<PAGE>
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, 2000
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 3,844,040 shares of the Registrant's common stock, no par value,
outstanding as of November 9, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition as of
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 2000
and 1999 5
Consolidated Statements of Changes In Stockholders'
Equity For the Nine Months Ended September 30, 2000 6
Consolidated Statements of Cash Flows For the
Nine Months Ended September 30, 2000 and 1999 7
Notes To Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 - 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits And Reports On Form 8-K 21 - 22
SIGNATURE PAGE 23
2
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,826 $ 17,458
Federal funds sold and interest bearing bank deposits 7,153 5,049
------------ -----------
Cash and cash equivalents 19,979 22,507
------------ -----------
Investment securities
Available for sale, at estimated fair value (amortized cost of $140,414 and
$139,618 at September 30, 2000 and December 31, 1999, 138,143 136,901
Held to maturity, at cost (estimated fair value of $24,700 and
$25,135 at September 30, 2000 and December 31, 1999, respectively) 24,810 25,630
------------ -----------
Total investment securities 162,953 162,531
------------ -----------
Loans receivable, net of unearned fees 329,283 309,255
Allowance for loan and lease losses (3,956) (3,320)
------------ -----------
Net loans receivable 325,327 305,935
------------ -----------
Accrued interest receivable 5,660 4,911
Premises and equipment, net 10,082 9,770
Assets acquired through foreclosure 531 792
Goodwill, net of accumulated amortization 11,099 9,263
Other assets 3,389 2,496
------------ -----------
Total assets $ 539,020 $ 518,205
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking deposits $ 118,556 $ 124,415
Savings deposits 23,037 22,135
Money market deposits 44,092 46,889
Certificates of deposit 249,586 241,677
------------ -----------
Total deposits 435,271 435,116
------------ -----------
Federal Funds purchased and securities sold
under agreements to repurchase 12,399 9,227
Federal Home Loan Bank Advances 34,504 24,055
Notes payable 14,350 9,924
Accrued expenses and other liabilities 5,021 2,314
------------ -----------
Total liabilities 501,545 480,636
------------ -----------
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; 4,163,545 and
4,157,053 shares issued; 3,856,040 and 4,130,048 shares outstanding at
September 30, 2000 and December 31, 1999 25,324 25,268
Capital surplus 122 122
Retained Earnings 16,159 14,356
Treasury stock, 307,505 and 27,005 shares of common stock at cost
at September 30, 2000 and December 31, 1999 respectively (2,655) (187)
Accumulated other comprehensive income (loss) (1,475) (1,990)
------------ -----------
Total stockholders' equity 37,475 37,569
------------ -----------
Total liabilities and stockholders' equity $ 539,020 $ 518,205
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
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
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans 7,675 $5,966 $21,999 $17,343
Taxable investment securities 2,408 1,938 7,184 5,404
Nontaxable investment securities 272 297 799 886
Other 28 75 202 400
--------- --------- --------- ---------
Total interest income 10,383 8,276 30,184 24,033
--------- --------- --------- ---------
INTEREST EXPENSE:
Deposits
Checking deposits 542 468 1,628 1,385
Savings deposits 147 136 443 403
Money market deposits 423 417 1,244 1,059
Certificates of deposit 3,667 2,630 10,523 8,009
Federal funds purchased and securities sold
under agreements to repurchase 152 115 453 262
FHLB advances payable 507 131 1,260 583
Notes payable 313 302 814 553
--------- --------- --------- ---------
Total interest expense 5,751 4,199 16,365 12,254
--------- --------- --------- ---------
Net interest income before provision for loan 4,632 4,077 13,819 11,779
Provision for loan losses 404 291 792 677
--------- --------- --------- ---------
Net interest income after provision for loan 4,228 3,786 13,027 11,102
--------- --------- --------- ---------
OTHER INCOME:
Service charges 935 618 2,493 1,749
Trust fees 136 156 421 451
Gain on sales of mortgage loans 177 73 357 377
Gain (loss) on sales of investment securities (79) 1 (85) 1
Other 396 315 1,074 902
--------- --------- --------- ---------
Total other income 1,565 1,163 4,260 3,480
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries and employee benefits 2,327 1,900 6,922 5,611
Occupancy and equipment 539 460 1,582 1,336
Data processing 441 386 1,398 1,081
Professional fees 331 142 687 428
Marketing 42 40 186 155
Supplies 84 57 231 194
Goodwill amortization 185 109 532 328
Conversion 859 669 2,306 1,971
--------- --------- --------- ---------
Total other expenses 4,808 3,913 13,906 11,254
--------- --------- --------- ---------
Income before income taxes 985 1,036 3,381 3,328
Income taxes 285 242 994 948
--------- --------- --------- ---------
Net income $ 700 $ 794 $ 2,387 $ 2,380
--------- --------- --------- ---------
Shares applicable to basic and diluted income per
share 3,874,436 3,827,346 3,936,625 3,221,818
Basic and diluted income per share $ 0.18 $ 0.21 $ 0.61 $ 0.74
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income $ 700 $ 794 $ 2,387 $ 2,380
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities
