UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ___________ to________________
Commission File Number: 0-28936
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-1008593
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive office) (Zip code)
(913) 451-8050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 past 90 days. Yes x No o
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at October 31, 1998
__________________________
Common Stock, $1.00 par value 11,124,801
GOLD BANC CORPORATION, INC.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1998
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS..................................................1
Consolidated Balance Sheets at September 30, 1998 (unaudited)
and December 31, 1997.........................................................1
Consolidated Statements of Earnings - Nine months ended
September 30, 1998 and September 30, 1997 (unaudited).........................2
Consolidated Statements of Earnings - Three months ended
September 30, 1998 and September 30, 1997 (unaudited).........................3
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1998 and September 30, 1997 (unaudited)................ ........4
Notes to Consolidated Financial Statements....................................5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS....................................................14
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS............................14
ITEM 3: DEFAULTS UPON SENIOR SECURITIES......................................14
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................14
ITEM 5: OTHER INFORMATION....................................................14
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.....................................16
SIGNATURES...................................................................17
PART I
FINANCIAL INFORMATION
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1998 Dec. 31, 1997
------------------ --------------
(unaudited)
Assets
Cash and due from banks $ 15,984 $ 16,673
Federal funds sold and interest-bearing deposits 18,701 24,438
------ ------
Total cash and cash equivalents 34,685 41,111
------ ------
Investment securities
Held-to-maturity 196 100
Available-for-sale 139,253 100,500
Trading 1,947 1,072
Other 4,311 2,765
----- -----
Total investment securities 145,707 104,437
Mortgage loans held for sale 1,856 858
Loans, net 461,336 340,630
Premises and equipment, net 20,344 15,363
Deferred taxes 225 498
Accrued interest and other assets 26,669 11,700
------ ------
Total Assets $ 690,822 $ 514,597
=========== ============
Liabilities and Stockholders' Equity
Liabilities
Deposits 567,782 419,139
Securities sold under agreements to repurchase 7,797 6,516
Federal funds purchased and other borrowings 15,239 11,650
Long-term debt 11,206 3,336
Accrued interest and other liabilities
4,756 3,473
Guaranteed preferred beneficial interests in
Company's debentures 28,750 28,750
------ ------
Total liabilities $ 635,530 $ 472,864
----------- -----------
Stockholders' equity:
Preferred stock - -
Common stock, $1.00 par value, 25,000,000 shares authorized, 11,125 10,133
11,124,801 and 10,133,230 shares issued and outstanding at
September 30, 1998 and December 31,1997, respectively
Additional paid-in capital 25,288 17,199
Undivided profits 18,445 14,605
Accumulated other comprehensive income 670 32
Unearned compensation (236) (236)
---- ----
Total stockholders' equity 55,292 41,733
------ ------
Total liabilities and stockholders $ 690,822 $ 514,597
=========== ===========
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For The Nine Months Ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30,1998 September 30, 1997
Interest income:
Loans, including fees $ 28,009 $ 18,170
Investments securities 5,545 4,075
Other 770 379
--- ---
34,324 22,624
Interest expense
Deposits 15,909 10,685
Borrowings and other 3,042 1,155
----- -----
18,951 11,840
------ ------
Net interest income 15,373 10,784
Provision for loan losses 746 535
--- ---
Net interest income after provision for loan losses 14,627 10,249
------ ------
Other income;
Service fees 1,060 738
Net gains on sale of mortgage loans 769 501
Gain (loss) on sale of securities 92 89
Gain (loss) on sale of other assets (11) 205
Unrealized loss on trading assets (367) -
Investment trading fees & commissions 2,177 -
Other 652 265
--- ---
4,372 1,798
----- -----
Other expense
Salaries and employee benefits 7,122 4,350
Net occupancy expense 2,041 1,417
Federal deposit insurance premiums 74 76
Other 4,115 2,185
----- -----
13,352 8,028
------ -----
Earnings before income taxes 5,647 4,019
Income taxes 1,689 1,346
----- -----
Net earnings $ 3,958 $ 2,673
============= =============
Net earnings per share-basic $ .37 $ .28
============= =============
Net earnings per share-diluted $ .37 $ .28
============= =============
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For The Three Months Ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1998 September 30, 1997
Interest income:
Loans, including fees $ 10,567 $ 6,708
Investments securities 1,974 1,249
Other 316 135
--- ---
12,857 8,092
Interest expense:
Deposits 5,984 3,807
Borrowings and other 1,080 495
----- ---
7,064 4,302
----- -----
