<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1997
REGISTRATION NOS. 333-39849 AND 333-39849-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM SB-2
----------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GBCI CAPITAL TRUST
GOLD BANC CORPORATION, INC.
(NAME OF SMALL BUSINESS ISSUERS IN THEIR CHARTERS)
DELAWARE 6712 APPLIED FOR
KANSAS (PRIMARY STANDARD INDUSTRIAL 48-1008593
(STATES OR OTHER CLASSIFICATION CODE NUMBER) (IRS EMPLOYER
JURISDICTIONS IDENTIFICATION NOS.)
OF INCORPORATION OR
ORGANIZATION)
11301 NALL AVENUE
LEAWOOD, KANSAS 66211
(913) 451-8050
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACES OF BUSINESS)
MICHAEL W. GULLION
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GOLD BANC CORPORATION, INC.
11301 NALL AVENUE
LEAWOOD, KANSAS 66211
(913) 451-8050
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
STEVEN F. CARMAN, ESQ. STEVEN L. KAPLAN, ESQ.
BLACKWELL SANDERS MATHENY WEARY & ARNOLD & PORTER
LOMBARDI LLP THURMAN ARNOLD BUILDING
TWO PERSHING SQUARE 555 TWELFTH STREET, N.W.
2300 MAIN, SUITE 1100 WASHINGTON, D.C. 20004-1202
KANSAS CITY, MISSOURI 64108 (202) 942-5998
(816) 983-8153 FAX: (202) 942-5999
FAX: (816) 983-8080
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY THE EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 28, 1997
$25,000,000
GBCI CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
GOLD BANC CORPORATION, INC.
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of GBCI Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust").
Gold Banc Corporation, Inc. (the "Company") will initially be the holder of
all of the beneficial interests represented by common securities of the Issuer
Trust (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities").
(Continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
----------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER INSURER OR GOVERNMENT AGENCY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS (2) ISSUER TRUST(3)(4)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.. $25.00 (4) $25.00
- -----------------------------------------------------------------------------------
Total(5)................ $25,000,000 (4) $25,000,000
- -----------------------------------------------------------------------------------
</TABLE>
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(1) Plus accrued Distributions, if any, from , 1997.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of the Offering of approximately
$250,000 payable by the Company.
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures,
the Company has agreed to pay to the Underwriters, as compensation for
arranging the investment therein of such proceeds, $ per Preferred
Security (or $ in the aggregate). The managing underwriter
will receive a supplemental financial advisory fee of $25,000 payable upon
consummation of the Offering. See "Underwriting."
(5) The Company has granted the Underwriters a 30 day option to purchase up to
an additional $3,750,000 aggregate liquidation amount of the Preferred
Securities at the Price to Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public and Proceeds to
Issuer Trust will be $28,750,000 and $28,750,000, respectively. See
"Underwriting."
The Preferred Securities are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
the Underwriters. The Underwriters reserve the right to reject orders in whole
or in part and to withdraw, cancel or modify the Offering without notice. It
is expected that delivery of the Preferred Securities will be made in book-
entry form through the book-entry facilities of The Depository Trust Company
on or about , 1997.
ADVEST, INC. PRINCIPAL FINANCIAL SECURITIES, INC.
ROBERT W. BAIRD & CO. INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
(cover page continued)
The Issuer Trust exists for the sole purpose of issuing the Trust Securities
and investing the proceeds thereof in % Junior Subordinated Deferrable
Interest Debentures (the "Junior Subordinated Debentures," and together with
the Trust Securities, the "Securities") to be issued by the Company. The
Junior Subordinated Debentures will mature on , , which date may
be shortened (such date, as it may be shortened, the "Stated Maturity") to a
date not earlier than , if certain conditions are met (including
the Company having received the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve"), if then required under
applicable capital guidelines or policies of the Federal Reserve (such
shortening of the maturity date, the "Maturity Adjustment")). The Preferred
Securities will have a preference under certain circumstances over the Common
Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Preferred
Securities--Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust
Company, as depositary ("DTC"). Beneficial interests in the global securities
will be shown on, and transfer thereof will be effected only through, records
maintained by DTC and its participants. Except as described under "Description
of Preferred Securities," Preferred Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of the Preferred Securities. Application has been made to
include the Preferred Securities in Nasdaq's National Market. Settlement for
the Preferred Securities will be made in immediately available funds. The
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity for the Preferred Securities will therefore
settle in immediately available funds.
Holders of the Preferred Securities will be entitled to receive preferential
cumulative cash distributions accumulating from , 1997, and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year commencing , 199 , at the annual rate of % of the
Liquidation Amount of $25 per Preferred Security ("Distributions"). The
Company has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. No interest shall be
due and payable during any Extension Period, except at the end thereof. Upon
the termination of any such Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will
also be deferred and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Company's capital stock or with respect to debt securities of
the Company that rank pari passu in all respects with or junior to the Junior
Subordinated Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Preferred Securities are entitled will
accumulate) at the rate of % per annum, compounded quarterly, and holders
of Preferred Securities will be required to accrue interest income for United
States federal income tax purposes. See "Description of Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee."
The Guarantee of the Company guarantees the payment of Distributions and
payments on liquidation or redemption of the Preferred Securities, but only in
each case to the extent of funds held by the Issuer Trust, as described herein
(the "Guarantee"). See "Description of Guarantee." If the Company does not
make payments on the Junior Subordinated Debentures held by the Issuer Trust,
the Issuer Trust may have insufficient funds to pay Distributions on the
Preferred Securities. The Guarantee does not cover payment of
2
<PAGE>
Distributions when the Issuer Trust does not have sufficient funds to pay such
Distributions. In such event, a holder of Preferred Securities may institute a
legal proceeding directly against the Company to enforce payment of such
Distributions to such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Preferred Securities."
The obligations of the Company under the Guarantee and the Preferred
Securities are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of Junior Subordinated Debentures--
Subordination") of the Company.
The Preferred Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) and (ii) in whole or in part
at any time on or after , contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company (i) on or after , , in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time
within 90 days following the occurrence and continuation of a Tax Event,
Investment Company Event or Capital Treatment Event, in each case at a
redemption price set forth herein, which includes the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption. The ability of the Company to exercise its rights to redeem
the Junior Subordinated Debentures or to cause the redemption of the Preferred
Securities prior to the Stated Maturity may be subject to prior regulatory
approval by the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Junior
Subordinated Debentures--Redemption" and "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the
Junior Subordinated Debentures to be distributed to the holders of the
Preferred Securities and Common Securities in liquidation of the Issuer Trust.
The ability of the Company, as holder of the Common Securities, to dissolve
the Issuer Trust may be subject to prior regulatory approval of the Federal
Reserve, if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Preferred Securities will be entitled to receive a
Liquidation Amount of $25 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior
Subordinated Debentures. See "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness (as defined herein) of the Company. See "Description of
Junior Subordinated Debentures--Subordination."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
3
<PAGE>
Gold Banc Corporation, Inc.
Leawood, Kansas
[Map Showing Location of Headquarters and Gold Banc Corporation Banks]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING SHARES OF THE PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
4
<PAGE>
PROSPECTUS SUMMARY
The following Prospectus Summary is qualified in its entirely by, and should
be read in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
Potential investors should read this Prospectus carefully in its entirety.
THE COMPANY
Gold Banc Corporation, Inc. (the "Company") is a multi-bank holding company
that owns and operates four commercial banks and a federal savings bank
(together, the "Banks"). The Banks include: (i) Exchange National Bank
("Exchange Bank"), a national bank headquartered in Marysville, Kansas, the
county seat of Marshall County, that has branch locations in Leawood and
Shawnee, two cities in Johnson County, Kansas; (ii) Citizens State Bank and
Trust Company ("Citizens"), a state bank located in Seneca, Kansas, the county
seat of Nemaha County; (iii) Peoples National Bank ("Peoples"), a national bank
located in Clay Center, Kansas, the county seat of Clay County; (iv) Farmers
National Bank ("Farmers"), a national bank located in Oberlin, Kansas, the
county seat of Decatur County; and (v) Provident Bank, f.s.b. ("Provident
Bank"), a federal savings bank located in St. Joseph, Missouri, the county seat
of Buchanan County. The Banks are community banks providing a full range of
commercial and consumer banking services to small and medium-sized communities
and the surrounding market areas. References to the Company include the Banks
and the assets of the Banks where the context requires. Since December 1978,
the Company has grown internally and through acquisitions from a one bank
holding company with $2.9 million in total assets to a five bank holding
company with total assets as of September 30, 1997 of $411.1 million. The
Company's principal executive offices are located at 11301 Nall Avenue,
Leawood, Kansas 66211, telephone number (913) 451-8050.
COMMUNITY BANKING STRATEGY
The Company's strategy is to maintain responsive community banking offices
with local decision makers. To implement this strategy, the Company allows
senior management at each banking location, within certain limitations, to make
credit and pricing decisions and allows each Bank to retain a local identity
and board of directors intended to foster long-term customer relationships, a
high quality of service and responsiveness to specific customer needs. The
Company serves the needs and caters to the economic strengths of the local
communities in which the Banks are located.
The Company has historically focused its efforts on county seat towns in
rural markets. These towns are generally the focal point of economic activity
in their county. As a result, county seat towns have historically provided a
more stable base of relatively low-cost deposits compared to larger
metropolitan markets with larger competitors. The Company has recently applied
its community banking strategy to two communities in the rapidly developing
Johnson County suburbs southwest of Kansas City. The Company believes the
recent wave of regional bank acquisitions of local banks in those suburban
communities, and the subsequent conversion of some of those acquired banks to
branch locations, has alienated the customers of those locations. This has
created an opportunity for the Company to attract and retain as loan customers
those owner-operated businesses that require flexibility and responsiveness in
lending decisions and desire a more personal banking relationship. See
"BUSINESS--Community Banking Strategy."
ACQUISITIONS AND EXPANSION
The Company's strategy is to operate and continue to acquire banks that
generally have between $25 and $150 million in assets and operate in county
seat towns. The Company believes such banks provide a stable, relatively low-
cost deposit base and have cultures and economic bases similar to those of the
Banks' communities. The Company believes this is a strategic focus shared by
relatively few bank holding companies operating in the Midwest. The Company's
acquisition focus is in the Midwest, primarily in the states of Kansas
5
<PAGE>
and Missouri, but may extend to contiguous states. The Company believes it is
well positioned to acquire and operate profitably community banks because of
its experience in operating community banks, its ability to provide centralized
management to those banks and its access to capital. The Company believes there
are owners of community banks seeking to sell their banks for, among other
reasons, stockholder liquidity, lack of family successor operators and the
burden of compliance with bank regulations.
The Company has recently expanded and diversified its operations by opening
branch offices in the suburban areas of Shawnee and Leawood, Kansas. Management
believes this has allowed the Company to take advantage of growth opportunities
provided by the strong economic and population expansion occurring in those
markets. See "BUSINESS--Growth Strategy." The Company may deviate from the
acquisition parameters described above if it is presented with attractive
candidates that complement its strengths or operations. The size of its
potential targets also may increase as the Company grows.
RECENT ACQUISITIONS
On August 22, 1997, the Company completed the acquisition of Peoples.
Stockholders of Peoples received 493,615 shares of the Company's Common Stock,
valued at approximately $9.3 million, in exchange for all of the outstanding
shares of Peoples. The Company accounted for its acquisition of Peoples using
the pooling of interests method. Accordingly the financial statements, data and
ratios of the Company contained in this Prospectus have been restated to
include the operations of Peoples for all periods presented.
On October 1, 1997, the Company completed the acquisition of Farmers.
Stockholders of Farmers received 273,000 shares of the Company's common stock
and $1.96 million in cash, for a total transaction value of approximately $5.7
million, in exchange for all of the outstanding shares of Farmers. The Company
accounted for its acquisition of Farmers using the purchase method.
Accordingly, the Company's financial statements, data and ratios included in
this Prospectus, except as specifically noted, do not reflect the operations of
Farmers, which will be included in the Company's assets, liabilities and
results of operations from and after the date of acquisition.
On October 16, 1997, the Company completed the acquisition of the operating
assets of Oberlin Insurance Agency, Inc. ("OIA") for $220,000. Although this
acquisition is not financially significant to the Company, the acquisition of
financial services companies other than depository institutions provides the
Company an opportunity to strengthen and develop relationships with customers.
See "BUSINESS --Other Services." The Company accounted for its acquisition of
OIA using the purchase method. Accordingly, the Company's financial statements,
data and ratios included in this Prospectus do not reflect the operations of
OIA, which will be included in the Company's assets, liabilities and results of
operations from and after the date of acquisition.
PENDING ACQUISITIONS
On November 26, 1997, the Company entered into an acquisition agreement with
First Alma Bancshares, Inc., a one-bank holding company ("Alma"). Upon
consummation of the acquisition, Alma will become a wholly-owned subsidiary of
the Company. The acquisition is subject to regulatory approval and other
closing conditions. See "The Alma and Midwest Capital Acquisitions." There can
be no assurance that all conditions precedent to consummation of the
acquisition will occur.
On November 26, 1997, the Company entered into an acquisition agreement with
Midwest Capital Management, Inc. ("Midwest Capital"), a full service
broker/dealer and investment manager. Upon consummation of the acquisition,
Midwest will become a wholly-owned subsidiary of the Company. The acquisition
is subject to regulatory approval and other closing conditions. See "The Alma
and Midwest Capital Acquisitions." There can be no assurance that all
conditions precedent to consummation of the acquisition will occur.
6
<PAGE>
From time to time, the Company investigates and holds discussions and
negotiations in connection with possible acquisitions of banks and other
financial service entities. At the date hereof, the Company has not entered
into any agreements or understandings with respect to such transactions except
as described herein. While it is anticipated that such transactions may be
entered into in the future, there can be no assurance as to when or if, or the
terms upon which, such transactions may be pursued. Any such transactions would
be subject to regulatory approval and, if required under applicable law, the
approval of the Company's and the other entity's stockholders.
THE BANKS
The Banks are located in Kansas and northwestern Missouri, as shown in the
map on the inside front cover of this Prospectus. Certain information regarding
the Banks as of September 30, 1997 is set forth in the table below (dollars in
millions):
<TABLE>
<CAPTION>
DATE TOTAL TOTAL NO. OF DATE ACQUIRED
FOUNDED ASSETS DEPOSITS LOANS LOCATIONS BY THE COMPANY
------- ------ -------- ------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Exchange Bank........ 1870 $199.9 $172.5 $155.0 4 December 1978(1)
Citizens............. 1896 $ 54.8 $ 49.6 $ 32.4 2 September 1985
Provident............ 1889 $ 83.4 $ 63.7 $ 66.1 1 March 1994
Peoples.............. 1885 $ 69.2 $ 58.5 $ 37.5 1 August 1997
Farmers.............. 1886 $ 50.0 $ 42.5 $ 27.0 2 October 1997
------ ------ ------ ---
Totals............. $457.3 $386.8 $318.0 10
</TABLE>
- --------
(1) Originally acquired as Oketo State Bank, Oketo, Kansas
GBCI CAPITAL TRUST
The Issuer Trust is a statutory business trust formed under Delaware law for
the exclusive purposes of (i) issuing and selling the Preferred Securities and
Common Securities, (ii) using the proceeds from the sale of Preferred
Securities and Common Securities to acquire the Junior Subordinated Debentures
issued by the Company and (iii) engaging in only those other activities
necessary, advisable or incidental thereto (such as registering the transfer of
the Preferred Securities). The principal executive office of the Issuer Trust
is 11301 Nall Avenue, Leawood, Kansas 66211, and its telephone number is (913)
451-8050.
7
<PAGE>
THE OFFERING
Securities Offered.......... The $25,000,000 aggregate liquidation amount of
Preferred Securities offered hereby represents
preferred undivided beneficial interests in the
Issuer Trust's assets, which will consist solely
of the Junior Subordinated Debentures. The Trust
has granted the Underwriters an option,
exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional
$3,750,000 aggregate liquidation amount of
Preferred Securities at the offering price,
solely to cover over-allotments, if any.
Offering Price.............. $25 per Preferred Security (Liquidation Amount
$25), plus accumulated Distributions, if any,
from , 1997.
Distributions............... The distributions payable on each Preferred
Security will be fixed at a rate per annum of
% of the stated liquidation amount per
Preferred Security, will be cumulative, will
accrue from , 1997, the date of issuance of
the Preferred Securities, and will be payable
quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year,
commencing , 199 . See "Description of
Preferred Securities--Distributions."
Junior Subordinated The Issuer Trust will invest the proceeds from
Debentures................. the issuance of the Preferred Securities and
Common Securities in an equivalent amount of %
Junior Subordinated Debentures of the Company.
The Junior Subordinated Debentures will mature on
, subject to the Maturity Adjustment. The
Junior Subordinated Debentures will rank
subordinate and junior in right of payment to all
Senior Indebtedness of the Company. In addition,
the Company's obligations under the Junior
Subordinated Debentures will be structurally
subordinated to all existing and future
liabilities and obligations of its subsidiaries.
Guarantee................... Under the terms of the Guarantee, the Company has
guaranteed the payment of Distributions and
payments on liquidation or redemption of the
Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust
described herein. The Company and the Issuer
Trust believe that the obligations of the Company
under the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Junior
Subordinated Indenture taken together, fully,
irrevocably and unconditionally guarantee all of
the Issuer Trust's obligations relating to the
Preferred Securities. The obligations of the
Company under the Guarantee and the Preferred
Securities are subordinate and junior in right of
payment to all Senior Indebtedness. See
"Description of Guarantee."
Right to Defer Interest..... The Company has the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures for a period not exceeding 20
consecutive quarters; provided that no Extension
Period may extend beyond the Stated Maturity of
the Junior Subordinated Debentures. As a
consequence of the Company's
8
<PAGE>
extension of the interest payment period,
quarterly Distributions on the Preferred
Securities will be deferred (though such
Distribution would continue to accrue with
interest thereon compounded quarterly, since
interest will continue to accrue and compound on
the Junior Subordinated Debentures during any
such Extension Period). During an Extension
Period, the Company will be prohibited, subject
to certain exceptions described herein, from
declaring or paying any cash distributions with
respect to its capital stock or debt securities
that rank pari passu with or junior to the Junior
Subordinated Debentures. Upon the termination of
any Extension Period and the payment of all
amounts then due, the Company may commence a new
Extension Period, subject to the foregoing
requirements. See "Description of Junior
Subordinated Debentures--Option to Extend
Interest Payment Period."
Should an Extension Period occur, Preferred
Security holders will continue to accrue interest
income (and de minimis original issue discount,
if any) for United States federal income tax
purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
Redemption.................. The Preferred Securities are subject to mandatory
redemption (i)
in whole, but not in part, at the Stated Maturity
upon repayment of the Junior Subordinated
Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at
any time by the Company of the Junior
Subordinated Debentures upon the occurrence and
continuation of a Tax Event, Investment Company
Event or Capital Treatment Event and (iii) in
whole or in part at any time on or after
, contemporaneously with the optional
redemption by the Company of the Junior
Subordinated Debentures in whole or in part, in
each case at the applicable Redemption Price. See
"Description of Preferred Securities--
Redemption."
Liquidation of the Issuer The Company, as holder of the Common Securities,
Trust...................... has the right at any time to dissolve the Issuer
Trust and cause the Junior Subordinated
Debentures to be distributed to holders of
Preferred Securities in liquidation of the Issuer
Trust, subject to the Company having received
prior approval of the Federal Reserve to do so if
then required under applicable capital guidelines
or policies of the Federal Reserve. See
"Description of Preferred Securities--Liquidation
Distribution Upon Dissolution."
Voting Rights............... Generally, the holders of the Preferred
Securities will not have any voting rights. See
"Description of Preferred Securities--Voting
Rights; Amendment of Trust Agreement" and "Risk
Factors Relating to the Offering--Limited Voting
Rights."
Use of Proceeds............. The proceeds from the sale of the Preferred
Securities offered hereby will be used by the
Issuer Trust to purchase the Junior Subordinated
Debentures issued by the Company. The proceeds
received by the Company from the sale of the
Junior Subordinated
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<PAGE>
Debentures will be used for financing growth,
which may include one or more branch
acquisitions, acquisitions of other financial
institutions, or acquisitions of financial
services companies, and for general corporate
purposes. In addition, a portion of the proceeds
is likely to be contributed to one or more of the
Banks to support internal growth opportunities.
The Trust Securities will qualify as Tier 1 or
core capital of the Company, subject to the 25%
Capital Limitation (as defined herein), under the
risk-based capital guidelines of the Federal
Reserve. The portion of the Trust Securities that
exceeds the 25% Capital Limitation will qualify
as Tier 2 or supplementary capital of the
Company. See "Use of Proceeds."
ERISA Considerations........ Prospective purchasers should consider the
information set forth under "Certain ERISA
Considerations."
Nasdaq National Market
Symbol...................... The Preferred Securities have been approved for
quotation on the Nasdaq National Market under the
symbol "GLDBP".
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS," BEGINNING ON PAGE 12.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary information regarding the Company should be read in
conjunction with the consolidated financial statements of the Company and notes
beginning on page F-1. Consolidated financial and other data regarding the
Company at or for the nine months ended September 30, 1997 and 1996 and for the
year ended December 31, 1994, have been prepared by the Company without audit
and, in the case of interim information, may not be indicative of results of an
annualized basis or any other period. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation for such periods or dates have been made. The
consolidated selected financial data have been restated to include the accounts
and operations of Peoples for all periods.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE
MONTHS ENDED AT OR FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------------------
1997 1996 1996 1995 1994(3)
-------- -------- -------- -------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
EARNINGS
Net interest income...... $ 10,784 $ 8,313 $ 11,334 $ 10,547 $ 8,977
Provision for possible
loan losses............. 535 145 (25) 1,334 192
Non-interest income...... 1,917 2,258 2,852 2,315 1,653
Non-interest expense..... 8,147 8,418 11,067 9,790 7,768
-------- -------- -------- -------- --------
Income taxes............. 1,346 678 1,066 520 921
-------- -------- -------- -------- --------
Net income.............. $ 2,673 $ 1,330 $ 2,078 $ 1,218 $ 1,749
======== ======== ======== ======== ========
FINANCIAL POSITION
Total assets............. $411,086 $354,936 $376,858 $332,902 $290,515
Loans, net of unearned
income.................. 294,561 224,060 236,339 193,541 168,231
Allowance for loan
losses.................. 3,613 3,318 2,981 3,252 2,668
Goodwill................. 1,552 1,722 1,678 1,769 1,792
Investment securities.... 81,504 102,282 101,145 102,065 103,322
Deposits................. 344,271 300,237 316,572 285,720 245,861
Long-term Debt........... 1,667 14,523 4,893 12,392 12,833
Stockholders' equity..... 37,065 15,435 34,340 14,887 12,746
SHARE DATA
Net income............... $ 0.56 $ 0.53 $ 0.76 $ 0.48 $ 0.56
Book value............... 7.73 6.19 7.16 5.94 4.99
Cash dividend(2)......... 0.06 0.00 0.00 0.00 0.00
RATIOS
Return on average assets. 0.91% 0.52% 0.60% 0.40% 0.62%
Return on average equity. 9.90% 11.89% 11.19% 8.27% 14.72%
Dividend payout(2)....... 10.21% -- -- -- --
Stockholders' equity to
total assets at period-
end..................... 9.02% 4.35% 9.11% 4.47% 4.39%
Average stockholders'
equity to average total
assets.................. 9.22% 4.38% 5.37% 4.90% 4.19%
CAPITAL RATIOS
Tier 1 risk-based capital
ratio................... 11.98% 7.43% 13.59% 6.93% 7.67%
Total risk-based capital
ratio................... 13.23% 8.69% 14.85% 8.19% 8.94%
Leverage ratio........... 9.11% 4.21% 9.48% 4.36% 3.89%
RATIOS OF EARNINGS TO FIXED
CHARGES(1)
Excluding interest on
deposits................ 4.48x 2.53x 2.82x 2.06x 3.18x
Including interest on
deposits................ 1.34x 1.18x 1.21x 1.13x 1.33x
</TABLE>
- --------
(1) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes, cumulative effect of changes in
accounting principles and fixed charges by fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits). There were no amortization of notes and
debentures expense nor any portion of net rental expense which was deemed
to be equivalent to interest on debt. Interest expense (other than on
deposits) includes interest on notes, federal funds purchased and
securities sold under agreements to repurchase, and other funds borrowed.
(2) Prior to the second quarter of 1997, the Company had not paid cash
dividends on shares of its common stock. On each of May 30 and September
12, 1997, the Company paid a cash dividend of $0.03 per share to the
holders of record at May 15 and August 29, 1997.
(3) Peoples was formed in April 1994.
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<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based
on the Company's current expectations. To the extent any of the information
contained in this Prospectus constitutes a "forward-looking statement" as
defined in Section 27A(i)(1) of the Securities Act, the risk factors set forth
below are cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statement.
RISK FACTORS RELATING TO THE OFFERING
RANKING AS SUBORDINATED OBLIGATIONS OF THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Preferred Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. None of the Junior Subordinated Indenture, the Guarantee
or the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by the
Company. See "Description of Guarantee--Status of the Guarantee" and
"Description of Junior Subordinated Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the
Junior Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Debenture Events of Default." As a consequence
of any such deferral, quarterly Distributions on the Preferred Securities by
the Issuer Trust will be deferred during any such Extension Period.
Distributions to which holders of the Preferred Securities are entitled will
accumulate additional Distributions thereon during any Extension Period at the
rate of % per annum, compounded quarterly from the relevant payment date
for such Distributions, computed on the basis of a 360-day year of twelve 30-
day months and the actual days elapsed in a partial month in such period.
Additional Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. The term "Distribution" as
used herein shall include any such additional Distributions. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal of or interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu in all respects
with or junior in interest to the Junior Subordinated Debentures (other than
(a) repurchases, redemptions or other acquisitions of shares of capital stock
of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of
the Company's indebtedness for any
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<PAGE>
class or series of the Company's capital stock, (c) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options
or other rights where the dividend stock or the stock issuable upon exercise
of such warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks pari passu with or junior to such stock).
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of %, compounded quarterly, to the
extent permitted by applicable law), the Company may elect to begin a new
Extension Period subject to the above conditions. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company
must give the Issuer Trustees notice of its election to begin an Extension
Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the Preferred Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee
will give notice of the Company's election to begin a new Extension Period to
the holders of the Preferred Securities. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Preferred Securities--Distributions" and
"Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) for
United States federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Issuer Trust, which will
include a holder's pro rata share of both the stated interest and de minimis
OID, if any, on the Junior Subordinated Debentures. As a result, a holder of
Preferred Securities will include such OID in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Preferred Securities prior to the record date for the payment
of Distributions. See "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount" and "--Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of his, her or its Preferred Securities
during an Extension Period, therefore, might not receive the same return on
his, her or its investment as a holder that continues to hold its Preferred
Securities. In addition, as a result of the existence of the Company's right
to defer interest payments, the market price of the Preferred Securities
(which represent preferred undivided beneficial interests in the assets of the
Issuer Trust) may be more volatile than the market prices of other securities
on which original issue discount or interest accrues that are not subject to
such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time
within 90 days following the occurrence of such Tax Event, Investment Company
Event or Capital Treatment Event and thereby cause a mandatory redemption of
the Preferred Securities. Any such redemption shall be at a price equal to the
liquidation amount of the Preferred Securities, together with accumulated
Distributions to but excluding the date fixed for redemption. The ability of
the Company to exercise its rights to redeem the Junior Subordinated
Debentures prior to the stated maturity may be subject to prior
13
<PAGE>
regulatory approval by the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of Junior
Subordinated Debentures--Redemption" and "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the delivery of such opinion will not be, deductible
by the Company, in whole or in part, for United States federal income tax
purposes or (iii) the Issuer Trust is, or will be within 90 days of the
delivery of the opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
or prospective change becomes effective or would become effective, as the case
may be, on or after the date of the issuance of the Preferred Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement, action or decision is announced on or after the date of
issuance of the Preferred Securities, there is more than an insubstantial risk
that the Company will not be entitled to treat an amount equal to the
Liquidation Amount of the Preferred Securities as "Tier 1 Capital" (or the
then equivalent thereof) except as otherwise restricted under the 25% Capital
Limitation (as defined herein), for purposes of the risk-based capital
adequacy guidelines of the Federal Reserve, as then in effect and applicable
to the Company.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The
ability of the Company, as holder of the Common Securities, to dissolve the
Issuer Trust may be subject to prior regulatory approval of the Federal
Reserve, if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause
the Issuer Trust to be subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures, a
distribution of the Junior
14
<PAGE>
Subordinated Debentures by the Issuer Trust would be a taxable event to the
Issuer Trust and the holders of the Preferred Securities. See "Certain Federal
Income Tax Consequences--US Holders--Receipt of Junior Subordinated Debentures
or Cash Upon Liquidation of the Issuer Trust."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Preferred Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Preferred Securities
the following payments, to the extent not paid by or on behalf of the Issuer
Trust: (i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Issuer Trust has funds on hand
available therefor at the payment date, (ii) the Redemption Price with respect
to any Preferred Securities called for redemption, to the extent that the
Issuer Trust has funds on hand available therefor at such time, and (iii) upon
a voluntary or involuntary dissolution, winding up or liquidation of the
Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Preferred Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (b) the amount of assets of the Issuer Trust
remaining available for distribution to holders of the Preferred Securities on
liquidation of the Issuer Trust. The Guarantee is subordinated as described
under "--Ranking of Subordinated Obligations Under the Guarantee and the
Junior Subordinated Debentures" and "Description of Guarantee--Status of the
Guarantee." The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise
of any trust power conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer Trust, the Guarantee
Trustee or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, if a Debenture Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
any amounts payable in respect of the Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of
Preferred Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of any amounts payable in
respect of such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such holder
(a "Direct Action"). In connection with such Direct Action, the Company will
have a right of set-off under the Junior Subordinated Indenture to the extent
of any payment made by the Company to such holder of Preferred Securities in
the Direct Action. Except as described herein, holders of Preferred Securities
will not be able to exercise directly any other remedy available to the
holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of
Preferred Securities," "--Debenture Events of Default" and "Description of
Guarantee." The Trust Agreement provides that each holder of Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee and
the Junior Subordinated Indenture.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights relating
generally to the modification of the Preferred Securities and the Guarantee
and the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Preferred Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement. The Property
Trustee and the holders of all the Common Securities may, subject to certain
15
<PAGE>
conditions, amend the Trust Agreement without the consent of holders of
Preferred Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Preferred Securities--
Voting Rights; Amendment of Trust Agreement" and "--Removal of Issuer
Trustees; Appointment of Successors."
