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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------
Securities and Exchange Commission File Number: 000-26335
TEAM FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
KANSAS 48-1017164
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8 West Peoria, Suite 200, Paola, Kansas, 66071
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code: (913) 294-9667
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUES:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 3,851,803 shares of the Registrant's common stock, no par value,
outstanding as of November 9, 1999.
1
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition as of
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 1999
and 1998 5
Consolidated Statements of Changes In Stockholders'
Equity For the Nine Months Ended September 30, 1999 6
Consolidated Statements of Cash Flows For The Nine
Months Ended September 30, 1999 and 1998 7
Notes To Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 - 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 14 - 15
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 16
Item 2. Changes In Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission Of Matters To A Vote Of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits And Reports On Form 8-K 16 - 17
SIGNATURE PAGE 18
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2
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TEAM FINANCIAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
----------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,436 $ 27,397
Federal funds sold and interest bearing bank deposits 2,264 4,502
----------- -----------
Cash and cash equivalents 14,700 31,899
----------- -----------
Investment securities
Available for sale, at estimated fair value (amortized cost of $119,085 and
$134,127 at September 30, 1999 and December 31, 1998, respectively) 117,648 109,296
Held to maturity, at cost (estimated fair value of $25,813 and $22,735
at September 30, 1999 and December 31, 1998, respectively) 26,093 25,742
----------- -----------
Total investment securities 143,741 135,038
----------- -----------
Loans receivable, net of unearned fees 276,245 256,126
Allowance for loan and lease losses (2,892) (2,541)
----------- -----------
Net loans receivable 273,353 253,585
----------- -----------
Accrued interest receivable 4,022 4,102
Premises and equipment, net 8,929 8,560
Assets acquired through foreclosure 700 906
Intangible assets, net of accumulated amortization 5,382 5,850
Other assets 4,315 2,412
----------- -----------
Total Assets $ 455,142 $ 442,352
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking Deposits $ 106,858 $ 117,901
Savings Deposits 20,313 20,266
Money Market Deposits 45,737 41,560
Certificates of Deposits 202,706 204,620
----------- -----------
Total Deposits 375,614 384,347
----------- -----------
Federal Funds purchased and securities sold
under agreements to repurchase 15,024 6,273
Federal Home Loan Bank Advances 20,110 10,160
Notes payable 5,400 12,900
Accrued expenses and other liabilities 3,869 3,271
----------- -----------
Total Liabilities 420,017 416,951
----------- -----------
Redeemable common stock held by ESOP, net of unearned compensation - 16,876
----------- -----------
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, 3,851,803 and 3,020,098
shares issued at September 30, 1999 and December 31, 1998, respectively 22,310 13,980
Capital surplus 122 122
Retained Earnings 13,772 11,921
Treasury stock, 27,005 shares of common stock (187) (187)
Accumulated other comprehensive income (892) 565
Unearned compensation - (1,000)
Less redeemable common stock held by ESOP,
net of unearned compensation - (16,876)
----------- -----------
Total stockholders' equity 35,125 8,525
----------- -----------
Total liabilities and stockholders' equity $ 455,142 $ 442,352
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
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TEAM FINANCIAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,966 $ 6,010 $ 17,343 $ 17,204
Taxable investment securities 1,938 1,783 5,404 5,396
Nontaxable investment securities 297 298 886 841
Other 75 169 400 292
---------- ---------- ---------- ----------
Total interest income 8,276 8,260 24,033 23,733
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits
Checking Deposits 468 545 1,385 1,559
Savings Deposits 136 135 403 384
Money Market Deposits 417 338 1,059 979
Certificates of Deposits 2,630 2,782 8,009 8,190
Federal funds sold and securities sold
under agreements to repurchase 115 148 262 408
FHLB advances payable 332 106 583 238
Notes payable 101 278 553 751
---------- ---------- ---------- ----------
Total interest expense 4,199 4,332 12,254 12,509
---------- ---------- ---------- ----------
Net interest income before provision
for loan losses 4,077 3,928 11,779 11,224
Provision for loan losses 291 351 677 1,075
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 3,786 3,577 11,102 10,149
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges 618 518 1,749 1,478
Trust fees 156 128 451 261
Gain on sales of mortgage loans 73 117 377 451
Gain on sales of investment securities 1 3 1 8
Other 315 268 902 895
---------- ---------- ---------- ----------
Total other income 1,163 1,034 3,480 3,093
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 1,900 1,760 5,611 5,391
