UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
__
/__/ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ___________
to________________
Commission File Number: 028936
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Kansas 481008593
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive office) (Zip code)
(913) 4518050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for past 90 days. ___
Yes x No /__/
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date.
Class Outstanding at
October 31, 1999
_____________________________ ______________________________
Common Stock, $1.00 par value 17,181,618
<PAGE>
GOLD BANC CORPORATION, INC.
INDEX TO 10Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1999
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets at
September 30, 1999 (unaudited) and
December 31, 1998. . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Earnings B
Nine months ended September 30, 1999 and
September 30, 1998 (unaudited) . . . . . . . . . . . . . . 2
Consolidated Statements of Earnings
Three months ended September 30, 1999
and September 30, 1998 (unaudited) . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and
September 30, 1998 (unaudited) . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . 9
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . 14
ITEM 2: CHANGES IN SECURITIES AND USE OF
PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 3: DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . 15
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 15
ITEM 5: OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
SEPTEMBER 30, 1999 DEC. 31, 1998
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and due from banks $39,935 $36,305
Federal funds sold and
interest-bearing deposits 21,255 62,798
Total cash and cash equivalents 61,190 99,103
Investment securities:
Held-to-maturity 25 63
Available-for-sale 257,593 225,606
Trading 4,873 3,851
Total investment securities 262,491 229,520
Mortgage and student loans held
for sale, net 50,506 5,425
Loans, net 806,930 717,939
Premises and equipment, net 31,415 26,183
Goodwill, net 29,383 13,328
Accrued interest and other assets 36,747 19,858
Total assets $1,278,662 $1,111,356
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $967,295 $926,687
Securities sold under agreements
to repurchase 61,176 6,644
Federal funds purchased and
other short-term borrowings 20,625 7,568
FHLB and other long-term borrowings 62,640 49,958
Guaranteed preferred beneficial
interests in Company's debentures 66,300 28,750
Accrued interest and other liabilities 10,336 7,938
Total liabilities 1,188,372 1,027,545
Stockholders' equity:
Preferred stock, no par value;
50,000,000 shares authorized,
no shares issued - -
Common stock, $1.00 par value,
50,000,000 shares authorized, 17,182 17,182
17,181,618 shares issued and
outstanding at September 30, 1999
and December 31,1998, respectively
Additional paid-in capital 29,200 29,200
Retained earnings 46,386 37,235
Accumulated other comprehensive
income (loss) (2,281) 391
Unearned compensation (197) (197)
Total stockholders' equity 90,290 83,811
Total liabilities and stockholders' equity $ 1,278,662 $1,111,356
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
SEPTEMBER 30,1999 SEPTEMBER 30, 1998
<S> <C> <C>
Interest income:
Loans, including fees $52,616 $44,309
Investment securities 10,315 8,287
Other 2,284 1977
65,215 54573
Interest expense:
Deposits 28,558 25289
Borrowings and other 6,461 3271
35,019 28560
Net interest income 30,196 26013
Provision for loan losses 1,301 1801
Net interest income after
provision for loan losses 28,895 24212
Other income:
Service fees 3,031 2275
Net gains on sale of mortgage loans 1,559 769
Net securities gains 170 92
Investment trading fees and commissions 2,556 2177
Other 5,172 677
12,488 5990
Other expense:
Salaries and employee benefits 13,783 9272
Net occupancy expense 2,784 1578
Depreciation expense 1,539 1165
Goodwill amortization expense 721 300
Other 7,419 5876
26,246 18191
Earnings before income taxes 15,137 12011
Income tax expense (Note 1) 4,945 2105
Net earnings $10,192 $9,906
Net earnings per share-basic and diluted $0.59 $0.60
Pro forma net earnings (Note 1) $8,124
Pro forma net earnings per share B
basic and diluted (Note 1) $0.49
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
