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 June 30, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the
transition period from ___________ to________________
Commission File Number: 0-28936
GOLD BANCCORPORATION, 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 July 31, 1998
__________________________ ____________________________
Common Stock, $1.00 par value 10,704,392
GOLD BANC CORPORATION, INC. INDEX TO 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS..................................................1
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.........................................................1
Consolidated Statements of Earnings- Six months ended
June 30, 1998 and June 30, 1997 (unaudited)...................................2
Consolidated Statements of Earnings - Three months ended
June 30, 1998 and June 30, 1997 (unaudited)...................................3
Consolidated Statements of Cash Flows - Six months ended
June 30, 1998 and June 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............................ .......................13
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS............................13
ITEM 3: DEFAULTS UPON SENIOR SECURITIES......................................13
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................13
ITEM 5: OTHER INFORMATION....................................................14
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.....................................15
SIGNATURES...................................................................16
PART I
FINANCIAL INFORMATION
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1998 Dec. 31, 1997
(unaudited)
Assets
Cash and due from banks 18,407 16,673
Federal funds sold and interest-bearing deposits 9,649 24,438
----- ------
Total cash and cash equivalents 28,056 41,111
------ ------
Investment securities
Held-to-maturity securities 25 100
Available-for-sale securities 117,186 100,500
Trading securities 7,527 1,072
Other investment securities 3,131 2,765
----- -----
Total investment securities 127,869 104,437
Mortgage loans held for sale 2,254 858
Loans, net 387,034 340,630
Premises and equipment, net 17,873 15,363
Deferred taxes 371 498
Accrued interest and other assets 22,224 11,700
------ ------
Total Assets $ 585,681 $ 514,597
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Deposits 465,295 419,139
Securities sold under agreements to repurchase 4,708 6,516
Federal funds purchased and other borrowings 16,839 11,650
Long-term debt 16,319 3,336
Accrued interest and other liabilities 3,735 3,473
Guaranteed preferred beneficial interests in
Company's debentures 28,750 28,750
------ ------
Total liabilities $ 535,646 $ 472,864
----------- -----------
Stockholders' equity:
Preferred stock - -
Common stock, $1.00 par value, 25,000,000 shares authorized, 10,704 10,133
10,704 and 10,133 shares issued and outstanding at
June 30, 1998 and December 31,1997, respectively
Additional paid-in capital 22,610 17,199
Undivided Profits 16,745 14,605
Accumulated other comprehensive income 212 32
Unearned compensation (236) (236)
---- ----
50,035 41,733
less: treasury stock 0 0
- -
Total stockholders' equity 50,035 41,733
Total liabilities and stockholders $ 585,681 $ 514,597
========= =========
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For The Six Months Ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1998 June 30, 1997
Interest income:
Loans, including fees $ 17,442 $ 11,462
Investments securities 3,571 2,826
Other 454 244
--- ---
21,467 14,532
Interest expense:
Deposits 9,925 6,877
Borrowings and other 1,962 660
----- ---
11,887 7,537
------ -----
Net interest income 9,580 6,995
Provision for loan losses 594 255
Net interest income after provision for loan losses 8,986 6,740
----- -----
Other income;
Service fees 664 490
Net gains on sale of mortgage loans 519 289
Gain/Loss on sale of securities 58 1
Gain on sale of other assets (3) 200
Unrealized gain on trading assets 13 -
Investment trading fees & commissions 1,409 -
Other 339 185
--- ---
2,999 1,165
----- -----
Other expense
Salaries and employee benefits 4,507 2,841
Net occupancy expense 1,176 934
Federal deposit insurance premiums 45 57
Other 2,508 1,405
----- -----
8,236 5,237
----- -----
Earnings before income taxes 3,749 2,668
Income taxes 1,234 896
----- ---
Net earnings $ 2,515 $ 1,772
============ ===========
Net earnings per share-basic $ .24 $ .19
============ ===========
Net earnings per share-diluted $ .24 $ .19
============ ===========
</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>
June 30, 1998 June 30, 1997
Interest income:
Loans, including fees $ 9,016 $ 5,943
Investments securities 1,811 1,347
Other 226 121
--- ---
11,053 7,411
Interest expense:
Deposits 5,095 3,467
Borrowings and other 1,017 348
----- ---
6,112 3,815
----- -----
Net interest income 4,941 3,596
Provision for loan losses 234 150
--- ---
Net interest income after provision for loan losses 4,707 3,446
----- -----
Other income;
Service fees 362 251
