<PAGE> 1
FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-76163
1,000,000 SHARES
[TEAM FINANCIAL, INC. LOGO]
COMMON STOCK
-------------------------
This is our initial public offering of shares of common stock. Of the 1,000,000
shares offered, Team is offering 700,000 shares and 300,000 shares are being
offered by a selling shareholder, Team's employee stock ownership plan. Team
will not receive any proceeds from shares sold by the selling shareholder.
The common stock has been approved for listing on the Nasdaq National Market(R)
under the symbol TFIN.
INVESTING IN THE SHARES INVOLVES RISKS. PLEASE REFER TO "RISK FACTORS" BEGINNING
ON PAGE 4.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS TO TEAM SHAREHOLDER
----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Per Share............................. $11.25 $0.7875 $10.4625 $10.4625
Total................................. $11,250,000 $787,500 $7,323,750 $3,138,750
</TABLE>
This is a firm commitment underwriting. Team has granted the underwriters a
30-day option to purchase up to 150,000 additional shares on the same terms as
above to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
Howe Barnes Investments, Inc., on behalf of the underwriters, expects to deliver
the shares on or about June 25, 1999.
-------------------------
HOWE BARNES INVESTMENTS, INC.
June 21, 1999
<PAGE> 2
[TEAM LOGO]
[MAP]
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PROSPECTUS SUMMARY
This summary provides an overview of selected information contained
elsewhere in this prospectus and does not contain all the information you should
consider. Therefore, you should also read the more detailed information set
forth in this prospectus and in our financial statements appearing elsewhere in
this prospectus. Unless otherwise indicated, all information in this prospectus
gives effect to the five-for-one stock split of our common stock made in
December 1998 and assumes that the underwriters' over-allotment option is not
exercised.
TEAM
Team Financial, Inc., a multi-bank holding company, offers full service
community banking through 15 banking locations, seven in the Kansas City area,
three in southeastern Kansas, two in western Missouri and three in the Omaha,
Nebraska area. Team's growth strategy is focused on a combination of
acquisitions, establishing new branches and internal growth.
Team is majority owned by its employee stock ownership plan or ESOP. Team
was formed in 1986 by the purchase of a one-bank holding company by certain of
its executive officers and the ESOP. A majority of the funding of the purchase
was obtained through ESOP borrowings which were guaranteed by Team. After giving
effect to this offering, including the sale of ESOP-owned shares, the ESOP will
continue to hold 34.7% of Team's common stock.
Team has grown dramatically over recent years, from assets of $237.8
million as of December 31, 1994, to $434.7 million as of March 31, 1999. Growth
was achieved primarily through purchases of branches of large banks and through
an acquisition of a community bank. Additional asset growth occurred through
internal growth at existing banks as well as starting three new branches. During
this period of asset growth and corresponding revenue increases, net income has
remained level, as Team has absorbed the costs of its acquisitions and
expansion. Team's strategy takes into account, and its experience is, that it
takes up to 18 months to realize meaningful net income improvements from
acquisitions and expansion.
Team's principal executive office is located at 8 West Peoria, Suite 200,
Paola, Kansas, and its telephone number is (913) 294-9667.
THE OFFERING
Common stock offered....... 700,000 shares by Team
300,000 shares by Team's ESOP as selling
shareholder
---------
1,000,000 total shares
=========
Common stock to be
outstanding after the
offering................. 3,701,803 based on the number of shares outstanding
as of the date of this prospectus
Nasdaq National Market(R)
symbol................... TFIN
Use of Proceeds............ Net proceeds to Team will be used to repay $6.0
million of debt and to contribute $1.5 million as
capital to a subsidiary bank. The selling
shareholder currently intends to use $1.0 million
of its proceeds to pay debt guaranteed by Team.
This will reduce Team's liabilities and increase
its stockholders' equity by $1.0 million. See
"Capitalization."
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RISK FACTORS
You should carefully read the following risk factors and other sections of
this prospectus before purchasing any shares.
TEAM'S GROWTH STRATEGY INVOLVES OPERATING AND ACQUISITION RISKS THAT MAY
NEGATIVELY IMPACT ITS PROFITS.
Team faces risks in its growth strategy, including the risks that it will
be unable to expand its business through the acquisition of other financial
institutions or bank branches or by internal growth, including the opening of
new branch offices. Team's ability to grow profitably through the opening of new
branches involves the risks that the growth depends primarily on Team
identifying profitable or growing markets and acquiring or establishing branch
locations in those markets at reasonable costs. In addition, Team must attract
the necessary deposits and locate sound loans in those markets.
Acquiring other financial institutions or bank branches involves these same
risks, as well as additional risks, including:
- adverse change in the results of operations of the acquired entities;
- unforeseen liabilities or asset quality problems of the acquired
entities;
- greater than anticipated costs of integrating acquisitions;
- adverse personnel relations;
- loss of customers; and
- deterioration of local economic conditions.
The risks discussed above may inhibit or restrict Team's strategy to grow
through acquisition and branch expansion, negatively impact Team's revenue
growth and ultimately reduce its profits.
IF TEAM IS UNABLE TO SUCCESSFULLY INTEGRATE ACQUISITIONS, ITS EARNINGS COULD
DECREASE.
In connection with its acquisitions of banks or bank branches, Team faces
risks in integrating and managing the businesses which may be acquired. Team has
a history of growth through acquisitions and plans to continue this strategy.
See "Business -- Overview." To integrate an acquisition operationally, Team
must:
- centralize and standardize policies, procedures, practices and processes;
- combine employee benefit plans;
- implement a unified investment policy and adjust the combined investment
portfolio to comply with the policy;
- implement a unified loan policy and confirm lending authority;
- implement a standard loan management system; and
- implement a loan loss reserve policy.
INTEGRATING ACQUISITIONS MAY DETRACT ATTENTION FROM DAY-TO-DAY BUSINESS OF TEAM
AND MAY RESULT IN UNEXPECTED COSTS TO TEAM.
Once an acquired business is integrated, the future prospects of Team will
be subject to a number of risks, including, among others:
- its ability to compete effectively in new market areas;
- its successful retention of earning assets, including loans acquired in
acquisitions;
- its ability to generate new earning assets;
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- its ability to attract deposits;
- its ability to achieve cost savings. Historically, Team has not
implemented wholesale cost cutting after acquisitions, preferring to
adjust operational costs on an ongoing basis in order to preserve market
share and each acquired entity's standing in its community; and
- its ability to attract and retain qualified management and other
appropriate personnel.
A failure to manage these factors may have a material adverse effect on the
financial condition and results of operations of Team.
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR INTERNAL GROWTH STRATEGY DUE TO
NUMEROUS FACTORS WHICH AFFECT EARNINGS.
Team intends to continue pursuing an internal growth strategy, the success
of which is subject to Team's ability to generate an increasing level of loans
and deposits at acceptable risk levels without corresponding increases in
non-interest expenses. There can be no assurance that Team will be successful in
continuing its internal growth strategies due to delays and other impediments
resulting from regulatory oversight, lack of qualified personnel, scarcity of
branch sites or deficient site selection of bank branches. In addition, the
success of Team's internal growth strategy will depend on maintaining sufficient
regulatory capital levels and on continued favorable economic conditions in
Team's primary market areas.
WE FACE SIGNIFICANT COMPETITION WHICH MAY LIMIT OUR ABILITY TO GROW.
A primary risk relating to Team's ability to achieve internal growth is
competition. The banking business in Team's operating areas is highly
competitive. Team competes for loans and deposits with other local, regional and
national commercial banks, savings banks, savings and loan associations, finance
companies, money market funds, brokerage houses, credit unions and nonfinancial
institutions, many of which have substantially greater financial resources than
Team. In addition, interstate banking is permitted in Kansas, Missouri and to a
lesser extent in Nebraska. As a result, management believes that Team may
experience significant competition in its market areas that may negatively
impact its ability to achieve growth.
TEAM'S STOCK PRICE COULD FLUCTUATE SIGNIFICANTLY.
The market price of Team's common stock could fluctuate significantly due
to variations in quarterly and yearly results of operations, general trends in
the banking industry and other unknown factors. Additionally, there have
historically been price and volume fluctuations in the stock market that often
have been unrelated or disproportionate to the operating performance of affected
companies. These broad fluctuations might adversely affect the market price of
Team's common stock. The Nasdaq National Market(R) has approved Team's common
stock for listing under the trading symbol "TFIN." However, there can be no
assurance that you will be able to sell your common stock at any particular
price.
IN THE EVENT A PUBLIC MARKET FOR OUR COMMON STOCK TERMINATES, WE MAY BE EXPOSED
TO AN ESOP STOCK REPURCHASE LIABILITY WHICH WOULD REDUCE STOCKHOLDERS' EQUITY.
If a public market for Team common stock were to no longer exist, Team may
be exposed to a liability to repurchase shares of its common stock held by ESOP
participants. Team would then be obligated to repurchase common stock of its
ESOP participants who terminate employment and elect to sell back their shares
to Team, or elect to diversify their ESOP accounts pursuant to diversification
rights in the Internal Revenue Code and the ESOP. Team fully expects that a
public market for its common stock will develop upon completion of this offering
and will continue for the foreseeable future. However, in the event repurchase
obligations were to arise, they could be expected to have an adverse effect on
stockholders' equity. For further discussion, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity."
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SINCE CONTROL OF TEAM IS HELD BY ITS ESOP, DIRECTORS AND OFFICERS, THEY WILL
HAVE SUBSTANTIALLY MORE INFLUENCE OVER TEAM THAN YOU.
Team's ESOP, directors and executive officers exercise substantial
influence over the affairs of Team and, subject to their fiduciary duties under
the law, this factor may impede the acquisition of control of Team by a third
party. Other shareholders, as a practical matter, will not have significant
influence in Team's direction. As of March 31, 1999, Team's ESOP, directors and
executive officers beneficially owned 60.6% of the common stock. At the present
time, the trustee of the ESOP is Team, acting through its board of directors,
which means that the board exerts substantial influence over the ESOP. An
independent fiduciary and independent trustee have been or will be appointed
with respect to the ESOP's sale of shares in this offering. Upon completion of
the offering, Team's ESOP, directors and executive officers will beneficially
own 41.0% of the common stock. See "Management" and "Principal Shareholders and
Selling Shareholder."
IF THE COMPUTER SYSTEMS OF TEAM OR ITS SUPPLIERS AND CUSTOMERS ARE NOT YEAR 2000
COMPLIANT, TEAM'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY SUFFER.
Team faces a significant business risk regarding how existing application
software programs and operating systems will accommodate the date value for the
year 2000. Many existing software application products, including software
application products used by Team and its suppliers and customers, were designed
to accommodate only a two-digit date value, which represents the year. The
interruption to Team's business could be substantial if its current computer
service provider fails in efforts to assist Team in becoming year 2000
compliant.
In addition, failure by suppliers and customers of Team to modify and
convert their own computer systems could have a significant adverse effect on
the suppliers' or customers' operations and profitability, thus inhibiting their
ability to provide services or repay loans to Team. It is unlikely that Team
will accumulate sufficient information on its suppliers' and customers' year
2000 programs to assess adequately the impact on Team. This uncertainty may
negatively impact Team's financial condition and results of operations since
potential problems may not be identified prior to January 1, 2000. For further
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Considerations."
IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT ADEQUATE TO COVER ACTUAL LOSSES, OUR
EARNINGS COULD DECREASE.
Team faces the risk that its allowance for loan losses may not be adequate
to cover actual losses, and future provisions for loan losses could materially
and adversely affect its results of operations. The inability of borrowers to
repay loans can erode earnings and capital of banks. Like all financial
institutions, Team maintains an allowance for loan losses that may result from
loan defaults and nonperformance. The allowance for loan losses is based on
prior experience with loan losses, as well as an evaluation of the risks in the
current portfolio. This allowance is maintained at a level considered adequate
by management to absorb anticipated losses. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond management's control. These losses
may exceed current estimates.
State and federal regulatory agencies, as an integral part of their
examination process, review Team's loans and its allowance for loan losses.
Management may determine a need to further increase the allowance for loan
losses. Regulators, when reviewing Team's loan portfolios in the future, may
require Team to increase this allowance, adversely affecting Team's earnings.
Further, Team's actual loan losses may exceed its allowance for loan losses
resulting in additional charges to Team and reducing profitability. For further
information regarding loan loss allowances, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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IF ECONOMIC CONDITIONS IN GENERAL AND IN OUR PRIMARY MARKET AREAS DETERIORATE,
OUR REVENUES COULD DECREASE.
Team's financial results may be adversely affected by changes in prevailing
economic conditions, including declines in real estate values, rapid changes in
interest rates, adverse employment conditions and the monetary and fiscal
policies of the federal government. Because Team has a significant amount of
real estate loans, declines in real estate values could adversely affect the
value of property used as collateral.
In addition, substantially all of the loans of Team are to individuals and
businesses in suburban Kansas City, eastern Kansas, western Missouri and the
Omaha, Nebraska area. Any decline in the economy of these market areas could
have an adverse impact on Team's revenues. There can be no assurance that
positive trends or developments discussed in this prospectus will continue or
that negative trends or developments will not have a significant adverse effect
on Team's revenues.
A DECREASE IN INTEREST RATE SPREADS MAY DECREASE OUR PROFITS.
A sustained decrease in interest rate spreads would have a negative effect
on the net interest income and profitability of Team, and there can be no
assurance that a decrease will not occur. Team's profitability is in part a
function of the spread between the interest rates earned on assets and the
interest rates paid on deposits and other interest-bearing liabilities. Although
management believes that the maturities of Team's assets are moderately balanced
in relation to maturities of liabilities, this balance involves estimates as to
how changes in the general level of interest rates will impact the yields earned
on assets and the rates paid on liabilities. For further information regarding
these matters, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations -- Net Interest Income" and
"-- Liquidity -- Asset Liability Management."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF BOOK VALUE UPON
PURCHASE OF YOUR SHARES.
If you purchase shares in this offering, and 700,000 shares are sold by
Team at the offering price of $11.25 per share, the net tangible book value of
your shares as of March 31, 1999 will be $7.63. As this is $3.62 less than your
purchase price, you will incur immediate and substantial dilution in the book
value of your shares. See "Dilution."
SALES OF COMMON STOCK BY EXISTING SHAREHOLDERS COULD ADVERSELY AFFECT THE PRICE
OF YOUR STOCK.
Sales of a significant number of shares of common stock in the public
market following this offering, or the perception that the sales could occur,
could adversely affect the market price of Team's common stock. Following
completion of this offering, Team will have 3,701,803 shares of common stock
outstanding, or 3,851,803 if the underwriters' over-allotment option is
exercised in full. The shares offered pursuant to this prospectus will be freely
tradeable without restriction, except for any shares which are purchased by
affiliates of Team. The directors and executive officers of Team and certain
other shareholders, who will hold or beneficially own an aggregate of 620,208
shares upon completion of the offering, have agreed not to offer, sell, or
contract to sell any common stock for 180 days after the date of this prospectus
without the prior written consent of the representative of the underwriters. In
addition, Team's ESOP, which will own 1,282,700 shares upon completion of this
offering, has agreed not to sell its shares for the 180 day period, except in
connection with ordinary course of business distributions of cash or common
stock to its participants. See "Underwriting." Upon expiration of this 180-day
period all of these shares, representing 51.4% of the total number of shares
which will be outstanding following completion of the offering, could be resold
by these and other persons who are affiliates of Team, subject to certain
requirements of Rule 144 under the Securities Act. Rule 144 includes a limit on
the number of shares that may be sold in any three-month period equal to the
greater of 1% of the shares outstanding, or the average weekly trading volume of
shares of common stock for the four-week period prior to the time of the resale.
See "Shares Eligible for Future Sale."
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IMPEDIMENTS TO TAKEOVER ATTEMPTS AND REMOVAL OF DIRECTORS AND EXECUTIVE OFFICERS
MAY DEPRESS THE PRICE OF YOUR SHARES.
Team's board of directors has adopted a shareholder rights agreement. This
agreement would cause substantial dilution to any person or group that attempts
to acquire Team on terms not approved in advance by Team's board of directors.
In addition, there are provisions in the articles of incorporation of Team and
other restrictions that would make it difficult and expensive to pursue a change
in control or takeover attempt which is opposed by Team's board of directors. As
a result, shareholders may not have an opportunity to participate in these types
of transactions and thereby not take advantage of certain premiums paid in
today's market. These restrictions may make the removal of the current board of
directors difficult and could have the effect of depressing the trading price of
the shares of common stock. These restrictions include:
- management, through the ESOP and the board of directors, has effective
voting and operational control of Team.
- federal law imposes restrictions on the acquisition of control of a bank
holding company, including regulatory approval requirements.
- Kansas law, under which Team is incorporated, gives the board of
directors broad discretion to resist takeover attempts, even if such a
transaction would be in the best interests of Team's shareholders.
- provisions in Team's articles of incorporation and bylaws providing that:
- the board of directors is authorized to issue blank check preferred
stock, which could be issued as part of a takeover defense.
- the board of directors is divided into three classes that are elected
over a three-year period, thus making it more difficult for a third
party to acquire control of Team. See "Description of Capital
Stock -- Anti-takeover Provisions."
- a proposed amendment to the articles of incorporation to require a
two-thirds affirmative shareholder vote for mergers, consolidations,
liquidations or dissolutions of Team, and management expects the
amendment will be effective as of the date of this prospectus.
- allocation of shares in the ESOP. Certain shares of common stock
allocated to Team employees under its ESOP may be voted by the ESOP
trustee at the direction of employees. The ESOP trustee will vote
unallocated shares, and allocated shares as to which no instructions are
received, subject to the requirements of its fiduciary duties. Team,
acting through its board of directors, serves as the ESOP trustee,
although Team has retained an independent fiduciary to act for the ESOP
in connection with this offering and will also appoint an independent
trustee.
- employment agreements with several executive officers of Team or of its
subsidiary banks require severance pay of a discounted cash value for
remaining unpaid base salary under the agreements plus the continuation
of other benefits for up to two years upon termination of the employment
agreements without cause. See "Management -- Executive Compensation."
SIGNIFICANT GOVERNMENT REGULATION MAY RESULT IN HIGHER OPERATING COSTS FOR TEAM.
Team and its banks are subject to extensive federal and state legislation,
regulation and supervision which is intended primarily to protect depositors and
the Federal Deposit Insurance Corporation's Bank Insurance Fund, rather than
investors. Some of the legislative and regulatory changes may increase Team's
and its subsidiary banks' costs of doing business or otherwise adversely affect
them and create competitive advantages for non-bank competitors. For further
information concerning regulation of Team and its banks, see "Supervision and
Regulation."
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SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of operations data for the years ended December
31, 1998, 1997 and 1996 and the consolidated balance sheet data as of December
31, 1998 and 1997 are derived from the consolidated financial statements and
related notes which have been audited by KPMG LLP, independent public
accountants, and are included elsewhere in this prospectus. The consolidated
statements of operations data for the years ended December 31, 1995 and 1994 and
the balance sheet data as of December 31, 1996, 1995 and 1994 are derived from
consolidated financial statements which have been audited by KPMG LLP, but are
not included in this prospectus. The data as of and for the three months ended
March 31, 1999 and March 31, 1998 have been derived from unaudited financial
statements which, in the opinion of management, contain all normal, recurring
adjustments needed for the fair presentation of results of such periods.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations data:
Interest income.......................... $ 7,892 $ 7,526 $ 31,854 $ 26,137 $ 21,635 $ 19,661 $ 16,573
Interest expense......................... 4,028 3,907 16,573 12,887 10,462 9,745 7,530
Net interest income...................... 3,864 3,619 15,281 13,250 11,173 9,916 9,043
Provision for loan losses................ 183 446 1,486 1,095 623 245 121
Other income............................. 1,183 913 4,606 3,279 2,812 2,708 2,106
Other expenses........................... 3,689 3,505 15,384 12,667 10,132 10,034 9,991
Income taxes............................. 348 145 673 553 938 701 130
Net income............................... 827 436 2,344 2,214 2,292 1,644 907
Consolidated Balance Sheet data:
Total assets............................. $434,680 $420,460 $442,352 $386,996 $300,007 $260,268 $237,770
Total loans.............................. 250,280 235,714 256,126 223,675 183,494 161,492 139,996
Allowance for loan losses................ 2,625 2,028 2,541 1,629 1,518 1,289 1,199
Investment securities
available-for-sale..................... 112,298 121,723 109,296 103,304 68,806 67,245 67,611
Investment securities held-to-maturity... 25,734 24,544 25,742 22,399 17,889 13,204 12,290
Nonperforming assets(1).................. 3,391 3,305 3,578 1,962 2,216 2,259 2,436
Deposits................................. 375,202 367,314 384,347 333,864 258,890 225,691 206,407
Stockholders' equity and ESOP redeemable
common stock........................... 26,077 23,196 25,401 22,642 19,392 15,796 12,800
Per Common Share (3):
Basic income per share................... $ 0.29 $ 0.16 $ 0.85 $ 0.84 $ 1.02 $ 0.74 $ 0.42
Book value per share(2).................. 8.69 7.85 8.49 7.68 6.87 6.28 5.00
Tangible book value per share(2)......... 6.76 5.76 6.53 6.21 6.64 6.25 4.98
Dividends paid per common share.......... -- -- 0.23 0.23 0.23 0.22 0.10
Key Ratios:
Net interest margin(4)(5)................ 3.95% 4.11% 4.00% 4.36% 4.48% 4.26% 4.14%
Return on average assets(5).............. 0.76 0.44 0.56 0.67 0.85 0.66 0.39
Return on average stockholders'
equity(2)(5)........................... 13.32 8.00 10.00 10.49 12.96 11.33 6.80
Core risk-based capital ratio(2)......... 7.68 6.79 7.05 6.97 9.39 8.97 9.03
Total risk-based capital ratio(2)........ 8.69 7.61 8.00 7.61 10.15 9.72 9.80
Leverage ratio(2)........................ 4.61 4.22 4.50 5.39 6.94 6.01 6.00
Nonperforming assets to total assets..... 0.78 0.79 0.81 0.51 0.74 0.85 1.02
Nonperforming loans to total loans....... 1.00 1.24 1.04 0.71 1.03 1.05 1.38
Allowance for loan losses to total
loans.................................. 1.05 0.86 0.99 0.73 0.83 0.80 0.86
Allowance for loan losses to
nonperforming loans.................... 105.00 69.57 95.10 102.13 80.36 73.83 62.29
</TABLE>
- ---------------
(1) Includes loans 90 days or more delinquent and still accruing interest,
nonaccrual loans and other real estate owned.
(2) Includes redeemable common stock held by ESOP.
(3) No difference exists between basic and diluted earnings per share. Gives
effect to the five-for-one stock split of the common stock in December 1998.
(4) On a tax equivalent basis.
(5) Information for March 31, 1999 and 1998 is annualized.
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USE OF PROCEEDS
The net proceeds to Team from the sale of the common stock in this
offering, after deducting the underwriting discount and estimated offering
expenses, will be $7.0 million or $8.5 million if the over-allotment option is
exercised in full. The net proceeds will be used to repay $6.0 million of debt,
which bears interest at 1% under prime and is due on June 30, 1999, and
remaining proceeds will be contributed to Team Bank N.A., one of Team's
subsidiary banks. Although Team will not receive any of the proceeds from the
selling shareholder's sale of shares, the ESOP currently intends to repay $1.0
million in borrowings which will reduce Team's liabilities as primary obligor
and increase its stockholders' equity. In this instance, Team will incur a
one-time federal tax expense of approximately $60,000. See "Dilution" and
"Capitalization."
DIVIDEND POLICY; NO PRIOR MARKET FOR COMMON STOCK
Team has paid yearly dividends on its common stock since 1987. The table
below shows the amount of dividends paid by Team for the years indicated. In
past years dividend payments were advantageous to Team, because under the
Internal Revenue Code, certain dividends paid to the ESOP were deductible as
long as the ESOP had debt outstanding. However, after this offering it is not
contemplated that the ESOP will have debt. Notwithstanding the possible loss of
the deductibility of dividends paid to the ESOP, Team initiated quarterly
dividends on its common stock of $.05 per share beginning in April 1999.
Although Team currently intends to continue the payment of dividends, no
assurance can be given that Team will continue to pay or declare dividends on
common stock in the future.
<TABLE>
<CAPTION>
DIVIDENDS PAID
YEAR PER COMMON SHARE
- ---- ----------------
<S> <C>
1994................................................. $.10
1995................................................. .22
1996................................................. .23
1997................................................. .23
1998................................................. .23
</TABLE>
Kansas law permits Team to pay dividends on its common stock when Team is
solvent and when the dividend payments would not render it insolvent. Under
Kansas law, dividends may be declared and paid only out of the unsecured,
unrestricted earned surplus of a corporation. The ability of Team to pay cash
dividends largely depends on the amount of cash dividends paid to it by its
subsidiary banks. Capital distributions, including dividends by financial
institutions such as the subsidiary banks of Team, are subject to restrictions
tied to the institutions' earnings and capital. Payment of dividends on Team
common stock depends on payment of dividends to Team by its subsidiary banks.
Generally, without prior regulatory approval, the banks cannot pay dividends
during any calendar year in excess of the sum of their earnings during that year
and the two previous years, less any other distributions during that period. At
March 31, 1999, the banks could have paid total dividends to Team of
approximately $3.2 million without prior regulatory approval. See "Supervision
and Regulation" and "Description of Capital Stock."
Prior to this offering, there has been no public market for Team's common
stock, and thus no market price information is available. Team's common stock
has been approved for listing on the Nasdaq National Market(R). However, there
can be no assurance that a market for the common stock will be sustained.
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DILUTION
The net tangible book value of Team at March 31, 1999 was approximately
$20.3 million, or approximately $6.76 per share of common stock. Net tangible
book value is defined as the total stockholders' equity of Team plus total
redeemable ESOP common stock, less goodwill and certain other intangible assets.
Net tangible book value per share is determined by dividing the net tangible
book value of Team by the number of outstanding shares of common stock. After
giving effect to the offering, without exercise of underwriters' over-allotment
option, at the offering price of $11.25 per share, and the application of the
estimated net proceeds by Team from the offering, the net tangible book value of
the common stock at March 31, 1999 would have been approximately $28.3 million,
or $7.63 per share. This represents an immediate dilution of $3.62 per share to
investors who purchase shares of common stock in the offering. Dilution is the
difference between the offering price per share and the pro forma net tangible
book value per share as adjusted for the offering. The following table
illustrates this per share dilution as of March 31, 1999, which is determined by
subtracting the net tangible book value per share after the offering from the
price paid by a new investor.
<TABLE>
<S> <C> <C>
Public offering price per share(1).......................... $11.25
Net tangible book value per share of common stock at March
31, 1999.................................................. $6.76
Increase per share of common stock attributable to new
investors(2)(3)........................................... .87
-----
Pro forma net tangible book value per share of common stock
after the offering(2)(3).................................. 7.63
------
Dilution per share of common stock to new investors......... $ 3.62
======
</TABLE>
- ---------------
(1) Before deducting the underwriting discount and estimated offering expenses.