available for sale net of tax of $447 and $(326) for
the three months ended September 30, 2000 and
September 30, 1999, respectively; and net of tax
of $(69) and $(891) for the nine months ended
September 30, 2000 and September 30, 1999 respectively 761 (534) 455 (1,456)
Reclassification adjustment for gains (losses) included
in net income net of tax of $23 and $0 for the three
months ended September 30, 2000 and September 30, 1999,
respectively; and net of tax of $25 and $0 for the nine
months ended September 30, 2000 and September 30,
1999 respectively 56 (1) 60 (1)
--------- --------- --------- ---------
Other comprehensive income (loss) 817 (535) 515 (1,457)
--------- --------- --------- ---------
Comprehensive income $ 1,517 $ 259 $ 2,902 $ 923
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY
-------- ---------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $25,268 $ 122 $ 14,356 $ (187) $ (1,990) $ 37,569
Repurchase shares of common stock (280,500) (2,468) (2,468)
Common stock issued in connection with
compensation plans (6,492 shares) 56 56
Net Income 2,387 2,387
Dividends ($0.15 per share) (584) (584)
Other comprehensive income (loss) 515 515
-------- ---------- --------- -------- ------------- -------------
BALANCE, September 30, 2000 $25,324 $ 122 $ 16,159 $(2,655) $ (1,475) $ 37,475
======== ========== ========= ======== ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,387 $ 2,380
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 792 677
Depreciation and amortization 1,339 1,836
Net loss (gain) on sales of investment securities 85 (1)
Net gain on sales of mortgage loans (357) (377)
Net loss on sales of assets acquired through
foreclosure 15 (14)
Proceeds from sale of mortgage loans 11,703 33,215
Origination of mortgage loans for sale (11,879) (29,185)
Net increase in other assets (1,842) (2,385)
Net increase in accrued expenses and other liabilities 2,637 1,141
---------- ----------
Net cash provided by operating activities 4,880 7,287
---------- ----------
Cash flows from investing activities:
Net increase in loans (6,652) (23,579)
Proceeds from sale of investment securities available-for-sal 15,708 1,157
Proceeds from maturities and principal reductions of
investment securities available-for-sale 9,049 41,694
Purchases of investment securities available-for-sale (18,266) (51,234)
Proceeds from maturities and principal reductions of
investment securities held-to-maturity 1,190 6,520
Purchases of investment securities held-to-maturity (413) (8,790)
Purchase of premises and equipment, net of sales (616) (1,550)
Proceeds from sales or payments on assets acquired through
foreclosure 570 27
Cash paid for acquisitions, net of cash received (2,731) --
---------- ----------
Net cash used in investing activities (2,161) (35,755)
---------- ----------
Cash flows from financing activities:
Net decrease in deposits (18,135) (8,733)
Net increase in federal funds purchased and
securities sold under agreement to repurchase 3,022 8,751
Payments on Federal Home Loan Bank advances (11,051) (8,050)
Proceeds from Federal Home Loan Bank advances 19,500 19,000
Payments on notes payable (1,524) (7,500)
Proceeds of notes payable 5,950 --
Common stock issued 56 8,330
Purchase of treasury stock (2,468) --
Dividends paid on common stock (597) (529)
---------- ----------
Net cash used financing activities (5,247) 11,269
---------- ----------
Net change in cash and cash equivalents (2,528) (17,199)
Cash and cash equivalents at beginning of the period 22,507 31,899
---------- ----------
Cash and cash equivalents at end of the period $ 19,979 $ 14,700
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE1: 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
generally 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 unaudited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
The interim 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, 1999 statement of financial
condition has been derived from the audited consolidated financial statements as
of that date. The results of the interim period ended September 30, 2000 is not
necessarily indicative of the results expected for the year ending December 31,
2000.
NOTE 2: EARNINGS PER COMMON SHARE
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 3: STOCK REPURCHASE PROGRAM
The Board of Directors approved a stock repurchase program in February 2000,
authorizing the repurchase of up to 300,000 shares of the Company's common
stock. As of September 30, 2000, the Company had repurchased 280,500 shares of
its common stock under the program at an average price of $8.79 per share.
NOTE 4: DIVIDEND DECLARED
On September 26, 2000, the Company declared a quarterly dividend of $0.05 per
share to all shareholders of record on September 30, 2000, payable October 20,
2000.
NOTE 5: ACQUISITIONS
On March 24, 2000, the Company acquired Fort Calhoun Investment Co., and its
subsidiary Fort Calhoun State Bank with total assets of approximately $22
million, for $3.5 million in cash. The acquisition was financed through a $3.5
million advance from the Company's $15 million line of credit with interest
floating at 1.75% over the one month LIBOR. The acquisition was recorded using
the purchase accounting method, generating $2.4 million in goodwill to be
amortized over the next 20 years. The results of operations of Fort Calhoun are
included in the Company's interim financial statements from the date of
acquisition.
NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, ACCOUNTING
FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES as amended by SFAS
No. 137 and SFAS No. 138. 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 as amended
is effective for fiscal years beginning after June 15, 2000. The adoption of the
standard is not expected to have a significant impact on the consolidated
financial statements of the Company.
8
<PAGE>
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 20 locations in the Kansas City
metropolitan area, southeastern Kansas, western Missouri, and the Omaha,
Nebraska metropolitan area. The Company's presence in Kansas consists of seven
locations in the Kansas City metro area, which includes the high growth market
of Johnson County, three locations in southeast Kansas and two locations along
the I-70 corridor. The Company operates three locations in western Missouri, and
five in the high growth metropolitan area of Omaha, Nebraska. The Company's
growth over recent years has been achieved primarily through purchases of
branches of large banks and through acquisitions of community banks. 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".
On March 24, 2000, the Company acquired Fort Calhoun Investment Co., and its
subsidiary Fort Calhoun State Bank with total assets of approximately $22
million, for $3.5 million in cash. The acquisition was recorded using the
purchase accounting method, generating $2.4 million in goodwill to be amortized
over the next 20 years. The results of operations Fort Calhoun are included from
the date of acquisition. The acquisition will compliment the Company's presence
in the high growth Omaha, Nebraska metropolitan area, with the addition of three
new locations.
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 mortgage loans. The Company's
principal operating expenses, aside from interest expense, consist of salaries
and employee benefits, occupancy costs, data processing expense and provisions
for loan losses.
FINANCIAL CONDITION
Total assets of the Company at September 30, 2000 were $539.0 million compared
to $518.2 million at December 31, 1999. The increase of $20.8 million was
primarily due to an increase in loans receivable of $20.0 million. The first
quarter acquisition of Fort Calhoun Investment Co. contributed $13.5 million of
the increase in loans receivable.
INVESTMENT SECURITIES: Investment securities available for sale and held to
maturity increased $422,000, or 0.3%, to $163.0 million. Investment securities
represented 30.2% of total assets at September 30, 2000 versus 31.4% of total
assets at December 31, 1999. The increase in investment securities from December
31, 1999 was the result of $7.3 million in additional investment securities from
the Fort Calhoun Investment Co. acquisition. Excluding the acquisition,
investment securities decreased $6.9 million from December 31, 1999. The Company
redirected the proceeds from the decrease in investment securities to fund loans
receivable.
During the quarter ended September 30, 2000, the Company sold $11.0 million in
lower yielding investment securities and subsequently purchased $11.0 million in
higher yielding investment securities, as the Company restructured a portion of
its investment portfolio to enhance the yield on the portfolio and improve its
interest rate sensitivity. The Company recorded a loss on the sale of investment
securities of $79,000, versus a gain of $1,000 for the third quarter of 1999.
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.
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.
9
<PAGE>
LOANS RECEIVABLE: Loans receivable increased 6.5%, to $329.3 million at
September 30, 2000 compared to $309.3 million at December 31, 1999. Internal
loan growth accounted for 32.7%, or $6.5 million of the $20.0 million increase.
This internal growth was primarily comprised of loans secured by real estate
including approximately $6.8 million in commercial real estate and $3.1 million
of one to four family mortgages. The remaining $13.5 million can be attributed
to the first quarter acquisition of Fort Calhoun Investment Co., of which 81%
were comprised of loans secured by real estate.
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 and retain the servicing rights at the
Company's discretion. 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, DECEMBER 31,
2000 1999
(UNAUDITED)
------------- ------------
<S> <C> <C>
Non-performing assets: (Dollars In Thousands)
Non-accrual loans
Real estate loans $ 799 $ 445
Commercial and industrial 1,110 1,043
Installment loans 491 298
Lease financing receivables 67 6
------------- ------------
Total Non-accrual loans 2,467 1,792
------------- ------------
Loans past due 90 days or more still accruing
Real estate loans $ 369 $ 292
Commercial and industrial 716 292
Installment loans 50 37
------------- ------------
Total past due 90 days or more still accruing 1,135 621
------------- ------------
Total non-performing loans 3,602 2,413
Assets acquired through foreclosure 531 792
------------- ------------
Total non-performing assets $ 4,133 $ 3,205
============= ============
Non-performing loans to total loans 1.09% 0.78%
Non-performing assets to total assets 0.77% 0.62%
</TABLE>
10
<PAGE>
Non-performing assets totaled $4.1 million at September 30, 2000 increasing
$928,000 from December 31, 1999. The increase in non-performing assets was due
to the increase in non-performing loans of $1.2 million net of a decrease in
other real estate owned of $261,000. The increase in non-performing loans was
essentially generated from a $926,000 increase in non-performing loans resulting
from three large credits occurring at the bank the Company acquired in the
fourth quarter of 1999, and a $300,000 increase related to a bankruptcy.