Net interest income 5,793 3,790
Provision for loan losses 152 280
--- ---
Net interest income after provision for loan losses 5,641 3,510
----- -----
Other income;
Service fees 396 248
Net gains on sale of mortgage loans 250 212
Gain (loss) on sale of securities 34 88
Gain (loss) on sale of other assets (8) 6
Net unrealized losses on trading assets (380) -
Investment trading fees & commissions 768 -
Other 313 79
--- --
1,373 633
----- ---
Other expense
Salaries and employee benefits 2,615 1,508
Net occupancy expense 865 483
Federal deposit insurance premiums 29 19
Other 1,607 780
----- ---
5,116 2,790
----- -----
Earnings before income taxes 1,898 1,353
Income taxes 455 451
--- ---
Net earnings $ 1,443 $ 902
=========== ============
Net earnings per share-basic $ .13 $ .09
=========== ============
Net earnings per share-diluted $ .13 $ .09
=========== ============
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1998 September 30, 1997
------------------ ------------------
Cash flows from operating activities:
Net earnings $ 3,958 $ 2,673
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 746 535
Net (gains) losses on sales of A-F-S securities (92) (89)
Amortization of investment securities' premiums, net of accretion (743) 4
Depreciation and amortization 1,057 749
(Gain) loss on sale of assets, net 11 (205)
Purchases of trading securities (1,241) -
Unrealized loss on trading securities 367 -
Originations of mortgage loans held for sale,
Net of sales proceeds (998) (691)
Other changes:
Accrued interested receivable and other assets (678) (854)
Accrued interest payable and other liabilities (1,150) 976
------ ---
Net cash provided by (used in) operating activities $ 1,237 3,098
-------------- -----
Cash flows from investing activities:
Net increase in loans $ (36,935) (57,434)
Principal collections and proceeds from maturities
of H-T-M securities 75 -
Principal collections and proceeds from sales and
maturities of A-F-S securities 1,765,026 33,601
Purchases of A-F-S securities (1,756,941) (13,876)
Net additions to premises and equipment (3,501) (2,004)
Cash paid for acquisitions, net of cash received (1,062) -
Proceeds from sale of other assets 141 285
--- ---
Net cash used in investing activities $ (33,197) $ (39,428)
-------------- ------------
Cash flows from financing activities:
Increase in deposits $ 21,671 $ 27,700
Net increase (decrease) in short-term borrowings (1,788) 6,385
Proceeds from long-term debt 6,026 -
Principal payments on long-term debt - (3,226)
Dividends paid (375) (273)
---- ----
Net cash provided by financing activities $ 25,534 $ 30,586
------ ------------
Increase (decrease) in cash equivalents (6,426) (5,744)
Cash and cash equivalents, beginnings of year 41,111 22,796
------ ------
Cash and cash equivalents, end of year $ 34,685 $ 17,052
============= ============
Supplemental schedule of non-cash financing activities:
Issuance of common stock for acquisitions 9,337 -
Non-cash activities related to purchase acquisitions:
Investing activities:
Increase in investments 47,723 -
Net increase in loans 84,515 -
Increase in land, buildings, and equipment 2,435 -
Financing activities
Increase in deposits 126,973 -
Increase in short term borrowings 6,657 -
Increase in long term borrowings 1,844 -
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation.
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q. The consolidated financial
statements should be read in conjunction with the audited financial statements
included in the Company's 1997 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of the Company's
subsidiaries, Exchange National Bank, Citizens State Bank, Provident Bank,
f.s.b., Peoples National Bank, Farmers National Bank, First National Bank in
Alma, Farmers State Bank, Peoples State Bank, Tri-County National Bank (the
"banks") and Midwest Capital Management, Inc. All significant intercompany
balances and transactions have been eliminated.
The December 31, 1997 consolidated balance sheet has been derived from the
audited balance sheet as of that date. The consolidated financial statements as
of September 30, 1998 and for the three and nine months ended September 30, 1998
and 1997 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of financial position and results of operations for those periods.
The Consolidated Statements of Earnings for the nine months ended September 30,
1998 are not necessarily indicative of the results that will be achieved for the
entire year.
Gold Banc announced a two-for-one stock split in the form of a 100% stock
dividend distributed on May 18, 1998 to shareholders of record as of May 6,
1998. All per share data has been restated to reflect the 100% stock dividend.
In addition, the Company declared a $.02 cash dividend on post-split shares to
shareholders of record as of November 18, 1998, payable on November 23, 1998.
2. Earnings per common share.
Earnings per share are computed in accordance with SFAS No. 128, Earnings
per Share. Basic earnings per share is based upon the weighted average number of
common shares outstanding during the periods presented. Diluted income per share
includes the effects of all dilutive potential common shares outstanding during
each period. All per share data has been restated to conform to SFAS No. 128.
