<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 MARCH 31, 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 3,915,540 shares of the Registrant's common stock, no par value,
outstanding as of April 9, 2000.
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
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2000
and 1999 5
Consolidated Statements of Changes In Stockholders'
Equity For the Three Months Ended March 31, 2000 6
Consolidated Statements of Cash Flows For The Three
Months Ended March 31, 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 - 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 16
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 17
Item 6. Exhibits And Reports On Form 8-K 17
Signature Page 18
</TABLE>
2
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
ASSETS (Unaudited) 1999
----------- ------------
<S> <C> <C>
Cash and due from banks $ 13,865 $ 17,458
Federal funds sold and interest bearing bank deposits 3,674 5,049
--------- ---------
Cash and cash equivalents 17,539 22,507
--------- ---------
Investment securities
Available for sale, at estimated fair value (amortized cost of $147,111 and
$139,618 at March 31, 2000 and December 31, 1999, respectively) 143,535 136,901
Held to maturity, at cost (estimated fair value of $24,983 and $25,135
at March 31, 2000 and December 31, 1999, respectively) 25,452 25,630
--------- ---------
Total investment securities 168,987 162,531
--------- ---------
Loans receivable, net of unearned fees 323,567 309,255
Allowance for loan and lease losses (3,763) (3,320)
--------- ---------
Net loans receivable 319,804 305,935
--------- ---------
Accrued interest receivable 5,024 4,911
Premises and equipment, net 10,127 9,770
Assets acquired through foreclosure 787 792
Goodwill, net of accumulated amortization 11,473 9,263
Other assets 3,172 2,496
--------- ---------
Total Assets $ 536,913 $ 518,205
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking Deposits $ 123,319 $ 124,415
Savings Deposits 23,961 22,135
Money Market Deposits 46,572 46,889
Certificates of Deposit 250,423 241,677
--------- ---------
Total Deposits 444,275 435,116
--------- ---------
Federal Funds purchased and securities sold
under agreements to repurchase 12,432 9,227
Federal Home Loan Bank Advances 26,053 24,055
Notes payable 14,899 9,924
Accrued expenses and other liabilities 3,281 2,314
--------- ---------
Total Liabilities 500,940 480,636
--------- ---------
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; 3,915,540 and 4,130,048 shares outstanding at
March 31, 2000 and December 31, 1999 25,324 25,268
Capital surplus 122 122
Retained Earnings 15,000 14,356
Treasury stock, 248,005 and 27,005 shares of common stock at cost (2,172) (187)
at March 31,2000 and December 31, 1999 respectively
Accumulated other comprehensive income (2,301) (1,990)
--------- ---------
Total stockholders' equity 35,973 37,569
--------- ---------
Total liabilities and stockholders' equity $ 536,913 $ 518,205
========= =========
</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
March 31
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,927 $ 5,679
Taxable investment securities 2,344 1,727
Nontaxable investment securities 267 296
Other 82 190
------------- -------------
Total interest income 9,620 7,892
------------- -------------
INTEREST EXPENSE:
Deposits
Checking Deposits 532 466
Savings Deposits 146 130
Money Market Deposits 394 331
Certificates of Deposit 3,298 2,689
Federal funds purchased and securities sold
under agreements to repurchase 193 89
FHLB advances payable 355 108
Notes payable 209 215
------------- -------------
Total interest expense 5,127 4,028
------------- -------------
Net interest income before provision for loan losses 4,493 3,864
Provision for loan losses 185 183
------------- -------------
Net interest income after provision for loan losses 4,308 3,681
------------- -------------
OTHER INCOME:
Service charges 679 540
Trust fees 142 141
Gain on sales of mortgage loans 53 192
Loss on sales of investment securities (5) -
Other 375 310
------------- -------------
Total other income 1,244 1,183
------------- -------------
OTHER EXPENSES:
Salaries and employee benefits 2,231 1,858
Occupancy and equipment 495 461
Data processing 468 343
Professional fees 171 203
Marketing 64 54
Supplies 82 59
Goodwill amortization 158 109
Other 709 602
------------- -------------
Total other expenses 4,378 3,689
------------- -------------
Income before income taxes 1,174 1,175
Income taxes 334 348
------------- -------------
Net income $ 840 $ 827
============= =============
Shares applicable to basic and diluted income per share 4,038,541 2,866,953
Basic and diluted income per share $ 0.21 $ 0.29
============= =============
</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
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net Income $ 840 $ 827
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available
for sale net of tax $(548) and $(130) in 2000 and 1999,
respectively (317) (215)
Reclassification adjustment for gains included in net income
net of tax $1 and $0 in 2000 and 1999, respectively 6 -