Interest income:
Loans, including fees $18,737 $16,302
Investment securities 3,760 2,880
Other 533 760
23,030 19,942
Interest expense:
Deposits 9,710 9,245
Borrowings and other 2,891 1,161
12,601 10,406
Net interest income 10,429 9,536
Provision for loan losses 330 377
Net interest income after
provision for loan losses 10,099 9,159
Other income:
Service fees 1,074 854
Net gains on sale of mortgage loans 1,220 250
Net securities gains (losses) (1) 34
Investment trading fees and commissions 712 768
Other 2,034 33
5,039 1,939
Other expense:
Salaries and employee benefits 5,604 3,324
Net occupancy expense 933 682
Depreciation expense 503 432
Goodwill amortization expense 312 130
Other 2,444 2,232
9,796 6,800
Earnings before income taxes 5,342 4,298
Income tax expense (Note 1) 1,633 585
Net earnings $3,709 $3,713
Net earnings per share-basic and diluted $0.22 $0.22
Pro forma net earnings (Note 1) $3,013
Pro forma net earnings per shareBbasic and diluted (Note 1) $0.18
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings $10,192 $9,906
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities, net of purchase acquisitions:
Provision for loan losses 1,301 1,801
(Gains) losses on sales of securities (170) (92)
Amortization of investment securities'
premiums, net of accretion 203 (717)
Depreciation 1,539 1,165
Amortization of goodwill 721 300
(Gain) loss on sale of assets, net (23) 10
Net (increase) decrease in
trading securities (1,044) (1,241)
Unrealized loss on trading securities 22 367
Net (increase) decrease in mortgage loans
held for sale 845 (835)
Other changes:
Accrued interest receivable and other
assets (7,138) (6,511)
Accrued interest payable and other
liabilities (5,734) (5,117)
Net cash provided by
(used in) operating
activities 714 (964)
Cash flows from investing activities:
Net increase in loans (90,292) (64,582)
Principal collections and proceeds
from maturities of held-to-maturity
securities 38 562
Principal collections and proceeds from
sales and maturities of available-for-sale
securities 1,810,648 1,767,057
Purchases of available-for-sale
securities (1,842,667) (1,756,942)
Net additions to premises and
equipment (4,844) (4,526)
Cash paid for acquisitions,
net of cash received (15,345) 3,579
Proceeds from sale of other assets 20 141
Net cash used in
investing activities (142,442) (54,711)
Cash flows from financing activities:
Increase in deposits 40,608 58,432
Net increase in short-term borrowings 17,520 (11,216)
Net increase in FHLB and other
long-term borrowings 9,168 15,616
Proceeds from issuance of guaranteed
preferred beneficial interests in
Company's debentures 37,550 -
Dividends paid (1,031) (597)
Net cash provided by
financing activities 103,815 62,235
Increase (decrease) in
cash and cash equivalents (37,913) 6,560
Cash and cash equivalents,
beginning of year 99,103 78,269
Cash and cash equivalents,
end of period $61,190 $84,829
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF
NON-CASH FINANCING ACTIVITIES: September 30, 1999 September 30, 1998
<S> <C> <C>
Issuance of common stock for acquisitions $ - $ 9,337
Non-cash activities related to purchase
acquisitions:
Increase in investments - 47,723
Net increase in net loans 45,926 84,515
Increase in land, buildings, and
equipment 1,924 2,435
Increase in deposits - 126,973
Increase in short-term borrowings 50,069 6,657
Increase in long-term borrowings $ 3,515 $ 1,844
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation.
1998 results have been restated to reflect the effects of
two pooling of interests acquisitions completed in the fourth
quarter of 1998. Pro forma results for 1998 include adjustments
for income taxes related to Subchapter S corporate earnings of
Citizens Bank of Tulsa.
The consolidated financial statements include the accounts
of the Company's subsidiaries, Gold Bank N.A., Citizens State
Bank and Trust Company, Provident Bank, f.s.b., Peoples National
Bank, The Farmers National Bank of Oberlin, The First National
Bank in Alma, The Farmers State Bank of Sabetha, Peoples State
Bank of Colby, The First State Bank and Trust Company, Citizens
Bank of Tulsa (the "Banks"), Midwest Capital Management, Inc.,
The Trust Company, CompuNet Engineering, Inc., and Regional
Holding Company. All significant intercompany balances and
transactions have been eliminated.
