UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the
transition period from ___________ to________________
Commission File Number: 0-28936
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-1008593
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive office) (Zip code)
(913) 451-8050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at July 31, 1999
__________________________ __________________________
Common Stock, $1.00 par value 17,181,618
<PAGE>
GOLD BANC CORPORATION, INC.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1999
PART I: FINANCIAL INFORMATION PAGE
ITEM 1: FINANCIAL STATEMENTS........................................1
Consolidated Balance Sheets at June 30, 1999 (unaudited)
and December 31, 1998............................................1
Consolidated Statements of Earnings - Six months
ended June 30, 1999 and June 30, 1998
(unaudited)......................................................2
Consolidated Statements of Earnings - Three months ended
June 30, 1999 and June 30, 1998 (unaudited)......................3
Consolidated Statements of Cash Flows - Six months ended
June 30, 1999 and June 30, 1998 (unaudited)......................4
Notes to Consolidated Financial Statements.......................5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..............................................8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS...........................................12
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS...................12
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.............................12
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.....................................................12
ITEM 5: OTHER INFORMATION...........................................13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................13
SIGNATURES..................................................14
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
June 30, 1999 Dec. 31, 1998
(unaudited)
Assets
<S> <C> <C>
Cash and due from banks $35,077 $36,305
Federal funds sold and interest-bearing deposits 44,951 62,798
------- ------
Total cash and cash equivalents 80,028 99,103
------- ------
Investment securities:
Held-to-maturity 25 63
Available-for-sale 260,394 225,606
Trading 6,646 3,851
------ -----
Total investment securities 267,065 229,520
Mortgage and student loans held for sale, net 4,328 5,425
Loans, net 768,882 717,939
Premises and equipment, net 30,139 26,183
Goodwill, net 16,848 13,328
Accrued interest and other assets 28,792 19,858
------- ------
Total assets $1,196,082 $1,111,356
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 963,454 $ 926,687
Securities sold under agreements to repurchase 5,119 6,644
Federal funds purchased and other short-term borrowings 6,905 7,568
FHLB and other long-term borrowings 59,408 49,958
Guaranteed preferred beneficial interests in
Company's debentures 66,300 28,750
Accrued interest and other liabilities 7,481 7,938
------ -----
Total liabilities 1,108,667 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 17,182 17,182
authorized, 17,181,618 shares issued and
outstanding at June 30, 1999 and December
31,1998, respectively
Additional paid-in capital 29,200 29,200
Retained earnings 43,028 37,235
Accumulated other comprehensive income (loss) (1,798) 391
Unearned compensation (197) (197)
----- -----
Total stockholders' equity 87,415 83,811
------- ------
Total liabilities and stockholders' equity $1,196,082 $1,111,356
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For The Six Months Ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
June 30,1999 June 30, 1998
------------ -------------
<S> <C> <C>
Interest income:
Loans, including fees $33,879 $28,007
Investment securities 6,590 5,407
Other 1,716 1,217
----- -----
42,185 34,631
Interest expense:
Deposits 18,848 16,044
Borrowings and other 3,570 2,110
------ ------
22,418 18,154
------- ------
Net interest income 19,767 16,477
Provision for loan losses 971 1,424
---- -----
Net interest income after provision
for loan losses 18,796 15,053
Other income:
Service fees 1,957 1,421
Net gains on sale of mortgage loans 339 519
Net securities gains 171 58
Investment trading fees and commissions 1,844 1,409
Other 3,138 644
----- ----
7,449 4,051
Other expense:
Salaries and employee benefits 8,179 5,948
Net occupancy expense 1,851 896
Depreciation expense 1,036 733
Goodwill amortization expense 409 170
Other 4,975 3,644
------ -----
16,450 11,391
------- ------
Earnings before income taxes 9,795 7,713
Income tax expense (Note 1) 3,312 1,520
----- -----
Net earnings $ 6,483 $ 6,193
====== =====
