KC2-35692.1
KC2-40491.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-28936
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-1008593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11301 Nall Avenue
Leawood, Kansas 66211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 451-8050
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Title of Each Class
Common Stock, $1.00 par value
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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K./ /
The aggregate market value of the Common Stock, par value $1.00 per share, of
the registrant held by nonaffiliates of the registrant (4,341,225 shares) as
of March 17, 1998 was $105.8 million, based on a closing sale price of
$24 and 3/8.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $1.00 par value, outstanding as of March 17, 1998 5,352,196 Shares
DOCUMENTS INCORPORATED BY REFERENCE
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1
KC2-40491.1
None.
ITEM 1. BUSINESS
THE COMPANY AND SUBSIDIARIES
Gold Banc Corporation, Inc.
Gold Banc Corporation, Inc. ("the Company") is a multi-bank holding
company that owns and operates five commercial banks and a federal savings bank
(the "Banks"). The Banks are community banks providing a full range of
commercial and consumer banking services to small and medium-sized communities
and the surrounding market areas. Since December 1978, the Company has grown
internally and through acquisitions from a one bank holding company with $2.9
million in total assets to a five bank holding company with total assets as of
December 31, 1997 of $514.6 million. The Company's principal executive
offices are located at 11301 Nall Avenue, Leawood, Kansas 66211, telephone
number (913)451-8050.
The Banks
Exchange National Bank ("Exchange Bank"). Exchange Bank has four locations
and is headquartered in Marysville, Kansas. The two Marysville location's loan
portfolio as of December 31, 1997 consisted primarily of agricultural,
commercial and industrial loans and residential real estate loans. Since April
1992 and October 1995, Exchange Bank has been operating branches in Shawnee and
Leawood, Kansas, respectively. These branches are located in Johnson County, the
rapidly developing suburbs southwest of Kansas City, Missouri. Exchange Bank
opened a new Shawnee branch March 2, 1998. The two Johnson County, Kansas
branches of Exchange Bank's loan portfolio as of December 31, 1997 consisted
primarily of commercial, real estate construction and residential real estate
loans. As of December 31, 1997, Exchange Bank had assets of $226.4 million.
Provident Bank, f.s.b. ("Provident Bank"). Provident Bank a federally
chartered savings and loan has one location in the city of St.Joseph, Missouri.
The Bank's loan portfolio as of December 31, 1997 consisted primarily of real
estate loans. As of December 31, 1997, Provident Bank had assets of $82.9
million.
Citizens State Bank ("Citizens"). Citizens has two locations in the town of
Seneca, Kansas. As of December 31, 1997 the Bank's loan portfolio consisted
primarily of the agricultural sector, including farm real estate, agricultural
production and agricultural industrial and residential home loans. As of
December 31, 1997, the Bank had assets of $57.3 million.
Peoples National Bank ("Peoples"). Peoples has one location in the town of
Clay Center, Kansas. As of December 31, 1997, the Bank's loan portfolio
consisted primarily of real estate and agricultural loans. As of December 31,
1997, the Bank had assets of $71.0 million.
Farmers National Bank ("Farmers"). Farmers has two locations and is
headquartered in Oberlin, Kansas. As of December 31, 1997, the Bank's loan
portfolio consisted primarily of agricultural and real estate loans. As of
December 31, 1997, the Bank had assets of $53.6 million.
First National Bank in Alma ("Alma"). Alma has one location in the town of
Alma, Kansas. Alma was acquired by the Company on February 19, 1998. As of
December 31, 1997 the Bank's loan portfolio consisted primarily of agricultural
and real estate loans. As of December 31, 1997, Alma had assets of $30.1
million.
<PAGE>
BUSINESS
Community Banking Strategy
The Company serves the needs and caters to the economic strengths of the
local communities in which the Banks are located. Through the Banks and their
employees, the Company strives to provide a high level of personal and
professional customer service. Employee participation in community affairs is
encouraged in order to build long-term banking relationships with established
businesses and individual customers in these market areas.
The Company believes its central and western Kansas locations, together
with the other communities in their respective counties that comprise their
market area, provide a stable base of relatively low-cost deposits compared to
larger metropolitan markets with larger competitors. The Company believes that,
through good management, community banks such as the Banks can maximize earnings
by attracting relatively low cost core deposits and investing those funds in
loans and other high yielding investments, while maintaining risk at an
acceptable level.
Recently the Company has applied its community banking strategy to two
affluent communities in the rapidly developing Johnson County suburbs southwest
of Kansas City. The Company believes the recent wave of regional bank
acquisitions of local banks in those suburban communities, and the subsequent
conversion of some of those acquired banks to branch locations, has alienated
the customers of those locations. This has created an opportunity for the
Company to attract and retain as loan customers those owner-operated businesses
that require flexibility and responsiveness in lending decisions and desire a
more personal banking relationship. The Company believes that it has been able
to meet these customers expectations without compromising credit standards. The
success of this strategy is reflected in the Company's growth and ability to
attract significant levels of non-interest bearing deposits in the suburban
communities of Leawood and Shawnee, Kansas.
Operating Strategy
The Company's operating strategy is to provide in each market that it
operates a full range of financial products and services to small and
medium-sized businesses and to consumers. The Company emphasizes personal
relationships with customers, involvement in local community activities and
responsive lending decisions. The Company strives to maintain responsive
community banking offices with local decision makers, allowing senior management
at each banking location, within certain limitations, to make its own credit and
pricing decisions and retaining at each Bank a local identity and board of
directors. The Company's goals include long-term customer relationships, a high
quality of service and responsiveness to specific customer needs. The principal
elements of the Company's operating strategy are:
Emphasize Personalized Customer Service and Community Involvement. The
Company believes that, in most of its market areas, customer loyalty and service
are the most important competitive factors. The Banks have experienced low
turnover in their management and lending staffs, enabling them to provide
continuity of service by the same staff members, leading to long-term customer
relationships, high quality service and quick response to customer needs. The
Banks' management and other employees participate actively in a wide variety of
community activities and organizations in order to develop and maintain customer
relationships. The Banks seek to recruit the best available banking talent to
deliver the quality of personal banking services required to meet customer
expectations and to permit the Company to meet its goals for long-term
profitable growth.
Capitalize on Changing Market Conditions. The Company's management
continually monitors economic developments in its market areas in order to
tailor its operations to the evolving strengths and needs of the local
communities. For example, Exchange Bank has opened branch locations in the high
growth areas of Shawnee and Leawood, Kansas to fill the void of community banks
that management believes has been created by the recent transaction activity of
regional banking institutions and to deploy excess low-cost funds derived from
its rural northeastern Kansas market.
Centralize and Streamline Operations to Achieve Economies. While each of
the Banks presently operates autonomously, the Company, in order to minimize
duplication of functions, is centralizing certain management and administrative
functions, including data processing, human resources and regulatory
administration, that can better and more efficiently be performed by the
Company. Such centralization will help to reduce operating expenses and enable
the Bank personnel to focus on customer service and community involvement. The
Company believes it has acquired the personnel necessary to make implementation
of these operating efficiencies possible. The Company also provides overall
direction in areas of budgets, asset/liability and investment portfolio
management and credit review.
Acquisition/Growth Strategy
Transactions. Management believes that the Company is well positioned to
acquire and profitably operate community banks because of its experience in
operating community banks, its ability to provide centralized management
assistance to those banks and its access to capital. Management of the Company
believes there are owners of community banks who may be willing to sell their
banks in the future for, among other reasons, stockholder liquidity, to
diversify their own investment portfolios, lack of family successor operators
and the burden of compliance with bank regulations. In addition, management
believes there are individual community bank owners in the targeted regions who
are interested in selling their banks to an organization that has a strong
capital base and management that has demonstrated a commitment to maintaining
local bank identity. The Company's goal is to acquire banks with strong existing
management such that the Company's strategies can be implemented while retaining
the individual identity of the banks through the continuation of the existing
management, boards of directors and bank charters.
The Company is generally targeting profitable community banks in county
seat towns of 2,000 persons or more. Market factors to be considered by the
Company include the size and long-term viability of the community and market
area served by the target bank, the position of the transaction target in the
market and the proximity of other banks owned by the Company. Generally, the
bank target must be among the top three financial institutions in its market in
terms of deposit share. Financial criteria include historical performance,
comparison to peers in terms of key operating performance and capital ratios,
loan asset quality, operating procedures and deposit structure. Also of
significant financial importance is the investment required for, and opportunity
costs of, the transaction. Non-financial considerations in evaluating an
transaction prospect include the quality of the target's management and the
demand on the Company resources to integrate the target institution.
Because of the large number of county seat towns and banks and its
familiarity with the market place, the Company's transaction focus is the
Midwest and primarily in the States of Kansas and Missouri, but it will also
consider institutions in other contiguous states. Kansas is perceived by
management to be the Company's best market for bank transactions because only
recently have state banking laws permitted the large regional banking
institutions based in Missouri to conduct branching activities in the State of
Kansas.
Internal Growth. The recent wave of regional bank transactions of community
banks in the Midwest has created what management of the Company perceives to be
a void in the community banking market. It is management's belief that it has
been the practice of regional banking institutions to convert the banks they
acquire into branches of the acquiring institution. Management of the Company
believes this practice detracts from the delivery of quality personalized
services to the existing customer base of those branches. The Company entered
the Kansas City suburban community market by acquiring the deposits of a failed
thrift in Shawnee, Kansas in 1992. Exchange Bank opened in 1998 another
branch location in a rapidly developing part of Shawnee, Kansas that presently
has few other lending institutions in the immediate area. In October 1995,
Exchange Bank further expanded its presence in the suburban Johnson County
communities of Kansas City by opening a branch location in Leawood, Kansas,
another rapidly growing residential and small business community. Management of
the Company believes its branching activities are distinguished from those of
regional banking institutions by the high degree of autonomy given each branch
location. The Company's expansion activity also has allowed it to diversify its
loan portfolio, which was previously dominated by loans related to the
agricultural industry. Further, the loan demand in these suburban Johnson County
communities, due to heavy residential and small business development, is greater
than that experienced in the Company's rural market areas.
The Company expects it will continue to expand in the suburban Johnson
County communities west of Kansas City through growth in the assets and loan
portfolios of existing branches and to a limited extent through additional
branching activities.
Lending Activities
General. The Company strives to provide in each market area it serves a
full range of financial products and services to small and medium-sized
businesses and to consumers. The Company targets owner-operated businesses and
emphasizes the use of Small Business Administration and Farmers Home
Administration lending. The Banks participate in credits originated within the
organization but generally do not participate in loans from non-affiliated
lenders. Each Bank has an established loan committee which has authority to
approve credits, within established guidelines, of up to $200,000.
Concentrations in excess of $200,000 must be approved by an executive loan
committee comprised of the Chief Executive Officer and the Vice President of the
Company and the local Bank's president and senior lending officer. When lending
to an entity, the Company generally obtains a guaranty from the principals of
the entity. The loan mix within the individual Banks is subject to the
discretion of the Bank board of directors and the demands of the local
marketplace. Residential loans are priced consistently with the secondary
market, and commercial and consumer loans generally are issued at or above the
prime rate. The Company has no potential negative amortization loans. The
following is a brief description of each major category of the Company's lending
activity.
Real Estate Lending. Commercial, residential and agricultural real estate
loans represent the largest class of loans of the Company. As of December 31,
1997, real estate and real estate construction loans totaled $147.8 million and
$47.9 million, respectively or 42.7% and 13.8% of all loans, respectively. One
to four family residential loans at December 31, 1997 made up approximately
37.0% of real estate loans, followed by commercial 25.6%, and agricultural
10.6%. Generally, residential loans are written on a variable rate basis with
terms of five years or less and amortized over either 15 or 30 years. The
Company retains in its portfolio some adjustable rate mortgages having an
adjustment period of five years or less. Agricultural and commercial real estate
loans are amortized over 15 or 20 years. The Company also generates long-term
fixed rate residential real estate loans which it sells in the secondary market.
The Company takes a security interest in the real estate. Commercial real
estate, construction and agricultural real estate loans are generally limited,
by policy, to 80% of the appraised value of the property. Commercial real estate
and agricultural real estate loans also are supported by an analysis
demonstrating the borrower's ability to repay. Residential loans that exceed 80%
of the appraised value of the real estate generally are required, by policy, to
be supported by private mortgage insurance, although on occasion the Company
will retain non-conforming residential loans to known customers at premium
pricing.
Commercial Lending. Loans in this category principally include loans to
service, retail, wholesale and light manufacturing businesses, including
agricultural service businesses. Commercial loans are made based on the
financial strength and repayment ability of the borrower, as well as the
collateral securing the loans. As of December 31, 1997, commercial loans
represented the second largest class of loans at $88.7 million, or 25.6% of
total loans. The Company targets owner-operated businesses as its customers and
makes lending decisions based upon a cash flow analysis of the borrower as well
as the accounts receivable, inventory and equipment of the borrower. Accounts
receivable loans and loans for inventory purchases are generally of a one-year
renewable term and those for equipment generally have a term of seven years or
less. The Company generally takes a blanket security interest in all assets of
the borrower. Equipment loans are generally limited to 75% of the cost or
appraised value of the equipment. Inventory loans are limited to 50% of the
value of the inventory, and accounts receivable loans are limited to 75% of a
pre-determined eligible base. Each of the Banks is approved to make loans under
the Small Business Administration program.
Agricultural Lending. The Company provides short-term credit for operating
loans and intermediate-term loans for farm product, livestock and machinery
purchases and other agricultural improvements. Agricultural loans were $36.9
million as of December 31, 1997, or 10.6% of total loans. Farm product loans
have generally a one-year term and machinery and equipment and breeding
livestock loans generally have five to seven-year terms. Extension of credit is
based upon the ability to repay, as well as the existence of federal guarantees
and crop insurance coverage. Farmers Home Administration guarantees are pursued
wherever possible. Exchange Bank and Citizens hold "Preferred Lender
Status" from the Farmers Home Administration, a guarantee program similar to the
Small Business Administration, that minimizes the credit exposure of the Banks
through partial transfer of the credit risk to the federal government. Preferred
Lender Status expedites the processing of loan applications. These loans are
generally secured by a blanket lien on livestock, equipment, feed, hay, grain
and growing crops. Equipment and breeding livestock loans are limited to 75% of
appraised value.
Consumer and Other Lending. Loans classified as consumer and other loans
include automobile, credit card, boat, home improvement and home equity loans,
the latter two secured principally through second mortgages. The Company
generally takes a purchase money security interest in goods for which it
provides the original financing. The terms of the loans range from one to five
years, depending upon the use of the proceeds, and range from 75% to 90% of the
value of the collateral. The majority of these loans are installment loans with
fixed interest rates. As of December 31, 1997, consumer and other loans amounted
to $24.0 million, or 6.9% of total loans. The Company implemented a credit card
program in late 1994 and targeted the Banks' existing customer base as potential
consumers. As of December 31, 1997, the Company had issued 2,161 cards having an
aggregate outstanding balance of $1.8 million in credit card receivables. The
Company has not marketed credit cards to persons other than existing customers.
Loan Origination and Processing
Loan originations are derived from a number of sources. Residential loan
originations result from real estate broker referrals, mortgage loan brokers,
direct solicitation by the Banks' loan officers, present savers and borrowers,
builders, attorneys, walk-in customers and, in some instances, other lenders.
Residential loan applications, whether originated through the Banks or through
mortgage brokers, are underwritten and closed based on the same standards, which
generally meet FNMA underwriting guidelines. Consumer and commercial real estate
loan originations emanate from many of the same sources. The average loan is
less than $500,000. From time to time, loans may be participated among the
Banks.
The loan underwriting procedures followed by the Banks conform to
regulatory specifications and are designed to assess both the borrower's ability
to make principal and interest payments and the value of any assets or property
serving as collateral for the loan. Generally, as part of the process, a loan
officer meets with each applicant to obtain the appropriate employment and
financial information as well as any other required loan information. The Bank
then obtains reports with respect to the borrower's credit record, and orders
and reviews an appraisal of any collateral for the loan (prepared for the Bank
through an independent appraiser). The loan information supplied by the borrower
is independently verified.
Loan applicants are notified promptly of the decision of the Bank by
telephone and a letter. If the loan is approved, the commitment letter specifies
the terms and conditions of the proposed loan including the amount of the loan,
interest rate, amortization term, a brief description of the required
collateral, and required insurance coverage. Prior to closing any long-term
loan, the borrower must provide proof of fire and casualty insurance on the
property serving as collateral, and such insurance must be maintained during the
full term of the loan. Title insurance is required on loans collateralized by
real property. Interest rates on committed loans are normally locked in at the
time of application or for a 30 to 45-day period.
Mortgage Banking Division Operations
The mortgage banking division of Provident Bank is engaged in the business
of originating and selling principally first-lien mortgages secured by single
family residences. Loans originated through Provident Bank's mortgage banking
division were 50.9 million, $83.1 million and $83.3 million in 1997, 1996
and 1995, respectively, however, as a result of a change in Company strategy,
mortgage loans generated by Provident Bank are expected to decrease
significantly from these historical levels. The mortgage banking division's
principal sources of revenue consist of loan origination fees and gain or loss
on the sale of mortgage loans. Mortgage loans are originated primarily in
St. Joseph, Missouri, Johnson County, Kansas and throughout the metropolitan
Kansas City area. Loans usually are purchased by Provident Bank for investment
pending resale into the secondary market. Loans usually are sold to investment
banking firms and other investors as whole loans, without retaining
servicing rights. The Company only originates mortgage loans against loan
purchase commitments from third parties.
