing requirements of Section 16(a) during the period commencing January 1, 1998 through December 31, 1998. 	 	TRANSACTIONS WITH MANAGEMENT
	Directors and officers of the Company and the Bank and their associates were customers of and had transactions with the Company and the Bank during 1998. Additional transactions are expected to take place in the future. All outstanding loans, commitments to loan, and certificates of deposit and depository relationships, in the opinion of management, were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features.
	INDEPENDENT PUBLIC ACCOUNTANTS
	Stockholders will be asked to approve the appointment of KPMG LLP as the Company's independent public accountants for the year ending December 31, 1999. A proposal will be presented at the annual meeting to ratify the appointment of KPMG LLP. If the appointment of KPMG LLP is not ratified, the matter of the appointment of independent public accountants will be considered by the Board of Directors. Representatives of KPMG LLP are expected to be present at the meeting and will be given the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
	The Board of Directors unanimously recommends a vote FOR this appointment.
		SUBMISSION OF STOCKHOLDER PROPOSALS
	Any proposal which a stockholder of the Company wishes to have included in the proxy materials of the Company relating to the next annual meeting of stockholders of the Company, which is scheduled to be held in May 2000, must be received at the principal executive offices of the Company (MNB Bancshares, Inc., 800 Poyntz Avenue, Manhattan, Kansas 66505, attention: Mr. Patrick L. Alexander, President) no later than December 17, 1999, and must otherwise comply with the notice and other provisions of the Company's Bylaws.
	GENERAL
	Your proxy is solicited by the Board of Directors and the cost of solicitation will be paid by the Company. In addition to the solicitation of proxies by use of the mails, officers, directors and regular employees of the Company or the Bank, acting on the Company's behalf, may solicit proxies by telephone, telegraph or personal interview. The Company will, at its expense, upon the receipt of a request from brokers and other custodians, nominees and fiduciaries, forward proxy soliciting material to the beneficial owners of shares held of record by such persons.
	OTHER BUSINESS
	It is not anticipated that any action will be asked of the stockholders other than that set forth above, but if other matters properly are brought before the meeting, the persons named in the proxy will vote in accordance with their best judgment.
	FAILURE TO INDICATE CHOICE
	If any stockholder fails to indicate a choice in items (1) and (2) on the proxy card, the shares of such stockholder shall be voted (FOR) in each instance.
	REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON REPRESENTING THAT HE OR SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK AS OF THE RECORD DATE FOR THE MEETING, UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K. SUCH WRITTEN REQUEST SHOULD BE SENT TO MR. PATRICK L. ALEXANDER, MNB BANCSHARES, INC., P.O. BOX 308, MANHATTAN, KANSAS 66505.
By order of the Board of Directors
Patrick L. Alexander President and Chief Executive Officer
Manhattan, Kansas April 16, 1999
	ALL STOCKHOLDERS ARE URGED TO SIGN 	AND MAIL THEIR PROXIES PROMPTLY
	PROXY FOR COMMON SHARES ON BEHALF OF BOARD OF DIRECTORS 	FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF 	MNB BANCSHARES, INC. TO BE HELD MAY 19,
	The undersigned hereby appoints Patrick L. Alexander and Brent A. Bowman, or either of them acting in the absence of the other, with power of substitution, attorneys and proxies, for and in the name and place of the undersigned, to vote the number of shares of Common Stock that the undersigned would be entitled to vote if then personally present at the Annual Meeting of the Stockholders of MNB Bancshares, Inc., to be held at the Kansas State University Student Union, 17th and Anderson Avenue, Manhattan, Kansas 66506, on Wednesday, May 19, 1999, at 2:00 p.m., local time, or any adjournments or postponements thereof, upon the matters set forth in the Notice of Annual Meeting and Proxy Statement, receipt of which is hereby acknowledged, as follows:
1.	ELECTION OF DIRECTORS: FOR all nominees listed below (except as marked to the contrary below)
WITHHOLD AUTHORITY to vote for all nominees listed below
	(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Class I (term expires 2002): Patrick L. Alexander, Joseph L. Downey and Jerry R. Pettle
2.	APPROVE THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1999:
For Against Abstain
3.	In accordance with their discretion, upon all other matters that may properly come before said meeting and any adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED UNDER PROPOSAL 1 AND FOR PROPOSAL 2.
Dated: ____________, 1999
		Signature(s) 		 NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ABOVE. ALL JOINT OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE ENCLOSED ENVELOPE.