------------- -------------
Other comprehensive income (loss) (311) (215)
------------- -------------
Comprehensive income $ 529 $ 612
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME 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 (221,000) (1,985) (1,985)
Common stock issued in connection
with compensation
plans (6,492 shares) 56 56
Net Earnings 840 840
Dividends ($0.05 per share) (196) (196)
Other comprehensive income (loss) (311) (311)
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, March 31, 2000 $ 25,324 $ 122 $ 15,000 $ (2,173) $ (2,301) $ 35,973
============= ============= ============= ============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 840 $ 827
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 185 183
Depreciation and amortization 442 424
Net loss on sales of investment securities 5 -
Net gain on sales of mortgage loans (43) (192)
Net gain on sales of assets acquired through
foreclosure (8) -
Proceeds from sale of mortgage loans 2,605 16,003
Origination of mortgage loans for sale (2,960) (13,897)
Net (increase) decrease in other assets (523) 124
Net increase in accrued expenses and other liabilities 1,363 610
--------- ---------
Net cash provided by operating activities 1,906 4,082
--------- ---------
Cash flows from investing activities:
Net (increase) decrease in loans (988) 3,947
Proceeds from sale of investment securities available-for-sale 2,158 -
Proceeds from maturities and principal reductions of
investment securities available-for-sale 3,273 12,667
Purchases of investment securities available-for-sale (5,806) (16,068)
Proceeds from maturities and principal reductions of
investment securities held-to-maturity 490 1,990
Purchases of investment securities held-to-maturity (135) (2,097)
Purchase of bank premises and equipment, net of sales (148) (449)
Proceeds from sales for payments on assets acquired through
foreclosure 241 -
Cash paid for acquisitions, net of cash received (2,731) -
--------- ---------
Net cash used in investing activities (3,646) (10)
--------- ---------
Cash flows from financing activities:
Net decrease in deposits (9,131) (9,145)
Net increase in federal funds purchased and
securities sold under agreement to repurchase 3,055 189
Payments on Federal Home Loan Bank advances (2) -
Payments on notes payable (375) (2)
Proceeds of notes payable 5,350 -
Common stock issued 56 64
Purchase of treasury stock (1,985) -
Dividends paid on common stock (196) -
--------- ---------
Net cash used financing activities (3,228) (8,894)
--------- ---------
Net change in cash and cash equivalents (4,968) (4,822)
Cash and cash equivalents at beginning of the period 22,507 31,899
--------- ---------
Cash and cash equivalents at end of the period $ 17,539 $ 27,077
======== ========
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
7
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TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 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 audited financial statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
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, 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 March 31,
2000 are not necessarily indicative of the results expected for the year
ended December 31, 2000.
NOTE 2: 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 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 March 31, 2000, the Company had repurchased 221,000 shares of
its common stock under the program at an average price of $8.98.
NOTE 4: DIVIDEND DECLARED
On March 28, 2000, the Company declared a quarterly dividend of $0.05 per
share to all shareholders of record on March 31, 2000, payable April 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 $2.4MM in goodwill
to be amortized over the next 20 years. The results of operations Fort
Calhoun are included 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. 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
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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 21 locations in the Kansas
City metropolitan area, southeastern Kansas, western Missouri, and Nebraska.
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 six
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 an acquisition of two 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 $2.4million 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 compensation and employee benefits, occupancy costs, data
processing expense and provisions for loan losses.
FINANCIAL CONDITION
Total assets of the Company at March 31, 2000 were $536.9 million compared to
$518.2 million at December 31, 1999. The increase of $18.7 million was
primarily due to an increase in loans receivable of $14.3 million, and an
increase in investment securities of $6.5 million, of which $5.0 million were
funded by the decrease in cash and cash equivalents. The first quarter
acquisition of Fort Calhoun Investment Co. contributed $13.5 million to the
increase in loans receivable and $7.3 million to the increase in investment
securities.