The shares used in the calculation of basic and diluted income per share
for the three and nine months ended September 30, 1998 and 1997 are shown below
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three For the nine
months ended months ended
September 30 September 30
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
1998 1997 1998 1997
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
Weighted average common shares outstanding 10,940 9,587 10,701 9,587
Stock options 164 0 142 0
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
Weighted average common shares and 11,104 9,587 10,843 9,587
common share equivalents outstanding
- --------------------------------------------------------------- --------------------- ---------------- --------------- ------------
</TABLE>
3. Guaranteed Preferred Beneficial Interests in Company's Debentures.
On December 15, 1997, GBCI Capital Trust (the "Trust"), a Delaware business
trust formed by the Company, completed the sale of $28.75 million of 8.75%
Preferred Securities (the "Preferred Securities"). The Trust also issued Common
Securities to the Company and used the net proceeds from the offering to
purchase a like amount of 8.75% Junior Subordinated Deferrable Interest
Debentures (the "Debentures") of the Company. The Debentures are the sole assets
of the Trust and are eliminated, along with the related income statement
effects, in the consolidated financial statements. The Company used the proceeds
from the sale of the Debentures to retire certain debt and for general corporate
purposes. Total expenses associated with the offering approximating $1,219,000
are included in other assets and are being amortized on a straight-line basis
over the life of the debentures.
The Preferred Securities accrue and pay distributions quarterly at an
annual rate of 8.75% of the stated liquidation amount of $25 per Preferred
Security. The Company has fully and unconditionally guaranteed all of the
obligations of the Trust. The guarantee covers the quarterly distributions and
payments on liquidation or redemption of the Preferred Securities, but only to
the extent of funds held by the Trust.
The Preferred Securities are mandatorily redeemable upon the maturity of
the Debentures on December 31, 2027 or upon earlier redemption as provided in
the Indenture. The Company has the right to redeem the Debentures, in whole or
in part on or after December 31, 2002 at a redemption price specified in the
Indenture plus any accrued but unpaid interest to the redemption date.
4. Comprehensive Income
Comprehensive income, as defined by Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" was $4.6 million and $3.0
million for the nine months ended September 30, 1998 and 1997, respectively and
$1.9 million and $1.2 million for the three months ended September 30, 1998 and
1997, respectively. The difference between comprehensive income and net earnings
presented in the consolidated statement of earnings is attributed solely to
unrealized gains and losses on available-for-sale securities.
5. Completed and Pending Acquisitions.
On July 9, 1998, the Company acquired Farmers State Bancshares, Inc. of
Sabetha, Kansas and its wholly- owned subsidiary, Farmers State Bank, in a cash
transaction valued at $8.5 million. Farmers State Bank had total assets of
$47.6, deposits of $41.6 and net loans of $21.7 at June 30, 1998.
On August 4, 1998 the Company acquired Northwest Bancshares, Inc. and its
wholly-owned subsidiary, Peoples State Bank of Colby, Kansas, in a tax-free
exchange of stock valued at approximately $2.95 million. Peoples State Bank had
total assets of $21.8 million, total deposits of $19.2 million and net loans of
$18.1 million at June 30, 1998.
On August 17, 1998, the Company acquired Tri-County Bancshares, Inc. and
its wholly-owned subsidiary Tri-County National Bank in a cash and stock
transaction valued at $4.4 million. Tri-County had total assets of $43.2
million, deposits of $39.8 million and net loans of $26.1 million as of June 30,
1998. All three acquisitions described above have been accounted for as
purchases. Total goodwill associated with the acquisitions aggregated $5.6
million.
On August 31, 1998 the Company announced a definitive merger agreement with
The Trust Company, a Midwest trust services business in St. Joseph, Missouri, in
a tax-free exchange of stock valued at approximately $4.3 million. At June 30,
1998, The Trust Company had approximately $250 million of assets under
management. This transaction, which will be accounted for as a
pooling-of-interests, is expected to close in the fourth quarter of 1998.
On September 2, 1998 the Company announced a definitive merger agreement
with Citizens Bancorporation, Inc of Tulsa, Oklahoma in a tax-free stock swap
valued at approximately $56 million. Citizens Bank of Tulsa, a wholly-owned
subsidiary of Citizens Bancorporation, had total assets of $233 million, core
deposits of $214 million and net loans of $164 million at June 30, 1998. This
transaction, which will be accounted for as a pooling-of-interests, is expected
to close in the fourth quarter of 1998.
On October 21, 1998, the Company acquired First State Bancorp, Inc. of
Pittsburg, Kansas in a tax-free exchange of stock valued at approximately $25.0
million. The acquisition will be accounted for as a pooling-of-interests. First
State Bank & Trust Company, a wholly-owned subsidiary of First State Bancorp,
had total assets of $108.8 million, deposits of $95.9 million and loans of $63.5
million and loans of $63.5 million at September 30, 1998.
6. Legal proceedings.
Exchange Bank, along with approximately twenty-four other persons and
entities including a number of depository institutions, is a named defendant in
a case filed in the United States District Court for the District of Kansas on
September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys and
Bandero Cigar Company.