Mortgage loans are originated primarily through loan originators and from
referrals from real estate brokers, builders, developers and prior customers.
The origination of a loan from the date of initial application to a loan closing
normally takes three to eight weeks. It involves processing the borrower's loan
application, evaluating the borrower's credit and other qualifications
consistent with underwriting criteria established by private institutional
investors and insuring or guaranteeing agencies, obtaining investor approvals,
property appraisals, and title insurance, arranging for hazard insurance and
handling various other matters customarily associated with the closing of a
residential loan. For this service, the division typically collects an
origination fee of one percent of the principal amount of the loan. Costs that
are incurred in originating mortgage loans include: overhead, origination
commissions paid to the originators, certain out-of-pocket costs and, in some
cases, commitment fees where the loans are made subject to a purchase commitment
from wholesale lenders, private investors or other intermediaries. In the third
quarter of 1996, Provident Bank substantially reduced the resources committed to
its mortgage banking operations.
Brokerage Services
The Company provides brokerage services through Midwest Capital Management,
Inc.("Midwest Capital"), a wholly-owned nonbank subsidiary, which operates as a
broker-dealer in securities. Customers consist primarily of financial
institutions located throughout the United States, with concentrations in the
midwestern section of the United States. Midwest Capital manages a wide variety
of stock, bond and money market portfolios for clients which currently include a
significant number of commercial banks located primarily in Kansas, Missouri,
Oklahoma, Nebraska and Iowa, as well as trusts, pension plans, insurance
companies, commercial businesses, government entities, foundations and high net
worth individuals. Midwest Capital is registered with the National Association
of Securities Dealers as a broker/dealer and investment advisor.
Other Services
The Company provides trust and insurance agency services. Although these
businesses are not of financial significance to the Company, management believes
these services are important to certain of the Banks' customers, provide an
opportunity to strengthen and develop relationships with customers, and further
the Company's objective of becoming a complete financial services provider.
Investment Portfolio
The Banks' investment portfolio is used to meet the Banks' liquidity needs
while endeavoring to maximize investment income. Additionally, management
augments the quality of the loan portfolio by maintaining a high quality
investment portfolio oriented toward U.S. government and U.S. government agency
securities. The portfolio is comprised of U.S. Treasury securities, U.S.
government agency instruments and a modest amount of investment grade
obligations of state and political subdivisions. In managing its interest rate
exposure, the Company also invests in mortgage-backed securities and
collateralized mortgage obligations. Federal funds sold and certificates of
deposit are additional investments that are not classified as investment
securities. Investment securities were $104.4 million, or 20.3% of total assets,
at December 31, 1997. As of December 31, 1997, the investment portfolio included
approximately $1.1 of equity securities of other publicly held bank holding
companies.
Deposits and Borrowings
Deposits are the major source of the Banks' funds for lending and other
investment purposes. In addition to deposits, including local public fund
deposits and demand deposits of commercial customers, the Banks derive funds
from loan principal repayments, maturing investments, Federal Funds borrowings
from commercial banks, borrowings from the Federal Reserve Bank of Kansas City
and the Federal Home Loan Bank ("FHLB") and from repurchase agreements. Loan
repayments and maturing investments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources. They
also may be used on a long-term basis for funding specific loan transactions and
for general business purposes.
The Banks offer a variety of accounts for depositors designed to attract
both short-term and long-term deposits. These accounts include certificates of
deposit savings accounts, money market accounts, checking and individual
retirement accounts. Deposit accounts generally earn interest at rates
established by management based on competitive market factors and management's
desire to increase or decrease certain types or maturities of deposits. The
Company has not sought brokered deposits and does not intend to do so in the
future.
Competition
The deregulation of the banking industry, the widespread enactment of state
laws permitting multi-bank holding companies, and the availability of nationwide
interstate banking has created a highly competitive environment for financial
services providers, particularly for institutions in suburban areas, such as
Exchange Bank's Shawnee and Leawood branches. These branches compete with other
commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies and other financial intermediaries. Some of these competitors have
substantially greater resources and lending limits and may offer certain
services that these branches do not currently provide. In addition, some of the
non-bank competitors are not subject to the same extensive federal regulations
that govern these branches.
Management believes the Banks have generally been able to compete
successfully in their respective communities because of the Company's emphasis
on local control and the autonomy of Bank management, allowing the Banks to meet
what is perceived to be the preference of community residents and businesses to
deal with "local" banks. While management believes the Banks will continue to
compete successfully in their communities, there is no assurance future
competition will not adversely affect the Banks' earnings.
Employees
The Company maintains a corporate staff of 7 persons. At December 31, 1997,
the Banks had 186 full-time equivalent employees. None of the employees of the
Company or the Banks are covered by a collective bargaining agreement. The
Company and the Banks believe their employee relations are good.
SUPERVISION AND REGULATION
Introduction
Bank holding companies and banks are extensively regulated under both
federal and state law. The following information describes certain aspects of
that regulation applicable to the Company and the Banks, and does not purport to
be complete. The discussion is qualified in its entirety by reference to all
particular statutory or regulatory provisions.
The Company is a legal entity separate and distinct from the Banks.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Banks is necessarily subject to the prior claims of
creditors of the Banks, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principle source of the Company's
revenue and cash flow is dividends from the Banks. There are, however, legal
limitations on the extent to which a subsidiary bank can finance or otherwise
supply funds to its parent holding company.
The Company
The Company is a bank holding company within the meaning of Bank Holding
Company Act of 1956, as amended (the "BHCA").
The BHCA. Under the BHCA, the Company is subject to periodic examination by
the Board of Governors of the Federal Reserve System and is required to file
periodic reports of its operations and such additional information as the
Federal Reserve may require. The Company's and the Banks' activities are limited
to banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity the Federal
Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities the
Federal Reserve has determined by regulation to be proper incidents to the
business of banking include making or servicing loans and certain types of
leases, engaging in certain insurance and discount brokerage activities,
performing certain data processing services, acting in certain circumstances as
a fiduciary or investment or financial advisor, owning savings associations, and
making investments in certain corporations or projects designed primarily to
promote community welfare.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i) acquiring
substantially all of the assets of any bank, (ii) acquiring direct or indirect
ownership or control of any voting shares of any bank if after such transaction
it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares), or (iii) merging or
consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the federal
Change in Bank Control Act, together with the regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to exist
if any individual or company acquires 25% or more of any class of voting
securities of the bank holding company. With respect to corporations with
securities registered under the Securities Exchange Act of 1934, such as the
Company, control will be rebuttably presumed to exist if a person acquires at
least 10% of any class of voting securities of the corporation.
In accordance with Federal Reserve policy, the Company is expected to act
as a source of financial strength for and commit resources to support the Banks.
Under the BHCA, the Federal Reserve may require a bank holding company to
terminate any activity or relinquish control of a non-bank subsidiary (other
than a non-bank subsidiary of a bank) upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or non-bank subsidiary if the agency determines that divestiture may aid
the depository institution's financial condition.
The Banks
Exchange Bank, Peoples, Farmers and Alma. Exchange Bank, Peoples, Farmers
and Alma operate as national banking associations organized under the laws of
the United States and are subject to examination by the Office of the
Comptroller of the Currency (the "OCC"). Deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") up to a maximum amount (generally
$100,000 per depositor, subject to aggregation rules). The OCC and the FDIC
regulate or monitor all areas of their operations, including security devices
and procedures, adequacy of capitalization and loss reserves, loans,
investments, borrowings, deposits, mergers, issuances of securities, payment of
dividends, interest rate risk management, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires these Banks to maintain certain capital ratios and imposes limitations
on its aggregate investment in real estate, bank premises, and furniture and
fixtures. These Banks are currently required by the OCC to prepare quarterly
reports on its financial condition and to conduct an annual audit of their
financial affairs in compliance with minimum standards and procedures prescribed
by the OCC.
Citizens. Citizens operates under a Kansas state bank charter and is
subject to regulation by the Kansas Banking Department and the FDIC. The Kansas
Banking Department and FDIC regulate or monitor all areas of Citizen's
operations, including capital requirements, issuance of stock, declaration of
dividends, interest rates, deposits, record keeping, establishment of branches,
transactions, mergers, loans, investments, borrowing, security devices and
procedures and employee responsibility and conduct. The Kansas Banking
Department places limitations on activities of Citizens including the issuance
of capital notes or debentures and the holding of real estate and personal
property and requires Citizens to maintain a certain ratio of reserves against
deposits. The Kansas Banking Department requires Citizens to file a report
annually showing receipts and disbursements of the bank, in addition to any
periodic report requested. Citizens is examined by the Kansas Banking Department
at least once every 18 months and at any other time deemed necessary. The FDIC
insures deposits held in Citizens up to a maximum amount, which is generally
$100,000 per depositor.
Provident Bank. Provident Bank operates as a federal savings bank and
provides full savings bank services. As a savings institution, Provident Bank is
subject to regulation by the OTS. The OTS regulates or monitors all areas of
Provident Bank's operations, including capital requirements, loans, investments,
establishment of branch offices, mergers, conversions, dissolutions,
transactions, borrowing, management, record keeping, security devices and
procedures and offerings of securities. The OTS requires Provident Bank to file
annual current reports in compliance with OTS procedures, as well as periodic
reports upon the request of the director of OTS. Provident Bank must also
prepare a statement of condition report showing the savings association's
assets, liabilities and capital at the end of each fiscal year. The OTS may
require an independent audit of financial statements by a qualified independent
public accountant when needed for safety and soundness purposes. With some
exceptions, an appraisal by a state certified or licensed appraiser is required
for all real estate related financial transactions.
All savings associations, including Provident Bank, are required to meet
the QTL test to avoid certain restrictions on their operations. This test
requires a savings association to have at least 65% of its portfolio assets (as
defined by regulation) in qualified thrift investments on a monthly average for
nine out of every 12 months on a rolling basis. Such assets primarily consist of
residential housing related loans and investments. Any savings association that
fails to meet the QTL test must convert to a national bank charter, unless it
requalifies as a QTL and thereafter remains a QTL. If such an association has
not yet requalified or converted to a national bank, its new investments and
activities are limited to those permissible for both a savings association and a
national bank, and it is limited to national bank branching rights in its home
state. In addition, the association is immediately ineligible to receive any new
FHLB borrowings and is subject to national bank limits for payment of dividends.
If such association has not requalified or converted to a national bank within
three years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in repayment
penalties. If any association that fails the QTL test is controlled by a holding
company, then within one year after the failure, the holding company must
register as a bank holding company and become subject to all restrictions on
bank holding companies. Provident Bank is a member of the SAIF, which is
administered by the FDIC. As insurer, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting
by FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings associations, after giving the OTS an
opportunity to take such action, and may terminate the deposit insurance if it
determines that the institution has engaged in unsafe or unsound practices, or
is in an unsafe or unsound condition.
Payment of Dividends
Exchange Bank, Peoples, Farmers and Alma are subject to the dividend
restrictions set forth by the OCC. Under such restrictions, they may not,
without prior approval of the OCC, declare dividends in excess of the sum of the
current year's earnings (as defined) plus the retained earnings (as defined)
from the prior two years. Provident Bank, as a Tier 1 savings institution, is
limited in its payment of dividends during a calendar year to the higher of 100%
of the current year earnings during the calendar year plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year, or 75% of its current earnings over the most recent four-quarter period.
Provident Bank is required to obtain OTS approval for dividends exceeding the
preceding amount. There are no specific state bank regulatory restrictions on
the ability of Citizens to pay dividends. In addition, under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-insured
depository institution may not pay any dividend if payment would cause it to
become undercapitalized or in the event it is undercapitalized.
If, in the opinion of the applicable federal bank regulatory authority,
a depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition of
the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in the
case of an emergency proceeding where there is no notice or hearing), that such
institution or holding company cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice. Moreover, the Federal Reserve and
the FDIC have issued policy statements providing that bank holding companies and
insured depository institutions generally should only pay dividends out of
current operating earnings.
Transactions With Affiliates and Insiders
The Banks are subject to Section 23A of the Federal Reserve Act, which
places limits on the amount of loans or extensions of credit to, or investments
in, or certain other transactions with, affiliates, including the Company. In
addition, limits are placed on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Most of these
loans and certain other transactions must be secured in prescribed amounts. The
Banks are also subject to Section 23B of the Federal Reserve Act, which, among
other things, prohibits an institution from engaging in transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
companies. The Banks are subject to restrictions on extensions of credit to
executive officers, directors, certain principal stockholders, and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Branching
National bank branches are required by the National Bank Act to adhere to
branch banking laws applicable to state banks in the states in which they are
located. Under federal legislation, a bank may merge or consolidate across state
lines, unless, prior to May 31, 1997, either of the states involved elected to
prohibit such mergers or consolidations. States may also authorize banks from
other states to engage in branching across state lines de novo and by
acquisition of branches without acquiring a whole banking institution. Missouri
has enacted legislation authorizing interstate branching within thirty miles of
its state borders and placing a minimum age requirement of five years on
acquired institutions. The Kansas legislature has not placed limits on
interstate merging activities of banks. State law in Missouri permits branching
anywhere in the state. Statewide branching is also allowed in Kansas.
Community Reinvestment Act
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve, the FDIC, the OCC and the OTS evaluate the record of such financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in evaluating
mergers, transactions and applications to open a branch or facility.
Other Regulations
Interest and certain other charges collected or contracted for by the Banks
are subject to state usury laws and certain federal laws concerning interest
rates. The Banks' loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978 governing the use and provision of information
to credit reporting agencies, the Fair Debt Collection Act governing the manner
in which consumer debts may be collected by collection agencies, and the rules
and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws. The deposit operations of the Banks also are
subject to the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records, and the Electronic
Funds Transfer Act and Regulation E issued by the Federal Reserve to implement
that act, which govern automatic deposits to and withdrawals from deposit
accounts and customers' rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
Regulatory Capital Requirements
Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk. The Banks with capital
ratios below the required minimum are subject to certain administrative actions,
including prompt corrective action, the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance without a hearing.
The federal risk-based capital guidelines for banks require a ratio of Tier
1, or core capital, to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leveraged capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total adjusted
assets, except in the case of certain highly rated banks for which the minimum
leverage ratio is 3% of total adjusted assets. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital to total
adjusted assets) of at least 3% and (3) a risk-based capital requirement equal
to at least 8% of total risk-weighted assets.
Federal regulations applicable to financial institutions define five
capital levels: well capitalized, adequately capitalized, undercapitalized,
severely undercapitalized and critically undercapitalized. An institution is
critically undercapitalized if it has a tangible equity to total assets ratio
that is equal to or less than 2%. An institution is well capitalized (adequately
capitalized) if it has a total risk-based capital ratio (total capital to
risk-weighted assets) of 10% or greater (8.00% to be adequately capitalized),
has a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted assets)
of 6% or greater (4.00% to be adequately capitalized), has a leveraged ratio
(Tier 1 capital to total adjusted assets) of 5% or greater (4.00% to be
adequately capitalized), and is not subject to an order, written agreement,
capital directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. Under the regulations, each of
the Banks is well capitalized at December 31, 1997.
The FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to capital-deficient institutions. In addition to requiring
the submission of a capital restoration plan, FDICIA contains broad restrictions
on certain activities of undercapitalized institutions involving asset growth,
transactions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
regulators have very limited discretion in dealing with a critically
undercapitalized institution and are virtually required to appoint a receiver or
conservator if the capital deficiency is not corrected promptly.
ITEM 2. PROPERTIES
The Company or the Banks own each of their banking facilities. The Company
believes each of the facilities is in good condition, adequately covered by
insurance and sufficient to meet the needs at that location for the foreseeable
future. The Company's headquarters and Exchange Bank's Leawood, Kansas location
are contained in a new 25,000 square foot building, 60% of which is leased to
third parties.
ITEM 3. LEGAL PROCEEDINGS
Exchange Bank, along with approximately 24 other persons and entities
including a number of depository institutions, is a named defendant in a case
filed in the United States District Court for the District of Kansas on
September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys and
Bandero Cigar Company. The complaint alleges violations of the Racketeer
Influenced Corrupt Organizations ("RICO") statute (18 U.S.C. 1962(c)),
conspiracy to violate RICO, negligent misrepresentation, fraud, civil conspiracy
and negligence on the part of the defendants. The plaintiffs contend that the
defendants, including Exchange Bank, were listed in trade reference sheets
provided to plaintiffs by Parade of Toys and Bandero Cigar Company and that the
defendants made false and misleading representations on which they relied to
their detriment. In each count, the plaintiffs have sought actual damages in an
amount in excess of $75,000 each, treble damages under RICO, and punitive
damages. Exchange Bank denies liability and is in the process of vigorously
defending this claim.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no pending litigation
to which it is a party will have a material adverse effect on its liquidity,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock, par value $1.00 per share, has been traded
on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol
"GLDB" since November 19, 1996. Prior to that date, there was no trading market
for the Company's common stock.
Information relating to market prices of common stock and cash
dividends declared on common stock is set forth in the table below.