INVESTMENT SECURITIES: Investment securities available for sale and held to
maturity increased $6.5 million, or 4.0%, to $169.0 million, representing
31.5% of total assets at March 31, 2000. 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
$831,000 from December 31, 1999. The Company redirected the proceeds from the
decrease in investment securities to fund loans.
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
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LOANS RECEIVABLE: Loans receivable increased 4.6%, to $323.6 million at March
31, 2000 compared to $309.3 million at December 31, 1999. The $14.3 million
increase can be attributed primarily to the first quarter acquisition of Fort
Calhoun Investment Co. Net of the acquisition, loans receivable increased
$837,000 from December 31, 1999. This increase stems from increases in real
estate loans and installment loans of $3.0 million and $2.6 million
respectively, while agricultural loans and obligations of state and political
subdivisions decreased $2.0 million and $3.1 million respectively for the
quarter, net of the acquisition.
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>
March 31,2000
(Unaudited) December 31, 1999
-------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans
Real estate loans $ 440 $ 445
Commercial and industrial 844 1,043
Installment loans 262 298
Lease financing receivables 173 6
----------- -----------
Total Non-accrual loans 1,719 1,792
----------- -----------
Loans Past Due 90 Days or More Still Accruing
Real estate loans $ 387 $ 292
Commercial and industrial 490 292
Installment loans 16 37
----------- -----------
Total Past Due 90 Days or More Still Accruing 893 621
----------- -----------
Total Non-Performing Loans 2,612 2,413
Other real estate owned 787 792
----------- -----------
Total non-performing assets $ 3,399 $ 3,205
=========== ===========
Non-performing loans to total loans 0.81% 0.78%
Non-performing assets to total assets 0.63% 0.62%
</TABLE>
10
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Non-performing assets totaled $3.4 million at March 31, 2000 increasing
$194,000 from December 31, 1999. The increase in non-performing assets was
due to the increase in non-performing loans of $199,000 and a decrease in
other real estate owned of $5,000. The increase in non-performing loans was
primarily the result of an additional $167,000 in non-performing lease
financing receivables. Management is not aware of any adverse trend relating
to the Company's loan portfolio. As of March 31, 2000 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 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. Allowance for loan and
lease losses increased to 1.16% of total loans at March 31, 2000 up from
1.07% at December 31, 1999. The increase in allowance for loan and lease
losses primarily resulted from the additional $353,000 in reserves from the
first quarter acquisition of Fort Calhoun Investment Co.
The following table summarizes the Company's allowance for loan and lease
losses:
<TABLE>
<CAPTION>
March 31, 2000
(Unaudited) December 31, 1999
--------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of quarter $ 3,320 $ 2,892
Provision for estimated loan losses 185 225
Charge-offs (163) (291)
Recoveries 68 61
Allowance of acquired banks 353 433
----------- -----------
Balance, end of quarter $ 3,763 $ 3,320
=========== ===========
Allowance for loan and lease losses
as a percent of total loans 1.16% 1.07%
Allowance for loan and lease losses
as a percent of non performing loans 144.07% 137.59%
Net charge-offs as a percent of total loans 0.03% 0.18%
</TABLE>
LIABILITIES: Total liabilities were $500.9 million at March 31, 2000, an
increase of $20.3 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 decreased $9.2 million from December 31, 1999, to a
balance at March 31, 2000 of $444.3 million. Net of the first quarter
acquisition of Fort Calhoun Investment Co., with $19.2 million in deposits at
March 31, 2000, total deposits decreased $10.0 million. The decrease in
deposits was related to a decrease in checking deposits of $5.6 million and a
decrease in money market deposits of $4.4 million. The decreases are
attributable to a cyclical decrease in deposits from the outflow of municipal
tax deposits accumulated during December of 1999.
FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances increased
$2.0 million to a balance of $26.1 million at March 31,2000. The increase was
due to the addition of $2.0 million advances from the acquisition.
