##### Table of Contents

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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, 2002
| |  | --------------------------------------------




| ̈ |  | 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
incorporation or organization)

(I.R.S. Employer 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 August 12, 2002Common Stock, $1.00 par value

33,711,009





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##### Table of Contents




GOLD BANC CORPORATION, INC.





INDEX TO 10-Q FOR THE QUARTERLY


Period Ended June 30, 2002





PagePART I:    FINANCIAL INFORMATIONITEM 1:

FINANCIAL STATEMENTSConsolidated Balance Sheets at June 30, 2002 and December 31, 2001 (unaudited)

3Consolidated Statements of EarningsSix months ended June 30, 2002 and June 30, 2001 (unaudited).

4Consolidated Statements of EarningsThree months ended June 30, 2002 and June 30, 2001 (unaudited).

5Consolidated Statements of Stockholders Equity and Comprehensive IncomeSix months ended June 30, 2002 and June 30, 2001 (unaudited)

6Consolidated Statements of Cash FlowsSix months ended June 30, 2002 and June 30, 2001 (unaudited)

7Notes to Consolidated Financial Statements

8ITEM 2:

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

19PART II:    OTHER INFORMATIONITEM 1:

LEGAL PROCEEDINGS

30ITEM 2:

CHANGES IN SECURITIES AND USE OF PROCEEDS

32ITEM 3:

DEFAULTS UPON SENIOR SECURITIES

32ITEM 4:

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

32ITEM 5:

OTHER INFORMATION

32ITEM 6:

EXHIBITS AND REPORTS ON FORM 8-K

33SIGNATURES

34




2




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##### Table of Contents




PART I





FINANCIAL INFORMATION





GOLD BANC
CORPORATION, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2002 AND DECEMBER 31, 2001


(In thousands)


(unaudited)





June 30, 2002


Dec. 31, 2001ASSETSCash and due from banks

$
70,641


$
73,675Federal funds sold and interest-bearing deposits


19,693



98Total cash and cash equivalents


90,334



73,773Investment securities:Available-for-sale


574,622



567,746Held-to-maturity


23,382



14,364Trading


4,200



6,734Total investment securities


602,204



588,844Mortgage loans held for sale, net


16,499



11,335Loans, net


2,394,614



2,124,973Premises and equipment, net


70,255



57,738Goodwill, net


34,360



34,666Intangible assets, net


3,914



4,054Cash surrender value of bank owned life insurance


54,935



53,038Accrued interest and other assets


56,299



68,051Total assets

$
3,323,414


$
3,016,472LIABILITIES AND STOCKHOLDERS EQUITY:Liabilities:Deposits

$
2,435,078


$
2,163,866Securities sold under agreements to repurchase


125,981



103,672Federal funds purchased and other short-term borrowings


936



30,908Subordinated debt and guaranteed preferred beneficial interests in companys debentures


111,749



111,749Long-term borrowings


448,453



416,413Accrued interest and other liabilities


27,444



24,219Total liabilities


3,149,641



2,850,827Stockholders 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, 38,431,693 issued at June 30, 2002 and 38,352,074 issued at
December 31, 2001


38,432



38,352Additional paid-in capital


76,105



75,955Retained earnings


97,492



85,721Accumulated other comprehensive income (loss), net


4,547



(8
)Unearned compensation


(9,683
)


(3,440
)206,893



196,580Less treasury stock4,721,510 shares at June 30, 2002 and 4,417,010 shares at December 31, 2001


(33,120
)


(30,935
)Total stockholders equity


173,773



165,645Total liabilities and stockholders equity

$
3,323,414


$
3,016,472





See accompanying notes to consolidated financial statements.




3




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##### Table of Contents




GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


For the Six Months ended June 30, 2002 and June 30, 2001


(In thousands, except per share data)


(unaudited)





June 30, 2002

June 30, 2001Interest Income:Loans, including fees

$
80,281

$
86,113Investment securities


16,962


15,259Other


1,027


2,73098,270


104,102Interest Expense:Deposits


31,466


46,625Borrowings and other


17,072


13,70248,538


60,327Net interest income


49,732


43,775Provision for loan losses


9,955


4,340Net interest income after provision for loan losses


39,777


39,435Other income:Service fees


8,520


5,494Investment trading fees and commissions


2,568


3,025Net gains on sale of mortgage loans


838


1,243Net securities gains


3,360


1,289Gain on sale of branch facilities


2,381


Information technology services


9,717


3,886Other


3,370


4,93530,754


19,872Other expense:Salaries and employee benefits


25,277


22,052Net occupancy expense


3,016


2,982Depreciation expense


3,046


3,092Goodwill amortization expense





1,060Information technology services


6,488


2,365Other


14,452


9,91152,279


41,462Earnings before income taxes


18,252


17,845Income tax expense


5,133


5,798Net earnings

$
13,119

$
12,047Net earnings per share-basic and diluted

$
0.39

$
0.33





See accompanying notes to consolidated financial statements.




4




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##### Table of Contents




GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


For the Three Months ended June 30, 2002 and June 30, 2001


(In thousands, except per share data)


(unaudited)





June 30, 2002

June 30, 2001Interest Income:Loans, including fees

$
41,246

$
41,969Investment securities


8,625


8,128Other


432


1,01950,303


51,116Interest Expense:Deposits


16,069


22,301Borrowings and other


8,632


7,29824,701


29,599Net interest income


25,602


21,517Provision for loan losses


4,920


1,795Net interest income after provision for loan losses


20,682


19,722Other income:Service fees


4,550


2,899Investment trading fees and commissions


1,172


1,557Net gains on sale of mortgage loans


142


374Net securities gains


2,825


310Gain on sale of branch facilities


2,381


Information technology services


4,841


2,493Other


1,018


2,22716,929


9,860Other expense:Salaries and employee benefits


13,329


11,447Net occupancy expense


1,538


1,518Depreciation expense


1,537


1,544Goodwill amortization expense





530Information technology services


3,317


1,570Other


7,758


4,43127,479


21,040Earnings before income tax


10,132


8,542Income tax expense


3,020


2,465Net earnings

$
7,112

$
6,077Net earnings per share-basic and diluted

$
0.21

$
0.17





See accompanying notes to consolidated financial statements.




5




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##### Table of Contents




GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME


Period ended June 30, 2002 and June 30, 2001


(In thousands, except per share data)





Preferred Stock

Common Stock

Additional Paid-in Capital

Retained Earnings


Accumulated Other Comprehensive Income (loss)


Unearned Compensation


Treasury Stock


TotalBalance at December 31, 2000

$


$
38,286

$
75,523

$
64,198


$
836


$
(3,802
)

$
(5,795
)

$
169,246Net earnings for the six months ended June 30, 2001











12,047















12,047Change in unrealized gain on available-for-sale securities















1,820











1,820Total comprehensive income for the six months ended June 30, 2001











12,047



1,820











13,867Exercise of 50,467 stock options





50


234


















284Purchase of 2,444,600 shares of treasury stock























(16,387
)


(16,387
)Decrease in unearned compensation



















1,000







1,000Dividends paid ($0.04 per common share)











(1,443
)














(1,443
)Balance at June 30, 2001

$


$
38,336

$
75,757

$
74,802


$
2,656


$
(2,802
)

$
(22,182
)

$
166,567Balance at December 31, 2001

$


$
38,352

$
75,955

$
85,721


$
(8
)

$
(3,440
)

$
(30,935
)

$
165,645Net earnings for the six months ended June 30, 2002











13,119















13,119Change in unrealized gain on available-for-sale securities















4,555











4,555Total comprehensive income for the six months ended June 30, 2002











13,119



4,555











17,674Exercise of 79,619 stock options





80


150


















230Purchase of 304,500 shares of treasury stock























(2,185
)


(2,185
)Increase in unearned compensation



















(6,243
)






(6,243
)Dividends paid ($0.04 per common share)











(1,348
)














(1,348
)Balance at June 30, 2002

$


$
38,432

$
76,105

$
97,492


$
4,547


$
(9,683
)

$
(33,120
)

$
173,773





See accompanying notes to consolidated financial statements.




