UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-28936
GOLD BANC CORPORATION, INC.
(Name of small business issuer in its charter)
Kansas 48-1008593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11301 Nall Avenue
Leawood, Kansas 66211
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (913) 451-8050
SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE EXCHANGE ACT:
Title of Each Class
Common Stock, $1.00 par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES /X/ NO /_/
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /_/
The issuer's revenues for its most recent fiscal year were $23.7 million.
The aggregate market value of the Common Stock, par value $1.00 per share, of
the issuer held by non-affiliates of the issuer as of March 21, 1997 was $36.6
million.
The number of shares outstanding of the issuer's common stock, $1.00 par value,
as of March 18, 1997 was 4,300,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the Annual Meeting of
Stockholders to be held April 30, 1997, are incorporated by reference into
Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY AND SUBSIDIARIES
GOLD BANC CORPORATION, INC.
Gold Banc Corporation, Inc. (the "Company") is a Kansas corporation organized
on December 5, 1985 and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. The Company, through its ownership of
its banking subsidiaries (the "Banks"), is engaged in a general commercial
banking business, and its primary source of earnings is derived from income
generated by the Banks. As of December 31, 1996, the Company had total assets of
$305 million, total loans of $203 million, total deposits of $256 million, and
stockholders' equity of $30 million. The Company and the Banks employ 116
persons on a full-time equivalent basis.
BANK SUBSIDIARIES
Exchange Bank. Exchange National Bank ("Exchange Bank") has four locations and
is chartered in Marysville, Kansas. The two Marysville locations ("Exchange
Bank--Marysville") as of December 31, 1996, ranked second in terms of deposits
among the eight other banks and two other lending institutions in Marshall
County, Kansas. Exchange Bank--Marysville's loan mix consists of approximately
28% agricultural loans, 35% commercial and industrial loans, 27% residential
real estate loans, and 10% consumer and other loans. As of December 31, 1996,
Exchange Bank--Marysville had assets of approximately $76 million. The
Marysville facilities employ 27 full-time equivalent persons and, through its
predecessors, have served the Marshall County community since 1870.
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. The two Johnson County, Kansas branches of Exchange Bank show 39%
commercial, 18% commercial real estate, 25% real estate construction, 11%
residential real estate and 7% consumer and other loans including
agriculture-related. As of December 31, 1996, these branches combined had $86
million in assets and employed 28 full-time equivalent persons. The Company's
management believes the expansion in Johnson County will further enhance the
Company's growth opportunities while diversifying its overall loan portfolio.
Provident Bank. Provident Bank, f.s.b. ("Provident Bank") competes with 10
banks, 4 savings and loans and 11 credit unions in the city of St. Joseph,
Missouri, and for the year ended December 31, 1996 was the leading home lender,
based on mortgage volume, for home purchases in St. Joseph. Approximately 52% of
the Bank's loan portfolio consists of residential home loans, 34% commercial
real estate loans, 6% industrial loans, 4% loans held for sale and 4% consumer
and other loans. As of December 31, 1996, Provident Bank had assets of
approximately $79 million. The Bank employs a total of 35 persons on a full-time
equivalent basis and relies primarily on the deposits of the St. Joseph area for
its funds. Provident Bank was acquired by the Company in March, 1994. Provident
Bank had assets of $58 million at that time. A portion of the purchase price was
financed through the sale of a bank located in Coldwater, Kansas that had assets
of $23 million. Provident Bank was established in 1889 and has been serving the
St. Joseph community for 107 years.
Citizens. Citizens State Bank and Trust Company ("Citizens") has two locations
in the town of Seneca, Kansas. As of December 31, 1996, Citizens was the largest
in terms of deposits among the 10 bank locations serving the approximately
11,000 residents of Nemaha County, Kansas. Approximately 29% of the loans
generated by the Bank are related to the agricultural sector, including farm
real estate, agricultural production and agricultural industrial. Approximately
30% of its loans are residential home loans and the remainder are commercial,
consumer and other loans. As of December 31, 1996, the Bank had assets of
approximately $57 million. The Bank has 20 full-time equivalent employees and
relies primarily on consumer, commercial and local government deposits for
funds. Citizens has served the Nemaha County community for 103 years.
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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 and Seneca 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. Although Provident Bank is located
in a city of over 70,000 residents, it is the Company's experience that the
demographics of St. Joseph, Missouri, as a county seat, are generally comparable
to those of Seneca and Marysville, Kansas. The Company believes that, through
good management, community banks such as Exchange Bank and Citizens 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 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. The
expansion into suburban Johnson County communities also has allowed Exchange
Bank and Citizens to diversify their predominantly agriculturally-related loan
portfolio into commercial and residential real estate loans. In addition, the
Company has taken advantage of the relatively stable deposit base and low cost
of funds in Marysville and Seneca, Kansas, where there is a relatively low
commercial loan demand, and has deployed those funds in the suburban communities
of Leawood and Shawnee, Kansas, where commercial loan demand is greater.
OPERATING STRATEGY
The Company's operating strategy is to provide in each market in which 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:
Maintain Market Position in Existing Market Areas. Each Bank is a leader in an
aspect of the market in which it competes. The Company has invested in
facilities and personnel and has emphasized customer service in order to
maintain and enhance its market position in these areas.
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
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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 acquisition activity of regional banking
institutions and to deploy excess low-cost funds derived from its rural
northeastern Kansas market.
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
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 intends to centralize
payroll, medical benefits, regulatory administration and data processing during
1997.
Because of the high costs associated with Provident Bank's mortgage banking
division, the Company began to significantly streamline these operations in the
third quarter of 1996. The Company believes substantial improvements can be made
to both expenses and income of the division through implementation of the
following plan: (i) replacement of labor with technology; (ii) a reduction in
the number of loan underwriters that participate in mortgage banking operations;
(iii) retaining the servicing rights for loans sold; (iv) undertaking its own
loan underwriting; and (v) creating arrangements pursuant to which the Bank
would finance developers and builders in the acquisition of property for, and
the development and construction of, residential communities, and also would
provide the residential real estate loans to the ultimate consumers in those
communities. Provident Bank recently hired an Executive Vice President whose job
function includes implementation of the foregoing plan. As part of the
restructuring, the Company began in the third quarter of 1996 to streamline its
Johnson County mortgage banking operations by reducing significantly the
personnel in the Johnson County mortgage origination office and eliminating
certain support positions in the Provident Bank office in St. Joseph.
GROWTH STRATEGY
Acquisitions. 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. Additionally, other than
FHLB borrowings matched against specific loans, the Company has no long-term
indebtedness. Therefore, a substantial portion of future earnings can be
retained to pursue this growth strategy.
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 difficulty 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 dominant, 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 dominance of the acquisition 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
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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 acquisition. Non-financial
considerations in evaluating an acquisition prospect include the quality of the
target's management and the demand on 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 acquisition focus is the Midwest and
primarily in the States of Kansas and Missouri. Kansas is perceived by
management to be the Company's best market for bank acquisitions 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 acquisitions 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 has acquired a tract of land
for the development of 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 Exchange Bank to diversify
its loan portfolio, which was previously dominated by loans related to the
agricultural industry. Further, the loan demand in these suburban Johnson County
communities, due to heavy residential and small business development, is greater
than that experienced in the market areas served by Citizens and Exchange Bank -
Marysville. The difference in the deposit characteristics, which are more stable
in Seneca and Marysville, and borrowing characteristics between the communities
has allowed the Company to deploy excess low-cost deposit fundsderived from
Citizens and Exchange Bank - Marysville into loans in the growing Kansas City
metropolitan communities of Shawnee and Leawood, Kansas.