The complaint alleges violations of the Racketeer Influenced Corrupt
Organization ("RICO") statute (18 U.S.C. 1962( c)), conspiracy to violate RICO,
negligent misrepresentation, fraud, civil conspiracy and negligence on the part
of the defendants. The plaintiffs contend that the defendants, including
Exchange Bank, were listed in trade reference sheets provided to plaintiffs by
Parade of Toys and Bandero Cigar Company and that the defendants made false and
misleading representations on which the plaintiffs relied to their detriment. In
each count, the plaintiffs have sought actual damages in an amount in excess of
$75,000 each, treble damages under RICO, and punitive damages. Exchange Bank
denies liability and is in the process of vigorously defending this claim. A
hearing was conducted on March 25, 1998, on the issue of class certification. On
September 29, 1998, the Court denied class certification and entered a
scheduling order.
A second lawsuit arising out of the same facts was filed in the United
States District Court for the District of Kansas on September 23, 1998 on behalf
of 670 individually named persons. The complaint, which names Exchange Bank
along with approximately sixteen (16) other persons and entities as defendants,
alleges similar causes of action as the federal court action previously filed on
behalf of a putative class of over 2,400 persons. The defendants, including
Exchange Bank, now have until November 30, 1998 to file an answer. Exchange Bank
denies any liability and is in the process of vigorously defending this claim.
In October 1998, Exchange Bank, along with other bank defendants filed in each
federal action a motion to drop misjoined plaintiffs. The motions are based upon
the contention that the individual claims of the separate plaintiffs do not
arise out of the same transaction or occurrence or series of transactions or
occurrences. On November 13, 1998, the court granted both motions and gave the
plaintiffs until December 31, 1998 to commence individual actions. The court
will dismiss with prejudice the claims of any plaintiffs who do not refile by
December 31, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net income was $4.0 million for the nine months ended
September 30, 1998, compared to net income of $2.7 million for the nine months
ended September 30,1997, yielding an annualized return on average assets ("ROA")
of .88% for the nine months ended September 30, 1998, compared to 0.91% for the
nine months ended September 30, 1997. Return on average common stockholders'
equity ("ROE") for the nine months ended September 30, 1998 and 1997 was 10.49%
and 9.90%, respectively. The earnings increase for the third quarter of 1998
over 1997 was primarily due to the addition of three new subsidiaries to the
organization and greater interest income through an improved net interest margin
coupled with greater loan volume. On July 9, 1998 the Company acquired Farmers
State Bank, Sabetha. On August 4, 1998 the Company acquired Peoples State Bank
in Colby, Kansas. Also, on August 17, 1998 the Company acquired Tri-County
National Bank in Washington, Kansas for a combination of cash and stock. All
three acquisitions have been accounted for as purchases. Total goodwill recorded
was $5.6 million.
For the three months ended September 30, 1998, the Company's net income was
$1.4 million, compared to $902,000 for the same period in 1997. Earnings per
share for the quarter ended September 30, 1998 were $0.13 compared to $0.09 per
share for the quarter ended September 30, 1997 on 1.5 million greater weighted
average shares outstanding. As with the nine month period, earnings for the
third quarter of 1998 were better than the comparable 1997 period due to the
acquisitions of Farmers, Peoples, Tri-County and internal growth primarily at
Exchange National Bank's Leawood and Shawnee locations. ROA for the three months
ended September 30, 1998 was 0.91% compared to .90% for the three months ended
September 30, 1997, while average assets for the three month periods increased
by approximately $235 million. ROE for the quarter ended September 30, 1998 was
10.97% and 9.87% for the same period in 1997 while average equity capital was
$16 million greater for the 1998 period.
FINANCIAL CONDITION
Total assets were $690.8 million at September 30, 1998, an increase of
$176.2 million from December 31, 1997. Total average assets were $601.2 million
for the nine months ended September 30, 1998, compared to $390.6 million for the
nine months ended September 30, 1997. Average interest-earning assets were
$547.9 million for the nine months ended September 30, 1998 and $361.1 million
for the nine months ended September 30, 1997. Assets increased during the third
quarter of 1998 due to three acquisitions and internal growth. Net loans grew
$121.7 million during the first nine months of 1998 of which $28.7 million
primarily at Exchange National Bank's Leawood and Shawnee, Kansas locations.
For the three months ended September 30, 1998, total average assets were
$638.0 million compared to $402.8 million for the three months ended September
30, 1997. Average interest-earning assets were $572.5 million for the three
months ended September 30, 1998 and $365.1 million for the three months ended
September 30, 1997. These changes represent 58.4% and 56.8% increases
respectively in average assets and interest-earning assets from the third
quarter of 1998 to the same period in 1997. Assets increased for the third
quarter of 1998 over the same quarter of 1997 also due to three bank
acquisitions and internal growth. The primary source of internal growth has been
at Exchange National Bank's Leawood and Shawnee locations.