Market Price
- --------------------------------------------------------------------------------
- ---------------------- ---------------------- ----------------------------------
High Low Cash
Dividends
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
1996 Quarters
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
Fourth $9.25 $8.375 $0.00
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
1997 Quarters
- ------------------ ------------------- -------------------- --------------------
- ------------------ ------------------- -------------------- --------------------
First $11.875 $8.50 $0.00
Second 14.375 10.50 0.03
Third 20.000 14.00 0.03
Fourth 26.000 20.00 0.03
As of February 26, 1998 there were approximately 225 holders of record of
the Company's common stock. On October 1, 1997, the Company issued 273,000
shares of its common stock in an unregistered stock offering in connection with
its acquisition of Farmers National Bank, a closely held bank. The sale was
completed in reliance on the exemption from the registration requirements
provided by Section 4(a) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated information regarding the Company
should be read in conjunction with the consolidated financial statements of the
Company and notes beginning on page 25.
<TABLE>
<CAPTION>
At or for the Years Ended
December 31,
1997 1996 1995
(In thousands except share data and ratios)
<S> <C> <C> <C>
Net interest income $ 15,256 $ 11,334 $ 10,547
Provision for possible loan losses 865 (25) 1,334
Non-interest income 2,776 2,852 2,315
Non-interest expense 11,548 11,067 9,790
------ ------ -----
Income taxes 1,888 1,066 520
----- ----- ---
Net income $ 3,731 $ 2,078 $ 1,218
===== ========= =========
Financial Position
Total assets $514,597 $ 376,858 $ 332,902
Loans, net of unearned income 346,165 236,339 193,541
Allowance for loan losses 4,677 2,981 3,252
Goodwill 1,688 1,678 1,769
Investment securities 104,437 101,145 102,065
Deposits 419,139 316,572 285,720
Long-term Debt 32,086 4,893 12,392
Stockholders' equity 41,733 34,340 14,887
Share Data
Net income $ .77 $ 0.76 $ 0.48
Book value 8.24 7.16 5.94
Cash dividend(2) .09 0.00 0.00
Ratios
Return on average assets 0.84% 0.60% 0.40%
Return on average equity 9.26% 11.19% 8.27%
Dividend payout (2) 11.69% -- --
Stockholders' equity to total
assets at period-end 8.11% 9.11% 4.47%
Average stockholders' equity
to average total assets 9.04% 5.37% 4.90%
Capital Ratios
Tier 1 risk-based capital ratio 15.16% 13.59% 6.93%
Total risk-based capital ratio 16.47% 14.85% 8.19%
Leverage ratio 11.70% 9.48% 4.36%
Ratios of Earnings to Fixed Charges(1)
Excluding interest on deposits 4.67 2.82 2.06
Including interest on deposits 1.34 1.21 1.13
</TABLE>
(1) The consolidated ratio of earnings to fixed charges has been computed
by dividing income before income taxes, cumulative effect of changes
in accounting principles and fixed charges by fixed charges. Fixed
charges represent all interest expense (ratios are presented
both excluding and including interest on deposits). There were no
amortization of notes and debentures expense nor any portion of net
rental expense which was deemed to be equivalent to interest on debt.
Interest expense (other than on deposits) includes interest on
notes, federal funds purchased and securities sold under agreements to
repurchase, and other funds borrowed.
(2) Prior to the second quarter of 1997, the Company had not paid cash
dividends on shares of its common stock. On each of May 30 and
September 12, 1997, the Company paid a cash dividend of $0.03 per share
to the holders of record at May 15 and August 29, 1997.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Gold Banc Corporation, Inc. and Subsidiaries
General
The Company provides community banking and related financial services in Kansas
and Missouri. During 1997, the Company's four commercial banks and one federal
savings bank operated a total of 10 locations. Markets served by the Banks
include Johnson County, Kansas - a growing, affluent suburban county in the
Kansas City metropolitan area - plus five county seats in the two states.
Exchange Bank, the largest of the Banks, has locations in both Johnson County
and Marshall County, Kansas.
The following table lists the Banks, their total assets (in millions of dollars)
as of December 31, 1997, communities served, number of locations and year
acquired:
Total County, State - Year
Banks Assets No. of Locations Acquired
Exchange National Bank $226.4 Johnson Co., KS - 2* 1978
Marshall Co., KS - 2
Provident Bank, f.s.b. $ 83.0 Buchanan Co., MO - 1 1994
Peoples National Bank $ 71.0 Clay Co., KS - 1 1997
Citizens State Bank and Trust Co. $ 57.3 Nemaha Co., KS - 2 1985
Farmers National Bank $ 53.6 Decatur Co., KS - 2 1997
*A third Johnson County office of Exchange Bank opened in March 1998.
The Company's historical financial statements and other data in this report have
been restated to reflect the operations of Peoples, acquired in a pooling
transaction on August 22, 1997, but not Farmers, acquired in a purchase
transaction on October 1, 1997. The statements do not include two acquisitions
announced in late 1997, which were closed in the first quarter of 1998: First
National Bank in Alma, Kansas, and Midwest Capital Management, Inc., a full
service broker/dealer and investment management firm based in Kansas City,
Missouri.
In December 1997, the Company completed a public offering of Trust Preferred
Securities by GBCI Capital Trust, a statutory business trust established by the
Company. The approximately $27 million in net proceeds will be used to pursue
the Company's strategy of acquiring profitable community banks in the Midwest
and supporting internal growth, as well as for general corporate purposes.
In November 1996, the Company completed an initial public offering of its common
stock. Net proceeds of the sale, after deducting expenses of the offering, were
approximately $18 million, used for retirement of debt, a capital contribution
to Exchange Bank, investments and general corporate purposes.
Markets
The economies of Kansas and Missouri, including local markets where the Banks
operate, generally performed well in 1997. Personal income in both states grew
approximately in line with national averages. Manufacturing, agriculture and
certain other sectors produced growth. Both states' unemployment rates declined
during the year by nearly 1%, to 3.7% in Kansas and 4.0% in Missouri in December
1997, compared with a 4.7% national rate.
Johnson County was the largest single market for the Company, as Exchange Bank
offices in Leawood and Shawnee accounted for 40% of the Company's loans and 31%
of the Company's deposits at year-end. Johnson County's retail sales,
residential real estate and employment were strong in 1997, according to the
County Economic Research Institute. The value of construction activity in
Johnson County rose 9.8% in 1997, to $1.15 billion. Johnson County's
unemployment rate was between 2.1% and 2.7% throughout 1997, about half the
national rate. Johnson County has a more competitive banking environment than
the Company's other markets, but the county's level of economic activity and
business growth have enabled business at Exchange Bank's two offices there to
grow rapidly since their establishment in 1992 and 1995. A third Johnson County
office of Exchange Bank opened in Shawnee in the first quarter of 1998.
Other local markets where the Banks operate generally did not experience the
rapid growth seen in Johnson County, but their economies were stable and sound,
reflecting a mix of agriculture, manufacturing and other industries. Each of the
commercial banks in the group is based in a county seat, serves the surrounding
area and ranks among the top three banks in deposits in its home county.
Exchange Bank ranks second in total deposits in Marshall County, where it is
headquartered. Provident Bank, a federal savings bank which competes with a
variety of thrift and lending institutions, is the leading mortgage lender for
home purchases in the city of St. Joseph, Missouri.
Influences on Earnings
The Company's net income depends upon the combined results of operations of the
Banks, each of which conducts a commercial and consumer banking business by
attracting deposits from the general public and redeploying those funds to
earning assets. Each Bank's profitability depends primarily on net interest
income, which is interest income on interest-earning assets less interest
expense on interest-bearing liabilities. Interest-earning assets include loans,
investment securities and other earning assets, such as Federal Funds sold.
Interest-bearing liabilities include customer deposits, time and savings
deposits and other borrowings such as Federal Funds purchased, short-term
borrowings and long-term debt, including junior subordinated deferrable interest
debentures.
Besides the balances of interest-earning assets and interest-bearing
liabilities, net interest income is affected by each Bank's interest rate
spread. This spread is the difference between the Bank's average yield on
interest-earning assets and the average rate paid on interest-bearing
liabilities. The interest rate spread is impacted by changes in interest rates,
deposit flows and loan demand, among other factors.
The Company's profitability is also affected by the level of non-interest income
of the Banks and non-interest expense of the Company and the Banks. Non-interest
income consists primarily of service fees, other fees, and gains on the saleof
mortgage loans and investment securities. Non-interest expense consists of
compensation and benefits, occupancy related expenses, deposit insurance
premiums, expenses of opening branch offices, acquisition-related expenses and
other operating expenses. The Company's profitability is further impacted by the
effective tax rate, the Banks' provision for loan losses, and various
non-recurring items.
Results of Operations
Comparison of the Years Ended December 31, 1997 and 1996
The Company's net income was $3.7 million for the year ended December 31, 1997,
an increase of 79.6% from $2.1 million for the year ended December 31, 1996. The
primary reason for the earnings increase was a 34.6% increase in net interest
income as a result of significantly higher loan volume, coupled with an improved
net interest margin. The Company's acquisition of Farmers in the fourth quarter
of 1997 also contributed to higher earnings, as did cost management effortsthat
improved the Company's efficiency ratio. In addition, net income in 1996 was
negatively impacted by a one-time, industry-wide Savings Association Insurance
Fund ("SAIF") assessment by the FDIC on SAIF assessable deposits, which was paid
in the third quarter of 1996.
These results yielded an improvement in annual return on average assets ("ROA")
to 0.84% for the year ended December 31, 1997, compared with 0.60% for the
previous year. Return on average common stockholders' equity ("ROE") was 9.26%
for the year ended December 31, 1997, compared with 11.19% for the year ended
December 31, 1996, primarily due to increased equity capital following the
initial public offering in late 1996.
Total assets were $514.6 million at December 31, 1997, an increase of 36.5% from
$376.9 million at December 31, 1996. The growth in assets was achieved both
through acquisitions and through internal growth in 1997, particularly in the
Johnson County locations. Total average assets were $445.9 million for the year
ended December 31, 1997, compared to $345.7 million for the year ended December
31, 1996. Average interest-earning assets were $410.9 million for the yearended
December 31, 1997 and $319.8 million for 1996.
The increase in loans from December 31, 1996 to December 31, 1997 was funded
through increases in deposits of $102.6 million and draws on existing cash
reserves of $7.2 million. The allowance for loan losses increased to $4.7
million at December 31, 1997 from $3.0 million at December 31, 1996. The
allowance represented 1.35% and 1.26% of total loans as of December 31, 1997,
and December 31, 1996, respectively.
Comparison of Years Ended December 31, 1996 and 1995
The Company's net income was $2.1 million for the year ended December 31, 1996,
compared to net income of $1.2 million for the year ended December 31, 1995,
yielding an ROA of 0.60% for the year ended December 31, 1996, compared to 0.40%
for the year ended December 31, 1995. ROE for 1996 and 1995 was 11.19% and
8.27%, respectively.
Total assets of $376.9 million at December 31, 1996, represented an increase of
13.2% from $332.9 million at December 31, 1995. Total average assets were $345.7
million for the year ended December 31, 1996, compared to $300.8 million for the
previous year. Average interest-earning assets were $319.8 million for the year
ended December 31, 1996, and $279.4 million for 1995. Assets increased primarily
because of the opening of Exchange Bank's office in Leawood in the fourth
quarter of 1995, as well as growth at its Shawnee location.
The Company's net loans totaled $233.4 million and $190.3 million, as of
December 31, 1996 and 1995, respectively. The increase in net loans of $43.1
million during 1996 compared to 1995 was funded primarily through increases in
deposits of $30.8 million, Federal Funds purchased and other short-term
borrowings of $1.0 million, $3.0 million from proceeds of the Company's public
stock offering and $2.2 million of available cash. The allowance for loan losses
decreased to $3.0 million at December 31, 1996, from $3.3 million at December
31, 1995. This represented 1.26% and 1.68% of total mloans as of December 31,
1996 and 1995, respectively. See "Allowance for Loan Losses."
Net Interest Income
Total interest income was $31.9 million for the year ended December 31, 1997, a
21% increase from 1996. The increase was primarily the result of growth in total
average interest-earning assets of approximately $91.1 million, combined with
improved yield on interest-earning assets.
Total interest expense was $16.7 million for 1997, or 10.8% higher than in 1996,
as a result of an increase in total interest-bearing liabilities, partially
offset by slightly lower interest rates paid. Average total interest-bearing
liabilities increased by $68.1 million or 22.4% for 1997 compared to 1996,
primarily due to the increased volume of deposits originated by Exchange Bank in
connection with the opening of its Leawood location and increased short-term
borrowings to fund loan demand in Johnson County. Exchange Bank has offered
slightly above-market rates in an effort to attract and retain deposits in order
to fund loan growth. The Company intends to periodically offer above-market
rates in certain markets to gain market share and liquidity.
Net interest income was $15.3 million for 1997, up 34.6% from 1996. This
increase is due to significantly greater loan volumes, primarily from Exchange
Bank's Leawood and Shawnee locations, as well as a 3.78% net interest margin in
1997 compared with 3.63% in 1996.
For the year ended December 31, 1996, total interest income was $26.4 million, a
12.6% increase from the previous year. Average total earning assets increased
$40.4 million, or 14.5%, for 1996 compared to 1995, primarily as a result of
growth in Exchange Bank's business in Johnson County.
Total interest expense for 1996 was $15.1 million, a 16.8% increase from 1995,
reflecting an increase in the rate paid on interest-bearing liabilities. Average
total interest-bearing liabilities increased by $36.9 million for 1996, or
13.8%, primarily due to the increased volume of deposits originated by Exchange
Bank in connection with its Leawood location.
Net interest income was $11.3 million for 1996, an increase of 7.5% from 1995.
The Company believes this growth would have been greater but for an increase in
interest expense resulting from offering above-market rates on time deposits to
promote the opening of Exchange Bank's Leawood location. Although these deposits
are maturing, a substantial portion of such deposits has been retained.
The following table presents the Company's average balances, interest income or
expense, and the related yields and rates on major categories of the Company's
interest-earning assets and interest-bearing liabilities for the periods
indicated:
Comparative Average Balances, Yields and Rates Year Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
Average Average Average
Interest/ Rate Interest Rate Interest Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net (1) $296,104 $25,871 8.74% $206,406 $19,796 9.59% $177,712 $17,253 9.71%
Investment securities-taxable 89,799 4,866 5.42 92,422 5,624 6.09 83,485 5,221 6.25
Investment securities-nontaxable (2) 12,002 812 6.76 9,927 770 7.76 10,690 755 7.06
Other earning assets 12,990 669 5.15 11,035 471 4.27 7,464 439 5.88
Total earning assets 410,895 32,218 7.84% 319,790 6,661 8.34% 279,351 23,668 8.47%
Non-interest-earning assets 34,991 25,957 21,482
Total assets $445,886 $345,747 $300,833
Liabilities and Stockholders' Equity:
Savings deposits and
interest-bearing checking $131,794 $4,325 3.89% $86,334 $3,106 3.60% $75,169 $2,316 3.08%
Time deposits 214,171 10,835 5.06 188,577 10,235 5.43 164,413 8,942 5.44
Short-term borrowings 21,060 1,244 5.91 17,696 1,008 5.70 14,343 796 5.55
Long-term borrowings 4,772 288 6.04 11,048 716 6.48 12,873 840 6.53
Total interest-bearing liabilities 371,797 16,692 4.49% 303,655 15,065 4.96% 266,798 12,894 4.83%
Non-interest-bearing liabilities 33,775 23,530 19,309
Stockholders' equity 40,314 18,562 14,726
Total liabilities and stockholders'
equity $445,886 $345,747 $300,833
Net interest income (3) $15,526 $ 11,596 $10,774
Net interest spread 3.35% 3.38% 3.64%
Net interest margin (4) 3.78% 3.63% 3.86%
</TABLE>
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects in 1997, 1996 and 1995 were $270, $262 and $227, respectively. The
combined marginal tax rate used was 34%.
(3) The Company includes loan fees in interest income. Such fees totaled
$1,026, $873 and $671 in 1997, 1996 and 1995, respectively.
(4) The net yield on average earning assets is the net interest
income divided by average interest-earning assets.
The following table presents the components of changes in the Company's net
interest income as attributed to volume and rate on a tax-equivalent basis. The
net change attributable to the combined impact of volume and rate has been
solely allocated to the change in rate.
Rate/Volume Interest Analysis
<TABLE>
<CAPTION>
Year Ended December 31,
1997 compared to 1996 1996 compared to 1995
Average Total Average Total
Volume Rate Changes Volume Rate Changes
(Dollars in Thousands)
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $8,603 $(2,528) $6,075 $2,786 $(243) $2,543
Investment securities-taxable 84 (841) (757) 559 (156) 403
Investment securities-nontaxable 161 (119) 42 (54) 69 15
Other earning assets (88) 286 198 210 (178) 32
Total interest income $8,760 $(3,202) $5,558 $3,501 $(508) $2,993
Interest expense:
Savings deposits and interest-bearing checking $1,635 $(416) $1,219 $344 $1,665 $2,009
Time deposits 1,389 (789) 600 1,314 579 1,893
Short-term borrowings 192 44 236 186 262 448
Long-term borrowings (407) (21) (428) (119) (433) (552)
Total interest expense $2,809 $(1,182) $1,627 $1,725 $2,073 $3,798
Increase (decrease) in net interest income $5,951 $(2,020) $3,931 $1,776 $(2,581) $(805)
</TABLE>
(1) The Company includes loan fees in interest income. Such fees totaled
$1,026, $873, and $671 in 1997, 1996, and 1995, respectively.