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.
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Real Estate Lending. Commercial, residential and agricultural real estate
loans represent the largest class of loans of the Company. As of December 31,
1996, real estate loans totaled $130.3 million or 64.3% of all loans. One to
four family residential loans make up approximately 44.4% of real estate loans,
followed by commercial 25.9%, construction 21.0%, agricultural 7.0%, and loans
held for sale 1.7%. 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 December 31, 1996, commercial loans
represented the second largest class of loans at $48.4 million, or 23.9% 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 loans were $11.7
million as of December 31, 1996, or 5.8% 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 December 31, 1996, consumer and other loans amounted
to $12.2 million, or 6.0% 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 December 31, 1996, the Company had issued 1,900 cards having an
aggregate outstanding balance of $1.4 million in credit card receivables. The
Company has not marketed credit cards to persons other than existing customers.
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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 legal lending limit
of each of the Banks was approximately $1.8 million, $670,000 and $740,000 for
Exchange Bank, Citizens and Provident Bank, respectively, as of December 31,
1996.
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.
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.
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 altered the resources committed to
its mortgage banking operations.
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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 $66.7 million, or 21.9% of total assets,
at December 31, 1996.
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 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 6 persons. At December 31, 1996,
the Banks had 116 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.
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STOCK OFFERING
On November 22, 1996, the Company completed an underwritten 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 proceeds were used to retire approximately $6.6 million in
short-term debt and to make a $3.0 million working capital contribution to
Exchange Bank. The remaining capital of approximately $8.5 million was invested
in short-term investment grade securities pending use in the Company's
acquisition strategy and for general corporate purposes.
SUPERVISION AND REGULATION
THE COMPANY
The Company is a bank holding company within the meaning of Bank Holding
Company Act of 1956, as amended (the "BHCA") and the Savings & Loan Holding
Company Act, as amended (the "SLHCA").
The BHCA. Under the BHCA, the Company is subject to periodic examination by
the Board of Governors of the Federal Reserve 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 acquisition
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
the depository institution's financial condition. The Company currently does not
have any subsidiaries other than the Banks.
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The SLHCA. Under the SLHCA, the Company is regulated by the Office of Thrift
Supervision (the "OTS"). Generally, there are no limitations on activities of a
savings and loan holding company provided the Company holds only one savings
association which is a Qualified Thrift Lender ("QTL"), as is the case with the
Company. As a unitary savings and loan holding company, the Company is
registered and files reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, which also permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
the subsidiary savings association. The OTS has broad investigative powers to
determine whether provisions under the SLHCA are complied with by the Company.
If the OTS discovers violations, it may seek an injunction to enjoin the acts
which violate the laws or regulations or may order the Company or its
subsidiaries to terminate activities or terminate control or ownership of a
subsidiary if the OTS reasonably believes continuation of such activity,
ownership or control by the savings and loan holding company poses a serious
risk to financial safety, soundness or stability of the savings association held
by the Company.
Generally, a savings and loan holding company must get prior written approval
from the director of the OTS to acquire control of a savings association, to
acquire another savings association or savings and loan holding company by
merger, consolidation or purchase of assets, or to acquire or retain more than
5% of the voting shares of a savings association or a savings and loan holding
company which is not a subsidiary. The savings and loan holding company may not
acquire control of an uninsured institution or retain control for more than one
year from the date control was acquired, unless extended by the director of the
OTS for a period not to exceed three years.
If the Company were to acquire control of another savings association as a
separate subsidiary, it would become a multiple savings and loan holding
company, and the activities of the Company and any of its subsidiaries would
become subject to additional restrictions unless such other association
qualified as a QTL and was acquired in a supervisory acquisition.
If Provident Bank fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries.
THE BANKS
Exchange Bank. Exchange Bank operates as a national banking association
incorporated under the laws of the United States and is subject to examination
by the Office of the Comptroller of the Currency (the "OCC"). Deposits in
Exchange Bank 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
Exchange Bank's 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 Exchange Bank to maintain certain
capital ratios and imposes limitations on its aggregate investment in real
estate, bank premises, and furniture and fixtures. Exchange Bank is currently
required by the OCC to prepare quarterly reports on its financial condition and
to conduct an annual audit of its 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,
acquisitions, 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 issuing 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
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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,
acquisitions, 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 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 Savings Association Insurance Fund ("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 is subject to the dividend restrictions set forth by the OCC.
Under such restrictions, Exchange Bank 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 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.
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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.
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 elects to prohibit such mergers or consolidations. Prior to the
effective date of this legislation, a bank may merge or consolidate across state
lines only if both of the states involved elect to "opt-in" early to the
provisions of the legislation. States may also authorize banks from other states
to engage in branching across state lines de novo and by acquisition 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.
Missouri has not chosen to opt-in early to the provisions of the new federal
law. 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,
acquisitions 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
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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 Bank 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 Board 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. 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.
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 if it has a total
risk-based capital ratio (total capital to risk-weighted assets) of 10% or
greater, has a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted
assets) of 6% or greater, has a leveraged ratio (Tier 1 capital to total
adjusted assets) of 5% or greater, 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 at least adequately capitalized at December
31, 1996.
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,
acquisitions, 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.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company or the Banks own each of the banking facilities described below.
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. Each of the facilities described below has an automated
teller machine.
Exchange Bank has two banking locations in Marysville, Kansas. The property at
823 Broadway is a one-story 8,800 square foot building with four teller windows
and was remodeled in 1995. The property at 1016 Broadway is a two-story 4,684
square foot building built in 1985 with three teller windows and a two-lane
drive up.
Exchange Bank's banking location at 13425 Shawnee Mission Parkway, Shawnee,
Kansas, with 3,400 square feet, three teller windows and a four-lane drive up
was remodeled in 1995. Exchange Bank's Leawood branch located at 11301 Nall
Avenue opened in the third quarter of 1996 and features four teller windows, a
four-lane drive up and encompasses 25,000 square feet, sixty percent of which
Exchange Bank leases to third parties.
Citizens has two banking locations in Seneca, Kansas. The property at 502 Main
Street is a one-story 4,840 square foot building with three teller windows and
seven offices and was remodeled in 1994. The property at Highway 36 and 6th
Street is a one-story 3,388 square foot building with three teller windows and a
two-lane drive up.
Provident Bank has a banking location in a 29,500 square foot two-story
building located at 4305 Frederick Boulevard, St. Joseph, Missouri that has four
teller windows and a three-lane drive up. The building was remodeled in 1996 and
the second floor is leased to third parties.
Exchange Bank has also acquired vacant property located just off the exit at
Midland Drive from Interstate 435 in Shawnee, Kansas, upon which it expects to
build a two story 22,000 square foot branch location with five teller windows
and a two-lane drive up. The new Shawnee bank location is expected to be
completed in the middle of 1997 and have approximately 11,000 square feet of
lease space.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Banks are a party to, nor is any of their property
the subject of, any material pending or threatened legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND
UNREGISTERED SALES OF EQUITY SECURITIES
The Company's common stock, par value $1.00 per share, has been traded on the
Nasdaq National Market tier of The Nasdaq Stock Market under the symbol "GLDB"
since November 19, 1996. Prior to that date, there was no trading market for the
Company's common stock. For the period November 19, 1996 through December 31,
1996, the high and low bid prices for the Company's common stock were $9 and $8
. The Company made no unregistered sales of equity securities during that time
period.
As of February, 1997, there were approximately 1,600 holders of the Company's
common stock, including brokers holding shares as nominees or in street name,
but excluding those for which they hold such shares.