6




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##### Table of Contents

GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Six Months ended June 30, 2002 and June 30, 2001


(In thousands)


(unaudited)





June 30, 2002


June 30, 2001Cash flows from operating activities:Net earnings

$
13,119


$
12,047Adjustments to reconcile net earnings to net cash provided by (used in) operating activities, net of purchase
acquisitions:Provision for loan losses


9,955



4,340Gains on sales of securities


(3,360
)


(1,289
)Amortization of investment securities premiums, net of accretion


(320
)


(101
)Depreciation


3,046



3,092Amortization of intangible assets


140



Amortization of goodwill






1,060Gain on sale of mortgage loans, net


(838
)


(1,243
)Bank owned life insurance


(1,897
)


Net decrease (increase) in trading securities


2,534



(1,880
)Proceeds from sale of loans held for sale


51,297



58,522Origination of loans held for sale, net of repayments


(55,623
)


(17,488
)Other changes:Accrued interest receivable and other assets


11,752



(9,065
)Accrued interest payable and other liabilities


6,017



(2,887
)Net cash provided by operating activities


35,822



45,108Cash flows from investing activities:Net increase in loans


(279,596
)


(85,688
)Principal collections and proceeds from sales and maturities of available-for-sale securities


336,379



212,641Purchases of available-for-sale securities


(337,504
)


(265,700
)Purchases of held-to-maturity securities


(9,020
)


(11,360
)Purchase of bank owned life insurance policy






(50,505
)Net additions to premises and equipment


(15,563
)


(1,727
)Cash paid, net of cash received, in purchase acquisition






(3,363
)Net cash used in investing activities


(305,304
)


(205,702
)Cash flows from financing activities:Increase (decrease) in deposits


271,212



(76,456
)Net (decrease) increase in short-term borrowings


(7,663
)


139,844Proceeds from FHLB & long-term borrowings


25,797



94,644Proceeds from issuance of common stock


230



284Purchase of treasury stock


(2,185
)


(16,387
)Dividends paid


(1,348
)


(1,433
)Net cash provided by financing activities


286,043



140,496Increase (decrease) in cash and cash equivalents


16,561



(20,098
)Cash and cash equivalents, beginning of period


73,773



118,891Cash and cash equivalents, end of period

$
90,334


$
98,793Supplemental schedule of non-cash activities :Non-cash investing activities related to the securitization of loans held for sale:Increase in investment securities





$
41,199Decrease in mortgage loans held for sale






41,199Non-cash activities related to purchase acquisitions:Increase in land, buildings, and equipment





$
298Increase in other assets






4,213Increase in other liabilities






1,148Supplemental disclosure of cash flow information:Cash paid for interest

$
24,071


$
30,007Cash paid for income taxes


1,717



4,270





See accompanying notes to consolidated financial statements.




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##### Table of Contents




GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    Basis of presentation.





The accompanying consolidated financial statements have been prepared in accordance with the instructions for
Form 10-Q. The consolidated financial statements should be read in conjunction with the audited financial statements included in the Companys 2001 Annual Report on Form 10-K.





The consolidated financial statements include the accounts of Gold Banc Corporation, Inc. and its subsidiary banks and companies, collectively referred to as the Company.
All significant intercompany balances and transactions have been eliminated.





The consolidated financial
statements as of June 30, 2002 and for the three and six months ended June 30, 2002 and 2001 are unaudited but include all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of
its financial position and results of its operations and its cash flows for those periods. The consolidated statements of earnings for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the
entire year.





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, 2002 and June 30, 2001 are shown below (in thousands):





For the Three Months
ended June 30

For the Six Months ended
June 302002

2001

2002

2001Weighted average common shares outstanding

33,696

35,488

33,715

36,239Stock options

225

48

156

40Weighted average common shares and common share equivalents outstanding

33,921

35,536

33,871

36,279




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







|3. |  | Intangible Assets and Goodwill
|-- |  | ------------------------------




The following table presents information about the Companys intangible assets which are being amortized in accordance with Statement of Financial Accounting Standards (SFAS) No. 142.





June 30, 2002

June 30, 2001Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization(In thousands)Amortized intangible assets:Core deposit premium

$
4,156

$
242

$


$
Total

$
4,156

$
242

$


$
Aggregate amortization expense for the six months ended




$
140




$
Estimated amortization expense for the years ending:2002

$
2772003

$
2772004

$
2772005

$
2772006

$
277





As required by SFAS 142, the Company discontinued recording
goodwill amortization effective January 1, 2002. The following tables compare results of operations as if no goodwill amortization had been recorded for the three and six months ended June 30, 2002 and June 30, 2001.





For the Three Months ended June 30

For the Six Months ended June 302002

2001

2002

2001(In thousands, except per share data)

(In thousands, except per share data)Reported net income:

$
7,112

$
6,077

$
13,119

$
12,047Add back goodwill amortization





530





1,060Adjusted net income

$
7,112

$
6,607

$
13,119

$
13,107Basic earnings per share:Reported net income

$
0.21

$
0.17

$
0.39

$
0.33Add back goodwill amortization





0.01





0.03Adjusted net income

$
0.21

$
0.18

$
0.39

$
0.36Diluted earnings per share:Reported net income

$
0.21

$
0.17

$
0.39

$
0.33Add back goodwill amortization





0.01





0.03Adjusted net income

$
0.21

$
0.18

$
0.39

$
0.36




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







4.    Comprehensive Income.





Comprehensive income was $11.9 million and $7.4 million for the three months ended June 30, 2002 and 2001, respectively. Comprehensive
income was $17.7 million and $13.9 million for the six months ended June 30, 2002 and June 30, 2001, 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, 2002, and June 30, 2001, the Company recorded reclassification adjustments of $1.8 million and $198,000 associated with gains included in net
income for the respective periods. During the six months ended June 30, 2002 and June 30, 2001, the Company recorded reclassification adjustments of $2.2 million and $825,000 associated with gains included in net income for the respective periods.





5.    Mergers, Acquisitions, Dispositions and Consolidations





Ott Financial Corporation.    On March 30, 2001, Gold Capital Management, Inc., the Companys wholly owned
subsidiary, acquired Ott Financial Corporation of Wichita, Kansas for approximately $2.7 million. Ott was the holding company for Davidson Securities, Inc. and J.O. Davidson and Associates, Inc., which specialized in public finance advisory and
underwriting services. At the time of the acquisition, the companies were all merged into Gold Capital Management. The acquisition was accounted for using the purchase method of accounting. The excess of cost over fair value of the underlying net
assets acquired was $1.5 million. Ott had total assets of approximately $1.3 million at the time of the acquisition.





Information Products, Inc.    On April 26, 2001, CompuNet Engineering, Inc., a wholly owned subsidiary of the Company, acquired the assets of Information Products, Inc. for approximately $1 million.
Information Products provides technology services, including LAN, WAN, product support, telecommunication line monitoring, hardware maintenance and systems design and installation across all industry sectors. The asset acquisition was accounted for
using the purchase method of accounting. The excess of cost over fair value of the underlying assets acquired was approximately $872,000.





North American Savings Bank.    On July 27, 2001, Gold Bank-Kansas purchased from North American Savings Bank, F.S.B., Grandview, Missouri, North Americans deposit base of approximately $51
million and physical assets at 8840 State Line Road, Leawood, Kansas. The excess of cost over fair value of the underlying assets acquired was approximately $4.2 million. Such amount has been recorded as other intangible assets and is being
amortized over ten years.





Merger of Provident Savings into Gold Bank-Kansas.    On
July 6, 2001, Provident Bank, F.S.B., a federal savings bank and our wholly-owned subsidiary, merged with and into Gold Bank-Kansas. As a result of the merger, Provident Banks two offices in St. Joseph, Missouri became branch offices of Gold
Bank-Kansas. In connection with the Provident merger, the REIT-related subsidiaries of Gold Bank-Kansas and Provident Bank were combined. Gold Bank-Kansas wholly-owned subsidiary, Gold IHC, Inc., a Nevada corporation, merged with and into
Provident Banks wholly-owned subsidiary, Gold IHC-I, LLC, a Delaware limited liability company. Also, Gold RE Holdings, Inc., a Nevada corporation and REIT subsidiary of Gold IHC, Inc., merged with and into Gold RE Holdings-I, LLC., a Delaware
limited liability company and REIT subsidiary of Gold IHC-I, LLC. As a result of these two REIT-related mergers, Gold IHC-I, LLC became a wholly-owned subsidiary of Gold Bank-Kansas, and Gold RE Holdings-I, LLC remained a subsidiary of Gold IHC-I,
LLC. Gold IHC-I, LLC and Gold RE Holding, LLC now conduct our REIT operations from offices in St. Joseph, Missouri.





Sales of Rural Branches.    On May 3, 2002, the Company sold four branches of Gold Bank-Kansas located in rural Kansas. Bank branches in Oberlin, Colby and Norcatur, with deposits of $24.7, $11.2, and $8.6
million, respectively, were sold to one purchaser.




10




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




The branch in Alma, with deposits of $22.2 million, was sold to a second purchaser. The Company recorded a gain in the second
quarter of 2002 of $2.4 million in connection with the sale of the four branches.





6.    Treasury Stock





In August 2001, the Company completed a common stock repurchase program whereby the Company acquired
1,839,000 shares of common stock, or approximately 5% of the shares outstanding as of March 7, 2001. In September 2001, the Company announced the approval of another common stock repurchase program whereby the Company was authorized to acquire up to
1,750,336 additional shares of the Companys common stock, or approximately 5% of the shares outstanding as of September 17, 2001. As of June 30, 2002, the Company had acquired 3,216,110 shares under these programs at prices ranging from $6.55
to $7.85 per share. On July 24, 2002, the Company terminated the share repurchase programs.





7.    Consolidation/Repositioning/Mortgage Subsidiary Closing Expense





At the beginning of 2001, the Company consolidated its nine Kansas subsidiary banks into a single Kansas-chartered bank. In the fourth quarter of 2001, the Company consolidated its three Oklahoma subsidiary banks into a single
Oklahoma-chartered bank. The plan for the consolidations was formed with the intention to reposition the Company to improve service to its customers, achieve higher profitability and enhance its visibility in each state.