(2) After deducting the underwriting discount and estimated offering expenses.
(3) Includes a reduction of $1.0 million of debt by Team's ESOP. See "Use of
Proceeds" and "Capitalization."
The following table summarizes on a pro forma basis as of May 31, 1999, the
differences between the average price per share paid by officers and directors
of Team during the past five years, including ESOP allocations, compared to the
consideration paid by new investors in this offering at an offering price of
$11.25 per share:
<TABLE>
<CAPTION>
AVERAGE
SHARES TOTAL PRICE
PURCHASED CONSIDERATION PER SHARE
--------- ------------- ---------
<S> <C> <C> <C>
Officers............................................ 141,341 $1,352,132 $ 9.57
New investors....................................... 700,000 7,875,000 11.25
</TABLE>
Team expects that 3,701,803 shares of common stock will be outstanding
after the offering. In addition to the shares outstanding after the offering,
Team may issue up to 75,000 additional shares of common stock under the employee
stock purchase plan and up to 70,000 shares which Team has reserved under a
stock incentive plan. See "Management -- Executive Compensation."
11
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of Team at March 31, 1999
and as adjusted to give effect to the issuance and sale by Team of 700,000
shares of the common stock in this offering at the offering price of $11.25 per
share and the use of net proceeds as described in "Use of Proceeds." Management
believes a public market for Team's common stock will exist upon completion of
this offering. Therefore, the redeemable common stock reflected outside of
stockholders' equity in the historical financial statements has been classified
into stockholders' equity in the as adjusted column. See note 2 to the unaudited
consolidated financial statements for the periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowings:
Federal funds purchased and securities sold under
agreements to repurchase............................... $ 6,462 $ 6,462
Notes payable............................................. 23,058 16,058
-------- -------
Total borrowings.................................. 29,520 22,520
Redeemable common stock held by ESOP........................ 16,876 --
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized; no shares
issued or outstanding.................................. -- --
Common stock, no par value, 50,000,000 shares authorized;
3,028,808 shares issued (3,728,808 shares issued as
adjusted).............................................. 14,044 21,017
Capital surplus........................................... 122 122
Retained earnings......................................... 12,748 12,748
Treasury stock, 27,005 shares of common stock............. (187) (187)
Accumulated other comprehensive income.................... 350 350
Unearned compensation..................................... (1,000) --
Less redeemable common stock held by ESOP................. (16,876) --
-------- -------
Total stockholders' equity........................ 9,201 34,050
Total capitalization.............................. $ 55,597 $56,570
======== =======
Consolidated regulatory capital ratios:
Total risk-based capital ratio............................ 8.69% 11.75%
Core risk-based capital ratio............................. 7.68 10.74
Leverage ratio............................................ 4.61 6.46
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the
consolidated financial statements of Team and the notes included elsewhere in
this prospectus. Team's future operating results may be affected by various
trends and factors that are beyond Team's control. These include the factors set
forth in "Risk Factors" and "Forward-Looking Statements." Accordingly, past
results and trends may not be reliable indicators of future results or trends.
With the exception of historical information, the matters discussed below
include forward-looking statements that involve risks and uncertainties. Team
cautions readers that a number of important factors discussed below could affect
Team's actual results and cause actual results to differ materially from those
in the forward-looking statements.
OVERVIEW
Team's earnings over the past three years have essentially remained level,
although asset growth has been substantial. While asset growth has resulted in
increases in revenues, these increases have been offset by operating expenses,
increases in provisions for loan losses and amortization of premiums paid in
acquisitions accounted for by the purchase method. Team believes, however, that
its existing management and systems are capable of supporting additional growth
without significant increases in administrative costs to integrate the growth
into operations. Team's strategy takes into account, and its experience is, that
it takes up to 18 months to realize meaningful net income improvements from
acquisitions and expansion.
At March 31, 1999 total assets of Team were $434.7 million, a slight
decrease from $442.4 million in total assets as of December 31, 1998. Total
assets at December 31, 1997 were $387.0 million. The increase as of December 31,
1998 was the result of internal growth and the purchase of a NationsBank branch
in Ottawa, Kansas completed during the first quarter of 1998. The branch's
deposits of $32.0 million were invested in earning assets during the year. The
decrease in total assets as of March 31, 1999 primarily resulted from a $5.9
million decline in Team's net loan balance. Commercial and other real estate
loan payoffs, along with loan refinancings, were the cause of the reduction of
the loan portfolio.
Team's net income totaled $827,000 for the three months ended March 31,
1999 compared to $436,000 for the three months ended March 31, 1998, a 89.68%
increase. The increase in net income was a result of an increase in net interest
income of $245,000 and other income of $270,000, and a decline in the provisions
for loan losses of $263,000. These changes were offset by an increase of
$184,000 in other expenses.
Net income totaled $2.3 million for 1998 compared to $2.2 million for 1997.
Net income in 1998 improved as a result of increased net interest income of $2.0
million and other income of $1.3 million. These increases were offset by
increased provisions for loan losses of $391,000 and other expenses of $2.7
million.
At December 31, 1997, total assets of Team were $387.0 million,
representing an $87.0 million, or 29.00% increase over that as of December 31,
1996. This increase was the result of internal growth and the 1997 purchase of
one bank branch from Roosevelt Bank and one branch purchase from Mercantile
Bancorporation. These branch purchases resulted in additional deposits of
approximately $70.0 million. Team's net income totaled $2.2 million for 1997
compared to $2.3 million for 1996. The $78,000 decrease from 1996 was a result
of increases in provisions for loan losses and other expenses which were offset
by increases in net interest income and other income.
RESULTS OF OPERATIONS
Net Interest Income
Team's income is derived primarily from net interest income. Net interest
income is the difference between interest income, principally from loans,
investment securities and federal funds sold, and interest
13
<PAGE> 14
expense, principally on customer deposits and other borrowings. Changes in net
interest income result from changes in volume and interest rates earned and
expensed. Volume refers to the average dollar levels of interest-earning assets
and interest-bearing liabilities.
The following tables set forth the average balances of interest-earning
assets and interest-bearing liabilities, as well as the amount of interest
income or interest expense and the average rate for each category of
interest-earning assets and interest-bearing liabilities on a tax-equivalent
basis assuming a 34% tax rate for the periods indicated. Included in the average
balances are non-accruing loans. Loan fees are included in interest income.
Average balances are computed on a daily basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
AVERAGE AVERAGE
RATE RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSES PAID BALANCE EXPENSES PAID
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net(1)(2)(3).............................. $249,098 $5,679 9.12% $227,166 $5,394 9.50%
Investment securities -- taxable................. 111,356 1,727 6.20 107,943 1,780 6.60
Investment securities -- nontaxable(4)........... 24,258 440 7.26 21,422 421 7.86
Federal funds sold and interest-bearing
deposits....................................... 21,065 190 3.61 11,434 89 3.11
-------- ------ ----- -------- ------ -----
Total interest-earning assets.............. $405,777 $8,036 7.92% $367,965 $7,684 8.35%
======== ----- ======== -----
INTEREST-BEARING LIABILITIES
Savings deposits and interest bearing checking... $130,634 $ 927 2.84% $118,784 $ 925 3.11%
Time deposits.................................... 206,236 2,689 5.22 186,716 2,597 5.56
Federal funds purchased and securities sold under
agreements to repurchase....................... 6,313 89 4.75 12,633 168 5.32
Notes payable.................................... 22,058 323 6.11 10,929 217 7.94
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities......... $365,241 4,028 4.41% $329,062 3,907 4.75%
======== ------ ----- ======== ------ -----
Net interest income (tax equivalent)............... $4,008 $3,777
====== ======
Net interest margin(4)(5).......................... 3.95% 4.11%
===== =====
Ratio of average interest-bearing liabilities to
average interest-earning assets.................. 90.01% 89.43%
===== =====
</TABLE>
- ---------------
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average balances.
(3) Team includes loan fees in interest income. These fees totaled for the three
months ended March 31, 1999 -- $205,000 and 1998 -- $180,000.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the three months ended March 31, 1999 was $144,000 and March 31,
1998 was $158,000.
(5) The net interest margin is net interest income divided by average
interest-earning assets (on an annualized basis).
Net interest income, on a tax equivalent basis, was $4.0 million for the
three months ended March 31, 1999 an increase of $231,000 over the same period
in 1998. Interest income for the three months ended March 31, 1999 totaled $8.0
million compared to $7.7 million for the same period in 1998. The increase of
$352,000 is primarily due to an increase of $37.8 million, or 10.28%, in the
average balance of earning assets. The majority of the increase in earning
assets was attributable to average loans outstanding which increased from $227.2
million at March 31, 1998 to $249.1 million at March 31, 1999. Interest income
on loans was negatively impacted by a decrease in the yield earned on loans. The
average yield on loans was 9.12% for the three months ended March 31, 1999 as
compared to 9.50% for the same period in 1998.
Interest expense increased $121,000 for the three months ended March 31,
1999 compared to the same period in 1998. Interest expense on time deposits
increased $92,000 primarily as a result of an
14
<PAGE> 15
increase in the average balance of such deposits of $19.5 million for the three
month period ended March 31, 1999 compared to the same period in 1998. Interest
expense on notes payable increased $106,000, or 48.85%, primarily as a result of
an increase in the average balance of such borrowings of $11.1 million, in the
three month period ended March 31, 1999 compared to the same period in 1998.
Additional borrowings subsequent to March 31, 1998 were necessary to fund the
acquisition of the Nations Bank branch and redeem mandatory equity replacement
notes.
As a result of these factors, net interest margin, on a tax-equivalent
basis, decreased to 3.95% for the three months ended March 31, 1999 from 4.11%
for the comparable period in 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
RATE RATE RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSES PAID BALANCE EXPENSES PAID BALANCE EXPENSES PAID
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1)(2)(3)............ $245,012 $23,183 9.46% $200,747 $19,475 9.70% $165,725 $16,196 9.77%
Investment
securities -- taxable......... 115,461 7,127 6.17 85,688 5,458 6.37 69,649 4,492 6.45
Investment securities --
nontaxable(4)................. 22,387 1,717 7.67 16,151 1,253 7.76 12,495 1,011 8.09
Federal funds sold and interest-
bearing deposits.............. 13,455 411 3.05 11,338 377 3.33 9,106 280 3.07
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-earning
assets.................. $396,315 $32,438 8.18% $313,924 $26,563 8.46% $256,975 $21,979 8.55%
======== ----- ======== ----- ======== -----
INTEREST-BEARING LIABILITIES
Savings deposits and interest
bearing checking.............. $126,963 $ 3,878 3.05% $101,734 $ 3,181 3.13% $ 84,107 $ 2,575 3.06%
Time deposits................... 198,006 10,929 5.52 153,135 8,613 5.62 124,577 6,957 5.58
Federal funds purchased and
securities sold under
agreements to repurchase...... 9,987 528 5.29 10,654 569 5.34 10,086 535 5.30
Notes payable................... 18,461 1,238 6.71 7,272 524 7.21 6,161 395 6.41
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities............. $353,417 16,573 4.69% $272,795 12,887 4.72% $224,931 10,462 4.65%
======== ------- ----- ======== ------- ----- ======== ------- -----
Net interest income (tax
equivalent)..................... $15,865 $13,676 $11,517
======= ======= =======
Net interest margin(4)(5)......... 4.00% 4.36% 4.48%
===== ===== =====
Ratio of average interest-bearing
liabilities to average
interest-earning assets......... 89.18% 86.90% 87.53%
===== ===== =====
</TABLE>
- ---------------
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average balances.
(3) Team includes loan fees in interest income. These fees totaled $974,000 in
1998, $905,000 in 1997 and $713,000 in 1996.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects were $584,000 in 1998, $426,000 in 1997 and $344,000 in 1996.
(5) The net interest margin is net interest income divided by average
interest-earning assets.
Total interest income on a tax equivalent basis was $32.4 million for 1998
compared to $26.6 million in 1997, representing a 22.12% increase. The overall
increase in interest income is the result of Team's purchase of a NationsBank
branch in the first quarter of 1998, which resulted in increased deposits of
approximately $32.0 million. These deposits were used to fund loans as Team's
growth strategy continued, with the remainder placed in investment securities.
Deployment of purchased deposits into loans, the
15
<PAGE> 16
highest yielding interest-earning assets, takes a significant period of time to
complete. This time lag of deployment of assets from the branch purchase also
contributed to the decreases in net interest margin for 1997 and 1998. Interest
income on loans increased $3.7 million, or 19.04%, primarily due to increased
loan volume in 1998. For 1998, the average balance of loans increased by $44.3
million or 22.05%. Interest income on loans in 1998 was negatively impacted by a
0.24% decrease in the yield earned on loans, 9.46% in 1998 compared to 9.70% in
1997. Tax equivalent interest income on investment securities increased $2.1
million, or 31.78%, primarily due to increased volume in 1998. For 1998, the
average combined investment balances increased by $36.0 million or 35.36%.
Total interest expense was $16.6 million for 1998 compared to $12.9 million
for 1997, representing a 28.60% increase. Interest expense on savings and
interest-bearing checking increased $697,000, or 21.91%, primarily as a result
of an increase in the balance of these deposits of $25.2 million, or 24.80% in
1998 compared to 1997. Interest expense on time deposits increased $2.3 million,
or 26.89%, primarily as a result of an increase in the average balance of these
deposits of $44.9 million, or 29.30% in 1998. Interest expense on notes payable
increased $714,000, or 136.26%, primarily as a result of an increase in the
average balance of these borrowings of $11.2 million, or 153.86% in 1998
compared to 1997. Additional borrowings in 1998 were necessary to fund the
acquisition of the branch noted above, meet $1.4 million of payments associated
with repurchase obligations under its ESOP and redeem $937,000 of mandatory
equity replacement notes. See "-- Liquidity" and notes 9 and 10 to the
consolidated financial statements.
As a result of the changes described above, the net interest income on a
tax equivalent basis increased to $2.2 million, or 16.01% for 1998 compared to
1997.
Total interest income on a tax equivalent basis was $26.6 million for 1997
compared to $22.0 million for 1996, representing a 20.86% increase. Interest
income on loans increased $3.3 million, or 20.25%. This increase was primarily
the result of increased loan volume in 1997 as the average rate decreased
slightly. For 1997, the average balance of loans increased by $35.0 million or
21.13%. Interest income on a tax equivalent basis for investments increased $1.2
million, or 21.95%, primarily due to increased volume in 1997 as rates again
decreased. For 1997, the average combined investment balance increased by $19.7
million or 23.98% compared to 1996.
Total interest expense was $12.9 million for 1997 compared to $10.5 million
for 1996, representing a 23.18% increase. Interest expense on savings and
interest bearing checking increased $606,000, or 23.53%, as a result of an
increase in the average balance of these deposits of $17.6 million, or 20.96%
and a slight increase paid on these deposits in 1997. Interest expense on time
deposits increased $1.7 million, or 23.80%, as a result of an increase in the
average balance of these deposits of $28.6 million, or 22.92% in 1997 compared
to 1996 and a slight increase in rates paid on these deposits in 1997.
As a result of the changes described above, the net interest income on a
tax equivalent basis increased to $2.2 million, or 18.75% for 1997 compared to
1996.
16
<PAGE> 17
The following table presents the components of changes in Team's net
interest income, on a tax-equivalent basis, attributed to volume and rate. The
net change attributable to the combined impact of volume and rate has been
solely allocated to the change in rate.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------
1999 COMPARED TO 1998 1998 COMPARED TO 1997 1997 COMPARED TO 1996
------------------------ ------------------------ ------------------------
TOTAL TOTAL TOTAL
VOLUME RATE CHANGES VOLUME RATE CHANGES VOLUME RATE CHANGES
------ ----- ------- ------ ----- ------- ------ ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans......................... $521 $(236) $285 $4,294 $(586) $3,708 $3,423 $(144) $3,279
Investment
securities -- taxable....... 56 (109) (53) 1,896 (227) 1,669 1,034 (68) 966
Investment securities --
nontaxable.................. 56 (37) 19 484 (20) 464 296 (54) 242
Federal funds sold and
interest-bearing deposits... 75 26 101 71 (37) 34 69 28 97
---- ----- ---- ------ ----- ------ ------ ----- ------
Total interest
income............... 708 (356) 352 6,745 (870) 5,875 4,822 (238) 4,584
INTEREST EXPENSE
Savings deposits and interest-
bearing checking............ 92 (90) 2 789 (92) 697 540 66 606
Time deposits................. 272 (180) 92 2,524 (208) 2,316 1,595 61 1,656
Federal funds purchased and
securities sold under
agreements to repurchase.... (84) 5 (79) (36) (5) (41) 30 4 34
Notes payable................. 221 (115) 106 806 (92) 714 71 58 129
---- ----- ---- ------ ----- ------ ------ ----- ------
Total interest
expense.............. 501 (380) 121 4,083 (397) 3,686 2,236 189 2,425
---- ----- ---- ------ ----- ------ ------ ----- ------
Increase (decrease) in net
interest income............... $207 $ 24 $231 $2,662 $(473) $2,189 $2,586 $(427) $2,159
==== ===== ==== ====== ===== ====== ====== ===== ======
</TABLE>
Other Income
The following table sets forth Team's other income for the indicated
periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------- ------------------------
1999 1998 1998 1997 1996
------- ----- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges.................................... $ 540 $461 $2,039 $1,670 $1,400
Trust fees......................................... 141 79 454 408 368
Gain on sales of mortgage loans.................... 192 137 664 268 230
Gain (loss) on sales of investment securities...... -- 1 18 2 (40)
Mortgage servicing fees............................ 77 65 267 239 228
Credit card fees................................... 32 37 148 147 144
ATM fees........................................... 20 24 91 84 55
Other.............................................. 181 109 925 461 427
------ ---- ------ ------ ------
Total other income....................... $1,183 $913 $4,606 $3,279 $2,812
====== ==== ====== ====== ======
</TABLE>
During the three months ended March 31, 1999, total other income increased
$270,000, or 29.57%, compared to the same period in 1998. The increase was
attributable to service charges, trust fees, and gain on sale of mortgage loans,
which increased $79,000, $62,000, and $55,000. Service charges and trust fees
reported increases due to a larger customer base. Gain on sale of real estate
loans increased as a result of the lower rate environment. This environment
generated significant refinancings and higher turnover of loans, which in turn
resulted in origination fees and gains from sales of above-market rate loans.
Other income was $4.6 million for 1998 compared to $3.3 million for 1997,
representing a 40.47% increase. In 1998, service charges increased $369,000 and
trust fees increased $46,000 in 1998 as a result
17
<PAGE> 18
of a larger customer base. Gain on sale of mortgage loans increased $396,000 in
1998 as a result of the lower rate environment, which generated significant
refinancings.
Other income was $3.3 million for 1997 compared to $2.8 million for 1996,
representing a 16.61% increase. This increase was primarily due to an increase
in service charges of $270,000, again resulting from Team's acquisitions and the
resulting increased customer base.
Other Expenses
The following table presents Team's operating expenses for the indicated
periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ---------------------------
1999 1998 1998 1997 1996
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................. $1,858 $1,766 $ 7,835 $ 6,419 $ 5,128
Occupancy and equipment........................ 461 412 1,805 1,668 1,298
Data processing................................ 343 273 1,265 1,033 879
Professional fees.............................. 203 106 874 717 599
Marketing...................................... 54 121 479 395 274
Goodwill and other intangible amortization..... 173 158 611 202 32
Other.......................................... 597 669 2,515 2,233 1,922
------ ------ ------- ------- -------
Total other expenses................. $3,689 $3,505 $15,384 $12,667 $10,132
====== ====== ======= ======= =======
</TABLE>
Other expenses were $3.7 million for the three months ended March 31, 1999
compared to $3.5 million for the same period in 1998. The increase was primarily
attributable to an increase in salaries and employee benefits of $92,000 and
professional fees of $97,000 resulting from Team's growth. The increases were
reduced by a decline in marketing costs of $67,000.
Other expenses were $15.4 million for 1998 compared to $12.7 million for
1997, representing a 21.45% increase. The increase was attributable to an
increase in salaries and employee benefits of $1.4 million resulting from
employees who were retained in acquisitions and new employees hired in
connection with a branch opening.
Goodwill and other intangible amortization increased from 1997 primarily as
a result of amortization of goodwill established by premiums paid on branch
acquisitions purchased in the latter part of 1997 and early 1998. Recent
acquisitions by Team of branches have been accounted for using purchase
accounting, which means that the excess of the purchase price over the carrying
value of the assets acquired is recorded in the consolidated financial
statements as goodwill, which is amortized over 15 years from the date of each
acquisition. This amortization is a non-cash operating expense which reduces net
income. For example, goodwill amortization increased $33,000 in the first
quarter of 1999 from the same period in 1998 and was $405,000 in 1998 versus
$140,000 in 1997 and $17,000 in 1996.
The balance of goodwill on Team's balance sheet at March 31, 1999 was $5.7
million. Amortization of this amount will result in expense of $380,000 per
year.
Other expenses were $12.7 million for 1997 compared to $10.1 million for
1996, representing a 25.02% increase. The increase is primarily attributable to
an increase in salaries and employee benefits of $1.3 million in 1997 due
primarily to staff retained at acquired branches. Additionally, occupancy and
equipment expense increased $370,000 in 1997.
Income Tax Expense
Income tax expense was $348,000 for the three months ended March 31, 1999
compared to $145,000 for the same period in 1998. Income tax expense was
$673,000 for 1998 compared to $553,000 for 1997, representing a 21.70% increase.
The effective tax rates were 22% for 1998 and 20% for 1997. The effective
18
<PAGE> 19
tax rate is less than the statutory federal rate of 34% due primarily to
municipal interest income and the income tax benefit resulting from dividends
paid to the ESOP. Under the Internal Revenue Code, Team can deduct dividends
paid to its ESOP under limited circumstances.
Income tax expense was $553,000 for 1997 compared to $938,000 for 1996,
representing a 41.04% decrease. The effective tax rates were 20% for 1997 and
29% for 1996. Team's effective tax rate was significantly lower in 1997 as
compared to 1996 as a result of increased municipal interest income, lower state
taxes and the utilization of federal tax credits.
FINANCIAL CONDITION
Loan Portfolio Composition
The following tables present the composition of Team's loan portfolio by
type of loan at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- --------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT
-------- ----- -------- ----- -------- ----- -------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family........... $ 82,831 33.4% $ 85,093 33.5% $ 74,049 33.3% $ 63,575 34.9% $ 57,618
Construction......... 13,709 5.6 14,411 5.7 12,292 5.5 9,608 5.3 6,265
Other................ 25,223 10.2 25,809 10.2 26,816 12.1 20,655 11.4 20,576
-------- ----- -------- ----- -------- ----- -------- ----- --------
Total.......... 121,763 49.2 125,313 49.4 113,157 50.9 93,838 51.6 84,459
Commercial............. 92,388 37.3 94,478 37.3 75,048 33.8 57,709 31.7 47,728
Installment and
other................ 36,440 14.7 36,652 14.4 35,785 16.1 32,274 17.7 29,585
-------- ----- -------- ----- -------- ----- -------- ----- --------
Gross loans............ 250,591 101.2 256,443 101.1 223,990 100.8 183,821 101.0 161,772
Unearned fees.......... (311) (0.1) (317) (0.1) (315) (0.1) (327) (0.2) (280)
-------- ----- -------- ----- -------- ----- -------- ----- --------
Loans.................. 250,280 101.1 256,126 101.0 223,675 100.7 183,494 100.8 161,492
Less allowance for loan
losses............... (2,625) (1.1) (2,541) (1.0) (1,629) (0.7) (1,518) (0.8) (1,289)
-------- ----- -------- ----- -------- ----- -------- ----- --------
Total net
loans........ $247,655 100.0% $253,585 100.0% $222,046 100.0% $181,976 100.0% $160,203
======== ===== ======== ===== ======== ===== ======== ===== ========
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----- ----------------
% AMOUNT %
----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate:
1-4 family........... 36.0% $ 53,998 38.9%
Construction......... 3.9 4,870 3.5
Other................ 12.8 17,689 12.7
----- -------- -----
Total.......... 52.7 76,557 55.2
Commercial............. 29.8 37,372 26.9
Installment and
other................ 18.5 26,341 19.0
----- -------- -----
Gross loans............ 101.0 140,270 101.1
Unearned fees.......... (0.2) (274) (0.2)
----- -------- -----
Loans.................. 100.8 139,996 100.9
Less allowance for loan
losses............... (0.8) (1,199) (0.9)
----- -------- -----
Total net
loans........ 100.0% $138,797 100.0%
===== ======== =====
</TABLE>
As of March 31, 1999, loans were $250.3 million compared to $256.1 million
at December 31, 1998, representing a slight decrease of $5.8 million mainly due
to refinances and sales of mortgage loans. Loans at December 31, 1998 increased
by $32.4 million compared to loans of $223.7 million at December 31, 1997. This
increase resulted primarily from internal growth, and was funded through an
increase in deposits associated with the acquisition of a NationsBank branch in
the first quarter of 1998.
Real estate mortgage loans represent the largest type of loans of Team. As
of March 31, 1999, these loans of $121.8 million decreased from $125.3 million
as of December 31, 1998. These loans at December 31, 1998 increased by $12.1
million, or 10.74%, compared to real estate mortgage loans of $113.2 million at
December 31, 1997. Included in real estate mortgage loans are 1 to 4 family
residential loans with a balance of $82.8 million at March 31, 1999.
Substantially all of these loans were originated in Team's market area.
Additionally, included in real estate mortgage loans are real estate mortgage
loans held for sale. Team will typically sell fixed rate mortgage loans to
permanent investors with the servicing rights retained. Capitalized servicing
rights are recorded at the time the loan is sold, thereby increasing the gain on
sale by such amount. At March 31, 1999 the balance of these loans held for sale
was $3.3 million.
Real estate construction loans consist primarily of single family
construction in Team's primary market areas. The balance of these loans was
$13.7 million at March 31, 1999, compared to the December 31, 1998 balance of
$14.4 million. Team recently has experienced steady growth in its markets for
these loans with the balance increasing in each of the last five years to $14.4
million at December 31, 1998 from $4.9 million at December 31, 1994.
19
<PAGE> 20
Commercial loans include loans to service, retail, wholesale and light
manufacturing businesses. At March 31, 1999, commercial loans, excluding
agriculture, were $70.0 million compared to $69.5 million at December 31, 1998
and $55.4 million at December 31, 1997, reflecting an overall increase of $14.6
million, or 30.56%.
Included within commercial loans are agricultural loans to farmers for
production and other agricultural needs. At March 31, 1999, agricultural loans
were $22.4 million compared to $25.0 million at December 31, 1998, and $19.6
million at December 31, 1997, reflecting an overall increase of 14.29%.