Management does not believe the increase in non-performing loans for the quarter
is evidence of an unfavorable trend in loan quality, as the non-performing loans
were concentrated at one of the Company's recent acquisitions. As of September
30, 2000, there were no significant 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 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 probable loan losses based upon a
percentage of the outstanding balances and for specific loans if their ultimate
collectibility is considered questionable.
The allowance for loan and lease losses increased to 1.20% of total loans at
September 30, 2000, up from 1.05% at September 30, 1999. The increase in
allowance for loan and lease losses partially resulted from the additional
$353,000 in reserves from the first quarter acquisition of Fort Calhoun
Investment Co. Also contributing to the increase was $792,000 in provision for
loan losses for the nine months ended September 30, 2000 compared to $677,000
for the corresponding period in 1999. The $115,000 increase in provision for
loan losses for the period ended September 30, 2000 over the period ended
September 30, 1999 was recorded in response to the additional risk associated
with an increase in loans receivable and non-performing loans for September 30,
2000 versus the same period in 1999. Loans receivable increased $53.0 million or
19% to $329.3 million at the end of the third quarter of 2000, compared to
$276.2 million a year ago. Non-performing loans increased $812,000 to $3,602,000
or 1.09% of total loans at September 30, 2000, from $2,790,000 or 1.01% of total
loans at September 30, 1999.
The Company also experienced year to date net charge-offs of $509,000, or 0.15%
of total loans, for the nine months ended September 30, 2000 versus $326,000, or
0.12% of total loans, for the corresponding period in 1999. The 0.15% net
charge-offs as a percent of total loans for the period ended September 30, 2000
remains below historical levels averaging 0.22% annually over the past three
years.
The following table summarizes the Company's allowance for loan and lease
losses:
Nine Months Ended September 30,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
(Dollars In Thousands)
Balance, beginning of period $ 3,320 $ 2,541
Provision for estimated loan losses 792 677
Charge-offs (671) (488)
Recoveries 162 162
Allowance of acquired banks 353 --
----------- -----------
Balance, end of period $ 3,956 $ 2,892
=========== ===========
Allowance for loan and lease losses
as a percent of total loans 1.20% 1.05%
Allowance for loan and lease losses
as a percent of non performing loans 109.83% 103.66%
Net charge-offs as a percent of total loans 0.15% 0.12%
11
<PAGE>
LIABILITIES: Total liabilities were $501.5 million at September 30, 2000, an
increase of $20.9 million from $480.6 million at December 31, 1999. The increase
is largely related to the first quarter acquisition of Fort Calhoun Investment
Co.
DEPOSITS: Total deposits increased $155,000 from December 31, 1999, to a balance
at September 30, 2000 of $435.3 million. Net of the first quarter acquisition of
Fort Calhoun Investment Co., total deposits decreased $18.1 million. The
decrease in deposits net of the acquisition was related to a decrease in
checking deposits of $10.4 million, money market deposits of $6.9 million, and
certificates of deposit of $1.3 million. The decrease in checking deposits net
of the acquisition was related to a cyclical decrease in semi annual tax
deposits received from municipal organizations during December and June of each
year. The decrease in money market deposits net of the acquisition was
attributed to the roll-off of a large deposit related to a customer's trust that
was temporarily deposited into a bank money market account until disbursed.
FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances increased $10.4
million to a balance of $34.5 million at September 30, 2000. The increase was
due to additional short-term 90-day borrowings of $4.0 million, $4.5 million in
borrowings greater than one year, and $2.0 million in advances from the
acquisition during the first quarter. The Company used the proceeds from the
advances to offset the decrease in deposits.
NOTES PAYABLE: Notes Payable increased $4.4 million from December 31, 1999 to a
balance of $14.4 million at September 30, 2000. Contributing to the increase was
$2.5 million in borrowings to finance the repurchase of the Company's stock
under the repurchase program approved by the Board of Directors in February of
2000. Also contributing to the increase in notes payable was $3.5 million in
borrowings to finance the first quarter acquisition of Fort Calhoun Investment
Company. The notes payable primarily consist of a $4.6 million term note and
$9.1 million borrowed against a $15.0 million line of credit, both of which
float at 1.75% over one month LIBOR.
EQUITY: The Company's Board of Directors approved a stock repurchase program in
February 2000 authorizing the repurchase of up to 300,000 shares of the
Company's common stock. As of September 30, 2000 the Company had repurchased
280,500 under the program at an average price of $8.79 per share.
