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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, 2004
or
[ ] 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive offices) (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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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 August 6, 2004
----- -----------------------------
Common Stock, $1.00 par value 40,097,826
GOLD BANC CORPORATION, INC.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 2004
Page
PART I FINANCIAL INFORMATION................................................2
ITEM 1: FINANCIAL STATEMENTS................................................2
Consolidated Balance Sheets as of June 30, 2004 and December 31,
2003 (unaudited)....................................................2
Consolidated Statement of Earnings--Three Months ended June 30,
2004 and June 30, 2003 (unaudited)..................................4
Consolidated Statement of Earnings--Six Months ended June 30, 2004
and June 30, 2003 (unaudited).......................................5
Consolidated Statements of Stockholders' Equity and Comprehensive
Income For the Six Months Ended June 30, 2004, and June 30,
2003 (Unaudited)....................................................6
Consolidated Statements of Cash Flows For the Six Months ended
June 30, 2004 and June 30, 2003 (unaudited)........... ............7
Notes to Consolidated Financial Statements..........................8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................14
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........23
ITEM 4: CONTROLS AND PROCEDURES............................................24
PART II OTHER INFORMATION..................................................25
ITEM 1: LEGAL PROCEEDINGS..................................................25
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS..........................25
ITEM 3: DEFAULTS UPON SENIOR SECURITIES....................................25
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS ................25
ITEM 5: OTHER INFORMATION..................................................25
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K...................................25
SIGNATURES.........................................................27
i
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
(In thousands)
(unaudited)
June 30, 2004 December 31, 2003
------------- -----------------
Assets
Cash and due from banks $ 64,662 $ 78,124
Federal funds sold and
interest-bearing deposits 20,065 38,978
------------- ------------
Total cash and cash equivalents 84,727 117,102
------------- ------------
Investment securities:
Available-for-sale 750,550 842,900
Held-to-maturity 284,601 133,492
Trading 3,560 9,692
------------- ------------
Total investment securities 1,038,711 986,084
------------- ------------
Mortgage loans held-for-sale, net 1,969 5,883
Loans, net 2,834,588 2,977,021
Premises and equipment, net 56,531 63,131
Goodwill 30,484 31,082
Other intangible assets, net 5,711 6,084
Accrued interest and other assets 54,544 52,117
Cash surrender value of bank-owned
life insurance 81,196 80,218
Assets of discontinued operations - 3,903
------------- ------------
Total assets $4,188,461 $4,322,625
============= ============
See accompanying notes to consolidated financial statements
2
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
(In thousands)
(unaudited)
June 30, December 31,
Liabilities and Stockholders' Equity 2004 2003
- ------------------------------------ -------- ------------
Liabilities:
Deposits $ 3,029,130 $ 3,164,443
Securities sold under agreements to repurchase 140,984 127,789
Federal funds purchased and other short-term
borrowings 549 7,260
Subordinated debt 115,746 114,851
Long-term borrowings 597,789 631,526
Accrued interest and other liabilities 44,645 26,411
Liabilities from discontinued operations - 628
----------- -----------
Total liabilities 3,928,843 4,072,908
----------- -----------
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 44,853,323 and 44,567,417 shares
issued at June 30, 2004 and December 31, 2003 44,853 44,567
Additional paid-in capital 127,821 122,444
Retained earnings 143,299 132,082
Accumulated other comprehensive income (loss), net (11,069) (2,812)
Unearned compensation (10,997) (12,275)
----------- -----------
293,907 284,006
Less treasury stock (4,824,575 shares at June
30, 2004 and December 31, 2003) (34,289) (34,289)
----------- -----------
259,618 249,717
----------- -----------
Total liabilities and stockholders' equity $ 4,188,461 $ 4,322,625
=========== ===========
See accompanying notes to consolidated financial statements
3
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three Months ended
(In thousands, except per share data)
(unaudited)
June 30, 2004 June 30, 2003
------------- -------------
Interest Income:
Loans, including fees $ 40,720 $ 43,239
Investment securities 9,758 9,595
Other 463 531
----------- -----------
Total interest income 50,941 53,365
----------- -----------
Interest Expense:
Deposits 14,208 15,273
Borrowings and other 7,166 8,694
----------- -----------
Total interest expense 21,374 23,967
----------- -----------
Net interest income 29,567 29,398
Provision for loan losses 1,447 3,025
----------- -----------
Net interest income after provision for
loan losses 28,120 26,373
----------- -----------
Other income:
Service fees 4,543 4,354
Investment trading fees and commissions 726 1,414
Net gain on sale of mortgage loans 419 773
Net securities gains 36 976
Gain on sale of branch facilities 3,621 1,179
Gain on sale of credit card portfolio 1,156 --
Bank-owned life insurance 928 1,023
Other 1,949 1,041
----------- -----------
Total other income 13,378 10,760
----------- -----------
Other expense:
Salaries and employee benefits 14,729 13,781
Net occupancy expense 1,733 1,875
Depreciation expense 1,610 1,680
Core deposit intangible amortization
expense 188 188
Losses and expenses resulting from
misapplication of bank funds, net
of recoveries -- 900
Expense for the settlement of
Qui Tam litigation, net 14,000 --
Other 7,712 8,646
----------- -----------
Total other expense 39,972 27,070
----------- -----------
Earnings from continuing operations
before income taxes 1,526 10,063
Income tax expense 1,217 2,904
----------- -----------
Net earnings from continuing operations 309 7,159
Net earnings from discontinued
operations, net of tax - 126
----------- -----------
Net earnings $ 309 $ 7,285
=========== ===========
Net earnings from continuing operations
per share - basic and diluted $ 0.01 $ 0.19
Net earnings from discontinued
operations per share - basic and
diluted $ - $ -
----------- -----------
Net earnings per share - basic and
diluted $ 0.01 $ 0.19
=========== ===========
See accompanying notes to consolidated financial statements
4
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Six Months ended
(In thousands, except per share data)
(unaudited)
June 30, 2004 June 30, 2003
------------- -------------
Interest Income:
Loans, including fees $ 83,404 $ 85,703
Investment securities 19,090 19,531
Other 1,052 1,000
----------- -----------
Total interest income 103,546 106,234
----------- -----------
Interest Expense:
Deposits 28,731 30,758
Borrowings and other 14,619 16,540
----------- -----------
Total interest expense 43,350 47,298
----------- -----------
Net interest income 60,196 58,936
Provision for loan losses 4,311 6,575
----------- -----------
Net interest income after provision for
loan losses 55,885 52,361
----------- -----------
Other income:
Service fees 8,448 8,551
Investment trading fees and commissions 1,636 2,891
Net gain on sale of mortgage loans 806 1,517
Net securities gains 137 973
Gain on sale of branch facilities 20,574 1,179
Gain on credit card portfolio 1,156 --
Bank-owned life insurance 1,958 1,959
Other 3,410 2,135
----------- -----------
Total other income 38,125 19,205
----------- -----------
Other expense:
Salaries and employee benefits 30,770 27,932
Net occupancy expense 3,495 3,696
Depreciation expense 3,177 3,385
Core deposit intangible amortization
expense 375 375
Losses and expenses resulting from
misapplication of bank funds, net
of recoveries -- 1,150
Expense for the settlement of
Qui Tam litigation, net 14,000 --
Other 19,072 15,862
----------- -----------
Total other expense 70,889 52,400
----------- -----------
Earnings from continuing operations
before income taxes 23,121 19,166
Income tax expense 8,955 5,159
----------- -----------
Net earnings from continuing operations 14,166 14,007
Net loss from discontinued operations,
net of tax (551) (13)
----------- -----------
Net earnings $ 13,615 $ 13,994
=========== ===========
Net earnings from continuing operations
per share - basic and diluted $ 0.36 $ 0.37
Net loss from discontinued operations
per share - basic and diluted $ ( 0.01) $ --
----------- -----------
Net earnings per share - basic and
diluted $ 0.35 $ 0.37
=========== ===========
See accompanying notes to consolidated financial statements
5
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2004, and June 30, 2003
(Dollars in thousands)
(unaudited)
Accumulated
Additional Other
Preferred Common Paid-in Retained Comprehensive Unearned Treasury
Stock Stock Capital Earnings Income (loss) Compensation Stock Total
Balance at December 31, 2002 $ - 44,188 118,257 107,392 3,489 (12,432) (33,120) $ 227,774
Net earnings for the six months ended
June 30, 2003 - - - 13,994 - - - 13,994
Change in unrealized gain (loss) on
available-for-sale securities - - - - 1,938 - - 1,938
-------- ------- -------- -------- ------ -------- -------- ---------
Total comprehensive income
for the six months ended June 30,
2003 - - - 13,994 1,938 - - 15,932
Exercise of 29,708 stock options - 30 153 - - - - 183
Increase in unearned compensation - - - - - (1,000) - (1,000)
Dividends paid ($0.06 per common share) - - - (2,368) - - - (2,368)
-------- ------- -------- -------- ------ -------- -------- ---------
Balance at June 30, 2003 $ - 44,218 118,410 119,018 5,427 (13,432) (33,120) $ 240,521
======== ======= ======== ======== ====== ======== ======== =========
Balance at December 31, 2003
$ - 44,567 122,444 132,082 (2,812) (12,275) (34,289) $ 249,717
Net earnings for the six months ended
June 30, 2004 - - - 13,615 - - - 13,615
Change in unrealized gain (loss) on
available-for-sale securities - - - - (8,257) - - (8,257)
-------- ------- -------- -------- ------ -------- -------- ---------
Total comprehensive income
for the six months ended June 30,
2004 - - - 13,615 (8,257) - - 5,358
Exercise of 285,906 stock options - 286 3,161 - - - - 3,447
Allocation of 150,000 shares held by
Employee Stock Ownership Plan - - 1,162 - - 1,170 - 2,332
Recognition of stock based employee
compensation - - 1,054 - - 108 - 1,162
Dividends paid ($0.06 per common share) - - - (2,398) - - - (2,398)
--------- ------- -------- -------- ------ -------- -------- ---------
Balance at June 30, 2004 $ - 44,853 127,821 143,299 (11,069) (10,997) (34,289) $259,618
========= ======= ======== ========= ====== ======== ======== =========
See accompanying notes to consolidated financial statements.