The December 31, 1998 consolidated balance sheet has been
derived from the audited balance sheet as of that date. The
consolidated financial statements as of September 30, 1999 and
for the three and nine months ended September 30, 1999 and 1998
are unaudited but include all adjustments (consisting only of
normal recurring adjustments) which the Company considers
necessary for a fair presentation of financial position and
results of its operations and its cash flows for those periods.
The Consolidated Statements of Earnings for the nine months ended
September 30, 1999 are not necessarily indicative of the results
to be expected for the entire year. Certain reclassifications
have been made to prior year's financial statements to conform to
the current year's presentation.
2. Earnings per common share.
Earnings per share are computed in accordance with SFAS No.
128, Earnings per Share. Basic earnings per share is based upon
the weighted average number of common shares outstanding during
the periods presented. Diluted earnings per share includes the
effects of all potentially dilutive common shares outstanding
during each period. Employee stock options are the Company's
only potential common share equivalent.
<PAGE>
The shares used in the calculation of basic and diluted income
per share for the three and nine months ended September 30, 1999
and 1998 are shown below (in thousands):
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30 September 30
<S> <C> <C> <C> <C>
1999 1998 1999 1998
Weighted average common shares
outstanding 17,182 16,697 17,182 16,458
Stock options 47 164 62 142
Weighted average common shares and
Common share equivalents
outstanding 17,229 16,861 17,244 16,600
</TABLE>
3. Guaranteed Preferred Beneficial Interests in Company's
Debentures.
On June 9, 1999, GBCI Capital Trust II (the "Trust"), a
Delaware business trust formed by the Company, completed the sale
of $37.6 million of 9.12% Preferred Securities (the "Preferred
Securities"). The Trust also issued Common Securities to the
Company and used the net proceeds from the offering to purchase a
like amount of 9.12% 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 earnings 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 $1.5 million were 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 9.12% 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 guaranty 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 June 30, 2029 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
June 30, 2004 at a redemption price specified in the Indenture
plus any accrued but unpaid interest to the redemption date.
4. Comprehensive Income.
Comprehensive income was $7.5 million and $9.1 million for
the nine months ended September 30, 1999 and 1998, respectively
and $3.2 million and $3.8 million for the three months ended
September 30, 1999 and 1998, respectively. The difference
between comprehensive income and net earnings presented in the
Consolidated Statement of Earnings is attributed solely to
unrealized gains and losses on available-for-sale securities.
5. Acquisition.
On August 2, 1999 the Company acquired Regional Holding
Company, Inc. of Kansas City, Missouri, owner of Regional
Investment Co., a full-service mortgage banking firm which
originates and services residential mortgage loans for $13.2
million in cash and notes payable. The acquisition of Regional
was accounted for as a purchase. The operations of Regional have
been included in the consolidated operating results of the
Company since August 2, 1999, with an insignificant effect on net
earnings.
<PAGE>
6. Subsequent Events:
ACQUISITIONS: The Company has announced the following
pending acquisitions:
<TABLE>
<CAPTION>
(Thousands)
September 30, 1999
<S> <C> <C> <C>
NAME AND LOCATION NATURE OF EXCHANGE ASSETS DEPOSITS) EQUITY
Union Bankshares Stock-for-stock $351,888 $292,159 $19,511
American Bancshares Stock-for-stock $471,459 $352,138 $26,993
CountryBanc Holding
Company Stock-for-stock $530,241 $455,532 $50,031
First Business
Bancshares Stock-for-stock $124,978 $105,087 $ 7,129
Linn County Bank 52% stock/48% cash $ 53,175 $ 35,576 $ 3,749
</TABLE>
The transactions are expected to close during the first
quarter of 2000. The acquisitions, excluding Linn County Bank,
will be accounted for using the pooling of interests method. The
consummation of the acquisitions and the final purchase price of
each entity is subject to certain conditions, including the
market price of Gold Banc's common stock and various shareholder
approvals, prior to closing. Should the acquisitions have closed
as of September 30, 1999, Gold Banc would have had combined
assets of $2.75 billion and deposits of $2.40 billion.