The plan primarily involved exiting certain duplicate branch banking facilities, resulting in asset write-downs to estimated fair value,
eliminating duplicate back office functions, abandoning certain leases and reducing the number of full-time employees. Accordingly, the Company recognized repositioning expenses of approximately $4 million in the year ended December 31, 2000.
Details of the Kansas and Oklahoma repositioning accrual for the three and six months ended June 30, 2002 and June 30, 2001 are as follows (in thousands):





Activity for Quarter Ended June 30, 2002Accrual at March 31, 2002

Expense

Paid

Accrual at June 30, 2002Salaries, benefits and severance

$
70



$
5

$
65




11




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Activity for Quarter ended June 30, 2001Accrual at March 31, 2001

Expense

Paid

Accrual at June 30, 2001Salaries, benefits and severance

$
318

$


$
75

$
243Asset write-downs and lease abandonments


7





7


Other repositioning expenses


113





44


69$
438

$


$
126

$
312





Activity for Six Months ended June 30, 2002Accrual at December 31, 2001

Expense

Paid

Accrual at June 30, 2002Salaries, benefits and severance

$
177



$
112

$
65




12




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Activity for Six Months ended June 30, 2001Accrual at December 31, 2000

Expense

Paid

Accrual at June 30, 2001Salaries, benefits and severance

$
392

$


$
149

$
243Asset write-downs and lease abandonments


24





24


Other repositioning expenses


227





158


69$
643

$


$
331

$
312





During the fourth quarter of 2000, the Company announced it would
close its separate mortgage banking subsidiary, Gold Banc Mortgage, Inc. As a result of this decision, the Company recorded expenses of $19.8 million in 2000. Details of the Gold Banc Mortgage closing accrual for the three and six months ended June
30, 2002 and June 30, 2001 are as follows (in thousands):





Activity for Quarter ended June 30, 2002Accrual at March 31, 2002

Expense

Paid

Accrual at June 30, 2002Salaries, benefits and severance

$
22



$
16

$
6




13




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Activity for Quarter ended June 30, 2001Accrual at March 31, 2001

Expense


Paid

Accrual at June 30, 2001Salaries, benefits and severance

$
286

$



$
82

$
204Asset and goodwill write-downs and lease abandonments


135


(79
)


56


Other closing expenses


934


(398
)


536


$
1,355

$
(477
)

$
674

$
204





Activity for Six Months ended June 30, 2002Accrual at December 31, 2001

Expense

Paid

Accrual at June 30, 2002Salaries, benefits and severance

$
39



$
33

$
6




14




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Activity for Six Months ended June 30, 2001Accrual at Dec. 31, 2000

Expense


Paid

Accrual at June 30, 2001Salaries, benefits and severance

$
341

$



$
1 37

$
204Asset and goodwill write-downs and lease abandonments


253


(79
)


174


Other closing expenses

$
1,493


(398
)


1,095


$
2,087

$
(477
)

$
1,406

$
204





8.    Subsequent Events:





On July 18, 2002, the Company entered into a contract to acquire four branches, with approximately $144 million of deposits, from Encore
Bank. The branches, which are located in Johnson County, Kansas, will become branches of Gold Bank-Kansas. The Company expects the branch purchases to close in the third quarter of 2002.




15




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







9.    Legal proceedings.





Regional Holding Litigation





The following legal proceedings all relate to the Companys acquisition of Regional Holding Company, Inc. in 1999. The Company purchased all of the capital stock of Regional Holding from Brad D.
Ives, David W. Murrill and Robert E. McGannon on August 2, 1999, for a purchase price of approximately $13.2 million, pursuant to a Stock Purchase Agreement, dated July 1, 1999, between the Company, Regional Holding and Ives, Murrill and McGannon
(the Regional Acquisition).





The First Regional Arbitration.    The Company
prosecuted a claim against Ives, Murrill and McGannon, which was filed before the American Arbitration Association (AAA) in June 2000. The Company asserted a claim for breach of the representations and warranties made in the Stock
Purchase Agreement. Ives, Murrill and McGannon asserted a counterclaim for breach of certain promissory notes issued by the Company to them as part of the acquisition, seeking a principal amount of $4.08 million, plus interest. Ives, Murrill and
McGannon also counter-claimed for declaratory judgment related to the Companys set-off of its claim against the notes, and for fraud in connection with amendments to the notes, Ives and McGannons employment agreements and the Stock
Purchase Agreement.





The Company also gave Ives, Murrill and McGannon notice invoking an alternative dispute
resolution (ADR) provision of the Stock Purchase Agreement over the application of generally accepted accounting principles to the financial statements of Regional Holding. The accounting dispute affects the contract formula for
calculating the purchase price. The Company demanded that Ives, Murrill and McGannon join in submitting the dispute to Ernst & Young, LLP, as set forth in the Stock Purchase Agreement. Ives, Murrill and McGannon disputed the timeliness of the
demand, and asked the AAA Panel to declare that the Company had not timely invoked the procedure.





The Company
obtained an award in its favor after an arbitration hearing held July 16-24, 2001. A three-person AAA panel made an award in the Companys favor, canceling the $4.08 million promissory notes from it to Ives, Murrill and McGannon, and awarding
the Company additional damages of $489,000 against Ives, Murrill and McGannon. In addition, the AAA panel ruled in the Companys favor on all of Ives, Murrills and McGannons counter-claims. The AAA panel denied a request for
costs and fees, and denied a motion to reallocate or amend the award. As a result of the AAA panels ruling, the Company recorded the cancellation of the notes payable and the monetary award as a reduction of other expense in the third quarter
of 2001. With respect to the accounting dispute, the AAA panel ruled in the Companys favor, ordering the parties to submit the matter in accordance with the contract procedures. It has not yet been submitted to Ernst & Young, LLP for
decision.





Civil Court Challenges of First Arbitration Award.    On November 9, 2001,
Ives and Murrill filed a Petition to Vacate or Modify Arbitration Award in Jackson County, Missouri Circuit Court. On November 13, 2001, McGannon, who now is represented by separate counsel from Ives and Murrill, filed a virtually identical Petition
to Vacate or Modify Arbitration Award, also in Jackson County. The petitions sought to have the court set aside the AAA panels award on the grounds that the panel exceeded its authority and/or violated Ives, Murrills and
McGannons due process rights in making the award. The Company answered the petitions and asserted counterclaims on December 3, 2001. The Companys counterclaim sought confirmation of the arbitration award, interest on the award from
August 31, 2001 until the final judgment and its fees and costs incurred in defending this challenge. Ives and Murrill replied to the Companys counterclaim on December 10, 2001. McGannon filed his reply on December 28, 2001. The Company filed
motions for summary judgment on January 8, 2002. Ives and Murrill opposed the Companys motion and filed a cross motion for summary judgment on March 11, 2002. McGannon opposed the Companys motion and filed a cross motion for summary
judgment on March 21, 2002. In April 2002, the Company responded to these pleadings and participated in a hearing to (i) discuss the status of summary judgment briefing and (ii) schedule a tentative trial date in June 2002. On June 20, 2002, the
Circuit Court granted the Companys summary judgment motion and denied the summary judgment motions of Ives and Murrill. The court also confirmed the original arbitration award. The Circuit Court ruling became final on July 22, 2002. Ives and
Murrill have posted a cash bond, and filed their Notice of Appeal on July 26, 2002.





In mid-June 2002, the Company
reached a tentative settlement with Robert McGannon. In the settlement, Gold Banc reserves its right to pursue claims against Ives and Murrill.




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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Civil Fraud and Employment Claims
Suit.    Ives, Murrill and McGannon filed a civil case on September 5, 2000 against Gold Banc Mortgage, Inc., Michael Gullion and Jerry Bengtson (Defendants) in the Circuit Court of Jackson County, Missouri. As
subsequently amended, Ives, Murrill and McGannon in the Jackson County case allege three counts:





| |  |  | that (parallel to their fraud claim in the arbitration proceeding) in December 1999, Defendants fraudulently induced Ives, Murrill and McGannon to renegotiate
and amend their employment agreements and promissory notes, seeking damages in excess of $25,000 each plus punitive damages
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | that McGannon is entitled to declaratory judgment that his placement on administrative leave for a period of time during the arbitration was a constructive
termination under his employment agreement entitling him to certain rights
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | that Gold Banc Mortgage breached Ives employment agreement when it changed his termination to for cause in 2001 based on evidence acquired
subsequent to his original termination in 2000 without cause, allegedly entitling Ives to payment of employment payments and benefits he otherwise would have received
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Gold Banc Mortgage answered, denying the claims against it and asserting affirmative defenses. In light of obtaining confirmation of the
original arbitration award, the Company believes that Gold Banc Mortgages defenses to the fraud claim are very strong and that the plaintiffs fraud claim is without merit. Gold Banc Mortgage will file a motion for summary judgment on the
fraud claim. Because of his settlement, McGannon will be dismissing all of his claims with prejudice in this case. With regard to Ives employment claims in this case, discovery has begun. The Company believes Gold Banc Mortgages defense
to this claim to be strong.