6
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(In thousands)
(unaudited)
June 30, 2004 June 30, 2003
------------- -------------
Cash flows from operating activities:
Net earnings................................................ $ 13,615 $ 13,994
Loss from discontinued operations........................... 551 13
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Provision for loan losses................................... 4,311 6,575
Qui Tam Litigation settlement............................... 14,000 -
Allocation of ESOP Shares................................... 2,332 -
Stock-based employee compensation........................... 2,087 -
Net securities gains........................................ (137) (973)
Gain on sale of bank branches............................... (20,574) -
Amortization of investment securities premiums, net of
accretion................................................. 1,256 1,801
Depreciation................................................ 3,177 3,385
Amortization of intangible assets........................... 375 375
Gain on sale of mortgage loans held for sale................ (806) (1,517)
Increase in cash surrender value of bank owned life insurance (1,958) (1,947)
Net decrease in trading securities.......................... 6,132 1,128
Proceeds from sale of loans held for sale................... 122,673 130,498
Origination of loans held for sale, net of repayments....... (117,953) (125,432)
Other changes:
Accrued interest receivable and other assets.............. (4,627) 64,923
Accrued interest payable and other liabilities............ 12,631 (1,933)
Net change in operating activities of discontinued
operations.............................................. 2,724 64
------------ -----------
Net cash provided by operating activities.................. $ 39,809 $ 90,954
------------ -----------
Cash flows from investing activities:
Net increase in loans....................................... $ (80,310) $ (165,754)
Principal collections and proceeds from maturities of
available-for-sale securities............................. 253,777 103,314
Purchases of available-for-sale securities.................. (335,112) (283,878)
Principal collections and proceeds from maturities of held-
to-maturity securities.................................... 108,333 44,967
Purchases of held-to-maturity securities.................... (94,583) 17,219
Purchase of bank owned life insurance policy................ - (20,000)
Net additions to premises and equipment..................... (484) (941)
Cash paid in branch sales, net of cash received............. (184,744) --
Cash received in redemption of cash surrender value of life
insurance.............................................. 980 --
------------ -----------
Net cash used in investing activities....................... $ (332,143) $ (339,511)
------------ -----------
Cash flows from financing activities:
Increase in deposits........................................ $ 293,799 $ 245,604
Net decrease in short-term borrowings....................... (6,711) (33,686)
Net (decrease) increase from FHLB & long-term borrowings.... (28,178) 134,775
Proceeds from issuance of common stock...................... 3,447 183
Dividends paid.............................................. (2,398) (2,368)
------------ -----------
Net cash provided financing activities..................... 259,959 344,508
------------ -----------
Increase (decrease) in cash and cash equivalents............ (32,375) 95,951
Cash and cash equivalents, beginning of period.............. 117,102 96,408
------------ -----------
Cash and cash equivalents, end of period.................... $ 84,727 $ 192,359
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 41,897 $ 49,296
Cash paid for income taxes.................................. 3,777 7,682
Non-cash investing activities
Transfer of investment securities from available-for-sale to
held-to-maturity portfolio................................ 165,533 -
See accompanying notes to consolidated financial statements.
7
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q. The consolidated financial
statements should be read in conjunction with the audited financial
statements included in our 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 15, 2004 (the "2003 Annual
Report").
The consolidated financial statements include the accounts of Gold Banc
Corporation, Inc. and its subsidiary banks and companies. All significant
inter-company balances and transactions have been eliminated.
The consolidated financial statements as of and for the three and six
months ended June 30, 2004 and 2003 are unaudited but include all adjustments
(consisting only of normal recurring adjustments) which we consider necessary
for a fair presentation of our financial position and results of our
operations and cash flows for those periods. The consolidated statements of
earnings for the three and six months ended June 30, 2004 are not necessarily
indicative of the results to be expected for the entire year.
2. Earnings per Common 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 and unvested
restricted stock are our only potential common share equivalent.
The shares used in the calculation of basic and diluted earnings per share
for the three and six months ended June 30, 2004 and, 2003 are shown below (in
thousands):
For the three months For the six months
ended ended
June 30 June 30
2004 2003 2004 2003
------ ------ ------ -------
Weighted average common shares outstanding........... 40,031 39,496 39,896 39,487
Unallocated ESOP Shares.............................. (1,256) (1,546) (1,275) (1,505)
------- ------- ------- -------
Total basic average common shares outstanding........ 38,775 37,950 38,621 37,982
Stock options and unvested restricted stock 415 178 401 191
------- ------- ------- -------
Total diluted weighted average common shares
outstanding........................................ 39,190 38,128 39,022 38,173
======= ======= ======= =======
3. Stock Based Compensation
We account for employee stock options under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" with pro forma disclosures of net earnings and
earnings per share, as if the fair value method of accounting defined in SFAS
No. 123 "Accounting for Stock Based Compensation" had been applied. SFAS No.
123 establishes a fair value based method of accounting for stock based
employee compensation plans. Under the fair value method, compensation cost
is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
Under SFAS No. 123, our net earnings and net earnings per share would have
decreased as reflected in the following pro forma amounts (in thousands,
except per share amounts):
8
For the three months ended
June 30, 2004 June 30, 2003
------------- -------------
Net earnings as reported $ 309 $ 7,285
Add: stock-based compensation
included in reported net earnings,
net of related tax effects $ 638 -
Deduct: Total stock based employee
compensation expense determined
under fair valued based method for
all awards, net of related tax effects 855 107
----------------- ----------------
Pro forma net earnings $ 92 $ 7,178
================= ================
Earnings per share:
Basic-as reported $ 0.01 $ 0.19
Basic-pro forma 0.00 0.19
Diluted-as reported 0.01 0.19
Diluted-pro forma 0.00 0.19
For the six months ended
June 30, 2004 June 30, 2003
------------- -------------
Net earnings as reported $ 13,615 $ 13,994
Add: stock-based compensation
included in reported net earnings,
net of related tax effects $ 1,358 -
Deduct: Total stock based employee
compensation expense determined
under fair valued based method for
all awards, net of related tax effects 1,792 182
----------------- ----------------
Pro forma net earnings $ 13,181 $ 13,812
================= ================
Earnings per share:
Basic-as reported $ 0.35 $ 0.37
Basic-pro forma 0.34 0.36
Diluted-as reported 0.35 0.37
Diluted-pro forma 0.34 0.36
4. Intangible Assets and Goodwill
The following table presents information about our intangible assets
which are being amortized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142.
June 30, 2004 June 30, 2003
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
(In thousands)
Amortized intangible assets:
Core deposit premium................ $7,508 $1,796 $7,508 $1,046
Aggregate amortization expense for the
six months ended.................... $375 $375
9
Estimated amortization expense (in thousands) for the years ending
December 31:
2004............................................... $751
2005............................................... $751
2006............................................... $751
2007............................................... $751
2008............................................... $751
Goodwilll at June 30, 2004 was $30.5 million, which is $598,000 less than
the amount at December 31, 2003. The reduction of $598,000 was the result of
selling seven branches of Gold Bank-Kansas during the first quarter of 2004.
There was no impairment to goodwill from continuing operations recorded for the
three and six months ended June 30, 2004 or 2003.