ABSENCE OF MARKET
The Preferred Securities are a new issue of securities with no established
trading market. Application has been made to list the Preferred Securities in
the Nasdaq National Market. One of the requirements for initial listing is the
presence of three market makers for the Preferred Securities. Nasdaq National
Market maintenance standards require the existence of two market makes for
continued listing. Advest, Inc., Principal Financial Securities, Inc. and
Robert W. Baird & Co. Incorporated have advised the Company that they intend
to make a market in the Preferred Securities so long as the volume of trading
activity in the Preferred Securities and certain other market making
considerations justify doing so. The Trust has been advised by the Nasdaq
National Market that the other Nasdaq National Market initial listing
requirements have been met. There can be no assurance, however, that an
established and liquid trading market will develop or, if developed, will be
sustained following the issuance of the Preferred Securities.
MARKET PRICES
There can be no assurance as to the market prices for Preferred Securities,
or the market prices for Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a liquidation of the
Issuer Trust occurs. Accordingly, the Preferred Securities or the Junior
Subordinated Debentures that a holder of Preferred Securities may receive on
liquidation of the Issuer Trust may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Junior Subordinated Debentures on
termination of the Issuer Trust, prospective purchasers of Preferred
Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See
"Description of Junior Subordinated Debentures."
RISK FACTORS RELATING TO THE COMPANY
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
The Company is a legal entity separate and distinct from the Banks. The
ability of the Company to pay the interest on, and principal of, the Junior
Subordinated Debentures will be significantly dependent on the ability of the
Banks to pay dividends to the Company in amounts sufficient to service the
Company's debt obligations. Payment of dividends by the Banks is restricted by
various legal and regulatory limitations.
The right of the Company to participate in the assets of any subsidiary upon
the latter's liquidation, reorganization or otherwise (and thus the ability of
the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim.
The Banks are also subject to restrictions under federal law which limit the
transfer of funds by them to the Company, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such
transfers by the Banks to the Company or any nonbank subsidiary of the Company
are limited in amount to 10% of the bank's capital and surplus and, with
respect to the Company and all its nonbank subsidiaries, to an aggregate of
20% of the bank's capital and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified amounts. Federal law also
prohibits banks from purchasing "low-quality" assets from affiliates.
16
<PAGE>
COMPETITION AND OTHER RISKS ASSOCIATED WITH EXPANSION STRATEGY
The rural market areas now served by the Company afford limited, if any,
opportunities for growth in such markets. Management believes future growth in
the earnings of the Company will depend in part on consummation of
acquisitions in other markets and growth in Exchange Bank's Johnson County
branches. The Company must compete with a variety of institutions and
individuals for suitable acquisition candidates. This competition is expected
to intensify with the advent of interstate banking and branching. Competition
for acquisitions is expected to include money center banks and major regional
bank holding companies. These same institutions, as well as other financial
institutions, also compete intensely for assets and deposits within the
Company's southwestern Kansas City market. Competition from these institutions
could adversely affect the Company's ability to make acquisitions and to grow
profitably its Kansas City asset and deposit base.
The Company has experienced significant growth through acquisitions of
depository institutions and other financial services companies, and continues
to evaluate other business opportunities as they may arise. In this regard,
the Company may from time to time enter into discussions with additional
acquisition candidates, and such discussions may result in letters of intent
and/or definitive agreements relating to the acquisition of such banks or
other companies. There can be no assurances, however, that any of these
discussions will be successful, that the execution of any letters of intent or
definitive agreements will result in the consummation of the transactions
contemplated thereby, that the Company will acquire any additional businesses,
or that the financial performance of any business acquired by the Company in
the future will justify the investment therein. Moreover, acquisitions may
involve a number of special risks, including adverse short-term effects on the
Company's reported operating results, diversion of management's attention,
dependence on retaining, hiring and training of key personnel, risks
associated with unanticipated problems or legal liabilities, and amortization
of acquired intangible assets, some or all of which could have a material
adverse effect on the Company's operations or financial performance.
LIMITED NUMBER OF BANKS
The Company currently owns four banks and one federal savings bank. Due to
this relatively small existing base of banks, adverse results or events at a
particular Bank could have a more significant impact on the Company's results
of operations or financial condition than would be the case for a company with
a greater number of banks.
GEOGRAPHIC CONCENTRATION; SIGNIFICANCE OF AGRICULTURAL ECONOMY
Approximately 69.7% of the Company's deposits and 68.3% of the Company's
assets at September 30, 1997 were derived from Banks operating in the
relatively rural markets of Marysville, Clay Center and Seneca, Kansas and St.
Joseph, Missouri. Adverse economic changes in these geographic markets may
have a material adverse effect on the Company's results of operations and
financial condition. In the rural Kansas markets served by the Banks, the
predominant economic sector is agriculture. Changes in the agricultural
economy have had, and are expected to continue to have, a significant impact
on the results of operations and financial condition of the Company.
Agriculture in these communities is affected by many factors beyond the
control of the Banks, including weather, governmental policies, fluctuating
commodity prices, demand, production and natural disasters.
CONCENTRATIONS IN REAL ESTATE LENDING AND RELATED RISKS
The Company is dependent to a significant degree on a broad spectrum of
commercial, construction, 1 to 4 family residential and agricultural real
estate loans. Real estate loan origination activity, including refinancings,
generally is greater during periods of declining interest rates and favorable
economic conditions, and has been favorably affected by relatively lower
market interest rates during the past several years. There is no assurance
such favorable conditions will continue.
17
<PAGE>
On September 30, 1997, real estate and real estate construction loans
totaled approximately 60% of the Company's loan portfolio. Real estate loans
are subject to the risk that real estate values in a geographical area or for
a particular type of real estate will decrease, and to the risk that borrowers
will be unable to meet their loan obligations. The Company attempts to
minimize these risks by making real estate loans that are secured by a variety
of different types of real estate, limiting real estate loans to 80% of the
appraised value of the real estate (or, in the case of residential real estate
loans, requiring the borrower to obtain mortgage insurance to the extent the
loan exceeds 80% of the value of the property), limiting the maturity of
commercial real estate loans held in its portfolio to one to five years and,
regardless of collateral, reviewing the potential borrower's ability to meet
debt service obligations. There can be no assurance that any of these or other
measures will reduce the risks associated with real estate lending. See
"BUSINESS--Lending Activities."
COMPETITION WITHIN MARKETS
The Banks operate in a competitive environment, competing for deposits and
loans with commercial banks, thrift institutions and other financial
institutions. Numerous mergers and consolidations involving banks and thrifts
in the geographic market in which the Company operates have occurred recently,
resulting in an intensification of competition. The Banks also compete with
money market mutual funds for funds from depositors. Many of the Banks'
competitors possess greater financial resources or have substantially higher
lending limits than do the Banks. Federal and state legislation and/or
regulations also affect the Company's competitiveness in the financial
services business. It is impossible to predict the competitive impact on the
Company of certain federal and state legislation and/or regulations relating
to the banking industry and interstate banking. See "BUSINESS" and
"SUPERVISION AND REGULATION."
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
In originating loans, there is a substantial likelihood credit losses will
be experienced. The risk of loss varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for the loan. Management maintains an allowance
for loan losses based on, among other things, industry standards, management's
experience, historical experience, an evaluation of economic conditions, and
regular reviews of delinquencies and loan portfolio quality. Based upon such
factors, management makes various assumptions and judgments about the ultimate
collectability of the loan portfolio and provides an allowance for potential
loan losses based upon a percentage of the outstanding balances and for
specific loans when their ultimate collectability is considered questionable.
As of September 30, 1997, the allowance for possible loan losses was $3.6
million, which represented 1.23% of total loans, and loans in non-accrual
status totaled $918,000. The Banks actively manage past due and non-performing
loans in an effort to minimize credit losses and monitor asset quality to
maintain an adequate loan loss allowance. Although management believes its
allowance for loan losses is adequate, there can be no assurance the allowance
will prove sufficient to cover future loan losses. Further, future adjustments
may be necessary if economic conditions differ substantially from the
assumptions used or adverse developments arise with respect to the Banks' non-
performing or performing loans. Accordingly, there can be no assurance the
allowance for loan losses will be adequate to cover loan losses or significant
increases to the allowance will not be required in the future if economic
conditions should worsen. Material additions to the Banks' allowance for loan
losses would result in a decrease in the Company's net income. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Financial Condition--Allowance for Loan Losses."
SAFETY AND SOUNDNESS REGULATIONS
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure
18
<PAGE>
to the depositors of such depository institutions and to the FDIC insurance
funds in the event the depository institution becomes in danger of default or
in default. For example, under a policy of the Federal Reserve with respect to
bank holding company operations, a bank holding company is required to serve as
a source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so otherwise. See "SUPERVISION AND REGULATION." In addition, the "cross-
guarantee" provisions of federal law require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated by the federal deposit insurance funds as a result of the default
of a commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. The FDIC may decline to enforce the cross-guarantee
provision if it determines that a waiver is in the best interests of the
federal deposit insurance funds. The FDIC's claim for a reimbursement is
superior to claims of shareholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institution.
The federal banking agencies also have broad powers under current federal law
to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institution
in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized," as defined by the law. See "SUPERVISION AND REGULATION."
Each of the Banks are classified as well capitalized.
State regulatory authorities also have broad enforcement powers over the
Banks, including the power to impose fines and other civil and criminal
penalties, and to appoint a conservator in order to conserve the assets of any
such institution for the benefit of depositors and other creditors and has the
authority to take possession of a state bank in certain circumstances,
including, among other things, when it appears that such bank has violated its
charter or any applicable laws or is conducting its business in an unauthorized
or unsafe manner, or is in an unsafe or unsound condition to transact its
business or has an impairment of its capital stock.
EFFECT OF INTEREST RATE FLUCTUATIONS
Fluctuations in interest rates are not predictable or controllable. The
Company endeavors to structure its asset and liability management strategies to
mitigate the impact on net interest income of changes in market interest rates.
However, there can be no assurance that the Company will be able to manage
interest rate risk so as to avoid significant adverse effects in net interest
income.
The Company's consolidated results of operations depend to a large extent on
the level of its net interest income, which is the difference between interest
income from interest-earning assets (such as loans and investments) and
interest expense on interest-bearing liabilities (such as deposits and
borrowings). If interest-rate fluctuations cause its cost of funds to increase
faster than the yield on its interest-earning assets, net interest income will
be reduced. The Company measures its interest-rate risk using simulation, price
elasticity and gap analyses. The differences between an institution's interest-
rate sensitive assets and its interest-rate sensitive liabilities at a point in
time is its gap position. At September 30, 1997, the Company had a one year
cumulative negative gap of 22.78%. This negative one year gap position may have
a negative impact on earnings in an increasing interest rate environment. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Interest Rate Sensitivity Analysis."
GOVERNMENT REGULATION
The Company and the Banks each are subject to extensive state and federal
governmental supervision, regulation and control. Future legislation and
government policy could adversely affect the banking industry and the
operations of the Company and the Bank. See "SUPERVISION AND REGULATION."
19
<PAGE>
KEY PERSONNEL
Continued profitability of the Banks and the Company are dependent on the
retention of a limited number of key persons, including Michael W. Gullion,
the Chairman, President and Chief Executive Officer of the Company, and Keith
E. Bouchey, the Executive Vice President, Secretary and Chief Financial
Officer of the Company. There would likely be a difficult transition period if
the Company lost the services of either or both men. In recognition of this
risk, the Company owns and is the beneficiary of an insurance policy on the
life of Mr. Gullion providing for death benefits of $1.5 million and has
entered into employment agreements with Mr. Gullion and Mr. Bouchey. The
Company also places great value on the experience of Bank and branch
presidents and on their relationships within the communities served by the
Banks. The loss of these key persons could negatively impact the affected
banking locations. See "Management."
GBCI CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a Certificate of Trust with the Delaware Secretary
of State on October 31, 1997. The Issuer Trust will be governed by the Trust
Agreement among the Company, as Depositor, Bankers Trust (Delaware), as
Delaware Trustee, and Bankers Trust Company, as Property Trustee (together
with the Delaware Trustee, the "Issuer Trustees"). Two individuals will be
selected by the holder of the Common Securities to act as administrators with
respect to the Issuer Trust (the "Administrators"). The Company, while holder
of the Common Securities, intends to select two individuals who are employees
or officers of or affiliated with the Company to serve as the Administrators.
See "Description of Preferred Securities--Miscellaneous." The Issuer Trust
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any
failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the rights of the holder of the Common
Securities to payment in respect of Distributions and Payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Preferred Securities. See "Description of Preferred
Securities--Subordination of Common Securities." The Company will acquire
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of the Issuer Trust. The Issuer Trust has a term of 31 years, but may
terminate earlier as provided in the Trust Agreement. The address of the
Delaware Trustee is Bankers Trust (Delaware), 1101 Centre Road, Suite 200,
Trust Department, Wilmington, Delaware 19805, telephone number (302) 636-3301.
The address of the Property Trustee, the Guarantee Trustee and the Debenture
Trustee is Bankers Trust Company, Four Albany Street, 4th Floor, New York, New
York 10006, telephone number (212) 250-2500.
20
<PAGE>
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are
expected to qualify as Tier 1 or core capital with respect to the Company
under the risk-based capital guidelines established by the Federal Reserve,
however capital received from the proceeds of the sale of the Preferred
Securities cannot constitute more than 25% of the total Tier 1 capital of the
Company (the "25% Capital Limitation"). Amounts in excess of the 25% Capital
Limitation will constitute Tier 2, or supplementary capital, of the Company.
The net proceeds to be received by the Company from the sale of the Junior
Subordinated Debentures will be used for financing growth, which may include
one or more branch acquisitions, acquisitions of other financial institutions,
acquisitions of other financial services companies, and for general corporate
purposes. In addition, a portion of the proceeds is likely to be contributed
to one or more of the Banks to support internal growth opportunities. Pending
any such use, the net proceeds may be invested in short-to-medium-term
investments. The precise amounts and timing of the application of proceeds
will depend upon the funding requirements of the Company and its subsidiaries
and the availability of other funds.
THE ALMA AND MIDWEST CAPITAL ACQUISITIONS
On November 25, 1997, the Company executed a definitive acquisition
agreement with Alma. The agreement calls for the issuance of 147,456 shares of
the Company's common stock and cash of $750,000 to be delivered by the Company
in exchange for all the outstanding stock of Alma. Alma is a one bank holding
company that owns all of the stock of First National Bank in Alma, located in
Alma, Kansas. The acquisition, which is subject to regulatory approval and the
satisfaction of other conditions, will be accounted for as a purchase. There
can be no assurance that all conditions precedent to consummation of the
acquisition will occur. On September 30, 1997, Alma had assets of $28.4
million, loans of $16.8 million, deposits of $24.7 million and net income of
$235,000 for the nine months then ended.
On November 26, 1997, the Company executed a definitive acquisition
agreement with Midwest Capital. The agreement calls for the issuance of
138,125 shares of the Company's common stock and cash of $1,487,500 to be
delivered by the Company in exchange for all the outstanding stock of Midwest.
Midwest is a full service broker/dealer located in Kansas City, Missouri.
Midwest Capital also manages stock, bond and money market portfolios of
financial institutions, governmental agencies, businesses, pension plans,
foundations and individuals. The acquisition, which is subject to regulatory
approval and the satisfaction of other conditions, will be accounted for as a
purchase. There can be no assurance that all conditions precedent to
consummation of the acquisition will occur. For the nine months ended
September 30, 1997 Midwest had net income of $430,000.
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at September 30, 1997, (ii) the consolidated capitalization of the
Company giving effect to the acquisition of Farmers as if it had been
consummated on September 30, 1997, (iii) the acquisition of Farmers as
described in (ii) and giving effect to the issuance of the Preferred
Securities hereby offered by GBCI Capital Trust, and (iv) the actual and pro
forma capital ratios of the Company. The table assumes application by the
Company of the net proceeds from the corresponding sale of the Junior
Subordinated Debentures to GBCI Capital Trust as if the sale of the Preferred
Securities had been consummated on September 30, 1997, and that the
Underwriters' over-allotment was not exercised.
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
AS ADJUSTED ACQUISITION OF
FOR THE FARMERS AND
ACQUISITION THE SALE OF
ACTUAL OF FARMERS PREFERRED SECURITIES
------- ----------- --------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Guaranteed preferred beneficial
interests in the Company's
subordinated debt(1)............ $ 0 $ 0 $25,000
STOCKHOLDERS' EQUITY:
Preferred stock no par value,
25,000,000 shares authorized,
none issued................... 0 0 0
Common stock no par value,
25,000,000 shares authorized;
4,793,615 shares issued and
outstanding (5,066,615 shares
as adjusted for the
acquisition of Farmers)....... 4,794 5,067 5,067
Additional paid in capital..... 18,784 24,229 24,229
Net unrealized gain on
securities available-for-sale. 63 63 63
Unearned Compensation.......... (276) (276) (276)
Retained earnings.............. 13,700 13,700 13,700
------- ------- -------
Total stockholders' equity... 37,065 42,783 42,783
------- ------- -------
Total capitalization........... $37,065 $42,783 $67,783
======= ======= =======
COMPANY CAPITAL RATIOS(2):
Equity to total assets......... 9.02% 9.26% 13.92%
Tier 1 risk-based capital
ratio(3)(4)................... 11.98% 12.40% 16.53%
Total risk-based capital
ratio(4)...................... 13.23% 13.61% 17.74%
Leverage ratio................. 9.11% 9.33% 13.34%
</TABLE>
- --------
(1) Preferred Securities representing beneficial interests in an aggregate
principal amount of $25,000,000 of the % Junior Subordinated
Debentures of the Company (not including the $3,750,000 aggregate
principal amount of Junior Subordinated Debentures to be purchased in the
event the Underwriters exercise their over-allotment option). The Junior
Subordinated Debentures will mature on .
(2) The capital ratios, as adjusted, are computed including the total
estimated proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines.
(3) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier 1
capital to 25% of total Tier 1 capital.
(4) Assumes net proceeds of the offering of the Preferred Securities are
invested in assets with a 0.00% risk weighting under the risk-based
capital rules of the Federal Reserve.
22
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of
the Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial
reporting purposes, Distributions on the Preferred Securities will be recorded
as interest expense in the consolidated statements of earnings of the Company.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's principal asset is its ownership of the Banks. Accordingly,
the Company's net income is dependent upon the combined results of operations
of the Banks. Each Bank conducts a commercial and consumer banking business
that consists of attracting deposits from the general public and redeploying
those funds to earning assets. Each Bank's profitability depends primarily on
net interest income, which is the difference between interest income generated
from interest-earning assets, primarily consisting of loans and investments,
and interest expense incurred on interest-bearing liabilities, primarily
consisting of customer deposits and borrowed funds.
Net interest income is affected by the balances of interest-earning assets
and interest-bearing liabilities and each Bank's interest rate spread, which
is the difference between the average yield earned on its interest-earning
assets and the average rate paid on its interest-bearing liabilities. The
interest rate spread is impacted by, among other factors, changes in interest
rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of non-interest
income of the Banks and non-interest expense of the Company and the Banks.
Non-interest income consists primarily of service fees, other fees and gains
on the sale of secondary mortgage loans and investment securities. Non-
interest expense consists of compensation and benefits, occupancy related
expenses, deposit insurance premiums, expenses of opening branch offices and
other operating expenses. The Company's profitability is further impacted by
the Company's effective tax rate, the Banks' provision for loan losses, and
various extraordinary items.
The Company's financial statements, data and ratios included in this
Prospectus have been restated to reflect the operations of Peoples, acquired
on August 22, 1997 in a pooling transaction, but not Farmers, acquired on
October 1, 1997 in a purchase transaction.
On November 22, 1996, the Company completed an initial public offering of
2,000,000 shares of its common stock. The closing with respect to an
additional 300,000 shares was completed on December 19, 1996, following the
exercise of the underwriters' over-allotment option. The net proceeds of the
sale, after deducting expenses of the offering, were approximately $18.1
million. The net proceeds were used to retire approximately $6.6 million in
short-term debt, to make a $5 million capital contribution to Exchange Bank,
to retire $2.5 million of debt assumed in the acquisition of Peoples, $2.2
million for acquisitions, $500,000 invested in marketable equity securities
and the remainder for general corporate purposes.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's net income was $2.6 million for the nine month period ended
September 30, 1997, compared to net income of $1.3 million for the nine month
period ended September 30, 1996 yielding an annualized return on average
assets ("ROA") of 0.91% for the nine month period ended September 30, 1997,
compared to 0.52% for the same ended September 30, 1996. Return on average
common stockholders' equity ("ROE") for the nine month periods ended September
30, 1997 and 1996 was 9.90% and 11.89%, respectively. The primary reason for
the earnings increase for the nine month period ended September 30, 1997 over
the same period in 1996 was greater net interest income through an improved
net interest margin coupled with greater loan volume. In addition, 1996 was
negatively impacted by a one-time industry wide Savings Association Insurance
Fund ("SAIF") assessment by the FDIC on SAIF assessable deposits which was
paid in the third quarter of 1996.
Total assets were $411.1 million at September 30, 1997, an increase of $34.2
million from December 31, 1996. Total average assets were $390.6 million for
the nine month period ended September 30, 1997, compared
24
<PAGE>
to $340.5 million for the nine month period ended September 30, 1996. Average
interest-earning assets were $361.1 million for the nine month period ended
September 30, 1997 and $314.3 million for the same period ended September 30,
1996.
The increase in net loans from December 31, 1996 to September 30, 1997 was
funded through increases in deposits of $27.7 million, short-term borrowings
of $6.4 million, liquidation of $19.6 million in investment securities and
draws on existing cash reserves of $5.7 million. The allowance for loan losses
increased to $3.6 million at September 30, 1997 from $3.0 million at December
31, 1996. The allowance represented 1.23% and 1.26% of total loans as of
September 30, 1997 and December 31, 1996, respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company's net income was $2.1 million for the year ended December 31,
1996, compared to net income of $1.2 million for the year ended December 31,
1995, yielding an ROA of 0.60% for the year ended December 31, 1996, compared
to 0.40% for the year ended December 31, 1995. ROE for 1996 and 1995 was
11.19% and 8.27%, respectively.
Total assets were $376.9 million at December 31, 1996, an increase of $44.0
million or 13.2% from $332.9 million at December 31, 1995. Total average
assets were $345.7 million for the year ended December 31, 1996, compared to
$300.8 million for the year ended December 31, 1995. Average interest-earning
assets were $319.8 million for the year ended December 31, 1996, and $279.4
million for 1995. Assets increased primarily because of the opening of
Exchange Bank's Leawood, Kansas location and growth at its Shawnee, Kansas
location.
The Company's net loans totaled $233.4 million and $190.3 million, as of
December 31, 1996 and 1995, respectively. The increase in total loans of $43.1
million during 1996 compared to 1995 was primarily funded through increases in
deposits of $30.8 million, federal funds purchased and short term borrowings
of $1.0 million, $3 million from proceeds of the Company's public stock
offering and $2.2 million of available cash. The allowance for loan losses
decreased to $3.0 million at December 31, 1996, from $3.3 million at December
31, 1995. This represented 1.26% and 1.68% of total loans as of December 31,
1996 and 1995, respectively. See "--Provision of Loan Losses."
NET INTEREST INCOME
Net interest income is interest earned on interest-earning assets less
interest accrued on interest-bearing liabilities. Interest-earning assets are
categorized as loans, investment securities and other earning assets, which
include Federal Funds sold and certificates of deposit issued from other
financial institutions. Interest-bearing liabilities are categorized as
customer deposits, time and savings deposits and other borrowings including
Federal Funds borrowed, short-term borrowings and long-term debt.
Total interest income for the nine month period ended September 30, 1997 was
$22.6 million, a 15.7% increase over the nine month period ended September 30,
1996. The increase is primarily the result of greater interest income through
a slightly improved yield on earnings assets combined with an increase in
total average earning assets of approximately $46.7 million.
Total interest expense for the nine month period ended September 30, 1997
was 5.3% higher than in the same period in 1996 as a result of an increase of
total interest-bearing liabilities of approximately $25.0 million but was
partially offset by slightly lower interest rates paid. Average total
interest-bearing liabilities increased by $25.7 million or 8.5% during the
nine month period ended September 30, 1997 compared to the same period in
1996, primarily due to the increased volume of deposits originated by Exchange
Bank in connection with the opening of its Leawood location and increased
short-term borrowings to fund loan demand in Johnson County.
Net interest income was $10.8 million for the nine month period ended
September 30, 1997, compared to $8.3 million for the same period in 1996, an
increase of 29.7%. This increase is attributable to significantly greater loan
volumes primarily originated from Exchange Bank's Leawood and Shawnee, Kansas
branches and a net interest margin for the period of 4.06% compared with 3.60%
for the same period in 1996.
25
<PAGE>
Total interest income for the year ended December 31, 1996 was $26.4 million
compared to $23.4 million for 1995, representing a 12.6% increase. Average
total earning assets increased $40.4 million or 14.5% at December 31, 1996,
compared to December 31, 1995. The increase is primarily the result of the
opening of Exchange Bank's office in Leawood, Kansas in the fourth quarter of
1995 as well as the continued growth in loans at Shawnee.
Total interest expense for the year ended December 31, 1996 was $15.1
million compared to $12.9 million for the same period in 1995, representing a
16.8% increase. The increase in interest expense reflects an increase in the
rate paid on interest-bearing liabilities. Average total interest-bearing
liabilities increased by $36.9 million or 13.8% during 1996, primarily due to
increased volume of deposits originated by Exchange Bank in connection with
the opening of its Leawood location.
Net interest income was $11.3 million for the year ended December 31, 1996,
compared to $10.6 million for 1995, an increase of 7.5%. The Company believes
this growth would have been greater but for an increase in interest expense
resulting from offering above-market rates on time deposits to promote the
opening of Exchange Bank's Leawood location. Although these deposits are
maturing, a substantial portion of such deposits have been retained. Exchange
Bank continues to offer above-market rates in an effort to attract and retain
deposits. The Company intends to periodically offer above-market in certain
markets in order to gain market share and liquidity.
26
<PAGE>
The following table presents the Company's average balances, interest earned
or accrued, and the related yields and rates on major categories of the
Company's interest-earning assets and interest-bearing liabilities for the
periods indicated:
COMPARATIVE AVERAGE BALANCES, YIELDS AND RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1997 1996
------------------------- -------------------------
AVERAGE AVERAGE
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans, net (1)............. $257,510 $18,170 9.41% $199,860 $14,507 9.68%
Investment securities-
taxable................... 82,589 3,665 5.92 94,700 4,250 5.98
Investment securities-
nontaxable(2)............. 10,265 619 8.03 9,898 547 7.37
Other earning assets....... 10,686 379 4.73 9,877 423 5.71
-------- ------- ---- -------- ------- ----
Total earning assets..... 361,050 22,833 8.43% 314,336 19,727 8.37%
Non-interest-earning
assets.................... 29,552 26,199
-------- --------
Total assets............. $390,602 $340,535
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Savings deposits and
interest-bearing checking. $113,048 $ 3,003 3.54% $ 83,081 $ 2,002 3.21%
Time deposits 185,466 7,682 5.52 189,117 7,932 5.59
Short-term borrowings...... 25,056 952 5.07 17,659 751 5.67
Long-term borrowings....... 3,937 203 6.87 11,980 559 6.25
-------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities............. 327,507 11,840 4.82% 301,837 11,243 4.97%
Non-interest-bearing
liabilities............... 27,094 23,779
Stockholders' equity....... 36,001 14,919
-------- --------
Total liabilities and
stockholders' equity.... $390,602 $340,535
======== ========
Net interest income(3)..... $10,993 $ 8,484
======= =======
Net interest spread........ 3.61% 3.40%
==== ====
Net interest margin(4)..... 4.06% 3.60%
==== ====
</TABLE>
- --------
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the nine months ended September 30, 1997 and 1996 were $209
and $171, respectively. The combined marginal rate used was 34%.
(3) The Company includes loan fees in interest income. Such fees totaled $705
and $702 for the nine months ended September 30, 1997 and 1996,
respectively.