Second Regional Arbitration.    The Company filed a second
arbitration claim against Ives, Murrill and McGannon before the American Arbitration Association on January 10, 2002. The Company has asserted:





| |  |  | a contractual claim against Ives, Murrill and McGannon for additional breaches of the representations and warranties made in the Stock Purchase Agreement
related to the acquisition of Regional Holding and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | an indemnification claim for litigation expenses and other specified damages incurred by it after the closing date of the acquisition of Regional Holding
related to acts, or omissions, that occurred prior to the closing date of the acquisition.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents



GOLD BANC CORPORATION, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







These breaches of representations and warranties and claims for
indemnification arose, or were discovered, after the First Arbitration was filed, and were not litigated or decided in the first arbitration. The Company seeks damages of approximately $616,594.25 and its attorneys fees. On February 8, 2002,
McGannon responded to the Companys claim with a general denial of the allegations. Ives and Murrill also responded on February 8, 2002 with a general denial of the allegations, a counterclaim alleging that the Company willfully breached the
Stock Purchase Agreement and its duties thereunder, and a prayer for a declaratory judgment and compensatory and punitive damages. The Company has responded with a denial of all Ivess and Murrills counterclaims. Pursuant to its tentative
settlement with McGannon, the Company will withdraw its claims against him in this arbitration. The Company expects to select arbitrators in the near future.





CUNA Trademark Lawsuit





The Company filed suit against the Credit Union National
Association, Inc. (CUNA) on July 26, 2001, in the United States District Court for the District of Kansas to defend its MORE THAN MONEY ® service mark. Suit was filed to protect the Companys rights against infringement by CUNA and other infringers. The lawsuit alleges CUNA has infringed the Companys service mark
MORE THAN MONEY by using the service mark WHERE PEOPLE ARE WORTH MORE THAN MONEY in its national brand campaign promoting credit unions throughout the country. The Complaint includes claims for (i) trademark infringement and unfair competition under
federal and common law, and (ii) trademark dilution under federal and state law. Several types of relief are requested in the suit, including entry of a permanent injunction prohibiting CUNA and credit unions from using the service mark WHERE PEOPLE
ARE WORTH MORE THAN MONEY, an order that CUNAs two registrations for its mark be cancelled, and money damages, including a sum to compensate the Company for corrective advertising. CUNA filed its Answer to the Complaint on September 17, 2001.
In March 2002, the Company participated in a court ordered mediation but the parties were unable to reach a resolution. The Company has agreed to revisit the possibility of settlement at a later date following additional discovery. Fact discovery
has now closed and expert witness reports on liability issues have been produced by both sides. CUNAs damages expert report is due August 7, 2002. CUNAs expert reports were due July 19, 2002. A summary judgment motion was filed by CUNA
and the Company filed its response on July 19, 2002. The matter has been set for a final pretrial conference in September 2002 and has been placed on the January 2003 trial docket of the presiding judge. The Company cannot predict with certainty the
outcome of this litigation.




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##### Table of Contents




MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION AND RESULTS OF OPERATIONS





The following financial review presents managements discussion and analysis of the consolidated financial condition and results of
operations of the Company. 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, 2002. This review should be read in
conjunction with the consolidated financial statements and related notes appearing elsewhere in this report as well as the Companys 2001 Annual Report on Form 10-K. Results of operations for the three- and six-month periods ended June 30, 2002
are not necessarily indicative of results to be attained for any other period.





Summary





Consolidated net income for the six months ended June 30, 2002 was $13.1 million; a $1.1 million increase over the $12.0 million for the
first six months of 2001. Net income for the three months ended June 30, 2002 was $7.1 million compared with $6.1 million for the three months ended June 30, 2001. Diluted earnings per share were $0.39 for the first six months of 2002 compared to
$0.33 per share for the first six months of 2001. Earnings per share were $0.21 for the quarter ended June 30, 2002 compared to $0.17 for the quarter ended June 30, 2001. The return on average assets and equity was 0.83% and 15.68%, respectively,
for the six months ended June 30, 2002 compared to 0.88% and 14.42%, respectively, for the six months ended June 30, 2001. The return on average assets and equity was 0.87% and 16.75%, respectively, for the three months ended June 30, 2002 compared
to 0.87% and 14.85%, respectively, for the three months ended June 30, 2001.





Results of Operations





Net Interest Income





Total interest income for the six months ended June 30, 2002 was $98.3 million compared to $104.1 million for the six months ended June 30, 2001 or a decrease of $5.8 million. This increase resulted from a $5.8 million
decrease in loan interest, a $1.7 million increase in investment security interest, and a $1.7 million decrease in other interest income. Total interest income for the three months ended June 30, 2002 was $50.3 million; an $813,000, or 1.6%,
decrease over the three months ended June 30, 2001. The decrease was the result of a $723,000 decline in loan interest income. Average loans increased to $2.3 billion for the three months ended June 30, 2002 compared to $1.9 billion for the three
months ended June 30, 2001 or a 16.9% increase. This increase in loan volume was also accompanied by an increase in net interest margin from 3.35% for the three months ended June 30, 2001 to 3.57% for the three months ended June 30, 2002. Average
earning assets were $2.9 billion for the six months ended June 30, 2002 compared with $2.5 billion for the first six months of 2001.





Total interest expense for the six months ended June 30, 2002 was $48.5 million compared to $60.3 million for the six months ended June 30, 2001. Total interest expense for the three months ended June 30, 2002 was $24.7
million; a $4.9 million, or 16.5%, decrease over the three months ended June 30, 2001. The decrease was the result of a $6.2 million decrease in interest on deposits and an $1.3 million increase in interest expense on other borrowings.




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##### Table of Contents

Net interest income was $49.7 million for the six months ended June 30, 2002 compared with $43.8 million for the six
months ended June 30, 2001. Net interest income was $25.6 million for the three months ended June 30, 2002, compared to $21.6 million for the same period in 2001; an increase of 18.9%. The Companys net interest margin increased from 3.46% for
the six months ended June 30, 2001 to 3.57% for the six months ended June 30, 2002. Net interest margin increased from 3.35% for the three months ended June 30, 2001 to 3.57% for the three months ended June 30, 2002. The increase in net interest
income and net interest margin was the result of a significant increase in loans during the periods and also of the repricing of bank deposits at lower interest rates. For the three months ended June 30, 2002, average interest bearing liabilities
decreased $77.1 million compared to a decrease of $82.8 million in average interest earning assets.





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 72% of the Companys total assets as of June 30, 2002. 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. Management maintains an allowance for
loan losses based on industry standards, managements experience, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various
assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans if their ultimate collectability is considered
questionable. Since certain lending activities involve greater risks, the percentage applied to specific loan types may vary.





The Company actively manages its past due and non-performing loans in each bank subsidiary in an effort to minimize credit losses, and monitors asset quality to maintain an adequate loan loss allowance. Although management believes
its allowance for loan losses is adequate for each bank and 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 conditions should worsen. Material additions to the allowance for loan losses would result in a
decrease of the Companys net income and capital.





The Company considers non-performing assets to include
non-accrual loans, other loans past due 90 days or more as to principal and interest (with the exception of those loans which in managements opinion are well collateralized or exhibit other characteristics suggesting they are collectible),
other real estate owned and repossessed assets. Total non-performing loans were $18.1 million and $23.0 million at June 30, 2002 and December 31, 2001, respectively. Total non-performing loans were 0.74% and 1.06% of gross loans at June 30, 2002 and
December 31, 2001, respectively. Total non-performing assets were $19.9 million and $27.5 million at June 30, 2002 and December 31, 2001, respectively. Total non-performing assets were 0.60% and 0.91% of total assets at June 30, 2002 and December
31, 2001, respectively.





The allowance for loan losses totaled $30.5 million and $26.1 million at June 30, 2002
and December 31, 2001, respectively, and represented 1.25% and 1.21% of total loans at each date. The provision for loan losses for the six months ended June 30, 2002 was $10.0 million compared to $4.3 million for the six months ended June 30,
2001. Net charge-offs for the six months ended June 30, 2002 were $5.6 million compared to $6.4 million for the six months ended June 30, 2001. Management has continued to review the loan portfolios of the banks, to increase the provision and to
charge-off those credits when collection is considered to be doubtful.




20




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##### Table of Contents




Other Income





Other income for the six months ended June 30, 2002 was $30.8 million compared to $19.9 million for the first six months of 2001. The increase of $10.9 million
resulted from an increase of $3.0 million in service fees, a $457,000 decrease in investment trading fees and commissions, an increase of $2.1 million in net securities gains, and a $5.8 million increase in sales from information technology
services.





For the three months ended June 30, 2002, other income was $16.9 million compared to $9.9 million for
the three months ended June 30, 2001. This equated to an increase of $7.0 million, or 70.7%. A significant change was an increase in sales from information technology sales, which increased from $2.5 million in the second quarter of 2001 to $4.8
million in the second quarter of 2002. This increase was the result of increased sales revenue derived from Information Products, Inc., which was acquired in the second quarter of 2001. The increase also resulted from an increase in service fees of
$1.7 million compared with the second quarter of 2001, and a $385,000 decline in investment trading fees and commissions. Net securities gains from related securities sales increased $2.5 million. This was the result of the liquidation of equity
securities for a before-tax gain of $2.9 million.