During 2002 and 2003, CompuNet Engineering (CompuNet) did not earn a
majority of its revenue from providing services to financial institutions. As a
result, the Company was required under the Bank Holding Company Act to divest
itself of CompuNet. During the fourth quarter of 2003, the Company announced its
intent to dispose of CompuNet. As a result of the expected disposition of this
business, the Company recorded an impairment charge of $845,000 and $3.3 million
in the third and fourth quarters of 2003, respectively, to reduce the estimated
carrying value of the net assets (including the remaining goodwill) to their
estimated fair value. The remaining goodwill of $207,000 was written off in the
first quarter of 2004. The Company sold CompuNet on February 4, 2004.
5. Comprehensive Income
Comprehensive income was ($12.1) million and $10.0 million for the three
months ended June 30, 2004 and June 30, 2003, respectively. Comprehensive
income was $5.4 million and $15.9 million for the six months ended June 30,
2004 and June 30, 2003, respectively. The difference between comprehensive
income and net earnings presented in the consolidated statements of earnings
is attributed solely to unrealized gains and losses on available-for-sale
securities. During the three months ended June 30, 2004 and June 30, 2003, we
recorded reclassification adjustments of $23,000 and $622,000, respectively,
associated with gains and losses included in net earnings for such periods.
During the six months ended June 30, 2004 and June 30, 2003, we recorded
reclassification adjustments of $89,000 and $624,000, respectively,
associated with gains and losses included in net earnings for such periods
6. Mergers, Acquisitions, Dispositions and Consolidations
Merger of Gold Bank-Kansas and Gold Bank-Oklahoma. On August 11, 2003,
Gold Bank-Kansas filed an application with the Federal Reserve Bank of Kansas
City (the "FRB-KC") and the Office of the Kansas State Bank Commissioner (the
"OSBC") to merge Gold Bank-Oklahoma and Gold Bank-Kansas with Gold Bank-Kansas
being the surviving entity. In October 2003, Gold Bank-Kansas received approval
of its application and the merger was consummated on April 2, 2004.
Sale of Weatherford, Geary and Cordell, Oklahoma branches. On February 13,
2004, Gold Bank-Oklahoma entered into an agreement for the sale of its branch
locations in Weatherford, Geary and Cordell, Oklahoma to Bank of Western
Oklahoma of Elk City. The sale of these Gold Bank-Oklahoma branches closed on
May 7, 2004. As of the date of closing, the deposits and loans of these Gold
Bank-Oklahoma branches were approximately $63.0 million and $18.9 million,
respectively. In connection with the sale of these branches, we recorded a gain
of approximately $3.6 million.
Proposed Merger of Gold Bank-Kansas and Gold Bank-Florida. On March 31,
2004, Gold Bank-Kansas filed an application with the FRB-KC and the OSBC to
merge Gold Bank-Florida and Gold Bank-Kansas with Gold Bank-Kansas being the
surviving entity. Currently, Gold Bank-Kansas is awaiting approval of its
application. Upon approval, Gold Bank-Florida will merge into Gold Bank-Kansas
on September 1, 2004.
7. Derivative Instruments
In August 2002, we entered into three interest rate swap agreements with
an aggregate notional amount of $82.5 million. Each swap had a notional
amount equal to the outstanding principal amount of the related
10
subordinated debt, together with the same payment dates, maturity date and call
provisions as the related subordinated debt. Under each of the swaps, we pay
interest at a variable rate equal to a spread over 90-day LIBOR, adjusted
quarterly, and we receive a fixed rate equal to the interest that we are
obligated to pay on the related subordinated debt. The interest rate swaps are
derivative financial instruments and have been designated as fair value hedges
of the subordinated debt.
The $28.7 million notional amount swap agreement was called by the
counter-party and terminated on April 7, 2003. The $16.3 million notional
amount swap agreement was called by the counter-party and terminated on June
30, 2003. Under these swap agreements, no payments were due between the
parties and no gain or loss was recognized by us when they were called.
There are no current plans to replace these terminated swap agreements. The
remaining $38.7 million notional amount swap agreement is also callable by
the counter-party prior to its respective maturity date.
During the quarter ended June 30, 2004, we received net cash flows of
$482 thousand under the one remaining agreement, which was recorded as a
reduction of interest expense on the subordinated debt. During the six months
ended June 30, 2004, we received net cash flows of $959 thousand under the
remaining agreement, which was also recorded as a reduction of interest
expense on the subordinated debt.
In August 2003, we entered into seven interest rate swap agreements with
an aggregate notional amount of $190 million for the purpose of effectively
converting $190 million of fixed rate Federal Home Loan Bank ("FHLB") borrowings
into floating rate obligations. Each swap has a notional amount equal to the
outstanding principal amount of the related FHLB borrowing, together with the
same payment dates, maturity date and call provisions as the related FHLB
borrowing. Under five of the swaps, we pay interest at a variable rate equal to
a spread over 30-day LIBOR, adjusted monthly, whereas on the remaining two
instruments we pay interest quarterly. We receive a fixed rate payment equal to
the interest that we are obligated to pay on the related FHLB borrowings. The
interest rate swaps are derivative financial instruments and have been
designated as fair value hedges of the FHLB borrowings.
During the quarter ended June 30, 2004, we received net cash flows of
$1.1million under these agreements, which was recorded as a reduction of
interest expense on the related FHLB borrowings. Included in other expense in
the consolidated statement of operations for the quarter ended June 30, 2004 is
a reduction in expense of $631,000 relating to the ineffectiveness of the
hedging strategy. During the six months ended June 30, 2004, we received net
cash flows of $2.2 million under these agreements, which is recorded as a
reduction of interest expense on the related FHLB borrowings. Included in other
expense in the consolidated statement of operations for the six months ended
June 30, 2004 was an reduction of expense of $194,000 relating to the
ineffectiveness of the hedging strategy.
8. Legal Proceedings
SEC Settlement
On May 4, 2004, the SEC accepted our settlement offer to consent to the
entry of an order providing that we cease and desist from committing or
causing any violations and future violations of Sections 13(a) and 13(b)(2)
of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 13a-1 and
13a-3 thereunder. On May 6, 2004, we filed a Current Report on Form 8-K that
included the order. No fines or penalties were levied against us or any of
our current directors, officers or employees.
Class Action Lawsuit
On March 10, 2004, a class action lawsuit was filed by Lori McBride on
behalf of herself and all other similarly situated against us and nine of our
directors in the District Court of Johnson County, Kansas. On June 6, 2004, this
lawsuit was dismissed with prejudice.
Qui Tam Lawsuit
On June 15, 2004, we issued a press release announcing that a qui tam
lawsuit is pending in the United States District Court for the Western District
of Oklahoma against us, Gold Bank-Oklahoma and Gold Bank-
11
Kansas. A qui tam lawsuit is an action brought by a private party (known as a
"relator") seeking to represent the interests of the government. The suit was
filed under the federal False Claims Act ("FCA") which provides for recovery of
treble damages, penalties and attorneys fees.
The lawsuit, which was brought by Roger L. Ediger (the relator) on behalf
of the United States of America, was filed in camera and under seal, allegedly
on October 24, 2002. We first became aware of the lawsuit on June 14, 2004, as a
result of a judicial order requested by the relator's counsel that partially
lifted the seal on the case to permit the relator's counsel to disclose to us
the existence of the lawsuit and an amended complaint. We have not yet been
served in the case. A qui tam action is regularly filed "in camera and under
seal" (i.e. secretly, without notice to the public or to the defendants) to give
the government time to investigate the claims and determine if it wants to
intervene and take control of the action.
In the suit, which remains under seal, the relator alleges that we, and our
subsidiary banks, Gold Bank-Oklahoma and Gold Bank-Kansas, and their
predecessors, violated the FCA by submitting false certifications and claims to
the Farm Service Agency ("FSA") and charging excessive interest rates and fees
on agricultural loans subject to the FSA's Guaranteed Loan Program ("GLP") and
Interest Assistance Program ("IAP"). The relator alleges that we knowingly
charged interest rates and fees on FSA guaranteed loans in excess of the
interest rates and fees we charged to our average agricultural customers, in
violation of FSA regulations. Plaintiff seeks relief in the form of a cease and
desist order against further violations of the FCA, treble damages equal to
three times the amount of damages the United States sustained as a result of our
actions, statutory civil money penalties up to $11,000 for each false claim, and
attorneys' fees and expenses. The relator has demanded to be awarded the maximum
amount allowed by law of any recovery.