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, 2000, 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, 2000 were as follows:
At September 30, 2000
----------------------------
Ratio ACTUAL MINIMUM REQUIRED
------------------------------------- ----- ----------------
Total capital to risk weighted assets 9.29% 8.00%
Core capital to risk weighted assets 8.13% 4.00%
Core capital to average assets 5.32% 4.00%
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, 2000 and December
31, 1999 these liquid assets
12
<PAGE>
totaled $158.1 million and $159.4 million, respectively. Management believes the
Company's sources of liquidity are adequate to meet expected cash needs for the
foreseeable future.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income before provision for loan losses for the three and nine
months ended September 30, 2000 totaled $4.6 million and $13.8 million,
respectively, compared to $4.1 million and $11.8 million for the same periods in
1999. The respective increases of $555,000 and $2.0 million are primarily due to
the interest income from the $20.0 million increase in loans receivable from
September 30, 1999 to September 30, 2000, as well as from the acquisition of
ComBankshares, Inc. during the fourth quarter of 1999 and Fort Calhoun
Investment Company during the first quarter of 2000.
Despite the increase in net interest income for the three and nine months ended
September 30, 2000 over the same periods one year ago, the Company's net
interest margin as a percent of average earning assets decreased. For the three
months ended September 30, 2000, net interest margin decreased to 3.91% from
3.99% for the three months ended September 30, 1999. During this same time
period average earning assets increased $63.3 million from $426.0 million to
$489.3 million. For the first nine months of 2000, net interest margin decreased
to 3.91% from 3.95% for the first nine months of 1999, with the corresponding
increase in average earning assets of $76.1 million from $413.8 million to
$489.9.
The decrease in net interest margin can be attributed to the addition of $6.5
million of additional borrowings related to the Company's acquisitions and $2.5
million of additional borrowings relating to the Company's stock buyback. The
interest rate on both of those borrowings floats at 1.75% over one-month LIBOR.
The Company's interest rate spread, which is the yield on interest earning
assets less the cost of interest paying liabilities, increased 7 basis points
from 3.39% for the quarter ended September 30, 1999 to 3.46% for the quarter
ended September 30, 2000. For the corresponding nine months ended September 30,
2000 versus September 30, 1999, the Company's interest rate spread decreased 1
basis point from 3.48% for 1999 to 3.47% for 2000.
13
<PAGE>
The following tables present certain information relating to net interest income
for the three and nine months ended September 30, 2000 and 1999. The average
rates and costs are derived by dividing annualized interest income or expense by
the average balance of assets and liabilities, respectively, for the periods
shown.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Three Months Ended September 30, 1999
------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands) (In Thousands)
INTEREST EARNING ASSETS:
Loans receivable, net (1) (2) (3) $ 322,674 $ 7,675 9.46% $ 269,086 $ 5,966 8.80%
Investment securities-taxable 138,950 2,408 6.89% 120,480 1,938 6.38%
Investment securities-nontaxable (4) 22,902 445 7.73% 25,091 456 7.21%
Federal funds sold and interest-bearing
deposits 4,725 28 2.36% 11,314 75 2.63%
----------- ------------ ---------- ----------- ------------ ----------
Total interest earning assets $ 489,251 10,556 8.58% $ 425,971 8,435 7.86%
----------- ------------ ---------- ----------- ------------ ----------
INTEREST BEARING LIABILITIES:
Savings deposits and interest bearing
checking $ 147,300 $ 1,112 3.00% $ 133,406 1,021 3.04%
Time deposits 246,474 3,667 5.92% 201,373 2,630 5.18%
Federal funds purchased and securities sold
under agreements to repurchase 9,374 152 6.45% 10,586 115 4.31%
Notes Payable and Federal Home Loan
Bank Advances 43,313 820 7.53% 27,648 433 6.21%
----------- ------------ ---------- ----------- ------------ ----------
Total interest bearing liabilities $ 446,461 5,751 5.13% $ 373,013 4,199 4.47%
----------- ------------ ---------- ----------- ------------ ----------
Net interest income (tax equivalent) $ 4,805 $ 4,236
------------ ------------
Interest rate spread 3.46% 3.39%
Net interest earning assets $ 42,790 $ 52,958
----------- ----------- ----------
Net interest margin 3.91% 3.99%
----------- ----------
Ratio of average interest earning assets
to average interest bearning liabilites 109.58% 114.20%
----------- -----------
</TABLE>
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average
balances.
(3) The Company includes loan fees in interest income. These fees for the
three months ended September 30, 2000 and 1999 were $203,000
and $207,000, respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The
tax effects for the three months ended September 30, 2000 and 1999
were $173,000 and $159,000, respectively.