Occupancy and equipment 460 509 1,336 1,404
Data processing 386 331 1,081 916
Professional fees 142 121 428 435
Marketing 40 145 155 380
Supplies 57 95 194 249
Conversion 150 - 150 -
Goodwill and other intangible amortization 165 189 500 422
Other 613 500 1,799 1,909
---------- ---------- ---------- ----------
Total other expenses 3,913 3,651 11,254 11,107
---------- ---------- ---------- ----------
Income before income taxes 1,036 960 3,328 2,135
Income taxes 242 197 948 490
---------- ---------- ---------- ----------
Net income $ 794 $ 763 $ 2,380 $ 1,645
========== ========== ========== ==========
Shares applicable to basic and diluted
income per share 3,827,346 2,732,813 3,221,818 2,747,480
Basic and diluted income per share $ 0.21 $ 0.28 $ 0.74 $ 0.60
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
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TEAM FINANCIAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 794 $ 763 $ 2,380 $ 1,645
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities available for sale (534) 210 (1,456) 791
Reclassification adjustment for gains included in net income (1) (2) (1) (5)
------- ------- ------- -------
Other comprehensive income (535) 208 (1,457) 786
------- ------- ------- -------
Comprehensive income $ 259 $ 971 $ 923 $ 2,431
======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
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TEAM FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained Unearned
Stock capital earnings Compensation
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 13,980 $ 122 $ 11,921 $ (1,000)
Issuance of common stock 8,265 1,000
Common stock issued in connection with
compensation plans (8,710 shares) 65
Net Earnings 2,380
Dividends ($0.10 per share) (529)
Other comprehensive income
-------- -------- -------- --------
BALANCE, September 30, 1999 $ 22,310 $ 122 $ 13,772 $ -
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Less redeemable
common stock
Accumulated held by employee
other stock ownership plan, Total
Treasury comprehensive net of unearned stockholders'
Stock income compensation equity
---------- -------------- --------------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ (187) $ 565 $ (16,876) $ 8,525
Issuance of common stock 16,876 26,141
Common stock issued in connection with
compensation plans (8,710 shares) 65
Net Earnings 2,380
Dividends ($0.10 per share) (529)
Other comprehensive income (1,457) (1,457)
====== ======= ========= ========
BALANCE, September 30, 1999 $ (187) $ (892) $ - $ 35,125
====== ======= ========= ========
</TABLE>
6
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,380 $ 1,645
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 677 1,075
Depreciation and amortization 1,836 1,228
Net gain on sales of investment securities (1) (8)
Net gain on sales of mortgage loans (377) (451)
Net gain on sales of assets acquired through
foreclosure (14) (5)
Proceeds from sale of mortgage loans 33,215 31,265
Origination of mortgage loans for sale (29,185) (32,828)
Increase in other assets (2,385) (3,030)
Decrease in accrued expenses and other liabilities 1,141 26
-------- --------
Net cash provided by (used in) operating activities 7,287 (1,083)
-------- --------
Cash flows from investing activities:
Net increase in loans (23,579) (27,473)
Proceeds from sale of investment securities available-for-sale 1,157 10,558
Proceeds from maturities and principal reductions of
investment securities available-for-sale 41,694 24,290
Purchases of investment securities available-for-sale (51,234) (41,125)
Proceeds from maturities and principal reductions of
investment securities held-to-maturity 6,520 3,714
Purchases of investment securities held-to-maturity (8,790) (6,406)
Purchase of bank premises and equipment, net of sales (1,550) (1,129)
Proceeds from sales for payments on assets acquired through
foreclosure 27 56
-------- --------
Net cash used in investing activities (35,755) (37,515)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits (8,733) 28,655
Net increase in federal funds purchased and
securities sold under agreement to repurchase 8,751 1,387
Payments on Federal Home Loan Bank advances (8,050) (50)
Proceeds from Federal Home Loan Bank advances 19,000 5,000
Payments on notes payable (7,500) (1,727)
Proceeds of notes payable - 4,800
Common stock issued 8,330 82
Purchase of treasury stock - (870)
Sales of treasury stock - 1,093
Dividends paid on common stock (529) -
-------- --------
Net cash provided by financing activities 11,269 38,370
-------- --------
Net decrease in cash and cash equivalents (17,199) (228)
Cash and cash equivalents at beginning of the period 31,899 20,205
-------- --------
Cash and cash equivalents at end of the period $ 14,700 $ 19,977
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements of Team Financial, Inc. and
Subsidiaries (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes necessary for a comprehensive
presentation of financial condition and results of operations required by
general accepted accounting principles for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of results have been included. The consolidated financial
statements should be read in conjunction with the audited financial statements
included in the Company's prospectus dated June 26, 1999 as part of its
Registration Statement No. 333-76163 declared effective by the Securities and
Exchange Commission.