Based upon our records and confirmed by payment records that we have
obtained from FSA, we believe that during the period October 1996 through June
2004, approximately $9 million was paid to Gold Bank-Oklahoma and $1 million was
paid to Gold Bank-Kansas from FSA under the GLP and IAP programs. During that
period we believe that Gold Bank-Oklahoma (and its predecessor banks) had at
least 675 FSA guaranteed loans and Gold Bank-Kansas (and its predecessor banks)
had at least 150 FSA guaranteed loans. The relator contends that all FSA
payments constitute "damages" suffered by the United States. In the event we are
found liable on all of the relator's claims and none of our defenses were upheld
in court, these damages will be trebled to $30 million. In such event, we could
also be held liable for civil money penalties of between $5,000 and $11,000 per
false claim. If one civil money penalty was assessed for each FSA loan (multiple
certifications were made for most FSA guaranteed loans), the range of penalties
could be between $4,825,000 to $9,075,000. In addition, we could be held liable
for the relator's legal fees and expenses.
FSA regulations provide that the interest rate charged on a guaranteed
loan may not exceed the rate the lender charges its average agricultural loan
customer. The regulation does not define "average agricultural loan customer."
The regulation implicitly requires a subjective judgment that is not
mathematically precise, and therefore may be interpreted and construed in
various ways.
We believe that the applicable statute of limitations is 6 years, and bars
claims for actions that occurred prior to October 1996. The relator, however,
contends that the applicable period for which claim can be made is 10 years. The
financial data set forth above assumes that the applicable claims period is 6
years. We are not in a position to provide similar payment data for the period
prior to 1996 due to the difficulty of obtaining information for the reasons
described below. The government informs us, however, that if the claims period
is 10 years, the FSA payments total about $15 million.
We have conducted an investigation of the FSA guaranteed loans involved in
this lawsuit, but we do not currently have all of the loan documents within our
possession. A significant number of the FSA loans in question were made in
Oklahoma prior to March 2, 2000, the date on which we acquired CountryBanc
Holding Company. Our computer and accounting records, and our loan files, in
Oklahoma are incomplete with respect to years prior to our acquisition of that
bank. Also, a significant number of branches in Oklahoma, and all of the
branches in Kansas, that made these FSA guaranteed loans were sold within the
last two years as part of our strategic plan to reallocate our capital to high
growth metropolitan areas.
Silver Acquisition Corp. ("Silver") has informed Gold Banc that unless the
financial effects of this lawsuit can be made more certain, it may be unable to
obtain approval of the merger of Gold Banc with and into Silver by the OTS,
which is one of the conditions to closing of the merger between us and Silver.
We have therefore explored various means to address that uncertainty, including
exploring a possible settlement of this lawsuit. In this regard, we have reached
an oral agreement in principle with the U.S. Attorney's Office for Western
District of Oklahoma to
12
settle this lawsuit for $16 million. We expect to have $2 million of insurance
coverage and, as a result, have accrued a liability, net of insurance, for this
settlement of $14 million in the quarter ended June 30, 2004. In addition, our
current estimated tax benefit of the damage portion of the settlement resulted
in a reduction of income tax expense of $3.85 million for the quarter and six
months ended June 30, 2004. The net effect of the settlement is a $10.15 million
reduction in net earnings for the quarter and six months ended June 30, 2004.
However, the aforementioned settlement amount does not include any payment of
legal fees for relator's counsel, the amount of which is currently not known by
us and has not been agreed to.
The proposed settlement has to be approved by the United States Assistant
Attorney General and a settlement agreement has to be negotiated and executed.
In addition, Silver's consent to the settlement would be required the merger
agreement. In the event this settlement is not consummated, we intend to
vigorously defend this lawsuit. In addition, we may attempt to pursue other
alternatives to provide some degree of certainty of the financial effects of
this lawsuit, which may include attempting to obtain insurance to cover the
potential liability either alone or in combination with establishing a
liquidating trust to hold a specific amount of the merger consideration to
address all or part of that potential liability. There can be no assurance that
Silver will be able to obtain OTS approval of the merger even if the this
lawsuit is ultimately settled or other means are utilized to resolve the
financial effect of that lawsuit.
No negotiations have been held with Silver regarding the effect of this
settlement on the Merger Agreement, although we have been informed that Silver
will seek some adjustment in the purchase price of $16.60 per share, the
purchase price escalator of $0.0023 per share for each day after July 23, 2004
by which the closing is delayed, or both. One aspect of these negotiations will
be the possibility that the condition that we have at least $277 million in
total equity at closing may not be satisfied.
9. Expense Resulting from Misapplication of Bank Funds, Net of Recoveries
During 2002, 2001 and 2000, Michael W. Gullion, our former Chief Executive
Officer diverted funds to his account for personal use, as well as the use of
our corporate credit card for personal use and improper reimbursement of
personal expenses. Such amounts along with the costs of an investigation which
uncovered the activity aggregated $136,000 and $1.1 million during 2002 and
2001.
During the year ended December 31, 2003, we reached an agreement with the
former chief executive officer in which we received approximately $3.5 million
of restitution. The restitution amount consisted of $1.2 million in cash and
212,864 shares of our common stock, and has been netted against the losses and
expenses incurred in 2003 by us in connection with the investigation.
During the quarter ended June 30, 2003, the Company recorded $900,000 of
expenses related to the investigation. During the six months ended June 30,
2003, the Company recorded $1.1 million of expenses related to the
investigation.
10. Acquisition of Company
On February 25, 2004, we entered into a definitive merger agreement with
Silver Acquisition Corporation ("Silver"), whereby Silver will acquire all of
our outstanding common stock for $16.60 per share in cash, plus an additional
$.0023 per share each day after July 23, 2004 that the closing of the merger is
delayed. The merger is expected to take place promptly following satisfaction of
the conditions in the merger agreement, including shareholder and regulatory
approval.
As of the date of this filing, the website for the OTS stated that the due
date for a decision by the OTS on the acceptance of Silver's application is
scheduled for November 17, 2004. The actual due date may be earlier or later
contingent upon various factors, including the submission by Silver of any
additional information requested by the OTS. In addition, Silver has informed us
that unless the financial effects of the qui tam lawsuit as described in note 8
can be made more certain, it may be unable to obtain regulatory approval. We are
unable to predict whether such regulatory approval will be received, the timing
of receipt thereof, or the effect, if any, of the qui tam lawsuit or its
proposed settlement on the pending merger or the terms thereof.
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
cONDITION AND RESULTS OF OPERATIONS
The following financial review presents management's discussion and
analysis of our consolidated financial condition and results of operations.
This review highlights the major factors affecting results of operations and
any significant changes in financial condition for the three and six month
periods ended June 30, 2004. This review should be read in conjunction with
the consolidated financial statements and related notes appearing elsewhere
in this report as well as our 2003 Annual Report on Form 10-K (the "2003
Annual Report"). Results of operations for the three and six month periods
ended June 30, 2004 are not necessarily indicative of results to be attained
for any other period.
Proposed Acquisition of Gold Banc
On February 25, 2004, we issued a press release announcing that we had
entered into an Agreement and Plan of Merger (the "Merger Agreement") by and
among us, Silver Acquisition Corp. ("Silver"), and SAC Acquisition Corp. The
holders of a majority of our outstanding shares must approve the merger. It
is also subject to the receipt of required regulatory approvals and the
receipt by Silver of necessary financing.
Pursuant to the Merger Agreement, Gold Bank-Oklahoma merged into Gold
Bank-Kansas. Pending regulatory approval, Gold Bank-Florida will be merged
into Gold Bank-Kansas. Upon consummation of the merger of us into SAC
Acquisition Corp., Gold Bank-Kansas will be converted into a federal savings
bank. Following those transactions and the merger, the surviving parent
would be a privately held savings and loan holding company regulated by the
Office of Thrift Supervision (the "OTS").
As of the date of this filing, the website for the OTS stated that the due
date for a decision by the OTS on the acceptance of Silver's application is
scheduled for November 17, 2004. The actual due date may be earlier or later
contingent upon various factors, including the submission by Silver of any
additional information requested by the OTS. In addition, Silver has informed us
that unless the financial effects of the qui tam lawsuit described in note 8 to
the financial statements can be made more certain, it may be unable to obtain
regulatory approval. We are unable to predict whether such regulatory approval
will be received, the timing of receipt thereof, or the effect, if any, of the
qui tam lawsuit or its proposed settlement on the pending merger or the terms
thereof.
Selected Financial Data
The following table sets forth selected financial data for the three and
six month periods ended June 30, 2004 and June 30, 2003 (dollars in
thousands, except per share amounts):
Three Months Ended Six Months Ended
June 30 June 30,
------- --------
2004 2003 2004 2003
---- ---- ---- ----
Net Earnings $ 309 $7,285 $13,615 $13,994
Earnings Per Share (basic) $0.01 $0.19 $ 0.35 $0.37
Return on Average Assets 0.03% 0.72% 0.64% 0.71%
Return on Equity 0.46% 12.26% 10.28% 12.03%
Dividends to Net Earnings 389.79% 16.27% 17.62% 16.93%
14
At June 30, At June 30,
2004 2003
---- ----
Stockholders' equity to total assets 6.20% 5.20%
Results of Operations
We had previously announced on July 21, 2004, that net earnings from
continuing operations for the quarter ended June 30, 2004 were $10.46 million,
or $0.27 per share. The previously announced six months earnings from continuing
operations ended June 30, 2004 were $24.32 million or $0.62 per share. As a
result of the oral settlement agreement in principle related to the Qui Tam
lawsuit described in note 8 to our financial statements, our earnings were
reduced by $10.15 million or $0.26 per share for the quarter. This reduced
second quarter earnings to $309,000 or $0.01 per share and earnings for the
first six months to $13.62 million or $0.35 per share.