DIVIDENDS
The holders of the Company's common stock are entitled to receive cash
dividends when and if declared by the Board of Directors of the Company out of
funds legally available therefor. The Company has not declared or paid cash
dividends in the past and expects in the foreseeable future it will retain all
earnings for the growth and development of its business. The primary source of
funds available to the Company is the payment of dividends by the Banks and tax
transfers from the filing of consolidated tax returns. Regulations limit the
amount of dividends that may be paid by the Banks to the Company without prior
approval of their respective regulatory agencies.
ITEM 6. 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
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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 loan fees, service fees, other fees
and income from the gain on the sale of 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.
SIGNIFICANT EVENTS
INVESTMENT Portfolio
In the first quarter of 1995, the Company restructured its investment
portfolio to shift the maturity of its portfolio to a shorter term. Included in
this restructuring were the sale of bonds resulting in significant losses
included in other income.
ALLOWANCES FOR LOAN LOSSES
In 1995, management of the Company set a goal to achieve an allowance for loan
loss to loans ratio of approximately 1.4%. This goal was based upon several
factors, including the changing loan mix and the portfolio growth resulting from
the expansion into suburban Kansas City and the observation that the ratio of
approximately 1.4% was consistent with the level maintained by banks that are
similar to the Banks both in size and market served. In 1995, the Company made
significant additions to its allowance for loan losses in order to meet this
goal. The additions had a significant negative impact on earnings for 1995. In
the future, management expects to maintain its allowance, as a percentage of
total loans, in a range consistent with historical reserves, which has varied
between 1.15% and 1.65%.
INSURANCE ASSESSMENT
Certain savings deposits of two of the Bank's subsidiaries 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.
STOCK OFFERING
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
proceeds were used to retire approximately $6.6 million in short-term debt and
to make a $3 million capital contribution to one of the Company's banking
subsidiaries. The remaining capital of approximately $8.5 million was invested
in short-term grade securities pending use for the Company's acquisition
strategy and general corporate purposes.
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RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company's net income was $1,351,000 for the year ended December 31, 1996,
compared to net income of $704,000 for the year ended December 31, 1995,
yielding an annualized return on average assets ("ROA") of .49% for the year
ended December 31, 1996, compared to .30% for the year ended December 31, 1995.
Return on average common stockholders' equity ("ROE") for 1996 and 1995 was
9.11% and 6.09%, respectively. Without the one-time SAIF assessment, net income
would have been $1.59 million, ROA would have been .58% and ROE would have been
10.73%.
Total assets were $304.6 million at December 31, 1996, an increase of $40.7
million or 15.4% from $263.9 million at December 31, 1995. Total average assets
were $276.1 million for the year ended December 31, 1996, compared to $232.4
million for the year ended December 31, 1995. Average interest-earning assets
were $255.0 million for the year ended December 31, 1996, and $215.6 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 loans totaled $200.1 million and $161.4 million, net, as of
December 31, 1996 and 1995, respectively. The increase in total loans of $38.6
million during 1996 compared to 1995 was funded through increases in deposits of
$29.3 million and federal funds purchased of $5.0 million. The allowance for
loan losses decreased to $2.5 million at December 31, 1996, from $2.7 million at
December 31, 1995. This represented 1.25% and 1.65% of total loans as of
December 31, 1996 and 1995, respectively.
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.
Average total earning assets increased $39.4 million or 18.3% 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 income
for the year ended December 31, 1996, was $21.3 million, a $2.9 million or 15.7%
increase over 1995.
Average total interest-bearing liabilities increased by $36.9 million or 17.9%
during 1996, primarily due to increased volume of time deposits originated by
Exchange Bank in connection with the opening of its Leawood location. Total
interest expense for 1996 was 22.1% higher than in 1995 as a result of the
increases in interest-bearing liabilities and interest rates.
Net interest income was $9.1 million for the year ended December 31, 1996,
compared to $8.4 million for 1995, an increase of 8.0%. This growth was
constrained by an increase in interest expense resulting from offering
above-market rates on time deposits to promote the opening of Exchange Bank's
Leawood location.
The increase in investment securities and other earning assets, which consist
primarily of U.S. government and agency securities, for the year ended December
31, 1996, is the result of investment of unapplied proceeds from the stock
offering in the fourth quarter of 1996.
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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
DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
1996 1995
---------------------------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- ------- ------- ------- ------- -------
ASSETS:
Loans, net (1) . . . $ 176,584 $16,923 9.58% $149,578 $ 14,486 9.68%
Investment
securities (2). . . . 68,057 3,939 5.94 59,433 3,563 6.14
Other earning assets . 10,402 454 4.36 .601 382 5.79
-------- ----- ----- ------- ----- -----
Total earning assets. 255,043 21,316 8.40 215,612 18,431 8.59
------- ----- ------- ----
Non-interest-earning
assets. . . . . . . . . 21,084 16,750
-------- ------
Total assets. . . . . $276,127 $232,362
======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Savings deposits and
interest-bearing
checking . . . . . . . .$ 66,957 $ 2,604 3.89% $ 55,819 $ 1,726 3.09%
Time deposits. . . . . . 153,785 8,328 5.42 129,543 7,078 5.46
Short-term borrowings. . 14,637 829 5.66 11,677 639 5.47
Long-term borrowings . . 7,840 499 6.36 9,300 602 6.47
-------- ----- ---- ------ ------ -----
Total interest-bearing
liabilities . . . . . . 243,219 12,260 5.04 206,339 10,045 4.87
Non-interest-bearing
liabilities. . . . . . . 18,085 14,463
Stockholders' equity . . 14,823 11,560
-------- ------
Total liabilities and
stockholders' equity. .$ 276,127 $232,362
====== =====
Net interest income. . . $ 9,056 $ 8,386
==== ====
Net interest spread. . . 3.36% 3.72%
=== ===
Net interest margin (3). 3.59% 3.93%
=== ===
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities.
(3) The net yield on average earning assets is the next interest income
divided by average interest-earning assets.
-18-
<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.
DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
RATE/VOLUME INTEREST ANALYSIS 1996 COMPARED TO 1995
--------------------------------------------
Volume Average Rate Total Changes
------ ------------ -------------
INTEREST INCOME:
Loans . . . . . . . . . . . $ 2,615 $ (178) $ 2,437
Investment securities . . . 530 (154) 376
Other earning assets. . . . 234 (162) 72
------- -------- ------
Total interest income . . 3,379 (494) 2,885
INTEREST EXPENSE:
Savings deposits and
interest-bearing checking. . 344 534 878
Time deposits . . . . . . . . 1,325 (75) 1,250
Short-term borrowings . . . . 162 28 190
Long-term borrowings. . . . . (94) (9) (103)
Total interest expense . . . 1,736 479 2,215
Increase (decrease) in net
interest income. . . . . . . .$ 1,642 $ (972) $ 670
PROVISION FOR LOAN LOSSES
In 1995, the Company substantially increased its allowance for loan losses
based upon an analysis of several factors, including the changing loan mix and
portfolio growth resulting from the expansion into suburban Kansas City. Based
on its future business and lending plans, and depending upon specific facts and
circumstances with respect to certain loans and general economic conditions,
management expects to maintain its allowance, as a percentage of total loans, at
levels consistent with that as of December 31,1996.
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1996, was $2.4 million,
an increase of 24.2% 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
Portfolio."