The consolidated financial statements include the accounts of Team Financial,
Inc. and its wholly owned subsidiaries. Intercompany balances and transactions
have been eliminated. The December 31, 1998 balance sheet has been derived from
the audited consolidated financial statements as of that date. In the opinion of
management, all adjustments, including normal recurring accruals, considered
necessary for a fair presentation of the financial statements have been
reflected herein. The results of the interim period ended September 30, 1999 are
not necessarily indicative of the results expected for the year ended December
31, 1999.
NOTE 2: INITIAL PUBLIC OFFERING
On June 21, 1999, the Company completed an initial public offering, whereby the
Company and its ESOP sold 700,000 and 300,000 shares, respectively of common
stock at $11.25 per share. On July 15, 1999, the Company sold an additional
150,000 shares as part of the over allotment option associated with the initial
public offering. Total expenses of the offering approximated $1.6 million. The
Company's shares are listed and traded on the Nasdaq National Market under the
symbol TFIN. As a result of the offering, the redeemable common stock held by
the ESOP has been reclassified into stockholders' equity.
NOTE 3: EARNINGS PER COMMON SHARE
Earnings per share are computed in accordance with SFAS No. 128. Basic earnings
per share is based upon the weighted average number of common shares outstanding
during the periods presented, less any unallocated ESOP shares. For the period
presented, there were no dilutive potential common shares outstanding.
NOTE 4: DIVIDEND DECLARED
On September 28, 1999, the Company declared a quarterly dividend of $0.05 per
share to all shareholders of record on September 30, 1999, payable October 20,
1999.
8
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TEAM FINANCIAL, INC.
QUARTERLY REPORT (SEC FORM 10-Q)
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Team Financial, Inc. (the "Company") is a multi-bank holding company
incorporated in the State of Kansas. The Company offers full service community
banking and financial services through 15 locations in the Kansas City
metropolitan area, southeastern Kansas, western Missouri, and Nebraska. The
Company's growth over recent years has been achieved primarily through purchases
of branches of large banks and through an acquisition of a community bank.
Additional asset growth has occurred through internal growth at existing banks
as well as from opening three new branches. The Company's stock is listed on the
Nasdaq National Market ("NASDAQ") under the symbol "TFIN".
During the quarter ended September 30, 1999, the Company announced that it had
reached an agreement to acquire ComBankshares, Inc., and its subsidiary
Community Bank, in order to strengthen the Company's presence along the I-70
corridor and the high growth market of Johnson County, Kansas. With $52 million
in assets, the acquisition will increase the Company's total assets to over a
half billion dollars by the end of the fourth quarter. The acquisition is
subject to shareholder approval as well as the approval of bank regulators. The
Company expects the acquisition to close in the forth quarter of 1999.
Also during the quarter, the Company established a real estate investment trust
to manage certain assets of TeamBank, N.A., a wholly owned subsidiary of the
Company.
The Company's results of operation depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense on interest-bearing liabilities. The Company's operations are
also affected by non-interest income, such as service charges, loan fees, and
gains and losses from the sale of newly originated loans. The Company's
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, data processing expense and
provisions for loan losses.
FINANCIAL CONDITION
Total assets of the Company at September 30, 1999 were $455.1 million compared
to $442.3 million at December 31, 1998. The increase of $12.8 million was
primarily due to the increase in loans receivable of $20.1 million, of which
$17.2 million were funded by the decrease in cash and cash equivalents.