Installment and other loans include automobile, residential, and other
personal loans. The majority of these loans are installment loans with fixed
interest rates. Although increasing in dollar amount, installment and other
loans have been decreasing as a percentage of total loans over the past several
years as Team places more emphasis on growing the real estate and commercial
portion of their loan portfolio. Team also has a small portfolio of credit card
loans.
Team believes that its philosophy in extending credit is relatively
conservative in nature, with a presumption that most credit should have both a
primary and secondary source of repayment, and that the primary source should
generally be operating cash flows, while the secondary source should generally
be disposition of collateral. Team engages in very little unsecured lending, and
generally requires personal guarantees of principals for business obligations.
Team's lending policy requires both loan officer and loan committee approval for
significant credits. See "Business -- Loan Administration."
At March 31, 1999 net loans totaled 65.98% of total deposits and 57.00% of
total assets.
Loan Maturities
The following tables present, at March 31, 1999 and December 31, 1998,
loans by maturity in each major category of Team's portfolio based on
contractual repricing schedules. Actual maturities may differ from the
contractual repricing maturities shown below as a result of renewals and
prepayments. Loan renewals are re-evaluated using substantially the same credit
procedures that are used when loans are made.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR -------------------------- --------------------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
-------- ---------- ------------- ---------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family..................... $ 23,990 $ 3,253 $20,217 $22,232 $13,139 $ 82,831
Construction................... 12,563 724 408 -- 14 13,709
Other.......................... 13,155 4,238 2,766 4,171 893 25,223
-------- ------- ------- ------- ------- --------
Total.................. 49,708 8,215 23,391 26,403 14,046 121,763
Commercial....................... 54,239 18,477 14,196 3,547 1,929 92,388
Installment and other............ 8,804 25,635 220 1,759 22 36,440
-------- ------- ------- ------- ------- --------
Gross loans.................... 112,751 52,327 37,807 31,709 15,997 250,591
Unearned loan fees............... (45) (72) (153) (21) (20) (311)
-------- ------- ------- ------- ------- --------
Loans.......................... $112,706 $52,255 $37,654 $31,688 $15,977 $250,280
======== ======= ======= ======= ======= ========
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR -------------------------- --------------------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
-------- ---------- ------------- ---------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family..................... $ 24,323 $ 4,497 $21,325 $23,310 $11,638 $ 85,093
Construction................... 13,402 768 155 86 -- 14,411
Other.......................... 11,641 3,215 5,751 4,077 1,125 25,809
-------- ------- ------- ------- ------- --------
Total.................. 49,366 8,480 27,231 27,473 12,763 125,313
Commercial....................... 59,865 17,743 11,309 5,061 500 94,478
Installment and other............ 9,499 25,662 233 1,198 60 36,652
-------- ------- ------- ------- ------- --------
Gross loans.................... 118,730 51,885 38,773 33,732 13,323 256,443
Unearned loan fees............... (42) (75) (152) (25) (23) (317)
-------- ------- ------- ------- ------- --------
Loans.......................... $118,688 $51,810 $38,621 $33,707 $13,300 $256,126
======== ======= ======= ======= ======= ========
</TABLE>
Nonperforming loans
Nonperforming loans consist of loans 90 days or more delinquent and still
accruing interest, nonaccrual loans and restructured loans. When, in the opinion
of management, a reasonable doubt exists as to the collectibility of interest,
regardless of the delinquency status of a loan, the accrual of interest income
is discontinued and any interest accrued to date is reversed through a charge to
income. While a loan is on nonaccrual status, it is Team's policy that interest
income is recognized only after payment in full of principal. Generally,
management places loans which are greater than 90 days past due on nonaccrual.
At March 31, 1999 and December 31, 1998, Team had an insignificant amount of
restructured loans.
The following table presents information concerning the nonperforming
assets of Team at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------------
1999 1998 1997 1996 1995 1994
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans........................ $2,010 $2,241 $1,078 $1,652 $1,458 $1,122
Loans 90 days past due and still
accruing.............................. 490 431 517 236 232 803
------ ------ ------ ------ ------ ------
Non-performing loans.................. 2,500 2,672 1,595 1,888 1,690 1,925
Other real estate owned................. 891 906 367 327 513 511
------ ------ ------ ------ ------ ------
Total non-performing assets... $3,391 $3,578 $1,962 $2,215 $2,203 $2,436
====== ====== ====== ====== ====== ======
Non-performing loans as a percentage of
total loans........................... 1.00% 1.04% 0.71% 1.03% 1.05% 1.38%
Non-performing assets as a percentage of
total assets.......................... 0.78% 0.81% 0.51% 0.74% 0.85% 1.02%
</TABLE>
Total non-performing assets totaled $3.4 million at March 31, 1999,
compared to $3.6 million at December 31, 1998, representing a decrease of 5.23%.
Other real estate owned at March 31, 1999 consists of 18 properties held by
Team's subsidiary banks. Two properties with an aggregate book value of $284,000
represent commercial real estate lots foreclosed in 1998. Another property with
a book value of $142,000 is a commercial office building which is leased by one
of Team's subsidiary banks. Management is not aware of any adverse trend
relating to Team's loan portfolio.
As of March 31, 1999 and December 31, 1998, there were no significant
balance of loans excluded from nonperforming loans set forth above, where known
information about possible credit problems of borrowers caused management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in such loans becoming
nonperforming.
21
<PAGE> 22
Analysis of Allowance for Loan Losses
Management maintains its allowance for loan losses based on industry
standards, historical experience and an evaluation of economic conditions. Team
regularly reviews delinquencies and loan portfolio quality. Based upon such
factors, management makes various assumptions and judgments about the ultimate
collectibility of the loan portfolio and provides an allowance for potential
loan losses based upon a percentage of the outstanding balances and for specific
loans if their ultimate collectibility is considered questionable. Since certain
lending activities involve greater risks, the percentage applied to specific
loan types may vary. The allowance is increased by provisions for loan losses
and reduced by loans charged-off, net of recoveries.
The following table sets forth information regarding changes in the
allowance for loan losses of Team for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------------------------
1999 1998 1997 1996 1994 1996
------------------ -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans....................... $249,098 $245,012 $200,747 $165,725 $158,958 $133,694
Total loans at end of period.............. $250,280 $256,126 $223,675 $183,494 $161,492 $139,996
Allowance at beginning of year............ $ 2,541 $ 1,629 $ 1,518 $ 1,289 $ 1,199 $ 1,052
Loans charged-off:
Real estate:
1-4 family............................ (12) (14) (6) (8) (9) (22)
Construction.......................... -- -- -- -- -- --
Other................................. -- -- -- -- -- --
Commercial.............................. (10) (169) (655) (316) (72) (42)
Installment and other................... (125) (540) (481) (371) (199) (207)
-------- -------- -------- -------- -------- --------
Total charge-offs................. (147) (723) (1,142) (695) (280) (271)
Recoveries
Real estate:
1-4 family............................ 8 1 -- -- 9 110
Construction.......................... -- -- -- -- -- --
Other................................. -- -- -- 9 -- --
Commercial, financial and
agricultural.......................... 8 28 59 49 46 109
Installment and other................... 32 120 99 92 70 78
-------- -------- -------- -------- -------- --------
Total recoveries.................. 48 149 158 150 125 297
Net (charge-offs) recoveries.............. (99) (574) (984) (545) (155) 26
Provision for loan losses................. 183 1,486 1,095 623 245 121
Allowance of acquired bank................ -- -- -- 151 -- --
-------- -------- -------- -------- -------- --------
Allowance at end of period................ $ 2,625 $ 2,541 $ 1,629 $ 1,518 $ 1,289 $ 1,199
======== ======== ======== ======== ======== ========
Ratio of net charge-offs to average total
loans................................... (0.16)% (0.23)% (0.49)% (0.33)% (0.10)% (0.02)%
Allowance to total loans at end of
period.................................. 1.05 0.99 0.73 0.83 0.80 0.86
Allowance to nonperforming loans.......... 105.00 95.10 102.13 80.36 73.83 62.29
</TABLE>
The allowance for loan losses at March 31, 1999 totaled $2.6 million, and
at December 31, 1998 totaled $2.5 million, 1997 totaled $1.6 million and 1996
totaled $1.5 million. The allowance for loan losses as a percentage of total
loans was 1.05% at March 31, 1999, and 0.99% at December 31, 1998, 0.73% at 1997
and 0.83% at 1996. The provision for loan losses was $1.5 million for 1998
compared to $1.1 million for 1997 and $623,000 for 1996. The allowance to
non-performing loans ratio was 105.00% at March 31, 1999 and was 95.10% at
December 31, 1998, 102.13% at 1997 and 80.36% at 1996.
Net charge-offs were $99,000 for the first three months of 1999, and were
$574,000 for 1998, $984,000 for 1997 and $545,000 for 1996. Charge-offs in 1997
were higher as a result of a large commercial loan customer which filed for
bankruptcy. As a result, charge-offs of $557,000 were recognized on this loan.
Provisions for loan losses have increased steadily over the past several
years to keep pace with the loan growth Team has experienced and to maintain the
allowance at a level sufficient to absorb identified
22
<PAGE> 23
and unidentified loan losses. However, due to a decline in non-performing loans
and the outstanding loan balance since the end of the year, largely due to
payoffs in commercial and other real estate loans, Team reduced the provision
for the three month period ended March 31, 1999. The provision recorded during
the three month period ended March 31, 1999 was consistent with management's
philosophy of maintaining reserves at or near 1.0% of total loans outstanding.
Team's lending personnel are responsible for continuous monitoring of the
loan portfolio. Additionally, since 1997 Team has retained an independent loan
review company which reviews the loan portfolio on a quarterly basis to
determine compliance with loan policy, including the appropriateness of risk
ratings assigned to individual loans, as well as the allowance for loan losses.
The allowance for loan losses is based primarily on management's estimates of
possible loan losses from the foregoing processes and historical experience.
Team's loan portfolio is also subject to periodic examination by regulatory
agencies. These agencies may require charge-offs or additions to the allowance
based upon their judgments about information available at the time of their
examination.
The following tables present an allocation of the allowance for loan losses
by loan category as of the dates indicated. The allocation tables should not be
interpreted as an indication of the specific amounts, by loan classification, to
be charged to the allowance. Management believes that the table may be a useful
device for assessing the adequacy of the allowance as a whole. The table has
been derived in part by applying historical loan loss ratios to both internally
classified loans and the portfolio as a whole to determine the allocation of the
loan losses attributable to each category of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------- ---------------------- ----------------------
LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY
AS OF AS OF AS OF AS OF
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF GROSS OF TOTAL OF GROSS OF TOTAL OF GROSS OF TOTAL OF GROSS OF TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family......... $ 232 33.1% $ 213 33.2% $ 185 33.1% $ 159 34.7%
Construction....... 41 5.3 36 5.6 31 5.5 24 5.2
Other.............. 65 10.1 65 10.2 67 12.1 52 11.3
Commercial........... 1,015 36.9 945 36.8 750 33.5 577 31.3
Installment and
other.............. 570 14.6 550 14.2 537 15.8 484 17.5
Unallocated.......... 702 -- 732 -- 59 -- 222 --
------ ----- ------ ----- ------ ----- ------ -----
Total........ $2,625 100.0% $2,541 100.0% $1,629 100.0% $1,518 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1994
---------------------- ----------------------
LOANS IN LOANS IN
CATEGORY CATEGORY
AS OF AS OF
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF GROSS OF TOTAL OF GROSS OF TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate:
1-4 family......... $ 144 35.7% $ 135 38.6%
Construction....... 16 3.9 12 3.5
Other.............. 51 12.6 44 12.5
Commercial........... 477 29.5 374 26.6
Installment and
other.............. 444 18.3 395 18.8
Unallocated.......... 157 -- 239 --
------ ----- ------ -----
Total........ $1,289 100.0% $1,199 100.0%
====== ===== ====== =====
</TABLE>
The provision for loan losses takes into account many factors such as
Team's prior experience with loan losses and an evaluation of the risks in the
loan portfolio at any given time, including changes in economic, operating and
other conditions of borrowers, the economies in Team's areas of operations and,
to a lesser extent, the national economy. Management believes that the
approximate amount of charge-offs remaining in 1999 by loan category will be
consistent with historical experience. This is a good faith estimate only and is
subject to several factors beyond the control of Team.
Investments
Team invests a portion of its available funds in short-term and long-term
instruments, including federal funds sold and investment securities. Team's
investment portfolio is designed to provide liquidity for cash-flow
requirements, aid in the interest rate risk management process and provide
collateral for certain public deposits and other borrowing arrangements. At
March 31, 1999 and December 31, 1998, the investment portfolio was comprised
principally of obligations of the U.S. Government or its agencies, obligations
of states and political subdivisions and mortgage-backed securities.
23
<PAGE> 24
The following table presents Team's investments in certain securities
accounted for as available-for-sale and held-to-maturity. "Other" investments is
comprised of Federal Home Loan Bank stock, Federal Reserve stock, mutual funds
and certain equity securities, all of which carry no stated maturity.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------
1999 1998 1997 1996
--------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury and government agencies............. $ 43,449 $ 43,172 $ 59,395 $62,709
Obligations of state and political subdivisions... 2,237 2,471 2,205 2,177
Mortgage-backed securities........................ 63,070 59,785 37,326 --
Other............................................. 3,542 3,868 4,378 3,920
-------- -------- -------- -------
Total..................................... $112,298 $109,296 $103,304 $68,806
Securities held-to-maturity:
U.S. Treasury and government agencies............. $ 3,324 $ 3,925 $ 4,401 $ 4,729
Obligations of state and political subdivisions... 22,328 21,817 17,998 13,160
Mortgage-backed securities........................ -- -- -- --
Other............................................. 82 -- -- --
-------- -------- -------- -------
Total..................................... $ 25,734 $ 25,742 $ 22,399 $17,889
-------- -------- -------- -------
Total investment securities............... $138,032 $135,038 $125,703 $86,695
======== ======== ======== =======
</TABLE>
Team invests a portion of its available funds in short-term and long-term
instruments, including federal funds sold and investment securities. Team's
investment portfolio is designed to provide liquidity for cash-flow
requirements, aid in the interest rate risk management process and provide
collateral for certain public deposits and other borrowing arrangements. At
March 31, 1999, the investment portfolio was comprised principally of
obligations of the U.S. Government or its agencies, obligation of states and
political subdivisions, and mortgage backed securities.
At March 31, 1999 and December 31, 1998, the investment portfolio contained
no investments which were considered to be derivatives, structured notes or
similar instruments that are classified as "High-Risk Securities" as defined by
the Federal Financial Institutions Examinations Council.
The following tables set forth a summary of the maturities in the
investment portfolio at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------------------------------
OVER ONE YEAR OVER FIVE YEARS
THROUGH THROUGH
ONE YEAR OR LESS FIVE YEARS TEN YEARS OVER TEN YEARS TOTAL
----------------- --------------- --------------- -------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------ ------- ----- ------- ----- ------ ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
agencies.................. $18,076 6.43% $25,826 6.18% $2,397 6.11% $ 474 5.91% $ 46,773 6.27%
Obligations of states and
political subdivisions.... 1,118 7.46 7,919 7.46 9,534 7.11 5,994 7.40 24,565 7.31
Mortgage-backed
securities................ 19,086 5.65 34,362 6.52 7,496 6.07 2,126 6.77 63,070 6.18
Other(1).................... 3,624 -- -- -- -- -- -- -- 3,624 --
------- ---- ------- ---- ------- ---- ------ ---- -------- ----
Total............... $41,904 $68,107 $19,427 $8,594 $138,032
======= ======= ======= ====== ========
</TABLE>
- ---------------
(1) Other securities consist principally of Federal Home Loan Bank stock,
Federal Reserve stock, and mutual funds which have no stated yield.
24
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
OVER ONE YEAR OVER FIVE YEARS
THROUGH THROUGH
ONE YEAR OR LESS FIVE YEARS TEN YEARS OVER TEN YEARS TOTAL
----------------- --------------- --------------- -------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------ ------- ----- ------- ----- ------ ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies.... $14,297 6.35% $30,895 6.23% $ 1,412 5.73% $ 493 5.96% $ 47,097 6.25%
Obligations of states and
political subdivisions...... 1,219 7.62 7,472 7.47 9,714 7.40 5,883 7.41 24,288 7.43
Mortgage-backed securities.... 28,029 5.95 23,719 6.16 6,502 6.10 1,535 5.73 59,785 6.04
Other(1)...................... 3,868 -- -- -- -- -- -- -- 3,868 --
------- ------- ------- ------ --------
Total................ $47,413 $62,086 $17,628 $7,911 $135,038
======= ======= ======= ====== ========
</TABLE>
- ---------------
(1) Other securities consist principally of Federal Home Loan Bank stock,
Federal Reserve stock, and mutual funds which have no stated yield.
Deposits
Team's primary source of funds has historically been customer deposits,
which totaled $375.2 million at March 31, 1999, a $9.1 million decrease from
December 31, 1998. Deposits increased to $384.3 million at December 31, 1998
from $225.7 million at December 31, 1995, representing a $158.7 million
increase. The increase is the result of the purchase of three bank branches and
a bank with aggregate deposits of $115.0 million and internal growth of $43.7
million.
The following table sets forth the average balances and weighted average
rates for Team's categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------------------- ------------------------------------------------------------
1999 1998 1998 1997 1996
------------------ ------------------ ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE BALANCE BALANCE BALANCE BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand................. $ 39,013 --% $ 36,787 --% $ 39,707 --% $ 32,493 --% $ 23,747 --%
Interest-bearing
demand................. 110,585 2.89 100,767 3.19 107,412 3.12 85,065 3.18 69,579 3.11
Savings.................. 20,049 2.61 18,017 2.71 19,551 2.68 16,669 2.84 14,528 2.84
Time..................... 206,236 5.22 186,716 5.56 198,006 5.52 153,135 5.62 124,577 5.58
-------- -------- -------- -------- --------
Total............ $375,883 $342,287 $364,676 $287,362 $232,431
======== ======== ======== ======== ========
</TABLE>
The following table summarizes at March 31, 1999 and December 31, 1998,
Team's certificates of deposit of $100,000 or more by time remaining until
maturity.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
REMAINING MATURITY
Less than three months...................................... $18,919 $19,911
Three months up to six months............................... 9,780 9,650
Six months up to one year................................... 8,895 8,834
One year and over........................................... 9,715 7,073
------- -------
Total.............................................. $47,309 $45,468
======= =======
</TABLE>
FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK BORROWINGS
Team's subsidiary banks are members of the Federal Home Loan Bank of Topeka
(FHLB), which is one of 12 regional Federal Home Loan Banks. The FHLB system
functions as a central bank providing credit for members. As members of the
FHLB, Team's subsidiary banks are entitled to borrow funds from the FHLB and are
required to own FHLB stock in an amount determined by a formula based upon total
assets and FHLB borrowings. Team's subsidiary banks may use FHLB borrowings to
supplement deposits
25
<PAGE> 26
as a source of funds. At March 31, 1999 and December 31, 1998, FHLB borrowings
aggregated $9.2 million, compared to $2.6 million at December 31, 1997. At March
31, 1999, based on its FHLB stockholdings, the aggregate available and unused
borrowing capacity of Team's subsidiary banks was approximately $58.8 million
which was available through a line of credit and term advances. FHLB borrowings
are collateralized by FHLB stock and certain qualifying mortgage loans of Team.
A variety of borrowing terms and maturities can be chosen from the FHLB.
Maturities available range generally from one day up to 15 years. Interest rates
can be either fixed or variable and prepayment options are available if desired.
The FHLB offers both amortizing and non-amortizing advances. To date, FHLB stock
has been redeemable at the preset price of $100 per share, but there can be no
assurance that this policy will continue.
Three of Team's banks, TeamBank, N.A., Iola Bank and Trust Company and
First National Bank and Trust Co., Inc., are member banks of the Federal Reserve
Bank of Kansas City and may use the Federal Reserve Bank discount window to meet
short-term funding needs. These loans are available on a secured basis.
Generally the banks pledge U.S. Government or qualifying municipal securities
for these notes. None of Team's subsidiary banks has utilized short-term Federal
Reserve Bank borrowings for over five years.
CAPITAL RESOURCES
Team monitors compliance with bank and bank holding company regulatory
capital requirements, focusing primarily on risk-based capital guidelines. Under
the risk-based capital method of capital measurement, the ratio computed is
dependent upon 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. Included in the risk-based capital method are two measures
of capital adequacy, core capital and total capital, which consists of core and
secondary capital. See "Supervision and Regulation -- Team -- Capital Adequacy."
26
<PAGE> 27
The following tables present Team's capital ratios as of the indicated
dates.
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIOS
--------------------------------------------------------
AT DECEMBER 31,
AT MARCH 31, ------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Core capital.......................... $ 19,987 7.68% $ 18,936 7.05% $ 17,823 6.97%
Core capital minimum requirement(1)... 10,410 4.00 10,737 4.00 10,224 4.00
-------- ---- -------- ---- -------- -----
Excess................................ $ 9,577 3.68% $ 8,199 3.05 $ 7,599 2.97
======== ==== ======== ==== ======== =====
Total risk-based capital.............. $ 22,612 8.69% $ 21,477 8.00% $ 19,452 7.61%
Total risk-based capital
requirement......................... 20,820 8.00 21,474 8.00 20,450 8.00
-------- ---- -------- ---- -------- -----
Excess (deficit)...................... $ 1,792 0.69% $ 3 0.00 $ (998) (0.39)
======== ==== ======== ==== ======== =====
Total risk adjusted
assets.................... $260,244 $260,433 $255,621
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIOS
---------------------------------------------------------
AT DECEMBER 31,
AT MARCH 31, -------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Core capital.......................... $ 19,987 4.67% $ 18,936 4.50% $ 17,823 5.39%
Core capital minimum requirement(2)... 17,343 4.00 16,847 4.00 13,235 4.00
-------- ---- -------- ---- -------- ----
Excess................................ $ 2,644 0.67% $ 2,089 0.50% $ 4,588 1.39%
======== ==== ======== ==== ======== ====
Average total assets.................. $433,564 $421,184 $330,884
======== ======== ========
</TABLE>
- ---------------
(1) Based on risk-based capital guidelines of the Federal Reserve, a bank
holding company is required to maintain a core capital to risk-adjusted
assets ratio of 4% and a total capital, risk based, to risk-adjusted assets
ratio of 8%.
(2) The leverage ratio is defined as the ratio of core capital to average
tangible assets. Based on Federal Reserve guidelines, a bank holding company
generally is required to maintain a leverage ratio in excess of 4%.
LIQUIDITY
Team continuously forecasts and manages its liquidity in order to satisfy
cash flow requirements of depositors and borrowers and allow Team to meet its
own cash flow needs. Team has developed internal and external sources of
liquidity to meet its continued growth needs. These include, but are not limited
to, the ability to raise deposits through branch promotional campaigns, maturity
of overnight funds, short term investment securities classified as
available-for-sale and draws on credit facilities established through the
Federal Home Loan Bank.
Upon completion of this offering, management fully expects that a public
market for Team common stock will develop and will exist for the foreseeable
future. However, in the event a public market for Team's common stock no longer
existed, under the provisions of Team's ESOP and the requirements of the
Internal Revenue Code, Team would be obligated to repurchase shares of common
stock distributed to participants of the ESOP who terminate employment or who
elect to diversify their ESOP accounts. The dollar amount of any repurchase
obligation would be computed after the ESOP allocations are made following a
year end appraisal. The obligation would be the amount that Team would be
required to fund, if the ESOP did not choose or was not sufficiently liquid to
meet the obligation initially, for those people who terminated employment during
the previous year or who elected diversification distributions, and assuming
that no public market for the common stock exists.
27
<PAGE> 28
Computing ESOP values requires an employer to study the population of the
participants to determine the retirement dates, and to factor in change of
employment, disability, death, and other termination facts which occur in the
course of employee terminations. The studies also include projections for the
future value of stock, dividends paid on stock, and the projected amount of the
contributions to the plan for the participants' benefit. The valuation would
provide Team with an estimate of the amount of liquidity required to be
available. Assuming no public market for Team stock, the repurchase obligation
at December 31, 1998 would have been in the range of $17.0 million, payable over
six years. See note 10 of the consolidated financial statements for further
information.
ASSET/LIABILITY MANAGEMENT
Asset and liability management encompasses both interest rate risk and
liquidity management. Team's net interest margin can be vulnerable to
significant fluctuations arising from a change in the general level of interest
rates which may affect yield on interest earning assets differently than the
cost of interest bearing liabilities. Team monitors its asset and liability mix
monthly in an effort to maintain consistent earnings performance through control
of interest rate risk.
Below is a static gap schedule for Team as of March 31, 1999. This is just
one of several tools which may be used to measure and manage interest rate
sensitivity. Earning assets and interest-bearing liabilities are presented below
within selected time intervals based on their repricing and maturity
characteristics. In this view, the sensitivity position is perfectly matched
when an equal amount of assets and liabilities reprice during any given time
period. Excess assets or liabilities repricing in a given time period result in
the interest rate gap shown in the table. A positive gap indicates more assets
than liabilities will reprice in that time period, while a negative gap
indicates more liabilities than assets will reprice.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT MARCH 31, 1999
----------------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.............................. $ 42,160 $ 70,546 $ 89,909 $47,655 $250,280
Investment securities -- taxable... 7,942 32,844 60,188 12,493 113,467
Investment
securities -- nontaxable........ 134 984 7,919 15,528 24,565
Federal funds sold and interest
bearing deposits................ 6,467 -- -- -- 6,467
--------- --------- -------- ------- --------
Total interest-earning
assets................... 56,703 104,374 158,016 75,686 394,779
Interest-bearing liabilities:
Savings and interest bearing
demand.......................... 127,521 -- -- -- 127,521
Time deposits less than $100,000... 28,990 78,707 51,319 1,639 160,655
Time deposits greater than
$100,000........................ 18,919 9,780 8,895 9,715 47,309
Federal funds purchased and
securities sold under agreements
to purchase..................... 3,663 2,799 -- -- 6,462
Notes payable...................... 2,013 13,543 1,621 5,881 23,058
--------- --------- -------- ------- --------
Total interest-bearing
liabilities.............. $ 181,106 $ 104,829 $ 61,835 $17,235 $365,005
Interest rate gap.................... $(124,403) $ (455) $ 96,181 $58,451 $ 29,774
Cumulative interest rate gap......... $(124,403) $(124,858) $(28,677) $29,774
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities........................ 31.31% 56.33% 91.75% 108.16%
Ratio of cumulative interest rate gap
to interest-earning assets......... (219.39)% (77.51)% (8.99)% 7.54%
</TABLE>
The table indicates that Team is liability sensitive in the less than three
month period and the three months to less than one year period, and it is asset
sensitive for all other periods. This means that during the first two period
classifications, interest bearing liabilities reprice faster than interest
earning assets,
28
<PAGE> 29
thereby improving net interest income when rates are falling and reducing net
interest income when rates are rising. While the "static gap" method is a widely
used measure of interest sensitivity, it is not, in management's opinion, the
only indicator of Team's interest rate sensitivity position.