-19-
<PAGE>
The following table presents the components of the Company's non-interest
income for the periods indicated:
NON-INTEREST INCOME DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
Service charges on deposit accounts. . . . . $ 659 $ 594
Gain on sale of loans. . . . . . . . . . . . 1,128 1,058
Loss on sale of securities . . . . . . . . . (38) (84)
Insurance premium income . . . . . . . . . . 22 58
Fiduciary income . . . . . . . . . . . . . . 173 125
Other non-interest income. . . . . . . . . . 462 286
Total non-interest income . . . . . . .$ 2,406 $ 1,938
===== =====
Non-interest income as a percentage of average
total assets . . . . . . . . . . . . . . . . 1,16% 0.83%
===== =====
In the third quarter of 1996, Provident Bank substantially altered the manner
in which it conducts its mortgage banking business. The changes include a
substantial reduction in personnel that is expected to decrease the Company's
non-interest income from the sale of loans.
NON-INTEREST EXPENSE
Non-interest expense increased by $1.2 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 and St. Joseph, and because Exchange Bank's new Leawood location was not
open in the first half of 1995. As a percentage of average assets, non-interest
expense was 3.34% and 3.44% as of December 31, 1996 and 1995, respectively.
-20-
<PAGE>
The following table presents the components of non-interest expense for the
periods indicated:
NON-INTEREST EXPENSE DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
Salaries and employee benefits . . . . . $ 5,097 $ 4,438
Net occupancy expense. . . . . . . . . . 1,166 980
Deposit insurance expense. . . . . . . . 549 332
Professional services. . . . . . . . . . 433 467
Data processing expense. . . . . . . . . 274 202
Supplies . . . . . . . . . . . . . . . . 251 206
Telephone. . . . . . . . . . . . . . . . 159 137
Postage. . . . . . . . . . . . . . . . . 151 143
Advertising/promotion. . . . . . . . . . 409 252
Other. . . . . . . . . . . . . . . . . . 727 844
---- ----
Total non-interest expense. . . . . $ 9,216 $ 8,001
===== =====
Efficiency ratio . . . . . . . . . . . . 80.40% 77.50%
In the third quarter of 1996, Provident Bank substantially altered the manner
in which it conducts its mortgage banking business. The changes include a
substantial reduction in personnel that is expected to decrease the Company's
salaries and employee benefits and occupancy expenses.
INCOME TAX EXPENSE
Income tax expense for the years ended December 31, 1996, and December 31,
1995, was $775,000 and $335,000, respectively. The effective tax rates for those
periods were 36.5% and 32.3%, respectively. The effective tax rates differed
from the expected rate of 34% primarily because of state taxes offset by the
effect of tax exempt interest on municipal securities.
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
-21-
<PAGE>
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 Bank's use an
external asset/liability modeling service to analyze each Bank's current gap
position. The system simulates the Bank's 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 following table sets forth the maturities of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1996.
INTEREST RATE SENSITIVITY ANALYSIS DOLLARS IN THOUSANDS
AS OF DECEMBER 31, 1996
TERM TO REPRICING
------------------------------------
1 Year Over 1 to Over
or Less 5 Years 5 Years Total
------- --------- ------- -----
INTEREST-EARNING ASSETS:
Loans. . . . . . . . . . . . . . . . . 132,171 58,353 12,106 202,630
Investment securities. . . . . . . . . 19,772 32,443 14,437 66,652
Other interest-bearing
assets . . . . . . . . . . . . . . . . 15,032 ______ ______ 15,032
------ ------
Total interest-earning
assets . . . . . . . . . . . . . . . . 166,975 90,796 26,543 284,314
INTEREST-BEARING LIABILITIES:
Savings deposits and
interest-bearing checking . . . . . . 36,940 39,313 76,253
Time deposits. . . . . . . . . . . . . 111,224 45,765 137 157,126
Short-term borrowings. . . . . . . . . 14,371 679 15,050
Long-term borrowings . . . . . . . . . 362 1,034 482 1,878
------ ----- ------ ------
Total interest-bearing
liabilities. . . . . . . . . . . . . . 162,897 86,791 619 250,307
Interest sensitivity gap . . . . . . . . 4,078 4,005 25,924 34,007
Cumulative gap . . . . . . . . . . . . . 4,078 8,083 34,007
Cumulative ratio of
interest-earning
assets to interest-bearing liabilities . .102.50% 103.24 113.59
Ratio of cumulative gap
to interest-
earning assets . . . . . . . . . . . . . . 2.44% 3.14 11.96
The cumulative gap value indicated above for the zero to 5-year time period
means that over these time periods the assets of the Company will reprice sooner
than the Company's liabilities. Thus, a rising interest rate environment, will
have a positive effect on net interest income.
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:
-22-
<PAGE>
i) Commercial. Commercial real estate loans increased from December
31, 1995, to December 31, 1996, 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 December
31, 1996 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 $9.7 million or 25.1% from December 31,
1995, to December 31, 1996. 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. The
balance in consumer and other loans at December 31, 1996, approximated the
December 31, 1995 balance of $12.5 million. The Company issues credit cards to
its existing customers and at December 31, 1996, there were no balances on such
cards past due more than 30 days.
Agricultural Loans. Agricultural loans are typically made to farmers, small
corporate farms and feed and grain dealers. Agricultural loans were $11.7
million as of December 31, 1996, or 5.8% of total loans. Agricultural loan
demand declined in 1996 as a result of depressed livestock prices and high grain
prices that reduced the demand for livestock purchases. Additionally, favorable
grain production in the Banks' regions coupled with higher commodity prices have
allowed agricultural producers to improve their cash positions, reducing the
need for borrowed funds.
-23-
<PAGE>
The following table presents the balance of each major category of the
Company's loans at the dates indicated.
LOAN PORTFOLIO COMPOSITION DOLLARS IN THOUSANDS
AT DECEMBER 31,
1996 1995
------------------- ---------------------
Amount % Amount %
--------- ----- ------ ---
REAL ESTATE:
Commercial . . . . . . . . . $ 33,705 16.63% $ 19,434 11.84%
Construction . . . . . . . . 27,413 13.53 19,850 12.09
1 to 4 Family Residential. . 57,860 28.55 48,510 29.55
Agricultural. . . . . . . . . 9,142 4.51 7,444 4.53
Loans held for sale . . . . . 2,182 1.08 6.665 4.06
------- ------ ------- ------
Total real estate . . . . . 130,302 64.31 101,903 62.07
Commercial . . . . . . . . . . . 48,413 23.89 38,715 23.58
Consumer and Other . . . . . . . 12,247 6.04 12,538 7.64
Agricultural . . . . . . . . . . 11,668 5.76 11,029 6.72
Total loans. . . . . . . . . . . 202,630 100% 164,185 100%
Less allowance for loan
losses . . . . . . . . . . . . . 2,534 2,715
------- -------
Total. . . . . . . . . . . . . . $ 200,096 $ 161,470
======== =======
The following table sets forth the maturities of portfolio loans outstanding
at December 31, 1996.
LOAN REPRICING SCHEDULE DOLLARS IN THOUSANDS
Due After One
Due in One Year But Due After
Year or Less Before 5 Years 5 Years Total
------------ -------------- --------- ------
LOAN CATEGORY:
Commercial . . . . . . $ 41,606 $ 6,440 $ 367 $ 48,413
Real Estate . . . . . . 70,655 46,247 11,218 128,120
Loans Held for Sale . . 2,182 2,182
Agricultural. . . . . . 10,646 664 358 11,668
Consumer and other. . . 7,082 5,002 163 12,247
------- ----- ------ -------
Total loans . . . . . . $ 132,171 $ 58,353 $ 12,106 $ 202,630
======= ====== ====== =======
-24-
<PAGE>
ASSET QUALITY
The Company follows regulatory guidelines in placing loans on a nonaccrual
basis and places loans with doubtful principal repayment on a nonaccrual basis,
whether current or past due. The Company considers non-performing assets to
include all nonaccrual 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), restructured loans defined as troubled debt restructuring
under Statement of Financial Accounting Standards No. 15 (SFAS 15), impaired
loans as defined by SFAS No. 114 and other real estate owned ("OREO"). 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 nonaccrual status, any previously
accrued and uncollected interest is reversed.