14
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 1999
------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands) (In Thousands)
INTEREST EARNING ASSETS:
Loans receivable, net (1) (2) (3) $ 321,406 $ 21,999 9.14% $ 259,136 $ 17,343 8.95%
Investment securities-taxable 140,061 7,184 6.85% 114,940 5,404 6.29%
Investment securities-nontaxable (4) 22,929 1,336 7.78% 24,450 1,338 7.32%
Federal funds sold and interest-bearing
deposits 5,493 202 4.91% 15,317 400 3.49%
----------- ------------ ---------- ----------- ------------ ----------
Total interest earning assets $ 489,888 30,721 8.38% $ 413,843 24,485 7.91%
----------- ------------ ---------- ----------- ------------ ----------
INTEREST BEARING LIABILITIES:
Savings deposits and interest bearing
checking $ 146,799 $ 3,315 3.02% 133,855 2,847 2.84%
Time deposits 244,087 10,523 5.76% 203,663 8,009 5.26%
Federal funds purchased and securities sold
under agreements to repurchase 12,382 453 4.89% 7,975 262 4.39%
Notes Payable and Federal Home Loan
Bank Advances 41,918 2,074 6.61% 24,285 1,136 6.25%
----------- ------------ ---------- ----------- ------------ ----------
Total interest bearing liabilities $ 445,186 16,365 4.91% $ 369,778 12,254 4.43%
----------- ------------ ---------- ----------- ------------ ----------
Net interest income (tax equivalent) $ 14,356 $ 12,231
------------ ------------
Interest rate spread 3.47% 3.48%
----------- ---------- ----------
Net interest earning assets $ 44,702 $ 44,065
----------- -----------
Net interest margin (4) 3.91% 3.95%
---------- ----------
Ratio of average interest earning assets
to average interest bearning liabilites 110.04% 111.92%
----------- -----------
</TABLE>
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average balances.
(3) The Company includes loan fees in interest income. These fees for the
nine months ended September 30, 2000 and 1999 were $639,000 and $645,000,
respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the nine months ended September 30, 2000 and 1999 were
$537,000 and $452,000, respectively.
15
<PAGE>
The following table presents the components of changes in the Company's net
interest income, on a tax equivalent basis, attributed to volume and rate.
Changes in interest income or interest expense attributable to volume changes
are calculated by multiplying the change in volume by the prior fiscal year's
average interest rate. The changes in interest income or interest expense
attributable to change in interest rates are calculated by multiplying the
change in interest rate by the prior fiscal year average volume. The changes in
interest income or interest expense attributable to the combined impact of
changes in volume and change in interest rate are calculated by multiplying the
change in rate by the change in volume.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
Compared To
Three Months Ended September 30, 1999
Increase (Decrease) Due To:
-------------------------------------
VOLUME/
VOLUME RATE RATE NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME: (In Thousands)
Loans receivable, net (1) (2) (3) $1,169 $ 450 $ 90 $1,709
Investment securities-taxable 292 154 24 470
Investment securities-nontaxable (4) (40) 32 (3) (11)
Federal funds sold and interest-bearing
deposits (43) (9) 5 (47)
------ ------ ------ ------
TOTAL INTEREST INCOME 1,378 627 116 2,121
------ ------ ------ ------
INTEREST EXPENSE:
Savings deposits and interest bearing
checking 104 (12) (1) 91
Time deposits 580 373 84 1,037
Federal funds purchased and securities sold
under agreements to repurchase (13) 57 (7) 37
Notes Payable and Federal Home Loan Bank Advances 243 92 52 387
------ ------ ------ ------
TOTAL INTEREST EXPENSE 914 510 128 1,552
------ ------ ------ ------
NET CHANGE IN NET INTEREST INCOME $ 464 $ 117 $ (12) $ 569
====== ====== ====== ======
</TABLE>
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average balances.
(3) The Company includes loan fees in interest income. These fees for the
three months ended September 30, 2000 and 1999 were $203,000 and
$207,000, respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effcts for the three months ended September 30, 2000 and 1999 were
$173,000 and $159,000, respectively.
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
Compared To
Nine Months Ended September 30, 1999
Increase (Decrease) Due To:
-------------------------------------
VOLUME/
VOLUME RATE RATE NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME: (In Thousands)
Loans receivable, net (1) (2) (3) $4,187 $ 378 $ 91 $4,656
Investment securities-taxable 1,184 490 106 1,780
Investment securities-nontaxable (4) (83) 86 (5) (2)
Federal funds sold and interest-bearing
deposits (257) 163 (104) (198)
------ ------ ------ ------
TOTAL INTEREST INCOME 5,031 1,117 88 6,236
------ ------ ------ ------
INTEREST EXPENSE:
Savings deposits and interest bearing
checking 279 172 17 468
Time deposits 1,594 768 152 2,514
Federal funds purchased and securities sold
under agreements to repurchase 145 30 16 191
Notes Payable and Federal Home Loan Bank Advances 826 65 47 938
------ ------ ------ ------
TOTAL INTEREST EXPENSE 2,844 1,035 232 4,111
------ ------ ------ ------
NET CHANGE IN NET INTEREST INCOME $2,187 $ 82 $ (144) $2,125
====== ====== ====== ======
</TABLE>
(1) Loans are net of deferred loan fees.
(2) Non-accruing loans are included in the computation of average balances.