Net earnings per share-basic and diluted $ 0.38 $ 0.38
===== =====
Pro forma net earnings (Note 1) 5,111
===== =====
Pro forma net earnings per share -
basic and diluted (Note 1) $ 0.31
===== ======
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For The Three Months Ended
(In thousands, except per share data)
(unaudited)
June 30,1999 June 30, 1998
------------ -------------
<S> <C> <C>
Interest income:
Loans, including fees $17,315 $14,476
Investment securities 3,384 2,767
Other 840 593
--- ---
21,539 17,836
Interest expense:
Deposits 9,447 8,226
Borrowings and other 2,011 1,094
----- -----
11,458 9,320
------- -----
Net interest income 10,081 8,516
Provision for loan losses 475 614
--- ---
Net interest income after provision
for loan losses 9,606 7,902
------ -----
Other income:
Service fees 1,049 766
Net gains on sale of mortgage loans 183 294
Net securities gains 4 57
Investment trading fees & commissions 868 718
Other 2,034 306
----- ---
4,138 2,141
----- -----
Other expense:
Salaries and employee benefits 4,314 2,973
Net occupancy expense 1,090 487
Depreciation expense 510 374
Goodwill amortization expense 223 84
Other 2,543 1,921
----- -----
8,680 5,839
------ -----
Earnings before income taxes 5,064 4,204
Income tax expense (Note 1) 1,663 822
----- ---
Net earnings $ 3,401 $ 3,382
======== =======
Net earnings per share-basic and diluted $ 0.20 $ 0.20
======== =======
Pro forma net earnings (Note 1) $ $ 2,778
======== =======
Pro forma net earnings per share-basic
and diluted (Note 1) $ $ .17
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended
(In thousands)
(unaudited)
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $6,483 $6,193
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities, net of purchase acquisitions:
Provision for loan losses 971 1,424
(Gains) losses on sales of securities (171) (58)
Amortization of investment securities' premiums, net of accretion 174 (537)
Depreciation 1,036 733
Amortization of goodwill 409 170
(Gain) loss on sale of assets, net (14) -
Net (increase) decrease in trading securities (2,854) (6,441)
Unrealized loss on trading securities 58 (13)
Net (increase) decrease in mortgage loans held for sale 1,096 2,105
Other changes:
Accrued interest receivable and other assets (6,936) (7,608)
Accrued interest payable and other liabilities (5,035) (3,709)
------ ------
Net cash provided by (used in) operating activities (4,783) (7,741)
------ ------
Cash flows from investing activities:
Net increase in loans (51,913) (53,093)
Principal collections and proceeds from maturities
of held-to-maturity securities 38 592
Principal collections and proceeds from sales and maturities of
available-for-sale securities 1,438,369 1,152,197
Purchases of available-for-sale securities (1,473,159) (1,159,600)
Net additions to premises and equipment (3,720) (3,472)
Cash paid for acquisitions, net of cash received (4,290) (231)
Proceeds from sale of other assets 5 -
------- -------
Net cash used in investing activities (94,670) (63,607)
------- -------
Cash flows from financing activities:
Increase in deposits 36,768 48,842
Net increase in short-term borrowings 5,380 359
Net increase in FHLB and other long-term borrowings 1,367 13,303
Proceeds from issuance of guaranteed preferred beneficial interests
in Company's debentures 37,550 -
Dividends paid (687) (375)
---- ----
Net cash provided by financing activities 80,378 62,129
------ ------
Increase (decrease) in cash and cash equivalents (19,075) (9,219)
Cash and cash equivalents, beginning of year 99,103 78,269
------ ------
Cash and cash equivalents, end of period $ 80,028 $69,050
========= ======
See accompanying notes to consolidated financial statements.
4
<PAGE>
June 30,1999 June 30, 1998
Supplemental schedule of non-cash financing activities:
Issuance of common stock for acquisitions $ - $ 5,982
Non-cash activities related to purchase acquisitions:
Investing activities:
Increase in investments - 14,339
Net increase in loans - 19,099
Increase in land, buildings, and equipment 1,264 493
Increase in deposits - 26,411
Increase in short term borrowings - 4,986
Increase in long term borrowings $ 515 $ 1,000
</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 and CompuNet
Engineering, Inc. All significant intercompany balances and transactions have
been eliminated. On June 18, 1999, the Company's subsidiary previously known as
Exchange National Bank underwent a name change and is now known as Gold Bank,
N.A.
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 June 30, 1999 and for the three and six months ended June 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 six months ended June
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.