Provision for Loan Losses The provision for loan losses for the year ended
December 31, 1997, was $865,000, an increase of $890,000 over 1996. This
increase reflects the Company's recognition of strong expansion in its loan
business. The allowance represented 1.35% of total loans as of December 31,
1997, and 1.26% of total loans as of December 31, 1996. For the year ended
December 31, 1996, the provision for loan losses was ($25,000), compared to
$1.33 million for 1995. The negative provision in 1996 was a result of
management's estimate of the required reserve, coupled with loan recoveries
realized in the fourth quarter of 1996 by Peoples National Bank, a subsidiary
acquired by the Company in a pooling transaction in 1997.
Non-Interest Income Non-interest income for the year ended December 31,
1997 was $2.8 million, a decrease of 2.7% from 1996, primarily as a result of
reduced gains on sales of mortgage loans at Provident Bank. This is consistent
with the Company's reduced emphasis on low-margin secondary market mortgage
lending. The Company sold its loan servicing business in 1997, and all mortgages
sold into the secondary market are now sold without servicing rights retained.
Of the $687,000 in other non-interest income in 1997, $229,000 was unrealized
gain on trading securities.
Non-interest income for the year ended December 31, 1996 was $2.9 million,
an increase of 23.2% from 1995, primarily as a result of increased service fees,
gains on sales of assets in the second half of 1996 and the gain on the sale of
loans in the first half of 1996. The Company realizes periodic gains and losses
in connection with the sale of securities to meet its liquidity needs and in
anticipation of changes in interest rates. See "Investment Activities."
The following table presents the components of the Company's non-interest
income for the periods indicated:
Non Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $1,060 $1,033 $999
Gain on sale of loans 679 1,128 1,058
Gain (loss) on sale of securities 104 (11) (92)
Insurance premium income 65 22 58
Fiduciary income 181 173 125
Other non-interest income 687 507 167
Total non-interest income $2,776 $2,852 $2,315
Non-interest income as a
percentage of average total assets 0.62% 0.82% 0.77%
</TABLE>
Non-Interest Expense
Certain savings deposits of two of the Banks are insured by the Savings
Association Insurance Fund ("SAIF"), with the remaining deposits of the Banks
insured by the Bank Insurance Fund ("BIF"). Both SAIF and BIF have had a
designated reserve ratio of 1.25%. On September 30, 1996, the President signed
into law the Deposit Insurance Fund Act of 1996 ("DIFA"). DIFA directed the FDIC
to impose a special assessment on SAIF-assessable deposits insured as of March
31, 1995. The one-time expense for the Company, incurred in 1996, totaled
$389,100 ($240,000 net after tax). In addition to this special one-time
assessment, the premiums for BIF deposits were increased to 1.29 basis points
per $100 of deposits and for SAIF deposits were decreased to 6.44 basis points
per $100 of deposits. The new premiums took effect January 1, 1997, and continue
through December 31, 1999.
Non-interest expense increased 4.3% to $11.5 million for the year ended December
31, 1997, as compared to 1996. The Company experienced an increase in
professional services expenses as a result of legal and accounting expenses
associated with the Company's recent acquisitions and its obligation to comply
for the first time with the periodic reporting requirements of the Securities
and Exchange Commission imposed on publicly held companies. This was partially
offset by the ongoing centralization of certain administrative functions,
increases in operating efficiencies, and the realization of cost savings.
Non-interest expense was $11.1 million for the year ended December 31, 1996, a
13% increase from 1995. This increase was primarily due to the addition of
employees at the newly opened Leawood location and Provident Bank's mortgage
loan production office and also was affected by annual increases in salaries and
employee benefits and the addition of two executive positions at the Company.
Net occupancy expense increased due to remodeling projects that were completed
in Shawnee and St. Joseph and because Exchange Bank's Leawood location was not
open in the first half of 1995. Non-interest expense as a percentage of average
assets was 2.59%, 3.20% and 3.25% as of December 31, 1997, 1996 and 1995,
respectively.
The following table presents the components of non-interest expense for the
periods indicated:
Non Interest Expense
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Salaries and employee benefits $6,244 $6,060 $5,332
Net occupancy expense 1,645 1,466 1,287
Deposit insurance expense 96 551 400
Professional services 833 510 565
Data processing expense 297 306 222
Supplies 268 308 262
Telephone 144 170 150
Postage 190 186 183
Advertising/promotion 574 495 289
Other 1,257 1,015 1,100
Total non-interest expense $11,548 $11,067 $9,790
Efficiency ratio(1) 67.89% 77.88% 84.93%
</TABLE>
(1) The efficiency ratio represents total non-interest expense divided by net
interest income after provision for loan
losses plus total non-interest income.
Income Tax Expense
Income tax expense was $1.9 million for the year ended December 31, 1997,
compared with $1.1 million for 1996. The effective tax rate was 33.6% for 1997,
virtually unchanged from 1996. The 1996 income tax expense of $1.1 million,
representing an effective tax rate of 33.9%, was an increase from $520,000 for
1995, an effective tax rate of 30.0%. The 1995 effective tax rate was lower than
subsequent years, primarily because a larger portion of income before taxes
in 1995 came from tax-exempt securities.
Asset/Liability Management
Asset/liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive
interest-earning assets and interest-bearing liabilities. An interest rate
sensitive balance sheet item is one that is able to reprice quickly, through
maturity or otherwise. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. Close matching of the repricing of assets and
liabilities will normally result in little change in net interest 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 December 31,1997, if there had been a
sudden and sustained increase in prevailing market interest rates, the Company's
1998 net interest income would be expected to increase, while a decrease in
rates would indicate a decrease in income.
<TABLE>
<CAPTION>
Changes in Net Interest Percent
Interest Rates Income Change Change
<S> <C> <C> <C>
200 basis point rise $19,014,400 $755,800 4.14%
100 basis point rise 18,628,600 370,000 2.03%
Base Rate Scenario 18,258,600
100 basis point decline 17,669,400 (589,200) -3.23%
200 basis point decline 17,098,000 (1,160,600) -6.36%
</TABLE>
The following table sets forth the maturities of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997.
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
As of December 31, 1997
Term to Repricing
Zero to Four Months Over One Over
Three to Twelve to Five Five
Months Months Years Years Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $144,901 $77,341 $107,300 $16,623 $346,165
Investment securities 24,863 18,435 51,615 9,52 104,437
Other interest-bearing assets 24,438 - - - 24,438
Total interest-earning assets $194,202 $95,776 $158,915 $26,147 $475,040
Interest-bearing liabilities:
Savings deposits and interest-bearing checking $149,943 $ - $ - $ - $149,943
Time deposits 63,695 85,720 82,143 143 231,701
Short-term borrowings 14,571 2,230 1,365 - 18,166
Long-term borrowings 161 1,848 999 29,078 32,086
Total interest-bearing liabilities $228,370 $89,798 $84,507 $29,221 $431,896
Interest sensitivity gap (34,168) 5,978 74,408 ( 3,074)
Cumulative gap (34,168) (28,190) 46,218 43,144
Cumulative ratio of interest-earning assets to
interest-bearing liabilities 85.04% 91.14% 111.48% 109.99%
Ratio of cumulative gap to interest-earning assets -17.59% -9.72% 10.30% 9.08%
</TABLE>
The cumulative gap value indicated above for the zero to five-year time periods
indicates that a rise in interest rates would have a positive effect on net
interest income. The Company has the ability to reprice the rates on savings
deposits and interest bearing checking. Historically the rates on these deposits
have not been repriced when rates have
had small movements.
Financial Condition
Lending Activities
Commercial Loans. This category includes loans to service, retail, wholesale and
light manufacturing businesses, including agricultural service businesses.
Commercial loans were $88.7 million as of December 31, 1997, or 25.6% of total
loans. The proportion of commercial loans increased in 1997, due primarily to
Exchange Bank's expanding business in Shawnee and Leawood. Provident Bank has
also increased its commercial loan portfolio.
Real Estate Loans. Real estate loans represent the largest class of loans
of the Company. The Company categorizes real estate loans as follows:
i) Commercial. Commercial real estate loans increased from December 31,
1995 to December 31, 1997, due primarily to increased lending activity in the
Johnson County suburbs southwest of Kansas City.
ii) Construction. Construction lending consists primarily of single
family construction in Johnson County. The Company has experienced steady growth
in the suburban Kansas City market, and the December 31, 1997 balance reflects
continued, although seasonal, growth in the Johnson County market.
iii) 1 to 4 Family Residential. Loans in this category consist primarily
of owner-occupied residential loans. Since December 31, 1995 the mix of loans
has begun to shift from fixed rate loans to variable rate products.
The Company has elected to portfolio selected variable rate real estate
loans, which has resulted in the loan growth in this category.
iv) Agricultural. This category consists of loans secured by
agricultural real estate. The demand for agricultural real estate loans has
remained flat due to an historically low turnover of farm property.
v) Held for Sale. Loans held for sale represent residential loans
intended to be sold to secondary market investors and in the process of being
delivered.
Agricultural Loans. Agricultural loans are typically made to farmers, small
corporate farms and feed and grain dealers. Agricultural loans were $36.9
million as of December 31, 1997, or 10.6% of total loans. The proportion
compared to total loans has been relatively stable, as the Company's
acquisitions have added to agricultural loans, while internal growth has been
stronger in other categories. Agricultural loan demand, generally, has remained
stable
due to a stable agricultural economy.
Consumer and Other Loans. Loans classified as consumer and other loans include
automobile, residential, other personal loans and credit card loans. The
majority of these loans are installment loans with fixed interest rates.
Consumer and other loans were $24.0 million as of December 31, 1997, or 6.9% of
total loans, only slightly changed from the proportion a year earlier. The
Company issues credit cards to its existing customers.
The following table presents the balance of each major category of the Company's
loans at the dates indicated.
Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $88,728 25.63% $52,524 22.22% $43,018 22.23%
Real estate construction 47,886 13.83 28,672 12.13 19,987 10.33
Real estate(1) 147,830 42.71 114,990 48.65 87,220 45.07
Agricultural 36,856 10.64 21,303 9.01 20,458 10.57
Consumer and other 24,007 6.94 16,668 7.05 16,194 8.36
Loans held for sale 858 0.25 2,182 0.92 6,665 3.44
Total loans 346,165 100.00% 236,339 100.00% 193,542 100.00%
Less allowance for loan losses 4,677 2,981 3,252
Total $341,488 $233,358 $190,290
</TABLE>
(1) Includes commercial real estate loans, agriculture real estate loans and 1
to 4 family residential real estate loans.
The following table sets forth the repricing of portfolio loans outstanding at
December 31, 1997.
Loan Repricing Schedule
<TABLE>
<CAPTION>
After .... After One
In Three Four Month Year But
Months . But Before Before After
or Less .. One Year Five Years Five Years Total
(Dollars in Thousands)
Loan category:
<S> <C> <C> <C> <C> <C>
Commercial ............................ $ 53,957 $15,412 $ 18,275 $1,084 $88,728
Real estate construction .............. 43,890 3,421 575 - 47,886
Real estate ........................... 22,657 37,998 73,040 14,135 147,830
Agricultural .......................... 15,253 14,573 6,169 861 36,856
Consumer and other .................... 8,286 5,937 9,214 543 24,007
Loans held for sale ................... 858 - - - 858
Total loans ....................... $144,901 $77,341 $107,300 $16,623 $346,165
</TABLE>
As of December 31, 1997, loans repricing after one year include approximately
$49 million in fixed rate loans and $75 million in floating or adjustable rate
loans.
Asset Quality
The Company's asset quality compares favorably to its peer institutions. The
Company follows regulatory guidelines in placing loans on a non-accrual basis
and places loans with doubtful principal repayment on a non-accrual basis,
whether current or past due. The Company considers non-performing assets to
include all non-accrual loans, other loans past due 90 days or more as to
principal and interest (with the exception of those loans which in management's
opinion are well collateralized or exhibit other characteristics suggesting they
are collectable), other real estate owned ("OREO") and repossessed assets. The
Company does not return a loan to accrual status until it is brought current
with respect to both principal and interest and future principal payments are no
longer in doubt. When a loan is placed on non-accrual status, any previously
accrued and uncollected interest income is reversed.
Restructured and impaired loans are considered insignificant for all periods
presented. The Company would have recorded additional interest in the amounts of
$36,000, $23,000 and $27,000 for the years ended December 31, 1997, 1996 and
1995,
respectively, if non-accrual loans had been current during these periods.
Non-performing assets are summarized in the following table:
Non-Performing Assets
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
(Dollars in Thousands)
Loans:
Loans 90 days or more past
<S> <C> <C> <C>
due but still accruing $14 $5 $4
Non-accrual loans 869 324 1,762
Non-performing loans 883 329 1,766
Other assets 18 - -
OREO 691 70 149
Non-performing assets $1,592 $399 $1,915
Non-performing loans as a percentage of total loans 0.26% 0.14% 0.91%
Non-performing assets as a percentage of total assets 0.31% 0.11% 0.58%
</TABLE>
Allowance for Loan Losses
The success of a bank depends to a significant extent upon the quality of its
assets, particularly loans. This is highlighted by the fact that net loans
represented 66% of the Company's total assets as of December 31, 1997. In
originating loans, there is a substantial likelihood that some credit losses
will be experienced. The risk of loss will vary with general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and the quality o f the collateral in the case of a
collateralized loan, among other things. Management maintains an allowance for
loan losses based on industry standards, management's experience, historical
experience, an evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality.
Based upon such factors, management makes various assumptions and judgments
about the ultimate collectability of the loan portfolio and provides an
allowance for potential loan losses based upon a percentage of the outstanding
balances and for specific loans if their ultimate collectability is considered
questionable. Since certain lending activities
involve greater risks, the percentage applied to specific loan types may vary.
The Company actively manages its past due and non-performing loans in each Bank
to minimize credit losses and monitors asset quality to maintain an adequate
loan loss allowance. Although management believes its allowance for loan losses
is adequate for each Bank and collectively, there can be no assurance that the
allowance will prove sufficient to cover future loan losses. Further, although
management uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary if
economic conditions differ substantially from the assumptions used or adverse
developments arise with respect to non-performing or performing loans.
Accordingly, there can be no assurance that the allowance for loan losses will
be adequate to cover loan losses or that significant increases to the allowance
will not be required in the future if economic conditions should worsen.
Material additions to the allowance for loan losses would result in a decrease
of the Company's net income and capital and could result in the inability to pay
dividends, among other adverse consequences.
The allowance for loan losses on December 31, 1997, totaled $4.7 million, a $1.7
million increase from a year earlier, resulting from charge-offs of $447,000,
recoveries of $470,000, provisions of $865,000, and additional adjustments of
$808,000 related to the purchase of Farmers Bank.
The allowance for loan losses on December 31, 1996, totaled $3.0 million, a
decrease from December 31, 1995, resulting from charge-offs of $501,000,
recoveries of $255,000 and provisions of ($25,000). The allowance for loan
losses totaled $3.3 million as of December 31, 1995. The allowance increased
during 1995 by $584,000 due to a combination of
additional provisions of $1.3 million and net charge-offs of $750,000.
The following table sets forth activity in the Company's allowance for loan
losses during the periods indicated:
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Total net loans outstanding at the end of period $341,488 $233,358 $190,290
Average net loans outstanding during the period $296,104 $206,406 $177,712
Allowance for loan losses, beginning of period $2,981 $3,252 $2,668
Charge-Offs:
Commercial 262 304 542
Real estate construction - 24 -
Real estate 102 2 12
Agricultural 2 99 260
Consumer and other 81 72 89
Total charge-offs 447 501 903
Recoveries of loans previously charged off:
Commercial 349 90 10
Real estate construction - 11 -
Real estate 54 107 57
Agricultural 28 27 58
Consumer and other 39 20 28
Total recoveries 470 255 153
Net charge-offs (recoveries) (23) 246 750
Provision charged to operations 865 (25) 1,334
Adjustments due to acquisitions 808 - -
Allowance for loan losses, end of period $4,677 $2,981 $3,252
Ratios:
Net charge-offs to average loans outstanding (0.01%) 0.12% 0.42%
Allowance for loan losses to loans, end of period 1.36% 1.26% 1.68%
Allowance for loan losses to non-performing loans 529.67% 906.08% 184.14%
</TABLE>
The following table sets forth the allocation of the Company's allowance for
loan losses among categories of loans:
Allocation of the Allowance for Loan Loss
<TABLE>
<CAPTION>
As of December 31, 1997
Percent of
Loans in each
Category to
Amount Total Loans
(Dollars in Thousands)
<S> <C> <C>
Commercial $1,199 25.6%
Real estate construction 645 13.8%
Real estate 2,011 43.0%
Agricultural 498 10.7%
Consumer and other 324 6.9%
Total $4,677 100.0%
</TABLE>
Investment Activities
The Company's investment portfolio serves three important functions: First, it
enables the adjustment of the balance sheet's sensitivity to changes in interest
rate movements; second, it provides an outlet for investing excess funds; and
third, it provides liquidity. The investment portfolio is structured to maximize
the return on invested funds within
conservative risk management guidelines.
The portfolio is comprised of U.S. Treasury securities, U.S. government agency
obligations, state municipal obligations, Federal Reserve Bank stock, FNMA
stock, and FHLB stock. The U.S. government agency obligations include Federal
Home Loan Mortgage Corporation ("FHLMC"), FNMA notes and mortgage-backed
securities, FHLB notes and Government National Mortgage Association ("GNMA")
mortgage-backed securities. As of December 31, 1997, the portfolio included
$11.3 million of collateralized mortgage obligations, all of which are rated AA
or better. Federal Funds sold are not classified as investment securities.