Other Expense





For the first six months of 2002, other expense was $52.3 million compared to $41.4 million for the same period of 2001. Salaries and
employee benefits increased from $22.1 million in the first six months of 2001 to $25.3 million in the first six months of 2002, or an increase of $3.2 million. Goodwill expense was $1.1 million during the first six months of 2001, which was reduced
to zero in 2002 due to the adoption of a new accounting standard. A $4.1 million increase resulted from the cost of sales component for hardware and software sold by CompuNet. This directly relates to the $5.8 million increase in information
technology sales described above in the Other Income section. The remaining expenses classified as other expense increased from $9.9 million to $14.5 million. This increase of $4.6 million was derived from a $1.2 million increase in software and
data processing expense, a $1.6 million increase in advertising and marketing costs, an $800,000 increase in legal costs, and an increase of $1.0 million in other miscellaneous expenses.





Other expense for the three months ended June 30, 2002 was $27.5 million, compared to $21.1 million for the three months ended June 30, 2001. This is an increase of $6.4
million, or 30.3%. Salaries and employee benefits increased $1.9 million, cost of sales for information technology sales increased $3.6 million, and other miscellaneous expenses increased $3.3 million in comparing the quarter ended June 30, 2002
with the quarter ended June 30, 2001.





Income Tax Expense





Income tax expense for the six months ended June 30, 2002 was $5.1 million compared to $5.8 million for the six months ended June 30,
2001. The effective tax rate was 28.1% and 32.5% for each period, respectively. The decrease in the effective tax rate from 32.5% to 28.1% was the result of non-taxable income from bank owned life insurance policies and the cessation of amortization
of non-deductible goodwill. Income tax expense for the three months ended June 30, 2002 and 2001 was $3.0 million and $2.5 million, respectively. The effective tax rate for each time period was 29.8% and 28.9%, respectively.





Financial Condition





From December 31, 2001 to June 30, 2002, total assets grew from $3.0 billion to $3.3 billion, respectively. Net loans increased from $2.1 billion to $2.4 billion, respectively. Deposits have increased from $2.2 billion to $2.4
billion, respectively. Investment securities were $602.2 million at June 30, 2002, compared to $588.8 million at December 31, 2001; an increase of $13.4 million or 2.3%. Total long and short-term borrowings increased $2.1 million, or 0.4%, from
December 31, 2001.




21




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##### Table of Contents




Contractual Obligations and Commercial Commitments





The following table presents the Companys contractual cash obligations, defined as operating lease obligations, principal
payments due on non-deposit obligations and guarantees with maturities in excess of one year, as of June 30, 2002 for the periods indicated.





Payments Due by PeriodContractual Cash Obligations

Total

One Year and Less

One to Three Years

Four to Five Years

More than Five Years(dollars in thousands)Operating leases

$
7,657

$
1,746

$
2,712

$
1,433

$
1,766FHLB advances (1)


412,887


46,000


13,946


40,830


312,111Subordinated debt (1)


81,876


1,734


3,468


3,468


73,206Trust preferred securities


278,782


7,321


14,642


14,642


242,177Total contractual obligations

$
781,202

$
56,801

$
34,768

$
60,373

$
629,260


---

|(1) |  | For floating interest rate obligations, based upon interest rate in effect on June 30, 2002.
|--- |  | --------------------------------------------------------------------------------------------




Liquidity and Capital Resources





Liquidity defines the ability of the Company and the Banks to generate funds to support asset growth, satisfy other disbursement needs, meet deposit withdrawals and other fund reductions, maintain
reserve requirements and otherwise operate on an ongoing basis. The immediate liquidity needs of the Banks are met primarily by Federal Funds sold, short-term investments, deposits and the generally predictable cash flow (primarily repayments) from
each Banks assets. Intermediate term liquidity is provided by the Banks investment portfolios. The Banks also have established a credit facility with the FHLB, under which they are eligible for short-term advances and long-term
borrowings secured by real estate loans or mortgage-related investments. The Companys liquidity needs and funding are provided through non-affiliated bank borrowings, cash dividends and tax payments from its subsidiary Banks. The Company has a
$25 million line of credit with a correspondent bank with $15 million in outstanding borrowings at June 30, 2002. Total loans increased $274 million compared to December 31, 2001 while total deposits increased $271 million compared to the same
period. Even with this increase in the balance sheet, the basic liquidity ratio for June 30, 2002 was 12.83%.





Cash and cash equivalents and investment securities totaled $692.5 million, or 20.8%, of total assets at June 30, 2002 compared to $662.6 million, or 22.0%, at December 31, 2001. Cash provided by operating activities for the six
months ended June 30, 2002 was $35.8 million, consisting primarily of net earnings and proceeds from the sale of loans. Cash used by investing activities was $305.3 million, consisting primarily of an increase in loans of $279.6 million and the
purchase of fixed assets of $15.6 million. Cash provided by financing activities was $286.0 million, consisting primarily of an increase in deposits of $271.2 million and of an increase in net borrowings of $18.1 million.





The Company and its subsidiaries actively monitor their compliance with regulatory capital requirements. The elements of capital adequacy
standards include strict definitions of core capital and total assets, which include off-balance sheet items such as commitments to extend credit. Under the risk-based capital method of capital measurement, the ratio computed is dependent on the
amount and composition of assets recorded on the balance sheet and the amount and composition of off-balance sheet items, in addition to the level of capital. Historically, the Banks have increased core capital through 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 10.0%, 6.0% and 5.0% respectively. The Companys total risk-based capital
ratio, tier 1 risk-based capital ratio and tier 1 leverage ratio at June 30, 2002 were 10.40%, 7.13% and 5.80%, respectively. These same ratios at December 31, 2001 were 11.41%, 7.85% and 6.27%, respectively. Total loans increased $274 million
compared to December 31, 2001 while total deposits increased $271 million compared to the same period. Even with this increase in the balance sheet, the companys ratios exceed the necessary levels to be considered well capitalized. 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, 2002, the subsidiary banks could pay $29.3
million in dividends to the holding company and still remain well capitalized. Management believes funds generated from the dividends from its subsidiaries and its existing line of credit will be sufficient to meet its current cash requirements.
However, if the Company continues at its current rate of internal growth, the Company will need to raise additional equity to remain well capitalized.





In August 2001, the Company completed a common stock repurchase program whereby the Company acquired 1,839,000 shares of common stock, or approximately
5%, of the shares outstanding as of March 7, 2001. In September 2001, the Company announced the approval of another common stock repurchase program whereby the Company was authorized to acquire up to 1,750,336 additional shares of the Companys
common stock, or approximately 5%, of the shares outstanding as of September 17, 2001. As of June 30, 2002, the Company had acquired 3,216,110 shares under these programs at prices ranging from $6.55 to $7.85 per share. On July 24, 2002, the Company
terminated the share repurchase program.





CompuNet Activities





CompuNet Engineering, Inc., which was acquired in March 1999, provides information technology, e-commerce services and networking
solutions for banks and other businesses. Under current Federal Reserve regulations, the data processing activities of a bank holding company and its subsidiaries must be done primarily for financial companies, and non-financial data processing
activities must be limited to 30% of the bank holding companys total consolidated annual data processing revenues. When the Company acquired CompuNet, the aggregate data processing activities of the Company and CompuNet complied with this 30%
limitation.





On December 21, 2000, the Federal Reserve published a proposed regulation that would permit a
financial holding company to generate up to 80% of its consolidated data processing revenue from non-financial data processing activities. The proposed regulation limits the investment of a financial holding company in such data processing
activities to 5% of the financial holding companys Tier 1 capital. The comment period on the proposed regulation expired on February 16, 2001. The Company has been advised that the Federal Reserve plans to publish a final regulation during the
second half of 2002.





In 2001, CompuNet acquired the assets of Information Products, Inc., which provides
technology services, including LAN, WAN, product support, telecommunication line monitoring, hardware, maintenance and systems design and installation across all industry sectors. This acquisition significantly increased the amount of
CompuNets non-financial data processing activities. For the year ended December 31, 2001 approximately 71% of CompuNets revenues were non-financial in nature, and thus not in compliance with the Federal Reserves current 30%
limitation.





If later this year the Federal Reserve promulgates a final data processing regulation that is
substantially similar to its proposed regulation, the Company believes that CompuNet will not be required to change or limit its data processing activities. If the Federal Reserve does not promulgate such a regulation, then the Company would be
required to take corrective action. This could be accomplished by converting CompuNet into a merchant banking investment. This could also be accomplished by increasing CompuNets revenues from financial data processing activities, decreasing
CompuNets revenues from non-financial data processing activities, selling part or all of CompuNets business to an unaffiliated third party, or other curative action. Although there is no regulation that sets forth the maximum time period
the Company would have to bring CompuNets data processing activities back into compliance, the Federal Reserve has generally required that impermissible activities of a bank holding company be terminated within a two year period of time.





If the Company decides to convert CompuNet into a merchant banking investment, the Company (or a wholly-owned
subsidiary of the Company) would be the sole stockholder of CompuNet, and CompuNet would be able to engage in an unrestricted amount of non-financial data processing activities. The Companys investment in CompuNet would be subject to certain
significant restrictions. The Company would be required to sell CompuNet within 10 years. Furthermore, the Company would generally be prohibited from routinely managing CompuNet and from having any of the Companys banks cross-market products
with CompuNet. The Company has discussed with the Federal Reserve the possible conversion of CompuNet into a merchant banking investment, and the Federal Reserve has not raised any objections to such a conversion.