(4) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
27
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
------------------------- -------------------------
AVERAGE AVERAGE
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans, net (1)............. $206,406 $19,796 9.59% $177,712 $17,253 9.71%
Investment securities-
taxable................... 92,422 5,624 6.09 83,485 5,221 6.25
Investment securities-
nontaxable(2)............. 9,927 770 7.76 10,690 755 7.06
Other earning assets....... 11,035 471 4.27 7,464 439 5.88
-------- ------- ---- -------- ------- ----
Total earning assets..... 319,790 26,661 8.34% 279,351 23,668 8.47%
Non-interest-earning
assets.................... 25,957 21,482
-------- --------
Total assets............. $345,747 $300,833
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Savings deposits and
interest-bearing checking. $ 86,334 $ 3,106 3.60% $ 75,169 $ 2,316 3.08%
Time deposits 188,577 10,235 5.43 164,413 8,942 5.44
Short-term borrowings...... 17,696 1,008 5.70 14,343 796 5.55
Long-term borrowings....... 11,048 716 6.48 12,873 840 6.53
-------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities............. 303,655 15,065 4.96% 266,798 12,894 4.83%
Non-interest-bearing
liabilities............... 23,530 19,309
Stockholders' equity....... 18,562 14,726
-------- --------
Total liabilities and
stockholders' equity.... $345,747 $300,833
======== ========
Net interest income(3)..... $11,596 $10,774
======= =======
Net interest spread........ 3.38% 3.64%
==== ====
Net interest margin (4).... 3.63% 3.86%
==== ====
</TABLE>
- --------
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects in 1996 and 1995 were $262 and $227, respectively. The combined
marginal rate used was 34%.
(3) The Company includes loan fees in interest income. Such fees totaled $873
and $671 in 1996 and 1995, respectively.
(4) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
28
<PAGE>
The following table presents the components of changes in the Company's net
interest income as attributed to volume and rate on a tax-equivalent basis.
The net change attributable to the combined impact of volume and rate has been
solely allocated to the change in rate.
RATE/VOLUME INTEREST ANALYSIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
COMPARED TO SEPTEMBER
30, 1996
------------------------
AVERAGE TOTAL
VOLUME RATE CHANGES
------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans(1)............................................ $5,579 $(1,916) $3,663
Investment securities-taxable....................... (725) 140 (585)
Investment securities-nontaxable.................... 27 44 71
Other earning assets................................ 46 (90) (44)
------ ------- ------
Total interest income............................. $4,927 $(1,822) $3,105
INTEREST EXPENSE:
Savings deposits and interest-bearing checking...... 963 38 $1,001
Time deposits....................................... (204) (46) (250)
Short-term borrowings............................... 418 (217) 201
Long-term borrowings................................ (500) 144 (356)
------ ------- ------
Total interest expense............................ 677 (81) $ 596
Increase (decrease) in net interest income............ $4,251 $(1,742) $2,509
====== ======= ======
</TABLE>
- --------
(1) The Company includes loan fees in interest income. Such fees totaled $705
and $702 for the nine months ended September 30, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 COMPARED TO
1996 COMPARED TO 1995 1994(2)
----------------------- ------------------------
AVERAGE TOTAL AVERAGE TOTAL
VOLUME RATE CHANGES VOLUME RATE CHANGES
------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans(1).................... $2,786 $(243) $2,543 $(6,757) $13,285 $6,528
Investment securities-
taxable.................... 559 (156) 403 (1,053) 2,162 1,109
Investment securities-
nontaxable................. (54) 69 15 (12) 494 482
Other earning assets........ 210 (178) 32 76 124 200
------ ----- ------ ------- ------- ------
Total interest income..... $3,501 $(508) $2,993 $(7,746) $16,065 $8,319
INTEREST EXPENSE:
Savings deposits and
interest-bearing checking.. $ 344 $ 446 $ 790 (931) 1,560 629
Time deposits............... 1,314 (21) 1,293 567 3,273 3,840
Short-term borrowings....... 186 26 212 100 304 404
Long-term borrowings........ (119) (5) (124) (59) 321 262
------ ----- ------ ------- ------- ------
Total interest expense.... $1,725 $ 446 $2,171 $ (323) $ 5,458 $5,135
Increase (decrease) in net
interest income.............. $1,776 $(954) $ 822 $(7,423) $10,607 $3,184
====== ===== ====== ======= ======= ======
</TABLE>
- --------
(1) The Company includes loan fees in interest income. Such fees totaled $873,
$671 and $525 in 1996, 1995 and 1994, respectively.
(2) Information presented does not include Peoples.
29
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the nine month period ended September 30,
1997, was $535,000, an increase of $390,000 over the comparable 1996 period.
This increase reflects the Company's recognition of significant loan growth.
The allowance represented 1.23% and 1.48% of total loans as of September 30,
1997 and September 30, 1996, respectively. The provision for loan losses was
negative $25,000 for the year ended December 31, 1996 compared to $1.33
million for the same period in 1995. The decrease is a result of management's
estimate of the required reserve coupled with unanticipated loan recoveries
realized in the fourth quarter of 1996.
NON-INTEREST INCOME
Non-interest income for the nine month period ended September 30, 1997, was
$1.9 million, a decrease of 15.1% from the same period in 1996. The decrease
is primarily a result of reduced gains on sales of mortgage loans at Provident
Bank, which is consistent with the Company's reduced emphasis on low margin
secondary market mortgage lending. The Company has sold its loan servicing
business and all mortgages sold into the secondary market are sold without
servicing rights retained. The Company does not retain loan brokers.
Non-interest income for the year ended December 31, 1996, was $2.9 million,
an increase of 23.2% from 1995. The increase is primarily a result of
increased service fees, gains on sales of assets in the second half of 1996
and the gain on the sale of loans in the first half of 1996. The Company
incurs periodic gains and losses in connection with the sale of securities to
meet its liquidity needs and in anticipation of changes in interest rates. See
"--Investment Activities."
The following table presents the components of the Company's non-interest
income for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------
1997 1996 1996 1995
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges on deposit accounts............ $ 738 $ 687 $1,033 $ 999
Gain on sale of loans.......................... 501 943 1,128 1,058
Gain (loss) on sale of securities.............. 89 20 (11) (92)
Insurance premium income....................... 55 16 22 58
Fiduciary income............................... 119 94 173 125
Other non-interest income...................... 415 498 507 167
------ ------ ------ ------
Total non-interest income...................... $1,917 $2,258 $2,852 $2,315
====== ====== ====== ======
Non-interest income as a percentage of average
total assets................................... 0.65% 0.88% 0.82% 0.77%
====== ====== ====== ======
</TABLE>
NON-INTEREST EXPENSE
Certain savings deposits of two of the Banks are insured by the Savings
Association Insurance Fund ("SAIF"), with the remaining deposits of the Banks
insured by the Bank Insurance Fund ("BIF"). Both SAIF and BIF have had a
designated reserve ratio of 1.25%. On September 30, 1996, the President signed
into law the Deposit Insurance Fund Act of 1996 ("DIFA"). DIFA directed the
FDIC to impose a special assessment on SAIF-assessable deposits insured as of
March 31, 1995. The one-time expense for the Company, incurred in 1996,
totaled $389,100 ($240,000 net after tax). In addition to this special one-
time assessment, the premiums for BIF deposits were increased to 1.29 basis
points per $100 of deposits and for SAIF deposits were decreased to 6.44 basis
points per $100 of deposits. The new premiums, which took effect January 1,
1997, and continue through December 31, 1999, will result, based on the
Company's current deposit base, in a decrease in future FDIC insurance
premiums for the Company.
30
<PAGE>
Non-interest expense decreased slightly by $271,000 for the nine month period
ended September 30, 1997, as compared to the same period in 1996. This decrease
was primarily due to the ongoing centralization of certain administrative
functions, increases in operating efficiencies, and the realization of cost
savings, including a 3.9% reduction in salaries and benefits expenses. In the
third quarter of 1996, Provident Bank substantially altered the manner in which
it conducts its mortgage banking business. The changes included a substantial
reduction in personnel that decreased the Company's salaries and employee
benefits expenses. Net occupancy expense decreased due to rental income
associated with Exchange Bank's new Leawood branch. The Company experienced a
significant increase in professional services expenses as a result of legal and
accounting expenses associated with the Company's recent acquisitions and its
obligation to comply for the first time with the periodic reporting
requirements of the Securities and Exchange Commission imposed on publicly held
companies.
Non-interest expense increased by $1.3 million for the year ended December
31, 1996. This increase was primarily due to the addition of employees at the
newly opened Leawood location and Provident Bank's mortgage loan production
office and also was affected by annual increases in salaries and employee
benefits and the addition of two executive positions at the Company. Net
occupancy expense increased due to remodeling projects that were completed in
Shawnee, Kansas and St. Joseph, Missouri and because Exchange Bank's new
Leawood, Kansas location was not open in the first half of 1995. As a
percentage of average assets, non-interest expense was 3.20% and 3.25% as of
December 31, 1996 and 1995, respectively.
The following table presents the components of non-interest expense for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31,
-------------- ---------------
1997 1996 1996 1995
------ ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits................. $4,453 $4,628 $ 6,060 $5,332
Net occupancy expense.......................... 928 804 1,096 988
Deposit insurance expense...................... 76 515 551 400
Professional services.......................... 578 384 240 565
Data processing expense........................ 431 448 613 478
Supplies....................................... 203 229 308 262
Telephone...................................... 105 133 170 150
Postage........................................ 138 140 186 183
Advertising/promotion.......................... 368 336 495 289
Other.......................................... 867 801 1,348 1,143
------ ------ ------- ------
Total non-interest expense................... $8,147 $8,418 $11,067 $9,790
====== ====== ======= ======
Efficiency ratio(1)............................ 66.96% 80.74% 77.88% 84.93%
</TABLE>
- --------
(1) The efficiency ratio represents total non-interest expense divided by net
interest income after provision for loan losses plus total non-interest
income.
INCOME TAX EXPENSE
Income tax expense for the nine month period ending September 30, 1997 and
September 30, 1996 was $1.3 million and $678,000, respectively. The effective
tax rates for those periods were 33.5% and 33.8%, respectively.
Income tax expense for the years ended December 31, 1996, and December 31,
1995, was $1.1 million and $520,000, respectively. The effective tax rates for
those periods were 33.9% and 30.0%, respectively. The effective tax rate for
1995 differed from the expected rate of 34% primarily because of a greater
percentage of income before taxes come from tax-exempt securities.
Approximately 43.5% of income before taxes in 1995 was derived from tax-exempt
securities compared to only 24.5% in 1996.
31
<PAGE>
ASSET/LIABILITY MANAGEMENT
Asset liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive interest-
earning assets and interest-bearing liabilities. An interest rate sensitive
balance sheet item is one that is able to reprice quickly, through maturity or
otherwise. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. Close matching of the repricing of assets and
liabilities will normally result in little change in net interest income when
interest rates change. A mismatched gap position will normally result in
changes in net interest income as interest rates change.
Along with internal gap management reports, the Company and the Banks use an
external asset/liability modeling service to analyze each of the Banks'
current gap position. The system simulates the Banks' asset and liability base
and projects future earnings results under several interest rate assumptions.
The Company strives to maintain an aggregate gap position such that changes in
interest rates within ranges determined by management to be reasonable will
not effect net interest income by more than five percent in any twelve-month
period. The Company has not engaged in derivatives transactions for its own
account.
The following table sets forth the maturities of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1997.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
TERM TO REPRICING
-------------------------------------------------
FOUR
MONTHS OVER
ZERO TO TO ONE TO OVER
THREE TWELVE FIVE FIVE
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans...................... $124,901 $ 60,571 $88,111 $20,978 $294,561
Investment securities...... 12,745 18,334 27,344 23,081 81,504
Other interest-bearing
assets.................... 6,639 -- -- -- 6,639
-------- -------- ------- ------- --------
Total interest-earning
assets.................. 144,285 78,905 115,455 44,059 382,704
INTEREST-BEARING LIABILITIES:
Savings deposits and
interest-bearing checking. 120,757 -- -- -- 120,757
Time deposits.............. 41,149 88,138 66,978 144 196,409
Short-term borrowings...... 17,898 5,711 1,417 25,026
Long-term borrowings....... 144 242 916 365 1,667
-------- -------- ------- ------- --------
Total interest-bearing
liabilities............. 179,948 94,091 69,311 509 343,859
Interest sensitivity gap..... $(35,663) $(15,186) $46,144 $43,550 $ 38,845
Cumulative gap............... $(35,663) $(50,849) $(4,705) $38,845
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities......... 80.18 % 81.44 % 98.63 % 111.30%
Ratio of cumulative gap to
interest-earning assets..... (24.72)% (22.78)% (1.39)% 10.15%
</TABLE>
The cumulative gap value indicated above for the zero to five year time
period indicates that a rise in interest rates would have a negative effect on
net interest income. The Company has the ability to reprice the rates on
savings deposits and interest bearing checking. Historically the rates on
these deposits have not been repriced when rates have had small movements.
32
<PAGE>
FINANCIAL CONDITION
LENDING ACTIVITIES
Real Estate Loans. Real estate loans represent the largest class of loans of
the Company. The Company categorizes real estate loans as follows:
i) Commercial. Commercial real estate loans increased from December 31,
1995, to September 30, 1997, due primarily to increased lending activity in
the Johnson County suburbs southwest of Kansas City.
ii) Construction. Construction lending consists primarily of single
family construction in Johnson County, Kansas. The Company has experienced
steady growth in the suburban Kansas City market place. The September 30,
1997 balance reflects continued, although seasonal, growth in the Johnson
County market.
iii) 1 to 4 Family Residential. Loans in this category consist primarily
of owner-occupied residential loans. Since December 31, 1995, the mix of
loans has begun to shift from fixed rate loans to variable rate products.
The Company has elected to portfolio selected variable rate real estate
loans, which has resulted in the loan growth in this category.
iv) Agricultural. This category consists of loans secured by agricultural
real estate. The demand for agricultural real estate loans has remained
flat due to an historically low turnover of farm property.
v) Held for Sale. Loans held for sale represent residential loans
intended to be sold to secondary market investors and in the process of
being delivered.
Commercial Loans. Loans in this category include loans to service, retail,
wholesale and light manufacturing businesses, including agricultural service
businesses. Commercial loans increased $29.6 million or 68.9% from December
31, 1995, to September 30, 1997. This loan growth is attributable to Exchange
Bank's expanding business development in Shawnee, Kansas and the opening of
Exchange Bank's location in Leawood, Kansas. Provident Bank has also increased
its commercial loan portfolio.
Consumer and Other Loans. Loans classified as consumer and other loans
include automobile, residential, other personal loans and credit card loans.
The majority of these loans are installment loans with fixed interest rates.
Consumer and other loans increased 22.1% from December 1996, which was
proportional to the increase in total loans. The Company issues credit cards
to its existing customers.
Agricultural Loans. Agricultural loans are typically made to farmers, small
corporate farms and feed and grain dealers. Agricultural loans were $21.1
million as of September 30, 1997, or 7.1% of total loans. Agricultural loan
demands has remained stable, due in general to a very stable agricultural
economy. Agricultural loans as a percentage of total loans continues to
decrease slightly, due to overall loan growth in other areas.
33
<PAGE>
The following table presents the balance of each major category of the
Company's loans at the dates indicated.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------
1997 1996 1995
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
-------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.................. $ 72,642 24.66% $ 52,524 22.22% $ 43,018 22.23%
Real Estate Construction.... 40,431 13.73 28,672 12.13 19,987 10.33
Real Estate(1).............. 137,135 46.56 114,990 48.65 87,220 45.07
Loans held for sale......... 2,872 0.98 2,182 0.92 6,665 3.44
Consumer and Other.......... 20,344 6.91 16,668 7.05 16,193 8.37
Agricultural................ 21,137 7.18 21,303 9.01 20,458 10.57
-------- ------ -------- ------ -------- ------
Total loans................. 294,561 100.00% 236,339 100.00% 193,541 100.00%
Less allowance for loan
losses...................... 3,613 2,981 3,252
-------- -------- --------
Total..................... $290,948 $233,358 $190,289
======== ======== ========
</TABLE>
- --------
(1) Includes commercial real estate loans, agriculture real estate loans and 1
to 4 family residential real estate loans.
The following table sets forth the repricing of portfolio loans outstanding
at September 30, 1997.
LOAN REPRICING SCHEDULE
<TABLE>
<CAPTION>
AFTER AFTER ONE
IN THREE FOUR MONTHS YEAR BUT
MONTHS BUT BEFORE BEFORE AFTER
OR LESS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LOAN CATEGORY:
Commercial............... $ 44,114 $12,541 $13,919 $ 2,068 $ 72,642
Real Estate Construction. 37,584 1,230 1,617 -- 40,431
Real Estate.............. 25,724 31,977 61,204 18,230 137,135
Loans Held for Sale...... 2,872 -- -- -- 2,872
Agricultural............. 8,288 9,921 2,655 273 21,137
Consumer and other....... 6,319 4,902 8,716 407 20,344
-------- ------- ------- ------- --------
Total loans............ $124,901 $60,571 $88,111 $20,978 $294,561
======== ======= ======= ======= ========
</TABLE>
As of September 30, 1997, loans repricing after one year include
approximately $66.1 million in fixed rate loans and $42.9 million in floating
or adjustable rate loans.
ASSET QUALITY
The Company's asset quality compares favorably to its peer institutions. The
Company follows regulatory guidelines in placing loans on a non-accrual basis
and places loans with doubtful principal repayment on a non-accrual basis,
whether current or past due. The Company considers non-performing assets to
include all non-accrual loans, other loans past due 90 days or more as to
principal and interest (with the exception of those loans which in management's
opinion are well collateralized or exhibit other characteristics suggesting
they are collectable), other real estate owned ("OREO") and repossessed assets.
The Company does not return a loan to accrual status until it is brought
current with respect to both principal and interest and future principal
payments are no longer in doubt. When a loan is placed on non-accrual status,
any previously accrued and uncollected interest is reversed.
34
<PAGE>
Restructured and impaired loans are considered insignificant for all periods
presented. The Company recorded interest income on non-accrual loans in the
amounts of $4,000, $23,000 and $172,000 for the nine months ended September
30, 1997 and the years ended December 31, 1996 and 1995, respectively. The
Company would have recorded additional interest in the amounts of $79,000,
$23,000 and $27,000 for each of the foregoing periods, respectively if non-
accrual loans had been current during these periods.
Non-performing assets are summarized in the following table:
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AT
DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans:
Loans 90 days or more past due but still
accruing...................................... $ 14 $ 5 $ 4
Non-accrual loans.............................. 918 324 1,762
------ ----- -------
Non-performing loans........................... 932 329 1,766
Other assets..................................... 4 -- --
OREO............................................. 150 70 149
------ ----- -------
Non-performing assets.......................... $1,086 $ 399 $ 1,915
====== ===== =======
Non-performing loans as a percentage of total
loans........................................... 0.32% 0.14% 0.91%
Non-performing assets as a percentage of total
assets.......................................... 0.26% 0.11% 0.58%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The success of a bank depends to a significant extent upon the quality of
the assets, particularly loans. In the case of the Company, this is
highlighted by the fact that as of September 30, 1997, net loans represented
approximately 70.78% of its total assets. In originating loans, there is a
substantial likelihood that credit losses will be experienced. The risk of
loss will vary with, among other things, general economic conditions, the type
of loan being made, the creditworthiness of the borrower over the term of the
loan and, in the case of a collateralized loan, the quality of the collateral
for the loan. Management maintains an allowance for loan losses based on,
among other things, industry standards, management's experience, historical
experience, an evaluation of economic conditions, and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors, management
makes various assumptions and judgments about the ultimate collectability of
the loan portfolio and provides an allowance for potential loan losses based
upon a percentage of the outstanding balances and for specific loans when
their ultimate collectability is considered questionable. Since certain
lending activities involve greater risks, the percentage applied to specific
loan types may vary.
The Company actively manages its past due and non-performing loans in each
Bank in an effort to minimize credit losses and monitor asset quality to
maintain an adequate loan loss allowance. Although management believes that
its allowance for loan losses is adequate for each Bank and collectively,
there can be no assurance that the allowance will prove sufficient to cover
future loan losses. Further, although management uses the best information
available to make determinations with respect to the allowance for loan
losses, future adjustments may be necessary if economic conditions differ
substantially from the assumptions used or adverse developments arise with
respect to the organization's non-performing or performing loans. Accordingly,
there can be no assurance that the allowance for loan losses will be adequate
to cover loan losses or that significant increases to the allowance will not
be required in the future if economic conditions should worsen. Material
additions to the allowance for loan losses would result in a decrease of the
Company's net income and capital and could result in the inability to pay
dividends, among other adverse consequences.
The allowance for loan losses at September 30, 1997 totaled $3.6 million, a
$632,000 increase over December 31, 1996 resulting from charge-offs of
$300,000, recoveries of $397,000 and provisions of $535,000.
35
<PAGE>
The allowance for loan losses on December 31, 1996 totaled $3.0 million, a
slight decrease over December 31, 1995 resulting from charge-offs of $501,000,
recoveries of $255,000 and provisions of ($25,000). The allowance for loan
losses totaled $3.3 million as of December 31, 1995. The allowance increased
during 1995 by $584,000 which resulted from a combination of additional
provisions of $1.3 million and net charge-offs of $750,000.
The following table sets forth activity in the Company's allowance for loan
losses during the periods indicated:
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total net loans outstanding at the end of
period....................................... $290,948 $233,358 $190,290
Average net loans outstanding during the
period....................................... $257,510 $206,406 $177,712
Allowance for loan losses, beginning of
period....................................... $ 2,981 $ 3,252 $ 2,668
CHARGE-OFFS:
Real Estate Construction................... -- 24 --
Real Estate................................ 102 2 12
Commercial................................. 146 304 542
Consumer and other......................... 51 72 89
Agricultural............................... 1 99 260
-------- -------- --------
Total charge-offs........................ 300 501 903
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF:
Real Estate Construction................... -- 11 --
Real Estate................................ 34 107 57
Commercial................................. 325 90 10
Consumer and other......................... 35 20 28
Agricultural............................... 3 27 58
-------- -------- --------
Total recoveries......................... 397 255 153
Net charge-offs (recoveries)................. (97) 246 750
Provision charged to operations.............. 535 (25) 1,334
-------- -------- --------
Allowance for loan losses, end of period..... $ 3,613 $ 2,981 $ 3,252
RATIOS:
Net charge-offs to average loans outstanding. (0.04)% 0.12% 0.42%
Allowance for loan losses to loans, end of
period....................................... 1.23% 1.26% 1.68%
Allowance for loan losses to non-performing
loans........................................ 387.66% 906.08% 184.14%
</TABLE>
36
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSS
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENT OF
LOANS IN EACH
CATEGORY
AMOUNT TO TOTAL LOANS
------ --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Real Estate Construction........................... $ 404 11.19%
Real Estate........................................ 1,023 28.31%
Commercial......................................... 726 20.09%
Agricultural....................................... 211 5.84%
Consumer and Other................................. 237 6.56%
Unallocated........................................ 1,012 28.01%
------ ------
Total............................................ $3,613 100.00%
====== ======
</TABLE>
INVESTMENT ACTIVITIES
The Company's investment portfolio serves three important functions: first,
it enables the adjustment of the balance sheet's sensitivity to changes in
interest rate movements; second, it provides an outlet for investing excess
funds; and third, it provides liquidity. The investment portfolio is
structured to maximize the return on invested funds within conservative risk
guidelines.
The portfolio is comprised of U.S. Treasury securities, U.S. government
agency obligations, state municipal obligations, Federal Reserve Bank stock,
FNMA stock, and FHLB stock. The U.S. government agency obligations include
Federal Home Loan Mortgage Corporation ("FHLMC"), FNMA notes and mortgage-
backed securities, FHLB notes and Government National Mortgage Association
("GNMA") mortgage-backed securities. As of September 30, 1997, the portfolio
includes approximately $11.1 million of standard collateralized mortgage
obligations, all of which are rated AA or better. Federal Funds sold are not
classified as investment securities.
The investment portfolio decreased $920,000 or 0.90% during the year ended
December 31, 1996 and $19,641,000 or 19.42% for the period ending September
30, 1997. The decreases are primarily due to a strong loan demand.
The composition of the investment portfolio as of September 30, 1997, was
28.59% U.S. Treasury notes, 22.96% U.S. government obligations, 32.25%
mortgage-backed securities, 12.20% state and municipal securities and 4.07%
other securities. The comparable distribution for December 31, 1996, was
29.69% U.S. Treasury notes, 20.24% U.S. government obligations, 36.57%
mortgage-backed securities, 10.77% state and municipal securities, and 2.73%
other securities. The estimated maturity of the investment portfolio on
September 30, 1997, was two years and eight months. The average balance of the
investment portfolio as of September 30, 1997, represented 25.72% of average
earning assets as compared to 32.01% on December 31, 1996. No change in
investment strategy was made during 1997.
The Company periodically changes its balance sheet strategy to accommodate a
new interest rate environment when, in management's opinion, economic and
policy signals indicate a changing trend in interest rates. Accordingly, in
the first half of 1995 the Company sold bonds in anticipation of an increase
in interest rates.
37
<PAGE>
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated:
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY: (1)
U.S. Treasury and other U.S. agencies and
corporations.................................. $ 76 $ 77 $ 74
Obligations of states and political
subdivisions.................................. 25 25 25
------- -------- --------
Total........................................ $ 101 $ 102 $ 99
------- -------- --------
SECURITIES AVAILABLE FOR SALE: (2)
U.S. Treasury and other U.S. agencies and
corporations................................... $41,943 $ 50,424 $ 53,525
Obligations of states and political
subdivisions................................... 9,915 10,872 9,652
Mortgage-backed securities..................... 26,230 36,986 36,027
Other (3)...................................... 3,315 2,761 2,762
------- -------- --------
Total........................................ $81,403 $101,043 $101,966
------- -------- --------
Total investment securities................ $81,504 $101,145 $102,065
======= ======== ========
</TABLE>
- --------
(1) Securities held to maturity are carried on the Company's books at
amortized cost.
(2) Securities available for sale are carried on the Company's books at fair
value.
(3) Includes FHLB stock, Federal Reserve stock and FNMA stock.
The following table sets forth a summary of maturities in the investment
portfolio at September 30, 1997:
MATURITY SCHEDULE OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1997 (AT MARKET
VALUE) OVER 5
OVER ONE YEAR YEARS THROUGH
ONE YEAR OR LESS THROUGH 5 YEARS 10 YEARS OVER 10 YEARS TOTAL
---------------- ---------------- ---------------- --------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- -------- ------- -------- ------- -------- ------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. agencies and
corporations........... $18,985 5.40% $17,977 5.75% $ 3,919 -- $1,062 -- $41,943 5.57%
Obligations of states
and political
subdivisions........... 1,077 8.55% 5,411 7.62% 2,970 7.72% 457 -- 9,915 7.76%
Mortgage-backed
securities............. 1,204 5.00% 20,336 6.00% 4,331 7.13% 359 7.69% 26,230 6.19%
Other................... 3,315 5.12% -- -- -- -- 3,315 5.12%
------- ------- ------- ------ -------
Total................... $24,581 $43,724 $11,220 $1,878 $81,403 6.02%
======= ======= ======= ====== ======= ====
</TABLE>
DEPOSIT ACTIVITIES
Deposits are the major source of the Banks' funds for lending and other
investment purposes. In addition to deposits, the Banks derive funds from
interest payments, loan principal payments, loan and securities sales, and
funds from operations. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows are significantly influenced by general
interest rates and money market conditions. The Banks may use borrowings on a
short-term basis if necessary to compensate for reductions in the availability
of other sources of funds, or borrowings may be used on a longer term basis
for general business purposes.
38
<PAGE>
Deposits are attracted principally from within the Banks' primary market
area through the offering of a broad variety of deposit instruments, including
checking accounts, money market accounts, savings accounts, certificates of
deposit (including jumbo certificates in denominations of $100,000 or more),
and retirement savings plans. The Banks have aggressively attempted to obtain
large denomination, high interest-bearing deposits in selected markets to
increase market share or meet particular liquidity needs. The Company has not
used brokered deposits and has not sought to attract deposits outside its
market areas.
Maturity terms, service fees and withdrawal penalties are established by the
Banks on a periodic basis. The determination of rates and terms is predicated
on funds transaction and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
The growth in deposits is primarily the result of the Company's new
locations in Shawnee and Leawood, Kansas. During 1997 the Company experienced
an increase in savings and interest-bearing transaction accounts with balances
of less than $100,000. The non-interest-bearing account balance as of
September 30, 1997, showed a $27.1 million or 25.4% increase from the balance
as of September 30, 1996. The average balance increased accordingly by $4.4
million or 21.4% primarily as a result of growth at the Company's Shawnee and
Leawood, Kansas locations.
The following table sets forth the average balances and weighted average
rates for the Company's categories of deposits at the dates indicated.
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ---------------------------------------------------
SEPTEMBER 30, 1997 1996 1995
------------------------- ------------------------- -------------------------
% OF % OF % OF
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS
-------- ------- -------- -------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest checking... $ 25,099 0.00% 8% $ 22,623 0.00% 8% $ 17,966 0.00% 7%
Savings deposits and
interest-bearing
checking............... 113,048 3.54% 35% 86,334 3.60% 29% 75,169 3.08% 29%
Certificates of deposit 185,466 5.52% 57% 188,577 5.43% 63% 164,413 5.44% 64%
-------- --- -------- --- -------- ---
Total................. $323,613 100% $297,534 100% $257,548 100%
</TABLE>
The Company does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on its business.