Non-performing loans as of December 31, 1996, were down from December 31,
1995, as the result of the collection and/or restructuring of certain notes.
The following three largest non-performing assets represented 77.4% of all
non-performing assets of the Company as of December 31, 1996.
1) Default by a partnership on a $193,115 commercial real estate loan. The
borrower has entered into a contract to sell the property for $350,000,
with the proceeds to be used to repay the debt to the Company. The sale
is scheduled to close in the first quarter of 1997.
2) Property that Provident Bank has taken owernship of as a result of a
default on a $90,000 mortgage loan on a condominium. The property is
currently listed for sale.
3) Default by a small concrete contractor. Borrower in process of
liquidating assets. Liquidation sale scheduled for March, 1997.
OREO as of December 31, 1996 totaled $70,000, down from the December 31,
1996 balance of $149,000 as a result of the sale of a single family residence
maintained by Provident Bank. OREO as of December 31, 1996, consisted of one
condominium unit located ina resort area.
Non-performing assets are summarized in the following table:
NON-PERFORMING ASSETS Dollars in thousands
At December 31,
1996 1995
---- ----
Loan:
Loan 90 days or more past due but
still accruing $--- $ 2
Nonactrual loans 319 1,739
---- ------
Non-performing loans 319 1,741
OREO 70 149
---- ------
Non-performing assets $389 $1,890
---- ------
Non-performing loans as a
percentage of total loans .16% 1.06%
Non-performing assets as a
percentage of total assets .13% .72%
Non-performing assets as a
percentage of total loans
and OREO .19% 1.16%
-25-
<PAGE>
The following table sets forth activity in the Company's allowance for loan
losses during the periods indicated:
Summary of Loan Loss Experience Dollars in Thousands
Year Ended December 31,
1996 1995
---- ----
Total net loans outstanding at
the end of period . . . . . . . . . . . . .$200,096 $161,470
======= =======
Average net loans outstanding
during the period. . . . . . . . . . . . . $176,584 $149,578
------- -------
Allowance for loan losses,
beginning of period . . . . . . . . . . . . $ 2,715 $ 2,047
CHARGE-OFFS:
Real estate
Construction. . . . . . . . . . . . . 24 ---
1 to 4 family residential . . . . . . 2 12
Commercial. . . . . . . . . . . . . . . . . . 215 538
Consumer and other. . . . . . . . . . . . . . 21 46
Agricultural. . . . . . . . . . . . . . . . . 66 75
--- ----
Total charge-offs . . . . . . . . . . . . . . 328 671
--- ----
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF:
Real estate
Construction. . . . . . . . . . . . . . 11 --
1 to 4 family residential . . . . . . . 3 --
Commercial. . . . . . . . . . . . . . . . 2 9
Consumer and other. . . . . . . . . . . . 5 3
Agricultural. . . . . . . . . . . . . . . 6 43
Total recoveries. . . . . . . . . . . . . 27 55
Net charge-offs. . . . . . . . . . . . . . . . 301 616
Provision charged to operations. . . . . . . . 120 1,284
Allowance for loan losses, end of period . . .$2,534 $ 2,715
===== ======
RATIOS:
Net charge-offs to average loans outstanding . 0.17% 0.41%
Allowance for loan losses to loans, end of
period . . . . . . . . . . . . . . . . . . . . 1.25% 1.65%
Allowance for loan losses to non-performing
assets . . . . . . . . . . . . . . . . . . . .794.36% 155.94%
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
-26-
<PAGE>
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. The portfolio includes approximately $9.5 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 $723,000 or 1.07% during the year ended
December 31, 1996, primarily due to a strong loan demand. The increase since
December 31, 1995, was a result of deposit growth from Exchange Bank's new
Leawood branch. A portion of those deposits were invested in U.S. Treasury and
U.S. government agencies obligations.
The composition of the investment portfolio as of December 31, 1996, was 36%
U.S. Treasury notes, 18% U.S. government obligations, 37% mortgage backed
securities, 6% state and municipal securities and 3% other securities. The
comparable distribution for December 31, 1995, was 31% U.S. Treasury notes, 21%
U.S. government obligations, 39% mortgage-backed securities, 6% state and
municipal securities, and 3% other securities. The estimated maturity of the
investment portfolio on December 31, 1996, was two years and five months. The
average balance of the investment portfolio as of December 31, 1996, represented
27% of average earning assets as compared to 28% on December 31, 1995. No change
in investment strategy was made during 1996.
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. Although management believes its action benefited the Company, the
securities sales resulted in an immediate loss of $409,000.
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated:
Investment Securities Portfolio Composition Dollars in Thousands
At December 31,
1996 1995
---------------- -----------------
SECURITIES HELD TO MATURITY: (1)
U.S. Treasury and other U.S. agencies and
corporations . . . . . . . . . . . . . . . . $ -- $ --
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . 25 25
Mortgage-backed securities . . . . . . . . . -- --
------- -------
Total . . . . . . . . . . . . . . . . . . .$ 25 $ 25
======= =======
SECURITIES AVAILABLE FOR SALE: (2)
U.S. Treasury and other U.S. agencies and
corporations . . . . . . . . . . . . . . . . . $ 35,930 $ 34,865
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . 3,799 4,008
Mortgage-backed securities . . . . . . . . . . 24,822 26,422
Other (3). . . . . . . . . . . . . . . . . . . 2,706 2,055
------- -------
Total . . . . . . . . . . . . . . . . . . $ 66,627 $ 67,350
======= =======
(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.
-27-
<PAGE>
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 security 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.
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 not aggressively attempted to obtain
large denomination, high interest-bearing certificates except to address a
particular funding need.
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 acquisition 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 1996, the Company experienced
an increase in savings, NOW and time accounts with balances of less than
$100,000. The non-interest-bearing account balance as of December 31, 1996,
showed a $3.3 million or 18% increase from the balance as of December 31, 1995.
The average balance increased accordingly $4.1 million or 30% as a result of
growth at the Company's Shawnee and Leawood, Kansas locations.
The following table sets forth a summary of maturities in the investment
portfolio at December 31, 1996:
MATURITY SCHEDULE OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
At market value
Dollars in Thousands
At December 31, 1996
One year Over One Year Over 5 Years
or less through 5 Years through 10 Years Over 10 Years Total
Amount Weighted Amount Weighted Amount Weighted Amount Weighted Amount Weighted
Yield Yield Yield Yield Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. agencies
and corporations . . $14,465 5.65% $21,465 5.49% $ ----- ------ $ ----- ------ $35,930 5.55%
Obligations of
states and
political
subdivisions . . . . 712 8.38% 2,989 7.58% 98 6.81% ----- ----- 3,799 7.71%
Mortgage-backed
securities . . . . . ----- ----- 19,854 5.83% 4,607 6.33% 361 7.40% 24,822 5.95%
Other. . . . . . . . 2,076 6.51% ---- -- --- 2,076 6.51%
----- ------ ----- ---- ----- ----- ----- ----- -----
Total. . . . . . . . $17,253 $44,308 $ 4,705 $ 361 $66,627 5.85%
====== ====== ====== ==== ======
</TABLE>
The following table sets forth the average balances and weighted average
rates for the Company's categories of deposits at the dates indicated.