Net Interest Income
Total interest income for the three months ended June 30, 2004 was $50.9
million compared to $53.4 million for the three months ended June 30, 2003 or
a decrease of $2.4 million. This decrease primarily resulted from a $2.5
million decrease in loan interest. Average loans increased to $2.9 billion
for the three months ended June 30, 2004 compared to $2.8 billion for the
three months ended June 30, 2003. Total interest income for the six months
ended June 30, 2004 was $103.5 million compared to $106.2 million for the six
months ended June 30, 2003 or a decrease of $2.7 million. This decrease
resulted from a $2.3 million decrease in loan interest and a $441,000
decrease in investment security interest. For the three months ended June
30, 2004, our average rate on a tax equivalent basis for earning assets was
5.17%, a decrease from 5.67% for the three months ended June 30, 2003. For
the six months ended June 30, 2004, our average rate on a tax equivalent
basis for earning assets was 5.24%, a decrease from 5.83% for the six months
ended June 30, 2003. The decrease in the average rate on earning assets
primarily results from the decrease in the prime rate that we charge to
borrowers, as well as a decrease in the average yield on our investment
securities portfolio.
Average earning assets were $4.0 billion for the three months ended June
30, 2004 compared with $3.8 billion for the three months ended June 30,
2003. Average earning assets were $4.0 billion for the six months ended June
30, 2004 compared with $3.7 billion for the six months ended June 30, 2003.
The increase in average earning assets is attributable to our increase in
loans and our increase in investments, which relates to our leverage strategy.
Total interest expense for the three months ended June 30, 2004 was $21.4
million; a $2.6 million, or 10.8%, decrease over the three months ended June 30,
2003. The decrease was primarily due to a $1.1 million decrease in interest on
deposits and a $1.5 million decrease in interest on borrowings. Total interest
expense for the six months ended June 30, 2004 was $43.4 million; a $3.9
million, or 8.4%, decrease over the six months ended June 30, 2003. The decrease
was primarily due to a $2.0 million decrease in interest on deposits and a $1.9
million decrease in interest on borrowings. For the three months ended June 30,
2004, our average cost of funds was 2.37%, a decrease from 2.71% for the three
months ended June 30, 2003. For the six months ended June 30, 2004, our average
cost of funds was 2.38%, a decrease from 2.78% for the six months ended June 30,
2003. The decrease in the average cost of funds primarily relates to the reduced
rates paid on deposits, as well as the decrease in interest expense associated
with our FHLB borrowings due to the interest rate swap agreements.
Net interest income was $29.6 million for the three months ended June 30,
2004, compared to $29.4 million for the same period in 2003; an increase of
0.6%. Net interest income was $60.2 million for the six months ended June 30,
2004, compared to $58.9 million for the same period in 2003; an increase of
2.1%. Our net interest margin decreased from 3.14% for the three months ended
June 30, 2003 to 3.02% for the three months ended June 30, 2004 on a tax
equivalent basis. Net interest margin decreased from 3.25% for the six months
ended June 30, 2003 to 3.06% for the six months ended June 30, 2004 on a tax
equivalent basis. The increase in net interest income and the decrease in net
interest margin was the result of the combination of an increase in the average
balance of loans during the periods and a decrease in the average rate on loans
receivable. For the three months ended June 30, 2004 compared to the three and
six months ended June 30, 2003, average interest bearing liabilities increased
$76.2 million compared to an increase of $191.6 million in average interest
earning assets. For the six months ended June
15
30, 2004 compared to the three months ended June 30, 2003, average interest
bearing liabilities increased $226.1 million compared to an increase of $315.0
million in average interest earning assets. The difference between the increase
in average interest bearing liabilities and the increase in average interest
earning assets is primarily due to an increase in non-interest bearing deposits
during the relevant periods.
Provision/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 were 68% of our total assets as of June 30, 2004. Credit losses are
inherent in the lending business. 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 value of the collateral in the
case of a collateralized loan, among other things.
The allowance for loan losses totaled $34.2 million and $34.0 million at
June 30, 2004 and December 31, 2003, respectively, and represented 1.19% and
1.13% of total loans at each date. The provision for loan losses for the three
months ended June 30, 2004 was $1.4 million compared to $3.0 million for the
three months ended June 30, 2003. The provision for loan losses for the six
months ended June 30, 2004 was $4.3 million compared to $6.6 million for the six
months ended June 30, 2003. The decrease in the provision for loan losses for
the three and six months ended June 30, 2004 compared to the three and six
months ended June 30, 2003 was the result of a slower rate of increase in our
loan portfolio during 2004 and an improvement in the credit quality of our loan
portfolio. The decrease was partly due to the sale of the rural Kansas branches.
Net charge-offs for the three months ended June 30, 2004 were $1.6 million
compared to $2.3 million for the three months ended June 30, 2003. Net
charge-offs for the six months ended June 30, 2004 were $2.3 million compared to
$6.6 million for the three months ended June 30, 2003.
The allowance for loan losses is comprised of specific allowances assigned
to certain classified loans and a general allowance. We continuously evaluate
our allowance for loan losses to maintain an adequate level to absorb loan
losses inherent in the loan portfolio. Factors contributing to the determination
of specific allowances include the credit worthiness of the borrower, changes in
the expected future receipt of principal and interest payments and/or changes in
the value of pledged collateral. An allowance is recorded when the carrying
amount of the loan exceeds the fair value of the collateral for certain
collateral dependent loans. For purposes of determining the general allowance,
the portfolio is segregated by loan types to recognize differing risk profiles
among categories, and then further segregated by credit grades. Each credit
grade is assigned a risk factor, or allowance allocation percentage. These risk
factors are multiplied by the outstanding principal balance and risk-weighted by
loan type to calculate the required allowance.
The allowance allocation percentages assigned to each credit grade have
been developed based on an analysis of historical loss rates at our
individual banks, adjusted for certain qualitative factors and management's
experience. Qualitative adjustments for such things as general economic
conditions, changes in credit policies and lending standards, and changes in
the trend and severity of problem loans, can cause the estimation of future
losses to differ from past experience. The unallocated portion of the general
allowance serves to compensate for additional areas of uncertainty and
considers industry comparable reserve ratios.
The methodology used in the periodic review of allowance adequacy, which
is performed at least quarterly, is designed to be responsive to changes in
actual credit losses. The changes are reflected in the general allowance and
in specific allowances as the collectability of larger classified loans is
continuously recalculated with new information.
We actively monitor our past due and non-performing loans in each bank
subsidiary in an attempt to minimize credit losses, and monitor asset quality
to maintain an adequate loan loss allowance. Although management believes our
allowance for loan losses is adequate for each bank and on an aggregate
basis, the allowance may not 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, the allowance for loan
losses may not be adequate to cover loan losses, and significant increases to
the allowance may be required in the future if economic
16
conditions should worsen. Material additions to the allowance for loan losses
would result in a decrease of our net earnings and stockholders' equity.
We consider non-performing assets to include all non-accrual loans, other
loans past due 90 days or more as to principal and interest and still accruing,
other real estate owned and repossessed assets. Total non-performing loans were
$29.5 million and $32.4 million at June 30, 2004 and December 31, 2003,
respectively. The $2.9 million decrease in non-performing loans can generally be
attributed to the net effect on one $8 million loan which was returned to
performing status in the first quarter of 2004. This was partially offset by
another loan totaling $2.0 million being added to non-performing status in the
second quarter of 2004. Total non-performing loans were 1.03% and 1.07% of gross
loans at June 30, 2004 and December 31, 2003, respectively. Total non-performing
assets were $35.6 million and $39.0 million at June 30, 2004 and December 31,
2003, respectively. The decrease in non-performing assets of $3.4 million can be
generally attributed to the above mentioned loan activity. Total non-performing
assets were 0.85% and 0.90% of total assets at June 30, 2004 and December 31,
2003, respectively.
Other Income
For the three months ended June 30, 2004, other income was $13.4 million
compared to $10.8 million for the three months ended June 30, 2003, an
increase of $2.6 million, or 24.3%. The net increase resulted primarily from
gains on the sale of branch facilities of $3.6 million compared to $1.2
million in the same quarter of 2003. There was also an increase in service
fees of $189,000 and an increase in other income of $2.1 million.