Management believes that substantially all the Banks' depositors are residents
in their respective primary market area.
The following table sets forth a summary of the deposits of the Company at
the dates indicated:
DEPOSIT COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-interest-bearing........................... $ 27,105 $ 27,092 $ 24,427
Interest-bearing:
Savings and NOW accounts..................... 120,757 96,025 73,114
Time accounts less than $100,000............. 159,683 151,725 154,979
Time accounts greater than $100,000.......... 36,726 41,730 33,200
-------- -------- --------
Total deposits............................. $344,271 $316,572 $285,720
</TABLE>
39
<PAGE>
The following table summarizes at September 30, 1997, the Company's
certificates of deposit of $100,000 or more by time remaining until maturity:
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT
$100,000 OR GREATER
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Maturity Period:
Less than three months.......................... 15,532
Over three months through six months............ 7,054
Over six months through twelve months........... 7,863
Over twelve months.............................. 6,277
-------
Total......................................... $36,726
=======
</TABLE>
The Company has no other time deposits in excess of $100,000.
CAPITAL AND LIQUIDITY
Sources of Liquidity. Liquidity defines the ability of the Company and the
Banks to generate funds to support asset growth, satisfy other disbursement
needs, meet deposit withdrawals and other fund reductions, maintain reserve
requirements and otherwise operate on an ongoing basis. The immediate
liquidity needs of the Banks are met primarily by federal funds sold, short-
term investments, deposits and the generally predictable cash flow (primarily
repayments) from each Bank's assets. Intermediate term liquidity is provided
by the Banks' investment portfolios. The Banks also have established a credit
facility with the FHLB under which the Banks are eligible for short or
advances secured by real estate loans or mortgage-related investments. The
Company's liquidity needs and funding are provided through non-affiliated bank
borrowing, cash dividends and tax payments from its subsidiary banks. The
Company has a pre-approved $10.0 million line of credit with a non-affiliated
correspondent bank.
Capital. The Company and the Banks actively monitor their compliance with
regulatory capital requirements. The elements of capital adequacy standards
include strict definitions of core capital and total assets, which include
off-balance sheet items such as commitments to extend credit. Under the risk-
based capital method of capital measurement, the ratio computed is dependent
on the amount and composition of assets recorded on the balance sheet and the
amount and composition of off-balance sheet items, in addition to the level of
capital. Historically, the Banks have increased core capital through the
retention of earnings or capital infusions. Each Bank's ability to incur
additional indebtedness or to issue or pay dividends on common or preferred
stock may be limited by regulatory policies and the terms of the outstanding
securities.
At September 30, 1997, the Company's Tier 1 risk-based capital, total risk-
based capital and leverage ratios were 11.98%, 13.23% and 9.11%, respectively,
compared to minimum required levels of 4%, 8% and 4%, respectively (subject to
change and the discretion of regulatory authorities to impose higher standards
in individual cases). On October 30, 1997, the Company's Board of Directors
declared a quarterly cash dividend for the third quarter of 1997 in the amount
of $.03 per common share payable to stockholders as of November 14, 1997. The
Company's Board of Directors expects for the foreseeable future to consider
declaration of a comparable dividend at each of its quarterly meetings.
Impact of Inflation and Changing Prices
The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rate
40
<PAGE>
changes do not necessarily move in the same direction or have the same
magnitude as changes in the prices of goods and services.
Accounting and Financial Reporting
The Financial and Accounting Standards Board (the "FASB") issued Statement
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" in June 1996 and Statement 127 "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125" in December
1996. These statements provide accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The Company will adopt or already has adopted these statements as
required in 1997 and 1998. The adoption is not expected to have a significant
impact on its financial condition or results of operation.
SFAS No. 128, "Earnings Per Share" is effective for the fiscal year ending
December 31, 1997, with earlier adoption prohibited. SFAS No. 128 supersedes
APB Opinion No. 15 (APB No. 15) and specifies the computation, presentation,
and disclosure requirements for earnings per share ("EPS") for entities with
publicly held common stock. SFAS No. 128 was issued to simplify the
computation of EPS and to make the U.S. standard more compatible with the EPS
standards of other countries and the International Accounting Standards
Committee. It replaces the presentation of primary EPS with a presentation of
basic EPS and fully diluted EPS with diluted EPS. Basic EPS, unlike primary
EPS, excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS under APB No. 15. Retroactive application will be
required.
41
<PAGE>
THE COMPANY
The Company is a multi-bank holding company that owns and operates four
commercial banks and a federal savings bank. The Banks are community banks
providing a full range of commercial and consumer banking services to small
and medium-sized communities and the surrounding market areas. Since December
1978, the Company has grown internally and through acquisitions from a one
bank holding company with $2.9 million in total assets to a five bank holding
company with total assets as of September 30, 1997 of $411.1 million. The
Company's principal executive offices are located at 11301 Nall Avenue,
Leawood, Kansas 66211, telephone number (913) 451-8050.
THE BANKS
Exchange Bank. Exchange Bank has four locations and is headquartered in
Marysville, Kansas. The two Marysville location's loan portfolio as of
September 30, 1997 consisted primarily of agricultural, commercial and
industrial loans and residential real estate loans. Since April 1992 and
October 1995, Exchange Bank has been operating branches in Shawnee and
Leawood, Kansas, respectively. These branches are located in Johnson County,
the rapidly developing suburbs southwest of Kansas City, Missouri. Exchange
Bank expects to open a new Shawnee branch in the second quarter of 1998. The
two Johnson County, Kansas branches of Exchange Bank's loan portfolio as of
September 30, 1997 consisted primarily of commercial, real estate construction
and residential real estate loans. As of September 30, 1997, Exchange Bank had
assets of $199.9 million.
Provident Bank. Provident Bank, a federally chartered savings and loan has
one location in the city of St. Joseph, Missouri. The Bank's loan portfolio as
of September 30, 1997 consisted primarily of real estate loans. As of
September 30, 1997, Provident Bank had assets of $83.4 million.
Citizens. Citizens has two locations in the town of Seneca, Kansas. As of
September 30, 1997 the Bank's loan portfolio consisted primarily of the
agricultural sector, including farm real estate, agricultural production and
agricultural industrial and residential home loans. As of September 30, 1997,
the Bank had assets of $54.8 million.
Peoples. Peoples has one location in the town of Clay Center, Kansas. As of
September 30, 1997, the Bank's loan portfolio consisted primarily of real
estate and agricultural loans. As of September 30, 1997, the Bank had assets
of $69.2 million.
Farmers. Farmers has two locations and is headquartered in Oberlin, Kansas.
As of September 30, 1997, the Bank's loan portfolio consisted primarily of
agricultural and real estate loans. As of September 30, 1997, the Bank had
assets of $50.0 million.
42
<PAGE>
BUSINESS
COMMUNITY BANKING STRATEGY
The Company serves the needs and caters to the economic strengths of the
local communities in which the Banks are located. Through the Banks and their
employees, the Company strives to provide a high level of personal and
professional customer service. Employee participation in community affairs is
encouraged in order to build long-term banking relationships with established
businesses and individual customers in these market areas.
The Company believes its Marysville, Seneca, Clay Center and Oberlin, Kansas
locations, together with the other communities in their respective counties
that comprise their market area, provide a stable base of relatively low-cost
deposits compared to larger metropolitan markets with larger competitors. The
Company believes that, through good management, community banks such as the
Banks can maximize earnings by attracting relatively low cost core deposits
and investing those funds in loans and other high yielding investments, while
maintaining risk at an acceptable level.
Recently the Company has applied its community banking strategy to two
affluent communities in the rapidly developing Johnson County suburbs
southwest of Kansas City. The Company believes the recent wave of regional
bank acquisitions of local banks in those suburban communities, and the
subsequent conversion of some of those acquired banks to branch locations, has
alienated the customers of those locations. This has created an opportunity
for the Company to attract and retain as loan customers those owner-operated
businesses that require flexibility and responsiveness in lending decisions
and desire a more personal banking relationship. The Company believes that it
has been able to meet these customers expectations without compromising credit
standards. The success of this strategy is reflected in the Company's growth
and ability to attract significant levels of non-interest bearing deposits in
the suburban communities of Leawood and Shawnee, Kansas.
OPERATING STRATEGY
The Company's operating strategy is to provide in each market that it
operates a full range of financial products and services to small and medium-
sized businesses and to consumers. The Company emphasizes personal
relationships with customers, involvement in local community activities and
responsive lending decisions. The Company strives to maintain responsive
community banking offices with local decision makers, allowing senior
management at each banking location, within certain limitations, to make its
own credit and pricing decisions and retaining at each Bank a local identity
and board of directors. The Company's goals include long-term customer
relationships, a high quality of service and responsiveness to specific
customer needs. The principal elements of the Company's operating strategy
are:
Emphasize Personalized Customer Service and Community Involvement. The
Company believes that, in most of its market areas, customer loyalty and
service are the most important competitive factors. The Banks have experienced
low turnover in their management and lending staffs, enabling them to provide
continuity of service by the same staff members, leading to long-term customer
relationships, high quality service and quick response to customer needs. The
Banks' management and other employees participate actively in a wide variety
of community activities and organizations in order to develop and maintain
customer relationships. The Banks seek to recruit the best available banking
talent to deliver the quality of personal banking services required to meet
customer expectations and to permit the Company to meet its goals for long-
term profitable growth.
Capitalize on Changing Market Conditions. The Company's management
continually monitors economic developments in its market areas in order to
tailor its operations to the evolving strengths and needs of the local
communities. For example, Exchange Bank has opened branch locations in the
high growth areas of Shawnee and Leawood, Kansas to fill the void of community
banks that management believes has been created by the recent transaction
activity of regional banking institutions and to deploy excess low-cost funds
derived from its rural northeastern Kansas market.
43
<PAGE>
Centralize and Streamline Operations to Achieve Economies. While each of the
Banks presently operates autonomously, the Company, in order to minimize
duplication of functions, is centralizing certain management and
administrative functions, including data processing, human resources and
regulatory administration, that can better and more efficiently be performed
by the Company. Such centralization will help to reduce operating expenses and
enable the Bank personnel to focus on customer service and community
involvement. The Company believes it has acquired the personnel necessary to
make implementation of these operating efficiencies possible. The Company also
provides overall direction in areas of budgets, asset/liability and investment
portfolio management and credit review.
ACQUISITION/GROWTH STRATEGY
Transactions. Management believes that the Company is well positioned to
acquire and profitably operate community banks because of its experience in
operating community banks, its ability to provide centralized management
assistance to those banks and its access to capital. Management of the Company
believes there are owners of community banks who may be willing to sell their
banks in the future for, among other reasons, stockholder liquidity, to
diversify their own investment portfolios, lack of family successor operators
and the burden of compliance with bank regulations. In addition, management
believes there are individual community bank owners in the targeted regions
who are interested in selling their banks to an organization that has a strong
capital base and management that has demonstrated a commitment to maintaining
local bank identity. The Company's goal is to acquire banks with strong
existing management such that the Company's strategies can be implemented
while retaining the individual identity of the banks through the continuation
of the existing management, boards of directors and bank charters.
The Company is generally targeting profitable community banks in county seat
towns of 2,000 persons or more. Market factors to be considered by the Company
include the size and long-term viability of the community and market area
served by the target bank, the position of the transaction target in the
market and the proximity of other banks owned by the Company. Generally, the
bank target must be among the top three financial institutions in its market
in terms of deposit share. Financial criteria include historical performance,
comparison to peers in terms of key operating performance and capital ratios,
loan asset quality, operating procedures and deposit structure. Also of
significant financial importance is the investment required for, and
opportunity costs of, the transaction. Non-financial considerations in
evaluating an transaction prospect include the quality of the target's
management and the demand on the Company resources to integrate the target
institution.
Because of the large number of county seat towns and banks and its
familiarity with the market place, the Company's transaction focus is the
Midwest and primarily in the States of Kansas and Missouri, but it will also
consider institutions in other contiguous states. Kansas is perceived by
management to be the Company's best market for bank transactions because only
recently have state banking laws permitted the large regional banking
institutions based in Missouri to conduct branching activities in the State of
Kansas.
Internal Growth. The recent wave of regional bank transactions of community
banks in the Midwest has created what management of the Company perceives to
be a void in the community banking market. It is management's belief that it
has been the practice of regional banking institutions to convert the banks
they acquire into branches of the acquiring institution. Management of the
Company believes this practice detracts from the delivery of quality
personalized services to the existing customer base of those branches. The
Company entered the Kansas City suburban community market by acquiring the
deposits of a failed thrift in Shawnee, Kansas in 1992. Exchange Bank expects
to open in 1998 another branch location in a rapidly developing part of
Shawnee, Kansas that presently has few other lending institutions in the
immediate area. In October 1995, Exchange Bank further expanded its presence
in the suburban Johnson County communities of Kansas City by opening a branch
location in Leawood, Kansas, another rapidly growing residential and small
business community. Management of the Company believes its branching
activities are distinguished from those of regional banking institutions by
the high degree of autonomy given each branch location.
The Company's expansion activity also has allowed it to diversify its loan
portfolio, which was previously dominated by loans related to the agricultural
industry. Further, the loan demand in these suburban Johnson
44
<PAGE>
County communities, due to heavy residential and small business development,
is greater than that experienced in the Company's rural market areas.
The Company expects it will continue to expand in the suburban Johnson
County communities west of Kansas City through growth in the assets and loan
portfolios of existing branches and to a limited extent through additional
branching activities.
LENDING ACTIVITIES
General. The Company strives to provide in each market area it serves a full
range of financial products and services to small and medium-sized businesses
and to consumers. The Company targets owner-operated businesses and emphasizes
the use of Small Business Administration and Farmers Home Administration
lending. The Banks participate in credits originated within the organization
but generally do not participate in loans from non-affiliated lenders. Each
Bank has an established loan committee which has authority to approve credits,
within established guidelines, of up to $200,000. Concentrations in excess of
$200,000 must be approved by an executive loan committee comprised of the
Chief Executive Officer and the Vice President of the Company and the local
Bank's president and senior lending officer. When lending to an entity, the
Company generally obtains a guaranty from the principals of the entity. The
loan mix within the individual Banks is subject to the discretion of the Bank
board of directors and the demands of the local marketplace.
Residential loans are priced consistently with the secondary market, and
commercial and consumer loans generally are issued at or above the prime rate.
The Company has no potential negative amortization loans. The following is a
brief description of each major category of the Company's lending activity.
Real Estate Lending. Commercial, residential and agricultural real estate
loans represent the largest class of loans of the Company. As of September 30,
1997, real estate and real estate construction loans totaled $137.1 million
and $40.4 million, respectively or 46.56% and 13.73% of all loans,
respectively. One to four family residential loans at September 30, 1997 made
up approximately 46.56% of real estate loans, followed by commercial 24.66%,
and agricultural 7.18%. Generally, residential loans are written on a variable
rate basis with terms of five years or less and amortized over either 15 or 30
years. The Company retains in its portfolio some adjustable rate mortgages
having an adjustment period of five years or less. Agricultural and commercial
real estate loans are amortized over 15 or 20 years. The Company also
generates long-term fixed rate residential real estate loans which it sells in
the secondary market. The Company takes a security interest in the real
estate. Commercial real estate, construction and agricultural real estate
loans are generally limited, by policy, to 80% of the appraised value of the
property. Commercial real estate and agricultural real estate loans also are
supported by an analysis demonstrating the borrower's ability to repay.
Residential loans that exceed 80% of the appraised value of the real estate
generally are required, by policy, to be supported by private mortgage
insurance, although on occasion the Company will retain non-conforming
residential loans to known customers at premium pricing.
Commercial Lending. Loans in this category principally include loans to
service, retail, wholesale and light manufacturing businesses, including
agricultural service businesses. Commercial loans are made based on the
financial strength and repayment ability of the borrower, as well as the
collateral securing the loans. As of September 30, 1997, commercial loans
represented the second largest class of loans at $72.6 million, or 24.66% of
total loans. The Company targets owner-operated businesses as its customers
and makes lending decisions based upon a cash flow analysis of the borrower as
well as the accounts receivable, inventory and equipment of the borrower.
Accounts receivable loans and loans for inventory purchases are generally of a
one-year renewable term and those for equipment generally have a term of seven
years or less. The Company generally takes a blanket security interest in all
assets of the borrower. Equipment loans are generally limited to 75% of the
cost or appraised value of the equipment. Inventory loans are limited to 50%
of the value of the inventory, and accounts receivable loans are limited to
75% of a pre-determined eligible base. Each of the Banks is approved to make
loans under the Small Business Administration program.
Agricultural Lending. The Company provides short-term credit for operating
loans and intermediate-term loans for farm product, livestock and machinery
purchases and other agricultural improvements. Agricultural
45
<PAGE>
loans were $21.1 million as of September 30, 1997, or 7.18% of total loans.
Farm product loans have generally a one-year term and machinery and equipment
and breeding livestock loans generally have five to seven-year terms.
Extension of credit is based upon the ability to repay, as well as the
existence of federal guarantees and crop insurance coverage. Farmers Home
Administration guarantees are pursued wherever possible. Exchange Bank and
Citizens hold "Preferred Lender Status" from the Farmers Home Administration,
a guarantee program similar to the Small Business Administration, that
minimizes the credit exposure of the Banks through partial transfer of the
credit risk to the federal government. Preferred Lender Status expedites the
processing of loan applications. These loans are generally secured by a
blanket lien on livestock, equipment, feed, hay, grain and growing crops.
Equipment and breeding livestock loans are limited to 75% of appraised value.
Consumer and Other Lending. Loans classified as consumer and other loans
include automobile, credit card, boat, home improvement and home equity loans,
the latter two secured principally through second mortgages. The Company
generally takes a purchase money security interest in goods for which it
provides the original financing. The terms of the loans range from one to five
years, depending upon the use of the proceeds, and range from 75% to 90% of
the value of the collateral. The majority of these loans are installment loans
with fixed interest rates. As of September 30, 1997, consumer and other loans
amounted to $20.3 million, or 6.91% of total loans. The Company implemented a
credit card program in late 1994 and targeted the Banks' existing customer
base as potential consumers. As of September 30, 1997, the Company had issued
2,128 cards having an aggregate outstanding balance of $1.66 million in credit
card receivables. The Company has not marketed credit cards to persons other
than existing customers.
LOAN ORIGINATION AND PROCESSING
Loan originations are derived from a number of sources. Residential loan
originations result from real estate broker referrals, mortgage loan brokers,
direct solicitation by the Banks' loan officers, present savers and borrowers,
builders, attorneys, walk-in customers and, in some instances, other lenders.
Residential loan applications, whether originated through the Banks or through
mortgage brokers, are underwritten and closed based on the same standards,
which generally meet FNMA underwriting guidelines. Consumer and commercial
real estate loan originations emanate from many of the same sources. The
average loan is less than $500,000. From time to time, loans may be
participated among the Banks.
The loan underwriting procedures followed by the Banks conform to regulatory
specifications and are designed to assess both the borrower's ability to make
principal and interest payments and the value of any assets or property
serving as collateral for the loan. Generally, as part of the process, a loan
officer meets with each applicant to obtain the appropriate employment and
financial information as well as any other required loan information. The Bank
then obtains reports with respect to the borrower's credit record, and orders
and reviews an appraisal of any collateral for the loan (prepared for the Bank
through an independent appraiser). The loan information supplied by the
borrower is independently verified.
Loan applicants are notified promptly of the decision of the Bank by
telephone and a letter. If the loan is approved, the commitment letter
specifies the terms and conditions of the proposed loan including the amount
of the loan, interest rate, amortization term, a brief description of the
required collateral, and required insurance coverage. Prior to closing any
long-term loan, the borrower must provide proof of fire and casualty insurance
on the property serving as collateral, and such insurance must be maintained
during the full term of the loan. Title insurance is required on loans
collateralized by real property. Interest rates on committed loans are
normally locked in at the time of application or for a 30 to 45-day period.
MORTGAGE BANKING DIVISION OPERATIONS
The mortgage banking division of Provident Bank is engaged in the business
of originating and selling principally first-lien mortgages secured by single
family residences. Loans originated through Provident Bank's mortgage banking
division were $83.1 million and $83.3 million in 1996 and 1995, respectively,
however, as a result of a change in Company strategy, mortgage loans generated
by Provident Bank are expected to decrease
46
<PAGE>
significantly from these historical levels. The mortgage banking division's
principal sources of revenue consist of loan origination fees and gain or loss
on the sale of mortgage loans. Mortgage loans are originated primarily in St.
Joseph, Missouri, Johnson County, Kansas and throughout the metropolitan
Kansas City area. Loans usually are purchased by Provident Bank for investment
pending resale into the secondary market. Loans usually are sold to investment
banking firms and other investors as whole loans, without retaining servicing
rights. The Company only originates mortgage loans against loan purchase
commitments from third parties.
Mortgage loans are originated primarily through loan originators and from
referrals from real estate brokers, builders, developers and prior customers.
The origination of a loan from the date of initial application to a loan
closing normally takes three to eight weeks. It involves processing the
borrower's loan application, evaluating the borrower's credit and other
qualifications consistent with underwriting criteria established by private
institutional investors and insuring or guaranteeing agencies, obtaining
investor approvals, property appraisals, and title insurance, arranging for
hazard insurance and handling various other matters customarily associated
with the closing of a residential loan. For this service, the division
typically collects an origination fee of one percent of the principal amount
of the loan. Costs that are incurred in originating mortgage loans include:
overhead, origination commissions paid to the originators, certain out-of-
pocket costs and, in some cases, commitment fees where the loans are made
subject to a purchase commitment from wholesale lenders, private investors or
other intermediaries. In the third quarter of 1996, Provident Bank
substantially reduced the resources committed to its mortgage banking
operations.
OTHER SERVICES
The Company provides trust and insurance agency services. Although these
businesses are not of financial significance to the Company, management
believes these services are important to certain of the Banks' customers,
provide an opportunity to strengthen and develop relationships with customers,
and further the Company's objective of becoming a complete financial services
provider.
INVESTMENT PORTFOLIO
The Banks' investment portfolio is used to meet the Banks' liquidity needs
while endeavoring to maximize investment income. Additionally, management
augments the quality of the loan portfolio by maintaining a high quality
investment portfolio oriented toward U.S. government and U.S. government
agency securities. The portfolio is comprised of U.S. Treasury securities,
U.S. government agency instruments and a modest amount of investment grade
obligations of state and political subdivisions. In managing its interest rate
exposure, the Company also invests in mortgage-backed securities and
collateralized mortgage obligations. Federal funds sold and certificates of
deposit are additional investments that are not classified as investment
securities. Investment securities were $81.5 million, or 19.82% of total
assets, at September 30, 1997. As of September 30, 1997, the investment
portfolio included approximately $647,000 of equity securities of other
publicly held bank holding companies.
DEPOSITS AND BORROWINGS
Deposits are the major source of the Banks' funds for lending and other
investment purposes. In addition to deposits, including local public fund
deposits and demand deposits of commercial customers, the Banks derive funds
from loan principal repayments, maturing investments, Federal Funds borrowings
from commercial banks, borrowings from the Federal Reserve Bank of Kansas City
and the Federal Home Loan Bank ("FHLB") and from repurchase agreements. Loan
repayments and maturing investments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates
and money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources.
They also may be used on a long-term basis for funding specific loan
transactions and for general business purposes.
The Banks offer a variety of accounts for depositors designed to attract
both short-term and long-term deposits. These accounts include certificates of
deposit savings accounts, money market accounts, checking and
47
<PAGE>
individual retirement accounts. Deposit accounts generally earn interest at
rates established by management based on competitive market factors and
management's desire to increase or decrease certain types or maturities of
deposits. The Company has not sought brokered deposits and does not intend to
do so in the future.
COMPETITION
The deregulation of the banking industry, the widespread enactment of state
laws permitting multi-bank holding companies, and the availability of
nationwide interstate banking has created a highly competitive environment for
financial services providers, particularly for institutions in suburban areas,
such as Exchange Bank's Shawnee and Leawood branches. These branches compete
with other commercial banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking companies and other financial intermediaries. Some of these
competitors have substantially greater resources and lending limits and may
offer certain services that these branches do not currently provide. In
addition, some of the non-bank competitors are not subject to the same
extensive federal regulations that govern these branches.
Management believes the Banks have generally been able to compete
successfully in their respective communities because of the Company's emphasis
on local control and the autonomy of Bank management, allowing the Banks to
meet what is perceived to be the preference of community residents and
businesses to deal with "local" banks. While management believes the Banks
will continue to compete successfully in their communities, there is no
assurance future competition will not adversely affect the Banks' earnings.
EMPLOYEES
The Company maintains a corporate staff of 7 persons. At September 30, 1997,
the Banks had 146 full-time equivalent employees. None of the employees of the
Company or the Banks are covered by a collective bargaining agreement. The
Company and the Banks believe their employee relations are good.
PROPERTY OF THE COMPANY
The Company or the Banks own each of their banking facilities. The Company
believes each of the facilities is in good condition, adequately covered by
insurance and sufficient to meet the needs at that location for the
foreseeable future. The Company's headquarters and Exchange Bank's Leawood,
Kansas location are contained in a new 25,000 square foot building, 60% of
which is leased to third parties.
LEGAL PROCEEDINGS INVOLVING THE COMPANY
Exchange Bank, along with approximately 24 other persons and entities
including a number of depository institutions, is a named defendant in a case
filed in the United States District Court for the District of Kansas on
September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys
and Bandero Cigar Company. The complaint alleges violations of the Racketeer
Influenced Corrupt Organizations ("RICO") statute (18 U.S.C. (S) 1962(c)),
conspiracy to violate RICO, negligent misrepresentation, fraud, civil
conspiracy and negligence on the part of the defendants. The plaintiffs
contend that the defendants, including Exchange Bank, were listed in trade
reference sheets provided to plaintiffs by Parade of Toys and Bandero Cigar
Company and that the defendants made false and misleading representations on
which they relied to their detriment. In each count, the plaintiffs have
sought actual damages in an amount in excess of $75,000 each, treble damages
under RICO, and punitive damages. Exchange Bank denies liability and is in the
process of vigorously defending this claim.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no pending
litigation to which it is a party will have a material adverse effect on its
liquidity, financial condition or results of operations.
48
<PAGE>
MANAGEMENT
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and certain senior
officers of the Company are as set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT
NAME AGE HISTORY
---- --- ------------------------------------------------
<S> <C> <C>
Michael W. Gullion......... 43 Mr. Gullion has served as Chairman of the Board
of Directors, President and Chief Executive
Officer of the Company since inception of the
Company. His term of office as a director
expires at the annual meeting of stockholders to
be held in 1999. Mr. Gullion is the son-in-law
of William Wallman.
Keith E. Bouchey........... 46 Mr. Bouchey was elected to the Board of
Directors of the Company on May 30, 1996. His
term of office as a director expires at the
annual meeting of stockholders to be held in
2000. He has served as the Executive Vice
President, Chief Financial Officer and Corporate
Secretary of the Company since joining the
Company in November 1995. Prior to joining the
Company, Mr. Bouchey had been, since August
1977, a principal of GRA, Thompson, White &
Company, P.C., a regional bank accounting and
consulting firm, where he served on the
executive committee and as the managing director
of the firm's regulatory services practice.
William F. Wright.......... 55 Mr. Wright was elected as a director of the
Company on May 30, 1996. His term of office as a
director expires at the annual meeting of
stockholders to be held in 2000. Mr. Wright has
served as the Chairman of the Board and the
Chief Executive Officer of Amcon Corporation, a
wholesale distributor of beer and wine, since
1978.
D. Michael Browne.......... 44 Mr. Browne has served as a director of the
Company since November 1989. His term of office
as a director expires at the annual meeting of
stockholders to be held in 1998. He has been the
Chairman and Chief Executive Officer of Mike
Browne International LTD, a direct marketing
advertising agency, since 1987.
William Wallman............ 73 Mr. Wallman was first elected to the Board of
Directors of the Company in November 1989. His
term of office as a director expires at the
annual meeting of stockholders to be held in
1999. For more than five years Mr. Wallman has
been the President and owner of Wallman
Chrysler-Plymouth, Inc., a car dealership
located in Beatrice, Nebraska. Mr. Wallman is
the father-in-law of Mr. Gullion.
Allen D. Petersen.......... 56 Mr. Petersen was appointed to the Board of
Directors of the Company on July 31, 1997. His
term of office as a director expires at the
annual meeting of stockholders to be held in
1998. Mr. Petersen previously served in an
advisory capacity to the Board of Directors. For
more than five years Mr. Petersen has been the
Chairman and Chief Executive Officer of American
Tool Companies located in Chicago, Illinois.
</TABLE>
49
<PAGE>
Information Concerning Senior Officers
The following table describes the persons who are the senior officers of the
Banks.
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
Marc J. Degenhardt......... 36 Mr. Degenhardt has served as President of
Exchange Bank since September 1996. Prior to his
appointment as President, Mr. Degenhardt was the
Executive Vice President of Exchange Bank, a
position he held since 1991. He was Senior Vice
President of Exchange Bank of Schmidt and
Koester immediately prior to its participation
in the merger which formed Exchange Bank in
November 1991.