CONSOLIDATION AND CONVERSION TO A KANSAS STATE MEMBER BANK:
On October 27, 1999, the Company announced it was to reorganize
its bank holdings in Kansas through a consolidation of its
various charters into one statewide charter. The primary reason
for this is to enhance the ability of its Kansas community banks
to focus on providing their local communities with enhanced
products and services while eliminating unnecessary regulatory
burdens and overhead expenses.
STOCKHOLDER RIGHTS PLAN: On October 13, 1999, the Company's
Board of Directors adopted a Stockholders Rights Plan. To affect
the plan, the Board declared a dividend distribution of one
preferred stock purchase right for each outstanding share of Gold
Banc common stock. The rights will be exercisable only if a
person or group acquires 15% or more of the Company's common
stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 15% or more of
the Company's common stock. Each right will initially entitle
the holder to purchase one one-thousandth of a share of a new
series of preferred stock at an exercise price of $40.00. If
however, a person or group acquires 15% or more of the Company's
outstanding common stock ("Interested Stockholder"), each right
will entitle its holder, other than an Interested Stockholder and
its affiliates and associates, to purchase, at the right's then-current
exercise price, a number of shares of the Company's
common stock having a market value of twice the right's exercise
price.
7. Legal proceedings.
Gold Bank (formerly Exchange National Bank) is one of
several named defendants in a number of lawsuits arising out of
the same circumstances. The litigation was brought on behalf of
persons who purchased distributorships from an entity known as
Parade of Toys ("Parade"). Gold Bank was included on trade
reference sheets that listed other banks with whom Parade had
done business. Plaintiffs allege that they contacted the persons
listed on the trade reference sheets and that the trade reference
defendants made false and misleading misrepresentations on which
plaintiffs relied to their detriment. Their current claims
include theories of fraud, negligent misrepresentations, civil
conspiracy, and negligence.
Plaintiffs commenced the litigation in May 1997 as a
putative class action in the District Court of Johnson County,
Kansas. They then obtained an order dismissing the case without
prejudice and, in September 1997, refiled in the United States
District Court for the District of Kansas. After the federal
court denied class certification, plaintiffs filed a second
action on behalf of 670 named plaintiffs. The court ruled that
those claims
<PAGE>
were misjoined and set a deadline for plaintiffs to initiate new
individual actions or to have their claims dismissed with
prejudice. Plaintiffs then obtained an order from the federal
court dismissing all claims without prejudice and reinitiated
certain of their claims in state court in Johnson County, Kansas.
Plaintiffs began the process of recommencing the litigation
by filing a separate action for each plaintiff in February 1999.
Gold Bank was named as a defendant in 24 of those individual
actions. Plaintiffs then filed a number of multi-plaintiff
actions. On July 28, 1999, the state court ruled that claims in
the multi-plaintiff actions had been misjoined and that only the
first-named plaintiff in each case could proceed. It gave
plaintiffs until October 28, 1999 to commence new individual
actions or to have their claims dismissed with prejudice. On
October 29, 1999, Gold Bank was served with 174 new Petitions,
each filed on behalf of a single plaintiff or on behalf of a
group of plaintiffs who allege that they combined to purchase a
single distributorship.
Gold Bank has filed Answers denying any liability in the 24
cases commenced on behalf of individual plaintiffs and has filed
Motions to Dismiss the multi-plaintiff actions. Gold Bank has
begun the process of analyzing the newly filed state court
Petitions. The majority of the new actions allege damages that
range between $18,000 and $26,000.
Gold Bank denies any liability and intends to vigorously
defend these and any additional claims. The Company is unable to
estimate its potential range of monetary exposure, if any, or to
predict the likely outcome of these matters.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total average assets were $1.2 billion for the nine months
ended September 30, 1999, compared to $930.7 million for the nine
months ended September 30, 1998, a 26.5% increase. Average
interestearning assets were $1.1 billion for the nine months
ended September 30, 1999 and $856.6 million for the nine months
ended September 30, 1998, a 25.3% increase. Assets increased
during 1999 due to internal loan growth and acquisitions.