Approximately $1.2 million of the increase in other income was attributed to
the sale of the bank's credit card portfolio. These were offset by a
decrease in investment trading fees and commissions of $688,000 and a
decrease in net gains on sale of mortgage loans of $354,000. Net decreases
were also recorded in net securities gains of $940,000 and bank owned life
insurance of $95,000. The decrease in bank owned life insurance was the
result of the sale of the seven branches.
For the six months ended June 30, 2004, other income was $38.1 million
compared to $19.2 million for the six months ended June 30, 2003, an increase
of $18.9 million, or 98.5%. The net increase resulted primarily from gains on
the sale of branch facilities of $20.6 million compared to $1.2 million in
the same period of 2003. There was also an increase in other income of $2.4
million. Approximately $1.2 million of the increase in other income was
attributed to the sale of the bank's credit card portfolio. These were offset
by a decrease in investment trading fees and commissions of $1.3 million, a
decrease in net gains on sale of mortgage loans of $711,000. Net decreases
were also recorded in net securities gains of $836,000 and bank owned life
insurance of $1,000.
Other Expense
For the three months ended June 30, 2004, other expense was $40.0 million
compared to $27.1 million for the same period of 2003. Salaries and employee
benefits increased from $13.8 million in the second quarter of 2003 to $14.7
million in the second quarter of 2004, or an increase of $948,000. This increase
was principally the result of compensation expense related to restricted stock
awards to management of $982,000 and compensation expense related to the
Company's ESOP plan of $637,000. These increases were partially offset by salary
reductions resulting from the sale of branch locations and the associated
staffing. Net occupancy expense declined from $1.9 million for the quarter ended
June 30, 2003 to $1.7 million for the quarter ended June 30, 2004. Depreciation
expense decreased from $1.7 million to $1.6 million from the quarter period
ended June 30, 2003 to June 30, 2004, respectively. Core deposit intangible
amortization expense was $188,000 during the second quarter of 2003 and 2004. We
recorded a $900,000 charge resulting from misapplication of bank funds in the
three months ended June 30, 2003 related to the actions of Michael Gullion, our
former Chief Executive Officer. During the second quarter the Company
established a liability for the settlement of the Qui Tam litigation. This
liability was recorded with a charge to expense of $16.0 million with a
corresponding reduction of $2.0 million for the applicable insurance coverage.
The remaining expenses classified as other expense decreased from $8.6 million
to $7.7 million, or $934,000. The Company also had acquisition expense of
$337,000 during the second quarter of 2004 associated with the proposed sale of
the Company. Other increases were supplies expense of $118,000 and consulting of
$104,000.
For the six months ended June 30, 2004, other expense was $56.9 million
compared to $52.4 million for the same period of 2003. Salaries and employee
benefits increased from $27.9 million in the first half of 2003 to $30.8
17
million in the first half of 2004, or an increase of $2.8 million. This increase
was the result of compensation expense related to restricted stock awards to
management of $2.1 million and compensation expense related to the Company's
ESOP plan of $1.2 million. These increases were partially offset by salary
reductions resulting from the sale of branch locations and the associated
staffing. Net occupancy expense declined from $3.7 million for the six months
ended June 30, 2003 to $3.5 million for the six months ended June 30, 2004. This
reduction was primarily the result of the sale of branch locations. Depreciation
expense decreased from $3.4 million to $3.2 million for the six months ended
June 30, 2003 to June 30, 2004, respectively. Core deposit intangible
amortization expense was $375,000 during the first six months of 2003 and 2004.
We recorded a $1.5 million charge resulting from misapplication of bank funds in
the three six months ended June 30, 2003 related to the actions of Michael
Gullion, our former Chief Executive Officer. During the second quarter the
Company established a liability for the settlement of the Qui Tam litigation.
This liability was recorded with a charge to expense of $16.0 million with a
corresponding reduction of $2.0 million for the applicable insurance coverage.
The remaining expenses classified as other expense increased from $15.9 million
to $19.1 million or $3.2 million. This largest component of this increase was
debt issuance costs of $2.0 million which were written off when the Company
refinanced two of its three Trust Preferred obligations in the first quarter of
2004. The Company also had acquisition expense of $966,000 during the first six
months of 2004 associated with the proposed sale of the Company. Other increases
were consulting of $272,000, and accounting of $535,000.
Income Tax Expense
Our historical effective tax rate has been less than the statutory federal
rate of 35% due primarily to tax-exempt interest income on municipal bonds and
our investments in bank owned life insurance. Income tax expense for the three
months ended June 30, 2004 and 2003 was $1.2 million and $2.9 million,
respectively. The effective tax rate for each time period was 79.8% and 28.9%,
respectively. Income tax expense for the six months ended June 30, 2004 and 2003
was $9.0 million and $5.2 million, respectively. The effective tax rate for each
time period was 38.7% and 26.9%, respectively. The effective rate was
significantly higher for the three and six month periods ended June 30, 2004 as
compared to prior periods due to gains from branch sales and non-deductible
expenses related to the pending acquisition and the nondeductible portion of
ESOP compensation expense in comparison to tax-exempt income. Our current
estimate of the tax benefit of the damage portion of the proposed Qui Tam
settlement resulted in a reduction of income tax expense of $3.85 million for
the three and six months ended June 30, 2004. However, the other portion of the
Qui Tam settlement may not be deductible, which had the effect of increasing the
effective tax rate for those periods.
Financial Condition
From December 31, 2003 to June 30, 2004, total assets declined from $4.3
billion to $4.2 billion. Cash and cash equivalents decreased from $117.1 million
to $84.7 million. Net loans decreased from $3.0 billion to $2.8 billion.
Investment securities were $1.0 billion at June 30, 2004, compared to $986.1
million at December 31, 2003; an increase of $52.6 million or 5.3%. Mortgage
loans held for sale decreased from $5.9 million to $2.0 million. Net premises
and equipment decreased from $63.1 million to $56.5 million. Cash surrender
value of bank owned life insurance increased from $80.2 million to $81.2
million. Total liabilities decreased from $4.1 billion to $3.9 billion. Deposits
decreased from $3.2 billion to $3.0 billion, from December 31, 2003 to June 30,
2004. Securities sold under agreements to repurchase increased from $127.8
million to $141.0 million. Total long and short-term borrowings decreased $32.8
million, or 4.4%, from December 31, 2003. Accrued interest and other liabilities
increased from $26.4 million at December 31, 2003 to $44.6 million at June 30,
2004.
During the first six months of 2004, cash and cash equivalents decreased
$32.4 million or 27.6% compared to balances at December 31, 2003. The primary
cause of this decrease was the net cash paid in connection with the sale of bank
branches in Kansas and Oklahoma.
During the first six months of 2004, net loans decreased $142.4 million,
or 4.8%, compared to balances at December 31, 2003. Mortgage loans held for
sale decreased $3.9 million over the balance at December 31, 2003. The
decrease was due to the sale of branch facilities during the first quarter
that resulted in loans of $197.9 million being sold with the branches. This
was partially offset by increased loan balances in other locations.
18
Investment securities at June 30, 2004, increased $52.6 million compared
to the balance at December 31, 2003. This increase resulted from a decrease of
$36.3 million in US agency mortgage-backed securities and an increase of $158.8
million in US agency securities. The total investment securities portfolio
amounted to $1.0 billion at June 30, 2004, and was comprised mainly of U.S.
government and agencies (73.2%), mortgage-backed (19.7%), and other asset-backed
(7.1%) investment securities. During the second quarter of 2004, certain bank
investment securities were reclassified to held-to-maturity from
available-for-sale securities. This action was taken to reduce our sensitivity
to the interest rate environment and to prudently manage our capital and
interest rate risk. The amount reclassified was $165.5 million in the second
quarter of 2004. The Company additionally took the same action in the third
quarter of 2004 with a reclassification of $149.0 million of securities from
available-for-sale to held-to-maturity.
Bank owned life insurance at June 30, 2004, increased $978,000 compared to
the balance sheet amount at December 31, 2003. The increase in the balance
primarily resulted from the Company's earnings recorded on our investment in
bank owned life insurance.
Total deposits decreased $135.3 million at June 30, 2004, compared to
December 31, 2003, mainly due to the effect of the branch sales in the first and
second quarter. Deposits at the branches sold were $363.3 million which were
transferred with the sale transactions. Deposits increased at other locations
which offset much of this decrease and resulted in a net decrease of $135.3
million.