-28-
<PAGE>
Average Deposit Balances and Rates Dollars in Thousands
Year Ended December 31,
1996 1995
----------------------- --------------------------
% of % of
Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits
------- ------- -------- ------- ------- -------
Non-interest checking. . .$ 17,850 0.00% 7.5% $ 13,733 0.00% 7%
Savings deposits and
interest-bearing
checking . . . . . . . . . 66,957 3.89% 28.0% 55,189 3.09% 28%
Certificates of deposit. . 153,785 5.42% 64.5% 129,543 5.46% 65%
------- ---- ----- ------- ---- ----
Total . . . . . . . . . .$238,592 100% $199,095 100%
======== ==== ==== ======== ===
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.
Capital and Liquidity
Acquisition Indebtedness. The Company had a credit facility it used to
finance prior acquisitions. The balance drawn under the facility was $7 million
as of December 31, 1995. The Company used proceeds from the Offering to retire
its outstanding obligations of $6.6 million under the facility on November 22,
1996.
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 long-term
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. As of
December 31, 1996, the Company had established 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.
Impact of Inflation and Changing Prices
The financial statements and related financial data concerning the Company
presented in this Annual Report have been prepared in accordance with generally
accepted accounting principles, with the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of the Company is reflected in increased
-29-
<PAGE>
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 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 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.
-30-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
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 as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 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.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
February 7, 1997
-31-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands)
Assets 1996 1995
------ ---- ----
Cash and due from banks $12,380 8,281
Federal funds sold and interest-bearing
deposits 8,891 1,494
------ -----
Total cash and cash equivalents 2,127 23,223
------ -----
Investment securities (note 2):
Held-to-maturity 25 25
Available-for-sale 64,551 65,295
Other 2,076 2,055
------ ------
Total investment securities 66,652 67,375
------ ------
Mortgage loans held for sale, net 2,182 6,665
Loans, net (note 3) 197,914 154,805
Premises and equipment, net (note 4) 11,977 7,328
Deferred taxes (note 9) 678 872
Accrued interest and other assets 3,935 3,689
------ ------
$304,609 263,957
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 5) $255,656 226,381
Securities sold under agreements to
repurchase (note 6) 10,050 15,638
Federal funds purchased, long-term debt
and other borrowings (note 7) 6,878 8,992
Accrued interest and other liabilities 1,884 1,624
------- ------
Total liabilities 274,468 252,635
------- ------
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; 4,300,000 and
2,000,000 shares issued and outstanding
at December 31, 1996 and 1995, respectively 4,300 2,000
Additional paid-in capital 16,768 1,015
Retained earnings 9,704 8,353
Unrealized loss on available-for-sale
securities, net (355) (111)
Unearned compensation (note 9) (276) -
------ -----
Total stockholders' equity 30,141 11,322
Commitments and contingent liabilities (note 9) - -
------- -------
$304,609 263,957
======= =======
See accompanying notes to consolidated financial statements.
-32-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
December 31, 1996 and 1995
(In thousands, except per share data)
1996 1995
--------- --------
Interest income:
Loans, including fees $ 16,923 14,486
Investment securities 3,939 3,760
Other 454 185
---------- --------
21,316 18,431
Interest expense:
Deposits 10,932 8,804
Borrowings and other 1,328 1,241
--------- --------
12,260 10,045
-------- --------
Net interest income 9,056 8,386
Provision for loan losses (note 3) 120 1,284
-------- --------
Net interest income after
provision for loan losses 8,936 7,102
-------- --------
Other income:
Service fees 659 650
Net gains on sale of mortgage
loans 1,128 1,058
Net securities losses (38) (84)
Gain on sale of other assets 297 18
Other 360 296
------- -------
2,406 1,938
------- -------
Other expense:
Salaries and employee benefits 5,097 4,438
Net occupancy expense 1,375 1,137
Federal deposit insurance
premiums (note 5) 549 332
Other 2,195 2,094
------ -----
9,216 8,001
------ -----
Earnings before income taxes 2,126 1,039
Income taxes (note 8) 775 335
------ -----
Net earnings 1,351 704
====== =====
Earnings per share 0.60 0.34
====== =====
Weighted average common shares
outstanding 2,246,552 2,063,415
========= =========
See accompanying notes to consolidated financial statements.
-33-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
(In thousands)
1996 1995
------ ------
Cash flows from operating activities:
Net earnings $ 1,351 704
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Provision for loan losses 120 1,284
Net losses on sales of
available-for-sale securities 38 84
Amortization of investment
securities' premiums, net of
accretion 69 92
Depreciation and amortization 549 512
Gain on sale of assets, net (335) (22)
Net (increase) decrease in mortgage
loans held for sale 4,483 (4,879)
Other changes:
Accrued interest receivable and
other assets (514) (502)
Accrued interest payable and
other liabilities 260 255
------ -----
Net cash provided by (used in)
operating activities 6,021 (2,472)
------ ------
Cash flows from investing activities:
Net increase in loans (43,214) (21,728)
Principal collections and proceeds
from maturities of held-to-maturity
securities - 609
Principal collections and proceeds
from sales and maturities of available-
for-sale securities 27,183 29,535
Purchases of available-for-sale
securities (26,938) (28,152)
Purchases of other securities (21) -
Net additions to premises and equipment (5,190) (2,866)
Proceeds from sale of other assets 922 269
Net cash used in investing activities (47,258) (22,333)
Cash flows from financing activities:
Increase in deposits 29,275 39,951
Net increase (decrease) in
short-term borrowings (588) 1,312
Proceeds from long-term debt - 500
Principal payments on long-term debt (390) (595)
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
------ ------
Net cash provided by financing
activities 39,285 40,686
------ ------
Increase (decrease) in cash and cash
equivalents (1,952) 15,881
Cash and cash equivalents,
beginning of year 23,223 7,342
------ -----
Cash and cash equivalents, end of year $21,271 23,223
====== ======
-34-
<PAGE>
1996 1995
---- ----
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $12,112 9,740
====== =====
Cash paid during the year for income
taxes $ 776 1,165
====== =====
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 $ - 26,129
====== ======
Supplemental schedule of noncash financing activities:
Common stock subscribed $ - 50
======= ======
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
(In thousands)
Unrealized
gain (loss)
Additional on securities
Preferred Common paid-in Retained available-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 2,042 1,405 7,649 (1,197) - (35) 9,964
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 (35) - - - - - 35 -
Retirement of 94,416 shares of
common stock - (95) (712) - - - 807 -
Change in unrealized gain of
securities available for sale - - - - 1,086 - - 1,086
Net earnings - - - 704 - - - 704
----- ----- ----- ----- ----- ---- ---- -----
Balance at December 31, 1995 65 2,000 1,015 8,353 (111) - - 11,322
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 $1,942,000 - 2,300 15,822 - - - - 18,122
Purchase of shares of common stock
for the employee stock ownership plan - - - - - (276) - (276)
Change in unrealized loss of securities
available-for-sale - - - - (244) - - (244)
Net earnings - - - 1,351 - - - 1,351
---- ----- ----- ----- ---- ---- ---- -----
Balance at December 31, 1996 $ - 4,300 16,768 9,704 (355) (276) - 30,141
====== ===== ====== ===== ===== ==== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-35-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation
Theconsolidated financial statements include the accounts of Gold Banc
Corporation, Inc. and its subsidiaries, Exchange National Bank,
Marysville, Kansas, Citizens State Bank and Trust Company, Seneca,
Kansas and Provident Bank, f.s.b., St. Joseph, Missouri, collectively
referred to as the Company. All significant intercompany transactions
have been eliminated.