The following table indicates that at March 31, 1999, if there had been a
sudden and sustained increase in prevailing market interest rates, Team's 1999
interest income would be expected to decrease, while a decrease in rates would
indicate an increase in income.
<TABLE>
<CAPTION>
NET INTEREST (DECREASE) PERCENT
CHANGES IN INTEREST RATES INCOME INCREASE CHANGE
- ------------------------- ------------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
200 basis point rise................................... $15,618 $(305) (3.13)%
100 basis point rise................................... 15,871 (252) (1.56)
Base rate scenario..................................... 16,123 -- --
100 basis point decline................................ 16,312 189 1.17
200 basis point decline................................ 16,560 437 2.71
</TABLE>
EFFECTS OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates. Over short periods of time rates may not move in the same
direction or magnitude as inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133, Accounting
for Derivative Financial Instruments and Hedging Activities which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
adoption of the standard is not expected to have a significant impact on the
consolidated financial statements of Team.
YEAR 2000 CONSIDERATIONS
As the year 2000 approaches, a significant business issue has emerged
regarding how existing software programs and operating systems can accommodate
the date value for the year 2000. Many existing software products, including
products used by Team and its affiliates were designed to accommodate only a
two-digit date value, which represents the year. For example, information
relating to the year 1996 is stored in the system as 96. As a result, the year
1999 could be the maximum date value that these systems will be able to process
accurately. Regulatory agencies monitor bank holding companies and banks'
readiness for the year 2000 as part of the regular examination process.
Team believes that with modifications to existing software and conversion
to new software, the year 2000 issue will not pose significant operational
problems for Team's business operations. Substantially all data processing
services for Team are provided by M&I Data Services, a subsidiary of M&I Bank,
Milwaukee, Wisconsin. M&I Data Services' Year 2000 Outsourcing Solution division
has received Information Technology Association of America 2000 certification.
M&I Data Services provides bi-monthly written status reports to management.
Reports to date indicate that M&I Data Services has met all target dates and is
prepared to meet all future target dates for completion of the project.
Currently one of Team's banks is not on the M&I Data Services system. Management
expects this bank to be converted to the M&I Data Services system by the end of
the second quarter 1999. Management is not aware of limitations on Team's legal
remedies should the conversion not be completed on time.
29
<PAGE> 30
Additionally, implementation of Team's plan to test in-house software has
been underway since the fourth quarter of 1998. Testing of applications
considered to be mission critical was completed in the first quarter of 1999.
Total compliance for all systems, including Team's outsourced computer systems,
is expected by management to be completed by the second quarter of 1999.
Management currently estimates that year 2000 compliance for Team will cost
$500,000. Of this amount, $65,000 was expensed through March 31, 1999. Team
expects that the remaining amount will be expended during the remainder of 1999,
of which $55,000 will be expensed and $380,000 will be capitalized. The plan
implementation team is responsible for progress and will continue to provide a
status report to the board of directors on a bi-monthly basis through December
31, 1999. However, if the modifications and conversion are not made, or are not
completed on time, the year 2000 issue could have a material adverse impact on
the operations of Team. Because of the factors discussed below, management
cannot estimate with any reasonable degree of certainty the magnitude of lost
revenues should the worst case scenario develop in which Team would need to
fully implement its contingency plan to operate in the year 2000 environment and
noncompliant customers are unable to repay their loans.
Team is developing a contingency plan in the event services from its
outsourced computer systems are not available in the year 2000. The essential
elements of this plan include procedures to be followed in the event of
disruptions to business which may impact Team's customers and business partners,
as well as procedures to handle business disruptions from natural disasters and
utility outages. This plan will be completed and tested by the end of the second
quarter 1999. In the event Team were to fully implement all phases of the
contingency plan, management believes that operational costs would increase
modestly.
Team's banks have sent direct mail to their customers regarding the year
2000 issue and the need for readiness pursuant to guidelines of the banking
industry regulators. Management continues to solicit customer response. Failure
of customers to prepare for year 2000 compatibility could have a significant
adverse effect on customers' operations and profitability, thus inhibiting their
ability to repay loans and adversely affecting Team's operations. At this time,
Team is unable to estimate with reliability the degree to which customers'
operations are susceptible to potential problems relating to the year 2000 issue
or, further, to quantify the potential lost revenue to Team in this case.
30
<PAGE> 31
BUSINESS
OVERVIEW
Team was formed in 1986 when its founders, including Robert J. Weatherbie,
Chairman and Chief Executive Officer, Michael J. Gibson,
President -- Acquisitions/Investments and Chief Financial Officer and Carolyn S.
Jacobs, Treasurer, along with an Employee Stock Ownership Plan or ESOP,
purchased a one-bank holding company in Paola, Kansas in a leveraged
transaction. A majority of the funding for the transaction was obtained through
ESOP borrowings which were guaranteed by Team. ESOP borrowings at December 31,
1998 were $1.0 million, a decrease from its high of $3.5 million at December 31,
1992. Since 1986, total principal payments on debt by the ESOP have been $4.6
million. Contributions by Team to the ESOP through March 31, 1999 were $4.9
million.
Team is majority owned by its ESOP. See "Principal Shareholders and Selling
Shareholder." Management believes that the ESOP reflects Team's corporate
culture that employees are the integral component of a financial institution.
Management intends to continue the ESOP, as it is a significant incentive to
attract and retain qualified employees. In addition, because of tax advantages
which are only available to the ESOP, it can be used to assist in financing
acquisitions. Management believes that Team is the only ESOP majority-owned
multi-bank holding company in Team's market areas.
Since 1986 Team has grown from a one-bank holding company with $85 million
in assets to a multibank holding company with $435 million in assets as of March
31, 1999. This growth was achieved primarily through seven acquisitions of
community banks or branches of large banks that were sold to Team as a result of
consolidations. Additional asset growth was achieved through internal growth, as
well as the establishment of three new branches during the past five years.
The following table summarizes Team's asset growth through its bank
subsidiaries.
<TABLE>
<CAPTION>
DATE OF ASSET SIZE AT
ACQUISITION DATE OF ACQUISITION ASSET SIZE AT
TYPE OF TRANSACTION AND ENTITY OR FORMATION OR FORMATION MARCH 31, 1999
- ------------------------------ ------------ ------------------- --------------------
(IN MILLIONS)
<S> <C> <C> <C>
Bank purchase -- TeamBank, N.A. .................. 1986 $ 85 *
Paola, Kansas
Bank purchase -- American State Bank............ 1993 18 *
Osawatomie, Kansas
Branch startup.................................. 1994 -- *
Spring Hill, Kansas
Branch startup.................................. 1995 -- *
DeSoto, Kansas
Branch purchase -- Mercantile Bancorporation.... 1997 30 *
Nevada, Missouri
Branch purchase -- Roosevelt Bank............... 1997 39 *
Lamar, Missouri
Branch purchase -- NationsBank.................. 1998 34 *
---- ----
Ottawa, Kansas
Total for TeamBank, N.A. ............... $206 $257
Bank purchase -- Iola Bank and Trust Company...... 1990 35 83
Iola, Kansas
Bank purchase -- First National Bank and Trust
Co., Inc........................................ 1992 42 62
Parsons, Kansas
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
DATE OF ASSET SIZE AT
ACQUISITION DATE OF ACQUISITION ASSET SIZE AT
TYPE OF TRANSACTION AND ENTITY OR FORMATION OR FORMATION MARCH 31, 1999
- ------------------------------ ------------ ------------------- --------------------
(IN MILLIONS)
<S> <C> <C> <C>
Bank purchase -- Crown Bancshares, Inc............ 1996 25 33
Omaha, Nebraska
Branch startup.................................. 1998 -- *
---- ----
Omaha, Nebraska
Total assets............................ $308 $435
==== ====
</TABLE>
- ---------------
* Team does not maintain separate branch asset information.
Fundings for the acquisitions were made through a combination of debt,
private stock issuances as well as ESOP borrowings which were either guaranteed
by or made by Team loaning the proceeds to the ESOP. See notes 9 and 14 to the
consolidated financial statements. Contributions by Team to the ESOP, along with
cash dividends paid by Team on shares of common stock held by the ESOP, are used
by the ESOP to pay principal and interest on the borrowings. See note 10 to the
consolidated financial statements. In the event Team acquires banks or bank
branches in the future, management expects that similar funding arrangements may
be used.
Team has four wholly-owned bank subsidiaries. The table below presents
information concerning these subsidiaries. Team expects to consolidate or merge
TeamBank Nebraska into TeamBank, N.A. during 1999.
<TABLE>
<CAPTION>
NUMBER OF ASSET SIZE AT
NAME OF BANK BANKING LOCATIONS LENDING LIMIT MARCH 31, 1999
- ------------ ----------------- ------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
TeamBank, N.A. ........................... 9 $2.90 $257
Freeman, Missouri, a
national banking association
Iola Bank and Trust Company............... 1 1.70 83
Iola, Kansas, a Kansas
state chartered bank
First National Bank and Trust Co.,
Inc. ................................... 1 0.80 62
Parsons, Kansas, a national
banking association
TeamBank Nebraska......................... 3 0.57 33
Omaha, Nebraska, a Nebraska
state chartered bank
</TABLE>
MARKET AREAS
TeamBank, N.A. TeamBank, N.A.'s primary Kansas service area is in Miami
County, Kansas with a total 1997 estimated population of 26,000. Located in the
Kansas City metropolitan area, Miami County adjoins Johnson County, Kansas,
which is one of the highest per capita income counties in the United States. As
of February 1998, Miami County had 550 businesses and an unemployment rate of
3.2%. Total deposits in FDIC-insured financial institutions located in Miami
County were $342.7 million as of June 30, 1998 and TeamBank, N.A. had the
largest market share in that group, 35%.
TeamBank, N.A.'s Miami County branches are located in Paola, the county
seat of Miami County with 1997 estimated population of 5,500, and Osawatomie,
the second largest city in the county, with 1997 estimated population of 5,000.
Another TeamBank, N.A. Kansas branch location is Ottawa, which is the county
seat of adjoining Franklin County, Kansas, with a total estimated 1997
population of 23,000. TeamBank, N.A. also operates two branches in Johnson
County, Kansas which has a total estimated 1997 population of approximately
417,000. According to available statistical data, TeamBank, N.A.'s Johnson
32
<PAGE> 33
County branches have less than 1% of the total deposits in all FDIC-insured
institutions in the county which totals approximately $7.2 billion.
TeamBank, N.A. is chartered in Freeman, Missouri, located in Cass County,
Missouri which adjoins Miami County, Kansas. However, TeamBank, N.A.'s primary
Missouri service area is in Barton and Vernon counties which adjoin each other
and are located in the southwest section of Missouri along the Kansas-Missouri
border. Barton County has an estimated 1997 population of 12,000. As of 1997,
Barton County had an estimated unemployment rate of 3.7%. Of the total deposits
in FDIC-insured financial institutions in Barton County, TeamBank, N.A. has 16%
of the market. Vernon County has an estimated 1997 population of 18,000 and an
unemployment rate of 4.4%. Of the total deposits in FDIC-insured financial
institutions located in Vernon County, TeamBank, N.A. has 12% of the market.
According to Missouri Regional Economic Profiles produced in July 1998 per
capita income in the southwest region increased 34% between 1990 and 1996
compared to a 9% increase in the United States.
Iola Bank and Trust Company. The primary Kansas service area of Iola Bank
and Trust Company is in Allen County, Kansas, with a total estimated 1996
population of 14,600. Iola Bank and Trust Company is the leading provider of
financial services in Allen County. As of June 30, 1998 Iola Bank and Trust
Company had an approximate 32% market share of the $221 million total deposits
made in all FDIC-insured financial institutions operating in Allen County.
According to the most recent statistics as of October 1998, Allen County had an
unemployment rate of approximately 4.9%. Allen County's primary economic
activity is farming, with 55% of the 323,100 acres being crop land and 35%
pasture and range. Allen County has 25 industries, and the majority of
industrial employment is textile mill products, concrete products, rubber and
plastics, transportation equipment, and food products.
First National Bank and Trust Co., Inc. First National Bank and Trust Co.,
Inc.'s primary Kansas service area is in Labette County, Kansas, with a total
estimated population of 22,850 as of July 1997. Labette County is located in
southeast Kansas along the Oklahoma-Kansas border. First National Bank and Trust
Co., Inc. is the third largest financial institution in Labette County based
upon its 25% market share of deposits in all FDIC-insured financial institutions
operating in Labette County. According to the most recent statistics available
as of October 1998, Labette County had an unemployment rate of approximately
4.7%. Labette County has a significant industrial base with a majority of its
employment in printing, metal fabrication and machinery.
TeamBank Nebraska. TeamBank Nebraska operates three facilities in the
Omaha, Nebraska metropolitan area. The primary Nebraska service area is in
Douglas and Sarpy Counties with a combined total estimated 1998 population of
575,000. As of June 30, 1998, total deposits in FDIC-insured financial
institutions located in the two county area were $9 billion, of which TeamBank
Nebraska had less than 1%. As of October 1998, the Omaha area had an
unemployment rate of approximately 2%. Employment in the area is diversified
throughout insurance and other financial services companies, as well as small to
medium-sized businesses.
GROWTH STRATEGIES
Team's growth strategy is focused on a combination of acquisitions,
existing branch growth and establishing new branches.
Acquisitions. Management believes that the consolidation in the banking
industry, along with the easing of branch banking throughout Kansas, Missouri,
Nebraska, Oklahoma and Iowa, as well as increased regulatory burdens, concerns
about technology and marketing, are likely to lead owners of community banks
within these areas to explore the possibility of sale or combination with a
broader-based holding company such as Team.
In addition, branching opportunities have arisen as a result of divestiture
of branches by large national and regional bank holding companies of certain
overlapping branches resulting from consolidations. As a result, branch
locations have become available from time to time for purchase by Team. Team
completed
33
<PAGE> 34
three branch acquisitions from 1997 through 1998. See note 14 to the
consolidated financial statements. At this time, Team does not have any
agreements, either written or oral, for acquisitions.
Management's strategy in assimilating acquisitions is to emphasize revenue
growth as well as continuously review the operations of the acquired entities
and streamline operations where feasible. Management does not believe that
implementing wholesale administrative cost reductions in acquired institutions
are beneficial to Team's long-term growth, because significant administrative
changes in smaller banks can have an adverse impact on customer satisfaction in
the acquired institution's community. However, management has determined that
certain processing and accounting functions can be consolidated immediately upon
acquisition to achieve higher productivity levels without compromising customer
service. Increases in revenue growth are emphasized by offering customers a
broader product line consistent with full service banking.
Branch Expansion. Since 1994, Team has established three new branches.
Because of the significant economic growth in the Omaha, Nebraska area, as well
as Johnson County, Kansas, over the past several years, management intends to
focus short term branch expansion in these two areas. However, management does
not rule out branch expansion in other areas experiencing economic growth.
Management has considered and intends to consider a variety of criteria
when evaluating potential acquisition candidates or branching opportunities.
These include:
- the geographic market location of the potential acquisition target or
branch and demographics of the surrounding community;
- the financial soundness of a potential acquisition target;
- opportunities to improve the efficiency and/or asset quality of an
acquisition target through merger;
- the effect of the acquisition on earnings per share and book value.
Management seeks to undertake acquisitions that will be accretive to
earnings within 18 months of the acquisition;
- whether Team has sufficient management and other resources to integrate
or add the operations of the target or branch; and
- the investment required for, and opportunity costs of, the acquisition or
branch.
Internal Growth. Management believes that Team's largest source of internal
growth is through Team's ongoing solicitation program conducted by bank
presidents and lending officers, followed by referrals from customers. The
primary reason for referrals is positive customer feedback regarding Team's
customer service and response time.
Team's goal in continuing its expansion is to maintain a profitable,
customer-focused financial institution. Management believes that Team's existing
structure, management, data and operational systems are sufficient to achieve
further internal growth in asset size, revenues and capital without
proportionate increases in operating costs. This growth should also allow Team
to increase the lending limits of its banks, thereby enabling Team to increase
its ability to serve the needs of existing and new customers. Team's operating
strategy has always been to provide high quality community banking services to
its customers and increase market share through active solicitation of new
business, repeat business and referrals from customers, and continuation of
selected promotional strategies.
For the most part, Team's banking customers seek a banking relationship
with a service-oriented community banking organization. Team's operational
systems have been designed to facilitate personalized service. Management
believes Team's banking locations have an atmosphere which facilitates
personalized services and decision-making, yet are of sufficient financial size
with broad product lines to meet customers' needs. Management also believes that
economic expansion in Team's market areas will continue to contribute to
internal growth. Through Team's primary emphasis on customer service and its
34
<PAGE> 35
management's banking experience, Team intends to continue internal growth by
attracting customers and primarily focusing on the following:
- Products Offered -- Team offers personal and corporate banking services,
trusts and estate planning, mortgage origination, mortgage servicing,
personal investment, and financial counseling services as well as
telephone banking. Team offers a full range of commercial banking
services, including the following: checking accounts, ATM's, checking
accounts with interest, savings accounts, money market accounts,
certificates of deposit, NOW accounts, Individual Retirement Accounts,
brokerage and residential mortgage services, branch banking, and Team
Financial Visa debit cards and Visa/MC credit cards. Team also offers
installment loans, including auto, recreational vehicle, and other
secured and unsecured loans sourced directly by its branches. See
"-- Loans" below for a discussion of products Team provides to commercial
accounts.
- Operational Efficiencies -- Team seeks to maximize operational and
support efficiencies consistent with maintaining high quality customer
service. All of Team's banks are on a common information system designed
to enhance customer service and improve efficiencies by providing
system-wide voice and data communication connections. Team has
consolidated loan processing, bank balancing, financial reporting,
investment management, information system, payroll and benefit
management, loan review and audit. A common data processing system will
be fully implemented in mid-1999.
- Marketing Activities -- Team focuses on an active solicitation program
for new business, as well as identifying and developing products and
services that satisfy customer needs. Team's marketing programs also
utilize local print and promotional materials in each location. Team also
actively sponsors community events within its branch areas. Management
believes that active community involvement contributes to Team's
long-term success.
LOANS
Team provides a broad range of commercial and retail lending services. Each
of Team's banks follow a uniform credit policy which contains underwriting and
loan administration criteria, levels of loan commitment, loan types, credit
criteria, concentration limits, loan administration, loan review and grading and
related matters. In addition, Team provides ongoing loan officer training and
review, obtains outside independent loan reviews and operates a centralized
processing and servicing center for loans. At March 31, 1999, substantially all
loans outstanding were to customers within Team's market areas.
Loan Administration. Team maintains a loan committee approach to lending,
which it believes yields positive results in both responsiveness to customer
needs and asset quality. Each Team bank has a loan committee, which meets at
least once per week to review and discuss loans. Each of Team's banks has a loan
level threshold which, if exceeded, requires the approval of Team's loan
committee, which meets on an on-call basis. Loans greater than $2.5 million
require the approval of the board of directors of Team.
Interest rates charged on loans vary with the degree of risk, maturity,
costs of underwriting and servicing, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, availability of funds and government regulations. Most of the loans
in Team's portfolio at March 31, 1999, had floating interest rates.
Real Estate Loans. These loans include various types of loans for which
Team holds real property as collateral. Of the $121.8 million of real estate
loans at March 31, 1999, approximately $82.8 million were first mortgages on
homes. Interest rates on these loans typically adjust annually. Real estate
construction loans include commercial and residential real estate construction
loans, but are principally made to builders to construct business buildings or
single and multi-family residences. Real estate construction loans typically
have maturities of six to 12 months, and charge origination fees. Terms may vary
depending upon many factors, including location, type of project and financial
condition of the borrower. It is Team's standard practice in making commercial
loans to receive real estate as collateral in addition to other appropriate
collateral. Therefore, loans categorized in the other real estate loan category
can be characterized as commercial loans which are secured by real estate.
Commercial loans secured by real
35
<PAGE> 36
estate typically have adjustable interest rates. The primary risks of real
estate mortgage loans include the borrower's inability to pay and deterioration
in value of real estate that is held as collateral.
Commercial Loans. These loans consist primarily of loans to businesses for
various purposes, including revolving lines of credit and equipment financing.
The loans secured by collateral other than real estate, generally mature within
one year, have adjustable interest rates and are secured by inventory, accounts
receivable, machinery, government guarantees, or other commercial assets.
Revolving lines of credit are generally for business purposes, mature annually
and have adjustable interest rates. The primary repayment risk of commercial
loans is the failure of the borrower's business due to economic or financial
factors.
Agricultural Loans. Team makes a variety of agricultural loans which are
included in real estate and commercial loans. These loans relate to equipment,
livestock, crops and farmland. The primary risks of agricultural loans include
the prices of crops and livestock, as well as weather conditions.
Installment Loans. Installment loans are primarily to individuals, are
typically secured by the financed assets, generally have terms of two to five
years and bear interest at fixed rates. These loans usually are secured by motor
vehicles or other personal assets and in some instances are unsecured. The
primary risk of consumer lending relates to the personal circumstances of the
borrower.
LETTERS OF CREDIT
In the ordinary course of business, Team issues letters of credit. See note
15 to the consolidated financial statements. Team applies the same credit
standards to these commitments as it uses in all its lending activities and has
included these commitments in its lending risk evaluations. Team's exposure to
credit loss under letters of credit is represented by the amount of these
commitments.
COMPETITION
Team faces a high degree of competition. In its market areas, there are
numerous small banks and several larger national and regional financial banking
groups. Team also competes with insurance companies, savings and loan
associations, credit unions, leasing companies, mortgage companies, and other
financial service providers. Many of the banks and other financial institutions
with which Team competes have capital resources and legal lending limits
substantially in excess of the capital resources and legal lending limits of
Team.
Team competes for loans and deposits principally based on the availability
and quality of services provided, responsiveness to customers, interest rates,
loan fees and office locations. Team actively solicits deposit customers and
competes by offering them high quality customer service and a complete product
line. Team believes its personalized customer service, broad product line and
banking franchise enable it to compete effectively in its market area.
Team faces competition for its personnel. Team competes through its
emphasis as a community banking culture and through the use of its ESOP.
Management believes that Team is able to compete for personnel effectively in
Team's market areas because the ESOP provides incentives for employees to join
Team and motivation to enhance shareholder value.
Team will also face significant competition from other financial
institutions in any potential acquisitions. Many of these competitors have
substantially greater resources than Team.
36
<PAGE> 37
PROPERTIES
The table below presents property information concerning the offices of
Team and its subsidiary banks.
<TABLE>
<CAPTION>
YEAR TYPE OF SQUARE FOOTAGE
NAME AND ADDRESS OF OFFICE OPENED INTEREST OF FACILITY
- -------------------------- ------ -------- --------------
<S> <C> <C> <C>
Team Financial, Inc................................... 1986 Leased 5,000
8 West Peoria
Paola, Kansas 66071
TeamBank, N.A., Paola Branch.......................... 1986 Owned 17,951
1 South Pearl
Paola, Kansas 66071
East Bank -- Paola Branch............................. 1988 Owned 9,630
1515 Baptiste Drive
Paola, Kansas 66071
TeamBank, N.A., DeSoto Branch......................... 1994 Owned 6,800
34102 West 92 Street
DeSoto, Kansas 66018
TeamBank, N.A., Freeman............................... 1997 Leased 1,375
100 West Main Street
Freeman, Missouri 64746-0246
TeamBank, N.A., Lamar Branch.......................... 1997 Leased 2,650
127 West 11th Street
Lamar, Missouri 64759
TeamBank, N.A., Nevada Branch......................... 1997 Owned 16,000
201 East Cherry
Nevada, Missouri 64772
TeamBank, N.A., Osawatomie Branch..................... 1993 Owned 4,756
6th and Brown
Osawatomie, Kansas 66064
TeamBank, N.A., Ottawa Branch......................... 1998 Owned 8,000
421 South Hickory
Ottawa, Kansas 66067
TeamBank, N.A., Spring Hill Branch.................... 1994 Leased 600
110 East Wilson
Spring Hill, Kansas 66083
Iola Bank and Trust Company (Main Office)............. 1990 Owned 13,768
119 East Madison
Iola, Kansas 66749
First National Bank of Parsons (including drive in)... 1992 Owned 11,000
1902 Main
Parsons, Kansas 66357
TeamBank Nebraska (Main Office)....................... 1996 Leased 4,679
1902 Harlan Drive
Bellevue, Nebraska 68005
TeamBank Nebraska -- Bellevue Branch.................. 1996 Leased 1,980
7001 South 36th
Bellevue, Nebraska 68147
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
YEAR TYPE OF SQUARE FOOTAGE
NAME AND ADDRESS OF OFFICE OPENED INTEREST OF FACILITY
- -------------------------- ------ -------- --------------
<S> <C> <C> <C>
TeamBank Nebraska -- Omaha Branch..................... 1998 Leased 3,000
2809 South 160th Street, #20
Omaha, Nebraska 68130
</TABLE>
Other than the Spring Hill branch, which is leased on a month-to-month basis,
all of the leased properties are leased from unrelated third parties and are
subject to long-term leases, none of which expire prior to the year 2002.
LEGAL PROCEEDINGS
Team and its subsidiaries are from time to time parties to various legal
actions arising in the normal course of business. Management believes that there
is no proceeding threatened or pending against Team or any of its subsidiaries
which, if determined adversely, would have a material adverse effect on the
financial condition or results of operations of Team.
EMPLOYEES
As of March 31, 1999, Team had approximately 210 full-time equivalent
employees. Neither Team nor any of its subsidiaries is a party to any collective
bargaining agreement. Management considers Team's relationship with its
employees to be good.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Team, their respective ages and
positions as of May 1, 1999, are as follows:
<TABLE>
<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
<S> <C> <C> <C>
Robert J. Weatherbie............ 52 Chief Executive Officer and 1986
Chairman of the Board
Michael L. Gibson............... 52 President -- Acquisitions/ 1986
Investments, Chief Financial
Officer and Director
Carolyn S. Jacobs............... 55 Senior Vice President and Trust 1986
Officer of TeamBank, N.A. and
Treasurer and Director(2)
Neil Blakeman................... 59 Executive Vice President of 1986
TeamBank, N.A. and Director
Denis A. Kurtenbach............. 61 Director(1)(2) 1995
Glen E. Gilpin.................. 76 Director(1) 1997
R.G. (Gary) Kilkenny............ 67 Director(1)(2) 1997
Montie K. Taylor................ 48 Director 1997
Rick P. Bartley................. 48 President and Chief Executive 1997
Officer of TeamBank N.A.
</TABLE>
- ---------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
There are no family relationships among any of the directors and executive
officers of Team.