The investment portfolio decreased $920,000, or 0.90%, during the year ended
December 31, 1996, and increased $3.3 million, or 3.3%, for the year ended
December 31, 1997. The decreases are primarily due to strong loan demand.
The composition of the investment portfolio as of December 31, 1997 was
21.2% U.S. Treasury notes, 37.5% U.S. government obligations, 27.7%
mortgage-backed securities, 9.9% state and municipal securities and 3.7% other
securities. The comparable distribution for December 31, 1996 was 29.69% U.S.
Treasury notes, 20.24% U.S. government obligations, 36.57% mortgage-backed
securities, 10.77% state and municipal securities, and 2.73% other securities.
The estimated maturity of the investment portfolio on December 31, 1997 was 2
years and 2 months. The average balance of the investment portfolio as of
December 31, 1997 represented 25.4% of average earning assets as compared to
31.63% on December 31, 1996. In 1997, the Company invested in trading securities
for the purpose of generating additional non-interest income. The Company
intends to turn over these securities as market conditions dictate in order to
maximize their profitability.
The Company periodically changes its balance sheet strategy to accommodate a new
interest rate environment when, in management's opinion, economic and policy
signals indicate a changing trend in interest rates. Accordingly, in the first
half of 1995 the Company sold bonds in anticipation of an increase in interest
rates.
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated:
Investment Securities Portfolio Composition
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
(Dollars in Thousands)
Securities held to maturity: (1)
<S> <C> <C> <C>
Obligations of states and political subdivisions $100 $102 $99
Total $100 $102 $99
Securities available for Sale: (2)
U.S. Treasury and other U.S. agencies and corporations $61,284 $50,424 $53,525
Obligations of states and political subdivisions 10,245 10,873 9,652
Mortgage-backed securities 28,971 36,986 36,027
Trading securities 1,072 - -
Other (3) 2,765 2,760 2,762
Total $104,337 $101,043 $101,966
Total investment securities $104,437 $101,145 $102,065
(1) Securities held to maturity are carried on the Company's books at amortized cost.
(2) Securities available for sale are carried on the Company's books at fair value.
(3) Includes FHLB stock, Federal Reserve stock and FNMA stock.
</TABLE>
The following table sets forth a summary of maturities in the investment
portfolio at December 31, 1997:
<TABLE>
<CAPTION>
Maturity Schedule of Securities
At December 31, 1997
(At market value)
One year Over One Year Over 5 Years Over
or less through 5 Years through 10 Years 10 Years Total
Weighted Weighted Weighted Weighted Weighted
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
U.S. Treasury and other
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agencies and corporations $31,264 5.01% $28,164 5.80% $1,327 7.39% $529 7.5% $61,284 5.38%
Obligations of states
and political subdivisions 1,177 6.34% 6,423 7.38% 2,543 7.68% 202 8.27% 10,345 7.33%
Mortgage-backed securities 2,405 5.83% 20,977 6.08% 4,741 7.00% 848 6.55% 28,971 6.23%
Other 3,837 4.58% - - - - - - 3,837 4.58%
Total $38,683 $55,564 $8,611 $1,579 $104,437 5.78%
</TABLE>
Deposit Activities
Deposits are the major source of the Banks' funds for lending and other
investment purposes. In addition to deposits, the Banks derive funds from
interest payments, loan principal payments, loan and securities sales, and funds
from operations. Scheduled loan repayments are a relatively stable source of
funds, while deposit inflows are significantly influenced by general interest
rates and money market conditions. The Banks may use borrowings on a short-term
basis if necessary to compensate for reductions in the availability of other
sources of funds, or borrowings may be used on a longer-term basis for general
business purposes.
Deposits are attracted principally from within the Banks' primary market area
through the offering of a broad variety of deposit instruments, including
checking accounts, money market accounts, savings accounts, certificates of
deposit (including jumbo certificates in denominations of $100,000 or more), and
retirement savings plans. The Banks have aggressively attempted to obtain
deposits in selected markets to increase market share or meet particular
liquidity needs. The Company has not used brokered deposits and has not sought
to attract deposits outside its market areas.
Maturity terms, service fees and withdrawal penalties are established by the
Banks on a periodic basis. The determination of rates and terms is predicated on
funds transaction and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
The growth in deposits is primarily the result of the Company's relatively new
locations in Leawood and Shawnee. During 1997 the Company experienced an
increase in savings and interest-bearing transaction accounts with balances of
less than $100,000. The non-interest-bearing account balance as of December 31,
1997, showed a $10.4 million or 38.4% increase from the balance as of December
31, 1996. The average balance increased accordingly by $8.2 million or 36.1%
primarily as a result of growth at the Company's Shawnee and Leawood locations.
The following table sets forth the average balances and weighted average rates
for the Company's categories of deposits
at the dates indicated.
Average Deposit Balances and Rates
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
% of %of % of
Average Average Total Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest checking $30,799 0.00% 8% $22,623 0.00% 8% $17,966 0.00% 7%
Savings deposits and
interest-bearing checking 131,794 3.28% 35% 86,334 3.60% 29% 75,169 3.08% 29%
Certificates of deposit 214,171 5.06% 57% 188,577 5.43% 63% 164,413 5.44% 64%
Total $376,764 100% $297,534 100% $257,548 100%
</TABLE>
The Company does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on its business. Management
believes that substantially all of the Banks' depositors are residents in their
respective primary market areas.
The following table sets forth a summary of the deposits of the Company at the
dates indicated:
Deposit Composition
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Non-interest-bearing $37,495 $27,093 $24,427
Interest-bearing:
Savings and NOW accounts 149,943 96,025 73,114
Time accounts less than $100,000 188,176 151,725 154,979
Time accounts greater than $100,000 43,525 41,729 33,200
Total deposits $419,139 $316,572 $285,720
</TABLE>
The following table summarizes at December 31, 1997, the Company's certificates
of deposit of $100,000 or more by time
remaining until maturity:
Certificates of Deposit
<TABLE>
<CAPTION>
$100,000 or greater
(Dollars in Thousands)
Maturity Period:
<S> <C>
Less than three months $18,743
Over three months through six months 7,112
Over six months through twelve months 8,171
Over twelve months 9,499
Total $43,525
</TABLE>
The Company has no other time deposits in excess of $100,000.
Capital and Liquidity
Sources of Liquidity. Liquidity defines the ability of the Company and the
Banks to generate funds to support asset growth, satisfy other disbursement
needs, meet deposit withdrawals and other fund reductions, maintain reserve
requirements and otherwise operate on an ongoing basis. The immediate liquidity
needs of the Banks are met primarily by Federal Funds sold, short-term
investments, deposits and the generally predictable cash flow (primarily
repayments) from each Bank's assets. Intermediate term liquidity is provided by
the Banks' investment portfolios. The Banks also have established a credit
facility with the FHLB under which the Banks are eligible for short-term
advances secured by real estate loans or mortgage-related investments. The
Company's liquidity needs and funding are provided through non-affiliated bank
borrowing, cash dividends and tax payments from its subsidiary banks.
Capital. The Company and the Banks actively monitor their compliance with
regulatory capital requirements. The elements of capital adequacy standards
include strict definitions of core capital and total assets, which include
off-balance sheet items such as commitments to extend credit. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet
and the amount and composition of off-balance sheet items, in addition to the
level of capital. Historically, the Banks have increased core capital through
the retention of earnings or capital infusions. Each Bank's ability to incur
additional indebtedness or to issue or pay dividends on common stock may be
limited by regulatory policies and the terms of the outstanding securities.
At December 31, 1997, the Company's Tier 1 risk-based capital, total risk-based
capital and leverage ratios were 15.16%, 16.47% and 11.70%, 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).
Proceeds from the Trust Preferred Securities issued in December 1997 by GBCI
Capital Trust, a statutory business trust established by the Company, accounted
for 25%, or $13.9 million, of the Company's Tier I, or core, capital at December
31, 1997. In the offering, approximately $27 million in net proceeds was raised
for expansion, debt retirement and general corporate purposes.
Impact of Inflation and Changing Prices
The primary impact of inflation on the operations of the Company is reflected in
increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, changes in interest rates have a more significant impact on the
performance of a financial institution than do changes in the general rate of
inflation and changes in prices. Interest rate changes do not necessarily move
in the same direction or have the same magnitude as changes in the prices of
goods and services.
Accounting and Financial Reporting
The Financial and Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, in June 1997. SFAS No. 130 will require
the Company to classify items of other comprehensive income by their nature in
the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of stockholders' equity. 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. Both SFAS No. 130 and No.
131 are effective for fiscal years beginning after December 15, 1997. The
adoption of the standards is not expected to have a significant impact on the
financial statements of the Company.
Year 2000 Initiatives
In response to potential Year 2000 transition issues for computer systems, the
Company is actively addressing these issues as they relate to the Banks 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 current as well as
newly acquired entities. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/Liability Management
Asset/liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive
interest-earning assets and interest-bearing liabilities. An interest rate
sensitive balance sheet item is one that is able to reprice quickly, through
maturity or otherwise. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. Close matching of the repricing of assets and
liabilities will normally result in little change in net interest income when
interest rates change. A mismatched gap position will normally result in changes
in net interest income as interest rates change.
Along with internal gap management reports, the Company and the Banks use an
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 December 31,1997, if there had been a
sudden and sustained increase in prevailing market interest rates, the Company's
1998 net interest income would be expected to increase, while a decrease in
rates would indicate a decrease in income.
<TABLE>
<CAPTION>
Changes in Net Interest Percent
Interest Rates Income Change Change
<S> <C> <C> <C>
200 basis point rise $19,014,400 $755,800 4.14%
100 basis point rise 18,628,600 370,000 2.03%
Base Rate Scenario 18,258,600
100 basis point decline 17,669,400 (589,200) -3.23%
200 basis point decline 17,098,000 (1,160,600) -6.36%
</TABLE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors
Gold Banc Corporation, Inc.:
We have audited the accompanying consolidated balance sheets of Gold Banc
Corporation, Inc. and subsidiaries (the Company) as of December 31, 1997 and
1996 and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. On August 22, 1997, the
Company acquired Peoples Bancshares, Inc. (Peoples) in a business combination
accounted for as a pooling-of-interest. The contribution of Peoples to total
assets at December 31, 1996 represented 19%. The contribution of Peoples to net
interest income and net income for 1996 and 1995 represented 20% and 35% and 20%
and 42%, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Peoples, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Gold Banc Corporation, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
January 19, 1998
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 16,673 13,895
Federal funds sold and interest-bearing deposits 24,438 8,902
- ----------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 41,111 22,797
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities (note 2):
Held-to-maturity 100 102
Available-for-sale 100,500 98,725
Trading securities 1,072 -
Other 2,765 2,318
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 104,437 101,145
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage loans held for sale, net 858 2,182
Loans, net (note 3) 340,630 231,176
Premises and equipment, net (note 4) 15,363 12,746
Deferred taxes (note 9) 498 507
Accrued interest and other assets 11,700 6,305
- ----------------------------------------------------------------------------------------------------------------------------
369,049 252,916
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 514,597 376,858
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits (note 5) $ 419,139 316,573
Securities sold under agreements to repurchase (note 6) 6,516 5,966
Federal funds purchased and Federal Home Loan Bank advances (note 7) 11,650 12,675
Long-term debt (note 8) 3,336 4,893
Accrued interest and other liabilities 3,473 2,411
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 444,114 342,518
- ----------------------------------------------------------------------------------------------------------------------------
Junior subordinated deferrable interest debentures (note 1) 28,750 -
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 10 and 13):
Preferred stock, no par value, 25,000,000 shares authorized, no shares issued
- Common stock, $1 par value, 7,500,000 shares authorized; 5,066,615 and
4,793,615
shares issued and outstanding at December 31, 1997 and 1996, respectively 5,067 4,794
Additional paid-in capital 22,265 18,784
Retained earnings 14,605 11,300
Unrealized gain (loss) on available-for-sale securities, net 32 (262)
Unearned compensation (note 10) (236) (276)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 41,733 34,340
Commitments and contingent liabilities (notes 16 and 17)
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 514,597 376,858
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except per
share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C>
Loans, including fees $ 25,871 19,796 17,254
Investment securities 5,408 6,134 5,992
Other 669 469 195
- --------------------------------------------------------------------------------------------------------------------------
31,948 26,399 23,441
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 15,160 13,340 11,257
Borrowings and other 1,532 1,725 1,637
- --------------------------------------------------------------------------------------------------------------------------
16,692 15,065 12,894
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 15,256 11,334 10,547
Provision for loan losses (note 3) 865 (25) 1,334
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,391 11,359 9,213
- --------------------------------------------------------------------------------------------------------------------------
Other income:
Service fees 1,060 1,033 999
Net gains on sale of mortgage loans 679 1,128 1,058
Net securities gains (losses) 104 (11) (92)
Unrealized gains on trading securities 229 - -
Gain on sale of other assets (note 3) 198 297 14
Other 506 405 336
- --------------------------------------------------------------------------------------------------------------------------
2,776 2,852 2,315
- --------------------------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 6,244 6,063 5,339
Net occupancy expense 1,931 1,675 1,444
Federal deposit insurance premiums (note 5) 96 551 400
Other 3,277 2,778 2,607
- --------------------------------------------------------------------------------------------------------------------------
11,548 11,067 9,790
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 5,619 3,144 1,738
Income taxes (note 9) 1,888 1,066 520
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 3,731 2,078 1,218
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share - basic $ .77 .76 .48
Net earnings per share - diluted .76 .76 .48
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 3,731 2,078 1,218
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Provision for loan losses 865 (25) 1,334
Net (gains) losses on sales of securities (104) 11 92
Amortization of investment securities' premiums, net of accretion 26 153 104
Depreciation and amortization 1,073 803 761
Gain on sale of assets, net (198) (335) (18)
Purchases of trading securities (998) - -
Proceeds from sales of trading securities 169 - -
Unrealized gains on trading securities (229) - -
Net (increase) decrease in mortgage loans held for sale 1,324 4,483 (4,879)
Other changes:
Accrued interest receivable and other assets (2,173) (67) (521)
Accrued interest payable and other liabilities 1,048 326 392
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,534 7,427 (1,517)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans (83,051) (47,511) (21,276)
Principal collections and proceeds from maturities of held-to-
maturity securities 2 73 12,195
Principal collections and proceeds from sales and maturities of
available-for-sale securities 37,031 43,385 31,109
Purchases of available-for-sale securities (21,705) (43,106) (38,528)
Purchases of held-to-maturity securities - (99) (1,645)
Purchases of other securities, net (447) (21) (273)
Net additions to premises and equipment (3,088) (5,251) (3,315)
Proceeds from sale of other assets 418 922 269
Cash received in bank acquisition, net of cash paid 362 - -
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (70,478) (51,608) (21,464)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in deposits $ 59,728 30,851 39,825
Proceeds from long-term debt - - 500
Principal payment on long-term debt (3,319) (7,775) (941)
Proceeds from issuance of subordinated debentures 28,750 - -
Purchase of treasury stock - (134) (1,095)
Proceeds from issuance of common stock, net of costs - 18,122 350
Proceeds from sale of treasury stock - - 263
Increase (decrease) in repurchase agreements 550 (6,187) 87
Increase (decrease) in federal funds purchased, advances
and other short-term borrowings (1,025) 7,087 312
Payment of dividends (426) - -
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 84,258 41,964 39,301
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 18,314 (2,217) 16,320
Cash and cash equivalents, beginning of year 22,797 25,014 8,694
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 41,111 22,797 25,014
- -------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 15,808 14,927 12,533
- -------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for income taxes $ 1,408 985 1,256
- -------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate owned $ 768 741 94
Transfer of held-to-maturity investment securities to
available-for-sale - - 42,968
- -------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash financing activities:
Issuance of common stock for acquisitions $ 3,754 - -
Common stock subscribed - - 50
- -------------------------------------------------------------------------------------------------------------------------
Noncash activities related to purchase acquisitions:
Investing activities:
Increase in investments $ 17,498 - -
Net increase in loans 27,269 - -
Increase in land, buildings and equipment 474 - -
Financing activities:
Increase in deposits 42,838 - -
Increase in borrowed funds 1,762 - -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized
gain (loss)
Additional on
securities
Preferred Common paid-in Retained available Unearned Treasury
stock stock capital earnings -for sale, compensation stock Total
net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 100 2,536 3,421 8,004 (1,345) - (35) 12,681
Purchase of 117,756 shares of common stock - - - - - - (1,095) (1,095)
Issuance of 53,346 shares of common stock - 53 347 - - - - 400
Sale of 23,339 shares of common stock - - (25) - - - 288 263
Retirement of 35 shares of Class B
preferred
stock and 94,416 shares of common
stock
held in treasury (35) (95) (712) - - - 842 -
Change in unrealized gain on securities
available-for-sale - - - - 1,420 - - 1,420
Net earnings - - - 1,218 - - - 1,218
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 65 2,494 3,031 9,222 75 - - 14,887
Conversion of 65 shares of preferred
stock
into 14,048 shares of common stock (65) 14 51 - - - - -
Redemption and retirement of 14,820
shares of common stock - (14) (120) - - - - (134)
Issuance of 2,300,000 shares of common
stock, net of issuance costs of $1,942 - 2,300 15,822 - - - - 18,122
Purchase of 31,888 shares of common stock
for the employee stock ownership plan - - - - - (276) - (276)
Change in unrealized loss on securities
available-for-sale - - - - (337) - - (337)
Net earnings - - - 2,078 - - - 2,078
- ------------------------------------------------------------------------------------------------------------------ --------
Balance at December 31, 1996 - 4,794 18,784 11,300 (262) (276) - 34,340
Issuance of 273,000 shares of common - 273 3,481 - - - - 3,754
stock
Reduction of unearned compensation - - - - - 40 - 40
Change in unrealized gain (loss) on
securities available-for-sale - - - - 294 - - 294
Net earnings - - - 3,731 - - - 3,731
Dividends paid ($.09 per share) - - - (426) - - - (426)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ - 5,067 22,265 14,605 32 (236) - 41,733
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Gold Banc
Corporation, Inc. and its subsidiary banks, Exchange National Bank, Marysville,
Kansas, Citizens State Bank and Trust Company, Seneca, Kansas, Provident Bank,
f.s.b., St. Joseph, Missouri, The Peoples National Bank, Clay Center, Kansas,
Farmers National Bank, Oberlin, Kansas, and GBCI Capital Trust, collectively
referred to as the Company. All significant intercompany transactions have been
eliminated.