NOTES PAYABLE: Notes Payable increased $5.0 million during the quarter, to a
balance of $14.9 million at March 31, 2000. Contributing to the increase was
$2.0 million in borrowings to finance the repurchase of the Company's stock
11
<PAGE>
under the repurchase program approved by the Board of Directors in February
of 2000. Also contributing to the increase in notes payable was $3.4 million
in borrowings to finance the first quarter acquisition of Fort Calhoun
Investment Company.
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 March 31, 2000 the Company had repurchased
221,000 under the program increasing treasury stock $2.0 million to $2.2
million at March 31, 2000.
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 March 31, 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 March 31, 2000 were as follows:
<TABLE>
<CAPTION>
At March 31, 2000
----------------------------------
Ratio Actual Minimum Required
- --------------------------------------- ------- ------------------
<S> <C> <C>
Total capital to risk weighted assets 9.10% 8.00%
Core capital to risk weighted assets 7.97% 4.00%
Core capital to average assets 5.06% 4.00%
</TABLE>
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 March 31, 2000 and December 31, 1999 these liquid assets totaled
$160.8 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.
12
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the three months ended March 31, 2000 totaled $4.5
million, compared to $3.9 million for the same period in 1999. The increase
of $629,000 is primarily due to the growth the Company experienced in loans
late in the fourth quarter of 1999 as well as the acquisition of
ComBankshares, Inc. during that same quarter.
The following tables present certain information relating to net interest
income for the three months ended March 31, 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 March 31, 2000 Three Months Ended March 31, 1999
---------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable, net (1) (2) (3) $ 310,490 $ 6,927 8.92% $ 249,098 $ 5,679 9.12%
Investment securities-taxable 138,759 2,344 6.76% 111,356 1,727 6.20%
Investment securities-nontaxable (4) 24,164 456 7.55% 24,258 440 7.26%
Federal funds sold and interest-bearing
deposits 6,647 82 4.93% 21,065 190 3.61%
--------- -------- ------- --------- -------- -------
Total interest earning assets $ 480,059 9,809 8.17% $ 405,777 8,036 7.92%
========= -------- ------- ========= -------- -------
INTERESET PAYING LIABILITIES:
Savings deposits and interest bearing
checking $ 147,296 $ 1,072 2.91% $ 130,634 927 2.84%
Time deposits 242,584 3,298 5.44% 206,236 2,689 5.22%
Federal funds purchased and securities sold
under agreements to repurchase 13,505 193 5.72% 6,313 89 5.64%
Notes Payable 35,349 564 6.38% 22,058 323 5.86%
--------- -------- ------- --------- -------- -------
Total interest bearing liabilities $ 438,735 5,127 4.67% $ 365,241 4,028 4.41%
========= -------- ------- ========= -------- -------
Net interest income (tax equivalent) $ 4,682 $ 4,008
======== ========
Interest rate spread 3.50% 3.51%
Net interest earning assets 41,324 40,536
Net interest margin 3.90% 3.950%
===== ======
Ratio of average interest bearing liabilities
to average interest earning assets 91.00% 90.00%
========= =========
</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 March 31, 2000 and 1999 were $392,000 and $205,000,
respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The
tax effects for the three months ended March 31, 2000 and 1999
were $189,000
The Company's net interest margin on a tax equivalent basis decreased from
3.95% for the three months ended March 31, 1999 to 3.90% for the three months
ended March 31, 2000. The compression in net interest margin is primarily the
result the Company's interest bearing liabilities repricing at a faster rate
than the Company's earning assets during the current rising interest rate
environment.
Net interest income, on a fully taxable basis for three months ended March
31,2000, totaled $4.7 million, an increase of 16.8% over the $4.0 million
earned for the three months ended March 31, 1999. The increase resulted from
an increase in average earning assets of $74.0 million for March 31, 2000
over the same period a year earlier as well as an increase in the average
rate earned on interest earning assets of 25 basis points over that same
period. The increase was offset by a 26 basis point increase in the average
rate paid on interest bearing liabilities as well as an increase in average
interest paying liabilities of $73.5 million.