(3) The Company includes loan fees in interest income. These fees for the
nine months ended September 30, 2000 and 1999 were $639,000 and
$645,000, respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the nine months ended September 30, 2000 and 1999 were
$537,000 and $452,000, respectively.
17
<PAGE>
OTHER INCOME
Non-interest income for the three months ended September 30, 2000 was $1.6
million an increase of $402,000, or 35%, over the same three-month period ended
September 30, 1999. For the nine months ended September 30, 2000 non-interest
income increased $780,000 to $4.3 million versus $3.5 million for the same
period the prior fiscal year. The increase in non-interest income is primarily
due to increases experienced as a result of the acquisitions of ComBankshares,
Inc. and Fort Calhoun Investment Co. as well as an increase in service charge
revenue.
Service charge revenue increased $317,000 or 51% to $935,000 for the three
months ended September 30, 2000 compared to $618,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000 service charge
revenue increased $744,000 to $2.5 million over $1.7 million for the first nine
months of the prior fiscal year. Results of the Company's recent acquisitions
accounted for $108,000 and $224,000 of this increase for the respective three
and nine months ended September 30, 2000. The remaining increase of service
charge revenue of $209,000 and $520,000 respectively for the three and nine
month periods of the current fiscal year, was primarily generated by a
additional fee based services offered on deposit accounts the Company introduced
in February of 2000 along with an enhanced control over fee waivers.
Offsetting the increase in non-interest income for the nine months ended
September 30, 2000 was a decrease in the gain on sale of mortgage loans of
$20,000 to $357,000 from $377,000 for the nine months ended September 30, 1999.
Net of the results from the Company's recent acquisitions, the gain on sale of
mortgage loans decreased $155,000. The decrease was the result of higher
interest rates, which led to 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. 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. Therefore, the Company originated more
residential one to four family mortgages to be held in its portfolio, and sold
fewer loans to the secondary market, reducing gain on the sale of mortgage
loans. For future periods, the Company anticipates altering its general practice
of holding variable rate residential one to four family mortgages for its loan
portfolio to selling some or all of the originations and servicing rights. This
should allow the Company to price one to four family residential mortgage loans
more competitively, produce greater non-interest income, and provide increased
flexibility in interest rate risk management.
Non-interest income was also affected for the three and nine months ended by the
loss on the sale of investment securities of $79,000 for the three months ended
September 30, 2000, versus a gain of $1,000 for the corresponding quarter of
1999. The loss was recorded as the Company sold $11.0 million in lower yielding
investment securities and subsequently purchased $11.0 million in higher
yielding investment securities as the Company restructured a portion of its
investment portfolio to enhance the yield on the portfolio and improve its
interest rate sensitivity.
OTHER EXPENSE
Non-interest expense for the three months ended September 30, 2000, was $4.8
million, up $895,000, or 23% over the same three-month period a year ago. For
the nine month period ended September 30, 2000, non interest expense was $13.9
million, up $2.7, or 24% over $11.3 million for the nine months ended September
30, 1999.
The increase in non-interest expense is primarily due to the additional
operating expenses as a result of the acquisition of ComBankshares, Inc. and
Fort Calhoun Investment Co., which accounted for 87% of the total increase for
the three months ended September 30, 2000 and 78% of the total increase for the
nine months ended September 30, 2000, both compared to the corresponding periods
from the prior fiscal year. The integration of the two acquisitions is
progressing as planned.
Salaries and benefits expense increased $427,000 for the three months ended
September 30, 2000 to $2.3 million compared to $1.9 million for the three months
ended in 1999. Additional expenses of $434,000 related to the newly acquired
operations. Excluding these newly acquired operations, salaries and benefits
expense decreased $7,000. For the nine months ended September 30, 2000 salaries
and benefits expense increased $1.3 million to $6.9 million compared to $5.6
million for first nine months of the prior year. The increase of $237,000,
exclusive of the newly
18
<PAGE>
acquired operations, was attributable to the addition of three full time
equivalent employees in conjunction with the Company's internal growth.
Occupancy and equipment expense for the respective three and nine months ended
June 30, 2000 was $539,000 and $1.6 million, increasing $79,000 and $246,000
respectively from the same periods the prior fiscal year. The increase is
primarily attributable to the operations of the newly acquired entities
discussed above.
Data processing fees were $441,000 for the three months ended September 30,2000,
an increase of $55,000 over the same period in 1999. For the nine months ended
September 30, 2000 data processing fees were $1.4 million, $317,000 above $1.1
million in expense for the nine months of the prior fiscal year. Operations of
the Company's two community bank acquisitions contributed $38,000 to this
increase for the quarter and $106,000 for the first nine months of the current
fiscal year over the related prior periods. Exclusive of the acquisitions the
increase for the respective three and nine month periods of 2000 versus the same
periods in 1999 was $17,000 and $211,000. The increase exclusive of the
acquisitions was due to increased volume from internal growth in conjunction
with an annual price increase in the fees charged from the Company's data
processing service provider.