Nature of Operations
TheCompany is a multibank holding company that owns and operates banks
located in northeastern Kansas and northwestern Missouri. The banks are
community banks that provide a full range of commercial and consumer
banking services primarily to small and medium-sized communities and the
surrounding market areas, and most recently, to 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
Thepreparation 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
TheCompany 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.
-36-
<PAGE>
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 accredited 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 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 in relationship to the respective 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
-37-
<PAGE>
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.
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.
-38-
<PAGE>
(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):
Gross Gross Estimated
Amortized unrealized unrealized fair
Cost gains losses value
--------- ---------- ---------- ---------
1996
----
Held-to-maturity:
Obligations of
states and
political
subdivisions $ 25 - - 25
Available-for-sale:
U.S. treasury and
agency securities $36,107 17 (194) 35,930
Obligations of
states and
political
subdivisions 3,759 44 (4) 3,799
Mortgage-backed
securities 25,253 - (431) 24,822
------- ----- ----- ------
Total $ 65,119 61 (629) 64,551
======= ===== ===== ======
1995
----
Held-to-maturity:
Obligations of
states and
political
subdivisions $ 25 - - 25
Available-for-sale:
U.S. treasury
and agency
securities $ 39,918 129 (182) 34,865
Obligations of
states and
political
subdivisions 3,936 75 (3) 4,008
Mortgage-backed
securities 26,619 2 (199) 26,422
Total $ 65,473 206 (384) 65,295
-39-
<PAGE>
Theamortized cost and estimated fair value of debt 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.
Held-to-maturity Available-for-sale
---------------------- -----------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
---------- ---------- ---------- ----------
Due in one year or less $ - - 15,160 15,178
Due after one year
through five years 25 25 24,606 24,453
Due after five years
through ten years - - 100 98
Mortgage-backed securities - - 25,253 24,822
------- ----- ------ ------
Total $ 25 25 65,119 64,551
====== ===== ====== ======
Other securities at December 31, 1996 and 1995 consist primarily of stock
in the Federal Reserve Bank and Federal Home Loan Bank. Amortized cost
of such investments approximates their fair value. At December 31, 1996,
investment securities with fair values of approximately $45,064,000 were
pledged to secure public deposits and for other purposes.
(3) Loans
Loans are summarized as follows (in thousands):
1996 1995
---- ----
Real estate - mortgage $100,707 71,690
Real estate - construction 27,413 24,398
Commercial 48,413 38,715
Agricultural 11,668 11,029
Consumer 9,085 8,387
Other 3,162 3,301
------- ------
200,448 157,520
Allowance for loan losses (2,534) (2,715)
------- ------
$197,914 154,805
======= =======
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
without servicing retained and, accordingly, the impact of SFAS No. 122
was insignificant.
-40-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans made to directors and officers of the Company approximated $5,990,000
and $3,960,000 at December 31, 1996 and 1995. 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 $319,000 and $1,739,000 at December 31,
1996 and 1995. The interest income not recognized on these loans was
approximately $23,000 and $27,000 in 1996 and 1995.
Activity in the allowance for loan losses during the years ended December
31, 1996 and 1995 are as follows (in thousands):
1996 1995
----- -----
Balance at beginning of year $2,715 $2,047
Provision for loan losses 120 1,284
Loan charge-offs (328) (671)
Loan recoveries 27 55
----- -----
Balance at end of year $2,534 $2,715
===== =====
(4) Premises and Equipment
Premises and equipment are summarized as follows (in thousands):
1996 1995
----- -----
Land $2,280 1,418
Buildings and leasehold
improvements 4,955 4,470
Construction in progress 3,522 509
Furniture, fixtures and
equipment 3,536 2,756
Automobiles 146 198
----- -----
14,439 9,351
Accumulated depreciation and
amortization 2,462 2,023
------ -----
$11,977 7,328
====== =====
Depreciation expense aggregating $525,000 and $433,000 for the years ended
December 31, 1996 and 1995, respectively, has been included in net
occupancy expense in the accompanying consolidated statements of
earnings.
-41-
<PAGE>
(5) Deposits
Deposits are summarized as follows (in thousands):
1996 1995
---- ----
Demand:
Noninterest bearing $22,277 18,934
Interest-bearing:
NOW 7,579 6,598
Advantage 11,477 10,119
Super NOW 14,916 9,963
Money market 31,951 17,287
------- ------
65,923 43,967
------- ------
Total demand 88,200 62,901
Savings 10,330 11,166
Time 157,126 152,314
------- -------
$255,656 226,381
======= =======
Time deposits include certificates of deposit of $100,000 and over,
totaling approximately $33,149,000 and $25,074,000 at December 31, 1996
and 1995, respectively.
Principal maturities of time deposits at December 31, 1996 are as follows
(in thousands):
Year Amount
---- --------
1997 $110,224
1998 31,779
1999 7,628
2000 4,366
2001 2,992
Thereafter 137
-------
$157,126
=======
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 consolidated statements of earnings.
-42-
<PAGE>
(6) Securities Sold Under Agreements to Repurchase
Information concerning securities sold under agreements to repurchase is as
follows (in thousands):
1996 1995
------ ------
Average monthly balance
during the year $5,780 5,937
Average interest rate
during the year 5.29% 5.39
Maximum month-end balance
during the year $19,522 15,638
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 $5,000,000
had an interest rate of 7.0% and a one-day maturity.
Following is a summary of long-term borrowings at December 31, 1996 and
1995 (in thousands):
1996 1995
----- -----
Note payable to bank, interest at 6.0% $ - 7,000
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
----- -----
$1,878 8,992
===== =====
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 on long-term borrowings are as follows (in thousands):
Year Amount
---- ------
1997 $ 362
1998 362
1999 292
2000 252
2001 128
Thereafter 482
------
$ 1,878
======
-43-
<PAGE>
Noneof 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 $984,000.
(8) Income Taxes
Income tax expense (benefit) related to operations for 1996 and 1995 is
summarized as follows (in thousands):
Current Deferred Total
------- -------- --------
1996:
Federal $271 359 630
State 142 3 145
--- --- ---
$413 362 775
=== === ===
1995:
Federal $581 (450) 131
State 214 (10) 204
--- ---- ---
$795 (460) 335
=== ==== ===
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):
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $ 396 758
Unrealized losses on available-for-sale
securities, net 235 67
State taxes 488 320
Other 150 141
----- ----
Total deferred tax assets 1,269 1,286
----- -----
Deferred tax liabilities:
FHLB stock dividends 125 125
Premises and equipment 427 206
Other 39 83
---- ---
Total deferred tax liabilities 591 414
Net deferred tax asset $ 678 872
===== ====
A valuation allowance for deferred tax assets was not necessary at
December 31, 1996 and 1995.
-44-
<PAGE>
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):
1996 1995
--------------------- ------------------------
Amount Percent Amount Percent
------ ------- ------ --------
Expected federal income
tax expense $ 723 34.0% $ 353 34.0%
Municipal interest (58) (2.7) (76) (7.3)
State taxes, net of federal
tax benefit 142 6.6 135 13.0
Other, net (32) (1.4) (77) (7.4)
---- ----- ----- ------
$ 775 36.5% $ 335 32.3%
(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.
TheCompany'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. No options have been granted to date.