Richard B. Erwin........... 51 Mr. Erwin joined Citizens in 1982 and has served
as the President of that bank since June 1988.
John R. Wray............... 54 Mr. Wray has served as the President and Chief
Financial Officer of Provident Bank since April
1996. He served as Vice Chairman of Provident
Bank from October 1995 to March 1996. Prior to
his affiliation with the Company, Mr. Wray was
the President of St. Joseph Banking Center,
First Bank of Missouri where he had served since
December 1993 and the President and Chief
Executive Officer of the Bank of St. Joseph from
October 1987 through December 1993.
John C. Waters............. 52 Mr. Waters has served as the Executive Vice
President of the Exchange Bank--Shawnee branch
location since February 1995. He was Vice
Chairman of the Board of Mark Twain Bank of
Kansas from 1993 through February 1995. Mr.
Waters was the President of First National Bank,
Shawnee, Kansas from 1986 through 1993.
Charles N. Van Zante....... 51 Mr. Van Zante has served as the Executive Vice
President of the Exchange Bank--Leawood branch
location since June 1996. Prior to that time,
Mr. Van Zante was involved in the commercial
lending and administrative activities at the
Mercantile Bank organization in Kansas, and at
the Mid-American Bank from 1989 until its
acquisition by Mercantile Bank. Earlier, he
served as President and Chief Executive Officer
of United Missouri Bank South for seven years.
John R. Price.............. 40 Mr. Price has served as a Vice President of the
Company and Senior Vice President of Exchange
Bank since November 1992. Prior to joining the
Company, Mr. Price was employed by the Farmers
Home Administration division of the United
States Department of Agriculture, where he
served as the Kansas State Director since
November 1989.
James P. Fawcett........... 51 Mr. Fawcett has served as the President of
Peoples since July 1990.
Russell J. Mullikin........ 63 Mr. Mullikin has served as President of Farmers
since May 1994. Prior to joining Farmers, Mr.
Mullikin was the President of First National
Bank of Harper, located in Harper, Kansas from
May 1992 until May 1994.
</TABLE>
50
<PAGE>
EXECUTIVE COMPENSATION OF THE COMPANY
The table below sets forth information concerning the annual and long-term
compensation paid to the Chief Executive Officer and all other employees of
the Company whose compensation exceeded $100,000 during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND ------------------ ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
------------------ ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Michael W. Gullion.............. 1996 $186,000 $165,000 $15,923
President and Chief Executive
Officer 1995 $156,000 $165,000 $ 9,587
1994 $150,000 $150,000 $ 4,670
Keith E. Bouchey................ 1996(2) $156,000 -0- $ 3,933
Executive Vice President, Chief
Financial Officer, Treasurer and
Corporate Secretary
</TABLE>
- --------
(1) Consists of contributions to the Company's Employee Stock Ownership Plan,
personal use of Company-owned automobile, and country club membership
dues.
(2) Mr. Bouchey became an executive officer of the Company in November 1995.
EMPLOYMENT CONTRACTS
Messrs. Gullion and Bouchey (the "Executives") have entered into employment
agreements with the Company (each an "Agreement"). The terms of the Agreements
are three years (automatically renewed on the anniversary date of the
Agreements unless either party gives notice of its intention not to renew) and
provide that Mr. Gullion will be the Chairman, Chief Executive Officer and
President and Mr. Bouchey will be Executive Vice President, Chief Financial
Officer and Corporate Secretary of the Company. Throughout the employment
period, each of the Executives will be nominated by the Board of Directors for
directorships and the base compensation of the Executives and their
opportunity to earn incentive compensation will be at least as great as in
existence prior to the effectiveness of the Agreements. An Executive may be
terminated for "cause" only (as defined in the Agreement). An Executive may
terminate the Agreement for "good reason" which is defined as a material
breach of the Agreement by the Company. The death or disability of an
Executive automatically terminates the Agreement.
If the Company terminates the Agreement for cause or the Executive
terminates without good reason, neither the Company nor the Executive has any
further obligations to the other. If the Company terminates an Executive
without cause (as defined in the Agreement), an Executive terminates for good
reason (as defined in the Agreement), or a Change in Control (as defined
below) of the Company occurs, the Company is obligated to pay the Executive
three times the present value of the Executive's long and short-term
compensation in place immediately prior to the termination or Change in
Control, provided that such benefits cannot exceed an amount that would be
subject to federal excise taxes.
A Change in Control of the Company will be deemed to occur upon (i) the
hostile replacement of at least the majority of the Board of Directors, (ii) a
person acquiring 25% or more of the shares or voting power of the stock of the
Company, provided such person is not an existing director or Executive or
relative of such a person or does not acquire such shares or voting rights
pursuant to an agreement to which the Executive is a party, or as a result of
the transaction does not become the largest stockholder of the Company, (iii)
a merger or sale of substantially all of the assets of the Company or (iv) the
occurrence of any other event the Board of Directors determines to be a Change
in Control.
51
<PAGE>
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive $5,000 annually and $500 per
board meeting or committee meeting for serving on the Board of Directors. In
addition, the Company reimburses directors for expenses incurred in connection
with attendance at meetings of the Board of Directors and committees thereof.
Employees of the Company receive no additional compensation for serving as a
director.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Amended and Restated Articles of Incorporation of the Company require it
to indemnify its directors and officers against liabilities, fines, penalties,
settlements, claims and reasonable expenses incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those capacities to the fullest extent permitted by the Kansas
General Corporation Code (the "KGCC"). The KGCC permits a corporation to
indemnify its present and former directors and officers if ordered to do so by
a court or after a determination by its independent counsel, stockholders or a
majority of its disinterested directors that the person to be indemnified
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
52
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY COMMON STOCK
The following table sets forth information as of October 20, 1997,
concerning the shares of the Company's common stock beneficially owned by (i)
each person known by the Company to be the beneficial owner of 5% or more of
the Company's common stock, (ii) each of the directors of the Company, and
(iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, the named beneficial owner has sole voting and investment
power over the shares listed.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNED
------------------------------------ ------------ ------------
<S> <C> <C>
Michael W. Gullion(1)................................. 976,181 19.26%
11301 Nall Avenue
Leawood, Kansas 66221
Estate of Betty J. Dam(2)............................. 262,974 5.19%
1506 Calhoun
Marysville, Kansas 66508
William Wallman(3).................................... 215,901 4.26%
538 W. Mary
Beatrice, Nebraska 68310
Allen D. Petersen(4).................................. 172,828 3.41%
1220 W. County Line Road
Barrington Hills, Illinois 60010
The Lifeboat Foundation(4)............................ 171,828 3.39%
2800 W. Higgins Road, Suite 835
Hoffman Estates, Illinois 60195
William F. Wright(3).................................. 172,826 3.41%
1431 Stratford Court
Del Mar, California 92014
Keith E. Bouchey(5)................................... 41,558 *
11301 Nall Avenue
Leawood, Kansas 66211
D. Michael Browne(6).................................. 28,753 *
6450 Campbell Drive
Lincoln, Nebraska 68510
Directors and executive officers as a group........... 1,046,492 20.65%
</TABLE>
- --------
* Less than 1%.
(1) Includes 561,555 shares for which Mr. Wallman, Mr. Peterson, Mr. Wright or
The Lifeboat Foundation are the record owners and that are subject to the
terms of an agreement granting Mr. Gullion voting control over such
shares; 31,888 shares held by the Gold Banc Corporation, Inc. Employee
Stock Ownership Plan and Trust that are not allocated to individual
accounts and over which Mr. Gullion, as Plan Administrator, has voting
control; and 35,000 shares that can be acquired pursuant to options that
are presently exercisable.
(2) Includes the 179,516 shares owned by B.J. Dam Investment Company ("BJDIC")
over which the Estate of Ms. Dam claims beneficial ownership and 38,350
shares held in the Betty J. Dam Trust #1. BJDIC previously entered into
certain written commitments with the Federal Reserve intended to limit
BJDIC's ownership interests in the Company, and limit the ability of
BJDIC, directly or indirectly, to control or exercise a controlling
influence over the management or policies of the Company or its
subsidiaries. Included among these commitments is an agreement of BJDIC
not to dispose of its shares of the Company's common stock without first
offering such shares to the Company at the same price and on the same
terms as the shares may otherwise be offered to any third party. These
commitments remain outstanding.
53
<PAGE>
(3) Subject to the terms of an agreement granting Mr. Gullion voting control
over such shares; includes 1,000 shares that may be acquired pursuant to
options that are presently exercisable.
(4) 171,828 of these shares are owned by The Lifeboat Foundation. Mr. Petersen
is one of three directors of The Lifeboat Foundation. The Lifeboat
Foundation has granted Mr. Gullion an irrevocable proxy to vote each of
these shares. Mr. Petersen disclaims beneficial ownership of these shares.
Also includes 1,000 shares that may be acquired pursuant to options that
are presently exercisable.
(5) Includes 23,338 shares held in the name of Holyrood Bancshares, Inc. Mr.
Bouchey is a director, officer and stockholder of Holyrood Bancshares,
Inc.; 720 shares owned by children of Mr. Bouchey (Mr. Bouchey disclaims
beneficial ownership of 120 shares owned by his adult daughter); and
12,500 shares that may be acquired pursuant to options that are presently
exercisable.
(6) Includes 1,000 shares that may be acquired pursuant to options that are
presently exercisable.
Mr. Gullion has entered into an agreement with Mr. Wallman pursuant to which
Mr. Wallman has granted to Mr. Gullion an irrevocable proxy to vote all shares
of the Company's common stock (other than any director qualifying shares)
owned or subsequently acquired by Mr. Wallman. The agreement also grants to
Mr. Gullion: (i) a 180-day first right of refusal in the event Mr. Wallman
receives a bona fide offer from a third party to purchase some or all of the
shares of the Company's common stock held by Mr. Wallman or certain permitted
transferees to whom Mr. Wallman may transfer shares; and (ii) in the event Mr.
Wallman dies, a 180-day option to purchase some or all of the shares of the
Company's common stock held by Mr. Wallman or certain permitted transferees to
whom Mr. Wallman may transfer shares. This agreement terminates on the earlier
to occur of: (i) the date Mr. Gullion ceases to be President, Chairman and/or
Chief Executive Officer of the Company; or (ii) six months after Mr. Wallman's
death.
Mr. Gullion has also entered into an agreement with Mr. Wright, Mr. Petersen
and the Lifeboat Foundation pursuant to which Mr. Wright, Mr. Petersen and the
Lifeboat Foundation have granted to Mr. Gullion an irrevocable proxy to vote
all shares of the Company's common stock owned or subsequently acquired by Mr.
Wright, Mr. Petersen or the Lifeboat Foundation. Such proxy continues until
the earlier of: (i) the death of Mr. Gullion; (ii) the date Mr. Gullion ceases
to be President, Chairman and/or Chief Executive Officer of the Company; or
(iii) termination of the agreement as described below. The agreement grants to
Mr. Gullion a 90 day first right of refusal in the event Mr. Wright, Mr.
Petersen or the Lifeboat Foundation receives a bona fide offer from a third
party to purchase, or proposes to sell on the public market, some or all of
the shares of the Company's common stock held by such person or by certain
permitted transferees to whom such shares may be transferred. The agreement
also grants to Mr. Wright , Mr. Petersen and the Lifeboat Foundation a 90 day
first right of refusal in the event Mr. Gullion receives a bona fide offer
from a third party to purchase, or proposes to sell on the public market, some
or all of the shares of the Company's common stock held by Mr. Gullion or
certain permitted transferees to whom Mr. Gullion may transfer shares. The
agreement terminates in 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's subsidiaries have made, and expect to make in the future, to
the extent permitted by applicable federal and state banking laws, bank loans
in the ordinary course of business to directors and officers of the Company
and its subsidiaries, and their affiliates and associates, on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons. In the opinion of
the Company, such loans do not involve more than a normal risk of
collectability or present other unfavorable features. In addition, the
Company's banking subsidiaries have engaged, and in the future may engage, in
transactions with such persons and their affiliates and associates as a
depositary of funds, transfer agent, registrar, fiduciary and provider of
other similar services.
54
<PAGE>
SUPERVISION AND REGULATION
INTRODUCTION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following information describes certain aspects of
that regulation applicable to the Company and the Banks, and does not purport
to be complete. The discussion is qualified in its entirety by reference to
all particular statutory or regulatory provisions.
The Company is a legal entity separate and distinct from the Banks.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Banks is necessarily subject to the prior claims of
creditors of the Banks, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principle source of the Company's
revenue and cash flow is dividends from the Banks. There are, however, legal
limitations on the extent to which a subsidiary bank can finance or otherwise
supply funds to its parent holding company.
THE COMPANY
The Company is a bank holding company within the meaning of Bank Holding
Company Act of 1956, as amended (the "BHCA").
The BHCA. Under the BHCA, the Company is subject to periodic examination by
the Board of Governors of the Federal Reserve System and is required to file
periodic reports of its operations and such additional information as the
Federal Reserve may require. The Company's and the Banks' activities are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries, or engaging in any other activity
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Some of the
activities the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or
projects designed primarily to promote community welfare.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring substantially all of the assets of any bank, (ii) acquiring direct
or indirect ownership or control of any voting shares of any bank if after
such transaction it would own or control more than 5% of the voting shares of
such bank (unless it already owns or controls the majority of such shares), or
(iii) merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the federal
Change in Bank Control Act, together with the regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to
exist if any individual or company acquires 25% or more of any class of voting
securities of the bank holding company. With respect to corporations with
securities registered under the Securities Exchange Act of 1934, such as the
Company, control will be rebuttably presumed to exist if a person acquires at
least 10% of any class of voting securities of the corporation.
In accordance with Federal Reserve policy, the Company is expected to act as
a source of financial strength for and commit resources to support the Banks.
Under the BHCA, the Federal Reserve may require a bank holding company to
terminate any activity or relinquish control of a non-bank subsidiary (other
than a non-bank subsidiary of a bank) upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of
the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of
any bank or non-bank subsidiary if the agency determines that divestiture may
aid
55
<PAGE>
the depository institution's financial condition. The Company currently does
not have any subsidiaries other than the Banks.
THE BANKS
Exchange Bank, Peoples and Farmers. Exchange Bank, Peoples and Farmers
operate as national banking associations organized under the laws of the
United States and are subject to examination by the Office of the Comptroller
of the Currency (the "OCC"). Deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to a maximum amount (generally $100,000
per depositor, subject to aggregation rules). The OCC and the FDIC regulate or
monitor all areas of their operations, including security devices and
procedures, adequacy of capitalization and loss reserves, loans, investments,
borrowings, deposits, mergers, issuances of securities, payment of dividends,
interest rate risk management, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires these Banks to maintain certain capital ratios and imposes
limitations on its aggregate investment in real estate, bank premises, and
furniture and fixtures. These Banks are currently required by the OCC to
prepare quarterly reports on its financial condition and to conduct an annual
audit of their financial affairs in compliance with minimum standards and
procedures prescribed by the OCC.
Citizens. Citizens operates under a Kansas state bank charter and is subject
to regulation by the Kansas Banking Department and the FDIC. The Kansas
Banking Department and FDIC regulate or monitor all areas of Citizen's
operations, including capital requirements, issuance of stock, declaration of
dividends, interest rates, deposits, record keeping, establishment of
branches, transactions, mergers, loans, investments, borrowing, security
devices and procedures and employee responsibility and conduct. The Kansas
Banking Department places limitations on activities of Citizens including the
issuance of capital notes or debentures and the holding of real estate and
personal property and requires Citizens to maintain a certain ratio of
reserves against deposits. The Kansas Banking Department requires Citizens to
file a report annually showing receipts and disbursements of the bank, in
addition to any periodic report requested. Citizens is examined by the Kansas
Banking Department at least once every 18 months and at any other time deemed
necessary. The FDIC insures deposits held in Citizens up to a maximum amount,
which is generally $100,000 per depositor.
Provident Bank. Provident Bank operates as a federal savings bank and
provides full savings bank services. As a savings institution, Provident Bank
is subject to regulation by the OTS. The OTS regulates or monitors all areas
of Provident Bank's operations, including capital requirements, loans,
investments, establishment of branch offices, mergers, conversions,
dissolutions, transactions, borrowing, management, record keeping, security
devices and procedures and offerings of securities. The OTS requires Provident
Bank to file annual current reports in compliance with OTS procedures, as well
as periodic reports upon the request of the director of OTS. Provident Bank
must also prepare a statement of condition report showing the savings
association's assets, liabilities and capital at the end of each fiscal year.
The OTS may require an independent audit of financial statements by a
qualified independent public accountant when needed for safety and soundness
purposes. With some exceptions, an appraisal by a state certified or licensed
appraiser is required for all real estate related financial transactions.
All savings associations, including Provident Bank, are required to meet the
QTL test to avoid certain restrictions on their operations. This test requires
a savings association to have at least 65% of its portfolio assets (as defined
by regulation) in qualified thrift investments on a monthly average for nine
out of every 12 months on a rolling basis. Such assets primarily consist of
residential housing related loans and investments.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If such an association has not yet requalified or converted to a national
bank, its new investments and activities are limited to those permissible for
both a savings association and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB borrowings and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a national bank within three
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years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in repayment
penalties. If any association that fails the QTL test is controlled by a
holding company, then within one year after the failure, the holding company
must register as a bank holding company and become subject to all restrictions
on bank holding companies.
Provident Bank is a member of the SAIF, which is administered by the FDIC.
As insurer, the FDIC imposes deposit insurance premiums and is authorized to
conduct examinations of and to require reporting by FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any
activity the FDIC determines by regulation or order to pose a serious risk to
the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices, or is in an unsafe or
unsound condition.
PAYMENT OF DIVIDENDS
Exchange Bank, Peoples and Farmers are subject to the dividend restrictions
set forth by the OCC. Under such restrictions, they may not, without prior
approval of the OCC, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined) from the
prior two years. Provident Bank, as a Tier 1 savings institution, is limited
in its payment of dividends during a calendar year to the higher of 100% of
the current year earnings during the calendar year plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year, or 75% of its current earnings over the most recent four-quarter period.
Provident Bank is required to obtain OTS approval for dividends exceeding the
preceding amount. There are no specific state bank regulatory restrictions on
the ability of Citizens to pay dividends. In addition, under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-
insured depository institution may not pay any dividend if payment would cause
it to become undercapitalized or in the event it is undercapitalized.
If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in
the case of an emergency proceeding where there is no notice or hearing), that
such institution or holding company cease and desist from such practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's or holding company's capital base to an inadequate
level would be such an unsafe and unsound banking practice. Moreover, the
Federal Reserve and the FDIC have issued policy statements providing that bank
holding companies and insured depository institutions generally should only
pay dividends out of current operating earnings.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
The Banks are subject to Section 23A of the Federal Reserve Act, which
places limits on the amount of loans or extensions of credit to, or
investments in, or certain other transactions with, affiliates, including the
Company. In addition, limits are placed on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. Most of
these loans and certain other transactions must be secured in prescribed
amounts. The Banks are also subject to Section 23B of the Federal Reserve Act,
which, among other things, prohibits an institution from engaging in
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
non-affiliated companies. The Banks are subject to restrictions on extensions
of credit to executive officers, directors, certain principal stockholders,
and their related interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with third parties
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features.
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BRANCHING
National bank branches are required by the National Bank Act to adhere to
branch banking laws applicable to state banks in the states in which they are
located. Under federal legislation, effective June 1, 1997, a bank may merge
or consolidate across state lines, unless, prior to May 31, 1997, either of
the states involved elected to prohibit such mergers or consolidations. States
may also authorize banks from other states to engage in branching across state
lines de novo and by transaction of branches without acquiring a whole banking
institution. Missouri has enacted legislation authorizing interstate branching
within thirty miles of its state borders and placing a minimum age requirement
of five years on acquired institutions. The Kansas legislature recently failed
to take action with regard to the above-referenced federal legislation. State
law in Missouri permits branching anywhere in the state. Statewide branching
is also allowed in Kansas.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve, the FDIC, the OCC and the OTS evaluate the record of such financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in
evaluating mergers, transactions and applications to open a branch or
facility.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by the Banks
are subject to state usury laws and certain federal laws concerning interest
rates. The Banks' loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit, the Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected
by collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws.
The deposit operations of the Banks also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic banking services.
REGULATORY CAPITAL REQUIREMENTS
Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk. The Banks with capital
ratios below the required minimum are subject to certain administrative
actions, including prompt corrective action, the termination of deposit
insurance upon notice and hearing, or a temporary suspension of insurance
without a hearing.
The federal risk-based capital guidelines for banks require a ratio of Tier
1, or core capital, to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leveraged capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total
adjusted assets, except in the case of certain highly rated banks for which
the minimum leverage ratio is 3% of total adjusted assets. OTS capital
regulations require savings institutions to meet three capital standards: (1)
tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio
(core capital to total adjusted assets) of at least 3% and (3) a risk-based
capital requirement equal to at least 8% of total risk-weighted assets.
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Federal regulations applicable to financial institutions define five capital
levels: well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is
equal to or less than 2%. An institution is well capitalized (adequately
capitalized) if it has a total risk-based capital ratio (total capital to
risk-weighted assets) of 10% or greater (8.00% to be adequately capitalized),
has a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted assets)
of 6% or greater (4.00% to be adequately capitalized), has a leveraged ratio
(Tier 1 capital to total adjusted assets) of 5% or greater (4.00% to be
adequately capitalized), and is not subject to an order, written agreement,
capital directive, or prompt corrective action directive to meet and maintain
a specific capital level for any capital measure. Under the regulations, each
of the Banks is well capitalized at September 30, 1997.
The FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to capital-deficient institutions. In addition to
requiring the submission of a capital restoration plan, FDICIA contains broad
restrictions on certain activities of undercapitalized institutions involving
asset growth, transactions, branch establishment, and expansion into new lines
of business. With certain exceptions, an insured depository institution is
prohibited from making capital distributions, including dividends, and is
prohibited from paying management fees to control persons if the institution
would be undercapitalized after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The regulators have very limited discretion in dealing with a critically
undercapitalized institution and are virtually required to appoint a receiver
or conservator if the capital deficiency is not corrected promptly.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the
Trust Agreement. This summary of certain provisions of the Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms.
Wherever particular defined terms of the Trust Agreement are referred to
herein, such defined terms are incorporated herein by reference. A copy of the
form of the Trust Agreement is available upon request from the Issuer
Trustees.
GENERAL
The Preferred Securities will be limited to $25,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$3,750,000 aggregate liquidation amount of referred Securities for exercise of
the Underwriters' over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "--Subordination of
Common Securities." The Junior Subordinated Debentures will be registered in
the name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Preferred Securities and Common Securities. The
Guarantee will be a guarantee on a subordinated basis with respect to the
Preferred Securities but will not guarantee payment of Distributions or
amounts payable on redemption or liquidation of such Preferred Securities when
the Issuer Trust does not have funds on hand available to make such payments.
See "Description of Guarantee."
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DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Preferred
Security will be payable at the annual rate of % of the stated Liquidation
Amount of $25, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each a "Distribution Date"), to the holders of
the Preferred Securities at the close of business on 15th day of March, June,
September and December (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from ,
199 . The first Distribution Date for the Preferred Securities will be
, 199 . The amount of Distributions payable for any period less
than a full Distribution period will be computed on the basis of a 360-day
year of twelve 30-day months and the actual days elapsed in a partial month in
such period. Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. If any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the
next succeeding day that is a Business Day (without any additional
Distributions or other payment in respect of any such delay), with the same
force and effect as if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions thereon at the rate of %
per annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect
to, any of the Company's capital stock or (ii) make any payment of principal
of or interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior
in interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, (b) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's
indebtedness for any class or series of the Company's capital stock, (c) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights,
stock or other property under any stockholder's rights plan, or the redemption
or repurchase of rights pursuant thereto, or (e) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or
junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. No interest shall
be due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election of such Extension
Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the
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Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to
give notice to holders of the Preferred Securities of the record date or the
date such Distributions are payable, but in any event not less than one
Business Day prior to such record date. The Property Trustee will give notice
of the Company's election to begin a new Extension Period to the holders of
the Preferred Securities. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period.
See "Description of Junior Subordinated Debentures--Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Preferred Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust will invest the proceeds from the
issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The
payment of Distributions and other amounts payable on the Preferred Securities
(if and to the extent the Issuer Trust has funds legally available for and
cash sufficient to make such payments) is guaranteed by the Company on a
limited basis as set forth herein under "Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Preferred Securities, upon not less than
30 nor more than 60 days' notice, at a redemption price (the "Redemption
Price") equal to the aggregate Liquidation Amount of such Preferred Securities
plus accumulated but unpaid Distributions thereon to the date of redemption
(the "Redemption Date") and the related amount of the premium, if any, paid by
the Company upon the concurrent redemption of such Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Redemption."
If less than all the Junior Subordinated Debentures are to be repaid or
redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities. The amount of premium, if any, paid by
the Company upon the redemption of all or any part of the Junior Subordinated
Debentures to be repaid or redeemed on a Redemption Date shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after , , in whole at any time or in part from time to
time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event, Investment Company
Event or Capital Treatment Event (each as defined below), in each case subject
to possible regulatory approval. See "--Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
"25% Capital Limitation" means the limitation imposed by the Federal Reserve
that the proceeds of certain qualifying securities like the Trust Securities
will qualify as Tier 1 capital of the issuer up to an amount not to exceed 25%
of the Issuer's Tier 1 capital, or any subsequent limitation adopted by the
Federal Reserve.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on
which banking institutions in the State of Kansas or the City of New York are
authorized or required by law or executive order to remain closed, or (c) a
day on which the Property Trustee's Corporate Trust Office or the Corporate
Trust Office of the Debenture Trustee is closed for business.
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"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated
Indenture, allocated to the Common Securities and to the Preferred Securities
based upon the relative Liquidation Amounts of such classes and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of
Trust Securities in connection with a dissolution or liquidation of the Issuer
Trust, Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the delivery of such opinion, will not be,
deductible by the Company, in whole or in part, for United States federal
income tax purposes or (iii) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of the issuance of
the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or
decision is announced on or after the date of issuance of the Preferred
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation, for purposes
of the risk-based capital adequacy guidelines of the Federal Reserve, as then
in effect and applicable to the Company.
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder
of all the Junior Subordinated Debentures, the Company will pay Additional
Sums (as defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on
the outstanding Preferred Securities and Common Securities of the Issuer Trust
will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result
of a Tax Event.
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REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "--Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are available, in the case of Preferred Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will
give such paying agent irrevocable instructions and authority to pay the
Redemption Price to the holders thereof upon surrender of their certificates
evidencing the Preferred Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Preferred
Securities called for redemption shall be payable to the holders of the
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit all rights of the holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. If any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will
be made on the immediately preceding Business Day. In the event that payment
of the Redemption Price in respect of Preferred Securities called for
redemption is improperly withheld or refused and not paid either by the Issuer
Trust or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Preferred Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Preferred Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated
pro rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than
60 days prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, or if
the Preferred Securities are then held in the form of a Global Preferred
Security (as defined below), in accordance with DTC's customary procedures.
The Property Trustee shall promptly notify the securities registrar for the
Trust Securities in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case
of any Preferred Securities redeemed or to be redeemed only in part, to the
portion of the aggregate Liquidation Amount of Preferred Securities which has
been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities
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register for the Trust Securities. Unless the Company defaults in payment of
the Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions
will cease to accumulate on the Preferred Securities or portions thereof)
called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in
respect of, any of the Common Securities, and no other payment on account of
the redemption, liquidation or other acquisition of such Common Securities,
shall be made unless payment in full in cash of all accumulated and unpaid
Distributions on all the outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all the
outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be
deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effects of all such Events of
Default with respect to such Preferred Securities have been cured, waived or
otherwise eliminated. See "--Events of Default; Notice" and "Description of
Junior Subordinated Debentures--Debenture Events of Default." Until all such
Events of Default under the Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the holders of the Preferred Securities
and not on behalf of the holders of the Common Securities, and only the
holders of the Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption
should consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect
on the level or composition of the organization's capital base (unless the
equity or capital instrument were redeemed with the proceeds of, or replaced
by, a like amount of a similar or higher quality capital instrument and the
Federal Reserve considers the organization's capital position to be fully
adequate after the redemption).