The shares used in the calculation of basic and diluted income per share
for the three and six months ended June 30, 1999 and 1998 are shown below (in
thousands):
5
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<TABLE>
<CAPTION>
For the three months For the six months ended
June 30 June 30
- --------------------------------------------- --------------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
- --------------------------------------------- --------------------- ---------------- --------------- --------------
- --------------------------------------------- --------------------- ---------------- --------------- --------------
Weighted average common shares outstanding 17,182 16,461 17,182 16,461
Stock options 75 158 73 4
- --------------------------------------------- --------------------- ---------------- --------------- --------------
- --------------------------------------------- --------------------- ---------------- --------------- --------------
Weighted average common shares and
Common share equivalents outstanding 17,257 16,619 17,255 16,465
- --------------------------------------------- --------------------- ---------------- --------------- --------------
</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 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 $1.5 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 $4.3 million and $5.2 million for the six months
ended June 30, 1999 and 1998, respectively and $1.2 million and $2.6 million for
the three months ended June 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. Completed Acquisitions.
On March 29, 1999, the Company acquired CompuNet Engineering, Inc.,
Overland Park, Kansas, in a cash transaction valued at $4.4 million. CompuNet
provides networking solutions primarily for banks and other businesses,
including the design and implementation of local area networks and wide area
networks. The operations of CompuNet have been included in the consolidated
operations of the Company since acquisition with an insignificant effect on net
earnings.
6
<PAGE>
6. Subsequent Events:
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 Company's Board of Directors declared a $.02 cash dividend on common
shares to shareholders of record as of August 3, 1999, payable on August 10,
1999.
On August 9, 1999 the Company signed a definitive agreement to acquire
Union Bankshares, Ltd., and its wholly-owned subsidiary, Union Bank & Trust, one
of the leading community banks in the metropolitan Denver region. The total
purchase price of the acquisition is approximately $65.0 million in a stock-for-
stock, tax-free exchange. The exchange ratio will be determined by dividing
$23.05 by the average price for Gold Banc common stock during the 10-day trading
period ending three days prior to closing, unless the average price is less than
$13.00 or greater than $16.00, in which case the average price shall be fixed at
$13.00 or $16.00, respectively. Should the average price of Gold Banc common
stock fall below $11.00 for a period of 10 trading days immediately prior to
shareholder approval, Union Bankshares can terminate the transaction. The
transaction will be accounted for as a pooling of interests. Completion of the
transaction is subject to the approval of the appropriate regulatory authorities
and the shareholders of both Gold Banc and Union Bankshares. The acquisition is
expected to close in the fourth quarter of 1999.
7. Legal proceedings.
Gold Bank (formerly Exchange National Bank) is one of a number of named
defendants in a number of lawsuits arising out of the same circumstances. The
lawsuits were brought on behalf of persons who allegedly invested in entities
known as Parade of Toys and Bandero Cigar Company. Each of the suits
substantially allege violations of the Racketeer Influenced Corrupt
Organizations ("RICO"), conspiracy to violate RICO, negligent misrepresentation,
fraud, civil conspiracy and negligence on the part of the defendants. The
plaintiffs contend that the defendants, including Gold Bank, were listed in
trade reference sheets provided to plaintiffs by Parade of Toys and Bandero
Cigar Company and that the defendants made false and misleading representations
on which the plaintiffs relied to their detriment. (See the full description of
the lawsuits in Item 5 - Other Events contained in the Company's Form 8-K dated
April 28, 1999).
On July 28, 1999, the Johnson County District Court agreed with the
defendants in ruling that multiple plaintiffs cannot join their claims in a
single action. As a result of the court's order, most of the plaintiffs
must file separate individual actions by October 28, 1999 or their claims will
be barred.
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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total average assets were $1.1 billion for the six months ended June 30,
1999, compared to $880.9 million for the six months ended June 30, 1998, a 24.8%
increase. Average interest-earning assets were $1.0 billion for the six months
ended June 30, 1999 and $814.1 million for the six months ended June 30, 1998, a
22.9% increase. Assets increased during 1999 due to internal loan growth and
five acquisitions in late 1998 and early 1999.
Total assets were $1.2 billion at June 30, 1999, an increase of $84.7
million from December 31, 1998. Net loans grew $50.0 million during the first
six months of 1999 with more than one-half of the increase originating from the
Company's suburban Kansas City locations. Loan growth was funded through an
increase in deposits and additional Federal Home Loan Bank (FHLB) borrowings.