The increase in net loans from December 31, 1997 to September 30, 1998
attributed to acquisitions and internal growth, was primarily funded through an
increase in deposits and additional advances of Federal Home Loan Bank
borrowings. The allowance for loan losses increased to $7.0 million at September
30, 1998 from $4.7 million at December 31, 1997. The allowance represented 1.48%
and 1.35% of total loans as of September 30, 1998 and December 31, 1997,
respectively.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the nine months ended September 30, 1998 was
$34.3 million, a 51.3% increase over the nine months ended September 30, 1997.
Average total earning assets increased $186.8 million or 51.7% at September 30,
1998, compared to September 30, 1997. The increase is primarily the result of
loan growth at Exchange National Bank's offices in Leawood and Shawnee, Kansas
in addition to the acquisitions of Farmers, Peoples, and Tri-County.
For the three months ended September 30, 1998, total interest income was
$12.9 million or 58.9% greater than the comparable period in 1997. This increase
is also primarily due to the acquisitions of Farmers, Peoples, and Tri-County
coupled with loan growth at Exchange National Bank's locations in Leawood and
Shawnee.
Total interest expense for the first nine months of 1998 was 60.1% higher
than the same period in 1997 as a result of a 64.9% increase in deposits.
Average total interest-bearing liabilities increased by $173.8 million or 53.1%
during the nine months of 1998 compared to the same period in 1997, primarily
due to the acquisitions of Farmers, Peoples and Tri-County and to the increased
volume in interest bearing deposits. In addition, the Company's trust preferred
offering in December, 1997 has contributed to increased interest expense in 1998
compared to 1997.
For the three months ended September 30, 1998, total interest expense
increased $2.8 million or 64.2% as a result of greater average deposits for the
same periods increasing by $184.0 million or 55.3%. In addition, the Company's
trust preferred offering in December, 1997 has contributed to increased interest
expense in 1998 compared to 1997.
Net interest income was $15.4 million for the nine months ended September
30, 1998, compared to $10.8 million for the same period in 1997, an increase of
42.6%. This increase is attributable to significantly greater loan volumes
primarily originated from Exchange National Bank's Leawood and Shawnee, Kansas
locations and the acquisitions of Farmers, Peoples, and Tri-County. The
Company's net interest margin decreased from 4.06% for the nine months ended
September 30, 1997 to 3.81% for the nine months ended September 30, 1998, as a
result of additional interest expense associated with the Company's issuance of
subordinated debentures in December 1997 and increased cost of funds.
For the three months ended September 30, 1998, net interest income
increased 52.9% to $5.8 million versus $3.8 million for the three months of
1997. After adjusting for provisions for loan losses, net interest income for
the second quarter of 1998 was $5.6 million compared with $3.5 million in 1997,
an increase of 60.7%. Net interest margin for the three months ended September
30, 1998 decreased from 4.22% to 4.13% versus the same period in 1997 primarily
due to higher cost of funds and the Company's trust preferred offering in
December, 1997.
Provisions for Loan Losses
The provision for loan losses for the nine months ended September 30, 1998,
was $746,000, an increase of $211,000, or 39.4% from the $535,000 provision
during the comparable 1997 period. This increase is consistent with the
Company's significant loan growth of 59.6% over the same period. The allowance
represented 1.48% and 1.23% of total loans as of September 30, 1998 and
September 30, 1997, respectively. For the three months ended September 30, 1998,
the provision for loan losses was $152,000 compared to $280,000 for the third
quarter of 1997. The Company monitors its reserve for loan losses to total loans
ratio on a monthly basis in order to maintain a ratio within internally defined
guidelines of 1.15% to 1.65%.
Other Income
Other income for the nine months ended September 30, 1998, increased $2.6
million, or 143.2% from the same period in 1997. This increase is primarily a
result of the Company's acquisition of Midwest Capital and increased gain on the
sale of mortgage loans through its subsidiary in St. Joseph, Missouri, Provident
Bank f.s.b.
Other income for the third quarter of 1998 was $1.4 million, an increase of
116.9% compared to the third quarter of 1997, primarily reflecting investment
management and broker/dealer fees generated by Midwest Capital Management, Inc.,
a significant new component of other income for the Company since the closing of
the acquisition of Midwest Capital in January, 1998. The balance of the increase
in other income primarily resulted from gains on the sale of mortgage loans,
service charges on deposit accounts, while absorbing $380,000 in unrealized
trading losses on marketable equity securities. The Company has invested in
equity securities of other community banking organizations.