38
<PAGE> 39
Robert J. Weatherbie has served as Team's Chief Executive Officer since
September 1995, and Chairman of the Board and director since May 1986. Prior to
that time he was an executive officer of TeamBank, N.A., formerly known as Miami
County National Bank, for 13 years. Mr. Weatherbie is a member of the Miami
County Bankers Association. He obtained a Bachelor of Arts degree from Emporia
State University, Emporia, Kansas in 1969 and graduated from the Colorado School
of Banking at the University of Colorado and the American Institute of
Banking -- Kansas City Chapter.
Michael L. Gibson has served as an executive officer and director of Team
since May 1986 and as Chief Financial Officer and
President -- Acquisitions/Investments since September 1995. Prior to 1986 he was
an executive officer for TeamBank, N.A., formerly known as Miami County National
Bank, for 15 years. He has also been a member of the board of directors of
Bauersfeld Enterprises, Inc., a retail grocery store operator, since 1990. He
obtained a Bachelor's degree from Kansas State University in Manhattan, Kansas
in 1970, and graduated from the Colorado School of Banking at the University of
Colorado, the Intermediate School of Banking in Lincoln, Nebraska, and the
American Institute of Banking -- Kansas City Chapter. He is a member and is
currently Chairman of the Kansas Bankers Association BankPac Committee and past
member of the Governing Council. He is a member of the American Bankers
Association BankPac Committee.
Carolyn S. Jacobs has served as Treasurer and director of Team, as well as
Senior Vice President and Trust Officer of TeamBank, N.A., since May 1986. Prior
to 1986, she had worked for Miami County National Bank, the predecessor to
TeamBank, N.A., since 1961. Ms. Jacobs has attended the American Institute of
Banking -- Kansas City Chapter, MoKan Basic Trust School, graduating in 1977,
the National Business Institute and was designated as a Certified Trust
Financial Advisor in June 1992. Ms. Jacobs is a member of the Kansas Bankers
Association Trust Division and the Miami County Bankers Association.
Neil Blakeman has served as a director of Team since April 1986. He has
been Executive Vice President of TeamBank, N.A. since December 1995 and a
director of TeamBank N.A. since June 1996. Prior to December 1995 he worked for
Miami County National Bank, the predecessor to TeamBank, N.A., where he served
as a vice president, beginning in 1976. Mr. Blakeman obtained a Masters of
Business Administration degree in 1970 from the University of Iowa and graduated
with a Bachelor of Science degree in Agriculture in 1964 from Kansas State
University. Mr. Blakeman is a director of the Miami County Economic Development
Corp., a non-profit entity.
Denis A. Kurtenbach has served as a director of Team since December 1995.
He is Chairman and a director of Pemco, Inc., a privately held construction
management company. He is also Chairman and director of two subsidiaries of
Pemco, Inc., Carrothers Construction Company, L.L.C. and Triangle Builders,
L.L.C. Mr. Kurtenbach is a life director of the Associated General Contractors
of America and was a member of the 1996-1997 Executive Committee. He is also a
director of the Kansas Contractors Association. Mr. Kurtenbach graduated in 1962
with a Bachelor's Degree in Civil Engineering from South Dakota State
University.
Glen E. Gilpin has served as a director of Team since June 1996. Since
1949, Mr. Gilpin has been owner and manager of Blacktop Construction, Inc. Mr.
Gilpin received a Bachelor of Science Degree in Business from the University of
Kansas in 1944.
Montie Taylor has served as a director of Team since 1997. He has served as
President and a director of First National Bank and Trust Company since
September 1987. Mr. Taylor received a Bachelor of Arts Degree from Pittsburgh
State University, Pittsburgh, Kansas in 1972. He was previously employed by the
thrift industry for 13 years prior to his employment with First National Bank
and Trust Company.
R.G. (Gary) Kilkenny has served as a director of Team since June 1997. He
has been Chairman or President of Taylor Forge Engineered Systems, Inc., a
manufacturing company, since 1982. He currently serves as President of the Steel
Plate Fabricators Association. He received a Bachelor's Degree in 1953 from the
University of Santa Clara, Santa Clara, California.
Rick P. Bartley has been President and Chief Executive Officer of TeamBank
N.A. since May 1997. From 1993 through April 1997, he worked for Compass Bank,
Alabama, as the Manager of Corporate
39
<PAGE> 40
Banking Division in Montgomery. From 1974 to 1993 he worked for Bank of Oklahoma
in several positions, including Manager of Private Banking and president of a
member bank. Mr. Bartley has a Bachelor's Degree from the University of Arkansas
and has attended the Southern Methodist University Graduate School of Banking.
Team's board of directors is divided into three classes that serve
staggered three-year terms as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBERS
- ----- ---------- -------
<S> <C> <C>
Class I.. 1999 Glen E. Gilpin, Denis A. Kurtenbach and Carolyn S. Jacobs
Class
II..... 2000 Neil Blakeman and R.G. (Gary) Kilkenny
Class
III.... 2001 Michael L. Gibson, Montie Taylor and Robert J. Weatherbie
</TABLE>
Non-employee directors of Team receive $200 per month and $150 per board
meeting attended. In addition, directors are reimbursed for expenses incurred in
attending board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Team's board of directors maintains two committees, an audit committee and
a compensation committee. See the table above under "Executive Officers and
Directors" for information on the board members who serve on the committees. Ms.
Jacobs, who has served as a member of the compensation committee continuously
since 1997, is the only member of the compensation committee who is also an
executive officer of Team. Each committee meets two to four times a year.
Directors who serve on the committees are paid $150 per committee meeting
attended.
EXECUTIVE COMPENSATION
Compensation. The following table sets forth the compensation paid by Team
to its Chairman and Chief Executive Officer for 1998, 1997 and 1996 as well as
to the other named officers in the table for these years. No other executive
officer of Team received compensation from Team exceeding $100,000 during 1998,
1997 or 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
---------- SECURITIES -------
UNDER-
OTHER RESTRICTED LYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME SALARY BONUS COMPENSATION(3) AWARD(S) SARS PAYOUTS COMPENSATION
AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ---------------------- ---- ------- ------ --------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Weatherbie......... 1998 135,000 76,350(1) -- -- -- -- --
Chairman of the Board and 1997 125,000 30,757(1) -- -- -- -- --
Chief Executive Officer 1996 113,596 5,206 -- -- -- -- --
Michael L. Gibson............ 1998 128,400 45,818(1) -- -- -- -- --
President-Acquisitions/ 1997 120,000 26,915(1) -- -- -- -- --
Investments and Chief 1996 113,596 5,207 -- -- -- -- --
Financial Officer
Rick P. Bartley.............. 1998 110,000 30,210(1) -- -- -- -- --
President and Chief 1997 83,300 14,383(1) -- -- -- -- --
Executive Officer of
TeamBank, N.A.(2)
</TABLE>
- ---------------
(1) Represents bonuses paid in cash and common stock of Team.
(2) Mr. Bartley became employed by TeamBank, N.A. in May 1997.
(3) Other annual compensation was less than 10% of each executive's salary and
bonuses in each year.
40
<PAGE> 41
On January 1, 1998, Team entered into a three-year employment agreement
with Mr. Weatherbie under which he receives a beginning base annual salary of
$135,000, an annual bonus at the discretion of the board of directors, life
insurance, a car allowance and participation in all other benefits received by
Team employees. Under certain circumstances, such as his death or disability,
Team has also agreed to pay Mr. Weatherbie or his estate $500,000. Team has
obtained life insurance and is in the process of obtaining disability insurance
for these contingencies. In the event of termination of Mr. Weatherbie's
employment without cause, he will be entitled to payments equal to his annual
base salary for the longer of one year or the remaining term of the agreement
discounted at 8% annually, along with reimbursement for out-of-pocket expenses
incurred for professional and tax advice not to exceed 75% of his annual base
salary, as well as job search expenses incurred not to exceed 50% of his annual
base salary. Team has also entered into an employment agreement with Mr. Gibson,
the terms of which are substantially similar to the employment agreement with
Mr. Weatherbie, except that Mr. Gibson's annual base salary is $128,400. In
addition, Team has a similar agreement with Mr. Bartley except that his annual
base salary is $110,000, his disability or death payment is $100,000, and
reimbursement of out-of-pocket expenses incurred for professional and tax advice
in the event of termination of his employment without cause is over a one year
period for a maximum of 75% of his base salary.
EMPLOYEE STOCK PURCHASE PLAN
The Team Employee Stock Purchase Plan was adopted in 1994. The plan
provides eligible employees the right to purchase Team common stock on an annual
basis through payroll deductions. Up to 75,000 shares of common stock are
reserved under the plan and may be issued in five annual increments of 15,000
beginning in 1999. Shares not issued in any year may be issued in future years.
The price per share of the common stock under the plan is 85% of the fair market
value of the stock at the commencement of each offering period. The plan has not
been registered under the Securities Act with the Commission. Accordingly,
shares issued pursuant to the plan are considered restricted securities. The
plan is not subject to the requirements of the Employee Retirement Income
Security Act of 1974, nor is it a qualified plan under Section 401(a) of the
Internal Revenue Code.
1999 STOCK INCENTIVE PLAN
In May 1999, Team adopted the 1999 Stock Incentive Plan, subject to
shareholder approval. The plan provides for the following stock and stock-based
awards: restricted stock, stock options, stock appreciation rights and
performance shares. Up to 70,000 shares of common stock may be issued under the
plan. All employees, directors and consultants are eligible to participate in
the plan. The plan is administered by Team's board of directors, or the board
can designate a committee composed of at least two non-employee directors to
administer the plan. The board of directors or committee will determine the
participants in the plan and the types of awards they are to be granted and the
terms and conditions of all awards. No awards have been granted under the plan.
EMPLOYEE STOCK OWNERSHIP PLAN
The ESOP is a restatement and continuation of a plan previously maintained
by a predecessor company, which commenced receiving contributions in 1981. In
1986, the ESOP was the vehicle used in establishing Team and financing the
acquisition of the one-bank holding company that owned TeamBank, N.A. All of
Team's wholly-owned subsidiaries with employees participate in the ESOP.
The ESOP is a retirement plan for eligible employees and is funded entirely
with contributions made by Team and dividends paid by Team with respect to the
common stock owned by the ESOP. The ESOP is designed to be invested primarily in
the securities of Team. The ESOP is a leveraged plan which permits it to borrow
money to buy securities of Team, which are held in a suspense account until the
loan is paid. As the loan is repaid, securities are gradually released from the
suspense account for allocation to the accounts of ESOP participants.
Allocations are made annually and are based on the relative compensation of the
participants. Retirement benefits under the ESOP depend on the amount of an
employee's account balance at death, disability, separation from service or
retirement, and there is no fixed
41
<PAGE> 42
amount. See notes 9 and 10 to the consolidated financial statements for further
information regarding the ESOP and Team's related borrowings.
Employees are eligible to participate in the ESOP on the January 1 or July
1 following the date six months after the first day of employment. Employees
also must achieve a minimum age in order to participate. To be eligible for
allocations of Team contributions, employees must complete 1,000 hours of
service during a year and must be employed on the last day of the plan year. The
employment requirement does not apply if the participant dies or becomes
disabled or attains age 65 in the plan year. Allocations are also potentially
subject to certain minimums. Following three years of service, employees become
vested in their ESOP accounts at 20% per year, with 100% vesting occurring after
seven years. However, if a participant dies or is disabled while still employed,
a participant becomes vested immediately.
OTHER EMPLOYEE PLANS
Team has a 401(k) plan and an employee performance bonus plan that covers
all of its employees, including officers. With respect to the 401(k) plan, Team
makes a matching contribution of 50% of the employee's contribution up to a
maximum contribution of 6% of the employee's salary. The bonus plan utilizes a
continuous improvement model to determine the amount of award for Team and each
of its subsidiaries. The model measures improvements in asset growth,
profitability, productivity and asset quality growth. Team employees must exceed
the performance of the previous year to earn a bonus. Results are reported
monthly.
INDEMNIFICATION
Team's articles of incorporation and Kansas law provide that the board of
directors is authorized to indemnify or advance expenses to directors, officers
and other persons who are a party, or threatened to be made a party, to any
proceeding or action due to such person's relationship with Team.
Indemnification or the advancement of expenses may be made without shareholder
approval. Generally under Team's articles of incorporation and Kansas law, any
director, officer, employee or agent who is made or threatened to be made a
party to any suit or proceeding may be indemnified if such director or officer
acted in good faith and had reasonably believed that:
- in the case of conduct in an official capacity with Team, his or her
conduct was in or not opposed to Team's best interests; and
- with respect to any criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
To the extent a person has been successful on the merits or otherwise in defense
of any proceeding or action, Kansas law and Team's articles of incorporation
require indemnification of such person's reasonable expenses. Kansas law is not
exclusive of any other indemnification, advancement of expenses or rights which
may be allowed under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of Team as to which indemnification is being sought.
Team is not aware of any other threatened litigation that may result in claims
for indemnification by any director, officer, employee or other agent.
RELATED PARTY TRANSACTIONS
The officers, directors and principal shareholders of Team and businesses
they control are customers of Team's subsidiary banks. Credit transactions with
these parties are subject to review by loan committees of the banks or by Team's
loan committee. All outstanding loans and extensions of credit to these parties
were made in the ordinary course of business on terms substantially similar to
comparable transactions with unaffiliated persons. At December 31, 1998, the
aggregate balance of loans and advances under extensions of credits made by the
subsidiary banks to these affiliated parties was approximately $3,635,000.
42
<PAGE> 43
At December 31, 1998 Team had $1.0 million of notes payable relating to
borrowings of its ESOP. The notes are also secured by 134,560 shares of common
stock held by the ESOP. The ESOP, as selling shareholder currently intends to
repay this indebtedness with proceeds from the sales of unallocated shares it is
offering pursuant to this prospectus. See "Use of Proceeds," "Capitalization"
and notes 9 and 10 to the consolidated financial statements.
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Team's common stock as of May 31, 1999, and as adjusted to reflect
the sale of the common stock offered by this prospectus, for: (1) each of Team's
directors; (2) each person known by Team to own beneficially more than 5% of the
outstanding common stock; (3) each executive officer; and (4) Team's executive
officers and directors as a group. All information with respect to beneficial
ownership by Team's directors, officers or beneficial owners has been furnished
by the respective director, officer or beneficial owners. Except as otherwise
described in the notes below, the owners have sole voting power and sole
investment power with respect to all common stock set forth opposite their
names.
<TABLE>
<CAPTION>
TEAM COMMON SHARES BENEFICIALLY OWNED
----------------------------------------------------
BEFORE THE OFFERING SHARES AFTER THE OFFERING
-------------------- BEING -------------------
NAMES AND ADDRESSES OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------ --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Robert J. Weatherbie(10).................... 55,359(2) 1.8% -- 55,359 1.5%
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
Michael L. Gibson(10)....................... 47,050(3) 1.6% -- 47,050 1.3%
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
Rick P. Bartley............................. 3,128(4) * -- 3,128 *
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
Carolyn S. Jacobs(10)....................... 19,450(5) * -- 19,450 *
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
Neil Blakeman(10)........................... 800(6) * -- 800 *
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
R.G. (Gary) Kilkenny(10).................... 19,185(7) * -- 19,185 *
4304 West 115th
Leawood, Kansas 66211
Denis A. Kurtenbach(10)..................... 3,925(8) * -- 3,925 *
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
Glen E. Gilpin(10).......................... 63,780 2.1% -- 63,780 1.7%
302 Peyton Street
Emporia, Kansas 66801
Montie K. Taylor(10)........................ 24,080(9) * -- 24,080 *
1900 Main
Parsons, Kansas 67357
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
TEAM COMMON SHARES BENEFICIALLY OWNED
----------------------------------------------------
BEFORE THE OFFERING SHARES AFTER THE OFFERING
-------------------- BEING -------------------
NAMES AND ADDRESSES OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------ --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Employee Stock Ownership Plan(10)........... 1,582,700 52.7% 300,000 1,282,700 34.7%
8 West Peoria, Suite 200
P.O. Box 402
Paola, Kansas 66071-0402
All executive officers and directors as a
group (nine persons)(10).................. 1,819,457 60.6% -- 1,519,457 41.0%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the shares are held directly in the names of
the beneficial owners and each person has sole voting and sole investment
power with respect to the shares. Participants to whom certain shares held
by the ESOP have been allocated are entitled to direct the ESOP trustee as
to matters in which voting rights may be exercised, and the ESOP trustee
will vote such shares, subject to its fiduciary duties. With respect to
other matters, participants are only entitled to direct the ESOP trustee
with respect to voting on major corporate matters, such as mergers,
reorganizations, recapitalizations, liquidations, consolidations or sales
of substantially all of Team's assets.
(2) Includes 55,359 shares of common stock owned by his wife, over which he may
be deemed to have shared voting and investment power. Does not include
125,404 shares of common stock that were allocated to Mr. Weatherbie's
account in the ESOP as of December 31, 1998, the latest ESOP allocation
date.
(3) Includes 500 shares of common stock owned jointly with his wife, over which
he may be deemed to have shared voting and investment power. Does not
include 128,207 shares of common stock that were allocated to Mr. Gibson's
account in the ESOP as of December 31, 1998, the latest ESOP allocation
date.
(4) Does not include 2,350 shares of common stock that were allocated to Mr.
Bartley's account in the ESOP as of December 31, 1998, the latest ESOP
allocation date.
(5) Includes 19,450 shares of common stock owned by her husband's revocable
trust, over which she may be deemed to have shared voting and investment
power. Does not include 108,405 shares of common stock that were allocated
to Ms. Jacobs's account in the ESOP as of December 31, 1998, the latest
ESOP allocation date.
(6) Includes 200 shares owned jointly by Mr. Blakeman and his wife and 300
shares of common stock owned individually by Mr. Blakeman's wife, over all
of which shares Mr. Blakeman may be deemed to have shared voting and
investment power. Does not include 60,556 shares of common stock that were
allocated to Mr. Blakeman's account in the ESOP as of December 31, 1998,
the latest ESOP allocation date.
(7) Includes 8,545 shares owned jointly by Mr. Kilkenny and his wife and 10,640
shares owned by a corporation controlled by Mr. Kilkenny.
(8) Includes 925 shares of common stock held by Mr. Kurtenbach in an Individual
Retirement Account over which he may be deemed to have voting and
investment power.
(9) Includes 640 shares owned jointly by Mr. Taylor and his wife. Does not
include 20,962 shares that were allocated to Mr. Taylor's account in the
ESOP as of December 31, 1998, the latest ESOP allocation date.
(10) The ESOP holds 1,582,700 shares of record. Team, acting through its board
of directors, is the ESOP trustee, although it is anticipated that David L.
Heald will be appointed as an interim, independent trustee about June 10,
1999. Therefore, each of the above named persons, other than Rick P.
Bartley, may be deemed to be the beneficial owner of the shares in the name
of the ESOP, although each of these persons disclaims beneficial ownership
of these shares. The Team board of directors has appointed an independent
fiduciary, Consulting Fiduciaries, Inc., Northbrook, Illinois, to represent
the ESOP in relation to this offering.
* Less than 1%.
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SUPERVISION AND REGULATION
GOVERNMENT REGULATION
Team and its banks are extensively regulated under federal, Kansas and
Nebraska law. These laws and regulations are primarily intended to protect
depositors and the deposit insurance fund of the Federal Deposit Insurance
Corporation, not shareholders of Team. The following information is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
Any change in applicable laws, regulations or regulatory policies may have a
material effect on the business, operations and prospects of Team and its banks.
Team is unable to predict the nature or extent of the effects that fiscal or
monetary policies, economic controls or new federal or state legislation may
have on its business and earnings in the future.
TEAM
General. Team is a bank holding company registered under the Bank Holding
Company Act of 1956 and is subject to regulation, supervision and examination by
the Federal Reserve. Team is required to file an annual report and the other
periodic reports as the Federal Reserve now requires or may require.
Acquisitions. As a bank holding company, Team is required to obtain the
prior approval of the Federal Reserve before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or bank
holding company. The Federal Reserve will not approve any acquisition, merger or
consolidation that would have a substantial anti-competitive effect, unless the
anti-competitive effects of the proposed transaction are outweighed by a greater
public interest in meeting the needs and convenience of the community. The
Federal Reserve also considers managerial resources, current and projected
capital positions and other financial factors in acting on acquisition or merger
applications.
Permissible Activities. Subject to limited exceptions, a bank holding
company may not engage in, or acquire direct or indirect control of more than 5%
of the voting shares of any company engaged in a non-banking activity, unless
this activity has been determined by the Federal Reserve to be closely related
to banking or managing or controlling banks. The Federal Reserve has identified
specific non-banking activities in which a bank holding company may engage with
notice to, or prior approval by, the Federal Reserve.
Capital Adequacy. The Federal Reserve monitors the regulatory capital
adequacy of bank holding companies. As discussed below, Team's banks are also
subject to the regulatory capital adequacy requirements of the Federal Deposit
Insurance Corporation, the Comptroller of the Currency, and Kansas and Nebraska
regulations, as applicable. The Federal Reserve uses a combination of risk-based
guidelines and leverage ratios to evaluate the regulatory capital adequacy of
Team.
The Federal Reserve has adopted a system using risk-based capital adequacy
guidelines to evaluate the regulatory capital adequacy of bank holding
companies. The guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of at least $150 million. Under the
risk-based capital guidelines, different categories of assets are assigned to
different risk categories based generally on the perceived credit risk of the
asset. The risk weights of the particular category are multiplied by the
corresponding asset balances and added together to determine a risk-weighted
asset base. Some off balance sheet items, such as loan commitments in excess of
one year, mortgage loans sold with recourse and letters of credit, are added to
the risk-weighted asset base by converting them to a credit equivalent and
assigning them to the appropriate risk category. For purposes of the Federal
Reserve's regulatory risk-based capital guidelines, total capital is defined as
the sum of core and secondary capital elements, with secondary capital being
limited to 100% of core capital. For bank holding companies, core capital, also
known as Tier 1 capital, generally includes common shareholders' equity,
perpetual preferred stock and minority interests in consolidated subsidiaries,
less goodwill and intangible assets. No more than 25% of core capital elements
may consist of cumulative preferred stock. Secondary capital, also known as Tier
2 capital, generally includes the allowance for loan losses limited to 1.25% of
weighted risk assets, certain forms of perpetual preferred stock, as well as
hybrid capital instruments. The Federal Reserve's regulatory
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guidelines require a minimum ratio of qualifying total capital to weighted risk
assets of 8%, of which at least 4% should be in the form of core capital. At
March 31, 1999, Team's core capital was $20.3 million.
In addition to the risk-based capital guidelines, the Federal Reserve, the
Federal Deposit Insurance Corporation and the Comptroller of the Currency use a
leverage ratio as an additional tool to evaluate capital adequacy. The leverage
ratio is defined by the Federal Reserve to be a company's core capital divided
by its average total consolidated assets, and the Comptroller of the Currency's
and Federal Deposit Insurance Corporation's definitions are similar. Based upon
the current capital status of Team, the applicable minimum required leverage
ratio is 4%.
The table below presents Team's ratios of (1) total capital to
risk-weighted assets, (2) core capital to risk-weighted assets and (3) core
capital to average assets, at March 31, 1999.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-------------------------
RATIO ACTUAL MINIMUM REQUIRED
- ----- ------ ----------------
<S> <C> <C>
Total capital to risk-weighted assets....................... 8.69% 8.00%
Core capital to risk-weighted assets........................ 7.68% 4.00%
Core capital to average assets.............................. 4.61% 4.00%
</TABLE>
Failure to meet the regulatory capital guidelines may result in the
initiation by the Federal Reserve of appropriate supervisory or enforcement
actions.
THE BANKS
General. Team owns four banks. The deposits of all of the banks are insured
by the Federal Deposit Insurance Corporation. Iola Bank and Trust Company
("IB&T") and TeamBank Nebraska are subject to supervision and regulation by the
Federal Deposit Insurance Corporation. In addition, IB&T is regulated by the
Kansas Office of the State Bank Commissioner and TeamBank Nebraska is regulated
by the Nebraska Department of Banking and Finance. Team Bank N.A. and First
National Bank and Trust Company ("First National"), as national banks, are
subject to regulation by the Comptroller of the Currency.
Permissible Activities. A Kansas or Nebraska state chartered bank may not
engage in any activity not permitted for national banks, unless the institution
complies with applicable capital requirements and the Federal Deposit Insurance
Corporation determines that the activity poses no significant risk to the Bank
Insurance Fund. Neither the IB&T nor TeamBank Nebraska are presently involved in
the types of transactions covered by this limitation.
Community Reinvestment Act. Enacted in 1977, the federal Community
Reinvestment Act has become important to financial institutions, including their
holding companies. Financial institutions have a continuing and affirmative
obligation, consistent with safe and sound operations of such institutions, to
serve the "convenience and needs" of the communities in which they are chartered
to do business, including low- and moderate-income neighborhoods. The Community
Reinvestment Act currently requires that regulators consider an applicant's
Community Reinvestment Act record when evaluating certain applications,
including charters, branches and relocations, as well as mergers and
consolidations. The applicable federal regulators regularly conduct Community
Reinvestment Act examinations to assess the performance of financial
institutions and assign one of four ratings to the institution's records of
meeting the credit needs of its community. During their last examinations,
ratings of at least satisfactory were received by all of Team's banks. As a
result, management believes that the banks' performance under Community
Reinvestment Act will not impede regulatory approvals of any proposed
acquisitions or branching opportunities.
Dividend Restrictions. Dividends paid by Team's banks provide substantially
all of the operating and investing cash flow of Team. Under Nebraska law, the
approval of the principal regulator is required prior to the declaration of any
dividend by a bank if the total of all dividends declared in any calendar year
exceeds the total of its net profits of that year combined with its retained net
profits for the preceding two
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<PAGE> 47
years. Under Kansas law, the current dividends can be paid only from undivided
profits after deducting losses, but before declaring dividends the bank must
transfer 25% of its net profits since the last preceding dividend to its surplus
fund until the surplus fund equals the total capital stock.
With respect to national banks, the directors of any such bank may
quarterly, semiannually, or annually declare a dividend of so much of the bank's
undivided profits as they deem expedient, except until the bank's surplus fund
equals its common capital, no dividends may be declared unless the bank has
carried to the surplus fund at least one-tenth of the bank's net income of the
preceding half year in the case of quarterly or semiannual dividends, or at
least one-tenth of its net income of the preceding two consecutive half-year
periods in the case of annual dividends. However, the Comptroller of the
Currency's approval is required if the total of all dividends declared by a bank
in any calendar year exceeds the total of its net income of that year combined
with its retained net income of the preceding two years, less any required
transfers to surplus or a fund for the retirement of any preferred stock.
Examinations. Team's banks are examined from time to time by their primary
federal banking regulators. Based upon an evaluation, the examining regulator
may revalue a bank's assets and require that it establish specific reserves to
compensate for the difference between the value determined by the regulator and
the book value of the assets. The Kansas Office of the State Bank Commissioner
and the Nebraska Department of Banking and Finance also conduct examinations of
state-chartered banks. Both of these regulators may accept the results of a
federal examination in lieu of conducting an independent examination. Both the
Kansas and Nebraska regulators have the authority to revalue the assets of a
state-chartered institution and require it to establish reserves.