Net gains on sale of mortgage loans 294 172
Net securities gains (losses) 57 13
Gain on sale of other assets (3) 201
Net unrealized gains on trading assets (36) -
Investment trading fees & commissions 718 -
Other 193 83
--- --
1,585 720
----- ---
Other expense
Salaries and employee benefits 2,249 1,450
Net occupancy expense 626 447
Federal deposit insurance premiums 23 29
Other 1,327 738
----- ---
4,225 2,664
----- -----
Earnings before income taxes 2,067 1,502
Income taxes 687 515
--- ---
Net earnings $ 1,380 $ 987
======== =======
Net earnings per share-basic $ .13 $ .10
======== =======
Net earnings per share-diluted $ .13 $ .10
======== =======
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1998 June 30, 1997
Cash flows from operating activities:
Net earnings $ 2,515 $ 1,772
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 594 255
Net (gains) losses on sales of AFS securities (58) (1)
Amortization of investment securities' premiums, net of accretion (558) 32
Depreciation and amortization 635 503
(Gain) loss on sale of assets, net 3 (200)
Purchases of trading securities (6,441) -
Unrealized gain on trading securities (13) -
Originations of mortgage loans held for sale,
Net of sales proceeds (1,396) (127)
Other changes:
Accrued interested receivable and other assets (4,661) (589)
Accrued interest payable and other liabilities 1,196 162
----- ---
Net cash provided by (used in) operating activities $ (10,576) $ 1,807
----------- ---------
Cash flows from investing activities:
Net increase in loans (27,897) (31,485)
Principal collections and proceeds from maturities
of H-T-M securities 75 1
Principal collections and proceeds from sales and
maturities of A-F-S securities 1,157,502 22,984
Purchases of H-T-M - -
Purchases of A-F-S securities (1,159,600) (11,650)
Net additions to premises and equipment (2,513) (541)
Proceeds from sale of other assets - 199
---
Net cash used in investing activities (32,433) (20,492)
------- -------
Cash flows from investing activities:
Increase in deposits 16,745 4,215
Net increase (decrease) in short-term borrowings (1,606) 13,099
Proceeds from long-term debt 11,983 -
Principal payments on long-term debt - (352)
Dividends paid (375) (129)
Purchase of treasury stock - -
Proceeds from sale of treasury stock - -
Proceeds from issuance of common stock - -
Net cash provided by financing activities 29,959 16,833
------ ------
Increase (decrease) in cash equivalents (13,050) (1,852)
Cash and cash equivalents, beginnings of year 41,111 22,796
------ ------
Cash and cash equivalents, end of year $ 28,057 $ 20,944
========== ==========
Supplemental schedule of non-cash financing activities:
Issuance of common stock for acquisitions 5,982,198 -
Non-cash activities related to purchase acquisitions:
Investing activities:
Increase in investments 14,339,452 -
Net increase in loans 19,098,803 -
Increase in land, buildings, and equipment 492,878 -
Financing activities
Increase in deposits 26,411,330
Increase in short term borrowings 4,986,284 -
Increase in long term borrowings 1,000,000 -
</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, and First National Bank in
Alma (the "banks") and Midwest Capital Management, Inc. All significant
intercompany balances and transactions have been eliminated.
The consolidated financial statements as of June 30, 1998, and for the six
months ended June 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
six months ended June 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 May 20, 1998, payable on May 29, 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 six months ended June 30, 1998 and 1997 are shown below (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three For the six
months ended months ended
June 30 June 30
- ---------------------------------------------------------- --------------------- ---------------- --------------- --------------
1998 1997 1998 1997
- ---------------------------------------------------------- --------------------- ---------------- --------------- --------------
- ---------------------------------------------------------- --------------------- ---------------- --------------- --------------
Weighted average common shares outstanding 10,704 9,587 10,580 9,587
Stock options 158 0 128 0
- ---------------------------------------------------------- --------------------- ---------------- --------------- --------------
- ---------------------------------------------------------- --------------------- ---------------- --------------- --------------
Weighted average common shares and 10,862 9,587 10,708 9,587
common share equivalents outstanding
- ------------------------------------------------------ --- --------------------- ---------------- --------------- --------------
</TABLE>
3. Stock options.
February 11, 1998, the Company granted options to certain officers of the
Company to purchase a total of 183,000 shares of the Company's Common Stock at
the fair market value of the Company's stock on that date. These options vest
over a five year period at 20 percent per year.