The Federal Reserve might not promulgate a final data processing regulation that would permit CompuNet to continue to engage in its
current level of non-financial data processing activities. In the event that CompuNet is not converted into a merchant banking investment, the Federal Reserve would require the Company to reduce, restructure, partially divest or completely divest
the business activities of CompuNet, and the Companys non-interest income could be significantly reduced.




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##### Table of Contents




Accounting and Financial Reporting





Effective January 1, 2002, the Company adopted Statement of Accounting Standards No.142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. It also requires that intangible assets with estimatable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment. The Statement requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of January 1, 2002. To accomplish this, the Company
must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company has
identified its reporting units to be at the individual subsidiary level. The Statement allows until June 30, 2002 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second
step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of January 1, 2002. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied
fair value of the reporting unit goodwill. This second step is required to be completed as soon as possible, but no later than the end of 2002. Any transitional impairment loss must be recognized as the cumulative effect of a change in accounting
principle in the Companys 2002 statement of income.





The Company completed the first step in the
transitional goodwill impairment valuation, which was to compare the fair value of its reporting units with the carrying amount of the reporting units. Because the fair value of the reporting units exceeded the carrying value of the units, no
indication of reporting unit goodwill impairment exists. As a result, performance of the second step on the transitional impairment test described above was not necessary, and no impairment loss will be recognized as a cumulative effect of a change
in accounting principle in the Companys 2002 statement of income.





SFAS No. 144 Accounting for the
Impairment of Disposal of Long-Lived Assets was adopted by the Company on January 1, 2002. The Statement established a single accounting model for all long-lived assets to be disposed of by sale, which is to measure a long-lived asset
classified as held for sale at the lower of its carrying amount or fair value less cost to sell and to cease depreciation. The Statement also establishes criteria to determine when a long-lived asset is held for sale and provides additional guidance
on accounting for such specific circumstances. The adoption of the new Statement did not have a significant effect on earnings or the financial position of the Company.




23




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##### Table of Contents

Critical Accounting Policies





The Companys accounting policies are fundamental to understanding managements discussion and analysis of results of operations and financial condition. Many of
the Companys 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
Companys 2001 Annual Report on Form 10-K. Critical accounting policies are both important to the portrayal of the Companys 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. The Companys most critical accounting policy relates to the allowance for loan losses and involves significant management valuation
judgments. The Company performs periodic and systematic detailed reviews of its lending portfolio to assess overall collectability. The level of the allowance for loan losses reflects the Companys 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.





The Company makes various assumptions and judgments about the collectibility of its loan portfolio and provides an allowance for losses based on a number of factors. If the
Companys assumptions are wrong, its allowance for loan losses may not be sufficient to cover loan losses. The Company may have to increase the allowance in the future. Material additions to the Companys allowance for loan losses would
have a material adverse effect on its net earnings.





Forward-Looking Statements





This report, including 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 performance business of the Company and its subsidiaries, including, without limitation:





| |  |  | statements that are not historical in nature
| | - |  | --------------------------------------------




| |  |  | statements preceded by, followed by or that include the words believes, expects, may, will, should,
could, anticipates, estimates, intends or similar expressions
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Forward-looking statements are not guarantees of future performance or results. 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:





| |  |  | competitive pressures among financial services companies may increase significantly
| | - |  | -----------------------------------------------------------------------------------




| |  |  | costs or difficulties related to the integration of the business of the Company and its acquisition targets may be greater than expected
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------




| |  |  | changes in the interest rate environment may reduce interest margins
| | - |  | --------------------------------------------------------------------




| |  |  | general economic conditions, either nationally or in our markets, may be less favorable than expected
| | - |  | -----------------------------------------------------------------------------------------------------




| |  |  | legislative or regulatory changes may adversely affect the business in which the Company and its subsidiaries are engaged
| | - |  | -------------------------------------------------------------------------------------------------------------------------




| |  |  | technological changes may be more difficult or expensive than anticipated
| | - |  | -------------------------------------------------------------------------




| |  |  | changes may occur in the securities markets
| | - |  | -------------------------------------------




The Company has described under Factors That May Affect Future Results of Operations, Financial Condition or Business additional factors that could cause actual results to be materially
different from those described in the forward-looking statements. Other factors that the Company has not identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement which speaks
only as of the date it was made.




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##### Table of Contents

Factors That May Affect Future Results of Operations, Financial Condition or Business





The Company is identifying important risks and uncertainties that could affect the Companys results of operations, financial
condition or business and that could cause them to differ materially from the Companys historical results of operations, financial condition or business, or those contemplated by forward-looking statements made herein or elsewhere, by, or on
behalf of, the Company. Factors that could cause or contribute to such differences include, but are not limited to, those factors described below.





The Company may not be able to maintain its growth rate.





It may be difficult for the Company to maintain its rapid rate of growth. The rural market areas the Company now serves offer more limited opportunities for growth than the metropolitan markets the Company serves. The Company
believes future growth in its revenues and net earnings will depend primarily on its internal growth in the metropolitan markets where it is located. Other financial institutions in these metropolitan markets also compete intensely for assets and
deposits. This competition may adversely affect the Companys ability to profitably grow its asset and deposit base.





During the period from 1996 to 2000, the Company grew significantly through acquisitions. While the Company may supplement its internal growth through future acquisitions in metropolitan markets, primarily in the Midwest and the west
coast of Florida, there is great competition for such acquisition candidates. The Company may not be successful in identifying, or evaluating risks inherent in, any such acquisition candidates or be able to acquire such acquisition candidates on
terms the Company feels are favorable. In addition, the Company plans to open several new branches in the next twelve months. The increased operating expenses incurred in opening these branches may not be offset by increases in net interest income
and other income from these new branches.





The Companys objectives for earnings growth, return on equity and
return on assets have been achieved primarily through extensive growth in loans in Kansas and Florida. Satisfying these objectives in the future will require increasing amounts of capital to meet regulatory requirements. The Company may not be able
to obtain such capital in adequate amounts or on attractive terms.





The Companys allowance for loan
losses may not be adequate.





The Companys allowance for loan losses may not be adequate to cover actual
loan losses. As a lender, the Company is exposed to the risk that its customers will be unable to repay their loans according to the terms of the loans and that any collateral securing the payment of the customers loans may not be sufficient
to cover repayment. Credit losses are inherent in the lending business and could have a material adverse effect on the Companys operating results. Additionally, approximately 84.8% of the Companys loan portfolio on June 30, 2002
consisted of construction loans, agricultural loans, loans secured by commercial real estate, and commercial business loans. These loans generally involve a greater degree of risk of nonpayment or late payment than home equity loans or residential
mortgage loans and carry higher loan balances. The risk of loss will vary with general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and the quality and value of the collateral in
the case of collateralized loans, among other things. The Companys credit risk with respect to its real estate and construction loan portfolio relates principally to the general creditworthiness of individuals and the value of real estate
serving as security for the repayment of such loans. The Companys credit risk with respect to its commercial and consumer installment loan portfolio relates principally to the general creditworthiness of businesses and individuals within the
Companys local markets. The Companys credit risk with respect to its agricultural loan portfolio relates principally to commodity prices and weather patterns.




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##### Table of Contents

As the Company has completed numerous acquisitions from 1996 through 2000 that significantly enhanced its growth, a
significant portion of the Companys existing loan portfolio was not originally underwritten by the Company but was added through these acquisitions. While the Company had the opportunity to review the loan portfolios of the banks it acquired
before completing the transactions and has conformed the credit and underwriting policies and procedures of these banks to those of the Company following the acquisitions, these loans may not have undergone the same level of rigorous analysis and
review at inception as loans that the Company originates, and may not have the level and quality of supporting documentation in the loan files as the Companys policies require. Therefore, these acquired loans are subject to greater risk than
if the Company had originally underwritten these loans itself.





The Company makes various assumptions and
judgments about the collectibility of its loan portfolio and provides an allowance for losses based on a number of factors. If the Companys assumptions are wrong, its allowance for loan losses may not be sufficient to cover loan losses. The
Company may have to increase the allowance in the future. Material additions to the Companys allowance for loan losses would have a material adverse effect on its net earnings.





Changes in interest rates could adversely affect profitability.





The Company may be unable to manage interest rate risk that could reduce its net interest income. Like other financial institutions, the Companys results of operations are impacted principally by
net interest income, which is the difference between interest earned on loans and investments and interest expense paid on deposits and other borrowings. The Company cannot predict or control changes in interest rates. Regional and local economic
conditions and the policies of regulatory authorities, including monetary policies of the Federal Reserve, affect interest income and interest expense. Interest rate cuts by the Federal Reserve throughout 2001 have generally reduced the
Companys net interest income. While the Company continually takes measures intended to manage the risks from changes in market interest rates, changes in interest rates can still have a material adverse effect on its profitability.





Funding the Companys substantial cash requirements with dividends from the Companys bank
subsidiaries will reduce the capital levels of the banks and thus their ability to grow.





The Company is a
separate legal entity from its subsidiaries and does not have significant operations of its own. The Company depends primarily on dividends it receives from its subsidiaries, which may be limited by statute and regulations, and its cash and liquid
investments, to pay dividends on the Companys common stock and to pay its operating expenses. In addition, the Company currently has an aggregate outstanding amount of $111.7 million in subordinated debt and trust preferred securities, as
compared to total equity of $173.8 million outstanding. As of June 30, 2002, the Companys annual interest payments due on these borrowings were approximately $9.3 million. The Company is also dependent on dividends from its bank subsidiaries
to service these borrowings, and ultimately for principal repayment at maturity, as well as to service the Companys line of credit.