On August 22, 1997, the Company issued 493,615 shares of its common
stock in exchange for all of the shares of common stock of Peoples Bancshares,
Inc. (the merger). Peoples Bancshares, Inc. owned all of the outstanding common
stock of The Peoples National Bank located in Clay Center, Kansas. The merger
has been accounted for as a pooling-of-interests and, accordingly, the 1996 and
1995 consolidated financial statements have been restated to include the
accounts and results of operations of the combining companies. Subsequent to the
merger, Peoples Bancshares, Inc. was liquidated into the Company.
Nature of Operations
The Company is a multibank holding company that owns and operates
community banks located in Kansas and northwestern Missouri. The banks provide a
full range of commercial and consumer banking services primarily to small and
medium-sized communities and the surrounding market areas, including suburban
Kansas City.
Initial Public Offering
Effective November 19, 1996, the Company completed an initial public
offering, selling 2,000,000 shares of its common stock at $8.75 per share.
Subsequently, the Company's underwriter exercised its over-allotment option and
on December 19, 1996, the Company sold an additional 300,000 shares at $8.75 per
share. Total expenses, including underwriter's discounts, aggregated $1,942,000.
The Company's shares are registered on the NASDAQ under the symbol GLDB.
Junior Subordinated Deferrable Interest 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 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.
Estimates
The preparation of the consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995
consolidated financial statements to conform to the 1997 presentation.
Investment Securities
The Company classifies investment securities in one of three
categories: trading, available-for-sale or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those which the Company has the positive
intent and ability to hold to maturity. All other securities are classified as
available-for-sale.
Held-to-maturity securities are recorded at amortized cost. Trading and
available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Realized gains and losses upon
disposition of available-for-sale securities are included in income using the
specific identification method for determining the cost of the securities sold.
A decline in the market value of any security below cost that is deemed
other than temporary is charged to income, resulting in the establishment of a
new cost basis for the security. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to interest
income. Dividend and interest income is recognized when earned.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or estimated fair value. Fees
received on such loans are deferred and recognized in income as part of the gain
or loss on sale. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Loans
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their
outstanding principal balance adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Interest income on loans is accrued and credited to operations based on
the principal amount outstanding. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received. Significant loan and commitment fee
income and related costs are deferred and amortized over the term of the related
loan or commitment.
Allowance for Loan Losses
Provisions for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for losses,
relative to the risk in the loan portfolio. This estimate is based on reviews of
the loan portfolio, including assessment of the estimated net realizable value
of the related underlying collateral, and upon consideration of past loss
experience, current economic conditions and such other factors which, in the
opinion of management, deserve current recognition. Amounts are charged off as
soon as probability of loss is established, taking into consideration such
factors as the borrower's financial condition, underlying collateral and
guarantees. Loans are also subject to periodic examination by regulatory
agencies. Such agencies may require charge-offs or additions to the allowance
based upon their judgments about information available at the time of their
examination.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line and accelerated methods based on the estimated useful lives of
the related assets.
Goodwill
The excess cost over fair value of assets acquired of consolidated
subsidiaries is being amortized on a straight-line basis over periods of ten to
twenty-five years.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and are measured using enacted tax rates expected to apply
to taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities for
subsequent changes in tax rates is recognized in the period that includes the
tax rate change.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash
equivalents include cash on hand, amounts due from banks, federal funds sold and
interest-bearing deposits.
Earnings Per Share
Earnings per share 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 are shown below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Weighted average common shares outstanding 4,862 2,740 2,557
Stock options 20 - -
4,882 2,740 2,557
</TABLE>
Future Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, in June 1997. SFAS No. 130 will require
the Company to classify items of other comprehensive income by their nature in
the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of stockholders' equity. 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. Both SFAS No. 130 and SFAS
No. 131 are effective for fiscal years beginning after December 15, 1997. The
adoption of the standards is not expected to have a significant impact on the
financial statements of the Company.
(2) Investment Securities
The amortized cost, gross unrealized gains and losses and estimated
fair value of investment securities by major security type at December 31, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
1997 cost gains losses value
Held-to-maturity:
Obligations of states and
<S> <C> <C> <C> <C>
political subdivisions $100 $- $- $100
Available-for-sale:
U. S. treasury and agency securities $61,262 $87 $(65) $61,284
Obligations of states and political
subdivisions 10,121 133 (9) 10,245
Mortgage-backed securities 29,077 96 (202) 28,971
Total $100,460 316 (276) 100,500
1996
Held-to-maturity:
Obligations of states and
political subdivisions $102 - - 102
Available-for-sale:
U. S. treasury and agency securities $50,586 58 (220) 50,424
Obligations of states and political
subdivisions 10,786 121 (34) 10,873
Mortgage-backed securities 37,339 115 (468) 36,986
Equity securities 435 7 - 442
Total $99,146 301 (722) 98,725
</TABLE>
The amortized cost and estimated fair values of investment securities
at December 31, 1997, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
Amortized Estimated Amortized Estimated
cost fair value cost fair value
<S> <C> <C> <C> <C>
Due in one year or less $75 75 33,505 33,493
Due after one year through five years 25 25 34,804 34,886
Due after five years through ten years - - 5,100 5,188
Due after ten years - - 1,227 1,232
Mortgage-backed securities - - 25,824 25,701
Total $100 $100 $100,460 $100,500
</TABLE>
The Company's trading securities consist of a segregated portfolio of
equity securities purchased with the intent to actively manage and trade such
securities frequently. Realized gains since the trading portfolio was
established aggregate $14,000.
Other securities at December 31, 1997, 1996 and 1995 consist primarily
of stock in the Federal Reserve Bank, Federal Home Loan Bank and Kansas Venture
Capital Stock. The cost of such investments approximates their fair value. At
December 31, 1997, investment securities with fair values of approximately
$63,452,000 were pledged to secure public deposits and for other purposes.
(3) Loans
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Real estate - mortgage $147,830 114,990
Real estate - construction 47,886 28,672
Commercial 88,728 52,524
Agricultural 36,856 21,303
Consumer 17,080 13,027
Other 6,927 3,641
345,307 234,157
Allowance for loan losses (4,677) (2,981)
$ 340,630 231,176
</TABLE>
Prior to June 1997, the Company serviced loans of approximately
$29,035,000 for investors. During June 1997, the Company sold the right to
service such loans to another company, realizing a gain of approximately
$198,000. Service fee income of approximately $33,000, $82,000 and $90,000,
respectively, related to these portfolios is included in service fee income in
the consolidated statements of earnings for the years ended December 31, 1997,
1996 and 1995.
Loans made to directors and executive officers of the Company
approximated $9,331,000, $9,644,000 and $5,071,000 at December 31, 1997, 1996
and 1995, respectively. Such loans were made in the ordinary course of business
on normal credit terms, including interest rate and collateralization. Changes
in such loans for 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1997 $9,644
Additions 15,081
Amounts collected (15,457)
Amounts of acquired bank 63
Balance at December 31, 1997 $9,331
</TABLE>
Impaired loans are considered insignificant at December 31, 1997 and
1996. Nonaccrual loans approximated $869,000 and $324,000 at December 31, 1997
and 1996, respectively. The interest income not recognized on these loans was
approximately $36,000, $23,000 and $27,000 in 1997, 1996 and 1995, respectively.
Activity in the allowance for loan losses during the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $2,981 3,252 2,668
Allowance of acquired bank 808 - -
Provision for loan losses 865 (25) 1,334
Charge-offs (447) (501) (903)
Recoveries 470 255 153
Balance at end of year $4,677 2,981 3,252
</TABLE>
(4) Premises and Equipment
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $3,629 2,795
Buildings and leasehold improvements 10,006 4,955
Construction in progress 1,023 3,522
Furniture, fixtures and equipment 5,023 4,141
Automobiles 134 146
19,815 15,559
Accumulated depreciation and amortization 4,452 2,813
$15,363 12,746
</TABLE>
Depreciation expense aggregating $945,000, $745,000 and $666,000 for
the years ended December 31, 1997, 1996 and 1995, respectively, has been
included in net occupancy expense in the accompanying consolidated statements of
earnings.
(5)Deposits
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
Demand:
<S> <C> <C>
Noninterest bearing $37,495 27,093
Interest-bearing:
NOW 53,365 30,300
Super NOW 20,318 14,916
Money market 59,678 37,670
133,361 82,886
Total demand 170,856 109,979
Savings 16,582 13,139
Time 231,701 193,455
$419,139 316,573
</TABLE>
Time deposits include certificates of deposit of $100,000 and over
totaling approximately $43,525,000 and $41,729,000 at December 31, 1997 and
1996, respectively.
Principal maturities of time deposits at December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
<S> <C> <C>
1998 $148,162
1999 55,059
2000 21,296
2001 5,498
2002 1,543
Thereafter 143
$231,701
</TABLE>
During 1996, the Federal Deposit Insurance Corporation imposed a
one-time special assessment on Savings Association Insurance Fund (SAIF)
assessable deposits. The assessment on the Company's SAIF deposits was $389,000
and is included in federal deposit insurance premiums in the accompanying 1996
consolidated statement of earnings.
(6) Securities Sold Under Agreements to Repurchase
Information concerning securities sold under agreements to repurchase
is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average monthly balance during the year $6,835 7,825
Weighted average interest rate during the year 5.75% 5.46%
Maximum month-end balance during the year $6,516 8,053
</TABLE>
At December 31, 1997, such agreements were secured by investment and
mortgage-backed securities. Pledged securities are maintained by a safekeeping
agent under the control of the Company.
(7) Federal Funds Purchased and Federal Home Loan Bank Advances
Federal funds purchased fluctuate daily based on the liquidity needs of
the Company. At December 31, 1997, the Company had no federal funds purchased.
As of December 31, 1996, federal funds purchased of $6,675,000 had weighted
average interest rates of 6.53% and a one-day maturity.
Federal Home Loan Bank (FHLB) advances represent short-term advances
received from the FHLB. Such advances mature within one year and are secured by
qualifying one-to-four family mortgage loans. At December 31, 1997 and 1996,
these advances totaled $11,650,000 and $6,000,000, respectively.
(8) Long-term Debt
Following is a summary of long-term borrowings at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
1997 1996
<S> <C> <C>
Notes payable of subsidiary to
former stockholders of Farmers Bank,
interest rates ranging from 6.62% to 7.59%,
maturities ranging from January 31,
2005 to July 31, 2005 $1,500 $-
Notes payable of subsidiary to former
stockholders of Farmers Bank, interest rates
at NationsBank corporate base rate
(8.50% at December 31, 1997), maturing
February 1, 2000 262 -
Note payable to
bank, interest at 6.6%, maturing April 1, 1997 - 3,015
Note payable of Gold Banc
Corporation, Inc. Employee Stock Ownership
Plan, interest at NationsBank
corporate base rate (8.50% at December 31, 1997),
secured by 27,333 shares of
Company stock (see note 10) 236 276
Federal Home Loan Bank (FHLB) borrowings by
a subsidiary bank bearing weighted
average fixed interest rates of 6.10% and
5.48% at December 31, 1997 and 1996,
secured by qualifying one-to-four family
mortgage loans 1,338 1,602
$3,336 4,893
</TABLE>
Principal maturities of long-term borrowings at December 31, 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
<S> <C> <C>
1998 $613
1999 573
2000 471
2001 371
2002 334
Thereafter 974
$3,336
</TABLE>
None of the Company borrowings have any related compensating balance
requirements which restrict the usage of Company assets. However, regulations of
the Federal Reserve System require reserves to be maintained by all banking
institutions according to the types and amounts of certain deposit liabilities.
These requirements restrict usage of a portion of the amounts shown as
consolidated "cash and due from banks" from everyday usage in operation of the
banks. The minimum reserve requirements for the subsidiary banks at December 31,
1997 approximated $2,258,000.
(9) Income Taxes
Income tax expense (benefit) related to operations for 1997, 1996 and
1995 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
1997:
<S> <C> <C> <C>
Federal $ 1,694 (31) 1,663
State 241 (16) 225
$ 1,935 (47) 1,888
1996:
Federal $ 473 435 908
State 155 3 158
$ 628 438 1,066
1995:
Federal $ 713 (429) 284
State 246 (10) 236
$ 959 (439) 520
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1997, 1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
Deferred tax assets:
<S> <C> <C> <C>
Allowance for loan losses $907 334 663
Unrealized losses on available
-for-sale securities, net (15) 180 60
State taxes 250 488 320
Other 144 150 167
Total deferred tax assets 1,286 1,152 1,210
Deferred tax liabilities:
FHLB stock dividends 142 125 125
Premises and equipment 527 427 206
Other 119 93 143
Total deferred tax liabilities 788 645 474
Net deferred tax asset $498 507 736
</TABLE>
A valuation allowance for deferred tax assets was not necessary at
December 31, 1997, 1996 or 1995.
A reconciliation of expected income tax expense based on the statutory
rate of 34% to actual tax expense for 1997, 1996 and 1995 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
Amount Percent Amount Percent Amount Percent
Expected federal income
<S> <C> <C> <C> <C> <C> <C>
tax expense $1,910 34.00% $1,069 34.00% $591 34.00%
Municipal interest (156) (2.78) (147) (4.69) (154) (8.85)
State taxes, net of federal
tax benefit 225 4.00 155 4.94 167 9.64
Other, net (91) (1.62) (11) (.34) (84) (4.87)
$1,888 33.60% $1,066 33.91% $520 29.92%
</TABLE>
0) Employee Benefit Plans
On January 1, 1986, the Company established the Gold Banc Corporation,
Inc. Employee Stock Ownership Plan (ESOP) to acquire shares of the Company
common stock for the benefit of all eligible employees. The amount of annual
contributions from the Company, if any, is determined by the Board of Directors.
Contributions were approximately $92,000, $78,000 and $75,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. The ESOP, which is
noncontributory, covers substantially all employees of the corporation.
During 1996, the ESOP borrowed $275,800 from an unaffiliated bank to
purchase 31,888 shares of common stock from a stockholder of the Company (see
note 8). The ESOP will repay the loan with contributions received from the
Company. Accordingly, the Company has recorded the obligation with an offsetting
amount of unearned compensation included in stockholders' equity in the
accompanying consolidated balance sheets. During 1997, the Company contribution
was used to make principal payments on the note of $40,000 and in connection
with that payment, 4,555 shares were released to participants.
In 1995, the Company established a 401(k) savings plan for the benefit
of all eligible employees. Prior to December 31, 1997, the Company did not match
employee contributions. Effective January 1, 1998, the Company will match 50% of
employee contributions up to 5% of base compensation, subject to certain
Internal Revenue Service limitations. The 401(k) plan covers substantially all
employees of the corporation.
In 1996, the Company established a stock option plan. Under the stock
option plan, options to acquire 250,000 shares of the Company's common stock may
be granted to certain officers, directors and employees of the Company. The
options will enable the recipient to purchase stock at an exercise price equal
to or greater than the fair market value of the stock at the date of the grant.
On April 7, 1997, the Company granted options to acquire 70,500 shares for
$10.50 per share. Each of the options vested as of October 6, 1997 and expire in
2007.
No options have been exercised at December 31, 1997. The Company
applies APB Opinion No. 25 in accounting for its plan and, accordingly, no
compensation expense has been recognized for its incentive stock options. Had
compensation cost for the Company's incentive stock options been determined
based upon the fair value at the grant date consistent with the methodology
prescribed under SFAS No. 123, the Company's net earnings and basic earnings per
share would have been decreased by approximately $185,000 and $.04 per share in
1997. The weighted average fair value of the options granted during 1997 is
estimated at $4.23 per share on the date of grant using an option-pricing model
with the following assumptions: expected dividend yield of 1.0%, risk-free
interest rate of 7.0% and an expected life of ten years.
(11) Financial Instruments With Off-balance Sheet Risk
Financial instruments, which represent off-balance sheet credit risk,
consist of open commitments to extend credit, irrevocable letters of credit and
loans sold with recourse. Open commitments to extend credit and irrevocable
letters of credit amounted to approximately $79,726,000 at December 31, 1997.