Other Expense
Other expense increased by $5.3 million for the nine months ended September
30, 1998, as compared to the same period in 1997. This increase was primarily
due to increased salaries and benefits expenses, occupancy expense and other non
interest expenses, including investor relations, professional fees, advertising,
and acquisition-related expenses. Net occupancy expense increased primarily due
to the six acquisitions closed since September 30, 1997. The Company's overall
efficiency ratio decreased during the first nine months of 1998 to 69.2%
compared to 66.6% for the first nine months in 1997.
For the third quarter of 1998, other expense increased 83.4% to $5.1
million compared to the year ago quarter. The increase is due to a 73.4% rise in
salaries and benefits attributable to growth of the Company's employee base as a
result of the acquisitions as well as a 95.1% increase in operating expenses
directed mainly toward the newly acquired locations and facilities.
Income Tax Expense
Income tax expense for the nine months ended September 30, 1998 and
September 30, 1997 was $1.7 million and $1.3 million, respectively. The
effective tax rates for those periods were 29.9% and 33.5%, respectively. The
1998 tax provision was reduced by approximately $225,000 due to a one-time
deferred tax adjustment arising from the amendment of a prior year income tax
return for a subsidiary acquired in 1997.
Income tax expense for the three months ended September 30, 1998 and
September 30, 1997 was $455,000 and $451,000, respectively. The effective tax
rates for those periods were 24.0% and 33.3%, respectively. The 1998 tax
provision was reduced by approximately $225,000 due to a one-time deferred tax
adjustment arising from the amendment of a prior year income tax return for a
subsidiary acquired in 1997.
CAPITAL AND LIQUIDITY
At September 30, 1998, the Company's leverage, Tier 1 risk-based capital,
and total risk-based capital ratios were 9.1%, 11.4%, and 12.8% respectively,
compared to minimum required levels of 4%, 8% and 4%, respectively (subject to
change and the discretion of regulatory authorities to impose higher standards
in individual cases). At September 30, 1998, the Company had risk-weighted
assets of $497.8 million. On November 12, 1998, the Company's Board of Directors
declared a quarterly dividend in the amount of $.02 per common share.
The Company had approximately $3.0 million in cash and short-term
investment grade securities at September 30, 1998 remaining from the issuance of
subordinated debentures in December 1997. Those proceeds are expected to be used
to finance the Company's growth strategy and for general corporate purposes. 10
Additionally, $8.3 million of cash was utilized for the acquisition of Farmers
Bancshares, Inc., Sabetha, Kansas, parent company of Farmers State Bank on July
9, 1998. The Company established a line of credit in the amount of $15 million
with a correspondent bank during the second quarter of 1998. No amounts had been
drawn under the line as of September 30, 1998.
ACCOUNTING AND FINANCIAL REPORTING
The Financial Accounting Standards Board (FASB) issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, in June
1997. SFAS No. 131 requires that public enterprises report financial and
descriptive information about their reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by management. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. The adoption of
the standard is not expected to have a significant impact on the financial
statements of the Company.
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities in June 1998. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management believes adoption of SFAS No. 133 will not have a material effect on
the Company's financial position or results of operations, nor will adoption
require additional capital resources.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive
interest-earning assets and interest-bearing liabilities. An interest rate
sensitive balance sheet item is one that is able to reprice quickly, through
maturity or otherwise. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. Close matching of the repricing of assets and
liabilities will normally result in little change in net interest income when
interest rates change. A mismatched gap position will normally result in changes
in net interest income as interest rates change.
Along with internal gap management reports, the Company and the Banks use
an asset/liability modeling service to analyze each Bank's current gap position.
The system simulates the Banks' asset and liability base and projects future net
interest income results under several interest rate assumptions. The Company
strives to maintain an aggregate gap position such that changes in interest
rates will not affect net interest income by more than 10% in any twelve-month
period. The Company has not engaged in derivatives transactions for its own
account.
The following table indicates that, at September 30,1998, in the event of a
sudden and sustained increase in prevailing market rates, the Companies net
interest income would be expected to increase, while a decrease in rates would
indicate a decrease in income.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent Change Board
Changes in Interest Rates Net Interest Income Actual Change Actual Limit
- ----------------------------------------- -------------------------- -------------------- ------------------------- ---------------
- ----------------------------------------- -------------------------- -------------------- ------------------------- ---------------
200 basis point rise $24,384,800 741,400 3.14% 10%
100 basis point rise 24,164,500 521,900 2.21% 10%
Base Rate Scenario 23,642,600
100 basis point decline 22,794,200 (848,400) -3.59% 10%
200 basis point decline 22,030,300 (1,612,300) -6.82% 10%
</TABLE>
YEAR 2000
State of Readiness
In response to potential Year 2000 transition issues for computer and
environmental systems, the Company is actively addressing these issues as they
relate to the Company's subsidiaries and corporate systems. As with other
financial institutions, the Company engages in a significant amount of business
and reporting activity that depends on accurate date information, such as
interest and other calculations pertaining to loans, deposits, assets and
investments. The Company is taking steps to implement permanent solutions during
1998, rather than waiting until potential problems develop. A task force began
work on identifying and assessing potential issues in 1997, and the Company is
currently evaluating hardware and software solutions. Appropriate resources are
being allocated for hardware systems and software, as needed, at each of the
Company's subsidiaries.