The allowance for loan losses increased to $11.0 million at June 30, 1999 from
$10.8 million at December 31, 1998. The allowance represented 1.40% and 1.46% of
total loans as of June 30, 1999 and December 31, 1998, respectively.
For the six months ended June 30, 1999, the Company's annualized return on
average assets ("ROA") was 1.13%, compared to 1.16% for the six months ended
June 30, 1998. Return on average common stockholders' equity ("ROE") for the six
months ended June 30, 1999 and 1998 was 15.11% and 14.03%, respectively. On July
27, 1999, the Company's Board of Directors declared a quarterly dividend of $.02
per common share to shareholders of record as of August 3, 1999, payable on
August 10, 1999.
Cash and cash equivalents and investment securities totaled $347.1 million,
or 29.0% of total assets at June 30, 1999, compared to $328.6 million, or 29.5%,
at December 31, 1998. At June 30, 1999, the Company's leverage, Tier 1
risk-based capital, and total risk-based capital ratios were 8.33%, 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 June 10, 1999, the Company had
risk-weighted 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 is 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 second quarter of
1998. No amounts had been drawn under the line as of June 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.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the six months ended June 30, 1999 was $42.2
million, a 21.81% increase over the six months ended June 30, 1998. For the
three months ended June 30, 1999, total interest income was $21.5 million or
20.76% greater than the comparable period in 1998. The increase was primarily
the result of internal loan growth and acquisitions. Average total earning
assets increased $234.8 million or 28.85% at June 30, 1999, compared to June 30,
1998.
Total interest expense for the six months ended June 30, 1999 was $ 22.4
million, a 23.5% increase over the six months ended June 30, 1998. For the three
months ended June 30, 1999, interest expense was $ 11.5 million, or 22.9%
greater than the comparable period in 1998. The increase was the result of
greater average deposits and an increase in long-term debt and Junior
Subordinated Debentures. Average total interest-bearing liabilities increased by
$227.5 million or 31.41% during the six months of 1999 compared to the same
period in 1998, primarily due to acquisitions, the increased volume in
interest bearing deposits and the Junior Subordinated Debentures.
8
<PAGE>
Net interest income was $19.8 million 0for the six months ended June 30,
1999, compared to $16.5 million for the same period in 1998, an increase of
19.97%. The Company's net interest margin decreased from 4.12% for the six
months ended June 30, 1998 to 3.86% for the six months ended June 30, 1999. For
the three months ended June 30, 1999, net interest income increased 18.38% to
$10.1 million versus $8.5 million for the three months of 1998. Net interest
margin for the three months ended June 30, 1999 decreased from 4.19% to 3.89%
versus 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 in May, 1999 and lower yields on loans and investments
due to rate changes in late 1998 and early 1999.
Provisions for Loan Losses
The provision for loan losses for the six months ended June 30, 1999, was
$1.0 million, compared to $1.4 million for the comparable 1998 period. For the
three months ended June 30, 1999, the provision for loan losses was $475,000
compared to $614,000 for the second quarter of 1998. The allowance represented
1.40% and 1.46% of total loans as of June 30, 1999 and June 30, 1998,
respectively. The Company monitors its reserve for loan losses to total loans
ratio on a monthly basis in order to maintain a ratio within internally defined
guidelines of 1.15% to 1.65%.
Other Income
Other income for the six months ended June 30, 1999 was $7.5 million, an
increase of $3.4 million, or 88.9%, over the same period last year. Other income
for the second quarter of 1999 was $4.1 million, an increase of 93.27% compared
to the second quarter of 1998. The increase in other income resulted from an
increase in fee based income from acquired nonbank subsidiaries providing trust
fees, computer service fees and investment management fees.
Other Expense
Other expense for the six months ended June 30,1999 was $16.5 million, an
increase of $5.1 million, or 44.4%, over the same period last year. For the
second quarter of 1999, other expense was $8.7 million, an increase of $2.8
million, or 48.7% over the comparable quarter in 1998. This increase was due to
increased salaries and benefits expenses, occupancy expense, other non-interest
expenses and acquisition-related expenses. Net occupancy expense increased
primarily due to the five acquisitions closed since June 30, 1998. The Company's
overall efficiency ratio declined during the first six months of 1999 to 62.57%
compared to 59.81% for the first six months in 1998, primarily due to
acquisition assimilation costs.