Such agreements require the Company to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses. Since many of the
commitments are expected to expire without being fully drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained (if deemed necessary by the Company upon extension
of credit) is based on management's credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
The Company processes residential home mortgage loans for sale in the
secondary market. In conjunction with the sale of such loans, the Company has
entered into agreements with the purchasers of the loans, setting forth certain
provisions. Among those provisions is the right of the purchaser to return the
loans to the Company in the event the borrower defaults within a stated period.
This period ranges among the various purchasers from between one to twelve
months. Loans sold with recourse amounted to approximately $3,642,000,
$6,021,000 and $26,511,000 at December 31, 1997, 1996 and 1995, respectively.
The Company's exposure to credit loss in the event of default by the borrower
and the return of the loan by the purchaser is represented by the difference in
the amount of the loan and the recovery value of the underlying collateral.
(12) Disclosures About the Fair Value of Financial Instruments
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company and its subsidiaries using
available market information and valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company and its subsidiaries could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material impact on the estimated fair
value amounts.
The estimated fair value of the Company's financial instruments is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
Investment securities $104,437 104,437 101,145 98,725
Mortgage loans held for sale $858 858 2,182 2,182
Loans $340,630 340,227 231,176 231,064
Deposits $419,139 411,820 316,573 316,380
Securities sold under agreements
to repurchase $6,516 6,516 5,966 5,966
Federal funds purchased, FHLB
advances and other
short-term borrowings $11,650 11,650 12,675 12,675
Long-term debt $3,336 3,336 4,893 4,893
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
o Investment Securities - Various methods and assumptions were used to estimate
fair value of the investment securities. For investment securities, excluding
other securities, fair values are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated using
quoted prices for similar securities. The carrying value of other securities
approximates fair values.
o Mortgage Loans Held for Sale - The fair value of mortgage loans held for sale
equals the contractual sales price agreed upon with third-party investors.
o Loans - For certain homogenous categories of loans, such as some Small
Business Administration guaranteed loans, student loans, residential mortgages,
consumer loans and commercial loans, fair value is estimated using quoted market
prices for similar loans or securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
o Deposits - The fair value of demand deposits, savings accounts and money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
o Federal Funds Purchased, Securities Sold Under Agreements to Repurchase, FHLB
Advances and Other Short-term Borrowings - For these instruments, the current
carrying amount is a reasonable estimate of fair value.
o Long-term Debt - The fair value of long-term debt is estimated using
discounted cash flow analyses based on the Company's and subsidiaries' current
incremental borrowing rates for similar types of borrowing arrangements.
o Junior Subordinated Deferrable Interest Debentures- for these instruments,
issued on December 15, 1997, the carrying value approximates the fair value
at December 31, 1997.
o Commitments to Extend Credit and Irrevocable Letters of Credit - The fair
value of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the customers. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The estimated fair value of letters of
credit is based on the fees currently charged for similar agreements. These
instruments were determined to have no positive or negative market value
adjustments and are not listed in the following table.
o Loans Sold with Recourse - The fair value of loans sold with recourse is
limited to the contractual amount of the loans required to be repurchased. Loans
currently under the recourse provision have been sold to investors within the
last twelve months. Because the recourse provisions have not yet expired, it is
impractical to determine the fair value; however, it is not believed they would
have a material market value adjustment.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of the consolidated financial statements since that date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
(13) Capital Adequacy
Quantitative measures established by regulation to ensure capital
adequacy require the Company and its subsidiaries to maintain minimum amounts
and ratios (set forth in the table below on a consolidated basis, dollars in
thousands) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets and of Tier I capital to average assets. Tier I capital
includes approximately $14,000,000 of subordinated debentures (see note 1) which
is permitted under regulatory guidelines. Management believes, as of December
31, 1997, that the Company meets all capital adequacy requirements to which it
is subject.
<TABLE>
<CAPTION>
To be well
capitalized
For capital under prompt
adequacy corrective action
Actual purposes provisions
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1997:
Total risk-based capital
<S> <C> <C> <C> <C> <C> <C>
(to risk-weighted assets) $58,601 16.47% $28,601 8.00% 35,752 10.00%
Tier I capital
(to risk-weighted assets) 53,924 15.16 14,301 4.00 21,451 6.00
Tier I capital
(to average assets) 53,924 11.66 18,494 4.00 23,117 5.00
At December 31, 1996:
Total risk-based capital
(to risk-weighted assets) $36,181 14.85% $19,493 8.00% $24,366 10.00%
Tier I capital
(to risk-weighted assets) 33,200 13.59 9,746 4.00 14,620 6.00
Tier I capital
(to average assets) 33,200 9.56 13,780 4.00 17,225 5.00
</TABLE>
(14) Parent Company Condensed Financial Statements
Following is condensed financial information of the Company as of and
for the years ended December 31, 1997, 1996 and 1995 (in thousands):
Condensed Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
<S> <C> <C>
Cash $196 62
Investment securities 7,488 77
Federal funds sold, securities purchased
under agreements to resell and interest-bearing
deposits 16,819 8,641
Investment in subsidiaries 45,335 28,340
Other 1,974 606
Total assets $71,812 37,726
Liabilities and Stockholders' Equity
Guaranteed preferred beneficial interests
in the Company's subordinated debt $29,639 -
Long-term debt 236 3,291
Other 204 95
Stockholders' equity 41,733 34,340
Total liabilities and stockholders' equity $71,812 37,726
</TABLE>
Condensed Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Dividends from subsidiaries $- 1,048 2,309
Interest income 366 61 28
Unrealized gains on trading securities 229 - -
Other expense, net 1,800 1,442 1,563
Income (loss) before equity in
undistributed earnings
of subsidiaries (1,205) (333) 774
Increase (decrease) in undistributed
equity of subsidiaries 4,483 1,933 (88)
Earnings before income taxes 3,278 1,600 686
Income tax benefit 453 478 532
Net earnings $3,731 2,078 1,218
Condensed Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net earnings $3,731 2,078 1,218
Decrease (increase) in
undistributed
equity of subsidiaries (5,372) (1,933) 88
Net change in trading securities (1,072) - -
Other (812) 344 31
Net cash provided by (used in)
operating activities (3,525) 489 1,337
Cash flows from investing activities:
Net change in held-to-maturity
securities 2 (5) (75)
Net change in available-for-sale
securities (6,341) - -
Net change in loans - 501 (501)
Net additions to premises
and equipment (18) 5 12
Capital contributions
to subsidiaries (6,000) (3,000) -
Cash paid for acquisition (1,964) - -
Net cash used in investing activities (14,321) (2,499) (564)
Cash flows from financing activities:
Principal payments on
long-term debt (3,055) (7,385) (491)
Purchase of treasury stock - (134) (832)
Issuance of common stock - 18,122 350
Issuance of subordinated
debentures 29,639 - -
Payment of dividends (426) - -
Net cash provided by (used in)
financing activities 26,158 10,603 (973)
Net increase (decrease) in cash 8,312 8,593 (200)
Cash at beginning of year 8,703 110 310
Cash at end of year $17,015 8,703 110
</TABLE>
The primary source of funds available to the Company is the payment of
dividends by the subsidiaries. Subject to maintaining certain minimum regulatory
capital requirements, regulations limit the amount of dividends that may be paid
without prior approval of the subsidiaries' regulatory agencies. At December 31,
1997, the subsidiaries could pay dividends of $8,341,000 without prior
regulatory approval.
(15) Mergers and Acquisitions
As discussed in note 1, the 1996 and 1995 consolidated financial
statements have been restated to include the accounts and results of operations
of Peoples Bancshares, Inc. with those of the Company. The results of operations
previously reported by each of the companies and the amounts presented in the
accompanying consolidated financial statements for the six months ended June 30,
1997 and the years ended December 31, 1996 and 1995 are summarized below (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
Net interest income, after provision for loan losses:
<S> <C> <C> <C>
Gold Banc Corporation, Inc. $5,505 8,936 7,102
Peoples Bancshares, Inc. 1,235 2,423 2,111
$6,740 11,359 9,213
Net income:
Gold Banc Corporation, Inc. $1,406 1,351 704
Peoples Bancshares, Inc. 366 727 514
$1,772 2,078 1,218
</TABLE>
Effective October 1, 1997, the Company acquired all the outstanding
common stock of Farmers Bancshares of Oberlin, Inc. (Farmers) and its
wholly-owned subsidiary, Farmers National Bank, in exchange for cash of
$1,964,000 and 273,000 shares of Company common stock valued at $3,754,000. The
acquisition has been accounted for by the purchase method and, accordingly, the
results of operations of Farmers have been included in the Company's
consolidated financial statements from October 1, 1997. The excess of the
purchase price over the fair value of the underlying net assets acquired of
$269,000 has been recorded as goodwill and is being amortized on a straight-line
basis over twenty years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Farmers as if the acquisition
had occurred as of the beginning of 1996, after giving effect to certain
adjustments, including amortization of goodwill. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and Farmers constituted a single entity during
such periods (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
<S> <C> <C>
Net interest income, after provision for loan losses $15,526 13,179
Net income $3,792 2,447
Net income per share - basic $.75 .81
(16) Pending Acquisitions
</TABLE>
On November 25, 1997, the Company executed a definitive agreement to
acquire Alma Bancshares (Alma). Alma is a one bank holding company that owns all
of the stock of First National Bank in Alma, located in Alma, Kansas. The
agreement calls for the issuance of 147,456 shares of the Company's common stock
and the payment of cash of $750,000 to be delivered by the Company in exchange
for all the outstanding stock of Alma. The acquisition, which is subject to
regulatory approval and the satisfaction of other conditions, will be accounted
for as a purchase. Alma had assets of $27 million, loans of $16.6 million,
deposits of $24.6 million and stockholders' equity of $2.1 million as of
December 31, 1997 and net income of $85,000 for the year then ended.
On November 26, 1997, the Company executed a definitive acquisition
agreement with Midwest Capital Management, Inc. (Midwest). Midwest is a full
service broker/dealer located in Kansas City, Missouri and also manages stock,
bond and money market portfolios of financial institutions, governmental
agencies, businesses, pension plans, foundations and individuals. The agreement
calls for the issuance of 138,125 shares of the Company's common stock and the
payment of cash of $1,487,500. The acquisition, which is subject to regulatory
approval and the satisfaction of other conditions, will be accounted for as a
purchase. On December 31, 1997, Midwest had assets of $6.5 million and
stockholders' equity of $812,000. For the nine months ended December 31, 1997,
Midwest had net income of $249,000.
(17) Litigation
Exchange National Bank (Exchange), a wholly-owned subsidiary of Gold
Banc Corporation, Inc., is a named defendant in a case filed in the United
States District Court for the District of Kansas on September 11, 1997. The case
caption is Lisa Wilson, et al. v. Olathe Bank, et al. On April 28, 1997,
Exchange was named as defendant in a lawsuit that was commenced on behalf of a
putative class consisting of 2,400 persons who had invested in distributorships
sold by Parade of Toys, Inc. and Bandero Cigar Company. Parade of Toys and
Bandero Cigar sold business opportunities. They involved distribution of toys or
cigars through the placement of carousels or humidors in retail locations.
Plaintiffs allege that they and the class that they seek to represent were
induced to invest in the distributorships through fraudulent misrepresentations.
Some of those who invested in Parade of Toys were provided with Trade Reference
lists that included Exchange. Some of the distributors who received such a list
called Exchange to discuss the Company's relationships with a principal of
Parade of Toys and Bandero Cigar. The complaint alleges theories of violation of
RICO and RICO conspiracy statutes, common law fraud, negligent
misrepresentation, civil conspiracy and negligence. The complaint does not
allege which defendants engaged in what specific wrongdoing. Nor does it specify
the amount of damages plaintiffs are alleged to have sustained. The complaint
does allege that it is believed that over 2,400 persons invested in Parade of
Toys or Bandero Cigar and that the minimum investment was $14,900. Exchange has
denied any liability and is vigorously contesting the allegations made against
it. The Company is not yet in a position to determine whether the expenses and
losses, if any, in connection with this action will be material.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In November 1995, the Company retained Keith E. Bouchey, a principal of
GRA Thompson, White & Company, P.C. ("GRA Thompson") to serve as its Executive
Vice President, Chief Financial Officer, Treasurer and Corporate Secretary. At
the time of his employment by the Company, GRA Thompson served as the Company's
independent certified public accountants. In view of the Securities and Exchange
Commission's rules dealing with the independence of accountants, the Board of
Directors of the Company retained KPMG Peat Marwick LLP to serve as the
Company's new independent certified public accountants on April 29, 1996. There
were and are no disagreements with GRA Thompson on any matter of accounting
principles or practice, financial statement disclosure, or auditing scope and
procedure and GRA Thompson's reports on any of the Company's financial
statements have not contained an adverse opinion or disclaimer of opinion or
been qualified as to uncertainty, audit scope or accounting principles.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
Management of the Company
The directors and executive officers of the Company are as set forth
below.
Name Age Principal Occupation and
Five-Year Employment History
Michael W.Gullion 43 Mr. Gullion has served as Chairman of the
Board of Directors, President and Chief
Executive Officer of the Company since its
inception. His term of office as a director
expires at the annual meeting of stockholders
to be held in 1999. Mr.Gullion is the son-in-law
of William Wallman.
Keith E. Bouchey 47 Mr. Bouchey was elected to the Board of Directors
of the Company on May 30, 1996. His term of office
as a director expires at the annual meeting of
stockholders to be held in 2000. He has
served as the Executive Vice President, Chief
Financial Officer and Corporate Secretary of the
Company since joining the Company in November
1995. Prior to joining the Company, Mr. Bouchey
had been, since August 1977, a principal of GRA,
Thompson, White & Company, P.C., a regional
bank accounting and consulting firm, where he
served on the executive committee and as the
managing director of the firm's regulatory
services practice.
William F. Wright 55 Mr. Wright was elected as a director of the
Company on May 30, 1996. His term of office
as a director expires at the annual meeting of
stockholders to be held in 2000. Mr. Wright has
served as the Chairman of the Board of AMCON
Distributing Company, a wholesale distributor
headquartered in Omaha, Nebraska.
D. Michael Browne 45 Mr.Browne has served as a director of the
Company since November 1989. His term of
office as a director expires at the annual
meeting of stockholders to be held in 1998. He
has been the Chairman and Chief Executive Officer
of Consortia, LTD (formerly Mike Browne
International LTD), a direct marketing advertising
agency.
William Wallman 74 Mr. Wallman has served as a director of the
Company since November 1989. His term of office
as a director expires at the annual meeting of
stockholders to be held in 1999. For more than
five years Mr. Wallman has been the President
and owner of Wallman Chrysler-Plymouth, Inc.,
a car dealership located in Beatrice, Nebraska.
Mr. Wallman is the father-in-law of Mr. Gullion.
Allen D. Petersen 57 Mr. Petersen was appointed to the Board of
Directors of the Company on July 31, 1997. His
term of office as a director expires at the
annual meeting of stockholders to be held in
1998. Mr. Petersen previously served in an
advisory capacity to the Board of Directors.
For more than five years Mr. Petersen has been
the Chairman and Chief Executive Officer of
American Tool Companies located in Hoffman
Estates, Illinois.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors and executive officers and shareholders holding more than ten percent
of the outstanding stock of the Company are required to report their initial
ownership of stock and any subsequent change in such ownership to the Securities
and Exchange Commission and the Company. Specific time deadlines for the Section
16(a) filing requirements have been established by the Securities and Exchange
Commission. To the Company's knowledge, all reports due pursuant to Section 16
were filed on a timely basis, except that one report relating to the acquisition
of shares by William Wallman and one report relating to the receipt of stock
options by William Wright were filed later than required.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth information concerning the annual and
long-term compensation paid to the Chief Executive Officer and all other
employees of the Company whose compensation exceeded $100,000 during the last
fiscal
year.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Awards
Annual Compensation
Securities
Underlying
Name and Options All Other
Principal Position Year Salary ($) Bonus($)(1) (#) Compensation ($)
<S> <C> <C> <C> <C> <C>
Michael W. Gullion 1997 $241,000 $112,500 35,000 $ 16,809(2)
President and Chief Executive 1996 $186,000 $165,000 None $ 15,923(2)
Officer 1995 $156,000 $165,000 None $ 9,587(2)
Keith E. Bouchey 1997 $156,000 $31,000 12,500 $ 7,841(4)
Executive Vice President, 1996(3) $156,000 $31,000 None $ 3,933(4)
Chief Financial Officer and Corporate
Secretary
</TABLE>
(1) Represents amounts earned in fiscal year. Acual cash payment is made in
the following year.
(2) Consists of contributions to the Company's Employee Stock Ownership
Plan, personal use of Company-owned automobile, and country club
membership dues.
(3) Mr.Bouchey became an executive officer of the Company in November 1995.
(4) Consists of contributions to the Company's Employee Stock Ownership Plan
and country club membership dues.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Term Potential Realized Value
Number of Percent of at Assumed Annual
Securities Total Options Rates of Stock Price
Underlying Granted to Exercise or Appreciation for
Options Employees in Base Price Expiration Option Term
Name Granted(#) Fiscal Year ($/Shr) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Michael W. Gullion 35,000 49.6% $10.50 4/7/2007 $231,000 $585,550
Keith E. Bouchey 12,500 17.7% $10.50 4/7/2007 $ 82,500 $209,125
</TABLE>
Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Underlying
Unexercised Value of Unexercised In-the-
Options at Fiscal Money Options at Fiscal Year-
Year-End(#) end($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Received ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Michael W. Gullion 0 0 35,000/0 $516,250/0
Keith E. Bouchey 0 0 12,500/0 $184,375/0
</TABLE>
Employment Contracts
Messrs. Gullion and Bouchey (the "Executives") have entered into employment
agreements with the Company (each an "Agreement"). The terms of the Agreements
are three years (automatically renewed on the anniversary date of the Agreements
unless either party gives notice of its intention not to renew) and provide that
Mr. Gullion will be the Chairman, Chief Executive Officer and President and Mr.