Year 2000 issues are also being addressed as they relate to the Company's
hardware, information processing systems, environmental systems and the
Company's vendors and customers. All of these issues are contained within the
Company's timeline for Year 2000 compliance. The Company's timeline for Year
2000 compliance schedules each material element of Year 2000 compliance within
regulatory guidelines. Present progress indicates that the Company will comply
with its timeline. The Company has completed the awareness and assessment phases
of its preparation for the year change from 1999 to 2000.
Estimated Costs
Expenses associated with this issue are expensed as incurred. Management
expects to report periodically on its progress in addressing the Year 2000
transition and expects to be fully Year 2000 compliant by December 31, 1998. The
Company projects its actual expenditures will be approximately $1,000,000.
Included in this amount are items such as computer hardware and software that
may carry three to five year depreciable lives.
Risks
As with other financial institutions, the Company engages in a significant
amount of business and reporting activity that depends on accurate date
information, such as interest and other calculations pertaining to loans,
deposits, assets and investments. As a result, Year 2000 problems could result
in a system failure or miscalculations that disrupt operations. The Company is
taking steps to implement permanent solutions during 1998, rather than waiting
until potential problems develop. Most of the Company Banks are scheduled to
convert their core data processing from their current providers to Bankline
Midamerica, Inc. The Company does not expect to convert any Company Banks later
than June of 1999. Management believes the Company's principal risk relating to
Year 2000 issues lies in the potential inability of Bankline Midamerica's data
processing system to process date sensitive information involving the Year 2000.
The Company plans to fully test the first two Company Banks to convert for Year
2000 compliance. This testing is taking place during the fourth quarter of 1998.
Although the Company does not expect Year 2000 issues to have a material adverse
affect on its internal operations, it is possible that Year 2000 issues could
have a material adverse affect on (i) the Company's service providers and their
ability to service the Company; and (ii) the Company's customers in the ability
to continue to utilize the Company's services. The cumulative effect of such
problems, if they occur, could have a material adverse effect on the Company.
Contingency Plans
The Company is uncertain whether possible Year 2000 noncompliance will have
a material effect on its operations, liquidity or financial position. The most
significant worst case scenario would involve Year 2000 noncompliance by
Bankline Midamerica, Inc., to whose data processing system the Banks will
convert. The Company is monitoring Bankline Midamerica Inc.'s progress toward
Year 2000 compliance. The Company will test Bankline Midamerica, Inc.'s data
processing system in the fourth quarter of 1998.
The Company's subsidiaries have developed remediation contingency plans for
all mission-critical vendors. The remediation contingency plans contain
readiness dates by which the Company plans to validate year 2000 compliance. In
the event a particular vendor's readiness can not be validated by the readiness
date, the pertinent remediation contingency plan will be implemented.
Also, the Company's subsidiaries have developed business resumption
contingency plans. These plans are incorporated into or work in coordination
with each subsidiary's existing disaster recovery plan. The business resumption
issues relating directly to the year change from 1999 to 2000 are addressed in
these plans.
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Exchange Bank, along with approximately twenty-four other persons and
entities including a number of depository institutions, is a named defendant in
a case filed in the United States District Court for the District of Kansas on
September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys and
Bandero Cigar Company.
The complaint alleges violations of the Racketeer Influenced Corrupt
Organization ("RICO") statute (18 U.S.C. 1962( c)), conspiracy to violate RICO,
negligent misrepresentation, fraud, civil conspiracy and negligence on the part
of the defendants. The plaintiffs contend that the defendants, including
Exchange Bank, were listed in trade reference sheets provided to plaintiffs by
Parade of Toys and Bandero Cigar Company and that the defendants made false and
misleading representations on which the plaintiffs relied to their detriment. In
each count, the plaintiffs have sought actual damages in an amount in excess of
$75,000 each, treble damages under RICO, and punitive damages. Exchange Bank
denies liability and is in the process of vigorously defending this claim. A
hearing was conducted on March 25, 1998, on the issue of class certification. On
September 29, 1998, the Court denied class certification and entered a
scheduling order.