Capital Adequacy. The Federal Deposit Insurance Corporation and the
Comptroller of the Currency have adopted regulations establishing minimum
requirements for the capital adequacy of insured institutions. The requirements
address both risk-based capital and leverage capital, with risk-based assets and
core and secondary capital being determined in basically the same manner as
described above for bank holding companies. The Federal Deposit Insurance
Corporation or the Comptroller of the Currency may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk.
The Federal Deposit Insurance Corporation risk-based capital guidelines
require state non-member banks and national banks to have a ratio of total
capital to total risk-weighted assets of 8%, of which total capital at least 4%
points should be in the form of core capital.
The table below presents the regulatory capital ratios of the IB&T and
TeamBank Nebraska at March 31, 1999.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-------------------------------------
TEAMBANK
IB&T NEBRASKA
----------------- -----------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
- ----- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Total capital to risk-weighted assets............. 14.59% 8.00% 13.68% 8.00%
Core capital to risk-weighted assets.............. 13.52 4.00 12.67 4.00
Core capital to assets............................ 7.62 4.00 8.36 4.00
</TABLE>
The Comptroller of the Currency risk-based capital guidelines expect
national banks to maintain a minimum ratio of total capital, after deductions,
to weighted risk assets of 8%, and national banks and state non-member banks
must have and maintain core capital in an amount equal to at least 3% of
adjusted total assets; but for all but the most highly rated banks, the minimum
core leverage ratio is to be 3% plus an additional cushion of at least 100 to
200 basis points. The applicable guideline for TeamBank, N.A. and First National
are 4%.
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<PAGE> 48
The table below presents the regulatory capital ratios of TeamBank N.A. and
First National at December 31, 1998.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-------------------------------------
TEAMBANK, N.A. FIRST NATIONAL
----------------- -----------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
- ----- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Total capital to risk-weighted assets..................... 12.54% 8.00% 14.51% 8.00%
Core capital to risk-weighted assets...................... 11.59 4.00 13.37 4.00
Core capital to assets.................................... 7.34 4.00 7.93 4.00
</TABLE>
Banks with regulatory capital ratios below the required minimum are subject
to administrative actions, including the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance without a hearing in
the event the institution has no tangible capital.
The Federal Deposit Insurance Corporation and Comptroller of the Currency
regulators have adopted regulations that define five capital levels: well
capitalized, adequately capitalized, undercapitalized, severely undercapitalized
and critically undercapitalized. An institution is critically undercapitalized
if it has a tangible equity to total assets ratio that is equal to or less than
2%. An institution is well capitalized if it has a total risk-based capital
ratio of 10% or greater, core risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater, and the institution is not subject to an order,
written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. An
institution is adequately capitalized if it has a total risk-based capital ratio
of 8% or greater, a core risk-based capital ratio of 4% or greater, and a
leverage ratio of 4% or greater.
The Federal Deposit Insurance Corporation Improvement Act requires the
federal banking regulators to take prompt corrective action to resolve the
problems of insured depository institutions, including capital-deficient
institutions. In addition to requiring the submission of a capital restoration
plan, the Federal Deposit Insurance Corporation Improvement Act contains broad
restrictions on activities of institutions that are not adequately capitalized
involving asset growth, acquisitions, branch establishment, and expansion into
new lines of business. With limited exceptions, an insured depository
institution is prohibited from making capital distributions, including
dividends, and is prohibited from paying management fees to control persons if
the institution would be undercapitalized after any distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
regulators have limited discretion in dealing with a critically undercapitalized
institution and are virtually required to appoint a receiver or conservator if
the capital deficiency is not promptly corrected.
Real Estate Lending Evaluations. The federal regulators have adopted
uniform standards for evaluations of loans secured by real estate or made to
finance improvements to real estate. Banks are required to establish and
maintain written internal real estate lending policies consistent with safe and
sound banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan to value
ratio limitations on real estate loans, which generally are equal to or less
than the loan to value limitations established by Team's banks.
Deposit Insurance Premiums. Deposits of Team's banks are insured up to the
regulatory limit by the FDIC and are subject to deposit assessments. The
assessment schedule for banks ranges from 0 to 27 cents per $100 of deposits,
based on capital and supervisory factors. The banks' insured deposits are
subject to assessment payable to Bank Insurance Fund. An institution's
assessment is based on the assignment of the institution by the Federal Deposit
Insurance Corporation to one of three capital groups and to one of three
supervisory subgroups. The capital groups are well capitalized, adequately
capitalized and undercapitalized. The three supervisory subgroups are Group A,
for financially solid institutions with only a few minor weaknesses, Group B,
for those institutions with weaknesses which, if uncorrected could
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<PAGE> 49
cause substantial deterioration of the institution and increase the risk to the
deposit insurance fund, and Group C, for those institutions with a substantial
probability of loss to the fund absent effective corrective action. Currently,
all four of Team's banks are in Group A.
Branching Authority. National banks headquartered in Missouri, such as
TeamBank, N.A., have the same branching rights in Missouri as banks chartered
under Missouri law. Missouri law grants Missouri-chartered banks the authority
to establish branches anywhere in the State of Missouri, subject to receipt of
all required regulatory approvals.
Kansas law permits a Kansas bank to install remote service units, also
known as automatic teller machines, throughout the state. Remote service units
which are not located at the principal place of business of the bank or at a
branch location of the bank must be available for use by other banks and their
customers on a non-discriminatory basis. Federal law generally allows national
banks to establish branches in locations which do not violate state law.
Interstate Banking Legislation. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, which became effective September 1995, has
eliminated many of the historical barriers to the acquisition of banks by
out-of-state bank holding companies. This law facilitates the interstate
expansion and consolidation of banking organizations by permitting: (1) bank
holding companies that are adequately capitalized and managed, subject to
certain limitations, to acquire banks located in states outside their home
states regardless of whether acquisitions are authorized under the laws of the
host state; (2) the interstate merger of banks after June 1, 1997, subject to
the right of individual states either to pass legislation providing for earlier
effectiveness of mergers or to opt out of this authority prior to that date; (3)
banks to establish new branches on an interstate basis provided that this action
is specifically authorized by the law of the host state; (4) foreign banks to
establish, with approval of the appropriate regulators in the United States,
branches outside their home states to the same extent that national or state
banks located in that state would be authorized to do so; and (5) banks to
receive deposits, renew time deposits, close loans, service loans and receive
payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same or different state.
Team's banks do not currently have any plans to take any actions permitted by
this law.
CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in
a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is not possible to predict the outcome
of these changes.
One of the major additional burdens imposed on the banking industry is the
increased authority of federal agencies to regulate the activities of federal
and state banks and their holding companies. The Federal Reserve, the
Comptroller of the Currency and the Federal Deposit Insurance Corporation have
extensive authority to police unsafe or unsound practices and violations of
applicable laws and regulations by depository institutions and their holding
companies. These agencies can assess civil money penalties and other laws have
expanded the agencies' authority in recent years, and the agencies have not yet
fully tested the limits of their powers. In addition, the Kansas Office of the
State Bank Commissioner and the Nebraska Department of Banking and Finance
possess broad enforcement powers to address violations of their banking laws by
banks chartered in each respective state.
PENDING FINANCIAL MODERNIZATION LEGISLATION
In June 1998, in the 105th Congress, the Senate began hearings on the
legislation on a sweeping financial modernization bill, H.R. 10, The Financial
Services Act of 1998, which was passed by the U.S. House of Representatives. The
Senate did not pass that bill prior to the end of the 105th Congress. This year,
in the 106th Congress, a bill referred to as the Financial Services Act of 1999
(based on The Financial Services Act of 1998) is under consideration by House
and Senate Committees. The House and Senate versions of the bill are
substantially similar.
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<PAGE> 50
If passed by Congress, the bill would not become law unless it is signed by
the President, whose Administration, with respect to The Financial Services Act
of 1998, had commented publicly that it will not support the legislation in the
form that was previously passed by the House. Accordingly, whether The Financial
Services Act of 1999 will be passed by Congress in the near future remains
uncertain, and the ultimate form the legislation might take if enacted cannot be
predicted at this time.
The Financial Services Act of 1999, among other things, addresses the
ongoing debate concerning mixing banking and commerce. Under the proposal, banks
could affiliate with insurance and securities companies in a holding company
structure, subject to functional regulation. The proposal provides for further
study of the issues relating to merging the Savings Association Insurance Fund
and Bank Insurance Fund. If adopted, the legislation would represent the most
significant overhaul of financial services laws since the 1930's when the
Glass-Steagall Act was enacted.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
The Federal Reserve's monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
these policies on the business and earnings of Team and its subsidiaries cannot
be predicted.
TRANSACTIONS WITH AFFILIATES
Transactions between a bank, its holding company and/or affiliated entities
are subject to various restrictions imposed by statute and by state and federal
regulatory agencies. These transactions include loans and other extensions of
credit, purchases of securities and other assets and payments of fees or other
distributions. These restrictions may limit the amount of transactions between
an institution and its affiliates based on a percentage of a bank's capital and
surplus, impose collateral requirements on extensions of credit in some cases
and require transactions with affiliates to be on terms comparable to those for
transactions with unaffiliated entities and consistent with safe and sound
banking practices.
RESERVE REQUIREMENTS
As national banks and state member banks, the banks are subject to Federal
Reserve regulations requiring depository institutions to maintain reserves
against a specified percentage of transaction accounts (primarily NOW and
regular checking). Reserves are maintained in the form of vault cash or
non-interest bearing deposits with the Federal Reserve Bank. The Federal Reserve
regulations generally require 3% reserves on the first $47.8 million of
transaction accounts; however, the first $4 million of these otherwise
reservable balances are exempted from the 3% reserve requirement. Net
transaction account balances over $47.8 million are subject to a reserve
requirement of $1,434,000 plus 10% of the amount of net transaction balances
over $47.8 million. The banks of Team are in compliance with the foregoing
requirements.
LIABILITIES OF COMMONLY CONTROLLED DEPOSITORY INSTITUTIONS
A bank insured by the Federal Deposit Insurance Corporation can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
Federal Deposit Insurance Corporation in connection with (a) the default of a
commonly controlled FDIC-insured financial institution or (b) any assistance
provided by the Federal Deposit Insurance Corporation to a commonly controlled
depository institution in danger of default. Thus, the banks could incur
liability to the Federal Deposit Insurance Corporation in
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<PAGE> 51
the event of the default of any of the other FDIC-insured financial institutions
owned or controlled by Team. Such liability would be subordinate in right of
payment to deposit liabilities, secured obligations, any other general or senior
liability and any obligation subordinate to depositors or other general
creditors, other than obligations owed to any affiliate of the depository
institution and any obligations owed to shareholders in their capacity as
shareholders. The imposition of liabilities in sufficient amounts could lead to
the appointment of the Federal Deposit Insurance Corporation as conservator or
receiver for the banks.
DESCRIPTION OF CAPITAL STOCK
Team's articles of incorporation, as restated and amended, authorize the
issuance of 60,000,000 shares of stock, comprised of 50,000,000 shares of common
stock and 10,000,000 shares of preferred stock. As of June 3, 1999, there were a
total of 3,001,803 shares of common stock issued and outstanding. As permitted
by Kansas law, Team's articles of incorporation allow its board to issue
additional shares of its stock up to the total amount of common or preferred
stock authorized without obtaining additional approval of its shareholders. No
shares of preferred stock are currently outstanding.
The board may, within certain regulatory guidelines, issue additional
shares of common stock without the prior approval of the Federal Reserve. There
is no current intent to issue any additional common stock at this time except
with respect to this offering, or pursuant to Team's Employee Stock Purchase
Plan and its 1999 Incentive Stock Plan.
COMMON STOCK
Dividend Rights. Holders of common stock will be entitled to dividends as,
if and when declared by the board out of funds legally available for such
dividends. Team has paid dividends on its common stock out of net earnings since
1987 and intends to pay quarterly dividends on its common stock beginning in the
second quarter of 1999. See "Dividend Policy; No Prior Market for Common Stock."
However, there can be no assurance that Team will continue to be able to pay, or
that the board of directors of Team will authorize payment of, dividends on
common stock.
Voting Rights. All voting rights are vested in the holders of common stock
of Team, each share being entitled to one vote. Team's articles of incorporation
specifically provide that holders of common stock have cumulative voting rights
in the election of directors at shareholders' meetings. Cumulative voting rights
permit minority shareholders who control a significant block of stock to elect a
representative to the board. Accordingly, with cumulative voting rights,
minority holders of common stock may be able to elect persons to the board of
directors. Directors are elected by a plurality of the votes present at a
meeting of shareholders called for that purpose.
In all matters other than the election of directors and where otherwise
required by Kansas law, the affirmative vote of holders of a majority of the
shares present in person or by proxy at a meeting will be sufficient to act on a
matter. Mergers and business combinations require the affirmative vote of 51% of
the outstanding shares of common stock.
Preemptive Rights. Holders of common stock and preferred stock of Team do
not have preemptive rights to subscribe for additional shares or securities of
Team in the event more shares or securities are issued. This lack of preemptive
rights means that Team may issue additional stock or securities without any
obligation to holders of common stock or preferred stock. To the extent shares
of common stock are issued in the future without first offering the stock to
shareholders, the proportionate ownership of Team's shareholders could be
diminished.
Liquidation Rights. Upon liquidation or dissolution of Team, holders of its
stock and securities will share in the proceeds as follows: Subject to the
specific terms of any series of preferred stock, in order of priority and to the
extent funds are available, the holders of preferred stock will be repaid the
liquidation value of the preferred stock, and to the extent additional funds are
available upon liquidation, holders of preferred stock will receive payments of
any unpaid accumulated dividends on preferred stock. Next, holders of common
stock will be entitled to share on a pro rata basis in the net assets which
remain after
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<PAGE> 52
satisfaction of all other liabilities, including payments to holders of
preferred stock as outlined above. In other words, holders of common stock will
have rights to Team's assets subordinate to the rights of all of Team's other
creditors.
Other. Shares of common stock to be sold in this offering will, when
issued, be fully paid and nonassessable. Team's common stock is not subject to
any mandatory redemptive provisions, sinking fund provisions or conversion
rights.
PREFERRED STOCK
The preferred stock of Team may be issued from time to time by the board of
directors as in one or more series. The description of shares of each series of
preferred stock will be as set forth in resolutions adopted by the board of
directors and a certificate of designation to be filed as required by Kansas law
prior to the issuance of any shares of the series. The certificate of
designation will set the number of shares to be included in each series of
preferred stock and set the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to distributions,
qualifications, or terms and conditions of redemption relating to the shares of
each series. However, the board of directors is not authorized to change the
right of the common stock to vote one vote per share on all matters submitted
for shareholder action. The authority of the board of directors with respect to
each series of preferred stock includes, but is not limited to, setting or
changing the following:
- the designation of the series and the number of shares constituting the
series, provided that the aggregate number of shares constituting all
series of preferred stock may not exceed 10,000,000;
- the annual distribution rate on shares of the series, whether
distributions will be cumulative and, if so, from which date or dates;
- whether the shares of the series will be redeemable and, if so, the terms
and conditions of redemption, including the date or dates upon and after
which the shares will be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and
at different redemption dates;
- the obligation, if any, of Team to redeem or repurchase shares of the
series pursuant to a sinking fund;
- whether shares of the series will be convertible into, or exchangeable
for, shares of stock of any other class or classes and, if so, the terms
and conditions of conversion or exchange, including the price or prices
or the rate or rates of conversion or exchange and the terms of
adjustment, if any;
- whether the shares of the series will have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of the voting
rights;
- the rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding up of Team; and
- any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to the series which may be
authorized or permitted under Kansas law.
The shares of preferred stock of any one series will be identical with each
other in all respects except as to the dates from and after which dividends
thereon will cumulate, if cumulative.
ANTI-TAKEOVER PROVISIONS
Article Tenth of Team's articles of incorporation provide authority to the
board of directors to oppose a tender or merger offer on the basis of factors
other than economic benefit to shareholders. Such factors
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that the board of directors may but will not be legally obligated to consider,
in the event of a tender offer for Team's securities, are the following:
- whether the offered price is acceptable based on the historical and
present operating results or financial condition of Team;
- whether a more favorable price could be obtained for Team's securities in
the future;
- the impact which an acquisition of Team would have on the employees,
depositors, and customers of Team and its subsidiaries in the communities
which they serve;
- the reputation and business practices of the offeror and its management
and affiliates as they would affect the employees, depositors and
customers of Team and its subsidiaries and the future value of Team's
stock;
- the value of the securities, if any, which the offeror is offering in
exchange for Team's securities, based on an analysis of the worth of Team
as compared to the corporation or other entity whose securities are being
offered; and
- any anti-trust or other legal and regulatory issues that are raised by
the offeror.
Article Tenth might discourage a tender offer for Team common stock, which
might be at a price above the prevailing market rate. Management believes that
the advantages of the provisions to all the shareholders of Team outweigh any
possible disadvantages resulting from the decrease in the likelihood of Team
becoming a target of a takeover bid which might be desired or favored by a
majority of Team shareholders.
The board has noted that uninvited or unsolicited tender offers or other
attempts to acquire control of companies, if successful, are sometimes followed
by a merger or similar transaction that involves the elimination of minority
shareholders or a change in their interest as shareholders. Such a two-step,
non-negotiated, or a board of director disapproved, transaction often results in
the elimination of minority shareholders who did not tender their stock in the
first step or who, as a result of proration, did not have all their tendered
stock purchased. In connection with the second step, minority shareholders are
often forced to accept consideration that, in the opinion of the board, is less
valuable or desirable for stock that was available or offered in the first step.
The board of directors believes that substantial inequities could befall
the remaining shareholders after Team has come under the control of another
person or company and the acquiror then proceeds to combine a company owned by
the person acquiring or the acquiring person itself with Team by merger or
otherwise. The terms of such a business combination may not reflect arm's-length
bargaining and thus may not assure fair treatment of the remaining shareholders,
because the same party controls both sides of the negotiations. Kansas law
permits a Kansas corporation to be merged with or into another corporation upon
the approval of the holders of a majority of its outstanding stock. Hence, a
party who held or controlled a majority of Team's voting stock after a takeover
could force a merger, sale of substantially all of Team or a subsidiary's assets
or other transactions on terms it dictated. While objecting shareholders have
certain statutory rights of appraisal under Kansas law, pursuant to which they
may enforce their right to receive the fair value of their shares, fair value is
a difficult term to define and may require significant cost to determine. Team's
shareholders could rely on certain common law rights based on the fiduciary duty
of a controlling shareholder to deal fairly with minority shareholders and upon
federal securities laws governing disclosures in the event of a business
combination pursuant to which shareholder action is required, but efforts to
pursue these rights may involve protracted and expensive litigation. A minority
shareholder may not have the financial resources to wait out such litigation
and, faced with the inability to liquidate his investment at the value equal to
that paid under the tender offer, may be coerced by economic considerations into
accepting the terms of a business combination.
The provisions of Team's articles of incorporation discussed above may not
deter an acquisition of Team. It may, however, discourage attempts by other
persons, companies or groups to acquire control of
53
<PAGE> 54
Team without negotiation with Team through the acquisition of a substantial
number of shares of Team's stock, possibly followed by a forced merger or other
business combination in which the remaining shareholders of Team may not receive
a fair price for their shares. Management believes that shareholders other than
the person seeking control may suffer inequities and may not receive a fair
price if Team falls under the control of another person without that other
person first negotiating with management to obtain the fairest terms for the
shareholders and Team.
Team also intends to amend Article Eighth of its articles of incorporation,
effective as of the date of this prospectus, to require an affirmative vote of
two-thirds of the outstanding voting shares for mergers, consolidating
dissolutions and liquidations of Team. This amendment may also have the effect
of deterring an acquisition of Team.
RIGHTS AGREEMENT
Team's board has adopted a rights shareholder agreement or plan. Pursuant
to the plan, one right will be issued and attached to each outstanding share of
common stock. Each right will entitle the holder, in circumstances described
below, to purchase from Team one one-hundredth of a share of Series A preferred
stock at an exercise price of $48.00 per right, subject to adjustment in certain
events. Each one one-hundredth of a share of Series A preferred stock will be
entitled to dividends equal to dividends which may from time to time be declared
on a share of common stock. In the event of liquidation or merger, the preferred
shareholders will be entitled to a return which will result in the one
one-hundredth of a share of Series A preferred stock being treated identically
to a share of common stock. These rights are protected by customary
anti-dilution provisions.
The rights initially will be represented by the certificates evidencing the
common stock and will not be exercisable, or transferable apart from the common
stock, until the earliest to occur of:
- the twentieth day after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15%, or more
of the outstanding common stock of Team, or 10% or more of the
outstanding common stock, if the board determines that such person or
group intends to take actions which would be detrimental to the long-term
interests of Team or its shareholders or that such ownership would be
detrimental to Team in other respects; provided, that if within the
20-day period the acquiring person reduces his beneficial ownership to
less than 15%, or 10% for an adverse person, then he will be deemed not
to be an acquiring person;
- the twentieth day after the commencement of a tender or exchange offer
the consummation of which would result in the beneficial ownership by a
person or group of affiliated or associated persons of 15% or more of the
outstanding common stock of Team; provided, that if within the 20-day
period the person withdraws the tender or exchange offer, then such offer
will be deemed not to have been made; and
- the twentieth day after the date of filing of a registration statement
for any exchange offer of the type addressed above under the Securities
Act of 1933.
Under the rights plan, any of the above three dates, is known as a
distribution date. Any person or group described in item (i) above is referred
to as an acquiring person, and the date upon which a person or group first
becomes an acquiring person is referred to as the stock acquisition date. Team,
its subsidiaries or its benefit plans, including the ESOP, will not be
considered acquiring persons. In addition, an underwriter acting for Team
pursuant to an underwriting agreement will not be considered an acquiring
person.
The rights, unless sooner redeemed, will first become exercisable on the
distribution date, at which time Team will distribute separate right
certificates representing the rights to its then current shareholders, and it is
expected that the rights could then begin trading separately from the common
stock of Team. The rights will expire on June 3, 2009, unless this date is
extended or unless the rights are earlier redeemed or exchanged by Team.
54
<PAGE> 55
Following the distribution date, each right initially would give holders,
other than the acquiring person, its affiliates and transferees, the right to
purchase, for the purchase price, one one-hundredth of a share of Series A
preferred stock. On a stock acquisition date which follows the commencement of a
tender offer or an exchange offer, or on the distribution date with respect to
any other stock acquisition date, the rights would give holders, other than the
acquiring person, its affiliates and transferees, the right to purchase from
Team, for the purchase price, that number of one one-hundredths of a share of
Series A preferred stock having a market value of twice the purchase price.
Alternatively, before an acquiring person acquires 50% of the outstanding common
stock, Team's board of directors may exchange each right, except for the rights
held by the acquiring person, in whole or in part, for half of the number of one
one-hundredths of a share of the Series A preferred stock or shares of the
common stock which the holders could otherwise purchase by exercising the
rights.
In addition, in a merger, consolidation or sale or transfer of 50% or more
of the consolidated assets or earning power of Team occurring after the rights
become exercisable, each right will be converted into the right to purchase, for
the purchase price, that number of shares of common stock of the surviving
entity or, in limited circumstances, its parent corporation, which at the time
of such transaction will have a market value of two times the purchase price of
the right.
Following the distribution date, exercisable rights may be exercised, at
the option of the holder, without the payment of the purchase price in cash. In
this case, the holder would receive a number of one one-hundredths of a share of
Series A preferred stock having a value equal to the difference between the
value of the Series A preferred stock that would have been issuable upon payment
of the purchase price and the purchase price.
The rights will not interfere with any merger or other business combination
that is approved by Team's board of directors because the rights may be redeemed
by Team at $.001 per right at any time prior to 20 days following a 15%
acquisition.
Until a right is exercised, the holder will have no rights as a shareholder
of Team, including, without limitation, the right to vote or to receive
dividends.
The rights have certain anti-takeover effects. The rights may cause
substantial dilution to a person or group that attempts to acquire Team on terms
not approved by the board of directors of Team. The rights should not interfere
with any merger or other business combination approved by the board of directors
prior to the time that holders of the rights become entitled to exercise their
rights for Series A preferred stock, or common stock of the surviving entity in
a merger with Team, since until that time the rights may be redeemed by the
board of directors of Team.
Team's board of directors may amend the rights agreement, without
limitation, prior to the distribution of the rights, without the approval of the
holders of the rights.
TRANSFER AND DIVIDEND PAYING AGENT
American Securities Transfer & Trust, Inc., Denver, Colorado, will act as
transfer and dividend paying agent for Team's common stock.
55
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, Team will have 3,701,803 shares of common stock
outstanding, or 3,851,803 shares of common stock if the underwriters'
over-allotment option is exercised in full. The common stock sold in the
offering will be freely transferable without restriction under the Securities
Act, unless such shares are held by affiliates of Team as that term is defined
in the Securities Act. The remaining 3,001,803 shares of common stock held by
existing shareholders are restricted shares. Team issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered under the Securities Act or are sold pursuant to an
exemption from registration, such as Rule 144.
Under Rule 144, beginning 90 days after the date of this prospectus, a
person who has beneficially owned restricted shares for at least one year would
be entitled to sell in any three-month period up to the greater of:
- 1% of the then-outstanding shares of common stock, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Also, sales under Rule 144: (1) must be made through customary broker
transactions; (2) are subject to notice requirements; and (3) may only be made
if current public information is available on Team. Finally, Rule 144 permits a
person who is unaffiliated with Team to sell restricted shares without complying
with any of the Rule 144 limitations discussed above.
Team, its directors, executive officers and certain other shareholders,
including the ESOP, who will hold an aggregate of 1,902,908 shares upon
completion of the offering, have agreed that they will not, with certain limited
exceptions, offer, sell, grant options to purchase or otherwise dispose of any
shares of common stock without the prior written consent of the representative
of the underwriters for a period of 180 days from the date of this prospectus.
Team's ESOP will be permitted, in the ordinary course of its business, to
transfer shares to ESOP participants who terminate employment with Team or elect
to diversify their portfolio.
Prior to the offering, there was no public market for the common stock, and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after the offering. Any future sale of substantial
amounts of common stock in the open market or the perception that such sales may
occur could adversely affect the market price of the common stock.
56
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Team, the selling shareholder and the underwriters listed on the table below for
whom Howe Barnes Investments, Inc. is acting as representative, the underwriters
have severally agreed to purchase from Team and the selling shareholder an
aggregate of 1,000,000 shares of common stock in the amounts set forth below
opposite their names.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Howe Barnes Investments, Inc. .............................. 600,000
EVEREN Securities, Inc. .................................... 38,000
Fahnestock & Co., Inc. ..................................... 38,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 38,000
Edward D. Jones & Co., L.P. ................................ 38,000
Morgan Keegan & Company, Inc. .............................. 38,000
Ryan, Beck & Co., Inc. ..................................... 38,000
Sandler O'Neill & Partners, L.P. ........................... 38,000
Stifel, Nicolaus & Company, Incorporated.................... 38,000
George K. Baum & Company.................................... 24,000
Kirkpatrick, Pettis, Smith, Polian Inc. .................... 24,000
David A. Noyes & Company.................................... 24,000
Sterne, Agee & Leach, Inc. ................................. 24,000
---------
Total............................................. 1,000,000
=========
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to accept and pay for all of the common stock, if any
are taken.