INVESTMENT SECURITIES: Investment securities available for sale and held to
maturity increased $8.7 million, or 6.4%, to $143.7 million, representing 31.6%
of total assets at September 30, 1999. At December 31, 1998, the investment
securities portfolio totaled $135.0 million, or 30.5% of total assets at
December 31, 1998. The increase in investment securities from December 31, 1998
was primarily the result of a $12 million spread trade executed in the third
quarter of 1999. The spread trade, composed of two GNMA $7.0 million and $5.0
million mortgage backed securities with coupons of 7.0% and 7.5% respectively,
with the expected maturity of approximately five years, was funded with a $12.0
million five year advance from the Federal Home Loan Bank. The advance is fixed
for two years at 5.88%; convertible to a monthly floating rate equal to the
Federal Home Loan Bank's One Month Short Term Advance rate at the option of the
Federal Home Loan Bank on July 2, 2001 provided the three-month LIBOR rate is
equal to or greater than 7.25% at that time. The trade is expected to yield an
average spread of approximately 150 basis points over the term of the trade. Net
of the spread trade, investment securities would have decreased $3.3 million
from December 31, 1998. This decrease was used to fund the increase in loans
receivable.
The Company's securities portfolio serves as a source of liquidity and
earnings and contributes to the management of interest rate risk. The debt
securities portfolio is comprised primarily of obligations collateralized by
U.S.
9
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Government agencies (mainly in the form of mortgage-backed securities), U.S.
Government agency securities, U.S. Treasury securities, and municipal
obligations. With the exception of municipal obligations, the maturity
structure of the debt securities portfolio is generally short-term in nature
or indexed to variable rates.
LOANS RECEIVABLE: Loans receivable increased 7.8%, to $276.2 million at
September 30, 1999 compared to December 31, 1998. The $20.1 million increase
primarily consists of a $23.0 million increase in loans secured by real
estate. A substantial portion of the increase in these real estate loans
includes a $11.3 million increase in commercial real estate loans, and a $9.1
million increase in one to four family residential real estate loans.
The substantial majority of the Company's residential mortgage loan
production is underwritten in compliance with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association
(FNMA), or the Government National Mortgage Association (GNMA). The Company
will typically sell fixed rate mortgage loans to permanent investors with the
servicing rights retained. The majority of the Company's commercial loans
include loans to service, retail, wholesale, and light manufacturing
businesses. These loans are made at rates based on the prevailing national
prime interest rate, as well as fixed rates for terms generally ranging from
three to five years. Installment loans include automobile, residential,
credit card, and other personal loans. The majority of the installment loans
are loans with fixed interest rates.
NON-PERFORMING ASSETS: Non-performing assets consist of loans 90 days or more
delinquent and still accruing interest, non-accrual loans and other real
estate owned (OREO). OREO represents real estate properties acquired through
foreclosure or by deed in lieu of foreclosure and is classified as assets
acquired through foreclosure on the balance sheet until the property is sold.
Commercial loans, residential real estate loans, and installment loans are
generally placed on non-accrual status when principal or interest is 90 days
or more past due, unless the loans are well-secured and in the process of
collection. Loans may be placed on non-accrual status earlier when, in the
opinion of management, reasonable doubt exists as to the full, timely
collection of interest or principal.
The following table summarizes the Company's non-performing assets:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Dollars In Thousands)
<S> <C> <C>
Non-Performing Assets:
Non-performing loans
Real estate loans $ 943 $ 644
Commercial and industrial 1,540 1,392
Installment loans 307 273
Lease financing receivables - -
-------- --------
Total Non-performing loans 2,790 2,309
Other real estate owned 700 753
-------- --------
Total non-performing assets $ 3,490 $ 3,062
======== ========
Non-performing loans to total loans 1.01% 0.90%
Non-performing assets to total assets 0.77% 0.69%
</TABLE>
Non-performing assets totaled $3.5 million at September 30, 1999 increasing
$428,000 since year ended 1998. The increase in non-performing assets is due to
the increase in non-performing loans of $481,000 and a decrease in other real
estate owned of $53,000. The increase in non-performing loans is primarily the
result of an additional $148,000 in non-performing commercial loans and an
additional $299,000 in non-performing real estate loans. Management is not aware
of any adverse trend relating to the Company's loan portfolio. As of September
30, 1999 there were no significant balance of loans excluded from non-performing
loans set forth above, where known information about possible credit problems of
borrowers caused management to have serious doubts as to the ability
10
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of such borrowers to comply with the present loan repayment terms and
which may result in such loans becoming non-performing.
ALLOWANCE FOR LOAN AND LEASE LOSSES: Management maintains its allowance for loan
and lease losses based on industry standards, historical experience, and an
evaluation of economic conditions. The Company 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. Allowances for loan and lease losses
increased to 1.05% of total loans at September 30, 1999, up from 0.99% at
December 31, 1998.