Total assets were $1.3 billion at September 30, 1999, an
increase of $167.3 million from December 31, 1998. Net loans
grew $134.1 million during the first nine months of 1999. The
purchase of Regional Holding Company added $46.0 million of
mortgage loans held for sale. Internal growth produced the
remainder of the increase, with the majority of the increase
originating from the Company's suburban Kansas City locations.
Internal loan growth was funded through an increase in deposits
and additional short-term and long-term Federal Home Loan Bank
(FHLB) borrowings. The allowance for loan losses increased to
$11.5 million at September 30, 1999 from $10.8 million at
December 31, 1998. The allowance represented 1.33% and 1.49% of
total loans as of September 30, 1999 and December 31, 1998,
respectively. Excluding the $46.0 million of mortgage loans held
for sale as a result of the Regional acquisition, the September
30, 1999 allowance represented 1.40% of total loans.
For the nine months ended September 30, 1999, the Company's
annualized return on average assets ("ROA") was 1.15%, compared
to 1.16% for the nine months ended September 30, 1998. Return on
average common stockholders' equity ("ROE") for the nine months
ended September 30, 1999 and 1998 was 15.6% and 14.5%,
respectively.
Cash and cash equivalents and investment securities totaled
$323.7 million, or 25.3% of total assets at September 30, 1999,
compared to $328.6 million, or 29.6%, at December 31, 1998. At
September 30, 1999, the Company's leverage, Tier 1 riskbased
capital, and total riskbased capital ratios were 7.40%, 11.4%,
and 17.7% respectively, compared to minimum required levels of
4%, 8% and 4%, respectively (subject to change and the discretion
of regulatory authorities to impose higher standards in
individual cases). At September 30, 1999, the Company had
riskweighted assets of $859.3 million.
During the second quarter of 1999, the Company issued $37.6
million of 9.12% Guaranteed Preferred Junior Subordinated
Debentures (Junior Subordinated Debentures). Proceeds from the
issuance were used to repay $11 million in correspondent bank
debt and the remaining amount was to be used for acquisitions and
general corporate purposes. The Company established a line of
credit in the amount of $25 million with a correspondent bank
during the third quarter of 1998. No amounts had been drawn
under the line as of September 30, 1999.
Management believes that cash generated from its operations,
from its Junior Subordinated Debentures and from its
correspondent bank facility will be sufficient to meet its cash
requirements for acquisitions, internal growth and general
operations in the foreseeable future.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income for the nine months ended September
30, 1999 was $65.2 million, a $10.6 million or a 19.5% increase
over the nine months ended September 30, 1998. For the three
months ended September 30, 1999, total interest income was $23.0
million or 15.5% greater than the comparable period in 1998. The
increase during the quarter was primarily the result of internal
loan growth. Average total earning assets increased $216.5
million or 25.3% to $1.1 billion at September 30, 1999, compared
to $856.6 million at September 30, 1998.
Total interest expense for the nine months ended September
30, 1999 was $35.0 million, a $6.5 million or a 22.6% increase
over the nine months ended September 30, 1998. For the three
months ended September 30, 1999, interest expense was $12.6
million, or 21.1% greater than the comparable period in 1998.
The increase was the result of greater average deposits, an
increase in borrowings and the Junior Subordinated Debentures.
Average total interestbearing liabilities increased by $221.7
million or 29.1% to $983.6 million during the nine months ended
September 30, 1999 compared to $762.0 million at September 30,
1998, primarily due to acquisitions, more interest bearing
deposits, the increased level of borrowings and the Junior
Subordinated Debentures.
Net interest income was $30.2 million for the nine months
ended September 30, 1999, compared to $26.0 million for the same
period in 1998, an increase of 16.1%. The Company's net interest
margin decreased from 4.13% for the nine months ended September
30, 1998 to 3.84% for the nine months ended September 30, 1999
primarily due to the newly issued Junior Subordinated Debentures.
For the three months ended September 30, 1999, net interest
income increased 9.4% to $10.4 million versus $9.5 million for
the three months of 1998. Net interest margin for the three
months ended September 30, 1999 decreased to 3.85% from 4.35%
compared to the same period in 1998. The decrease in net
interest margin was created by additional interest expense
associated with the Company's issuance of Junior Subordinated
Debentures and lower yields on loans and investments.