Even if the Companys subsidiaries are able to generate sufficient earnings to pay dividends to it, the boards of directors of the subsidiaries may decide to retain a greater portion of their earnings to maintain
existing capital or achieve additional capital necessary in light of the financial condition, asset quality or regulatory requirements of the subsidiaries or other business considerations. The extent to which the Companys bank subsidiaries pay
it a significant portion of their retained earnings as dividends to fund the Companys substantial cash requirements may also reduce the ability of the bank subsidiaries to grow while maintaining regulatory capital ratios at well
capitalized standards set by federal regulators.




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##### Table of Contents




Loss of key personnel could have an adverse effect on the Companys
operations.





The loss of certain key personnel could adversely affect the Companys operations. The
Companys success depends in large part on the retention of a limited number of key persons, including: Michael W. Gullion, the Companys Chairman and Chief Executive Officer; Malcolm M. Aslin, the Companys President and Chief
Operating Officer; Rick J. Tremblay, the Companys Executive Vice President and Chief Financial Officer; and John Price, the Companys Executive Vice President and Chief Credit Officer. The Company will likely undergo a difficult
transition period if it loses the services of any or all of these individuals. In recognition of this risk, the Company owns, and is the beneficiary of, insurance policies on the lives of these key employees and the Company has entered into
employment agreements with Messrs. Gullion and Aslin.





The Company also places great value on the experience of
the presidents of its subsidiary banks and the community bank presidents in each of the Companys markets and on their relationships with the communities they serve. The loss of these key persons could negatively impact the affected banking
locations. The Company may not be able to retain its current key personnel or attract additional qualified key persons as needed.





Local economic conditions could adversely affect the Companys operations.





Changes in
the local economic conditions could adversely affect the Companys loan portfolio and results of operations. The Companys success depends to a certain extent upon the general economic conditions of the local markets that it serves. Unlike
larger banks that are more geographically diversified, the Company provides banking and financial services to customers in those markets in Kansas, Oklahoma, Missouri and Florida, including a number of rural markets, where its subsidiary banks
operate or are expected to operate. The Companys commercial, agricultural, real estate and construction loans, and the ability of the borrowers to repay these loans and the value of the collateral securing these loans, are impacted by the
local economic conditions. Favorable economic conditions may not continue in such markets.





Technological
change may impair the Companys competitiveness.





The Company cannot predict how changes in technology
will impact its business. The financial services market, including banking services, is increasingly affected by advances in technology including developments in: telecommunications; data processing; automation; Internet-based banking; telebanking;
and debit cards and so-called smart cards. The Companys ability to compete successfully in the future will depend on whether it can anticipate and respond to technological changes. To develop these and other new technologies, the
Company will likely have to make additional capital investments, and its current systems implementation and transition efforts may be unsuccessful. Although the Company continually invests in new technology, it may not have sufficient resources or
access to the necessary proprietary technology to remain competitive in the future.





The banking business is
highly competitive.





The Company operates in a competitive environment. In the metropolitan and suburban areas
in which the Company competes, other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms and other financial intermediaries offer similar
services. The Company also faces competition in its rural markets. Many of these competitors have substantially greater resources and lending limits and may offer certain services the Companys subsidiary banks and businesses do not currently
provide. In addition, some of the non-bank competitors are not subject to the same extensive regulations that govern the Companys subsidiary banks and businesses. The Companys profitability depends upon the ability of its subsidiaries to
compete in its primary market areas.




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##### Table of Contents




Effects of regulatory changes cannot be predicted.





The Company is subject to extensive regulation. The banking industry is heavily regulated under both federal and state law.
These regulations are primarily intended to protect depositors and the Federal Deposit Insurance Corporation, not the Companys creditors or stockholders. The Companys non-bank subsidiaries are also subject to the supervision of the
Federal Reserve Board, in addition to other regulatory and self-regulatory agencies including the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and state securities and insurance regulators. Regulations
affecting banks and financial services businesses are undergoing continuous change, and the Company cannot predict the ultimate effect of such changes. Regulations and laws may be modified at any time, and new legislation may be enacted that affects
the Company, its subsidiary banks or its non-bank subsidiaries. Such modifications or new laws could adversely affect the Company.





The Companys ability to pay dividends on its common stock is limited by the ability of the Companys subsidiary banks to pay dividends under applicable law and by contracts relating to the Companys trust
preferred securities.





The Companys ability to pay dividends on its common stock largely depends on the
Companys receipt of dividends from its subsidiary banks. The amount of dividends that the Companys subsidiary banks may pay to it is limited by federal and state banking laws and regulations. As a financial holding company, the
Companys subsidiary banks are required to maintain capital sufficient to meet the well capitalized standard set by the regulators and will be able to pay dividends to the Company only so long as their capital continues to exceed
these levels. The Company or its banks may decide to limit the payment of dividends even when the Company or the banks have the legal ability to pay them in order to retain earnings for use in the Companys or its banks business. Under
contracts relating to the Companys trust preferred securities, it is prohibited from paying dividends on its common stock if it has not made required payments on, or has elected to defer payments of interest on, the junior subordinated
debentures that support the Companys trust preferred securities or if an event of default has occurred and is continuing with respect to such debentures. Substantially similar contractual provisions related to the trust preferred securities
for American Bank-Florida limit the payment of dividends by the Companys Florida intermediate holding company.





The Companys shareholder rights plan and provisions in the Companys articles of incorporation and its by-laws may delay or prevent an acquisition of the Company by a third party.





The Companys board of directors has implemented a shareholder rights plan. The rights, which are attached to the Companys
shares and trade together with its common stock, have certain anti-takeover effects. The plan may discourage or make it more difficult for another party to complete a merger or tender offer for the Companys shares without negotiating with its
board of directors or to launch a proxy contest or to acquire control of a larger block of the Companys shares. If triggered, the rights will cause substantial dilution to a person or group that attempts to acquire the Company without approval
of its board of directors, and under certain circumstances, the rights beneficially owned by the person or group may become void. In addition, the Companys executive officers may be more likely to retain their positions with the Company as a
result of the plan, even if their removal would be beneficial to shareholders generally.





The Companys
articles of incorporation and its bylaws contain provisions, including a staggered board and advance notice of stockholder proposals, that make it more difficult for a third party to gain control or acquire the Company without the consent of its
board of directors. These provisions also could discourage proxy contests and may make it more difficult for dissident shareholders to elect representatives as directors and take other corporate actions. These provisions of the Companys
governing documents may also have the effect of delaying, deferring or preventing a transaction or a change in control that might be in the best interest of the Companys shareholders.




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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 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, 2002,
in the event of a sudden and sustained increase in prevailing market rates, the Companys net interest income would be expected to increase, while a decrease in rates would indicate a decrease in net interest income.





Changes in Interest Rates

Net Interest Income

Actual Change


Percent Change Actual200 basis point rise

$
106,607,000

$
2,868,000


2.76
%100 basis point rise

$
105,570,000

$
1,831,000


1.77
%Base Rate Scenario

$
103,739,000





100 basis point decline

$
96,486,000

$
(7,253,000
)

(6.99
%)200 basis point decline

$
93,687,000

$
(10,052,000
)

(9.69
%)




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##### Table of Contents




PART II





OTHER INFORMATION





Item
1:LEGAL PROCEEDINGS





Regional Holding Litigation





The following legal proceedings all relate to the Companys acquisition of Regional Holding Company, Inc. in 1999. The Company
purchased all of the capital stock of Regional Holding from Brad D. Ives, David W. Murrill and Robert E. McGannon on August 2, 1999, for a purchase price of approximately $13.2 million, pursuant to a Stock Purchase Agreement, dated July 1, 1999,
between the Company, Regional Holding and Ives, Murrill and McGannon (the Regional Acquisition).





The First Regional Arbitration.The Company prosecuted a claim against Ives, Murrill and McGannon, which was filed before the American Arbitration Association (AAA) in June 2000. The Company
asserted a claim for breach of the representations and warranties made in the Stock Purchase Agreement. Ives, Murrill and McGannon asserted a counterclaim for breach of certain promissory notes issued by the Company to them as part of the
acquisition, seeking a principal amount of $4.08 million, plus interest. Ives, Murrill and McGannon also counter-claimed for declaratory judgment related to the Companys set-off of its claim against the notes, and for fraud in connection with
amendments to the notes, Ives and McGannons employment agreements and the Stock Purchase Agreement.





The Company also gave Ives, Murrill and McGannon notice invoking an alternative dispute resolution (ADR) provision of the Stock Purchase Agreement over the application of generally accepted accounting principles to the
financial statements of Regional Holding. The accounting dispute affects the contract formula for calculating the purchase price. The Company demanded that Ives, Murrill and McGannon join in submitting the dispute to Ernst & Young, LLP, as set
forth in the Stock Purchase Agreement. Ives, Murrill and McGannon disputed the timeliness of the demand, and asked the AAA Panel to declare that the Company had not timely invoked the procedure.