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In the event the Company, while a holder of Common Securities, dissolves the
Issuer Trust prior to the stated maturity of the Preferred Securities and the
dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it
obtain the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) the
distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of the Trust Securities, if the holders of Common Securities have
given written direction to the Property Trustee to dissolve the Issuer Trust
(which direction, subject to the foregoing restrictions, is optional and
wholly within the discretion of the holders of Common Securities), (iii) the
repayment of all the Preferred Securities in connection with the redemption of
all the Trust Securities as described under "--Redemption" and (iv) the entry
of an order for the dissolution of the Issuer Trust by a court of competent
jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
not practical, in which event such holders will be entitled to receive out of
the assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, the Preferred
Securities shall have a priority over the Common Securities. See "--
Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures (i) the Preferred Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee
and (iii) any certificates representing the Preferred Securities not held by
DTC or its nominee will be deemed to represent the Junior Subordinated
Debentures having a principal amount equal to the stated Liquidation Amount of
the Preferred Securities and bearing accrued and unpaid interest in an amount
equal to the accumulated and unpaid Distributions on the Preferred Securities
until such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution
to the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the
Issuer Trust were to occur. Accordingly, the Preferred Securities that an
investor may purchase, or the Junior
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Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Issuer Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Preferred Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually
with the Property Trustee a certificate as to whether or not they are in
compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts
in respect of the Preferred Securities as described above. See "--
Subordination of Common Securities," "--Liquidation Distribution Upon
Dissolution" and "Description of Junior Subordinated Debentures--Debenture
Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities may remove an Issuer Trustee for cause or, if
a Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at
least 25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee
resigns, such Trustee will appoint its successor. If an Issuer Trustee fails
to appoint a successor, the holders of at least 25% in Liquidation Amount of
the outstanding Preferred Securities may appoint a successor. If a successor
has not been appointed by the holders, any holder of Preferred Securities or
Common Securities or the other Issuer Trustee may petition a court in the
State of Delaware to appoint a successor. Any Delaware Trustee must meet the
applicable requirements of Delaware law. Any Property Trustee must be a
national or state-chartered bank, and at the time of appointment have
securities rated in one of the three highest rating categories by a nationally
recognized statistical rating organization and have capital and surplus of at
least
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$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the Trust
Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the
request of the holders of the Common Securities and with the consent of the
holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State, so long as (i) such successor entity either (a) expressly assumes
all the obligations of the Issuer Trust with respect to the Preferred
Securities or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities have the same
priority as the Preferred Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity, possessing the same powers and duties as the Property
Trustee, is appointed to hold the Junior Subordinated Debentures, (iii) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect, (v) such
successor entity has a purpose substantially identical to that of the Issuer
Trust, (vi) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Issuer Trust has received an opinion from
independent counsel experienced in such matters to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in
any material respect and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Issuer
Trust nor such successor entity will be required to register as an investment
company under the Investment Company Act, and (vii) the Company or any
permitted successor or assignee owns all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust may not, except with the
consent of holders of 100% in aggregate Liquidation Amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Issuer Trust or the successor entity to be taxable as a corporation for
United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided above and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
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The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Preferred Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided
that any such amendment does not adversely affect in any material respect the
interests of any holder of Trust Securities, or (ii) to modify, eliminate or
add to any provisions of the Trust Agreement to such extent as may be
necessary to ensure that the Issuer Trust will not be taxable as a corporation
for United States federal income tax purposes at any time that any Trust
Securities are outstanding or to ensure that the Issuer Trust will not be
required to register as an "investment company" under the Investment Company
Act, and any amendments of the Trust Agreement will become effective when
notice of such amendment is given to the holders of Trust Securities. The
Trust Agreement may be amended by the holders of a majority of the Common
Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not affect the Issuer Trust's not being taxable as a corporation for United
States federal income tax purposes or the Issuer Trust's exemption from status
as an "investment company" under the Investment Company Act, except that,
without the consent of each holder of Trust Securities affected thereby, the
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee,
or execute any trust or power conferred on the Property Trustee with respect
to the Junior Subordinated Debentures, (ii) waive any past default that is
waivable under Section of the Junior Subordinated Indenture, (iii)
exercise any right to rescind or annul a declaration that the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Junior Subordinated Indenture or
the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of at least
a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, except that, if a consent under the Junior Subordinated Indenture
would require the consent of each holder of Junior Subordinated Debentures
affected thereby, no such consent will be given by the Property Trustee
without the prior consent of each holder of the Preferred Securities. The
Property Trustee may not revoke any action previously authorized or approved
by a vote of the holders of the Preferred Securities except by subsequent vote
of the holders of the Preferred Securities. The Property Trustee will notify
each holder of Preferred Securities of any notice of default with respect to
the Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of the holders of the Preferred Securities, before taking any of the
foregoing actions, the Property Trustee will obtain an opinion of counsel
experienced in such matters to the effect that the Issuer Trust will not be
taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be given to each registered holder of Preferred Securities in the
manner set forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer
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Trustees or any affiliate of the Company or any Issuer Trustees, will, for
purposes of such vote or consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Preferred Securities) and
all costs and expenses of the Issuer Trust (including costs and expenses
relating to the organization of the Issuer Trust, the fees and expenses of the
Issuer Trustees and the costs and expenses relating to the operation of the
Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the
Issuer Trust might become subject. The foregoing obligations of the Company
under the Indenture are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in
the Indenture to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of,
DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by
DTC or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon
the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security
will be shown on, and the transfer of such ownership interests will be
effected only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
Persons held through Participants). Beneficial owners will not receive written
confirmation from DTC of their purchase, but are expected to receive written
confirmations from the Participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests will be accomplished by
entries on the books of Participants acting on behalf of the beneficial
owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global
security for all purposes under the Junior Subordinated Indenture. Except as
provided below, owners of beneficial interests in a global security will not
be entitled to receive physical delivery of the Preferred Securities in
definitive form and will not be considered the owners or holders thereof under
the Junior Subordinated Indenture. Accordingly, each person owning a
beneficial interest in such a global security must rely on the procedures of
DTC and, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any
rights of a holder of Preferred Securities under the Junior Subordinated
Indenture. The Company understands that, under DTC's existing practices, in
the event that the Company requests any action of holders, or an owner of a
beneficial interest in such a global security desires to take any action which
a holder is entitled to take under the Junior Subordinated Indenture, DTC
would authorize the Participants holding the relevant beneficial interests to
take such action, and such Participants would authorize beneficial owners
owning through such Participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them. Redemption
notices will also be sent to DTC. If less than all of the Preferred Securities
are being redeemed, the Company understands that it is DTC's existing practice
to determine by lot the amount of the interest of each Participant to be
redeemed.
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Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred
Securities. None of the Company, the Issuer Trustees, the Administrators, any
Paying Agent or any other agent of the Company or the Issuer Trustees will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on the payable date.
Payments by Participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Company,
the Issuer Trustees, the Paying Agent or any other agent of the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be
a clearing agency registered under the Exchange Act and a successor depository
is not appointed by the Company within ninety days after receiving such notice
or becoming aware that DTC is no longer so registered, the Company will issue
the Preferred Securities in definitive form upon registration of transfer of,
or in exchange for, such global security. In addition, the Company may at any
time and in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers (such as the Underwriter), banks, trust companies and
clearing corporations and may include certain other organizations. Certain of
such Participants (or their representatives), together with other entities,
own DTC. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a Participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriters in
immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The
paying agent (the "Paying Agent") will initially be the Property
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Trustee and any co-paying agent chosen by the Property Trustee and acceptable
to the Administrators. The Paying Agent will be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee and the
Administrators. If the Property Trustee is no longer the Paying Agent, the
Property Trustee will appoint a successor (which must be a bank or trust
company reasonably acceptable to the Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Preferred
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Issuer Trust
or the Trust Agreement, that the Property Trustee and the holders of Common
Securities determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge any
of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with the
laws of the State of Delaware.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as
Debenture Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Junior Subordinated Indenture,
including the definitions therein of certain terms. Whenever particular
defined terms of the Junior Subordinated Indenture (as amended or supplemented
from time to time) are referred to herein, such defined terms are incorporated
herein by reference. A copy of the form of Junior Subordinated Indenture is
available from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from , 1997, at the annual rate of % of the principal
amount thereof, payable quarterly in arrears on March 31, June 30, September
30 and December 31 of each year (each, an "Interest Payment Date"), commencing
, 199 , to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the 15th day of March,
June, September or December (whether or not a Business Day) next preceding
such Interest Payment Date. It is anticipated that, until the liquidation, if
any, of the Issuer Trust, each Junior Subordinated Debenture will be
registered in the name of the Issuer Trust and held by the Property Trustee in
trust for the benefit of the holders of the Trust Securities. The amount of
interest payable for any period less than a full interest period will be
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of interest payable
for any full interest period will be computed by dividing the rate per annum
by four. If any date on which interest is payable on the Junior Subordinated
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day that is a Business Day (without
any interest or other payment in respect of any such delay), with the same
force and effect as if made on the date such payment was originally payable.
Accrued interest that is not paid on the applicable Interest Payment Date will
bear additional interest on the amount thereof (to the extent permitted by
law) at the rate per annum of %, compounded quarterly and computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in
a partial month in such period. The amount of additional interest payable for
any full interest period will be computed by dividing the rate per annum by
four. The term "interest" as used herein includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on , , subject to
the Maturity Adjustment (such date, as it may be shortened by the Maturity
Adjustment is referred to herein as the Stated Maturity). The Maturity
Adjustment represents the right of the Company to shorten the maturity date
once at any time to any date not earlier than , , subject to the
Company having received prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve. In the
event the Company elects to shorten the Stated Maturity of the Junior
Subordinated Debentures, it will give notice to the registered holders of the
Junior Subordinated Debentures, the Debenture Trustee and the Issuer Trust of
such shortening no less than 90 days prior to the effectiveness thereof. The
Property Trustee must give notice to the holders of the Trust Securities of
the shortening of the Stated Maturity at least 30 but not more than 60 days
before such date.
The Junior Subordinated Debentures will be unsecured and will rank junior and
be subordinate in right of payment to all Senior Indebtedness of the Company.
The Junior Subordinated Debentures will not be subject to a sinking fund. The
Junior Subordinated Indenture does not limit the incurrence or issuance of
other secured or unsecured debt by the Company, including Senior Indebtedness,
whether under the Junior Subordinated Indenture or any existing or other
indenture that the Company may enter into in the future or otherwise. See "--
Subordination."
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time
for a period not exceeding 20 consecutive quarterly periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. During any such
Extension Period the Company shall have the right to make partial payments of
interest on any interest payment date. At the end of such Extension Period,
the Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of %, compounded quarterly and computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period, to the extent permitted by
applicable law). The amount of additional interest payable for any full
interest period will be computed by dividing the rate per annum by four.
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or holders of Preferred Securities while
outstanding) will be required to accrue interest income for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or
series of the Company's indebtedness for any class or series of the Company's
capital stock, (c) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholders rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options
or other rights is the same stock as that on which the dividend is being paid
or ranks pari passu with or junior to such stock). Prior to the termination of
any such Extension Period, the Company may further defer the payment of
interest, provided that no Extension Period may exceed 20 consecutive
quarterly periods or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period subject to the above conditions. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company
must give the Issuer Trustees notice of its election of such Extension Period
at least one Business Day prior to the earlier of (i) the date the
Distributions on the Preferred Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee
will give notice of the Company's election to begin a new Extension Period to
the holders of the Preferred Securities. There is no limitation on the number
of times that the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after , , in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company
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Event or Capital Treatment Event (each as defined under "Description of
Preferred Securities--Redemption"), in each case at the redemption price
described below. The proceeds of any such redemption will be used by the
Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity could have a significant impact on
a bank holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such
redemption could have a material effect on the level or composition of the
organization's capital base (unless the equity or capital instrument were
redeemed with the proceeds of, or replaced by, a like amount of a similar or
higher quality capital instrument and the Federal Reserve considers the
organization's capital position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior to
their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital
guidelines.
The redemption price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Interest or any Additional Sums) thereon to but
excluding the date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if and
for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Preferred Securities--Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities--Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days of receipt of notice from DTC to such effect,
the Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of
the Junior Subordinated Debentures, as described under "Description of
Preferred Securities--Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be
registrable, and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate trust office of the Debenture
Trustee in New York, New York or at the offices of any Paying Agent or
transfer agent appointed by the Company, provided that payment of interest may
be made at the option of the Company by
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check mailed to the address of the persons entitled thereto. However, a holder
of $1 million or more in aggregate principal amount of Junior Subordinated
Debentures may receive payments of interest (other than interest payable at
the Stated Maturity) by wire transfer of immediately available funds upon
written request to the Debenture Trustee not later than 15 calendar days prior
to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of
a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent
designated by the Company for such purpose without service charge and upon
payment of any taxes and other governmental charges as described in the Junior
Subordinated Indenture. The Company will appoint the Debenture Trustee as
securities registrar under the Junior Subordinated Indenture. The Company may
at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures being redeemed in
part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock or (ii) make any
payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period
or other event referred to below, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of
a subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options
or other rights where the dividend stock or the stock issuable upon exercise
of such warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks pari passu with or junior to such stock),
if at such time (i) there has occurred any event (a) of which the Company has
actual
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knowledge that with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (b) that the Company has not taken
reasonable steps to cure, (ii) if the Junior Subordinated Debentures are held
by the Issuer Trust, the Company is in default with respect to its payment of
any obligations under the Guarantee or (iii) the Company has given notice of
its election of an Extension Period as provided in the Junior Subordinated
Indenture and has not rescinded such notice, or such Extension Period, or any
extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Issuer Trust to continue
not to be taxable as a corporation for United States federal income tax
purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior
Subordinated Indenture to: (1) evidence succession of another corporation or
association to the Company and the assumption by such person of the
obligations of the Company under the Junior Subordinated Debentures, (2) add
further covenants, restrictions or conditions for the protection of holders of
the Junior Subordinated Debentures, (3) cure ambiguities or correct the Junior
Subordinated Debentures in the case of defects or inconsistencies in the
provisions thereof, so long as any such cure or correction does not adversely
affect the interest of the holders of the Junior Subordinated Debentures in
any material respect, (4) change the terms of the Junior Subordinated
Debentures to facilitate the issuance of the Junior Subordinated Debentures in
certificated or other definitive form, (5) evidence or provide for the
appointment of a successor Debenture Trustee, or (6) qualify, or maintain the
qualification of, the Junior Subordinated Indentures under the Trust Indenture
Act. The Junior Subordinated Indenture contains provisions permitting the
Company and the Debenture Trustee, with the consent of the holders of not less
than a majority in principal amount of the Junior Subordinated Debentures, to
modify the Junior Subordinated Indenture in a manner affecting the rights of
the holders of the Junior Subordinated Debentures, except that no such
modification may, without the consent of the holder of each outstanding Junior
Subordinated Debenture so affected, (i) change the Stated Maturity of the
Junior Subordinated Debentures, or reduce the principal amount thereof, the
rate of interest thereon or any premium payable upon the redemption thereof,
or change the place of payment where, or the currency in which, any such
amount is payable or impair the right to institute suit for the enforcement of
any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated
Indenture may be effective, without the prior consent of the holders of at
least a majority of the aggregate Liquidation Amount of the outstanding
Preferred Securities unless and until the principal of (and premium, if any,
on) the Junior Subordinated Debentures and all accrued and unpaid interest
thereon have been paid in full and certain other conditions are satisfied.
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DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures
when due and continuance of such default for a period of 30 days (subject
to the deferral of any due date in the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at the Stated Maturity; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of the outstanding
Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Preferred Securities--
Events of Default; Notice," the occurrence of a Debenture Event of Default
will also constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate principal amount of outstanding Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event
of Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Junior Subordinated Indenture cannot be
modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture affected thereby. See "--Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on
the Junior Subordinated Debentures, and any other amounts payable under the
Junior Subordinated Indenture, to be forthwith due and payable and to enforce
its other rights as a creditor with respect to the Junior Subordinated
Debentures.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities
by the Company in connection with a Direct Action.
The holders of the Preferred Securities are not able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease
its properties and assets substantially as an entirety to any Person, and no
Person may consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless (i) if the Company consolidates with or merges into another Person or
conveys or transfers its properties and assets substantially as an entirety to
any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia, and such successor Person
expressly assumes the Company's obligations in respect of the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would constitute a Debenture Event of Default, has occurred and is
continuing; and (iii) certain other conditions as prescribed in the Junior
Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders of
the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at the Stated Maturity within one year, and the Company deposits
or causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest to the date of the deposit or to the Stated Maturity, as the
case may be, then the Junior Subordinated Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums
due pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will
be deemed to have satisfied and discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to
all Senior Indebtedness (as defined below) of the Company. If the Company
defaults in the payment of any principal, premium, if any, or interest, if
any, or any other amount payable on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for redemption
or by declaration of acceleration or otherwise, then, unless and until such
default has been
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cured or waived or has ceased to exist or all Senior Indebtedness has been
paid, no direct or indirect payment (in cash, property, securities, by set-off
or otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase
or other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of the Company; (iv) every obligation of the Company
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of the
Company; (vi) every obligation of the Company for claims (as defined in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended) in
respect of derivative products such as interest and foreign exchange rate
contracts, commodity contracts and similar arrangements; and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either
case, the Company has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise; provided that Senior Indebtedness shall
not include (i) any obligations which, by their terms, are expressly stated to
rank pari passu in right of payment with, or to not be superior in right of
payment to, the Junior Subordinated Debentures, (ii) any Senior Indebtedness
of the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (iii) any indebtedness of the Company to any
of its subsidiaries, (iv) indebtedness to any executive officer or director of
the Company, or (v) any indebtedness in respect of debt securities issued to
any trust, or a trustee of such trust, partnership or other entity affiliated
with the Company that is a financing entity of the Company in connection with
the issuance of such financing entity of securities that are similar to the
Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or liquidation
of the Company or the holder of the Common Securities, (ii) any proceeding for
the liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will
be paid or delivered directly to the holders of Senior Indebtedness in
accordance with the priorities then existing among such holders until all
Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company
ranking on a parity with the Junior Subordinated Debentures, will be entitled
to be paid from the remaining assets of the Company the amounts at the time
due and owing on the Junior Subordinated Debentures and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, will be made on account of any capital stock or obligations of the
Company ranking junior to the Junior Subordinated Debentures and such other
obligations. If any payment or distribution on account of the Junior
Subordinated Debentures of any character or any security, whether in cash,
securities or other property is received by any holder of any Junior
Subordinated Debentures in contravention of any of the terms hereof and before
all the Senior Indebtedness has been paid in full, such payment or
distribution or security will be received in trust for the benefit of, and
must be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the
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payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all such Senior Indebtedness in full. By reason of such subordination, in
the event of the insolvency of the Company, holders of Senior Indebtedness may
receive more, ratably, and holders of the Junior Subordinated Debentures may
receive less, ratably, than the other creditors of the Company. Such
subordination will not prevent the occurrence of any Event of Default in
respect of the Junior Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of a
default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its
duties if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time as
trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships
with Bankers Trust Company and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit
of the holders from time to time of the Preferred Securities. Bankers Trust
Company will act as Guarantee Trustee under the Guarantee. This summary of
certain provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions
of the Guarantee, including the definitions therein of certain terms. A copy
of the form of Guarantee is available upon request from the Guarantee Trustee.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders
of the Preferred Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth in the Guarantee and described herein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Issuer Trust may have or assert other than the defense of payment. The
following payments with respect to the Preferred Securities, to the extent not
paid by or on behalf of the Issuer Trust (the "Guarantee Payments"), will be
subject to the Guarantee: (i) any accrued and unpaid Distributions required to
be paid on such Preferred Securities, to the extent that the Issuer Trust has
funds on hand available therefor at such time, (ii) the Redemption Price with
respect to any Preferred Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, termination, winding up or
liquidation of the Issuer Trust (unless the Junior Subordinated Debentures are
distributed to holders of the
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Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment, to
the extent that the Issuer Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the
Issuer Trust. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the Preferred Securities or by causing the Issuer Trust to pay such
amounts to such holders.
The Guarantee will be an irrevocable guarantee of payment on a subordinated
basis of the Issuer Trust's obligations under the Preferred Securities, but
will apply only to the extent that the Issuer Trust has funds sufficient to
make such payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Junior Subordinated Indenture, any other indenture that the
Company may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no consent
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of Preferred Securities--
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default
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remains unremedied for 30 days. The holders of not less than a majority in
aggregate Liquidation Amount of the outstanding Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer
Trust, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by the Guarantee at the request of any holder of the Preferred
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
as Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities in exchange for all of
the Preferred Securities. The Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any holder of the Preferred
Securities must restore payment of any sums paid under the Preferred
Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed, on a subordinated basis, by the Company as and to the
extent set forth under "Description of Guarantee." Taken together, the
Company's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. If and to the extent that the Company does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of amounts payable with
respect to the Preferred Securities when the Issuer Trust does not have
sufficient funds to pay such amounts. In such event, the remedy of a holder of
the Preferred Securities is to institute a legal proceeding directly against
the Company for enforcement of payment of the Company's obligations under
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated Debentures,
such payments will be sufficient to cover Distributions and other payments
distributable on the Preferred Securities, primarily because (i) the aggregate
principal amount of the Junior Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Preferred Securities and
Common Securities; (ii) the interest rate and interest and other payment dates
on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Preferred Securities; (iii)
the Company will pay for any and all costs, expenses and liabilities of the
Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer
Trust will not engage in any activity that is not consistent with the limited
purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Preferred
Securities. However, in the event of payment defaults under, or acceleration
of, Senior Indebtedness of the Company, the subordination provisions of the
Junior Subordinated Indenture provide that no payments may be made in respect
of the Junior Subordinated Debentures until such Senior Indebtedness has been
paid in full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures--Subordination."
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LIMITED PURPOSE OF ISSUER TRUST
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is
entitled to receive Distributions or other amounts distributable with respect
to the Preferred Securities from the Issuer Trust (or from the Company under
the Guarantee) only if and to the extent the Issuer Trust has funds available
for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Issuer Trust as required by applicable law, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Issuer
Trust, the Liquidation Distribution in cash. See "Description of Preferred
Securities-- Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Issuer Trust, as
registered holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated and junior in right of
payment to all Senior Indebtedness as set forth in the Junior Subordinated
Indenture, but entitled to receive payment in full of all amounts payable with
respect to the Junior Subordinated Debentures before any stockholders of the
Company receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed under the Junior Subordinated Indenture to
pay for all costs, expenses and liabilities of the Issuer Trust (other than
the Issuer Trust's obligations to the holders of the Trust Securities), the
positions of a holder of the Preferred Securities and a holder of such Junior
Subordinated Debentures relative to other creditors and to stockholders of the
Company in the event of liquidation or bankruptcy of the Company are expected
to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Blackwell Sanders Matheny Weary & Lombardi LLP, Kansas
City, Missouri, in its capacity as counsel to the Company ("Tax Counsel"), the
following discussion summarizes the material United States federal income tax
consequences of the purchase, ownership and disposition of the Preferred
Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject
to change, possibly on a retroactive basis. The authorities on which this
summary is based are subject to various interpretations, and the opinions of
Tax Counsel are not binding on the Internal Revenue Service (the "IRS") or the
courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such
a challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which (i) purchased the
Preferred Securities upon original issuance (an "Initial Holder") at their
original offering price and (ii) is a US Holder (as defined below). This
summary does not address all the tax consequences that may be relevant to a US
Holder, nor does it address the tax consequences, except as stated below, to
holders that are not US Holders ("Non-US Holders") or to holders that may be
subject to special tax treatment (such as banks, thrift institutions, real
estate investment trusts, regulated investment companies, insurance companies,
brokers and dealers in securities or currencies, certain securities traders,
other financial institutions, tax-exempt organizations, persons holding the
Preferred Securities as a position in a "straddle," or
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as part of a "synthetic security," "hedging," as part of a "conversion" or
other integrated investment, persons having a functional currency other than
the U.S. Dollar and certain United States expatriates). Further, this summary
does not address (a) the income tax consequences to shareholders in, or
partners or beneficiaries of, a holder of the Preferred Securities, (b) the
United States federal alternative minimum tax consequences of the purchase,
ownership or disposition of the Preferred Securities, or (c) any state, local
or foreign tax consequences of the purchase, ownership and disposition of
Preferred Securities.
A "US Holder" generally is a holder of the Preferred Securities who or which
is (i) a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for income tax purposes, (ii) a
corporation or partnership created or organized (or treated as created or
organized for income tax purposes) in or under the laws of the United States
or any political subdivision thereof, (iii) an estate the income of which is
includible in its gross income for United States federal income tax purposes
without regard to its source, or (iv) a trust if (a) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (b) one or more United States trustees have the authority to control
all substantial decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
US HOLDERS
CHARACTERIZATION OF THE ISSUER TRUST. In connection with the issuance of the
Preferred Securities, Tax Counsel will render its opinion generally to effect
that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with
the terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, the Issuer
Trust will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of the Preferred Securities generally will be considered the owner of
an undivided interest in the Junior Subordinated Debentures owned by the
Issuer Trust, and each US Holder will be required to include all income or
gain recognized for United States federal income tax purposes with respect to
its allocable share of the Junior Subordinated Debentures on its own income
tax return.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. The Company and the
Issuer Trust will agree to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the issuance of the Junior Subordinated Debentures, Tax Counsel will
render its opinion generally to the effect that, under then current law and
based on the representations, facts and assumptions set forth in this
Prospectus, and assuming full compliance with the terms of the Junior
Subordinated Indenture (and other relevant documents) and based on certain
assumptions and qualifications referenced in the opinion, the Junior
Subordinated Debentures will be characterized for United States federal income
tax purposes as debt of the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the terms of the Junior
Subordinated Debentures, the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a
period not exceeding 20 consecutive quarterly periods, but not beyond the
maturity of the Junior Subordinated Debentures. Treasury regulations under
Section 1273 of the Code provide that debt instruments like the Junior
Subordinated Debentures will not be considered issued with original issue
discount ("OID") by reason of the Company's ability to defer payments of
interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the date
of this Prospectus, the likelihood of deferring payments of interest under the
terms of the Junior Subordinated Debentures is "remote"
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within the meaning of the applicable Treasury regulations, in part because
exercising that option would prevent the Company from declaring dividends on
its stock and would prevent the Company from making any payments with respect
to debt securities that rank pari passu with or junior to the Junior
Subordinated Debentures. Therefore, the Junior Subordinated Debentures should
not be treated as issued with OID by reason of the Company's deferral option.
Rather, stated interest on the Junior Subordinated Debentures will generally
be taxable to a US Holder as ordinary income when paid or accrued in
accordance with that holder's method of accounting for income tax purposes. It
should be noted, however, that these Treasury regulations have not yet been
interpreted in any rulings or any other published authorities of the IRS.
Accordingly, it is possible that the IRS could take a position contrary to the
interpretation described herein.
In the event the Company exercises its option to defer payments of interest,
the Junior Subordinated Debentures would be treated as redeemed and reissued
for OID purposes and the sum of the remaining interest payments (and any de
minimis OID) on the Junior Subordinated Debentures would thereafter be treated
as OID, which would accrue, and be includible in a US Holder's taxable income,
on an economic accrual basis (regardless of the US Holder's method of
accounting for income tax purposes) over the remaining term of the Junior
Subordinated Debentures (including any period of interest deferral), without
regard to the timing of payments under the Junior Subordinated Debentures.
(Subsequent distributions of interest on the Junior Subordinated Debentures
generally would not be taxable.) The amount of OID that would accrue in any
period would generally equal the amount of interest that accrued on the Junior
Subordinated Debentures in that period at the stated interest rate.
Consequently, during any period of interest deferral, US Holders will include
OID in gross income in advance of the receipt of cash, and a US Holder which
disposes of a Preferred Security prior to the record date for payment of
distributions on the Junior Subordinated Debentures following that period will
be subject to income tax on OID accrued through the date of disposition (and
not previously included in income), but will not receive cash from the Issuer
Trust with respect to the OID.
If the possibility of the Company's exercise of its option to defer payments
of interest is not remote, the Junior Subordinated Debentures would be treated
as initially issued with OID in an amount equal to the aggregate stated
interest (plus any de minimis OID) over the term of the Junior Subordinated
Debentures. That OID would generally be includible in a US Holder's taxable
income, over the term of the Junior Subordinated Debentures, on an economic
accrual basis.
CHARACTERIZATION OF INCOME. Because the income underlying the Preferred
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM. Holders of the Preferred Securities may be
considered to have acquired their undivided interests in the Junior
Subordinated Debentures with market discount or acquisition premium (as each
phrase is defined for United States federal income tax purposes).
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
ISSUER TRUST. Under certain circumstances described herein (See "Description
of the Preferred Securities--Liquidation Distribution Upon Dissolution"), the
Issuer Trust may distribute the Junior Subordinated Debentures to holders in
exchange for the Preferred Securities and in liquidation of the Issuer Trust.
Except as discussed below, such a distribution would not be a taxable event
for United States federal income tax purposes, and each US Holder would have
an aggregate adjusted basis in its Junior Subordinated Debentures for United
States federal income tax purposes equal to such holder's aggregate adjusted
basis in its Preferred Securities. For United States federal income tax
purposes, a US Holder's holding period in the Junior Subordinated Debentures
received in such a liquidation of the Issuer Trust would include the period
during which the Preferred Securities were held by the holder. If, however,
the relevant event is a Tax Event which results in the Issuer Trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to US Holders of the Preferred Securities
for United States federal income tax purposes.
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Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption
of their Preferred Securities. Such a redemption would be taxable for United
States federal income tax purposes, and a US Holder would recognize gain or
loss as if it had sold the Preferred Securities for cash. See "--Sales of
Preferred Securities" below.
SALES OF PREFERRED SECURITIES. A US Holder that sells Preferred Securities
will recognize gain or loss equal to the difference between its adjusted basis
in the Preferred Securities and the amount realized on the sale of such
Preferred Securities. A US Holder's adjusted basis in the Preferred Securities
generally will be its initial purchase price, increased by OID previously
included (or currently includible) in such holder's gross income to the date
of disposition, and decreased by payments received on the Preferred Securities
(other than any interest received with respect to the period prior to the
effective date of the Company's first exercise of its option to defer payments
of interest). Any such gain or loss generally will be capital gain or loss,
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year prior to the date of
disposition. Tax rates on long-term capital gains received by individual US
Holders vary depending on each US Holder's income and holding period for the
Preferred Securities. US Holders that are individuals should contact their own
tax advisors for more information or for the capital gains rate applicable to
a specific Preferred Security.