(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 $36,900,000
-45-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
-46-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated fair value of the Company's financial instruments is as
follows (in thousands):
1996 1995
------------------------ -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ---------- ---------- ----------
Investment securities $ 66,652 66,652 67,376 67,376
========= ========= ========= ==========
Mortgage loans held for sale $ 2,182 2,182 6,665 6,765
========= ========= ========= ==========
Loans $ 197,914 197,802 154,805 155,573
========= ========= ========= ==========
Deposits $ 255,656 255,463 226,380 226,290
========= ========= ========= ==========
Securities sold under agree-
ments to repurchase $ 10,050 10,050 15,638 15,638
========= ========= ========= ==========
Federal funds purchased
and other short-term
borrowings $ 5,000 5,000 - -
========= ========= ========= ==========
Long-term debt $ 1,878 1,877 8,992 8,786
========= ========= ========= ==========
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.
-47-
<PAGE>
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.
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.
Thefair 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.
<PAGE>
(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
For capital capitalized under
adequacy prompt corrective
Actual purposes action 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): $30,496 14.92% $16,350 8.00% $20,438 10.00%
Tier I capital
(to risk-weighted assets): 29,987 14.68 8,175 4.00 12,263 6.00
Tier I capital
(to average assets): 29,987 10.97 10,930 4.00 13,663 5.00
At December 31, 1995:
Total risk-based capital
(to risk-weighted assets): 11,433 7.16 12,765 8.00 15,956 10.00
Tier I capital
(to risk-weighted assets): 10,894 6.83 6,382 4.00 9,574 6.00
Tier I capital
(to average assets): 10,894 4.62 9,400 4.00 11.800 5.00
</TABLE>
(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
Assets 1996 1995
------ ---- ----
Cash $ 53 103
Federal funds sold, securities purchased
under agreements to resell and
interest-bearing deposits 8,641 -
Loans, net - 852
Investment in subsidiaries 21,189 16,853
Other 565 632
------ ------
Total assets $30,448 18,440
Liabilities and Stockholders' Equity
------------------------------------
Borrowed funds $ 276 7,000
Other 31 118
Stockholders' equity 30,141 11,322
------ ------
Total liabilities and stockholders' equity $30,448 18,440
====== ======
-49-
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Statements of Earnings
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Dividends from subsidiaries $ 500 1,770
Interest income 56 24
Other expense, net 1,197 1,295
Income before equity in undistributed
earnings of subsidiaries (641) 499
Increase (decrease) in undistributed equity
of subsidiaries 1,585 (237)
Earnings before income taxes 944 262
Income tax benefit 407 442
Net earnings $ 1,351 704
Condensed Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $1,351 704
(Increase) decrease in undistributed equity
of subsidiary (1,585) 237
Other 331 2
Net cash provided by operating activities (97) 943
Cash flows from investing activities:
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 (2,494) (489)
Cash flows from financing activities:
Principal payments on long-term debt (7,000) (145)
Purchase of treasury stock (134) (832)
Issuance of common stock 18,122 350
Net cash provided by (used in) financing
activities 10,988 (627)
Net increase (decrease) in cash 8,591 (173)
Cash at beginning of year 103 276
Cash at end of year $ 8,694 103
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 $3,320,000 without prior regulatory approval.
-50-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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 accounts, 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 the adverse opinion or
disclaimer of opinion or been qualified as to uncertainty, audit scope or
accounting principles.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item with respect to (i) directors,
executive officers, promoters and control persons and (ii) compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held April 30, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held April 30, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held April 30, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held April 30, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Amended and Restated Articles of Incorporation of the Company*
3(b) Restated By-laws of the Company*
4 Form of Common Stock Certificate*
9(a) Proxy Agreement/Shareholder Agreement between Michael W. Gullion and
William Wallman, dated as of September 15, 1996*
9(b) Proxy Agreement/Shareholder Agreement between Michael W. Gullion and
William F. Wright, dated as of September 15, 1996*
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 Consent of KPMG Peat Marwick LLP
-52-
<PAGE>
27 Financial Data Schedule
*Previously filed as an exhibit to Registration Statement No. 333-12377 and
the same is incorporated herein by reference.
(b) Reports on Form 8-K
None.
-53-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLD BANC CORPORATION, INC.
(Registrant)
/s/ Michael W. Gullion
By: --------------------------------------
Michael W. Gullion
Chief Executive Officer
Dated: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dated indicated:
Signature Title Date
/s/ Michael W. Gullion Chairman of the Board, March 24, 1997
Michael W. Gullion President and Chief Executive
Officer (Principal Executive
Officer)
/s/ Keith E. Bouchey Director, Executive Vice March 24, 1997
Keith E. Bouchey President, Chief Financial Officer,
Treasurer and Corporate Secretary
(Principal Financial Officer and
Principal Accounting Officer)
/s/ William Wallman Director March 24, 1997
William Wallman
/s/ D. Michael Browne Director March 24, 1997
D. Michael Browne
/s/ William F. Wright Director March 24, 1997
William F. Wright
-54-
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
Exchange National Bank
Citizens State Bank and Trust Company
Provident Bank, f.s.b. (subsidiary of Provident Bancshares, Inc.)
Gold Banc Financial Services, Inc. (subisidiary of Exchange National Bank)
Citizens Investments, Inc., (subsidiary of Citizens State Bank and Trust
Company)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GOLD BANC CORPORATION, INC.
AS OF DECEMBER 31, 1996.
</LEGEND>
<CIK> 0001015610
<NAME> GOLD BANC CORPORATION, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 6-mos Year
<FISCAL-YEAR-END> Dec-31-1995 Dec-31-1995
<PERIOD-START> Jan-01-1996 Jan-01-1996
<PERIOD-END> Jun-30-1996 Jun-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 7,679 12,380
<INT-BEARING-DEPOSITS> 3,345 4,641
<FED-FUNDS-SOLD> 1,425 4,250
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 72,502 66,652
<INVESTMENTS-CARRYING> 25 25
<INVESTMENTS-MARKET> 0 0
<LOANS> 182,098 200,448
<ALLOWANCE> 2,625 (2,534)
<TOTAL-ASSETS> 280,097 304,609
<DEPOSITS> 241,111 255,656
<SHORT-TERM> 17,892 10,050
<LIABILITIES-OTHER> 1,587 1,884
<LONG-TERM> 8,417 6,878
0 0
0 0
<COMMON> 2,000 4,300
<OTHER-SE> 9,090 25,841
<TOTAL-LIABILITIES-AND-EQUITY> 280,097 304,609
<INTEREST-LOAN> 8,026 16,923
<INTEREST-INVEST> 2,017 3,939
<INTEREST-OTHER> 304 454
<INTEREST-TOTAL> 10,347 21,316
<INTEREST-DEPOSIT> 5,341 10,932
<INTEREST-EXPENSE> 5,990 12,260
<INTEREST-INCOME-NET> 4,357 9,056
<LOAN-LOSSES> 60 120
<SECURITIES-GAINS> 0 (38)
<EXPENSE-OTHER> 4,341 9,216
<INCOME-PRETAX> 1,087 2,126
<INCOME-PRE-EXTRAORDINARY> 1,087 2,126
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 715 1,351
<EPS-PRIMARY> .36 .60
<EPS-DILUTED> .36 .60
<YIELD-ACTUAL> 3.38 3.36
<LOANS-NON> 864 324
<LOANS-PAST> 1 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,715 2,715
<CHARGE-OFFS> 155 328
<RECOVERIES> 5 27
<ALLOWANCE-CLOSE> 2,625 2,534
<ALLOWANCE-DOMESTIC> 2,625 2,534
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