Compared to 2003 year-end balances, borrowings at June 30, 2004, decreased
$32.8 million. Our short-term borrowings of federal funds purchased and
securities sold under agreements to repurchase vary depending on daily liquidity
requirements. These borrowings remained fairly constant but increased $6.5
million during the first six months of 2004 to a combined balance of $141.5
million at June 30, 2004. Long term borrowings, consisting of FHLB advances,
decreased $33.8 million to $597.8 million outstanding at June 30, 2004. The
decrease in long-term borrowings is the result of a $50.0 million decrease in
Leverage Repurchase Agreements. This was partially offset by an increase of
$22.8 million in FHLB borrowings. Approximately $46.4 million of the Company's
outstanding subordinated debt was called in March 2004 and was redeemed on April
22, 2004.
During the first six months of 2004, accrued interest and other
liabilities increased from $26.4 million to $44.6 million as a direct result of
the liability associated with the Qui Tam lawsuit proposed settlement.
Contractual Obligations and Commercial Commitments
The following table presents our contractual cash obligations, defined
as operating lease obligations, principal and interest payments due on
non-deposit obligations and guarantees with maturities in excess of one year,
as of June 30, 2004 for the periods indicated.
Payments Due by Period
Total interest One Year One to Four to More than
Contractual Cash Obligations and principal and Less Three Years Five Years Five Years
- ---------------------------- -------------- -------- ----------- ---------- ----------
(dollars in thousands)
Operating leases..................... $ 26,675 $ 2,330 $ 5,561 $ 3,843 $ 14,941
FHLB advances(1)..................... 655,648 97,856 93,692 104,456 359,644
Subordinated debt(1)................. 76,956 856 3,413 3,417 69,270
Trust preferred securities........... 239,694 3,622 11,362 11,362 213,348
------------ --------- ----------- ----------- --------
Total contractual obligations........ $ 998,973 $ 104,664 $ 114,028 $ 123,078 $657,203
============ ========= =========== =========== ========
___________
(1) For floating interest rate obligations, based upon interest rate in
effect on June 30, 2004.
19
Liquidity and Capital Resources
Liquidity defines the ability of us 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. Each of the Banks has established a credit facility
with the FHLB, under which it is eligible for short-term advances and
long-term borrowings secured by real estate loans or mortgage-related
investments. Our liquidity needs and funding are provided through
non-affiliated bank borrowings, cash dividends and tax payments from our
subsidiary Banks. Total loans decreased $146.3 million compared to December
31, 2003, while total deposits decreased $135.3 million compared to the same
period. The majority of our deposits consist of time deposits which mature in
less than one year. If we are unsuccessful in rolling over these deposits,
then we will have to replace these funds with alternative sources of funding,
mainly other short-term borrowings.
Cash and cash equivalents and investment securities totaled $1.1 billion,
or 26.8%, of total assets at June 30, 2004 compared to $1.1 billion, or 25.5%,
at December 31, 2003. Cash provided by operating activities for the six months
ended June 30, 2004 was $39.8 million, consisting primarily of net earnings and
proceeds from the sale of loans. Cash used in investing activities was $332.1
million, this was primarily attributable to an increase in loans of $80.3
million, the net increase in available for sale securities of $81.3 million, and
cash paid, net of cash received with the purchase acquisition of $184.7 million.
Cash provided by financing activities was $260.0 million, consisting primarily
of an increase in deposits of $293.8 million and was partially offset by net
payments of $34.9 million for both short-term and long-term borrowings.
We and our subsidiaries actively monitor our 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 retention of earnings or capital infusions. To be "well capitalized"
a company's total risk-based capital ratio, tier 1 risk-based capital ratio
and tier 1 leverage ratio would be at least 10.0%, 6.0% and 5.0%,
respectively. Our total risk-based capital ratio, tier 1 risk-based capital
ratio and tier 1 leverage ratio at June 30, 2004 were 11.85%, 9.87% and
7.60%, respectively. These same ratios at December 31, 2003 were 10.78%,
8.87% and 7.01%, respectively.
The principal source of funds at the holding company level is dividends
from the Banks. The payment of dividends is subject to restrictions imposed
by federal and state banking laws and regulations. At June 30, 2004, our
subsidiary banks could pay $58.5 million in dividends to us and still remain
well capitalized. Management believes funds generated from the dividends from
our subsidiaries and our existing lines of credit will be sufficient to meet
our current cash requirements. However, if we continue at our current rate of
internal growth, we will need to raise additional equity to remain "well
capitalized".
Credit Facilities
Our subsidiary banks have agreements with the Federal Home Loan Bank
system to provide them with advances. As of June 30, 2004, our subsidiary
banks had approximately $513.5 million of advances outstanding with the FHLB.
We had a revolving line of credit with LaSalle Bank National Association
("LaSalle Credit Line"). On July 1, 2003, we entered into an amendment with
LaSalle Bank to reduce the maximum amount that we may borrow from $25 million
to $10 million and extend the maturity date from July 1, 2003 to July 1,
2004. As of June 30, 2004, we had no outstanding balances on the LaSalle
Credit Line. We are currently evaluating various financing alternatives for
the future.
Under the Amended and Restated Loan Agreement dated as of February 8,
2002 ("ESOP Loan Agreement") of our Employees' Stock Ownership Plan (the
"ESOP") with LaSalle Bank, the ESOP may borrow up
20
to $15 million. Loans under the ESOP Loan Agreement bear interest, at the ESOP's
option, at either LaSalle Bank's Prime Base Rate or LIBOR plus 1.75%. As of June
30, 2004, the ESOP had approximately $10.5 million outstanding under the ESOP
Loan Agreement, which it borrowed to purchase our common stock. We guarantee the
ESOP's obligations under the ESOP Loan Agreement. We currently do not anticipate
that the ESOP will need to borrow any further amounts under the ESOP Loan
Agreement.
BOLI Policies
Our Bank subsidiaries have purchased bank-owned life insurance ("BOLI")
policies with death benefits payable to the Banks on the lives of certain
officers. These single premium, whole-life policies provide favorable tax
benefits, but are illiquid investments. Federal guidelines limit a bank's
aggregate investment in BOLI to 25% of the bank's capital and surplus, and
its aggregate investment in BOLI policies from a single insurance company to
15% of the Bank's capital and surplus. All of the Banks' BOLI investments
comply with federal guidelines. In January 2003, Gold Bank-Kansas, Gold
Bank-Oklahoma and Gold Bank-Florida increased their BOLI investments by $14
million, $4 million and $2 million, respectively. As of June 30, 2004, Gold
Bank-Kansas had $67.0 million of BOLI (equal to 22.0% of its capital and
surplus) and Gold Bank-Florida had $14.1 million of BOLI (equal to 22.3% of
its capital and surplus). The aggregate BOLI investment of each Bank is just
below the maximum regulatory limit. The Banks monitor the financial
condition and credit rating of each of the three life insurance companies
that issued the BOLI policies. We believe that these BOLI investments will
not have any significant impact on the capital or liquidity of our Bank
subsidiaries.
Impact of Recently Issued Accounting Standards
In March 2004, the SEC staff released a Staff Accounting Bulletin that
requires all registrants to account for mortgage loan interest rate lock
commitments related to loans held for sale as written options, effective no
later than for commitments entered into after March 31, 2004. The Company enters
into such commitments with customers in connection with residential mortgage
loan applications, however, the amount of these commitments is not material to
the Company's consolidated financial statements. This guidance requires the
Company to recognize a liability on its consolidated balance sheet equal to the
fair value of the commitment at the time the loan commitment is issued. As a
result, this guidance delays the recognition of any revenue related to these
commitments until such time as the loan is sold, however, it will have no effect
on the ultimate amount of revenue or cash flows recognized over time. The
implementation did not have a significant impact on the consolidated financial
statements.
Critical Accounting Policies
Our accounting policies are fundamental to understanding management's
discussion and analysis of results of operations and financial condition.
Many of our accounting policies require significant judgment regarding
valuation of assets and liabilities. A summary of significant accounting
policies is listed in the first note to the consolidated financial statements
in the 2003 Annual Report. Critical accounting policies are both important to
the portrayal of our financial condition and results, and require
management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.
Allowance for Loan Losses
Our most critical accounting policy relates to the allowance for loan
losses and involves significant management valuation judgments. We perform
periodic and systematic detailed reviews of our lending portfolio to assess
overall collectability. The level of the allowance for loan losses reflects
our estimate of the collectability of the loan portfolio. Further discussion
of the methodologies used in establishing this reserve is contained in the
Provision/Allowance for Loan Losses section of this report.
We make various assumptions and judgments about the collectability of
our loan portfolio and provide an allowance for losses based on a number of
factors. If our assumptions are wrong, our allowance for loan losses may not
be sufficient to cover loan losses. We may have to increase the allowance in
the future. Material additions to our allowance for loan losses would have a
material adverse effect on our net earnings and stockholders' equity.