A holder who disposes of his Preferred Securities between record dates for
payments of distributions thereon will be required to include accrued but
unpaid interest (or OID) on the Junior Subordinated Debentures through the
date of disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment from
the purchaser with respect to accrued interest), and to deduct that amount
from the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the Preferred Securities (or as to OID only,
to add such amount to such holder's adjusted tax basis in its Preferred
Securities). To the extent the selling price is less than the holder's
adjusted tax basis (which will include accrued but unpaid OID, if any), a
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that
is related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution"), and holds the
Preferred Security in such capacity, certifies to the Issuer Trust or its
agent, under penalties of perjury, that such a statement has been received
from the beneficial owner by it or by another Financial Institution between it
and the beneficial owner in the chain of ownership, and furnishes the Issuer
Trust or its agent with a copy thereof.
A Non-US Holder of a Preferred Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
87
<PAGE>
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the Preferred Securities to
or through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding. See "--Backup Withholding." Taxable income on the
Preferred Securities for a calendar year should be reported to US Holders on
the appropriate forms by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE PREFERRED SECURITIES. POTENTIAL HOLDERS OF THE PREFERRED SECURITIES ARE
URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within
the meaning of Section 4975 of the Code with respect to many employee benefit
plans ("Plans") that are subject to ERISA. The purchase of the Preferred
Securities by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section
4975(e)(1) of the Code and with respect to which the Company, or any affiliate
of the Company is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless the Preferred Securities are
acquired pursuant to and in accordance with an applicable exemption. Any
pension or other employee benefit plan proposing to acquire any Preferred
Securities should consult with its counsel.
88
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated , 1997, among the Company, the Issuer
Trust and the underwriters named therein (the "Underwriters"), the Issuer
Trust has agreed to sell to the Underwriters, and the Underwriters have
severally agreed to purchase from the Issuer Trust, the following respective
aggregate Liquidation Amount of Preferred Securities at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
LIQUIDATION AMOUNT
OF PREFERRED
UNDERWRITER: SECURITIES:
------------ ------------------
<S> <C>
Advest, Inc............................................
Robert W. Baird & Co. Incorporated.....................
Principal Financial Securities, Inc....................
-----------
Total................................................ $25,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the Preferred Securities offered hereby if any of such
Preferred Securities are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per Preferred
Security. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per Preferred Security to certain other
dealers. After the public offering, the public offering price, concession and
reallowance to dealers may be changed by the representative of the
Underwriters. No such change shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an
additional $3,750,000 aggregate Liquidation Amount of the Preferred Securities
at the public offering price. To the extent that the Underwriters exercise
such option, the Company will be obligated, pursuant to the option, to sell
such Preferred Securities to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the Preferred Securities offered hereby. If purchased, the Underwriters will
offer such additional Preferred Securities on the same terms as those on which
the $25,000,000 aggregate Liquidation Amount of the Preferred Securities are
being offered.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize,
maintain or otherwise affect the market price of the Preferred Securities.
Such transactions may include over-allotment transactions in which the
Underwriters create a short position for their own account by selling more
Preferred Securities than they are committed to purchase from the Issuer
Trust. In such a case, to cover all or part of the short position, the
Underwriters may exercise the over-allotment option described above or may
purchase Preferred Securities in the open market following completion of the
initial offering of the Preferred Securities. The Underwriters also may engage
in stabilizing transactions in which they bid for, and purchase, shares of the
Preferred Securities at a level above that which might otherwise prevail in
the open market for the purpose of preventing or retarding a decline in the
market price of the Preferred Securities. The Underwriters also may reclaim
any selling concessions allowed to an Underwriter or dealer if the
Underwriters repurchase shares distributed by that Underwriter or dealer. Any
of the foregoing transactions may result in the maintenance of a price for the
Preferred Securities at a level above that which might otherwise prevail in
the open market. Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Preferred
Securities. The Underwriters are not required to engage in any of the
foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
89
<PAGE>
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued
by the Company, the Underwriting Agreement provides that the Company will pay
as compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $ per Preferred Security (or $ ($
if the over-allotment option is exercised in full) in the aggregate) and an
advisory fee equal to $25,000 for the account of the Representative.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made
in compliance with the applicable provisions of Rule 2810 of the NASD's
Conduct Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Company and the Issuer Trust have been advised by the
Underwriters that they intend to make a market in the Preferred Securities.
However, the Underwriters are not obligated to do so and such market making
may be interrupted or discontinued at any time without notice at the sole
discretion of each of the Underwriters. Application has been made by the
Company to list the Preferred Securities in the Nasdaq National Market, but
one of the initial requirements for listing is the presence of three market
makers for the Preferred Securities, and the presence of other market makers
cannot be assured. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Preferred Securities.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Advest, Inc. acted as the co-managing underwriter in connection with the
Company's initial public offering completed in November 1996 and has continued
to serve as a financial advisor to the Company in connection with the
Company's acquisition and capital programs. The other Underwriters may in the
future perform various services to the Company, including investment banking
services for which they may receive customary fees.
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures and
certain tax matters will be passed upon for the Company by Blackwell Sanders
Matheny Weary & Lombardi LLP, Kansas City, Missouri, and certain legal matters
will be passed upon for the Underwriters by Arnold & Porter, Washington, D.C.
and New York, New York. Certain matters of Delaware law relating to the
validity of the Preferred Securities, the enforceability of the Trust
Agreement and the creation of the Issuer Trust will be passed upon by
Richards, Layton & Finger, special Delaware counsel to the Company and the
Issuer Trust. Blackwell Sanders Matheny Weary & Lombardi LLP and Arnold &
Porter will rely as to certain matters of Delaware law on the opinion of
Richards, Layton & Finger.
90
<PAGE>
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company and subsidiaries as of
and for the years ended December 31, 1996 and 1995 have been included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing and on the report of GRA, Thompson,
White & Co., P.C. on the consolidated financial statements of Peoples
Bancshares, Inc. as of and for the years ended December 31, 1996 and 1995, and
upon the authority of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In November 1995, the Company retained Keith E. Bouchey, a principal of GRA
Thompson, White & Company, P.C. ("GRA Thompson") to serve as its Executive
Vice President, Chief Financial Officer, Treasurer and Corporate Secretary. At
the time of his employment by the Company, GRA Thompson served as the
Company's independent certified public accountants. In view of the Securities
and Exchange Commission's rules dealing with the independence of accountants,
the Board of Directors of the Company retained KPMG Peat Marwick LLP to serve
as the Company's new independent certified public accountants on April 29,
1996. There were and are no disagreements with GRA Thompson on any matter of
accounting principles or practice, financial statement disclosure, or auditing
scope and procedure and GRA Thompson's reports on any of the Company's
financial statements have not contained an adverse opinion or disclaimer of
opinion or been qualified as to uncertainty, audit scope or accounting
principles.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
also be obtained at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such material also may be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov. This Prospectus does not
contain all the information set forth in the Registration Statement and
exhibits thereto, which the Company has filed with the Commission under the
Securities Act and to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding
as trust assets the Junior Subordinated Debentures and issuing the Trust
Securities. See "GBCI Capital Trust," "Description of Preferred Securities,"
"Description of Junior Subordinated Debentures" and "Description of
Guarantee." In addition, the Company does not expect that the Issuer Trust
will be filing reports under the Exchange Act with the Commission.
91
<PAGE>
GOLD BANC CORPORATION, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1995................. F-3
Consolidated Statements of Earnings for the Years Ended December 31, 1996
and 1995................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1995............................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheets at September 30, 1997 and 1996 (Unaudited).... F-21
Consolidated Statements of Earnings for the Nine Months ended September
30, 1997 and 1996 (Unaudited)............................................ F-22
Consolidated Statements of Earnings for the Three Months ended September
30, 1997 and 1996 (Unaudited)............................................ F-23
Consolidated Statements of Cash Flows for the Nine Months ended September
30, 1997 and 1996 (Unaudited)............................................ F-24
Notes to Consolidated Financial Statements (Unaudited).................... F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gold Banc Corporation, Inc.:
We have audited the accompanying consolidated balance sheets of Gold Banc
Corporation, Inc. and subsidiaries (the Company) as of December 31, 1996 and
1995 and the related consolidated statements of earnings, stockholders' equity
and cash flows for the years then ended, as restated for the acquisition of
Peoples Bancshares, Inc. (Peoples) on August 22, 1997 in a business
combination accounted for as a pooling of interests. 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. The contribution of Peoples to total assets,
net interest income and net income for 1996 and 1995 represented 19%, 20%, 35%
and 21%, 20%, 42%, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Peoples, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Gold Banc Corporation, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Kansas City, Missouri
November 6, 1997
F-2
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ -------- -------
<S> <C> <C>
Cash and due from banks...................................... $ 13,895 10,059
Federal funds sold and interest-bearing deposits............. 8,902 14,955
-------- -------
Total cash and cash equivalents.......................... 22,797 25,014
-------- -------
Investment securities (note 2):
Held-to-maturity........................................... 102 99
Available-for-sale......................................... 98,725 99,669
Other...................................................... 2,318 2,297
-------- -------
Total investment securities.............................. 101,145 102,065
-------- -------
Mortgage loans held for sale, net............................ 2,182 6,665
Loans, net (note 3).......................................... 231,176 183,625
Premises and equipment, net (note 4)......................... 12,746 8,187
Deferred taxes (note 9)...................................... 507 736
Accrued interest and other assets............................ 6,305 6,610
-------- -------
252,916 205,823
-------- -------
$376,858 332,902
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Deposits (note 5).......................................... $316,573 285,721
Securities sold under agreements to repurchase (note 6).... 11,966 17,742
Federal funds purchased, long-term debt and other
borrowings (note 7)....................................... 11,568 12,392
Accrued interest and other liabilities..................... 2,411 2,160
-------- -------
Total liabilities........................................ 342,518 318,015
-------- -------
Stockholders' equity (notes 9 and 12):
Preferred stock, 7,500,000 shares authorized, no shares
issued.................................................... -- --
Preferred stock, Class B $1,000 par value, 1,000 shares
authorized, 65 shares issued at December 31, 1995......... -- 65
Common stock, $1 par value, 7,500,000 shares authorized;
4,793,615 and 2,493,615 shares issued and outstanding at
December 31, 1996 and 1995, respectively.................. 4,794 2,494
Additional paid-in capital................................. 18,784 3,031
Retained earnings.......................................... 11,300 9,222
Unrealized gain (loss) on available-for-sale securities,
net....................................................... (262) 75
Unearned compensation (note 9)............................. (276) --
-------- -------
Total stockholders' equity............................... 34,340 14,887
-------- -------
Commitments and contingent liabilities (notes 9 and 15)...... -- --
$376,858 332,902
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Interest income:
Loans, including fees....................................... $19,796 17,254
Investment securities....................................... 6,134 5,992
Other....................................................... 469 195
------- -------
26,399 23,441
------- -------
Interest expense:
Deposits.................................................... 13,340 11,257
Borrowings and other........................................ 1,725 1,637
------- -------
15,065 12,894
------- -------
Net interest income....................................... 11,334 10,547
Provision for loan losses (note 3)............................ (25) 1,334
------- -------
Net interest income after provision for loan losses....... 11,359 9,213
------- -------
Other income:
Service fees................................................ 1,033 999
Net gains on sale of mortgage loans......................... 1,128 1,058
Net securities losses....................................... (11) (92)
Gain on sale of other assets................................ 297 14
Other....................................................... 405 336
------- -------
2,852 2,315
------- -------
Other expense:
Salaries and employee benefits.............................. 6,063 5,339
Net occupancy expense....................................... 1,675 1,444
Federal deposit insurance premiums (note 5)................. 551 400
Other....................................................... 2,778 2,607
------- -------
11,067 9,790
------- -------
Earnings before income taxes.............................. 3,144 1,738
Income taxes (note 8)......................................... 1,066 520
------- -------
Net earnings.............................................. $ 2,078 1,218
======= =======
Earnings per share............................................ $ 0.76 0.48
======= =======
Weighted average common shares outstanding.................... 2,740 2,557
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS)
ON
SECURITIES
ADDITIONAL AVAILABLE-
PREFERRED COMMON PAID-IN RETAINED FOR- UNEARNED TREASURY
STOCK STOCK CAPITAL EARNINGS SALE, NET COMPENSATION STOCK TOTAL
--------- ------ ---------- -------- ---------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $100 2,536 3,421 8,004 (1,345) -- (35) 12,681
Purchase of 117,756
shares of common
stock................. -- -- -- -- -- -- (1,095) (1,095)
Issuance of 53,346
shares of common
stock................. -- 53 347 -- -- -- -- 400
Sale of 23,339 shares
of common stock....... -- -- (25) -- -- -- 288 263
Retirement of 35 shares
of Class B preferred
stock and 94,416
shares of common stock
held in treasury...... (35) (95) (712) -- -- -- 842 --
Change in unrealized
gain on securities
available-for-sale.... -- -- -- -- 1,420 -- -- 1,420
Net earnings........... -- -- -- 1,218 -- -- -- 1,218
---- ----- ------ ------ ------ ---- ------ ------
Balance at December 31,
1995 65 2,494 3,031 9,222 75 -- -- 14,887
Conversion of 65 shares
of preferred stock
into 14,048 shares of
common stock.......... (65) 14 51 -- -- -- -- --
Redemption and
retirement of 105.5
shares of common
stock................. -- (14) (120) -- -- -- -- (134)
Issuance of 2,300,000
shares of common
stock, net of issuance
costs of $1,942....... -- 2,300 15,822 -- -- -- -- 18,122
Purchase of 31,888
shares of common stock
for the employee stock
ownership plan........ -- -- -- -- -- (276) -- (276)
Change in unrealized
loss on securities
available-for-sale.... -- -- -- -- (337) -- -- (337)
Net earnings........... -- -- -- 2,078 -- -- -- 2,078
---- ----- ------ ------ ------ ---- ------ ------
Balance at December 31,
1996................... -- 4,794 18,784 11,300 (262) (276) -- 34,340
==== ===== ====== ====== ====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................ $ 2,078 1,218
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for loan losses............................. (25) 1,334
Net losses on sales of available-for-sale securities.. 10 92
Amortization of investment securities' premiums, net
of accretion......................................... 154 104
Depreciation and amortization......................... 803 761
Gain on sale of assets, net........................... (335) (18)
Net (increase) decrease in mortgage loans held for
sale................................................. 4,483 (4,879)
Other changes:
Accrued interest receivable and other assets........ (67) (521)
Accrued interest payable and other liabilities...... 326 392
-------- --------
Net cash provided by (used in) operating
activities........................................ 7,427 (1,517)
-------- --------
Cash flows from investing activities:
Net increase in loans................................... (47,511) (21,276)
Principal collections and proceeds from maturities of
held-to-maturity securities............................ 73 12,195
Principal collections and proceeds from sales and
maturities of available-for-sale securities............ 43,385 31,109
Purchases of available-for-sale securities.............. (43,127) (38,801)
Purchases of held-to-maturity securities................ (99) (1,645)
Net additions to premises and equipment................. (5,251) (3,315)
Proceeds from sale of other assets...................... 922 269
-------- --------
Net cash used in investing activities.............. (51,608) (21,464)
-------- --------
Cash flows from financing activities:
Increase in deposits.................................... 30,851 39,825
Net increase (decrease) in short-term borrowings........ (588) 1,312
Proceeds from long-term debt............................ -- 500
Principal payment on long-term debt..................... (7,775) (941)
Purchase of treasury stock.............................. (134) (1,095)
Proceeds from issuance of common stock, net of costs.... 18,122 350
Proceeds from sale of treasury stock.................... -- 263
(Decrease) increase in repurchase agreements............ (187) 87
Increase (decrease) in Federal Funds purchased.......... 1,675 (1,000)
-------- --------
Net cash provided by financing activities.......... 41,964 39,301
-------- --------
Increase (decrease) in cash and cash equivalents... (2,217) 16,320
Cash and cash equivalents, beginning of year............. 25,014 8,694
-------- --------
Cash and cash equivalents, end of year................... $ 22,797 25,014
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................. $ 14,927 12,533
======== ========
Cash paid during the year for income taxes.............. $ 985 1,256
======== ========
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate owned............ $ 741 94
======== ========
Transfer of held-to-maturity investment securities to
available-for-sale..................................... -- 42,968
======== ========
Supplemental schedule of noncash financing activities:
Common stock subscribed................................. -- 50
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On August 22, 1997, the Company issued 493,615 shares of its common stock in
exchange for all of the shares of common stock of Peoples Bancshares, Inc.
(the merger). Peoples Bancshares, Inc. owned all of the outstanding common
stock of The Peoples National Bank located in Clay Center, Kansas. The merger
has been accounted for as a pooling-of-interests and, accordingly, the 1996
and 1995 consolidated financial statements have been restated to include the
accounts and results of operations of the combining companies. Subsequent to
the merger, Peoples Bancshares, Inc. was liquidated into the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of Gold Banc
Corporation, Inc. and its subsidiary banks, Exchange National Bank,
Marysville, Kansas, Citizens State Bank and Trust Company, Seneca, Kansas,
Provident Bank, f.s.b., St. Joseph, Missouri and The Peoples National Bank,
Clay Center, Kansas, collectively referred to as the Company. All significant
intercompany transactions have been eliminated.
Nature of Operations
The Company is a multibank holding company that owns and operates community
banks located in northeastern Kansas and northwestern Missouri. The banks
provide a full range of commercial and consumer banking services primarily to
small and medium-sized communities and the surrounding market areas, including
suburban Kansas City.
Initial Public Offering
Effective November 19, 1996, the Company completed an initial public
offering selling 2,000,000 shares of its common stock at $8.75 per share.
Subsequently, the Company's underwriter exercised its over-allotment option
and on December 19, 1996, the Company sold an additional 300,000 shares at
$8.75 per share. Total expenses, including underwriter's discounts, aggregated
$1,942,000. The Company is considered by the Securities and Exchange
Commission (SEC) as a small business enterprise and, accordingly, files SEC-
related items as such. The Company's shares are registered on the NASDAQ under
the symbol GLDB.
Estimates
The preparation of the consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investment Securities
The Company classifies investment securities as either available-for-sale or
held-to-maturity. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity. All other securities are
classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost. Available-for-
sale securities are recorded at fair value. Unrealized holding gains and
losses, net of related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
F-7
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A decline in the market value of any security below cost that is deemed
other than temporary is charged to income, resulting in the establishment of a
new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to interest income. Dividend and interest
income is recognized when earned. Realized gains and losses upon disposition
of available-for-sale securities are included in income using the specific
identification method for determining the cost of the securities sold.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried 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 through a valuation
allowance by charges to income.
The Company adopted the Financial Accounting Standards Board's Statement of
Financial Accounting Standard (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights," on January 1, 1996. This statement requires that the value
of retained mortgage servicing rights related to loans originated and sold
after January 1, 1996 be capitalized as an asset, thereby increasing the gain
on sale of the loan by the amount of the asset. The adoption of this standard
did not have a material impact on the Company.
Loans
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding principal balance adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Interest income on loans is accrued and credited to operations based on the
principal amount outstanding. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently recognized only
to the extent cash payments are received. Significant loan and commitment fee
income and related costs are deferred and amortized over the term of the
related loan or commitment.
Allowance for Loan Losses
Provisions for losses on loans receivable 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. This 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.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-
line and accelerated methods based on the estimated useful lives of the
related assets.
F-8
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
The excess cost over fair value of assets acquired of consolidated
subsidiaries is being amortized on a straight-line basis over periods of ten
to twenty-five years.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and are measured using enacted tax rates expected to
apply to taxable income in the years in which those differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
for subsequent changes in tax rates is recognized in the period that includes
the tax rate change.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash equivalents
include cash on hand, amounts due from banks, federal funds sold and interest-
bearing deposits.
Earnings Per Share
Earnings per share is based upon the weighted average shares outstanding
during the periods presented.
(2) INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair
value of investment securities by major security type at December 31, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held-to-maturity:
Obligations of states and political
subdivisions...................... $ 102 -- -- 102
======= === ==== ======
Available-for-sale:
U.S. treasury and agency
securities........................ $50,586 58 (220) 50,424
Obligations of states and political
subdivisions...................... 10,786 121 (34) 10,873
Mortgage-backed securities......... 37,339 115 (468) 36,986
Equity securities.................. 435 7 -- 442
------- --- ---- ------
Total............................ $99,146 301 (722) 98,725
======= === ==== ======
<CAPTION>
1995
----
<S> <C> <C> <C> <C>
Held-to-maturity:
Obligations of states and political
subdivisions...................... $ 99 -- -- 99
======= === ==== ======
Available-for-sale:
U.S. treasury and agency
securities........................ $53,444 268 (187) 53,525
Obligations of states and political
subdivisions...................... 9,518 151 (17) 9,652
Mortgage-backed securities......... 36,169 80 (222) 36,027
Equity securities.................. 435 30 -- 465
------- --- ---- ------
Total............................ $99,566 529 (426) 99,669
======= === ==== ======
</TABLE>
F-9
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair values of investment securities at
December 31, 1996, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------- -------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less..... $-- -- 19,560 19,590
Due after one year through
five years................. 102 102 33,259 33,138
Due after five years through
ten years.................. -- -- 7,037 7,056
Due after ten years......... -- -- 1,515 1,512
Mortgage-backed securities.. -- -- 37,339 36,986
Equity securities........... -- -- 436 443
---- --- ------ ------
Total................... $102 102 99,146 98,725
==== === ====== ======
</TABLE>
Other securities at December 31, 1996 and 1995 consist primarily of stock in
the Federal Reserve Bank, Federal Home Loan Bank and Kansas Venture Capital
Stock. The cost of such investments approximates their fair value. At December
31, 1996, investment securities with fair values of approximately $57,795,000
were pledged to secure public deposits and for other purposes.
(3) LOANS
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Real estate--mortgage.................................. $114,990 82,672
Real estate--construction.............................. 28,672 24,535
Commercial............................................. 52,524 43,018
Agricultural........................................... 21,303 20,458
Consumer............................................... 13,027 11,510
Other.................................................. 3,641 4,684
-------- -------
234,157 186,877
Allowance for loan losses.............................. (2,981) (3,252)
-------- -------
$231,176 183,625
======== =======
</TABLE>
At December 31, 1996, the Company serviced loans of approximately
$29,000,000 for investors. Service fee income of approximately $82,000 and
$90,000, respectively, related to these portfolios is included in service fee
income in the consolidated statements of earnings for the years ended December
31, 1996 and 1995. During 1996, loans were sold servicing released and,
accordingly, the impact of SFAS No. 122 was insignificant.
Loans made to directors and officers of the Company approximated $7,986,000
and $5,071,000 at December 31, 1996 and 1995, respectively. Such loans were
made in the ordinary course of business on normal credit terms, including
interest rate and collateralization.
Impaired loans are considered insignificant at December 31, 1996 and 1995.
Nonaccrual loans approximated $324,000 and $1,762,000 at December 31, 1996 and
1995, respectively. The interest income not recognized on these loans was
approximately $23,000 and $27,000 in 1996 and 1995, respectively.
F-10
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for loan losses during the years ended December 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Balance at beginning of year............................... $3,252 2,668
Provision for loan losses.................................. (25) 1,334
Loan charge-offs........................................... (501) (903)
Loan recoveries............................................ 255 153
------ -----
Balance at end of year..................................... $2,981 3,252
====== =====
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Land....................................................... $ 2,795 1,924
Buildings and leasehold improvements....................... 4,955 4,470
Construction in progress................................... 3,522 509
Furniture, fixtures and equipment.......................... 4,141 3,312
Automobiles................................................ 146 198
------- ------
15,559 10,413
Accumulated depreciation and amortization.................. 2,813 2,226
------- ------
$12,746 8,187
======= ======
</TABLE>
Depreciation expense aggregating $745,000 and $666,000 for the years ended
December 31, 1996 and 1995, respectively, has been included in net occupancy
expense in the accompanying consolidated statements of earnings.
(5) DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Demand:
Noninterest bearing.................................... $ 27,093 24,427
-------- -------
Interest-bearing:
NOW.................................................. 18,823 16,739
Advantage............................................ 11,477 10,119
Super NOW............................................ 14,916 9,963
Money market......................................... 37,670 22,344
-------- -------
82,886 59,165
-------- -------
Total demand....................................... 109,979 83,592
Savings.................................................. 13,139 13,950
Time..................................................... 193,455 188,179
-------- -------
$316,573 285,721
======== =======
</TABLE>
Time deposits include certificates of deposit of $100,000 and over, totaling
approximately $41,729,000 and $33,200,000 at December 31, 1996 and 1995,
respectively.
F-11
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principal maturities of time deposits at December 31, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1997............................ $134,375
1998............................ 38,509
1999............................ 10,680
2000............................ 5,607
2001............................ 4,146
Thereafter...................... 138
--------
$193,455
========
</TABLE>
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 $389,000 and is
included in federal deposit insurance premiums in the accompanying 1996
consolidated statement of earnings.
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning securities sold under agreements to repurchase is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Average monthly balance during the year.................. $ 7,825 8,314
Weighted average interest rate during the year........... 5.46% 5.51%
Maximum month-end balance during the year................ $21,808 18,251
</TABLE>
At December 31, 1996, such agreements were secured by investment and
mortgage-backed securities. Pledged securities are maintained by a safekeeping
agent under the control of the Company.
(7) FEDERAL FUNDS PURCHASED, LONG-TERM DEBT AND OTHER BORROWINGS
Federal funds purchased fluctuate daily based on the liquidity needs of the
Company. As of December 31, 1996, federal funds purchased of $6,675,000 had a
weighted average interest rate of 6.53% and a one-day maturity. There were no
federal funds purchased outstanding at December 31, 1995.
Following is a summary of long-term borrowings at December 31, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Note payable to bank, interest at 6.0%.................... $ -- 7,000
Note payable to bank, interest at 6.6%, maturing April 1,
1997..................................................... 3,015 3,400
Note payable of Gold Banc Corporation, Inc. Employee Stock
Ownership Plan, interest at Boatmen's corporate base
rate, (8.25% at December 31, 1996) secured by 31,888
shares of Company stock (see note 9)..................... 276 --
Federal Home Loan Bank (FHLB) borrowings by a subsidiary
bank bearing weighted average fixed interest rates of
5.48% and 6.02% at December 31, 1996 and 1995,
respectively, secured by qualifying one-to-four family
mortgage loans........................................... 1,602 1,992
------ ------
$4,893 12,392
====== ======
</TABLE>
F-12
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Note payable to bank in the amount of $3,015,000 represents an obligation of
People Bancshares, Inc. Subsequent to year-end, such note was repaid by the
Company in connection with the merger (see notes 1 and 14).
At December 31, 1996, the Company had a $10,000,000 committed line of credit
with a correspondent bank with no advances outstanding.
Principal maturities of long-term borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997.............................. $3,377
1998.............................. 362
1999.............................. 292
2000.............................. 252
2001.............................. 128
Thereafter........................ 482
------
$4,893
======
</TABLE>
None of the Company's borrowings have any related compensating balance
requirements which restrict the usage of Company assets. However, regulations
of the Federal Reserve System require reserves to be maintained by all banking
institutions according to the types and amounts of certain deposit
liabilities. These requirements restrict usage of a portion of the amounts
shown as consolidated "cash and due from banks" from everyday usage in
operation of the banks. The minimum reserve requirements for the subsidiary
banks at December 31, 1996 approximated $1,395,000.
(8) INCOME TAXES
Income tax expense (benefit) related to operations for 1996 and 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996:
Federal.......................................... $473 435 908
State............................................ 155 3 158
---- ---- -----
$628 438 1,066
==== ==== =====
1995:
Federal.......................................... $713 (429) 284
State............................................ 246 (10) 236
---- ---- -----
$959 (439) 520
==== ==== =====
</TABLE>
F-13
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses.................................. $ 334 663
Unrealized losses on available-for-sale securities, net.... 180 60
State taxes................................................ 488 320
Other...................................................... 150 167
------ -----
Total deferred tax assets................................ 1,152 1,210
------ -----
Deferred tax liabilities:
FHLB stock dividends....................................... 125 125
Premises and equipment..................................... 427 206
Other...................................................... 93 143
------ -----
Total deferred tax liabilities........................... 645 474
------ -----
Net deferred tax asset................................... $ 507 736
====== =====
</TABLE>
A valuation allowance for deferred tax assets was not necessary at December
31, 1996 or 1995.
A reconciliation of expected income tax expense based on the statutory rate
of 34% to actual tax expense for 1996 and 1995 is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ -------
<S> <C> <C> <C> <C>
Expected federal income tax expense............. $ 1,069 34.00% $ 591 34.00%
Municipal interest.............................. (147) (4.69) (154) (8.85)
State taxes, net of federal tax benefit......... 155 4.94 167 9.64
Other, net...................................... (11) (.34) (84) (4.87)
------- ----- ----- -----
$ 1,066 33.91% $ 520 29.92%
======= ===== ===== =====
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
On January 1, 1986, the Company established the Gold Banc Corporation, Inc.