Income Tax Expense
Income tax expense for the six months ended June 30, 1999 and June 30, 1998
was $3.3 million and $2.6 million proforma, respectively. The effective tax
rates for those periods were 33.8% and 33.7%, respectively. Income tax expense
for the three months ended June 30, 1999 and June 30, 1998 was $1.7 million and
$1.4 million proforma respectively. The effective tax rates for those periods
were 32.8% and 33.9%, respectively. The second quarter's percentage decline was
due to a greater volume of tax-free investments.
9
<PAGE>
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.
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 June 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>
<S> <C> <C> <C>
Percent Change
Changes in Interest Rates Net Interest Income Actual Change Actual
- ----------------------------- --------------------------- -------------------- ------------------------
- ----------------------------- --------------------------- -------------------- ------------------------
200 basis point rise $24,384,800 741,400 3.14%
100 basis point rise 24,164,500 521,900 2.21%
Base Rate Scenario 23,642,600
100 basis point decline 22,794,200 (848,400) -3.59%
200 basis point decline 22,030,300 (1,612,300) -6.82%
</TABLE>
10
<PAGE>
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 and validation phases, and is implementing renovated systems.
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 now projects that it 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.
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. Most of our Banks are scheduled to convert their core data
processing from their current providers to Bankline Midamerica, Inc. The Company
does not expect to convert any Banks later than the third quarter of 1999. The
Company plans to convert one banking subsidiary, Citizens Bank of Tulsa, in the
year 2000. The Company's schedule for conversions was established prior to the
acquisition of Citizens, and because Citizens had already completed testing on
its core data processing system and expected no problems, the Company does not
plan to modify that schedule.
Management believes the Company's principal risk relating to Year 2000
issues lies in the potential inability of Bankline Midamerica's data processing
system to process date sensitive information involving the Year 2000. The
Company 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 affect 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 Bankline Midamerica, Inc., to whose data processing system our banks are
converting. The Company is monitoring Bankline Midamerica, Inc.'s progress
toward Year 2000 compliance, and has tested the system as described above.
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 validates vendors' Year 2000
11
<PAGE>
compliance. In the event a particular vendor's readiness can not be validated by
the readiness date, the pertinent remediation contingency plan will be
implemented. 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.
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Gold Bank (formerly Exchange National Bank) is one of a number of named
defendants in a number of lawsuits arising out of the same circumstances. The
lawsuits were brought on behalf of persons who allegedly invested in entities
known as Parade of Toys and Bandero Cigar Company. Each of the suits
substantially allege violations of the Racketeer Influenced Corrupt
Organizations ("RICO"), conspiracy to violate RICO, negligent misrepresentation,
fraud, civil conspiracy and negligence on the part of the defendants. The
plaintiffs contend that the defendants, including Gold Bank, were listed in
trade reference sheets provided to plaintiffs by Parade of Toys and Bandero
Cigar Company and that the defendants made false and misleading representations
on which the plaintiffs relied to their detriment. (See the full description of
the lawsuits in Item 5 - Other Events contained in the Company's Form 8-K dated
April 28, 1999).
On July 28, 1999, the Johnson County District Court agreed with the
defendants in ruling that multiple plaintiffs cannot join their claims in a
single action. As a result of the court's order, most of the plaintiffs
must file separate individual actions by October 28, 1999 or their claims will
be barred.
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 Securities") 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 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 June 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 invested the
remaining $26.6 million in marketable securities to be used for future
acquisitions and general corporate purposes.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
12
<PAGE>
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed the following three Current Reports on
Form 8-K during the second quarter of 1999:
(1) Form 8-K filed on April 28, 1999, reporting under Item 5.
(2) Form 8-K filed on May 25, 1999, reporting under Item 5.
(3) Form 8-K filed on June 17, 1999, reporting under Item 5.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLD BANC CORPORATION, INC.
Date: August 10, 1999 By:/s/ J. Craig Peterson
-----------------------------------
J. Craig Peterson
Chief Financial Officer
(Authorized officer and principal financial officer of the registrant)
14
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