13
<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 March 31, 2000
Compared To
Three Months Ended March 31, 1999
Increase (Decrease) Due To:
----------------------------------------------------
Volume /
Volume Rate Rate Net
--------- -------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable, net (1) (2) (3) $ 1,400 $ (122) $ (30) $ 1,248
--------- -------- ------- ---------
Investment securities-taxable 425 153 39 617
Investment securities-nontaxable (4) (2) 17 1 16
Federal funds sold and interest-bearing
deposits (130) 70 (48) (108)
--------- -------- ------- ---------
TOTAL INTEREST INCOME 1,693 118 (38) 1,773
--------- -------- ------- ---------
INTEREST EXPENSE:
Savings deposits and interest bearing
checking 118 24 3 145
Time deposits 474 114 21 609
Federal funds purchased and securities sold
under agreements to repurchase 101 1 2 104
Notes Payable 195 28 18 241
--------- -------- ------- ---------
TOTAL INTEREST EXPENSE 888 167 44 1,099
--------- -------- ------- ---------
NET CHANGE IN NET INTEREST INCOME $ 805 $ (49) $ (82) $ 674
--------- -------- ------- ---------
</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 March 31, 2000 and 1999 were $392,000 and $205,000,
respectively.
(4) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the three months ended March 31, 2000 and 1999 were $189,000
and $144,000, respectively.
14
<PAGE>
NON INTEREST INCOME
Non-interest income for the three months ended March 31, 2000 increased
approximately $61,000 to $1.2 million compared to the quarter ended March 31,
1999. The increase in non-interest income is primarily the result of an
increase in service charge revenue. Service charge revenue increased $139,000
or 25.7% to $679,000 for the three months ended March 31, 2000 compared to
$540,000 for the three months ended March 31, 1999. The Company's acquisition
of the two community banks accounted for $45,000 of this increase, while
another $45,000 of service charge revenue was generated by a new overdraft
fee structure the Company implemented in February of 2000. Other fee income
included an increase of $16,000 in miscellaneous deposit charges and $13,000
in credit life premium for the three months ended March 31, 2000, compared to
the same period last year. Offsetting non-interest income was a decrease in
the gain on sale of mortgage loans of $139,000 to $53,000 for the three
months ended March 31, 2000 compared to $192,000 for the period ended March
31, 1999. The decrease was the result of a softening residential real estate
market in many of the Company's market areas. Also contributing to the
decrease was 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. 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 gain on the
sale of mortgage loans.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 2000 increased
$689,000 or 18.7% to $4.4 million as of March 31, 2000 compared to $3.7
million for the three months ended March 31, 1999. The increase in
non-interest expense is primarily due to the additional expenses from the
acquisition of two community banks, which account for 67% of the total
increase. Management estimates that it takes up to 18 months to fully realize
the benefit of operating efficiencies gained from consolidations after an
acquisition.
Salaries and benefits expense was up $373,000 for the three months ended
March 31, 2000 to $2.2 million compared to $1.9 million for the three months
ended last year. The Company's acquisitions accounted for $260,000 of this
increase. The remainder of the increase was due to the addition of three full
time equivalent employees in conjunction with the Company's internal growth.
Data processing fees were $468,000 for the three months ended March 31,2000,
an increase of $125,000 over the same period in 1999. The increase was
primarily due to internal growth in conjunction with an annual price increase
in the fees charged from the Company's data processing service. The Company's
two community bank acquisitions contributed $34,000 to this increase.
Goodwill amortization increased $49,000 to $158,000 for the period ended
March 31, 2000 compared to $109,000 for the three months ended March 31,
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 that 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 $11.5 million as of March 31, 2000.
Other non-interest expense increased $107,000 for the period ended March 31,
2000, compared to the same period a last year. Factors contributing to this
rise in costs include $67,000 in other non-interest expenses contributed by
the two acquired banks; $10,000 in license and filing fees associated with
the Company being a publicly traded on the NASDAQ national market at March
31, 2000, and an increase in bank service fees and statement mailing costs
relating to the growth in the volume of deposit accounts.
15
<PAGE>
INCOME TAX EXPENSE
The Company recorded income tax expense of $334,000 for the three months
ending March 31, 2000, compared to an income tax expense of $348,000 for the
quarter ended March 31, 1999. The Company's effective tax rate decreased to
approximately 28.4% for the three months ended March 31, 2000, down from
approximately 29.6% for the three months ended March 31, 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 decrease in the effective tax rate for March 31, 2000
is primarily attributed to the Company passing through its dividend for the
first quarter to the ESOP participants.