Professional fees were $331,000 for the third quarter ended September 30,
2000, an increase of $189,000 from $142,000 for the third quarter ended
September 30, 1999. Professional fees for the nine months ended September 30,
2000 were $687,000, an increase of $259,000 over $428,000 for the nine months
ended September 30, 1999. The increase in professional fees is attributable
to fees related to the modification of the Company's Employee Stock Ownership
Plan, fees for consulting based on a percentage of the savings resulting from
real estate investment trusts established, and fees related to preliminary
analysis regarding with acquisition candidates.
Goodwill amortization increased $76,000 to $185,000 for the quarter ended
September 30, 2000, and $204,000 to $532,000 for the nine months ended September
30, 2000, compared to same periods ended September 30, 1999. The increase was a
result of the addition of goodwill established by premiums paid on the
acquisition of Fort Calhoun Investment Co. in the first quarter of 2000 and the
acquisition of ComBankshares, Inc. in the fourth quarter of 1999. The Company's
two community bank acquisitions have been accounted for using purchase
accounting, which means the excess of the purchase price over the carrying value
of the net assets acquired is recorded in the consolidated financial statements
as goodwill. Goodwill is amortized over periods ranging from 15 to 20 years. The
amortization is a non-cash operating expense, which reduces net income. The
balance of the Company's goodwill was $11.1 million as of September 30, 2000.
Other expense for the three months ended September 30, 2000, increased $190,000
to $859,000, up from $669,000 for the three months ended September 30, 1999. For
the nine months ended September 30, 2000, other expense increased $335,000 to
$2.3 million, up from $2.0 million for the nine months ended September 30, 1999.
The primary increase in other expense is related to the operations of
ComBankshares, Inc. and Fort Calhoun Investment Co. which accounted for $93,000
and $305,000 for the respective three and nine months ended September 30, 2000
over the same periods in 1999.
INCOME TAX EXPENSE
The Company recorded income tax expense of $285,000 for the three months ended
September 30, 2000, compared to an income tax expense of $242,000 for the
quarter ended September 30, 1999. The Company's effective tax rate increased to
approximately 28.93% for the three months ended September 30, 2000, up from
approximately 23.36% for the three months ended September 30, 1999. Income tax
expense for the nine months ended September 30, 2000 was $994,000 compared to
$948,000 for the nine months ended September 30, 1999. The Company's effective
tax rate increased to approximately 29.40% for the nine months ended September
30, 2000, an increase from approximately 28.49% for the nine months ended
September 30, 1999. 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 and dividends passed
through the ESOP to the ESOP participants. The increase in the effective tax
rate for the three and nine months ended September 30, 2000 is primarily
attributed to the acquisitions of ComBankshares, Inc. and Fort Calhoun
Investment Co. The acquired operations have fewer tax-exempt investment
securities and loans increasing taxable income.
19
<PAGE>
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT
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, 2000, if there had been a
sudden and sustained increase in prevailing market interest rates, the Company's
2000 interest income would be expected to decrease, while a decrease in rates
would indicate an increase in income.
NET INTEREST (DECREASE) PERCENT
Change in Interest Rates INCOME INCREASE CHANGE
----------------------------- ------------ ---------- -------
(Dollars In Thousands)
200 basis point rise $ 16,980 $ (647) (3.67)%
100 basis point rise 17,269 (358) (2.03)
base rate scenario 17,627 -- --
100 basis point decline 17,787 160 0.91
200 basis point decline 18,031 404 2.29
20
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental to
the conduct of its business. The Company believes that no pending litigation to
which it is a party will have a material adverse effect on its liquidity,
financial condition, or results of operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Acquisition Agreement and Plan of Merger dated October 1, 1999 among
Team Financial, Inc., Team Financial Acquisition Subsidiary, Inc., and
ComBankshares, Inc. (2)
3.1 Restated and Amended Articles of Incorporation of Team Financial,
Inc. (1).
3.2 Amended Bylaws of Team Financial, Inc. (1)
4.1 Specimen common stock certificates (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 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
21
<PAGE>
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)
10.15 Loan agreement between Team Financial, Inc and Mercantile Bank dated
December 3, 1999 (filed
11.1 Statement regarding Computation of per share earnings - see
consolidated financial statements (3)
27 Financial Data Schedule (3)
(1) Filed with Registration Statement on Form S-1, as amended,
(registration Statement No. 333-76163) and incorporated herein by
reference.
(2) Filed with the amended Form 8-K dated December 30, 1999 and
incorporated herein by reference.
(3) Filed herewith
(b) Reports on Form 8-K Filed
None
<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 9, 2000 By: /s/ ROBERT J. WEATHEBIE
------------------------
Robert J. Weatherbie
Chairman
Chief Executive Officer
Date: November 9, 2000 By: /s/ MICHAEL L. GIBSON
----------------------
President of Investments
Chief Financial Officer
23