The following table summarizes the Company's allowance for loan and lease
losses:
ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ ----------------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of period $ 2,541 $ 1,629
Provision for estimated loan losses 677 1,486
Charge-offs 488 723
Recoveries 162 149
-------- --------
Balance, end of period $ 2,892 $ 2,541
======== ========
Allowance for loan and lease losses
as a percent of total loans 1.05% 0.99%
Allowance for loan and lease losses
as a percent of non performing loans 103.66% 110.05%
Net charge-offs as a percent of total loans 0.12% 0.22%
</TABLE>
LIABILITIES: Total liabilities were $420.0 million at September 30, 1999, an
increase of $3.1 million from $416.9 million at December 31, 1998. The increase
is largely related to the increase in Federal Home Loan Bank advances.
DEPOSITS: Total deposits decreased $8.7 million from December 31, 1998, to a
balance at September 30, 1999 of $375.6 million. The decrease in deposits was
related to a decrease in checking deposits of $11.0 million and a decrease in
certificates of deposits of $1.9 million. The decrease in checking deposits,
which was offset by an increase in federal funds purchased and securities sold
under agreements to repurchase of $8.8 million, was due to the cyclical receipt
of municipal tax deposits in December of each year.
FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances increased $10.0
million to a balance of $20.1 million at September 30,1999. The increase was due
to the addition of a $12.0 million advance matched against two mortgage-backed
securities in the leveraged investment security transaction executed by the
Company as noted previously in the investment securities discussion.
NOTES PAYABLE AND EQUITY: On June 21, 1999, the Company completed an initial
public offering, whereby the Company and its ESOP sold 700,000 and 300,000
shares respectively, of common stock at $11.25 per share. On July 15, 1999, the
Company sold an additional 150,000 shares as part of the over allotment option
associated with the initial public offering. The proceeds from the offering were
used to pay $7.5 million of debt outstanding and contribute $1.0 million to a
subsidiary bank. As a result of the offering, notes payable decreased by $7.5
million and the redeemable common stock held by the ESOP has been reclassified
into stockholders' equity increasing equity by $26.6 million.
11
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REGULATORY CAPITAL: The Company is subject to regulatory capital requirements
administered by Federal Reserve, the Federal Deposit Insurance Corporation, and
the Comptroller of the Currency. Failure to meet the regulatory capital
guidelines may result in the initiation by the Federal Reserve of appropriate
supervisory or enforcement actions. As of September 30, 1999, the Company met
all capital adequacy requirements to which it is subject and management does not
anticipate any difficulty in meeting these requirements on an ongoing basis. The
Company's ratios at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
At September 30, 1999
---------------------------
Ratio Actual Minimum Required
- ---------------------------------------------- ------ ----------------
<S> <C> <C>
Total capital to risk weighted assets 11.77% 8.00%
Core capital to risk weighted assets 10.75% 4.00%
Core capital to average assets 6.88% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income for the nine and three months ended September 30, 1999
totaled $11.8 million and $4.1 million, respectively, compared to $11.2 million
and $3.9 million for the same periods in 1998. The increases of $622,000 and
$201,000 respectively are primarily the result of an increase in interest
earning assets through internal growth, as well as the decrease in interest paid
on deposits and other borrowings.
Net interest income, on a fully taxable equivalent basis, was $4.2 million for
the three months ended September 30, 1999 compared to $4.0 million for the same
period in 1998. The $200,000 increase is primarily due to a 25 basis point
decrease in the average rate on interest bearing deposits.
Net interest income, on a fully taxable basis for nine months ended September
30, 1999, totaled $12.2 million, an increase of 4.3% over the $11.7 million
earned for the nine months ended September 30, 1998. The increase resulted from
a 27 basis point decrease in the average rate on interest bearing deposits, and
from an increase in average earning assets of $22 million for September 30, 1999
over the same period a year earlier. The increase was offset by a 35 basis point
decrease in the average rate earned on interest earning assets primarily
resulting from a decrease on the average rate earned on net loans receivable.