Team has granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to an additional 150,000
shares of common stock at the public offering price. If the underwriters
purchase any of the additional shares of common stock under this option, each
underwriter will be committed to purchase the additional shares in approximately
the same proportion as in the table above. The underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the common stock offered pursuant to this
prospectus.
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by Team and the selling shareholder
as shown in the table below do not reflect estimated offering expenses of
$350,000 payable by Team and the selling shareholder.
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK TOTAL
------------------------- -----------
<S> <C> <C>
Price to Investors............................... $ 11.25 $11,250,000
Proceeds to Team................................. $10.4625 $ 7,323,750
Proceeds to the selling shareholder.............. $10.4625 $ 3,138,750
</TABLE>
Team and the selling shareholder have agreed to pay the underwriters
$0.7875 per share of common stock, or a total of $787,500 as compensation for
arranging the sale of common stock. Should the underwriters exercise the
over-allotment option, an aggregate of $118,125 will be paid to the underwriters
for arranging the sale of the common stock.
The underwriters propose to offer the common stock in part directly to the
public at the initial public offering price set forth on the cover page of this
prospectus, and in part to securities dealers at this price less a concession
not in excess of $0.35 per share of common stock. The underwriters may allow,
and the dealers may reallow, a concession not in excess of $0.25 per share of
common stock to brokers and dealers. After the shares of common stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the underwriters.
Team and the selling shareholder have agreed to indemnify the several
underwriters against several liabilities, including liabilities under the
Securities Act of 1933.
57
<PAGE> 58
In connection with the offering, the underwriters may purchase and sell the
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the common stock; and syndicate short positions involve the sale
by the underwriters of a greater number of securities than they are required to
purchase from Team and the selling shareholder in the offering. The underwriters
also may impose a penalty bid, whereby selling concessions allowed to syndicate
members of other broker-dealers in respect of the securities sold in the
offering for their account may be reclaimed by the syndicate if the shares of
common stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the common stock, which may be higher than the price that might
otherwise prevail in the open market. These activities, if begun, may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for Team by Jones & Keller P.C., Denver, Colorado. The validity of the common
stock offered under Kansas law pursuant to this prospectus will be passed upon
for Team by Hartley, Nicholson & Hartley, P.A., Paola, Kansas. Two members of
Hartley, Nicholson & Hartley, P.A., own 5,975 shares of Team's common stock.
Certain legal matters in connection with this offering will be passed upon for
the selling shareholder by Shook, Hardy & Bacon LLP, Kansas City, Missouri.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Chapman and Cutler, Chicago, Illinois. Jones & Keller, P.C.
and Chapman and Cutler will rely on the opinion of Hartley, Nicholson & Hartley,
P.A. regarding certain matters.
EXPERTS
The consolidated financial statements of Team as of December 31, 1998 and
for each of the years in the three year period ended December 31, 1998 have been
included in this prospectus in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect Team's
views about future events and financial performance. Actual results could differ
materially from those suggested by the forward-looking statements for various
reasons, including those discussed in the "Risk Factors" section beginning on
page 4. Therefore, you should not place undue reliance on these forward-looking
statements.
ADDITIONAL INFORMATION
Team has filed with the Commission a registration statement on Form S-1.
This prospectus, which forms a part of the registration statement, does not
contain all the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of Team, these references are not necessarily complete and you
should refer to the exhibits attached to the registration statement, including
exhibits and schedules filed with it, at the Commission's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the regional offices of the Commission. Please call the
Commission at 1-800-SEC-0330 for more information on the public reference rooms.
You may also obtain copies of these materials from the Public Reference Section
of the Securities and Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http:/www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as
Team, that file electronically with the Commission.
58
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interim Unaudited Consolidated Financial Statements
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Income......................... F-3
Consolidated Statements of Cash Flows..................... F-4
Notes to Consolidated Financial Statements................ F-5
Consolidated Financial Statements
Independent Auditors' Report.............................. F-7
Consolidated Balance Sheets............................... F-8
Consolidated Statements of Income......................... F-9
Consolidated Statements of Comprehensive Income........... F-10
Consolidated Statements of Stockholders' Equity........... F-11
Consolidated Statements of Cash Flows..................... F-12
Notes to Consolidated Financial Statements................ F-13
</TABLE>
F-1
<PAGE> 60
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------- DECEMBER 31,
PRO FORMA HISTORICAL 1998
--------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks..................................... $ 20,610 $ 20,610 $ 27,397
Federal funds sold and interest-bearing deposits............ 6,467 6,467 4,502
-------- -------- --------
27,077 27,077 31,899
-------- -------- --------
Investment securities:
Available-for-sale........................................ 112,298 112,298 109,296
Held-to-maturity.......................................... 25,734 25,734 25,742
-------- -------- --------
Total investment securities........................ 138,032 138,032 135,038
-------- -------- --------
Loans, net of unearned fees................................. 250,280 250,280 256,126
Allowance for loan losses................................... 2,625 2,625 2,541
-------- -------- --------
Net loans.......................................... 247,655 247,655 253,585
-------- -------- --------
Bank premises and equipment, net............................ 8,823 8,823 8,560
Assets acquired through foreclosure......................... 891 891 906
Goodwill, net of accumulated amortization................... 5,740 5,740 5,850
Other assets................................................ 6,462 6,462 6,514
-------- -------- --------
Total assets....................................... $434,680 $434,680 $442,352
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... $375,202 $375,202 $384,347
Federal funds purchased and securities sold under agreements
to repurchase............................................. 6,462 6,462 6,273
Accrued expenses and other liabilities...................... 3,881 3,881 3,271
Notes payable............................................... 23,058 23,058 23,060
-------- -------- --------
Total liabilities.................................. 408,603 408,603 416,951
-------- -------- --------
Redeemable common stock held by employee stock ownership
plan, net of unearned compensation........................ -- 16,876 16,876
-------- -------- --------
Nonredeemable stockholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued............................ -- -- --
Common stock, no par value; 50,000,000 shares authorized,
3,028,808 and 3,020,098 shares issued at March 31, 1999
and December 31, 1998................................... 14,044 14,044 13,980
Capital surplus........................................... 122 122 122
Retained earnings......................................... 12,748 12,748 11,921
Treasury stock, 27,005 shares of common stock at March 31,
1999 and December 31, 1998.............................. (187) (187) (187)
Accumulated other comprehensive income.................... 350 350 565
Unearned compensation..................................... (1,000) (1,000) (1,000)
-------- -------- --------
26,077 26,077 25,401
Less redeemable common stock held by employee stock
ownership plan, net of unearned compensation............ -- 16,876 16,876
-------- -------- --------
Total nonredeemable stockholders' equity........... 26,077 9,201 8,525
Commitments and contingencies
-------- -------- --------
Total liabilities and stockholders' equity......... $434,680 $434,680 $442,352
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 61
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans, including fees..................................... $5,679 $5,394
Taxable investment securities............................. 1,727 1,780
Nontaxable investment securities.......................... 296 263
Other..................................................... 190 89
------ ------
Total interest income............................. 7,892 7,526
------ ------
Interest expense:
Deposits.................................................. 3,616 3,522
Federal funds purchased and securities sold under
agreements to repurchase............................... 89 136
Notes payable............................................. 323 249
------ ------
Total interest expense............................ 4,028 3,907
------ ------
Net interest income............................... 3,864 3,619
Provision for loan losses................................... 183 446
------ ------
Net interest income after provision for loan losses.... 3,681 3,173
------ ------
Other income:
Service charges........................................... 540 461
Trust fees................................................ 141 79
Gain on sales of mortgage loans........................... 192 137
Gain on sales of investment securities.................... -- 1
Other..................................................... 310 235
------ ------
Total other income................................ 1,183 913
------ ------
Other expenses:
Salaries and employee benefits............................ 1,858 1,766
Occupancy and equipment................................... 461 412
Data processing........................................... 343 273
Professional fees......................................... 203 106
Marketing................................................. 54 121
Goodwill and other intangible amortization................ 173 158
Other..................................................... 597 669
------ ------
Total other expenses.............................. 3,689 3,505
------ ------
Income before income taxes........................ 1,175 581
Income taxes................................................ 348 145
------ ------
Net income........................................ $ 827 $ 436
====== ======
Basic and diluted income per share.......................... $ .29 $ .16
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 827 $ 436
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses.............................. 183 446
Depreciation and amortization.......................... 424 348
Net gain on sales of investment securities............. -- (1)
Net gain on sales of mortgage loans.................... (192) (137)
Net gain on sales of assets acquired through
foreclosure........................................... -- (5)
Proceeds from sale of mortgage loans................... 16,003 8,688
Origination of mortgage loans for sale................. (13,897) (10,963)
Increase (decrease) in other assets.................... 124 (2,268)
Increase in accrued expenses and other liabilities..... 610 696
-------- --------
Net cash provided by (used in) operating
activities....................................... 4,082 (2,760)
-------- --------
Cash flows from investing activities:
Net (increase) decrease in loans.......................... 3,947 (9,609)
Proceeds from sale of investment securities
available-for-sale..................................... -- 4,023
Proceeds from maturities and principal reductions of
investment securities available-for-sale............... 12,667 5,986
Purchases of investment securities available-for-sale..... (16,068) (28,339)
Proceeds from maturities and principal reductions of
investment securities
held-to-maturity....................................... 1,990 1,843
Purchases of investment securities held-to-maturity....... (2,097) (3,884)
Purchases of bank premises and equipment, net of sales.... (449) (905)
Proceeds from sales or payments on assets acquired through
foreclosure............................................ -- (36)
-------- --------
Net cash used in investing activities............. (10) (30,921)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits....................... (9,145) 33,450
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase.......... 189 (5,306)
Payments on notes payable................................. (2) --
Proceeds from notes payable............................... -- 4,000
Common stock issued....................................... 64 45
-------- --------
Net cash provided by (used in) financing
activities....................................... (8,894) 32,189
-------- --------
Net decrease in cash and cash equivalents......... (4,822) (1,492)
Cash and cash equivalents at beginning of period............ 31,899 20,205
-------- --------
Cash and cash equivalents at end of period.................. $ 27,077 $ 18,713
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(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 include the accounts of Team
Financial, Inc. and subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 are unaudited but include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of financial position and results of
operations for those periods. The consolidated statements of income for the
three months ended March 31, 1999 are not necessarily indicative of the results
that will be achieved for the entire year.
(2) PRO FORMA BALANCE SHEET
The Company expects to complete an initial public offering in June 1999.
Management believes that, subsequent to the offering, the common stock will meet
the Internal Revenue Code requirement to be considered a liquid security. As a
result, the Company will no longer be obligated to redeem shares held by the
ESOP. The redeemable common stock, reflected outside of nonredeemable
stockholders' equity in the accompanying historical financial statements, has
been classified into stockholders' equity in the accompanying March 31, 1999 pro
forma balance sheet. If the stock ceases to meet the Internal Revenue Code
requirement to be a liquid security, the Company would again be obligated to
redeem such shares and would reclassify their fair value, net of unearned
compensation, outside of stockholders' equity.
(3) INCOME PER SHARE
Income per share is computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share. Basic income per share
is based upon the weighted average number of common shares outstanding during
the periods presented. In accordance with SOP 93-6, Employers' Accounting for
Employee Stock Ownership Plan, unallocated ESOP shares are not considered
outstanding for EPS computations until they are committed to be released.
Diluted income per share includes the effects of all dilutive potential common
shares outstanding during each period.
The shares used in the calculation of basic and diluted income per share
are shown below (in thousands):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding.................. 2,867 2,753
===== =====
</TABLE>
(4) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, effective January 1, 1998. SFAS No. 130
establishes standards for reporting comprehensive income and its components
(revenues, expenses, gains, and losses). Components of comprehensive income are
net income and all other nonowner changes in equity. SFAS No. 130 requires that
an enterprise (a) classify items of other comprehensive income by their nature
in a financial statement, and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
Reclassifications of financial statements for earlier periods provided for
comparative purposes is required. Comprehensive income as defined by SFAS No.
130 was $612,000 and $510,000 for the three months
F-5
<PAGE> 64
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended March 31, 1999 and 1998, respectively. The only component of other
comprehensive income consists of unrealized holding gains and losses on
available-for-sale securities.
F-6
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors
Team Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Team
Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Team
Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
February 12, 1999
F-7
<PAGE> 66
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash and due from banks..................................... $ 27,397 $ 17,517
Federal funds sold and interest-bearing deposits............ 4,502 2,688
-------- --------
31,899 20,205
-------- --------
Investment securities (note 2):
Available-for-sale........................................ 109,296 103,304
Held-to-maturity.......................................... 25,742 22,399
-------- --------
Total investment securities....................... 135,038 125,703
-------- --------
Loans, net of unearned fees (note 3)........................ 256,126 223,675
Allowance for loan losses (note 5).......................... 2,541 1,629
-------- --------
Net loans......................................... 253,585 222,046
-------- --------
Bank premises and equipment, net (note 6)................... 8,560 8,136
Assets acquired through foreclosure......................... 906 367
Goodwill, net of accumulated amortization................... 5,850 4,332
Other assets (note 4)....................................... 6,514 6,207
-------- --------
Total assets...................................... $442,352 $386,996
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 7)........................................... $384,347 $333,864
Federal funds purchased and securities sold under agreements
to repurchase (note 8).................................... 6,273 13,558
Accrued expenses and other liabilities...................... 3,271 3,248
Notes payable (notes 9 and 10).............................. 23,060 13,684
-------- --------
Total liabilities................................. 416,951 364,354
-------- --------
Redeemable common stock held by employee stock ownership
plan, net of unearned compensation (note 10).............. 16,876 18,143
-------- --------
Nonredeemable stockholders' equity (note 13):
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued........................... -- --
Common stock, no par value; 50,000,000 shares authorized,
3,020,098 and 2,999,825 shares issued at December 31,
1998 and 1997 (note 10)................................ 13,980 13,834
Capital surplus........................................... 122 --
Retained earnings......................................... 11,921 10,263
Treasury stock, 27,005 and 52,500 shares of common stock
at December 31, 1998 and 1997.......................... (187) (363)
Accumulated other comprehensive income.................... 565 359
Unearned compensation (note 10)........................... (1,000) (1,451)
-------- --------
25,401 22,642
Less redeemable common stock held by employee stock
ownership plan, net of unearned compensation (note
10).................................................... 16,876 18,143
-------- --------
Total nonredeemable stockholders' equity.......... 8,525 4,499
Commitments and contingencies (notes 10 and 15)
-------- --------
Total liabilities and stockholders' equity........ $442,352 $386,996
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 67
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest income:
Loans, including fees..................................... $23,183 $19,475 $16,196
Taxable investment securities............................. 7,127 5,458 4,492
Nontaxable investment securities.......................... 1,133 827 667
Other..................................................... 411 377 280
------- ------- -------
Total interest income............................. 31,854 26,137 21,635
------- ------- -------
Interest expense:
Deposits.................................................. 14,807 11,794 9,532
Federal funds purchased and securities sold under
agreements to repurchase............................... 528 569 535
Notes payable............................................. 1,238 524 395
------- ------- -------
Total interest expense............................ 16,573 12,887 10,462
------- ------- -------
Net interest income............................... 15,281 13,250 11,173
Provision for loan losses (note 5).......................... 1,486 1,095 623
------- ------- -------
Net interest income after provision for loan
losses.......................................... 13,795 12,155 10,550
------- ------- -------
Other income:
Service charges........................................... 2,039 1,670 1,400
Trust fees................................................ 454 408 368
Gain on sales of mortgage loans (note 4).................. 664 268 230
Gain (loss) on sales of investment securities............. 18 2 (40)
Other (note 4)............................................ 1,431 931 854
------- ------- -------
Total other income................................ 4,606 3,279 2,812
------- ------- -------
Other expenses:
Salaries and employee benefits (note 10).................. 7,835 6,419 5,128
Occupancy and equipment (note 6).......................... 1,805 1,668 1,298
Data processing........................................... 1,265 1,033 879
Professional fees......................................... 874 717 599
Marketing................................................. 479 395 274
Goodwill amortization..................................... 405 140 17
Other..................................................... 2,721 2,295 1,937
------- ------- -------
Total other expenses.............................. 15,384 12,667 10,132
------- ------- -------
Income before income taxes........................ 3,017 2,767 3,230
Income taxes (note 11)...................................... 673 553 938
------- ------- -------
Net income........................................ $ 2,344 $ 2,214 $ 2,292
======= ======= =======
Basic and diluted income per share.......................... $ .85 $ .84 $ 1.02
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 68
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net income.................................................. $2,344 $2,214 $2,292
------ ------ ------
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities
available-for-sale..................................... 218 280 (251)
Reclassification adjustment for gains included in net
income................................................. (12) (1) 26
------ ------ ------
Other comprehensive income............................. 206 279 (225)
------ ------ ------
Comprehensive income................................... $2,550 $2,493 $2,067
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 69
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
LESS REDEEMABLE
COMMON STOCK
HELD BY
EMPLOYEE STOCK
ACCUMULATED OWNERSHIP PLAN,
OTHER NET OF UNEARNED
COMMON CAPITAL RETAINED TREASURY COMPREHENSIVE UNEARNED COMPENSATION
STOCK SURPLUS EARNINGS STOCK INCOME COMPENSATION (NOTE 10) TOTAL
------ ------- -------- -------- ------------- ------------ --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.... $10,549 -- 7,004 (363) 305 (1,699) (12,375) 3,421
Common stock issued in
acquisition of subsidiary
(300,750 shares)............ 2,105 -- -- -- -- -- -- 2,105
Common stock issued in
connection with compensation
plans (6,845 shares)........ 35 -- -- -- -- -- -- 35
Net income.................... -- -- 2,292 -- -- -- -- 2,292
Dividends paid ($.23 per
share)...................... -- -- (588) -- -- -- -- (588)
Income tax benefit of
dividends paid to employee
stock ownership plan related
to unallocated shares of
common stock................ -- -- 24 -- -- -- -- 24
Other comprehensive income.... -- -- -- -- (225) -- -- (225)
Increase of unearned
compensation, net of
principal payments on ESOP
notes payable............... -- -- -- -- -- (47) -- (47)
Market value adjustment to
redeemable ESOP common
stock....................... -- -- -- -- -- -- (2,501) (2,501)
------- --- ------ ---- ---- ------ ------- ------
Balance, December 31, 1996.... 12,689 -- 8,732 (363) 80 (1,746) (14,876) 4,516
Common stock issued in
connection with compensation
plans (9,540 shares)........ 61 -- -- -- -- -- -- 61
Common stock issued (115,265
shares) in connection with
private placement........... 1,084 -- -- -- -- -- -- 1,084
Net income.................... -- -- 2,214 -- -- -- -- 2,214
Dividends paid ($.23 per
share)...................... -- -- (683) -- -- -- -- (683)
Other comprehensive income.... -- -- -- -- 279 -- -- 279
Principal payments on ESOP
notes payable............... -- -- -- -- -- 295 -- 295
Market value adjustment to
redeemable ESOP common
stock....................... -- -- -- -- -- -- (3,267) (3,267)
------- --- ------ ---- ---- ------ ------- ------
Balance, December 31, 1997.... 13,834 -- 10,263 (363) 359 (1,451) (18,143) 4,499
Common stock issued in
connection with compensation
plans (20,273 shares)....... 146 -- -- -- -- -- -- 146
Net income.................... -- -- 2,344 -- -- -- -- 2,344
Dividends paid ($.23 per
share)...................... -- -- (686) -- -- -- -- (686)
Treasury stock purchased
(74,310 shares)............. -- -- -- (869) -- -- -- (869)
Treasury stock sold in
connection with private
placement (31,995 shares)... -- 31 -- 343 -- -- -- 374
Treasury stock sold (67,810
shares) in exchange for
notes payable............... -- 91 -- 702 -- -- -- 793
Other comprehensive income.... -- -- -- -- 206 -- -- 206
Principal payments on ESOP
notes payable............... -- -- -- -- -- 451 -- 451
Market value adjustment to
redeemable ESOP common
stock....................... -- -- -- -- -- -- 1,267 1,267
------- --- ------ ---- ---- ------ ------- ------
Balance, December 31, 1998.... $13,980 122 11,921 (187) 565 (1,000) (16,876) 8,525
======= === ====== ==== ==== ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 70
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,344 $ 2,214 $ 2,292
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 1,486 1,095 623
Depreciation and amortization........................... 1,642 1,118 877
Allocation of ESOP shares............................... 451 295 (47)
Net (gain) loss on sales of investment securities....... (18) (2) 40
Net gain on sales of mortgage loans..................... (664) (268) (230)
Net (gain) loss on sales of assets acquired through
foreclosure............................................ (4) (12) 60
Proceeds from sale of mortgage loans.................... 49,024 20,212 20,251
Origination of mortgage loans for sale.................. (53,269) (20,119) (18,926)
Increase in other assets................................ (617) (938) (1,602)
Increase in accrued expenses and other liabilities...... (148) 40 323
-------- -------- --------
Net cash provided by operating activities........... 227 3,635 3,661
-------- -------- --------
Cash flows from investing activities:
Net increase in loans..................................... (25,818) (23,465) (11,271)
Proceeds from sale of investment securities
available-for-sale...................................... 13,756 13,179 6,515
Proceeds from maturities and principal reductions of
investment securities available-for-sale................ 36,703 14,216 12,967
Purchases of investment securities available-for-sale..... (56,251) (61,515) (21,542)
Proceeds from maturities and principal reductions of
investment securities held-to-maturity.................. 4,624 1,658 1,209
Purchases of investment securities held-to-maturity....... (8,017) (6,188) (929)
Purchases of bank premises and equipment.................. (825) (1,321) (874)
Proceeds from sales or payments on assets acquired through
foreclosure............................................. 70 127 379
Cash received in acquisitions, net of cash paid........... 28,501 46,368 3,096
-------- -------- --------
Net cash used in investing activities............... (7,257) (16,941) (10,450)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits.................................. 16,875 5,500 14,102
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase........... (7,285) 3,250 2,036
Payments on notes payable................................. (1,481) (4,209) (2,860)
Proceeds from notes payable............................... 11,650 9,325 3,544
Common stock issued....................................... 146 1,145 35
Purchases of treasury stock............................... (869) -- --
Proceeds from sales of treasury stock..................... 374 -- --
Dividends paid on common stock............................ (686) (683) (588)
-------- -------- --------
Net cash provided by financing activities........... 18,724 14,328 16,269
-------- -------- --------
Net increase in cash and cash equivalents........... 11,694 1,022 9,480
Cash and cash equivalents at beginning of year.............. 20,205 19,183 9,703
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 31,899 $ 20,205 $ 19,183
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 16,587 $ 12,764 $ 10,589
Income taxes............................................ 274 930 967
======== ======== ========
Noncash activities related to acquisitions:
Investing activities:
Increase in investments................................. $ -- $ -- $ 5,023
Net increase in loans................................... 2,903 17,680 12,376
Increase in premises and equipment...................... 429 1,675 419
Financing activities:
Increase in deposits.................................... 33,608 69,474 19,097
======== ======== ========
Noncash financing activities -- issuance of treasury stock
in exchange for notes payable............................. $ 793 $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 71
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Team Financial, Inc. and
subsidiaries (the Company) conform with generally accepted accounting principles
and general practices within the banking industry. The following is a
description of the more significant policies.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, TeamBanc, N.A., Iola Bank and
Trust Company, First National Bank and Trust Company and TeamBank Nebraska.
Intercompany transactions and balances have been eliminated in consolidation. As
described in note 10, the employees of the Company and its subsidiary
participate in the Team Financial Employee Stock Ownership Plan (ESOP). At
December 31, 1998 and 1997, the ESOP owned 1,582,700 and 1,674,110 shares,
respectively (approximately 53% and 57%, respectively), of the Company's
outstanding common stock.
In December 1998, the Company completed a five-for-one stock split. All
share and per share information for all periods presented has been restated for
the split.
(b) Investment Securities
The Company classifies investment securities as either available-for-sale
or held-to-maturity. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity. All other securities are
classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost.
Available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses, net of related tax effect, on available-for-sale securities
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
A decline in the market value of any security below cost that is deemed
other than temporary is charged to income resulting in the establishment of a
new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to interest income. Dividend and interest
income is recognized when earned. Realized gains and losses upon disposition of
available-for-sale securities are included in income using the specific
identification method for determining the cost of the securities sold.
(c) Loans
Loans are stated at the amount of unpaid principal, reduced by unearned
fees. Interest on loans is calculated by using the simple interest method on
daily balances of the principal amount outstanding. The accrual of interest on
loans is discontinued when, in management's judgment, the interest is
uncollectible in the ordinary course of business. Fees received on loans in
excess of amounts representing the estimated cost of origination are deferred
and credited to income using the interest method.
(d) Mortgage Banking
Certain of the Company's subsidiary banks originate first mortgage loans
for sale to permanent investors in the secondary market. Unearned fees related
to the origination of such loans are recorded as a reduction of the loan's cost.
Loans held for sale are recorded at the lower of aggregate cost or market (as
determined by outstanding commitments from investors or current investor yield
requirements) through the establishment of a valuation reserve. If, subsequent
to origination, management decides to hold certain loans to maturity or on a
long-term basis, any unrealized holding loss is recorded as a reduction of the
F-13
<PAGE> 72
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loan's cost, and the unrealized loss is amortized as an adjustment of yield over
the estimated contractual life of the loan.
Typically, loans are sold to permanent investors with the banks retaining
the right to service the loans. Service fees are recorded in income when earned.
Capitalized servicing rights are recorded at the time the loan is sold, thereby
increasing the gain on sale by such amount, and subsequently amortized over nine
years on a straight-line basis. Any remaining unamortized amount is charged to
expense if the related loan is repaid prior to maturity.
Management monitors the capitalized mortgage servicing rights for
impairment based on the fair value of those rights, as determined on a quarterly
basis. Any impairment is recognized through a valuation allowance.
(e) Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses. Such
agencies may require charge-offs and/or additions to the allowance based on
their judgment about information available to them at the time of their
examination.
(f) Bank Premises and Equipment
Land is stated at cost and buildings and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line method
over the useful life of the asset ranging from three to forty years. Maintenance
and repairs are charged to expense as incurred. Major betterments are considered
individually and expensed or capitalized as the facts dictate.