4. Pending Acquisitions.
On April 29, 1998 the Company announced a definitive merger agreement with
Tri-County Bancshares, Inc. of Washington, Kansas for a combination cash and
stock-for-stock/tax free transaction valued at $4.4 million. Tri-County National
Bank, a wholly-owned subsidiary of Tri-County Bancshares with locations in
Concordia, Linn and Washington, Kansas had total assets of $43.2 million,
deposits of $39.8 million and net loans of $26.1 million at June 30, 1998. On
July 17, 1998, the SEC declared effective the Company's Registration Statement
on Form S-4. The transaction is expected to close in the third quarter of 1998.
On May 20, 1998 the Company announced a definitive merger agreement to
acquire 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 $110.2
million, deposits of $93.4 million and loans of $62.9 million at June 30, 1998.
5. Subsequent events.
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.
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. 6 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 June 17, 1998, the Magistrate issued a report and
recommendation that the Court rule against the plaintiff's motion for class
certification. The plaintiffs have filed objections and the recommendation will
be submitted to the trial judge for a determination of the motion.
7. Comprehensive Income
Comprehensive income, as defined by Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" was $2,698,000 and
$1,839,000 for the six months ended June 30, 1998 and 1997, respectively and
$1,300,000 and $1,064,000 for the three months ended June 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.
8. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net income was $2.5 million for the six months ended June 30,
1998, compared to net income of $1.8 million for the six months ended June
30,1997, yielding an annualized return on average assets ("ROA") of .89% for the
six months ended June 30, 1998, compared to 0.93% for the six months ended June
30, 1997. Return on average common stockholders' equity ("ROE") for the six
months ended June 30, 1998 and 1997 was 10.38% and 10.10%, respectively. The
earnings increase for the first half 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 October 1, 1997 the Company acquired Farmers National Bank, Oberlin, Kansas
("Oberlin"). In January, 1998 the Company acquired Midwest Capital Management,
Inc., Kansas City, Missouri ("MCM"), a full service broker/dealer, through a
purchase transaction, also in February, 1998 the Company acquired First National
Bank in Alma, Alma, Kansas ("Alma") through a purchase transaction. There were
no transactions closed during the second quarter of 1998.
For the three months ended June 30, 1998, the Company's net income was $1.4
million, compared to $1.0 million for the same period in 1997. Earnings per
share for the quarter ended June 30, 1998 were 0.13 compared to 0.10 per share
for the quarter ended June 30, 1997 on 1.2 million greater weighted average
shares outstanding. As with the six month period, earnings for the second
quarter of 1998 were better than the comparable in 1997 due to the acquisitions
of Oberlin, Alma, MCM and internal growth primarily at Exchange National Bank's
Leawood and Shawnee locations. ROA for the three months ended June 30, 1998 was
0.96% compared to 1.02% for the three months ended June 30, 1997, while average
assets for the three month periods differed by approximately $200 million. ROE
for the quarter ended June 30, 1998 was 11.15% and 11.13% for the same period in
1997 while average equity capital was $15 million greater for the 1998 period.
FINANCIAL CONDITION
Total assets were $585.7 million at June 30, 1998, an increase of $71.1
million from December 31, 1997. Total average assets were $566.4 million for the
six months ended June 30, 1998, compared to $380.0 million for the six months
ended June 30, 1997. Average interest-earning assets were $519.0 million for the
six months ended June 30, 1998 and $351.8 million for the six months ended June
30, 1997. Assets increased during the first half of 1998 due to two acquisitions
and internal growth. Net Loans grew $47.8 million during the first half of 1998
of which $28.7 million primarily at Exchange National Bank's Leawood and
Shawnee, Kansas locations.