Non-interest income for the three months ended September 30, 1999 increased
approximately $100,000 to $1.2 million compared to $1.0 million for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999
non-interest income increased a total of $387,000 or 12.5% over the nine months
ended one year ago. The increase in other income is primarily the result of an
increase in service charge revenue. Service charge revenue increased $100,000
and $271,000 for the respective three and nine months ended September 30, 1999
versus the same periods in 1998. Other fee income included an increase in the
revenue received from the Company's investment brokerage service of $17,000 for
the nine months ended, and an increase of $94,000 in miscellaneous deposit
charges for the nine months ended September 30, 1999, both compared to the same
periods one year ago. Offsetting non-interest income were decreases in the gains
on sales of mortgage loans of $44,000 and $74,000 for the three and nine months
ended September 30, 1999 versus the same periods ended September 30,1998. The
decreases were the result of an increase in the origination of variable rate
residential one to four family mortgages versus the origination of fixed rate
residential one to four family mortgages, as consumers opted for variable rate
loans in conjunction with the increase in mortgage interest rates over the past
several months. The Company's general practice is to sell fixed rate residential
one to four family mortgages with servicing rights retained, and maintain
variable rate residential mortgages in the Company's loan portfolio. The Company
therefore, originated more residential one to four family mortgages to be held
in its portfolio, and sold fewer loans to the secondary market, reducing gains
on the sale of mortgage loans.
12
<PAGE>
Non-interest expense for the three months ended September 30, 1999 was $3.9
million up $262,000 from the $3.7 million in non-interest expense the same
period the prior fiscal year. For the nine months ended September 30, 1999,
non-interest expense totaled $11.2 million, up 1.3%, from the nine months ended
September 30, 1998. Salaries and benefits expense was up $100,000 and $271,000
for the respective three and nine months ended September 30, 1999 versus the
same periods one year ago. The increase is the result of an addition of three
full time equivalent employees, as well as an increase in employee insurance
expense. Data processing fees, for the three and nine months ended September 30,
1999, increased $55,000 and $165,000 respectively over the same periods in 1998,
due to an increase in the volume of loan and deposit accounts primarily
resulting from internal growth as well as from the branch acquisition converted
to the Company's data processing service provider in March of 1998. The
Company's data service provider does not begin charging for additional branches
until the beginning of any calendar year. Therefore, the additional charges on
the increased volume of accounts from the acquisition conversion did not begin
until fiscal 1999. Marketing expense decreased $105,000 and $225,000 for the
quarter and year ended September 30, 1999 compared to the same periods ended
September 30, 1998. The decrease in marketing expense can be substantially
attributed to a higher level of marketing expense in 1998 due to the increased
marketing efforts in the market areas of the three branches acquired in late
1997 and early 1998. Contributing to the increase in non-interest expense for
the three and nine months ended September 30, 1999 is $150,000 in conversion
expense from a system conversion of one of the Company's banks from an
independent data processing service provider to the Company's data processing
service provider in order to increase future operating efficiencies. Included in
other expense, which increased $113,000 for the quarter ended September 30, 1999
versus the quarter ended September 30, 1998, was a one time expense of $22,000
paid by the Company in a legal settlement. Despite the increase for the quarter
ended September 30, 1999, other expense decreased $110,000 for the nine months
ended September 30,1999 versus September 30, 1998.
The Company recorded income tax expense of $242,000 for the three months ending
September 30, 1999, versus an income tax expense of $197,000 for the quarter
ended September 30, 1999. Income tax expense recorded for the nine months ended
September 30, 1999 was $948,000 versus $490,000 for the nine months ending the
prior fiscal year. The Company's effective tax rate increased to approximately
28% for the nine months ended September 30, 1999, up from approximately 23% for
the nine months ended September 30, 1998. The Company's effective 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, the Company can deduct dividends paid to its
ESOP under limited circumstances. In conjunction with the Company's initial
public offering of stock on June 15 of this fiscal year, the ESOP issued 300,000
shares to pay off debt held in the ESOP. As a result, the Company no longer
qualifies for the tax treatment under this tax code and the tax rate has
increased.
LIQUIDITY
The Company continuously forecasts and manages its liquidity in order to satisfy
cash flow requirements of depositors and borrowers and allow the Company to meet
its own cash flow needs. The Company 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. The Company's most liquid assets are cash and cash
equivalents and investment securities available-for-sale. The levels of these
assets are dependent on the Company's operating, financing, lending, and
investing activities during any given period. At September 30, 1999 and December
31, 1998 these liquid assets totaled $132.3 million and $141.2 million,
respectively. Management believes the Company's sources of liquidity are
adequate to meet expected cash needs for the foreseeable future.
At September 30, 1999, the Company's leverage, Tier 1 risk based capital, and
total risk based capital ratios were 6.88%, 10.75%, and 11.77%, respectively,
well above the minimum required levels of 4%, 4%, and 8%, respectively.