PROVISIONS FOR LOAN LOSSES
The provision for loan losses for the nine months ended
September 30, 1999, was $1.3 million, compared to $1.8 million
for the comparable 1998 period. For the three months ended
September 30, 1999, the provision for loan losses was $330,000
compared to $377,000 for the third quarter of 1998. The
allowance represented 1.33% and 1.49% of total loans as of
September 30, 1999 and September 30, 1998, respectively.
Excluding $46.0 million of mortgage loans held for sale related
to the Regional acquisition, the allowance represented 1.40% of
total loans. The Company monitors its allowance for loan losses
to total loans ratio on a monthly basis in order to maintain a
ratio within internally defined guidelines of 1.15% to 1.65%.
OTHER INCOME
Other income for the nine months ended September 30, 1999
was $12.5 million, an increase of $6.5 million, or 108.5% over
the same period last year. Other income for the third quarter of
1999 was $5.0 million, an increase of $3.1 million or 159.9%
compared to the third quarter of 1998. The Regional acquisition
added $1.0 million in other income related to gains on sale of
mortgage loans since its purchase as of August 2, 1999. The
remaining increase in other income resulted from an increase in
fee based income from acquired nonbank subsidiaries providing
trust fees, computer sales and service fees and investment
management fees.
<PAGE>
OTHER EXPENSE
Other expense for the nine months ended September 30,1999
was $26.2 million, an increase of $8.1 million, or 44.3%, over
the same period last year. For the third quarter of 1999, other
expense was $9.8 million, an increase of $3.0 million, or 44.1%
over the comparable quarter in 1998. This increase was due to
increased salaries and benefits expenses, occupancy expense and
other non-interest expenses. Most of these increases were
related to recent acquisitions. The Company's overall efficiency
ratio increased during the first nine months of 1999 to 63.7%
compared to 60.4% for the first nine months in 1998, primarily
due to expenses of acquired companies.
INCOME TAX EXPENSE
Income tax expense for the nine months ended September 30,
1999 and September 30, 1998 was $4.9 million and $3.9 million
proforma, respectively. The effective tax rates for those
periods were 32.7% and 32.4%, respectively. Income tax expense
for the three months ended September 30, 1999 and September 30,
1998 was $1.6 million and $1.3 million proforma respectively.
The effective tax rates for those periods were 30.6% and 29.9%,
respectively. The third quarter's effective tax rate for 1999
compared to the year to date 1999 effective tax rate declined due
to a greater volume of tax-free investments and lower state and
local taxes.
ACCOUNTING AND FINANCIAL REPORTING
The Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information, in June 1998. SFAS No. 131 requires that public
enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are
components of an enterprise about which separate financial
information is available that is evaluated regularly by
management. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1998. The adoption of the standard is not
expected to have a significant impact on the financial statements
of the Company.
The Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities in June 1998. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Management believes
adoption of SFAS No. 133 will not have a material effect on the
Company's financial position or results of operations, nor will
adoption require additional capital resources.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/liability management refers to management's efforts to
minimize fluctuations in net interest income caused by interest
rate changes. This is accomplished by managing the repricing of
interest rate sensitive interest-earning assets and interest-bearing
liabilities. An interest rate sensitive balance sheet
item is one that is able to reprice quickly, through maturity or
otherwise. Controlling the maturity or repricing of an
institution's liabilities and assets in order to minimize
interest rate risk is commonly referred to as gap management.
Close matching of the repricing of assets and liabilities will
normally result in little change in net interest income when
interest rates change. A mismatched gap position will normally
result in changes in net interest income as interest rates
change.
Along with internal gap management reports, the Company and
the Banks use an asset/liability modeling service to analyze each
Bank's current gap position. The system simulates the Banks'
asset and liability base and projects future net interest income
results under several interest rate assumptions. The Company
strives to maintain an aggregate gap position such that changes
in interest rates will not affect net interest income by more
than 10% in any twelve-month period. The Company has not engaged
in derivative transactions for its own account.