Bouchey will be Executive Vice President, Chief Financial Officer and Corporate
Secretary of the Company. Throughout the employment period, each of the
Executives will be nominated by the Board of Directors for directorships and the
base compensation of the Executives and their opportunity to earn incentive
compensation will be at least as great as in existence prior to the
effectiveness of the Agreements. An Executive may be terminated for "cause" only
(as defined in the Agreement). An Executive may terminate the Agreement for
"good reason" which is defined as a material breach of the Agreement by the
Company. The death or disability of an Executive automatically terminates the
Agreement.
If the Company terminates an Agreement for cause or an Executive terminates
without good reason, neither the Company nor the Executive has any further
obligations to the other. If the Company terminates an Executive without cause
(as defined in the Agreement), an Executive terminates for good reason (as
defined in the Agreement), or a Change in Control (as defined below) of the
Company occurs, the Company is obligated to pay the Executive three times the
present value of the Executive's long and short-term compensation in place
immediately prior to the termination or Change in Control, provided that such
benefits cannot exceed an amount that would be subject to federal excise taxes.
A Change in Control of the Company will be deemed to occur upon (i) the
hostile replacement of at least the majority of the Board of Directors, (ii) a
person acquiring 25% or more of the shares or voting power of the stock of the
Company, provided such person is not an existing director or Executive or
relative of such a person or does not acquire such shares or voting rights
pursuant to an agreement to which the Executive is a party, or as a result of
the acquisition does not become the largest stockholder of the Company, (iii) a
merger or sale of substantially all of the assets of the Company or (iv) the
occurrence of any other event the Board of Directors determines to be a Change
in Control.
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee") is composed of three
independent non-employee Directors. The Committee is responsible for setting and
administering executive officers' salaries and the annual bonus and long-term
incentive plans that govern the compensation paid to executives of the Company.
Compensation Philospophy
The Company's compensation programs are designed to provide executives with
a competitive base salary and with incentives linked to the performance of the
Company and the individual. The Committee engaged the services of an independent
compensation consultant to assist it and has developed the following guidelines
for establishing executive compensation:
Competitiveness: Base salaries for executives should be reasonably
commensurate with those paid by comparable companies.
Entrepreneurialism: Each executive will have the opportunity to earn total
annual compensation, including bonuses, at approximately the 75th
percentile of comparable companies.
Long-Term Incentives: In order to create a sense of executive ownership
in and commitment to the Company, the Committee has adopted a stock option
plan that provides executives stock options.
The Committee selects comparable companies for purposes of determining
competitive levels based upon their size, industry and other factors the
Committee considers appropriate. These companies may or may not be included in
computing the indices used to prepare the common stock performance graph
included herein.
Annual Compensation
Total annual cash compensation for executive officers of the Company
consists of a base salary and a potential annual cash bonus based upon a target
incentive opportunity established each year by the Committee.
The base salary of each executive officer is approved on a subjective basis
by the Committee at a level believed to be sufficient to attract and retain
qualified individuals. In making this determination, the Committee considers the
executive's performance, salary levels at other competing businesses and the
Company's performance. In approving salaries and incentive bonus plan payments
for 1998, the Committee considered, among other matters, the Company's
performance during 1997 and the compensation of similar level executives
employed by comparable companies for which information was available, although
the Committee did not target compensation to any particular group of these
companies. The factors impacting base salary levels are not independently
assigned specific weights but are subjectively considered by the Committee.
The incentive bonus plan for executive officers consists of various
objective and subjective criteria related to areas for which each such executive
has responsibility as well as for Company wide performance. Under the incentive
bonus plan, each executive has a target bonus percentage with an opportunity to
earn up to a maximum amount approved by the Committee. The target and maximum
incentive bonus opportunity is stated as a percentage of base salary. The
percentage increases relative to the executive's level of responsibility within
the Company. The Committee believes that this structure is appropriate given
that an executive's ability to affect the overall performance of the Company
increases with the level of responsibility. For executives other than the Chief
Executive Officer, the executive's target incentive bonus ranges from 10% to 20%
of base salary, depending upon the executives level.
In February of 1997, the Committee set Mr. Gullion's base salary at
$250,000. His 1997 compensation also included $112,500 (45% of his base salary)
in payments earned under the Company's incentive bonus plan for 1997, based
largly upon the Company's success during the year as measured by: (i) a 230%
increase in the market capitalization of the Company; (ii) a 36% growth in the
Company's assets; (iii) an 80% increase in earnings; and (iv) the substantial
improvement in the return on the Company's assets, when adjusted for the impact
of acquisitions made during the year. For 1998, Mr. Gullion's base salary will
remain $250,000. However, his target incentive bonus opportunity will be
increased form 30% to 40% of his base salary.
Long-Term Incentive Compensation
The Board of Directors and the Company believe that stock options create a
mutuality of interests between the Company's executive officers and
stockholders. The long-term incentive compensation for executive officers has
consisted of awards of stock options granted under the Company's stock option
plan. The stock option plan provides option recipients the right to purchase
shares of Common Stock at a specified exercise price. All stock options issued
to executive officers generally have exercise prices equal to the fair market
value of the Common Stock on the date of the option grant. The number of options
awarded to each executive was determined by reference to the group of comparable
companies described above.
Compensation of Directors
Non-employee directors of the Company receive $5,000 annually and $500 per
board meeting or committee meeting for serving on the Board of Directors. In
addition, the Company reimburses directors for expenses incurred in connection
with attendance at meetings of the Board of Directors and committees thereof.
Employees of the Company receive no additional compensation for serving as a
director.
Indemnification and Limitation of Liability
The Amended and Restated Articles of Incorporation of the Company require
it to indemnify its directors and officers against liabilities, fines,
penalties, settlements, claims and reasonable expenses incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those capacities to the fullest extent permitted by the Kansas
General Corporation Code (the "KGCC"). The KGCC permits a corporation to
indemnify its present and former directors and officers if ordered to do so by a
court or after a determination by its independent counsel, stockholders or a
majority of its disinterested directors that the person to be indemnified acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Common Stock Performance
The graph set forth below is based upon information provided by SNL
Securities L.C. and compares the yearly percentage change in cumulative
stockholder return of the Company's Common Stock since November 19, 1996 ( the
date the Company completed its initial public offering of Common Stock) against
the cumulative return of the NASDAQ Stock (U.S.), the SNL $250 Million- $500
Million Bank Index and the SNL All Bank and Thrift Index covering the same time
period. The graph is based on $100 invested on November 19, 1996 in the
Company's Common Stock, the NASDAQ Stock (U.S.), the SNL $250 Million- $500
Million Bank Index and the SNL All Bank and Thrift Index, each assuming dividend
reinvestment. The historical stock price performance shown on this graph is not
necessarily indicative of future performance.
<TABLE>
<CAPTION>
Period Ending
Index 11/19/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Gold Banc Corporation, Inc. 100.00 101.47 126.47 169.52 224.44 298.71
NASDAQ-Total US 100.00 102.51 96.95 114.72 134.13 125.79
SNL $250M-$500M Bank Index 100.00 103.71 115.00 129.73 151.72 179.37
SNL All Bank & Thrift Index 100.00 100.50 106.14 122.12 141.01 154.28
</TABLE>
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 1998,
concerning the shares of the Company's common stock beneficially owned by (i)
each person known by the Company to be the beneficial owner of 5% or more of the
Company's common stock, (ii) each of the directors of the Company, and (iii) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the named beneficial owner has sole voting and investment power over
the shares listed.
<TABLE>
<CAPTION>
.
Name and Address of Beneficial Owner Number of Shares Percentage of Shares
Beneficially Owned
Beneficially Owned
<S> <C> <C> <C>
Michael W. Gullion(1)............................................... 949,118 17.73%
11301 Nall Avenue
Leawood, Kansas 66211
William Wallman(2).................................................. 220,401 4.13%
538 W. Mary
Beatrice, Nebraska 68310
Allen D. Petersen(2)(3)............................................. 167,828 3.14%
122 W. County Line Road
Barrington Hills, Illinois 60010
William F. Wright(2)................................................ 165,660 3.10%
1431 Stratford Court
Del Mar, California 92014
Keith E. Bouchey(4)................................................. 33,100 *
11301 Nall Avenue
Leawood, Kansas 66211
D. Michael Browne(5)................................................ 28,753 *
6450 Campbell Drive
Lincoln, Nebraska 68510
Directors and executive officers as a group......................... 1,010,971 18.89%
</TABLE>
* Less than 1%
(1) Includes 553,889 shares for which Mr. Wallman, Mr. Petersen, Mr.
Wright or The Lifeboat Foundation are the record owners and that
are subject to the terms of an agreement granting Mr. Gullion
voting control over such shares; 27,333 shares held by the Gold
Banc Corporation, Inc. Employee Stock Ownership Plan and Trust
that are not allocated to individual accounts and over which Mr.
Gullion, as Plan Administrator, has voting control; and 35,000
shares that can be acquired pursuant to options that are
presently exercisable.
(2) Subject to the terms of an agreement granting Mr. Gullion voting
control over such shares; includes 1,000 shares that may be
acquired pursuant to options that are presently exercisable.
(3) 166,828 of these shares are owned by The Lifeboat Foundation.
Mr. Petersen is one of three directors of The Lifeboat
Foundation. The Lifeboat Foundation has granted Mr. Gullion an
irrevocable proxy to vote each of these shares. Mr. Petersen
disclaims beneficial ownership of these shares.
(4) Includes 15,000 shares held in the name of Holyrood Bancshares,
Inc. Mr. Bouchey is a director, officer and stockholder of
Holyrood Bancshares, Inc.; 600 shares owned by children of
Mr. Bouchey; and 12,500 shares that may be
acquired pursuant to options that are presently exercisable.
(5) Includes 1,000 shares that may be acquired pursuant to options
that are presently exercisable.
Mr. Gullion has entered into a agreement with Mr. Wallman pursuant to which
Mr. Wallman has granted to Mr.Gullion an irrevocable proxy to vote all shares of
th Company's common stock (other than any director qualifying shares) owned or
subsequently acquired by Mr.Wallman. The agreement also grants to Mr. Gullion:
(i) a 180-day first right of refusal in the event Mr. Wallman receives a bona
fide offer from a third party to purchase some or all of the shares of the
Company's common stock held by Mr. Wallman or certain permitted transferees to
whom Mr. Wallman may transfer shares; and (ii) in the event Mr. Wallman dies, a
180-day option to purchase some or all of the shares of the Company's common
stock held by Mr. Wallman or certain permitted transferees to whom Mr. Wallman
may transfer shares. This agreement terminates on the earlier to occur of: (i)
the date Mr. Gullion ceases to be President, Chairman and/or Chief Executive
Officer of the Company; or (ii) six months after Mr. Wallman's death.
Mr. Gullion has also entered into an agreement with Mr. Wright, Mr.
Petersen and the Lifeboat Foundation pursuant to which Mr. Wright, Mr. Petersen
and the Lifeboat Foundation have granted to Mr. Gullion an irrevocable proxy to
vote all shares of the Company's common stock owned or subsequently acquired by
Mr. Wright, Mr. Petersen or the Lifeboat Foundation. Such proxy continues until
the earlier of: (i) the date Mr. Gullion ceases to be President, Chairman and/or
Chief Executive Officer of the Company; or (ii) termination of the agreement as
described below. The agreement grants to Mr. Gullion a 90 day first right of
refusal in the event Mr. Wright, Mr. Petersen or the Lifeboat Foundation
receives a bona fide offer from a third party to purchase, or proposes to sell
on the public market, some or all of the shares of the Company's common stock
held by such person or by certain permitted transferees to whom such shares may
be transferred. The agreement also grants to Mr. Wright , Mr. Petersen and the
Lifeboat Foundation a 90 day first right of refusal in the event Mr. Gullion
receives a bona fide offer from a third party to purchase, or proposes to sell
on the public market, some or all of the shares of the Company's common stock
held by Mr. Gullion or certain permitted transferees to whom Mr. Gullion may
transfer shares. The agreement terminates in 2006.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the officers, directors and principal sockholders of the Company
and its subsidiary banks, and members of their immediate families and businesses
in which these individuals hold controlling interests, are customers of the
Company's banks and it is anticipated such parties will continue to be customers
of the banks in the future. Credit transactions with these parties are subject
to review by each bank's Board of Directors. All outstanding loans and
extensions of credit by the banks to these parties were made in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and, in the opinion of management, did not and do not involve
more than the normal risk of collectability or present other features
unfavorable to the banks. The aggregate balance of loans and advances under
existing lines of credit to these parties was $9.3 million and $9.6 million at
December 31, 1997 and 1996, respectively.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits
3(a) Amended and Restated Articles of Incorporation of the Company*
3(a)(i) Certificate of Amendment to Restated Articles of Incorporation**
3(b) Restated By-laws of the Company*
4 Form of Common Stock Certificate*
9(a) Proxy Agreement/Shareholder Agreement between Michael W. Gullion and
William Wallman, dated as of September 15, 1996*
9(b) Proxy Agreement/Shareholder Agreement between Michael W. Gullion and
William F. Wright, dated as of September 15, 1996*
9(c) Accession of The Lifeboat Foundation to the Proxy
Agreement/Stockholder Agreement among Michael W. Gullion,
William Wright and Allen Petersen, dated as of May 28, 1997***
10(a) Employment Agreement between the Company and Michael W. Gullion*
10(b) Employment Agreement between the Company and Keith E. Bouchey*
10(c) Gold Banc Corporation, Inc. 1996 Equity Compensation Plan*
10(d) Form of Tax Sharing Agreements between the Company and the Banks*
10(e) Form of Federal Home Loan Bank Credit Agreement to which each of the
Banks is a party*
10(f) Form of Junior Subordinated Indenture dated as of December 15, 1997
between the Company and Bankers Trust Company as Trustee.***
10(g) Form of Trust Agreement dated as of December 15, 1997 between the
Company and Bankers Trust (Delaware) as Trustee.***
10(h) Form of Amended and Restated Trust Agreement among the Company,
Bankers Trust Company, as Property Trustee, Bankers Trust
(Delaware), as Delaware Trustee and various holders of Trust
Securities.***
10(i) Form of Guarantee Agreement between the Company, as Guarantor, and
Bankers Trust Company, as Trustee, dated as of December 15, 1997.***
16 Letter Regarding Change in Certifying Accountants*
21 List of Subsidiaries of the Company
27 Financial Data Schedule
*Previously filed as an Exhibit to the Company's Registration Statement on
Form SB-2 No. 333-12377 and the same is incorporated herein by reference.
**Previously filed as an Exhibit to the Company's Registration Statement on
Form S-4 No. 333-28563 and the
same is incorporated herein by reference.
***Previously filed as an Exhibit to the Company's Registration Statement
on Form SB-2 No. 333-39849.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GOLD BANC CORPORATION, INC.
(Registrant)
By: /s/ Michael W. Gullion
Michael W. Gullion
Chief Executive Officer
Dated: ______________, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the dated indicated:
Signature Title Date
/s/ Michael W. Gullion Chairman of the Board, __________, 1998
Michael W. Gullion President and Chief Executive
Officer (Principal Executive
Officer)
/s/ Keith E. Bouchey Director, Executive Vice ________, 1998
Keith E. Bouchey President, Chief Financial Officer
and Corporate Secretary
(Principal Financial Officer)
/s/ Brian J. Ruisinger Treasurer and Controller _________, 1998
Brian J. Ruisinger (Principal Accounting Officer)
/s/ William Wallman Director __________, 1998
William Wallman
/s/ D. Michael Browne Director __________, 1998
D. Michael Browne
/s/ William F. Wright Director __________, 1998
William F. Wright
/s/ Allen D. Petersen Director __________, 1998
Allen D. Petersen
INDEX
ITEM 1. BUSINESS..................................................1
ITEM 2. PROPERTIES...............................................14
ITEM 3. LEGAL PROCEEDINGS........................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, UNREGISTERED
SALES OF EQUITY SECURITIES AND RELATED
STOCKHOLDER MATTERS......................................15
ITEM 6. SELECTED FINANCIAL DATA
........................................................ 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 17
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK....................................... 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTIN AND FINANCIAL DISCLOSURE................ 34
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT..................................34
ITEM 11.EXECUTIVE COMPENSATION
........................................................ 34
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................38
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........40
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K .......................................40
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
Exchange National Bank
Citizens State Bank & Trust Co.
Provident Bank f.s.b. (Subsidiary of Provident Bancshares, Inc.)
Peoples National Bank
Farmers National Bank
First National Bank in Alma
Midwest Capital Management, Inc.
Gold Banc Financials Services, Inc.(subsidiary of Exchange National Bank)
Citizens Investments, Inc., (subsidiary of Citizens State Bank and Trust)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
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 SEPT. 30, 1997.
</LEGEND>
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<NAME> GOLD BANC CORPORATION, INC.
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