(g) Goodwill
Goodwill resulting from the acquisition of bank branches and subsidiaries
represents the excess of the purchase price over the fair value of the net
assets acquired or net liabilities assumed. Goodwill is amortized straight-line
over ten to fifteen years. When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of asset carrying values,
including goodwill, using estimates of undiscounted cash flows over remaining
asset lives. Any impairment is measured by the excess of carrying values over
fair dues.
(h) Income Taxes
The Company and its subsidiaries file consolidated federal income tax
returns. Certain income and expense items are treated differently for financial
reporting purposes than for income tax purposes. Deferred income taxes are
provided in recognition of these temporary differences, using the tax rates
expected to be in effect when the related temporary differences reverse.
(i) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, clearings and transit items in process of
collection, federal funds sold and overnight deposits.
F-14
<PAGE> 73
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(k) Income Per Share
Basic income per share is based upon the weighted average number of common
shares outstanding during the periods presented. In accordance with SOP 93-6,
Employers' Accounting for Employee Stock Ownership Plan, unallocated ESOP shares
are not considered outstanding for EPS computations until they are committed to
be released. Diluted income per share includes the effects of all dilutive
potential common shares outstanding during each period.
The shares used in the calculation of basic and diluted income per share
are shown below (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted average common shares outstanding.................. 2,765 2,645 2,243
===== ===== =====
</TABLE>
(l) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, effective January 1, 1998. SFAS No. 130
establishes standards for reporting comprehensive income and its components
(revenues, expenses, gains, and losses). Components of comprehensive income are
net income and all other nonowner changes in equity. SFAS No. 130 requires that
an enterprise (a) classify items of other comprehensive income by their nature
in a financial statement, and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
Reclassifications of financial statements for earlier periods provided for
comparative purposes is required. The Company has disclosed comprehensive income
in a separate statement. The only component of comprehensive income consists of
unrealized holding gains and losses on available-for-sale securities.
(m) Operating Segments
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, effective January 1, 1998. SFAS No. 131
establishes standards for reporting information about segments in annual and
interim financial statements. SFAS No. 131 introduces a new model for segment
reporting called the "management approach." The management approach is based on
the way the chief operating decision-maker organizes segments within the Company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, and any other in which management disaggregates a company. Based on
the management approach model, the Company has determined that its business is
comprised of a single operating segment and that SFAS No. 131, therefore, has no
impact on its financial statements.
(n) Future Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Financial Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The
F-15
<PAGE> 74
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adoption of the standard is not expected to have a significant impact on the
consolidated financial statements of the Company.
(2) INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair value of
investment securities by major security type at December 31, 1998 and 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
U. S. treasury securities................ $ 7,503 $ 143 $ -- $ 7,646
U. S. government agency securities....... 34,882 670 26 35,526
Mortgage-backed securities............... 59,735 347 297 59,785
Obligations of state and political
subdivisions.......................... 2,397 75 1 2,471
Other investments........................ 3,868 -- -- 3,868
-------- ------ ---- --------
108,385 1,235 324 109,296
-------- ------ ---- --------
Held-to-maturity:
U. S. treasury securities................ 200 2 -- 202
U. S. government agencies................ 3,725 12 4 3,733
Obligations of state and political
subdivisions.......................... 21,817 882 13 22,686
-------- ------ ---- --------
25,742 896 17 26,621
-------- ------ ---- --------
$134,127 $2,131 $341 $135,917
======== ====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
U. S. treasury securities................ $ 16,263 $ 135 $ 14 $ 16,384
U. S. government agency securities....... 42,685 353 27 43,011
Mortgage-backed securities............... 37,237 245 156 37,326
Obligations of state and political
subdivisions.......................... 2,170 42 7 2,205
Other investments........................ 4,370 8 -- 4,378
-------- ------ ---- --------
102,725 783 204 103,304
-------- ------ ---- --------
Held-to-maturity:
U. S. treasury securities................ 799 2 -- 801
U. S. government agencies................ 3,602 9 6 3,605
Obligations of state and political
subdivisions.......................... 17,998 359 28 18,329
-------- ------ ---- --------
22,399 370 34 22,735
-------- ------ ---- --------
$125,124 $1,153 $238 $126,039
======== ====== ==== ========
</TABLE>
F-16
<PAGE> 75
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of investment securities classified as available-for-sale and
held-to-maturity are as follows at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR
1998 COST VALUE
- ---- --------- --------
<S> <C> <C>
Available-for-sale:
Due less than one year.................................... $ 42,040 $ 42,102
Due after one through five years.......................... 51,413 52,163
Due after five through ten years.......................... 8,722 8,797
Due after ten years....................................... 2,342 2,366
Other investments......................................... 3,868 3,868
-------- --------
108,385 109,296
-------- --------
Held-to-maturity:
Due less than one year.................................... 1,443 1,458
Due after one through five years.......................... 9,923 10,134
Due after five through ten years.......................... 8,831 9,229
Due after ten years....................................... 5,545 5,800
-------- --------
25,742 26,621
-------- --------
$134,127 $135,917
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
1997 COST VALUE
- ---- --------- --------
<S> <C> <C>
Available-for-sale:
Due less than one year.................................... $ 15,676 $ 15,677
Due after one through five years.......................... 58,535 59,030
Due after five through ten years.......................... 15,177 15,294
Due after ten years....................................... 9,089 9,048
Other investments......................................... 4,248 4,255
-------- --------
102,725 103,304
-------- --------
Held-to-maturity:
Due less than one year.................................... 2,125 2,127
Due after one through five years.......................... 6,776 6,841
Due after five through ten years.......................... 6,567 6,745
Due after ten years....................................... 6,931 7,022
-------- --------
22,399 22,735
-------- --------
$125,124 $126,039
======== ========
</TABLE>
Other securities consist principally of Federal Home Loan Bank stock,
Federal Reserve stock, and mutual funds.
Investment securities with amortized cost of $93,913,000 and $75,622,000
and fair value of $95,240,000 and $76,248,000 at December 31, 1998 and 1997,
respectively, are pledged to secure public deposits and for other purposes as
required by state law.
F-17
<PAGE> 76
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LOANS
Major classifications of loans at December 31, 1998 and 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Real estate:
1-4 family................................................ $ 85,093 $ 74,049
Construction.............................................. 14,411 12,292
Other..................................................... 25,809 26,816
Commercial.................................................. 94,478 75,048
Installment and other....................................... 36,652 35,785
-------- --------
Gross loans............................................... 256,443 223,990
Less unearned fees.......................................... 317 315
-------- --------
$256,126 $223,675
======== ========
</TABLE>
Included in real estate mortgage loans are loans held for sale of
approximately $6,321,000 and $1,418,000 at December 31, 1998 and 1997,
respectively.
Nonaccruing loans approximated $2,241,000 and $1,078,000 at December 31,
1998 and 1997, respectively. The interest income not recognized on these loans
was approximately $157,000, $81,000, and $93,000 in 1998, 1997, and 1996,
respectively. Impaired loans are comprised entirely of nonaccrual loans at
December 31, 1998 and 1997. Allocated reserves related to such loans aggregated
$214,000 and $112,000 at December 31, 1998 and 1997, respectively.
Activity related to loans made to directors and executive officers of the
Company for 1998 is presented below. Such loans were made in the ordinary course
of business on normal credit terms, including interest rate and
collateralization (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1998................................. $ 3,742
Additions.................................................. 1,399
Amounts collected.......................................... (1,506)
-------
Balance at December 31, 1998............................... $ 3,635
=======
</TABLE>
The Company's primary market areas in Kansas are Miami County, Allen
County, Labette County and surrounding counties, in Nebraska are Douglas County
and Sarpy County and in Missouri are Vernon County and Barton County.
Accordingly, the majority of the loans made by the Company's subsidiary banks
are within these primary market areas.
(4) MORTGAGE BANKING ACTIVITIES
The Company services first mortgage loans for permanent investors
aggregating approximately $107,368,000 and $90,240,000 at December 31, 1998 and
1997, respectively. Escrow balances held on deposit in subsidiary banks
aggregated $225,000 and $191,000 at December 31, 1998 and 1997, respectively.
F-18
<PAGE> 77
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in gain on sales of mortgage loans are capitalized mortgage
servicing rights. A summary of the mortgage servicing rights for the years ended
December 31, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Balance at January 1........................................ $ 290 $151 $ --
Mortgage servicing rights capitalized during the year....... 445 182 166
Amortization................................................ (134) (33) (15)
Valuation allowance......................................... -- (10) --
----- ---- ----
Balance at December 31...................................... $ 601 $290 $151
===== ==== ====
</TABLE>
Service fees earned by the Company (net of amortization of capitalized
mortgage servicing rights), included in other income in the accompanying
consolidated statements of income, aggregated approximately $267,000, $239,000,
and $228,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
(5) ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the years ended December 31,
1998, 1997, and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Balance at January 1...................................... $1,629 $ 1,518 $1,289
Provision for loan losses................................. 1,486 1,095 623
Allowance for loan losses of acquired bank................ -- -- 151
Charge-offs............................................... (723) (1,142) (695)
Recoveries................................................ 149 158 150
------ ------- ------
Balance at December 31.................................... $2,541 $ 1,629 $1,518
====== ======= ======
</TABLE>
(6) BANK PREMISES AND EQUIPMENT
Major classifications of bank premises and equipment at December 31, 1998
and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land........................................................ $ 1,038 $ 973
Bank premises............................................... 8,181 7,658
Furniture and equipment..................................... 6,251 5,604
------- -------
15,470 14,235
Less accumulated depreciation............................... 6,910 6,099
------- -------
$ 8,560 $ 8,136
======= =======
</TABLE>
Depreciation expense aggregating $830,000, $852,000, and $695,000 for the
years ended December 31, 1998, 1997, and 1996, respectively, has been included
in occupancy and equipment expense in the accompanying consolidated statements
of income.
F-19
<PAGE> 78
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Demand:
Noninterest bearing....................................... $ 42,234 $ 39,742
-------- --------
Interest bearing:
NOW.................................................... 75,679 63,887
Money market........................................... 41,560 30,937
-------- --------
117,239 94,824
-------- --------
Total demand......................................... 159,473 134,566
Savings..................................................... 20,250 17,873
Time........................................................ 204,624 181,425
-------- --------
$384,347 $333,864
======== ========
</TABLE>
Time deposits include certificates of deposit of $100,000 and over totaling
approximately $45,468,000 and $43,243,000 at December 31, 1998 and 1997,
respectively.
Principal maturities of time deposits at December 31, 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1999..................................................... $145,351
2000..................................................... 37,705
2001..................................................... 9,557
2002..................................................... 6,898
2003..................................................... 3,646
Thereafter............................................... 1,467
--------
$204,624
========
</TABLE>
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company's obligation to repurchase securities sold at December 31, 1998
and 1997 aggregated $6,273,000 and $8,058,000, respectively. Information
concerning securities sold under agreements to repurchase is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Average monthly balance during the year..................... $ 7,479 $ 8,320
Weighted average interest rate during the year.............. 4.83% 5.20%
Maximum month-end balance during the year................... $12,491 $10,046
======= =======
</TABLE>
At December 31, 1998, such agreements were secured by investment and
mortgage-backed securities. Pledged securities are maintained by a safekeeping
agent under the control of the Company.
F-20
<PAGE> 79
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) NOTES PAYABLE
Following is a summary of notes payable at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Notes payable of Company related to ESOP borrowings, at
interest rates ranging from 5.60% to 6.75% due in 2002 and
2004, secured by 134,560 shares of Team Financial, Inc.
common stock at December 31, 1998 (see note 10)........... $ 1,000 $ 1,451
Mandatory equity replacement notes of Team Financial, Inc.,
interest at 6.22%, redeemed in 1998, unsecured............ -- 1,730
Note payable of Team Financial, Inc. to unrelated bank,
interest at 1% under prime rate (7.75% at December 31,
1998), due June 30, 1999, secured by common stock of
subsidiary banks.......................................... 12,400 7,900
FHLB borrowings by certain subsidiary banks at interest
rates ranging from 4.27% to 6.97%; maturities ranging from
1999 to 2013; secured by real estate loans, investment
securities and FHLB stock................................. 9,160 2,603
Unsecured notes payable of Team Financial, Inc., interest at
7.0%, due in 1999, unsecured.............................. 500 --
------- -------
$23,060 $13,684
======= =======
</TABLE>
As a result of the Company's acquisition of Teambank, N.A. in 1986, the
Company issued mandatory equity replacement notes (MERNs). Each MERN had a face
value of $90, with interest payable at 6.22% annually. The MERNs matured in
1998, at which time they were convertible into one share of $90 par value
perpetual preferred stock. The MERNs were redeemable by the Company at any time
prior to this maturity at face value plus accrued interest, were redeemable by
the holders with the prior written approval of the Company, and were
subordinated to the payment of senior indebtedness. During 1998, the Company
redeemed MERNs with an aggregate face value of $937,000 for cash, and exchanged
the remaining MERNs with an aggregate face value of $793,000 for 67,810 shares
of common stock issued out of treasury.
Principal maturities on notes payable outstanding at December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1999...................................................... $14,199
2000...................................................... 1,301
2001...................................................... 704
2002...................................................... 337
2003...................................................... 744
Thereafter................................................ 5,775
-------
$23,060
=======
</TABLE>
Management expects the $12,400,000 loan maturing June 30, 1999 to be
renewed at maturity, but can provide no assurance to that effect.
(10) EMPLOYEE BENEFIT PLANS
Eligible employees of the Company and subsidiary banks participate in an
employee stock ownership plan (ESOP) which was formed in 1986. The Company has
related ESOP borrowings under bank loan agreements (see note 9) that qualify as
"exempt loans" under Internal Revenue Code (IRC) Sec-
F-21
<PAGE> 80
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion 4975(d)(3), the proceeds of which were used to acquire Company common
stock. Those funds, in turn, were used by the Company to acquire certain
subsidiary banks. Contributions, along with dividends on unallocated shares of
common stock, are used by the ESOP to make payments of principal and interest on
the bank loans. ESOP contributions by the Company and the banks charged to
salaries and benefits expense in 1998 and 1997 aggregated $542,000 and $624,000,
respectively. The debt related to the ESOP is recorded as debt and the shares
pledged as collateral are reported as unearned compensation in the accompanying
consolidated balance sheets. Unearned compensation is reduced as the related
notes payable are reduced or increased upon additional ESOP borrowings. At
December 31, 1998 and 1997, ESOP participants had been allocated 1,448,140 and
1,473,080 shares of Company common stock, respectively. These shares are
redeemable under certain circumstances by former employees at the fair value of
the common stock and, accordingly, are classified, net of unearned compensation,
outside of nonredeemable stockholders' equity. The repurchase obligation of the
Company at December 31, 1998 and 1997 aggregated approximately $16,876,000 and
$18,143,000, respectively.
In May 1994, the Company adopted an employee stock purchase plan. The plan
provides employees the opportunity to purchase common stock in the Company
pursuant to Section 423 of the IRC. The Company issued 8,710, 6,500, and 6,490
shares in January 1999, 1998, and 1997, respectively, in exchange for cash of
$65,000, $45,000, and $40,000.
In January 1996, the Company implemented a bonus program which awards
employees for their performance based on certain financial and growth targets
determined by management. Bonus awards are at the discretion of the compensation
committee and may consist of cash, common stock, or a combination thereof. The
Company and subsidiary banks charged $459,000, $139,000, and $276,000 to
salaries and benefits expense as a result of this bonus program in 1998, 1997,
and 1996, respectively.
In November 1998, the Board of Directors of the Company approved the Team
Financial, Inc. 401(k) Savings Plan. The Plan is effective January 1, 1999.
Employees, meeting certain conditions, are eligible to participate in the Plan
immediately upon their employment date. The Company will match 50% of the first
6% of compensation which employees contribute to the Plan. The Company's
contributions will vest ratably over five years.
(11) INCOME TAXES
Income tax expense (benefit) attributable to income from operations for
1998 and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $730 $366 $862
Deferred.................................................... (57) 187 76
---- ---- ----
$673 $553 $938
==== ==== ====
</TABLE>
F-22
<PAGE> 81
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation between income tax expense attributable to
income from operations and the amount computed by multiplying earnings before
income taxes by the statutory federal income tax rate of 34% (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Expected federal income tax expense......................... $1,026 $ 941 $1,098
Interest on obligations of states and political
subdivisions.............................................. (362) (249) (204)
State income taxes, net of federal tax benefit.............. 114 7 135
Income tax benefit of dividends paid to ESOP................ (125) (132) (122)
Other....................................................... 20 (14) 31
------ ----- ------
Income tax expense attributable to income from
operations............................................. $ 673 $ 553 $ 938
====== ===== ======
</TABLE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $ 346 $ 87
Net operating loss carryforwards of acquired subsidiary... 294 384
Deferred compensation..................................... 74 75
Loans..................................................... 21 32
State taxes............................................... -- 7
----- ----
Total gross deferred tax assets................... 735 585
----- ----
Deferred tax liabilities:
Investment securities..................................... 348 291
Mortgage servicing rights................................. 205 --
Bank premises and equipment............................... 138 169
FHLB stock................................................ 115 113
Other assets.............................................. 38 69
State taxes............................................... 5 --
----- ----
Total gross deferred tax liabilities.............. 849 642
----- ----
Net deferred tax liabilities...................... $(114) $(57)
===== ====
</TABLE>
The net operating loss carryforward, if not utilized, will expire in 2003.
F-23
<PAGE> 82
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments at December 31, 1998 and
1997, including methods and assumptions utilized, are set forth below (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Investment securities...................... $135,000 $136,000 $126,000 $126,000
======== ======== ======== ========
Loans, net of unearned discounts and
allowance for loan losses................ $254,000 $256,000 $222,000 $225,000
======== ======== ======== ========
Demand deposits............................ $ 42,000 $ 43,000 $ 40,000 $ 40,000
Money markets and NOW deposits............. 117,000 117,000 95,000 95,000
Savings deposits........................... 20,000 20,000 18,000 18,000
Time deposits.............................. 205,000 206,000 181,000 182,000
-------- -------- -------- --------
Total deposits................... $384,000 $386,000 $334,000 $335,000
======== ======== ======== ========
Notes payable $ 23,000 $ 23,000 $ 14,000 $ 14,000
======== ======== ======== ========
</TABLE>
Methods and Assumptions Utilized
The estimated fair value of investment securities is based on bid prices
published in financial newspapers or bid quotations received from securities
dealers.
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by maturity using a weighted average pool rate. In
estimating the fair value of loans, the carrying amount is reduced by the
allowance for loan losses. The estimated fair value is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates based upon the Company's average cost of funds that reflect the
interest rate risk inherent in the loan, reduced by the allowance for loan
losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand. The fair value of
interest-bearing time deposits is based on the discounted value of contractual
cash flows of such deposits. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
The carrying value of all notes payable approximates fair value, as all
notes are either based upon floating market rates of interest or based upon
fixed rates which approximate market rates.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. Fair value
estimates are based on existing balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
F-24
<PAGE> 83
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) CAPITAL ADEQUACY
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below for the Company's significant subsidiary
banks, dollars in thousands) of total risk-based and Tier 1 capital (as defined
in the regulations) to risk-weighted assets, and of Tier 1 capital to average
assets. Management believes, as of December 31, 1998, that the banks meet all
capital adequacy requirements to which they are subject.
<TABLE>
<CAPTION>
TO BE WELL-CAPITALIZED
UNDER PROMPT
FOR CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
---------------- -------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1998:
TeamBank N.A.:
Total risk-based capital (to
risk-weighted assets)....... $19,318 12.07% $12,805 8.00% $16,006 10.00%
Tier 1 capital (to
risk-weighted assets)....... 17,872 11.17 6,403 4.00 9,604 6.00
Tier 1 capital (to average
assets)..................... 17,872 7.07 10,118 4.00 12,648 5.00
======= ====== ======= ====== ======= ======
Iola Bank and Trust Company:
Total risk-based capital (to
risk-weighted assets)....... $ 6,612 13.81% $ 3,830 8.00% $ 4,787 10.00%
Tier 1 capital (to
risk-weighted assets)....... 6,136 12.82 1,915 4.00 2,872 6.00
Tier 1 capital (to average
assets)..................... 6,136 7.67 3,200 4.00 4,000 5.00
======= ====== ======= ====== ======= ======
First National Bank and Trust
Company:
Total risk-based capital (to
risk-weighted assets)....... $ 5,230 13.65% $ 3,065 8.00% $ 3,831 10.00%
Tier 1 capital (to
risk-weighted assets)....... 4,811 12.56 1,532 4.00 2,298 6.00
Tier 1 capital (to average
assets)..................... 4,811 7.80 2,466 4.00 3,082 5.00
======= ====== ======= ====== ======= ======
</TABLE>
(14) MERGERS AND ACQUISITIONS
In August 1997, the Company assumed the branch deposits and acquired
certain assets, consisting of loans, accrued interest and premises and
equipment, of a Mercantile Bancorporation branch located in Nevada, Missouri.
The deposits and their accrued interest payable approximated $30,454,000 and the
acquired assets aggregated $19,166,000. The Company paid a premium of $2,523,000
in connection with the transaction, which has been recorded as goodwill in the
accompanying consolidated financial statements and is being amortized over
fifteen years on a straight-line basis.
In August 1997, the Company assumed the branch deposits and acquired
certain assets, consisting of loans, accrued interest and premises and
equipment, of a Roosevelt Bank branch located in Lamar, Missouri. Such deposits
and their accrued interest payable approximated $39,379,000 and the acquired
assets aggregated $442,000. The Company paid a premium of $1,298,000 in
connection with the transaction, which has been recorded as goodwill in the
accompanying consolidated financial statements and is being amortized over
fifteen years.
F-25
<PAGE> 84
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, the Company assumed the branch deposits and acquired certain
assets, consisting of loans, accrued interest and premises and equipment, of a
NationsBank branch located in Ottawa, Kansas. The deposits and their accrued
interest payable approximated $33,777,000 and the acquired assets aggregated
$3,585,000. The Company paid a premium of $1,922,000 in connection with the
transaction, which has been recorded as goodwill in the accompanying
consolidated financial statements and is being amortized over fifteen years.
(15) COMMITMENTS AND CONTINGENCIES
Standby letters of credit were approximately $2,658,000 and $2,268,000 and
outstanding loan commitments and available lines of credit with customers were
approximately $45,115,000 and $39,549,000 at December 31, 1998 and 1997,
respectively. Substantially all letters of credit and loan commitments are at
variable interest rates which approximate market rates. The credit risk involved
in issuing these standby letters of credit and loan commitments is essentially
the same as that involved in extending loans to customers.
(16) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial information of the Company as of December
31, 1998 and 1997 and for each of the years in the three-year period ended
December 31, 1998 (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
Assets
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash........................................................ $ 616 $ 486
Investment in subsidiaries.................................. 38,141 32,518
Other....................................................... 740 792
------- -------
Total assets...................................... $39,497 $33,796
======= =======
Liabilities and Stockholders' Equity
Long-term debt.............................................. $13,900 $11,081
Other....................................................... 196 73
Redeemable common stock held by ESOP, net................... 16,876 18,143
Nonredeemable stockholders' equity.......................... 8,525 4,499
------- -------
Total liabilities and stockholders' equity........ $39,497 $33,796
======= =======
</TABLE>
F-26
<PAGE> 85
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Dividends from subsidiaries............................ $ 2,300 $ 1,601 $1,008
Interest income........................................ 29 19 11
Other expense, net..................................... (2,363) (1,396) (857)
------- ------- ------
Income (loss) before equity in undistributed earnings
of subsidiaries................................... (34) 224 162
Increase in undistributed equity of subsidiaries....... 1,418 1,264 1,660
------- ------- ------
Income before income taxes........................... 1,384 1,488 1,822
Income tax benefit..................................... 960 726 470
------- ------- ------
Net income................................... $ 2,344 $ 2,214 $2,292
======= ======= ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 2,344 $ 2,214 $ 2,292
Increase in undistributed equity of subsidiaries...... (1,418) (1,264) (1,660)
Allocation of ESOP shares............................. 451 295 (47)
Other................................................. 218.... (237) (155)
------- ------- -------
Net cash provided by operating activities..... 1,595 1,008 430
------- ------- -------
Cash flows from investing activities:
Capital contributions to subsidiaries................. (4,000) (7,000) --
Acquisition of subsidiary............................. -- -- (3,117)
Other................................................. (42) (161) 24
------- ------- -------
Net cash used in investing activities......... (4,042) (7,161) (3,093)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt.......................... 5,000 7,700 1,344
Principal payments on long-term debt.................. (1,388) (1,745) (397)
Purchase of treasury stock............................ (869) 1,145 --
Proceeds from sales of treasury stock................. 374 -- --
Issuance of common stock.............................. 146 -- 2,140
Payment of dividends.................................. (686) (683) (588)
------- ------- -------
Net cash provided by (used in) financing
activities.................................. 2,577 6,417 2,499
------- ------- -------
Net increase (decrease) in cash............... 130 264 (164)
------- ------- -------
Cash at beginning of year............................... 486 222 386
------- ------- -------
Cash at end of year..................................... $ 616 $ 486 $ 222
======= ======= =======
Noncash financing activities -- issuance of treasury
stock to retire notes payable......................... $ 793 $ -- $ --
======= ======= =======
</TABLE>
F-27
<PAGE> 86
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The primary sources of funds available to the Company is the payment of
dividends by the subsidiaries. Subject to maintaining certain minimum regulatory
capital requirements, regulations limit the amount of dividends that may be paid
without prior approval of the subsidiaries' regulatory agencies. At December 31,
1998, the subsidiaries could pay dividends of $3,179,000 without prior
regulatory approval.
F-28
<PAGE> 87
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AUTHORIZED BY US AND REFERRED TO IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, YOU MUST NOT RELY UPON THE INFORMATION AND REPRESENTATIONS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN
OFFER. WE DO NOT INTEND THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE TO
CREATE THE IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE
DATE OF THE INFORMATION PROVIDED IN THIS PROSPECTUS. HOWEVER, IF THERE IS ANY
MATERIAL CHANGE IN OUR AFFAIRS DURING THE TIME WHEN A COPY OF THIS PROSPECTUS IS
REQUIRED TO BE DELIVERED, WE WILL AMEND OR SUPPLEMENT THIS PROSPECTUS TO REFLECT
THE CHANGE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 4
Selected Consolidated Financial
Data................................ 9
Use of Proceeds....................... 10
Dividend Policy; No Prior Market for
Common Stock........................ 10
Dilution.............................. 11
Capitalization........................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 31
Management............................ 38
Related Party Transactions............ 42
Principal Shareholders and Selling
Shareholder......................... 43
Supervision and Regulation............ 45
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 56
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Forward-Looking Statements............ 58
Additional Information................ 58
Index to Financial Statements......... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATIONS. UNTIL JULY 16, 1999, ALL DEALERS THAT
EFFECT TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND REGARDING THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,000,000 SHARES
COMMON STOCK
[TEAM FINANCIAL, INC. LOGO]
--------------------
PROSPECTUS
--------------------
HOWE BARNES INVESTMENTS, INC.
JUNE 21, 1999
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