For the three months ended June 30, 1998, total average assets were $575.8
million compared to $388.0 million. Average interest-earning assets were $516.4
million for the three months ended June 30, 1998 and $350.0 million for the
three months ended June 30, 1997. These changes represent 48.4% and 47.5%
increases respectively in average assets and interest-earning assets from the
second quarter of 1998 to the same period in 1997. Assets increased for the
second quarter of 1998 over the same quarter of 1997 also due to two 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 June 30, 1998
attributed to 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 $5.7 million at June 30, 1998 from $4.7
million at December 31, 1997. The allowance represented 1.46% and 1.35% of total
loans as of June 30, 1998 and December 31, 1997, respectively.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the six months ended June 30, 1998 was $21.5
million, a 47.7% increase over the six months ended June 30, 1997. Average total
earning assets increased $167.2 million or 47.5% at June 30, 1998, compared to
June 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 Oberlin, MCM and Alma.
For the three months ended June 30, 1998, total interest income was $11.1
million or 49.1% greater than the comparable period in 1997. This increase is
also primarily due to the acquisitions of Oberlin and Alma coupled with loan
growth at Exchange National Bank's locations in Leawood and Shawnee.
Total interest expense for the first six months of 1998 was 57.7% higher
than the same period in 1997 as a result of a 45.1% increase in deposits.
Average total interest-bearing liabilities increased by $157.4 million or 49.4%
during the second quarter of 1998 compared to June 30, 1997, primarily due to
the acquisitions of Oberlin and Alma and to the increased volume in interest
bearing deposits.
For the three months ended June 30, 1998, total interest expense increased
$2.3 million or 60.2% as a result of greater average deposits for the same
periods increasing by $141.3 million or 30.7%. 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 $9.6 million for the first six months ended June
30, 1998, compared to $7.0 million for the same period in 1997, an increase of
36.9%. 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 Oberlin, MCM and Alma. The Company's net
interest margin decreased from 4.06% for the six months ended June 30, 1997 to
3.75% for the six months ended June 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 June 30, 1998, net interest income increased
37.4% to $4.9 million versus $3.6 million for the three months of 1997. After
adjusting for provisions for loan losses, net interest income for the second
quarter of 1998 was $4.7 million compared with $3.5 million in 1997, an increase
of 36.6%. Net interest margin for the three months ended June 30, 1998 decreased
from 4.19% to 3.89% 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 six months ended June 30, 1998, was
$594,000, an increase of $339,000, or 132.9% from the $255,000 provision during
the comparable 1997 period. This increase is consistent with the Company's
significant loan growth. The allowance represented 1.46% and 1.31% of total
loans as of June 30, 1998 and June 30, 1997, respectively.
Other Income
Other income for the six months ended June 30, 1998, increased $1.8
million, or 157.4% from the same period in 1997. This increase is primarily a
result of the Company's acquisition of MCM 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 second quarter of 1998 was $1.6 million, an increase
of 120.1% compared to the second 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 and gains on the sale of investment
securities.
Other Expense
Other expense increased by $3.0 million for the six months ended June 30,
1998, as compared to the same period in 1997. This increase was primarily due to
a increased salaries and benefits expenses and other non interest expenses, such
as investor relations, professional fees, advertising, and acquisition-related
expenses. Net occupancy expense increased primarily due to the acquisitions of
Oberlin, MCM and Alma. The Company's overall efficiency ratio increased during
the first half of 1998 to 69.0% compared to 68.0% for the first half in 1997.
For the second quarter of 1998, other expense increased 58.6% to $4.2
million compared to the year ago quarter. The increase is due to a 55.1% rise in
salaries and benefits attributable to growth of the Company's employee base as a
result of the acquisitions of Oberlin, Alma and MCM as well as a 79.8% increase
in operating expenses directed mainly toward the newly acquired locations and
facilities.
Income Tax Expense
Income tax expense for the six months ended June 30, 1998 and June 30, 1997
was $1.2 million and $896,000, respectively. The effective tax rates for those
periods were 32.8% and 33.6%, respectively.
Income tax expense for the three months ended June 30, 1998 and June 30,
1997 was $687,000 and $515,000, respectively. The effective tax rates for those
periods were 33.3% and 34.3%, respectively.
CAPITAL AND LIQUIDITY
At June 30, 1998, the Company's leverage, Tier 1 risk-based capital, and
total risk-based capital ratios were 10.1%, 14.2%, and 19.4% 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 June 30, 1998, the Company had risk-weighted assets of
$ 392.3 million. On August 11, 1998, the Company's Board of Directors declared a
quarterly dividend in the amount of $.02 per common share.