The Company obtained an award in its favor after an arbitration hearing held July 16-24, 2001. A three-person AAA panel made an award in the Companys favor,
canceling the $4.08 million promissory notes from it to Ives, Murrill and McGannon, and awarding the Company additional damages of $489,000 against Ives, Murrill and McGannon. In addition, the AAA panel ruled in the Companys favor on all of
Ives, Murrills and McGannons counter-claims. The AAA panel denied a request for costs and fees, and denied a motion to reallocate or amend the award. As a result of the AAA panels ruling, the Company recorded the cancellation
of the notes payable and the monetary award as a reduction of other expense in the third quarter of 2001. With respect to the accounting dispute, the AAA panel ruled in the Companys favor, ordering the parties to submit the matter in
accordance with the contract procedures. It has not yet been submitted to Ernst & Young, LLP for decision.





Civil Court Challenges of First Arbitration Award.    On November 9, 2001, Ives and Murrill filed a Petition to Vacate or Modify Arbitration Award in Jackson County, Missouri Circuit Court. On November 13,
2001, McGannon, who now is represented by separate counsel from Ives and Murrill, filed a virtually identical Petition to Vacate or Modify Arbitration Award, also in Jackson County. The petitions sought to have the court set aside the AAA
panels award on the grounds that the panel exceeded its authority and/or violated Ives, Murrills and McGannons due process rights in making the award. The Company answered the petitions and asserted counterclaims on December
3, 2001. The Companys counterclaim sought confirmation of the arbitration award, interest on the award from August 31, 2001 until the final judgment and its fees and costs incurred in defending this challenge. Ives and Murrill replied to the
Companys counterclaim on December 10, 2001. McGannon filed his reply on December 28, 2001. The Company filed motions for summary judgment on January 8, 2002. Ives and Murrill opposed the Companys motion and filed a cross motion for
summary judgment on March 11, 2002. McGannon opposed the Companys motion and filed a cross motion for summary judgment on March 21, 2002. In April 2002, the Company responded to these pleadings and participated in a hearing to (i) discuss the
status of summary judgment briefing and (ii) schedule a tentative trial date in June 2002. On June 20, 2002, the Circuit Court granted the Companys summary judgment motion and denied the summary judgment motions of Ives and Murrill. The court
also confirmed the original arbitration award. The Circuit Court ruling became final on July 22, 2002. Ives and Murrill have posted a cash bond, and filed their Notice of Appeal on July 26, 2002.





In mid-June 2002, the Company reached a tentative settlement with Robert McGannon. In the settlement, Gold Banc reserves its right to pursue claims against Ives and
Murrill.




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Civil Fraud and Employment Claims Suit.    Ives,
Murrill and McGannon filed a civil case on September 5, 2000 against Gold Banc Mortgage, Inc., Michael Gullion and Jerry Bengtson (Defendants) in the Circuit Court of Jackson County, Missouri. As subsequently amended, Ives, Murrill and
McGannon in the Jackson County case allege three counts:





| |  |  | that (parallel to their fraud claim in the arbitration proceeding) in December 1999, Defendants fraudulently induced Ives, Murrill and McGannon to renegotiate
and amend their employment agreements and promissory notes, seeking damages in excess of $25,000 each plus punitive damages
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | that McGannon is entitled to declaratory judgment that his placement on administrative leave for a period of time during the arbitration was a constructive
termination under his employment agreement entitling him to certain rights
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | that Gold Banc Mortgage breached Ives employment agreement when it changed his termination to for cause in 2001 based on evidence acquired
subsequent to his original termination in 2000 without cause, allegedly entitling Ives to payment of employment payments and benefits he otherwise would have received
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Gold Banc Mortgage answered, denying the claims against it and asserting affirmative defenses. In light of obtaining confirmation of the
original arbitration award, the Company believes that Gold Banc Mortgages defenses to the fraud claim are very strong and that the plaintiffs fraud claim is without merit. Gold Banc Mortgage will file a motion for summary judgment on the
fraud claim. Because of his settlement, McGannon will be dismissing all of his claims with prejudice in this case. With regard to Ives employment claims in this case, discovery has begun. The Company believes Gold Banc Mortgages defense
to this claim to be strong.





Second Regional Arbitration.    The Company filed a second
arbitration claim against Ives, Murrill and McGannon before the American Arbitration Association on January 10, 2002. The Company has asserted:





| |  |  | a contractual claim against Ives, Murrill and McGannon for additional breaches of the representations and warranties made in the Stock Purchase Agreement
related to the acquisition of Regional Holding and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | an indemnification claim for litigation expenses and other specified damages incurred by it after the closing date of the acquisition of Regional Holding
related to acts, or omissions, that occurred prior to the closing date of the acquisition.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




These breaches of representations and warranties and claims for indemnification arose, or were discovered, after the First Arbitration was filed, and were not litigated or decided in the first arbitration. The Company seeks damages
of approximately $616,594.25 and its attorneys fees. On February 8, 2002, McGannon responded to the Companys claim with a general denial of the allegations. Ives and Murrill also responded on February 8, 2002 with a general denial of the
allegations, a counterclaim alleging that the Company willfully breached the Stock Purchase Agreement and its duties thereunder, and a prayer for a declaratory judgment and compensatory and punitive damages. The Company has responded with a denial
of all Ivess and Murrills counterclaims. Pursuant to its tentative settlement with McGannon, the Company will withdraw its claims against him in this arbitration. The Company expects to select arbitrators in the near future.




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CUNA Trademark Lawsuit





The Company filed suit against the Credit Union National Association, Inc. (CUNA) on July 26, 2001, in the United States District Court for the District of
Kansas to defend its MORE THAN MONEY ® service mark. Suit was filed to protect the Companys
rights against infringement by CUNA and other infringers. The lawsuit alleges CUNA has infringed the Companys service mark MORE THAN MONEY by using the service mark WHERE PEOPLE ARE WORTH MORE THAN MONEY in its national brand campaign
promoting credit unions throughout the country. The Complaint includes claims for (i) trademark infringement and unfair competition under federal and common law, and (ii) trademark dilution under federal and state law. Several types of relief are
requested in the suit, including entry of a permanent injunction prohibiting CUNA and credit unions from using the service mark WHERE PEOPLE ARE WORTH MORE THAN MONEY, an order that CUNAs two registrations for its mark be cancelled, and money
damages, including a sum to compensate the Company for corrective advertising. CUNA filed its Answer to the Complaint on September 17, 2001. In March 2002, the Company participated in a court ordered mediation but the parties were unable to reach a
resolution. The Company has agreed to revisit the possibility of settlement at a later date following additional discovery. Fact discovery has now closed and expert witness reports on liability issues have been produced by both sides. CUNAs
damages expert report is due August 7, 2002. CUNAs expert reports were due July 19, 2002. A summary judgment motion was filed by CUNA and the Company filed its response on July 19, 2002. The matter has been set for a final pretrial conference
in September 2002 and has been placed on the January 2003 trial docket of the presiding judge. The Company cannot predict with certainty the outcome of this litigation.





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





None





ITEM 5:OTHER INFORMATION




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None





ITEM 6:EXHIBITS AND REPORTS ON FORM 8-K





(a)  Exhibits Required to be
Filed by Item 601 of Regulation S-K





3.4

Amendment to Amended and Restated By-laws of Gold Banc Corporation, Inc. adopted by the Board of Directors on April
24, 200210.36

Amended and Restated Loan Agreement, dated as of December 1, 1998, between Gold Banc Corporation, Inc. and LaSalle
National Bank10.37

First Amendment to Amended and Restated Loan Agreement, dated as of April 26, 1999, between Gold Banc Corporation,
Inc. and LaSalle National Bank10.38

Second Amendment to Amended and Restated Loan Agreement, dated as of May 1, 2000, between Gold Banc Corporation, Inc.
and LaSalle Bank National Association10.39

Third Amendment to Amended and Restated Loan Agreement, dated as of July 1, 2000, between Gold Banc Corporation, Inc.
and LaSalle Bank National Association10.40

Fourth Amendment to Amended and Restated Loan Agreement, dated as of January 23, 2001, between Gold Banc Corporation,
Inc. and LaSalle Bank National Association10.41

Fifth Amendment to Amended and Restated Loan Agreement, dated as of July 1, 2001, between Gold Banc Corporation, Inc.
and LaSalle Bank National Association10.42

Sixth Amendment to Amended and Restated Loan Agreement, dated as of September 28, 2001, between Gold Banc
Corporation, Inc. and LaSalle Bank National Association10.43

Seventh Amendment to Amended and Restated Loan Agreement, dated as of July 1, 2002, between Gold Banc Corporation,
Inc. and LaSalle Bank National Association10.44

Replacement Revolving Note, dated as of July 1, 2002, in favor of LaSalle Bank National Association10.45

Amended and Restated Third Party Pledge Agreement, dated as of June 1, 2002, between GBC Kansas, Inc. and LaSalle
Bank National Association





(b)  REPORTS ON FORM 8-K





The Company filed the following Current Report on Form 8-K during the second quarter of 2002:





(1)  Form 8-K, dated June 17, 2002, filed with the Securities and Exchange Commission on June 19, 2002,
reporting under Item 5.




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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.
TREMBLAYRick J. Tremblay Senior Vice
President and Chief Financial Officer





Date: August 13, 2002





(Authorized officer and principal financial officer of the registrant)




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