The following table indicates that, at September 30, 1999,
in the event of a sudden and sustained increase in prevailing
market rates, the Companies net interest income would be expected
to increase, while a decrease in rates would indicate a decrease
in income.
<TABLE>
<CAPTION>
Percent Change
Changes in Interest Rates Net Interest Income Actual Change Actual
<S> <C> <C> <C>
200 basis point rise $40,669,200 $286,100 0.7%
100 basis point rise $40,613,600 $230,500 0.6%
Base Rate Scenario $40,383,100 --- ---
100 basis point decline $38,660,400 ($1,722,700) (4.3%)
200 basis point decline $36,906,900 ($3,476,200) (8.6%)
</TABLE>
YEAR 2000
STATE OF READINESS
Year 2000 issues are being addressed as they relate to the Company's
computer hardware, information processing systems, environmental systems
and the Company's vendors and customers. All of these issues are contained
within the Company's timeline for Year 2000 compliance. The Company's
timeline for Year 2000 compliance schedules each material element of
Year 2000 compliance within regulatory guidelines. Present progress
indicates that the Company will comply with its timeline. The
Company has completed the awareness, assessment, renovation, validation
and implementation phases. During the third quarter, the eighth and final
conversion of banks to Year 2000 compliant systems was completed.
ESTIMATED COSTS
Costs associated with this issue are expensed as incurred.
Management expects to report periodically on its progress
in addressing the Year 2000 transition and will be
fully Year 2000 compliant within regulatory guidelines.
The Company believes that its actual costs will be less
than $1,000,000. Included in this amount are items such as
computer hardware and software that may carry three to five
year depreciable lives.
<PAGE>
RISKS
As with other financial institutions, the Company engages
in a significant amount of business and reporting activity that
depends on accurate date information, such as interest and other
calculations pertaining to loans, deposits, assets and investments.
As a result, Year 2000 problems could result in a system failure
or miscalculations that disrupt operations. The Company has taken
steps to implement permanent solutions, rather than wait until
potential problems develop. Company banks' core data processing systems
have been converted to software provided by SLMsoft.com, Inc. (formerly
Bankline Midamerica, Inc.).
Management believes the Company's principal risk relating to
Year 2000 issues lies in the potential inability of SLMsoft.com, Inc.'s
data processing system to process date sensitive information involving
the Year 2000. The Company has tested the system and the
results indicate the Company should expect no problems. Although
the Company does not expect Year 2000 issues to have a material adverse
effect on its internal operations, it is possible that Year 2000 issues could
have a material adverse affect on (1) the Company's service providers and
their ability to service the Company; and (2) the Company's customers in the
ability to continue to utilize the Company's services. The cumulative effect
of such problems, if they occur, could have a material adverse effect on
the Company.
CONTINGENCY PLANS
The Company is uncertain whether possible Year 2000 noncompliance
will have a material adverse effect on its operations, liquidity or
financial position. The most significant worst case scenario would
involve Year 2000 noncompliance by SLMsoft.com, Inc., to whose
data processing system our banks have converted. The Company is
monitoring SLMsoft.com, Inc.'s progress toward Year 2000 compliance,
and has successfully tested the system.
The Company's subsidiaries have developed remediation contingency
plans for all mission-critical vendors. The remediation contingency plans
contain readiness dates by which the Company has validated vendors' Year 2000
compliance. In the event a particular vendor's readiness could not be
validated by the readiness date, the pertinent remediation
contingency plan has been implemented. The Company's subsidiaries
have developed business resumption contingency plans. These plans are
incorporated into or work in coordination with each subsidiary's existing
disaster recovery plan. The business resumption issues relating directly
to the year change from 1999 to 2000 are addressed in these plans.
These plans have been successfully tested.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Gold Bank (formerly Exchange National Bank) is one of several
named defendants in a number of lawsuits arising out of the same
circumstances. The litigation was brought on behalf of persons who
purchased distributorships from an entity known as Parade of Toys
("Parade"). Gold Bank was included on trade reference sheets that listed
other banks with whom Parade had done business. Plaintiffs allege that they
contacted the persons listed on the trade reference sheets and that the trade
reference defendants made false and misleading misrepresentations on which
plaintiffs relied to their detriment. Their current claims include theories
of fraud, negligent misrepresentations, civil conspiracy, and negligence.