13
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive
interest-bearing assets and interest-bearing liabilities. Controlling the
maturity of repricing of an institution's liabilities and assets in order to
minimize interest rate risk is commonly referred to as gap management. Close
matching of repricing assets and liabilities will normally result in little
change in net interest income when interest rates change.
The following table indicates that at September, 30, 1999, if there had been a
sudden and sustained increase in prevailing market interest rates, the Company's
1999 interest income would be expected to increase, while a decrease in rates
would indicate an decrease in income.
<TABLE>
<CAPTION>
Net Interest (Decrease) Percent
Change in Interest Rates Income Increase Change
- --------------------------------- ------------ ---------- --------
<S> <C> <C> <C>
200 basis point rise 16,051 346 2.20 %
100 basis point rise 15,886 181 1.15 %
base rate scenario 15,705 - - %
100 basis point decline 15,555 (151) (0.96)%
200 basis point decline 15,398 (308) (1.96)%
</TABLE>
The Company believes that no significant changes in its interest rate
sensitivity position have occurred since September 30, 1999. The Company also
believes it is appropriately positioned for future interest rate movements,
although it may experience some fluctuation in net interest income due to short
term timing differences between the repricing of assets and liabilities.
YEAR 2000 COMPLIANCE
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 programs and operating systems
can accommodate the date value for the year 2000. Many existing software
products, including products used by the Company 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 bank's
readiness for the year 2000 as part of the regular examination process.
The Company believes that with modifications to existing software and conversion
to new software, the year 2000 issue will not pose significant operational
problems for the Company's business operations. Substantially all data
processing services for the Company 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. Management is not aware of limitations on the Company's legal
remedies should the conversion not be completed on time.
Additionally, implementation of the Company'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 the Company's outsourced computer
systems was completed in the second quarter of 1999 and no significant
deficiencies were encountered.
Management currently estimates that year 2000 compliance will cost approximately
$500,000. The actual cost through September 30, 1999 was approximately $434,000.
Of this amount approximately $6,000 was expensed and $428,000 was capitalized.
The Company expects that an additional amount will be expended during the
remainder of 1999, of which $5,000 will be expensed and $12,000 will be
capitalized. The Company's plan implementation
14
<PAGE>
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 the Company. 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
the Company would need to fully implement its contingency plan to operate in
the year 2000 environment and noncompliant customers are unable to repay
their loans.
The Company has developed 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 included procedures to be followed in the event of
disruptions to business, which may impact the Company's customers and business
partners, as well as procedures to handle business disruptions from natural
disasters and utility outages. This plan was completed and tested in the second
quarter 1999. In the event the Company were to fully implement all phases of the
contingency plan, management believes that operational costs would increase
modestly.
The Company has sent direct mail to its 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 the Company's operations. At this
time, the Company is unable to estimate with reliability the degree to which
customer's operations are susceptible to potential problems relating to the year
2000 issue or, further, to quantify the potential lost revenue to the Company in
this case.
15
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings
other than routine legal proceedings occurring in the ordinary course
of business. Such other routine legal proceedings in the aggregate are
believed by management to be immaterial to the Company's financial
condition or results of operations.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Exhibits filed with this Form 10-Q: None
(ii) Exhibits previously filed and incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Restated and Amended Articles of Incorporation of Team Financial,
Inc. (1).
3.2 Amended Bylaws of Team Financial, Inc. (1)
10.1 Employment Agreement between Team Financial, Inc. and Robert J.
Weatherbie dated January 1, 1999 (1)
10.2 Employment Agreement between Team Financial, Inc. and Michael L.
Gibson dated January 1, 1999 (1)
10.3 Employment Agreement between Team Financial, Inc. and Rick P.
Bartley dated January 1, 1999 (1)
10.4 Laser Pro License and Maintenance Agreement between Miami County
National Bank (now TeamBank N.A.) and CFI Bankers Service Group, Inc.
dated March 17, 1999 (1).
10.5 Data Processing Services Agreement between TeamBanc, Inc. (now Team
Financial, Inc.) and M&I Data Services, Inc. dated December 22,
1992 (1).
10.6 401K Plan of Team Financial, Inc. 401(k) Trust, effective January 1,
1999 and administered by Nationwide Life Insurance Company (1).