Employee Stock Ownership Plan (ESOP) to acquire shares of the Company common
stock for the benefit of all eligible employees. The amount of annual
contributions from the Company, if any, is determined by the Board of
Directors. Contributions were approximately $78,000 and $75,000 for the years
ended December 31, 1996 and 1995, respectively. The ESOP, which is
noncontributory, covers substantially all employees of the corporation.
During 1996, the ESOP borrowed $275,800 from an unaffiliated bank to
purchase 31,888 shares of common stock from a stockholder of the Company (see
note 7). The ESOP will repay the loan with contributions received from the
Company. Accordingly, the Company has recorded the obligation with an off-
setting amount of unearned compensation included in stockholders' equity in
the accompanying 1996 consolidated balance sheet.
In 1995, the Company established a 401(k) savings plan for the benefit of
all eligible employees. The Company does not match employee contributions. The
401(k) plan covers substantially all employees of the corporation.
F-14
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's Board of Directors and stockholders have approved the adoption
of the 1996 Equity Compensation Plan (the Plan). Under the terms of the Plan,
the Company can grant stock options, stock appreciation rights, restricted
stock, performance units or performance shares. Options granted under the Plan
will carry an exercise price equal to or greater than the fair market value at
the date of grant, and generally expire ten years after grant. The Company has
reserved 250,000 shares of common stock for issuance under the Plan. On April
7, 1997, the Company granted options to certain officers of the Company to
purchase a total of 70,500 shares of the Company's common stock at the fair
market value of the Company's stock on that date ($10.50 per share). Each of
the options vested as of October 6, 1997.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments, which represent off-balance sheet credit risk,
consist of open commitments to extend credit, irrevocable letters of credit
and loans sold with recourse. Open commitments to extend credit and
irrevocable letters of credit amounted to approximately $39,807,000 at
December 31, 1996. Such agreements require the Company to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to expire without being
fully drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained
(if deemed necessary by the Company upon extension of credit) is based on
management's credit evaluation of the customer. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
The Company processes residential home mortgage loans for sale in the
secondary market. In conjunction with the sale of such loans, the Company has
entered into agreements with the purchasers of the loans, setting forth
certain provisions. Among those provisions is the right of the purchaser to
return the loans to the Company in the event the borrower defaults within a
stated period. This period ranges among the various purchasers from between
one to twelve months. Loans sold with recourse amounted to approximately
$6,021,000 and $26,511,000 at December 31, 1996 and 1995, respectively. The
Company's exposure to credit loss in the event of default by the borrower and
the return of the loan by the purchaser is represented by the difference in
the amount of the loan and the recovery value of the underlying collateral.
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company and its subsidiaries using
available market information and valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company and its
subsidiaries could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material impact
on the estimated fair value amounts.
F-15
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair value of the Company's financial instruments is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Investment securities.................... $101,145 98,725 102,065 99,669
======== ======= ======= =======
Mortgage loans held for sale............. $ 2,182 2,182 6,665 6,765
======== ======= ======= =======
Loans.................................... $231,176 231,064 183,625 184,393
======== ======= ======= =======
Deposits................................. $316,573 316,380 285,720 285,630
======== ======= ======= =======
Securities sold under agreements to
repurchase.............................. $ 11,966 11,966 17,742 17,742
======== ======= ======= =======
Federal funds purchased and other short-
term borrowings......................... $ 6,675 6,675 -- --
======== ======= ======= =======
Long-term debt........................... $ 4,893 4,893 12,392 12,392
======== ======= ======= =======
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Investment Securities--Various methods and assumptions were used to
estimate fair value of the investment securities. For investment
securities, excluding other securities, fair values are based on quoted
market prices or dealer quotes. If a quoted market price is not available,
fair value is estimated using quoted prices for similar securities. The
carrying value of other securities approximates fair values.
Loans Held for Sale--The fair value of loans held for sale equals the
contractual sales price agreed upon with third-party investors.
Loans--For certain homogenous categories of loans, such as some Small
Business Administration guaranteed loans, student loans, residential
mortgages, consumer loans and commercial loans, fair value is estimated
using quoted market prices for similar loans or securities backed by
similar loans, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits--The fair value of demand deposits, savings accounts and money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Long-term Debt--The fair value of long-term debt is estimated using
discounted cash flow analyses based on the Company's and subsidiaries'
current incremental borrowing rates for similar types of borrowing
arrangements.
Federal Funds Purchased and Securities Sold Under Agreements to
Repurchase--For federal funds purchased and securities sold under
agreements to repurchase, the current carrying amount is a reasonable
estimate of fair value.
Commitments to Extend Credit and Irrevocable Letters of Credit--The fair
value of commitments is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the customers. For fixed-
rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The estimated
fair value of letters of credit is based on the fees currently charged for
similar agreements. These instruments were determined to have no positive
or negative market value adjustments and are not listed in the following
table.
F-16
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loans Sold with Recourse--The fair value of loans sold with recourse is
limited to the contractual amount of the loans required to be repurchased.
Loans currently under the recourse provision have been sold to investors
within the last twelve months. Because the recourse provisions have not yet
expired, it is impractical to determine the fair value; however, it is not
believed they would have a material market value adjustment.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of the consolidated financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
(12) CAPITAL ADEQUACY
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and
ratios (set forth in the table below on a consolidated basis, dollars in
thousands) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets and of Tier I capital to average assets. Management
believes, as of December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------------- ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Total risk-based capital
(to risk-weighted assets)....... $36,181 14.85% $19,493 8.00% $24,366 10.00%
Tier I capital (to risk-weighted
assets)......................... 33,200 13.59 9,746 4.00 14,620 6.00
Tier I capital (to average
assets)......................... 33,200 9.56 13,780 4.00 17,225 5.00
At December 31, 1995:
Total risk-based capital
(to risk-weighted assets)....... 15,418 8.19 15,445 8.00 19,306 10.00
Tier I capital (to risk-weighted
assets)......................... 13,043 6.93 7,722 4.00 11,583 6.00
Tier I capital (to average
assets)......................... 13,043 4.36 11,958 4.00 14,948 5.00
</TABLE>
F-17
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial information of the Company as of and for
the years ended December 31, 1996 and 1995 (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ -------- ------
<S> <C> <C>
Cash........................................................... $ 62 110
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits.......................... 8,641 --
Loans, net..................................................... -- 852
Investment in subsidiaries..................................... 28,340 23,749
Other.......................................................... 683 763
-------- ------
Total assets............................................... $ 37,726 25,474
======== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Borrowed funds................................................. $ 3,291 10,400
Other.......................................................... 95 187
Stockholders' equity........................................... 34,340 14,887
-------- ------
Total liabilities and stockholders' equity................. $ 37,726 25,474
======== ======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Dividends from subsidiaries.................................... $ 1,048 2,309
Interest income................................................ 61 28
Other expense, net............................................. 1,442 1,563
------- -----
Income (loss) before equity in undistributed earnings of
subsidiaries.............................................. (333) 774
Increase (decrease) in undistributed equity of subsidiaries.... 1,933 (88)
------- -----
Earnings before income taxes............................... 1,600 686
Income tax benefit............................................. 478 532
------- -----
Net earnings............................................... $ 2,078 1,218
======= =====
</TABLE>
F-18
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................. $ 2,078 1,218
Increase in undistributed equity of subsidiary................ (1,933) (88)
Other......................................................... 150 207
------- -----
Net cash provided by operating activities................... 295 1,337
------- -----
Cash flows from investing activities:
Net change in held-to-maturity securities..................... (5) (75)
Net change in loans........................................... 501 (501)
Net additions to premises and equipment....................... 5 12
Capital contributions to subsidiaries......................... (3,000) --
------- -----
Net cash used in investing activities....................... (2,499) (564)
------- -----
Cash flows from financing activities:
Principal payments on long-term debt.......................... (7,385) (491)
Purchase of treasury stock.................................... (134) (832)
Issuance of common stock...................................... 18,122 350
------- -----
Net cash provided by (used in) financing activities......... 10,603 (973)
------- -----
Net increase (decrease) in cash............................. 8,399 (200)
Cash at beginning of year....................................... 110 310
------- -----
Cash at end of year............................................. $ 8,509 110
======= =====
</TABLE>
The primary source of funds available to the Company is the payment of
dividends by the subsidiaries. Subject to maintaining certain minimum
regulatory capital requirements, regulations limit the amount of dividends
that may be paid without prior approval of the subsidiaries' regulatory
agencies. At December 31, 1996, the subsidiaries could pay dividends of
$3,577,000 without prior regulatory approval.
(14) MERGERS AND ACQUISITIONS
As discussed in note 1, the 1996 and 1995 consolidated financial statements
have been restated to include the accounts and results of operations of
Peoples Bancshares, Inc. with those of the Company. The results of operations
previously reported by each of the companies and the amounts presented in the
accompanying consolidated financial statements for the years ended December
31, 1996 and 1995 are summarized below (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Net interest income, after provision for loan losses:
Gold Banc Corporation, Inc................................ $ 8,936 7,102
Peoples Bancshares, Inc................................... 2,423 2,111
------- -----
$11,359 9,213
======= =====
Net income:
Gold Banc Corporation, Inc................................ $ 1,351 704
Peoples Bancshares, Inc................................... 727 514
------- -----
$ 2,078 1,218
======= =====
</TABLE>
F-19
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(15) SUBSEQUENT EVENTS
Exchange National Bank, a wholly-owned subsidiary of Gold Banc Corporation,
Inc., is a named defendant in a case filed in the United States District Court
for the District of Kansas on September 11, 1997. The case caption is Lisa
Wilson, et al. v. Olathe Bank, et al., Case No. 97-2458-KHV. The case has been
filed on behalf of individuals who allege that they invested in entities known
as Parade of Toys and Bandero Cigar Company. The Complaint alleges violations
of the RICO statute (18 U.S.C. (S) 1962 (c)), conspiracy to violate RICO,
negligent misrepresentation, fraud, civil conspiracy and negligence on the
part of the defendants. The plaintiffs contend that a number of
misrepresentations were made in connection with solicitations seeking their
investment in these businesses. The defendants, including Exchange National
Bank, were listed in Trade Reference Sheets provided to plaintiffs by Parade
of Toys and Bandero Cigar Company. Plaintiffs contend that these references
add to the legitimacy of the solicitations. Moreover, the plaintiffs represent
that they contacted the defendants and were advised that Parade of Toys and
Bandero Cigar Company were honest, legitimate, trustworthy and a good
investment. Plaintiffs contend that these representations were false and
misleading and that they relied on these investments to their detriment. The
case was initially filed in the District Court of Johnson County, Kansas, but
a motion has been filed by plaintiffs to dismiss that case. The case in the
United States District Court has been brought by seven plaintiffs who allege
they have invested a total of $176,000. The claim is brought on behalf of a
putative class asserted to be over 2,400 persons who allegedly invested in
Parade of Toys or Bandero Cigar Company with allegations that each member of
the putative class has invested at least $14,900. In each count, the
plaintiffs have sought actual damages in an amount in excess of $75,000,
punitive damages in an amount in excess of $75,000 and costs of the action.
Exchange National Bank has denied any liability and is vigorously contesting
the allegations made against it. The Company is not yet in a position to
determine whether the expenses and losses, if any, in connection with this
action will be material.
Effective October 1, 1997, the Company acquired 100% of the outstanding
common stock of Farmers Bancshares of Oberlin, Inc. (Farmers) and its wholly-
owned subsidiary, Farmers National Bank, in exchange for cash of $1,964,000
and 273,000 shares of Company common stock valued at $3,753,000. The
acquisition will be accounted for as a purchase and, accordingly, the excess
of the total consideration paid of $5,718,000 over the fair value of the
underlying net assets of Farmers of $5,557,000, aggregating $161,000, will be
recorded as goodwill. Farmers had total assets of approximately $50.0 million
at September 30, 1997.
F-20
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996
------ ------------- -------------
<S> <C> <C>
Cash and Due from Banks............................ $ 10,422 $ 10,780
Federal funds sold and interest-bearing deposits... 6,630 2,112
-------- --------
Total cash and cash equivalents................ 17,052 12,892
-------- --------
Held-to-maturity securities........................ 101 102
Available-for-sale securities...................... 78,246 99,443
Restricted equity securities....................... 3,157 2,737
-------- --------
Total investment securities.................... 81,504 102,282
Mortgage loans held for sale....................... 2,872 2,174
Loans, net......................................... 288,076 218,569
Bank premises and fixed assets..................... 14,114 11,564
Deferred taxes..................................... 499 957
Accrued interest and other assets.................. 6,969 6,498
-------- --------
Total Assets................................... $411,086 $354,936
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Deposits......................................... $344,271 $300,237
Securities sold under agreements to repurchase... 24,676 18,403
Federal funds purchased and other borrowings..... 350 3,075
Long-term debt................................... 1,667 14,522
Accrued interest and other liabilities........... 3,057 3,264
-------- --------
Total liabilities.............................. $374,021 $339,501
Stockholders' equity:
Common stock, $1 par value, 25,000,000 shares
authorized; 4,793,615 and 2,493,615 share issued
and outstanding at September 30, 1997 and 1996,
respectively.................................... $ 4,794 $ 2,494
Additional paid-in capital....................... 18,784 2,965
Undivided profits................................ 13,700 10,552
Unrealized profits (loss) on available for sale
securities, net................................. 63 (576)
Unearned compensation............................ (276) --
-------- --------
Total stockholders' equity..................... $ 37,065 $ 15,435
-------- --------
Total liabilities and stockholders' equity..... $411,086 $354,936
======== ========
</TABLE>
F-21
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Interest income:
Loans, including fees............................ $ 18,170 $ 14,507
Investments...................................... 4,074 4,626
Other............................................ 379 423
---------- ----------
22,623 19,556
---------- ----------
Interest expense:
Deposits......................................... 10,684 9,934
Borrowings and other............................. 1,155 1,309
---------- ----------
11,839 11,243
---------- ----------
Net interest income............................ 10,784 8,313
Provision for loan losses.......................... 535 145
---------- ----------
Net interest income after provision for loan
losses........................................ 10,249 8,168
---------- ----------
Other income:
Service charges.................................. 738 687
Net gain on sale of mortgage loans............... 501 943
Gain/Loss on sale of securities.................. 89 20
Gain on sale of other assets..................... 205 298
Other............................................ 384 310
---------- ----------
1,917 2,258
---------- ----------
Other expense:
Salaries and employee benefits................... 4,450 4,637
Occupancy expense................................ 1,417 1,213
Federal deposit insurance premiums............... 76 514
Other............................................ 2,204 2,054
---------- ----------
8,147 8,418
---------- ----------
Earnings before income taxes................... 4,019 2,008
Income taxes....................................... 1,346 678
---------- ----------
Net Earnings................................... $ 2,673 $ 1,330
========== ==========
Earnings per share................................. $ 0.56 $ 0.53
========== ==========
Weighted average common and common equivalent
shares outstanding................................ 4,793,615 2,494,838
========== ==========
</TABLE>
F-22
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Interest income:
Loans, including fees............................ $ 6,708 $ 5,124
Investments...................................... 1,249 1,553
Other............................................ 136 84
---------- ----------
8,093 6,761
Interest expense:
Deposits......................................... 3,808 3,394
Borrowings and other............................. 495 465
---------- ----------
4,303 3,859
Net interest income............................ 3,790 2,902
Provision for loan losses.......................... 280 30
---------- ----------
Net interest income after provision for loan
losses........................................ 3,510 2,872
Other income:
Service charges.................................. 248 235
Net gain on sale of mortgage loans............... 212 243
Gain/Loss on sale of securities.................. 88 (4)
Gain on sale of other assets..................... 6 267
Other............................................ 199 117
---------- ----------
753 858
Other expense:
Salaries and employee benefits................... 1,609 1,570
Occupancy expense................................ 483 447
Federal deposit insurance premiums............... 19 433
Other............................................ 800 743
---------- ----------
2,911 3,193
Earnings before income taxes....................... 1,352 537
Income taxes....................................... 450 182
---------- ----------
Net Earnings................................... $ 902 $ 355
========== ==========
Earnings per share................................. $ 0.19 $ 0.14
========== ==========
Weighted average common and common equivalent
shares outstanding................................ 4,793,615 2,493,615
========== ==========
</TABLE>
F-23
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Earnings..................................... $ 2,673 1,330
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses........................ 535 145
Net gains on sales of available for sale
securities...................................... (89) (20)
Amortization (accretion) of investment
securities' premiums, net of accretion.......... 4 (25)
Depreciation and amortization.................... 749 623
Gain on sale of assets, net...................... (205) (299)
Originations of mortgage loans held for sale, net
of sales proceeds............................... (691) 4,491
Other changes:
Accrued interest receivable and other assets... (854) (899)
Accrued interest payable and other liabilities. 976 1,102
------- --------
Net cash provided by operating activities...... 3,098 6,448
Cash flows from investing activities:
Net increase in loans............................ (57,434) (35,087)
Principal collections and proceeds from
maturities of held to maturity securities....... -- (3)
Principal collections and proceeds from sales and
maturities of available for sale securities..... 33,601 27,743
Purchases of available for sale securities....... (13,876) (27,912)
Net additions to premises and equipment.......... (2,004) (3,861)
Proceeds from sale of other assets............... 285 298
------- --------
Net cash used in investing activities.......... (39,428) (38,822)
Cash flows from investing activities:
Increase in deposits............................. 27,700 14,516
Net increase in short-term borrowings............ 6,385 3,736
Principal (payments) proceeds on long-term debt.. (3,226) 2,131
Dividends paid................................... (273) --
Proceeds from sale of treasury stock............. -- (131)
------- --------
Net cash provided by financing activities...... 30,586 20,252
Decrease in cash equivalents................... $(5,744) $(12,122)
Cash and cash equivalents, beginning of year....... 22,796 25,014
------- --------
Cash and cash equivalents, end of year............. $17,052 $ 12,892
======= ========
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The consolidated financial statements include the accounts of the Company's
subsidiaries, Exchange National Bank, Citizens State Bank, Peoples National
lBank, and Provident Bank, f.s.b. (the "Banks"). All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements as of September 30, 1997, and for the
nine months ended and the three months ended September 30, 1997 and 1996 are
unaudited but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
financial position and results of operations for those periods. The
Consolidated Statements of Earnings for the nine months ended and the three
months ended September 30, 1997 and 1996 are not necessarily indicative of the
results that will be achieved for the entire year.
2. EARNINGS PER COMMON SHARE.
Earnings per common share are based upon the weighted average number of
common shares outstanding during the periods.
3. SUBSEQUENT EVENTS.
The Company completed its previously announced acquisition of Farmers
Bancshares, Inc. of Oberlin, Kansas and its subsidiary, Farmers National Bank,
through a combination of cash and tax-free exchange of stock on October 1,
1997. At September 30, 1997, Farmers National Bank had total assets of $50.0
million, deposits of $42.5 million and loans of $27.2 million. The transaction
was accounted for as a purchase under Generally Accepted Accounting
Principles.
On October 30, 1997 the Company declared a quarterly dividend in the amount
of $.03 per share to shareholders of record as of November 14, 1997, payable
on December 15, 1997.
4. LEGAL PROCEEDINGS.
Exchange National Bank, along with approximately 24 other persons and
entities including a number of depository institutions, is a named defendant
in a case filed in the United States District Court for the District of Kansas
on September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys
and Bandero Cigar Company. The complaint alleges violations of the Racketeer
Influenced Corrupt Organizations ("RICO") statute (18 U.S.C. (S) 1962(c)),
conspiracy to violate RICO, negligent misrepresentation, fraud, civil
conspiracy and negligence on the part of the defendants. The plaintiffs
contend that the defendants, including Exchange Bank, were listed in trade
reference sheets provided to plaintiffs by Parade of Toys and Bandero Cigar
Company and that the defendants made false and misleading representations on
which they relied to their detriment. In each count, the plaintiffs have
sought actual damages in an amount in excess of $75,000 each, treble damages
under RICO, and punitive damages. Exchange National Bank denies liability and
is in the process of vigorously defending this claim.
5. NEW ACCOUNTING PRONOUNCEMENT.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share.
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
GBCI Capital Trust........................................................
Use of Proceeds...........................................................
Capitalization............................................................
Accounting Treatment......................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................
The Company...............................................................
Business..................................................................
Management................................................................
Certain Relationships and Related Transactions............................
Supervision and Regulation................................................
Description of Preferred Securities.......................................
Description of Junior Subordinated Debentures.............................
Description of Guarantee..................................................
Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee.............................................
Certain Federal Income Tax Consequences...................................
Certain ERISA Considerations..............................................
Underwriting..............................................................
Validity of Securities....................................................
Experts...................................................................
Available Information.....................................................
Index to Financial Statements of the Company.............................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$25,000,000
GBCI CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER
PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
GOLD BANC
CORPORATION, INC.
---------------
PROSPECTUS
---------------
ADVEST, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Articles of Incorporation of the Company and the
Amended and Restated Bylaws of the Company require it to indemnify its
directors and officers and advisory directors against liabilities. fines,
penalties, settlements, claims and reasonable expenses incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those capacities to the fullest extent permitted by the
Kansas General Corporation Code ("KGCC"). The KGCC permits a corporation to
indemnify its present and former directors and officers if ordered to do so by
a court or after a determination by its independent counsel, stockholders or a
majority of its disinterested directors that the person to be indemnified
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses, other than underwriting discounts and commissions,
in connection with the Offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 9,000
NASD Filing Fee................................................. $ 6,000
Nasdaq Fees..................................................... $ 15,000
Printing Expenses............................................... $ 60,000
Legal Fees and Expenses......................................... $130,000
Auditing and Accounting Service................................. $ 20,000
Transfer Agent Fees and Expenses................................ $ 10,000
--------
Total....................................................... $250,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period from January 1995 through June 1996, the Company sold
90,733 shares of Common Stock, of which 14,047 shares were issued to one
person in exchange for 100 shares of preferred stock. The remaining 76,686
shares were sold to six persons for $575,000 in cash. A majority of such
shares were acquired by employees of the Company and the Banks. On October 1,
1997, the Company issued 273,000 shares of Common Stock in exchange for all of
the issued and outstanding shares of Farmers Bancshares, Inc. No underwriter
or independent selling agent was used and no compensation or commissions were
paid in connection with such offerings, as all such offers and sales were
effected by the Company's directors and executive officers. The sales
conducted described above were completed in reliance on the exemption from the
registration requirements provided by Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1 --Form of Underwriting Agreement***
3(a) --Amended and Restated Articles of Incorporation of the Company*
3(a)(i) --Certificate of Amendment to Restated Articles of
Incorporation**
3(b) --Restated By-laws of the Company*
4(a) --Form of Junior Subordinated Indenture***
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
4(b) --Form of Amended and Restated Trust Agreement***
4(c) --Form of Guarantee Agreement***
5(a) --Opinion of Blackwell Sanders Matheny Weary & Lombardi LLP***
5(b) --Opinion of Richards, Layton & Finger.
8 --Opinion of Blackwell Sanders Matheny Weary & Lombardi LLP***
9(a) --Proxy Agreement/Stockholder Agreement between Michael W. Gullion
and William Wallman, dated as of September 15, 1996*
9(b) --Proxy Agreement/Stockholder Agreement between Michael W. Gullion,
William Wright and Allen Petersen, dated as of September 15, 1996*
9(c) --Accession of The Lifeboat Foundation to the Proxy
Agreement/Stockholder Agreement among Michael W. Gullion, William
Wright and Allen Petersen, dated as of May 28, 1997***
10(a) --Employment Agreement between the Company and Michael W. Gullion*
10(b) --Employment Agreement between the Company and Keith E. Bouchey*
10(c) --Gold Banc Corporation, Inc. 1996 Equity Compensation Plan*
10(d) --Form of Tax Sharing Agreements between the Company and the Banks*
10(e) --Form of Federal Home Loan Bank Credit Agreement to which each of
the Banks is a party*
16 --Letter Regarding Change in Certifying Accountants*
21 --List of Subsidiaries of the Company***
23(a) --Consent of KPMG Peat Marwick LLP.
23(b) --Consent of GRA Thompson, White & Company, P.C.
23(c) --Consent of Blackwell Sanders Matheny Weary & Lombardi LLP
(included in Exhibits 5 and 8).***
23(d) --Consent of Richards, Layton & Finger (included in Exhibit 5)
24 --Powers of Attorney (included in signature page to Registration
Statement).
25 --Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of Bankers Trust Company, as trustee under the Junior
Subordinated Indenture, the Amended and Restated Trust Agreement
and the Guarantee agreement relating to GBCI Capital Trust.***
99 --Report of GRA Thompson, White & Company, P.C.***
* --Previously filed as an Exhibit to the Company's Registration
Statement on Form SB-2 No. 333-12397 and the same is incorporated
herein by reference.
** --Previously filed as an Exhibit to the Company's Registration
Statement on Form S-4 No. 333-28563 and the same is incorporated
herein by reference.
*** --Previously filed with the initial filing of this Registration
Statement.
</TABLE>
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company
II-2
<PAGE>
as been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) The undersigned Company hereby undertakes to, for purposes of
determining any liability under the Securities Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(c) The undersigned Company hereby undertakes to, for purposes of
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for the securities offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering of those
securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment
to be signed on its behalf by the undersigned, in the City of Leawood, State
of Kansas, on November 26, 1997.
Gold Banc Corporation, Inc.
/s/ Michael W. Gullion
By___________________________________
Michael W. Gullion
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates stated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ Michael W. Gullion November 26, 1997
- ------------------------------------
Michael W. Gullion Chief Executive Officer,
President, Director
(principal executive
officer)
/s/ Keith E. Bouchey November 26, 1997
- ------------------------------------
Keith E. Bouchey Chief Financial Officer,
Executive Vice President,
Secretary, Director
(principal financial and
accounting officer)
/s/ William Wallman* November 26, 1997
- ------------------------------------
William Wallman Director
/s/ D. Michael Browne* November 26, 1997
- ------------------------------------
D. Michael Browne Director
/s/ William F. Wright* November 26, 1997
- ------------------------------------
William F. Wright Director
/s/ Allen D. Petersen* November 26, 1997
- ------------------------------------
Allen D. Petersen Director
</TABLE>
*By Keith E. Bouchey as attorney-in-fact.
II-4
<PAGE>
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
November 26, 1997
GBCI Capital Trust
c/o Gold Banc Corporation, Inc.
11301 Nall Avenue
Leawood, Kansas 66211
Attn: Office of the Secretary
Re: GBCI Capital Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for GBCI Capital Trust, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth our examination
of documents has been limited to the examination of originals or copies of the
following:
(a) The Certificate of Trust of the Trust (the "Certificate"), as filed in
the office of the Secretary of State of the State of Delaware (the "Secretary of
State") on October 31, 1997;
(b) The Trust Agreement of the Trust, dated as of October 31, 1997, between
Gold Banc Corporation, Inc., a Kansas corporation (the "Company"), and the
trustee of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form SB-2,
including a prospectus (the "Prospectus") relating to the ____% Preferred
Securities of the Trust representing preferred undivided beneficial interests in
the Trust (each, a "Preferred Security") and collectively, the "Preferred
Securities"), as filed by the Company and the Trust as set forth therein with
the Securities and Exchange Commission on November 7, 1997;
(d) A Form of Amended and Restated Trust Agreement of the Trust, to be
entered into among the Company, the trustees of the Trust named therein, and the
holders, from time to time,
<PAGE>
GBCI Capital Trust
November 26, 1997
Page 2
of undivided beneficial interests in the Trust (the "Trust Agreement"), attached
as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated November 26, 1997,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other than
the documents listed above, and we have assumed that there exists no provision
in any document that we have not reviewed that bears upon or is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Agreement
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the Trust Agreement and the Certificate are
in full force and effect and have not been amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, (iv) that each
of the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Preferred
Security is to be issued by the Trust (collectively, the "Preferred Security
Holders") of a Preferred Security Certificate for such Preferred Security and
the payment for the Preferred Security acquired by it, in accordance with the
Trust Agreement and the Prospectus, and (vii) that the Preferred Securities are
issued and sold to the Preferred Security Holders in accordance with the Trust
Agreement and the Prospectus.
<PAGE>
GBCI Capital Trust
November 26, 1997
Page 3
We have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of law
and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del. C.
(S) 3801, et seq.
2. The Preferred Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust, will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. In addition, we hereby
consent to the use of our name under the heading "Validity of Securities" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
<PAGE>
Exhibit 23(a)
ACCOUNTANTS' CONSENT
Board of Directors
Gold Banc Corporation, Inc.
We consent to the use of our report on the consolidated financial
statements of Gold Banc Corporation, Inc. as of and for the years ended December
31, 1996 and 1995 included herein and to the reference to our firm under the
heading "Experts" in Amendment No. 1 to the Registration Statement. The
consolidated financial statements give retroactive effect to the merger with
Peoples Bancshares, Inc. effective August 22, 1997. Our opinion on the
consolidated financial statements is based in part on the report of other
auditors.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
November 28, 1997
<PAGE>
Exhibit 23(b)
ACCOUNTANTS' CONSENT
We hereby consent to the use of our independent auditors' report dated May
23, 1997 (on the consolidated financial statements of Peoples Bancshares, Inc.
and Subsidiary as of and for the years ended December 31, 1996 and 1995)
included in this Amendment No. 1 of Form SB-2 Registration Statement and to the
reference to our firm under the heading "Experts" included herein.
/s/ GRA, Thompson, White & Co., P.C.
Merriam, Kansas
November 26, 1997