Plaintiffs commenced the litigation in May 1997 as a putative class
action in the District Court of Johnson County, Kansas. They then obtained
an order dismissing the case without prejudice and, in September 1997,
refiled in the United States District Court for the District of Kansas.
After the federal court denied class certification, plaintiffs filed a
second action on behalf of 670 named plaintiffs. The court ruled that
those claims were misjoined and set a deadline for plaintiffs to initiate
new individual actions or to have their claims dismissed with prejudice.
Plaintiffs then obtained an order from the federal court dismissing all
claims without prejudice and reinitiated certain of their claims in state
court in Johnson County, Kansas.
Plaintiffs began the process of recommencing the litigation by filing
a separate action for each plaintiff in February 1999. Gold Bank was named
as a defendant in 24 of those individual actions. Plaintiffs then filed a
number of multi-plaintiff actions. On July 28, 1999, the state court ruled
that claims in the multi-plaintiff actions had been misjoined and that only
the first-named plaintiff in each case could proceed. It gave plaintiffs
until October 28, 1999 to commence new individual actions or to have their
claims dismissed with prejudice. On October 29, 1999, Gold Bank was served
with 174 new Petitions, each filed on behalf of a single plaintiff or on
behalf of a group of plaintiffs who allege that they combined to purchase
a single distributorship.
Gold Bank has filed Answers denying any liability in the 24 cases
commenced on behalf of individual plaintiffs and has filed Motions to Dismiss
the multi-plaintiff actions. Gold Bank has begun the process of analyzing
the newly filed state court Petitions. The majority of the new actions
allege damages that range between $18,000 and $26,000.
Gold Bank denies any liability and intends to vigorously defend these
and any additional claims. The Company is unable to estimate its
potential range of monetary exposure, if any, or to predict the likely
outcome of these matters.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 9, 1999, GBCI Capital Trust II (the "Trust"), a Delaware
business trust formed by the Company, completed the sale
of $37.6 million of 9.12% Preferred Securities (the "Preferred Secutities")
in a registered offering made through an underwriting group led by
Advest, Inc. and U.S. Bancorp Piper Jaffray, Inc.
The Trust also issued Common Securities to the Company and used the
net proceeds from the offering to purchase a like amount of 9.12% Junior
Subordinated Deferrable Interest Debentures (The "Debentures") of the
Company. In connection with the offering the Company and the Trust
registered a total of $40.3 million of Preferred Securities on a
Form S-3 Registration Statement (Registration Nos. 333-76623 and
333-76623-01). Total <PAGE>expenses associated with the offering
were approximately $1.5 million, including $1.3 million in underwriting
discounts and an advisory fee paid to Advest, Inc. As of
September 30, 1999, the Company had used the net proceeds from the
sale of the Debentures to repay approximately $11.0 million
of corporate indebtedness and the remaining amount
was to be used for acquisitions and general corporate purposes.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION SK
27. Financial Data Schedule
(b) REPORTS ON FORM 8K
The Company filed the following five Current Reports on Form 8-K
during the third quarter of 1999:
(1) Form 8-K filed on August 24, 1999, reporting under
Item 5 and 7.
(2) Form 8-K filed on September 9, 1999, reporting under
Item 5 and 7.
(3) Form 8-K filed on October 15, 1999, reporting under
Items 5 and 7.
(4) Form 8-K filed on October 29, 1999, reporting under
Items 5 and 7.
(5) Form 8-K filed on October 29, 1999, reporting under
Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLD BANC CORPORATION, INC.
Date: November 5, 1999 By:/s/ J. Craig Peterson
J. Craig Peterson
Chief Financial Officer
(Authorized officer and principal financial officer of the registrant)
<TABLE> <S> <C>
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<CIK> 0001015610
<NAME> GOLD BANC CORPORATION, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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0
0
<COMMON> 17,182
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</TABLE>