10.7 The following documents regarding the loan agreement between Team
Financial, Inc., Team Financial, Inc. Employee Stock Ownership Plan
and Commerce Bank all of which are dated August 21, 1997, unless
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
otherwise noted: (i) Term Loan Agreement and Amendment One to Term
Loan Agreement dated October 31, 1997; (ii) Term Note in the
principal amount of $1,199,000; (iii) Collateral Assignment; (iv)
ESOP Note (and Pledge Agreement) in the amount of $1,199,000; (v)
Lending Agreement; (vi) Corporate Guaranty for Team Financial
Acquisition Subsidiary, Inc.; and (vii) Collateral Pledge Agreements
from Team Financial, Inc. and from Team Financial Acquisition
Subsidiary, Inc. (1)
10.8 The following documents regarding the loan agreement between Team
Financial, Inc., Team Financial, Inc. Employee Stock Ownership Plan and
Commerce Bank all of which are dated August 21, 1997, unless otherwise
noted: (i) Term Loan Agreement and Amendment One to Term Loan Agreement
dated October 31, 1997; (ii) Term Note in the principal amount of
$247,000; (iii) Collateral Assignment; (iv) ESOP Note (and Pledge
Agreement) in the amount of $247,000; and (v) Lending Agreement. (1)
10.9 The following documents regarding the loan agreement between Team
Financial, Inc., Team Financial, Inc. Employee Stock Ownership Plan and
Commerce Bank all of which are dated August 30, 1997, unless otherwise
noted: (i) Term Loan Agreement and Amendment One to Term Loan Agreement
dated October 31, 1997; (ii) Term Note in the principal amount of
$200,018; (iii) Collateral Assignment; (iv) ESOP Note (and Pledge
Agreement) in the amount of $200,018; and (v) Lending Agreement. (1)
10.10 The following documents regarding the loan agreement between Team
Financial, Inc., Team Financial, Inc. Employee Stock Ownership Plan and
Commerce Bank all of which are dated August 9, 1997, unless otherwise
noted: (i) Loan Agreement and Amendment One and Two to the Loan
Agreement dated March 19, 1998 and June 29, 1998, respectively; (ii)
Amended and Restated Term Note in the principal amount of $12,400,000
dated June 29, 1999; and (ii) Corporate Guaranty. (1)
10.11 Team Financial, Inc. Employee Stock Ownership Plan Summary. (1)
10.12 Team Financial, Inc. 1999 Stock Incentive Plan. (1)
10.13 Rights Agreement between Team Financial, Inc. and American
Securities Transfer & Trust, Inc. dated June 3, 1999. (1)
10.14 Team Financial, Inc. - Employee Stock Purchase Plan. (1)
11.1 Statement regarding Computation of per share earnings - see
consolidated financial statements.
(1) Filed with Registration Statement on Form S-1. Registration
Statement No. 333-76163.
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 1999.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act Of 1934,
the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: November 12, 1999 By: /s/ ROBERT J. WEATHEBIE
------------------------
Robert J. Weatherbie
Chairman
Chief Executive Officer
Date: November 12, 1999 By: /S/ MICHAEL L. GIBSON
----------------------
President - Acquisitions/
Investments
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,436
<INT-BEARING-DEPOSITS> 2,264
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117,648
<INVESTMENTS-CARRYING> 26,093
<INVESTMENTS-MARKET> 25,813
<LOANS> 276,245
<ALLOWANCE> 2,892
<TOTAL-ASSETS> 455,142
<DEPOSITS> 375,614
<SHORT-TERM> 15,024
<LIABILITIES-OTHER> 9,269
<LONG-TERM> 20,110
0
0
<COMMON> 22,310
<OTHER-SE> 12,815
<TOTAL-LIABILITIES-AND-EQUITY> 455,142
<INTEREST-LOAN> 17,343
<INTEREST-INVEST> 6,290
<INTEREST-OTHER> 400
<INTEREST-TOTAL> 24,033
<INTEREST-DEPOSIT> 10,856
<INTEREST-EXPENSE> 12,254
<INTEREST-INCOME-NET> 11,779
<LOAN-LOSSES> 677
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 11,254
<INCOME-PRETAX> 3,328
<INCOME-PRE-EXTRAORDINARY> 2,380
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,380
<EPS-BASIC> 0.74
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 7.89
<LOANS-NON> 2,316
<LOANS-PAST> 474
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,541
<CHARGE-OFFS> 488
<RECOVERIES> 162
<ALLOWANCE-CLOSE> 2,892
<ALLOWANCE-DOMESTIC> 2,892
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