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 March 31, 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.
<TABLE>
<CAPTION>
Net Interest (Decrease) Percent
Change in Interest Rates Income Increase Change
- ------------------------------ ------------ ---------- -------
(Dollars In Thousands)
-------------------------------------
<S> <C> <C> <C>
200 basis point rise $ 17,359 $ (1,305) (6.99)%
100 basis point rise 18,045 (618) (3.31)
base rate scenario 18,663 - -
100 basis point decline 19,208 545 2.92
200 basis point decline 19,819 1,155 6.19
</TABLE>
The Company believes that no significant changes in its interest rate
sensitivity position have occurred since December 31, 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.
16
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company's subsidiary, Community Bank is a defendant in litigation filed
in the Johnson County District Court, Johnson County. The litigation was
filed prior to the Company's acquisition of ComBankshares, Inc., the parent
company of Community Bank, in the fourth quarter of 1999. The litigation
consists of 132 related petitions, each alleging fraud, negligent
misrepresentation, civil conspiracy, and negligence against Community Bank
and a former officer of Community Bank. The petitions also contain a
RESPONDANT SUPERIOR claim against Community Bank for the former officer's
alleged wrongdoing. Each petition contains allegations of wrongdoing by other
banks and bank officers. The petitions allege that Community Bank, the former
officer of Community Bank, and the other banks and bank officers committed
wrongful acts, either intentionally or unintentionally as to an alleged
scheme conducted by a company called Parade of Toys. The Parade of Toys used
Community Bank, the former officer of Community Bank, and the other banks and
bank officers as credit references in representations made to the plaintiffs
by the Parade of Toys. The prayer for relief from the 132 petitions estimates
a total prayer for all the plaintiffs at approximately $2,812,880. The
petitions do not list any claims for punitive damages, as Kansas law does not
allow a plaintiff to list a claim for punitive damages in a petition. To file
for punitive damages, the plaintiffs will have to amend their petitions. The
deadline to amend has not yet passed. Community Bank denies any liability and
is in the process of vigorously defending this claim. The Company is unable
to estimate its potential range of monetary expense, if any, or to predict
the likely outcome of this matter.
Upon the acquisition of ComBankshares, Inc. in the fourth quarter of 1999,
the Company set aside $500,000 of the purchase price in an escrow, to be used
for legal fees and damages from the litigation. In addition, the Company has
an insurance policy of $1,000,000 to be used for damages from the litigation.
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
(i) Incorporated by reference to the exhibits in the 10-K
(ii) (27) Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended
March 31, 2000.
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: May 9, 2000 By: /s/ Robert J. Weathebie
---------------------------
Robert J. Weatherbie
Chairman
Chief Executive Officer
Date: May 9, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 13,865
<INT-BEARING-DEPOSITS> 3,674
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 143,535
<INVESTMENTS-CARRYING> 25,452
<INVESTMENTS-MARKET> 24,983
<LOANS> 323,567
<ALLOWANCE> 3,763
<TOTAL-ASSETS> 536,913
<DEPOSITS> 444,275
<SHORT-TERM> 12,432
<LIABILITIES-OTHER> 3,281
<LONG-TERM> 40,952
0
0
<COMMON> 25,324
<OTHER-SE> 10,649
<TOTAL-LIABILITIES-AND-EQUITY> 536,913
<INTEREST-LOAN> 6,927
<INTEREST-INVEST> 2,611
<INTEREST-OTHER> 82
<INTEREST-TOTAL> 9,620
<INTEREST-DEPOSIT> 4,370
<INTEREST-EXPENSE> 5,127
<INTEREST-INCOME-NET> 4,493
<LOAN-LOSSES> 185
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 4,378
<INCOME-PRETAX> 1,174
<INCOME-PRE-EXTRAORDINARY> 1,174
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 840
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 8.17
<LOANS-NON> 1,719
<LOANS-PAST> 893
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,320
<CHARGE-OFFS> 163
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 3,763
<ALLOWANCE-DOMESTIC> 3,763
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