A second lawsuit arising out of the same facts was filed in the United
States District Court for the District of Kansas on September 23, 1998 on behalf
of 670 individually named persons. The complaint, which names Exchange Bank
along with approximately sixteen (16) other persons and entities as defendants,
alleges similar causes of action as the federal court action previously filed on
behalf of a putative class of over 2,400 persons. The defendants, including
Exchange Bank, now have until November 30, 1998 to file an answer. Exchange Bank
denies any liability and is in the process of vigorously defending this claim.
In October 1998, Exchange Bank, along with other bank defendants filed in each
federal action a motion to drop misjoined plaintiffs. The motions are based upon
the contention that the individual claims of the separate plaintiffs do not
arise out of the same transaction or occurrence or series of transactions or
occurrences. On November 13, 1998, the court granted both motions and gave the
plaintiffs until December 31, 1998 to commence individual actions. The court
will dismiss with prejudice the claims of any plaintiffs who do not refile by
December 31, 1998.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On August 4, 1998, The Company issued 210,000 shares of common stock in
the business combination with Northwest Bancshares, Inc The Company relied on
Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act")
for exemption from the registration requirements of the Securities Act.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5: OTHER INFORMATION
Pending Acquisitions
On September 2, 1998 the Company announced a definitive merger agreement
with Citizens Bancorporation, Inc. of Tulsa, Oklahoma in a tax-free stock swap
valued at approximately $56 million. Citizens Bank of Tulsa, a wholly-owned
subsidiary of Citizens Bancorporation, had total assets of $233 million, core
deposits of $214 million and net loans of $164 million at June, 30, 1998. This
transaction is expected to close in the fourth quarter of 1998.
On August 31, 1998 the Company announced a definitive merger agreement
with The Trust Company, a Midwest trust services business in St. Joseph,
Missouri, in a tax-free exchange of stock valued at approximately $4.3 million.
At June 30, 1998, The Trust Company had approximately $250 million under
management. This transaction is expected to close in the fourth quarter of 1998.
Subsequent Events
On October 21, 1998, the Company acquired First State Bancorp, Inc. of
Pittsburg, Kansas in a tax-free exchange of stock valued at approximately $25.0
million. First State Bank & Trust Company, a wholly-owned subsidiary of First
State Bancorp, had total assets of $108.8 million, deposits of $95.9 million and
loans of $63.5 million at June 30, 1998.
Stock Split
Gold Banc announced a two-for-one stock split in the form of a 100% stock
dividend distributed on May 18, 1998 to shareholders of record as of May 6,
1998. All per share data has been restated to reflect the 100% stock dividend.
In addition, the Company declared a $.02 cash dividend on post-split shares to
shareholders of record as of November 18, 1998, payable on November 23, 1998.
Proposals of Security Holders
A stockholder proposal may be considered at the Company's Annual Meeting in
1999 only if it meets the following requirements set forth in the Company's
Amended and Restated Bylaws. First, the stockholder making the proposal must be
a stockholder of record on the record date for such annual meeting, must
continue to be a stockholder of record at the time of such meeting, and must be
entitled to vote thereat. Second, the stockholder must deliver or cause to be
delivered a written notice to the Company's Secretary. The Secretary must
receive such notice no later than November 24, 1998.
The notice shall specify (a) the name and address of the stockholder as
they appear on the books of the Company; (b) the class and number of shares of
the Company that are beneficially owned by the stockholder; (c) any material
interest of the stockholder in the proposed business described in the notice;
(d) if such business is a nomination for director, each nomination sought to be
made, together with the reasons for each nomination, a description of the
qualifications and business or professional experience of each proposed nominee
and a statement signed by each nominee indicating his or her willingness to
serve if elected, and disclosing the information about him or her that is
required by the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder to be disclosed in
the proxy materials for the meeting involved if he or she were a nominee of the
Company for election as one of its directors; (e) if such business is other than
a nomination for director, the nature of the business, the reasons why it is
sought to be raised and submitted for a vote of the stockholders and if and why
it is deemed by the stockholder to be beneficial to the Company; and (f) if so
requested by the Company, all other information that would be required to be
filed with the Securities and Exchange Commission (the "SEC") if, with respect
to the business proposed to be brought before the meeting, the person proposing
such business was a participant in a solicitation subject to Section 14 of the
Exchange Act. Notwithstanding satisfaction of the above, the proposed business
may be deemed not properly before the meeting if, pursuant to state law or any
rule or regulation of the SEC, it was offered as a stockholder proposal and was
omitted from the proxy materials for the meeting.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements 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.
Date: November 16, 1998 By:/s/ Keith E. Bouchey
Keith E. Bouchey
Chief Financial Officer,
and Corporate Secretary
(Authorized officer and principal financial officer of the registrant)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GOLD BANC CORPORATION, INC. AS
OF September 30, 1998.
</LEGEND>
<CIK> 0001015610
<NAME> GOLD BANC CORPORATION, INC.
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<PERIOD-START> Jan-01-1998
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