21
Impairment of Goodwill Analysis
As required by the provisions of SFAS 142, we completed our initial
valuation analysis to determine whether the carrying amounts of our reporting
units were impaired. Our initial impairment review indicated that there was
no impairment of goodwill as of December 31, 2002. As required by SFAS 142,
we will be required to review the goodwill for impairment at least annually
or more frequently based upon facts and circumstances related to a particular
reporting unit.
The fair value of our non-bank financial subsidiaries fluctuates
significantly based upon, among other factors, the net operating income of
these subsidiaries. If these subsidiaries experience a sustained
deterioration in their cash flow from operations then we may have to record a
goodwill impairment charge in the future.
Deferred Income Taxes
SFAS 109, Accounting for Income Taxes, establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized in an
entity's financial statements or tax returns. Judgement is required in
assessing the future tax consequences of events that have been recognized in
our financial statements or tax returns. Fluctuations in the actual outcome
of these future tax consequences could materially impact our financial
position or our results of operations.
Forward Looking Information and Statements
The information included or incorporated by reference in this report
contains certain forward-looking statements with respect to the financial
condition, results of operations, plans, objectives, future financial
performance and business of us and our subsidiaries, including, without
limitation:
o statements that are not historical in nature
o statements preceded by, followed by or that include the words
"believes," "expects," "may," "will," "should," "could,"
"anticipates," "estimates," "intends" or similar expressions
o the ability, likelihood or timing of completing the merger with Silver
Forward-looking statements are not guarantees of future performance or
results. You are cautioned not to put undue reliance on any forward-looking
statement which speaks only as of the date it was made. They involve risks,
uncertainties and assumptions. Actual results may differ materially from
those contemplated by the forward-looking statements due to, among others,
the following factors:
o our ability to satisfy the terms and conditions of the Written
Agreement with the OSBC and FRB-KC
o changes in interest margins on loans
o changes in allowance for loan losses
o changes in the interest rate environment
o competitive pressures among financial services companies may increase
significantly
o general economic conditions, either nationally or in our markets, may
be less favorable than expected
o legislative or regulatory changes may adversely affect the business in
which we and our subsidiaries are engaged
22
o technological changes may be more difficult or expensive than
anticipated
o changes may occur in the securities markets
These risks and other risks are described in Exhibit 99.1 to this Form 10-Q
and are incorporated herein by reference.
ITEM 3: 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.
While we have not historically used interest rate swaps or other
derivative instruments to manage interest rate exposure, in August 2002 we
entered into three interest rate swap agreements with an aggregate notional
amount of $82.5 million. The swaps effectively converted our fixed interest
rate obligations under our three outstanding series of trust preferred
securities to variable interest rate obligations, decreasing the asset
sensitivity of our balance sheet by more closely matching our variable rate
assets with variable rate liabilities. Each swap has a notional amount equal
to the outstanding principal amount of the related trust preferred
securities, together with the same payment dates, maturity date and call
provisions as the related trust preferred securities. Under each of the
swaps, we paid a variable rate equal to a spread over 90-day LIBOR, adjusted
quarterly, and received a fixed rate equal to the interest we are obligated
to pay on the related trust preferred securities.
The $28.7 million notional amount swap agreement was called by the
counter-party and terminated on April 7, 2003. The $16.3 million notional amount
swap agreement was called by the counter-party and terminated on March 31, 2004.
Under the swap agreements, no payments were due between the parties and no gain
or loss was recognized by us. There are no current plans to replace the
terminated swap agreements. However, we called both the $28.7 million Trust
Preferred Offering and the $16.3 million Trust Preferred Offering. These were
replaced with a debenture of $16.5 million with an interest rate of 5.8% and a
$30.0 million debenture with a variable rate tied to LIBOR which is currently
approximately 4.0%. The remaining swap agreement is also callable by the
counterparty prior to its respective maturity date.
During the third quarter of 2003, we decreased the asset sensitivity of
our balance sheet by entering into swap agreements for a portion of our
long-term fixed rate borrowings. By agreeing to pay a variable rate of
interest that is currently lower than the fixed rates we are paying on our
borrowings, we expect to increase our net interest margin and more closely
match our variable rate assets with variable rate liabilities. We entered
into seven interest rate swap agreements with an aggregate notional principal
amount of $190 million for the purpose of effectively converting $190 million
of our fixed rate borrowings from the Federal Home Loan Bank System into
floating rate obligations. We have no current plans to enter into any
additional interest rate swap agreements.
Along with internal gap management reports, we and our subsidiary 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. We strive to maintain an aggregate gap position such that each
100 basis point change in interest rates will not affect net interest income
by more than 10%.
The following table indicates that, at June 30, 2004, in the event of a
sudden and sustained increase in prevailing market rates, our net interest
income would be expected to increase, while a decrease in rates would
indicate a decrease in net interest income.
23
Net Interest Actual Percent Change
Changes in Interest Rates Income Change Actual
- ------------------------- ------------ ------ --------------
200 basis point rise........... $133,415,000 $6,896,000 5.45%
100 basis point rise........... $131,089,000 $4,570,000 3.61%
Base Rate Scenario............. $126,519,000 -- --
50 basis point decline......... $125,135,000 $(1,384,000) (1.09%)
100 basis point decline........ $121,414,000 $(5,105,000) (4.03%)
ITEM 4: CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was
carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. Based upon and as of the date of the evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective in all
material respects to provide reasonable assurance that information required
to be disclosed in the reports we file and submit under the Exchange Act is
recorded, processed, summarized and reported as and when required.
There were no changes in our internal control over financial reporting
that occurred during the quarter ended June 30, 2004 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
24
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
For a discussion of legal proceedings, including regulatory proceedings
and formal actions taken by our banking regulators, see Note 8 "Legal
Proceedings" to the consolidated financial statements contained in Part I, Item
I of this report which is incorporated by reference hereunder.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERs
At the Annual Meeting of Shareholders on April 21, 2004, three Class II
directors, Allen D. Petersen, J. Gary Russ and Donald C. McNeill, were
elected for terms expiring in 2007. Voting results were as follows:
Allen D. Petersen
34,151,921 votes or 99.2% FOR
266,596 votes or 0.8% AGAINST
0 votes or 0% BROKER NON-VOTES AND ABSTENTIONS
J. Gary Russ
33,439,204 votes or 97.2% FOR
979,813 votes or 2.8% AGAINST
0 votes or 0% BROKER NON-VOTES AND ABSTENTIONS
Donald C. McNeill
27,049,237 votes or 78.6% FOR
7,369,280 votes or 21.4% AGAINST
0 votes or 0% BROKER NON-VOTES AND ABSTENTIONS
Class III Directors continuing in office are William Randon, William R.
Hagman, Jr. and Robert J. Gourley. Class III Directors' terms expire in
2005.
Class I Directors continuing in office are Malcolm M. Aslin, Daniel P.
Connealy, D. Patrick Curran. Class I Directors' terms expire in 2006.
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
25
Exhibit
Number Description
------- -----------
31.1 Certification of Chief Executive Officer of Gold Banc
Corporation, Inc., dated August 9, 2004, pursuant to
Rule 13a-14(a) and 15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2003.
31.2 Certification of Chief Financial Officer of Gold Banc
Corporation, Inc., dated August 9, 2004, pursuant to
Rule 13a-14(a) and 15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2003.
32.1 Certification of Chief Executive Officer of Gold Banc
Corporation, Inc. dated August 9, 2004, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, which is
accompanying this Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004 and is not treated as
filed in reliance upon ss. 601(b)(32) of Regulations S-K.
32.2 Certification of Chief Financial Officer of Gold Banc
Corporation, Inc. dated August 9, 2004, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, which is
accompanying this Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004 and is not treated as
filed in reliance upon ss. 601(b)(32) of Regulations S-K.
99.1 Factors That May Affect Future Results of Operations,
Financial Condition or Business for Gold Banc
Corporation, Inc.
99.2 Press Release, dated August 9, 2004, disclosing an
oral agreement in principle for settlement of qui tam
litigation
(b) Reports on Form 8-K
We filed the following Current Reports on Form 8-K during the second
quarter of 2004:
o On April 21, 2004, we filed a Current Report on Form 8-K announcing
earnings and other select financial data for the quarter ended March
31, 2004.
o On May 6, 2004, we filed a Current Report on Form 8-K announcing that
the Securities and Exchange Commission issued a cease and desist order
against us.
o On June 7, 2004, we filed a Current Report on Form 8-K that clarified
certain information set forth on the website for the Office of Thrift
Supervision.
o On June 16, 2004, we filed a Current Report on Form 8-K announcing
that a qui tam lawsuit had been filed against us and two of our
subsidiaries.
26
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.
By: /s/ RICK J. TREMBLAY
-----------------------------------------
Rick J. Tremblay
Executive Vice President and Chief
Financial Officer
(Authorized officer and principal financial
officer of the registrant)
Date: August 9, 2004
27