The Company had approximately $14.7 million in cash and short-term
investment grade securities at June 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.
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 June 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 June 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 $20,689,800 179,500 0.88% 10%
100 basis point rise 20,661,000 151,300 0.74% 10%
Base Rate Scenario 20,510,300
100 basis point decline 19,756,000 (754,300) -3.68% 10%
200 basis point decline 19,120,300 (1,390,000) -6.78% 10%
</TABLE>
YEAR 2000
A comprehensive plan to attain Year 2000 compliance has been developed and
the process of analysis, testing, verification and implementation is underway
for all major financial, operational and information systems. The Company
expects to substantially complete programming changes and testing of internal
mission critical systems by December 31, 1998. These costs, which are expensed
as incurred, have not been material to date and are not expected to have a
material impact on the Company's earnings in the future. These costs do not
include computer equipment and software that is scheduled to be replaced in the
normal course of business. Additionally, the Company continues to communicate
with significant customers and vendors to determine their Year 2000 plans and
target dates. The Company will monitor the progress of mission critical third
parties and will implement contingency plans in the event that such third
parties fail to achieve their plans. There can be no assurance that any
contingency plans will fully mitigate the effects of any such failure.
The Company's estimate of Year 2000 project costs and the date set forth
above by which the Company expects to substantially complete mission critical
system programming and testing are based on management's best current estimates,
which were derived utilizing numerous assumptions about future events. There can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated.
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 June 17, 1998, the Magistrate issued a
report and recommendation that the Court rule against the plaintiff's motion for
class certification. The plaintiffs have filed objections and the recommendation
will be submitted to the trial judge for a determination of the motion.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On April 29, 1998 the Company held its Annual Meeting of Stockholders. The
following items were submitted for consideration by the stockholders.
Item 1 - Election of Directors
Two Class II directors, Mr. D. Michael Browne and Mr. Allen D. Petersen,
were elected at the Annual Meeting for terms expiring in 2001. Voting results
were as follows:
9,745,158 votes or 91.0% FOR
43,238 votes or 0.4% AGAINST
0 votes or 0% ABSTAINED
915,996 votes or 8.6% UNVOTED
Class I Directors continuing in office are Keith E. Bouchey and William F.
Wright. Class I directors' terms expire in 2000.
Class III Directors continuing in office are Michael W. Gullion and William
Wallman. Class III Directors' terms expire in 1999.
Item 2 - Ratification of appointment of independent auditors. The Audit
Committee recommended the reappointment of KPMG Peat Marwick LLP as the
independent auditors for Company. Item 2 was approved with the following voting
results:
9,292,550 votes or 86.8% FOR
6,500 votes or 0% AGAINST
489,346 votes or 4.6% ABSTAINED
915,996 votes or 8.6% UNVOTED
ITEM 5: OTHER INFORMATION
Pending Acquisitions
On April 29, 1998 the Company announced a definitive merger agreement with
Tri-County Bancshares, Inc. of Washington, Kansas for a combination cash and
stock-for-stock/tax free transaction valued at $4.4 million. Tri-County National
Bank, a wholly-owned subsidiary of Tri-County Bancshares with locations in
Concordia, Linn and Washington, Kansas had total assets of $43.2 million,
deposits of $39.8 million and net loans of $26.1 million at June 30, 1998. On
July 17, 1998, the SEC declared effective the Company's Registration Statement
on Form S-4. The transaction is expected to close in the third quarter of 1998.
On May 20, 1998 the Company announced a definitive merger agreement with
First State Bancorp, Inc. of Pittsburg, Kansas in a tax-free stock swap valued
at approximately $25.0 million. First State Bank & Trust Company, a wholly-owned
subsidiary of First State Bancorp, had total assets of $110.2 million, deposits
of $93.4 million and loans of $62.9 million at June 30, 1998.
Subsequent Events
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
stock swap valued at approximately $29.5 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.
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 May 20, 1998, payable on May 29, 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. 14 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: August 14, 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 CORPOATION, INC. AS OF JUNE 30,
1998.
</LEGEND>
<CIK> 0001015610
<NAME> GOLD BANC CORPORATION, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 18,407
<INT-BEARING-DEPOSITS> 2,049
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<LIABILITIES-OTHER> 3,736
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0
0
<COMMON> 10,704
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</TABLE>
