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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
Securities and Exchange Commission File Number: 000-26335
TEAM FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
KANSAS 48-1017164
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8 West Peoria, Suite 200, Paola, Kansas, 66071
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code: (913) 294-9667
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There were 3,925,540 shares of the Registrant's common stock, no par value,
outstanding as of March 5, 2000.
The aggregate market value of the voting stock held by "non-affiliates" of
the registrant, based on a March 5, 2000 closing price of $8.50 as reported
on the NASDAQ National Market, was $20,451,162
DOCUMENTS TO BE INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its 2000 Annual
Meeting of Shareholders to be filed within 120 days of December 31, 1999,
will be incorporated by reference into Part III of this Form 10-K
<PAGE>
PART I.
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 15
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 66
Part III.
Item 10. Directors and Executive Officers of the Registrant 66
Item 11. Executive Compensation 66
Item 12. Security Ownership of Certain Beneficial Owners and Management 66
Item 13. Certain Relationships and Related Transactions 66
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 66
Signatures 69
</TABLE>
1
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PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
Team Financial, Inc. (the "Company") is a multi-bank holding company
incorporated in the State of Kansas. Its common stock is listed on the Nasdaq
National Market ("NASDAQ") under the symbol "TFIN".
The Company offers full service community banking and financial services through
18 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 three in the high growth metropolitan area of Omaha,
Nebraska.
The Company was formed in 1986 when its founders, including Robert J.
Weatherbie, Chairman and Chief Executive Officer, Michael J. Gibson,
President-Acquisitions/Investments and Chief Financial Officer and Carolyn S.
Jacobs, Treasurer, along with an Employee Stock Ownership Plan or ESOP,
purchased a one-bank holding company in Paola, Kansas in a leveraged
transaction. A majority of the funding for the transaction was obtained through
ESOP borrowings, which were guaranteed by the Company. Since 1986 the Company
has grown from a one-bank holding company with $85 million in assets to a
multibank holding company with $518 million in assets as of December 31, 1999.
This growth was achieved primarily through acquisitions of community banks or
branches of large banks that were sold to the Company as a result of
consolidations. Additional asset growth was achieved through internal growth, as
well as the establishment of three new branches during the past five years.
On June 21, 1999, the Company's common stock began trading on NASDAQ upon
completion of a public offering where the Company and its ESOP sold 700,000 and
300,000 shares, respectively of common stock at $11.25 per share. On July 15,
1999, the Company sold an additional 150,000 shares as part of the over
allotment option granted to the underwriters in the initial public offering.
The net proceeds to the Company from the sale of the common stock, including the
exercise of the over-allotment option, were $8.5 million. The total expenses of
the offering were approximately $1.6 million. The net proceeds were used by the
Company to repay $7.5 million of debt, which bore interest at 1% under prime and
was due on June 30, 1999. The remaining proceeds of $1.0 million were
contributed to TeamBank N.A., one of the Company's subsidiary banks, to be used
by the Bank for internal growth. Although the Company did not receive any of the
proceeds from the selling shareholder's sale of shares, the ESOP used the funds
to repay $1.0 million in borrowings, which reduced the Company's liabilities as
primary obligor and increased its stockholders' equity.
The ESOP owned 29.22% of the Company as of December 31, 1999. Management
believes that the ESOP reflects the Company's corporate culture that employees
are the integral component of a financial institution. Management intends to
continue the ESOP, as it is a significant incentive to attract and retain
qualified employees. In addition, because of tax advantages, which are only
available to the ESOP, it can be used to assist in financing acquisitions.
During the quarter ended December 31, 1999, the Company acquired ComBankshares,
Inc., and its subsidiary Community Bank with a total asset size of $52 million.
The acquisition strengthens the Company's presence in the Kansas City
metropolitan market, and expands its presence along the I-70 corridor. The
Company also announced that it had reached an agreement to acquire Fort Calhoun
Investment Co., and its subsidiary Fort Calhoun State Bank with total assets of
approximately $22 million. The acquisition will compliment the Company's
presence in the Omaha, Nebraska metropolitan area. The acquisition is subject to
the approval of bank regulators. The Company expects the acquisition to close in
the first quarter of 2000.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act ("GLBA") which will, effective March 11, 2000, permit bank holding companies
to become financial holding companies and thereby affiliate with securities
firms and insurance companies and engage in other activities that are financial
in nature. The Company became a financial holding company on March 13, 2000. As
noted below under "Supervision and
2
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Regulation", this allows the Company to engage in financial activities which
the Company formally could not do. The Company intends to diversify into
other financial activities, such as insurance.
The Company serves the needs and caters to the economic strengths of the
local communities in which it operates and strives to provide a high level of
personal and professional customer service. The Company offers a variety of
financial services to its retail and commercial banking customers. These
services include personal and corporate banking services, trusts and estate
planning, personal investment financial counseling services.
The Company's full complement of lending services include:
- a broad array of residential mortgage products, both fixed and adjustable
rate
- consumer loans, including home equity lines of credit, auto loans,
recreational vehicle, and other secured and unsecured loans
- specialized financing programs to support community development
- mortgages for multi-family real estate
- commercial real estate loans
- commercial loans to businesses, including both revolving lines of credit
and term loans
- construction lending
- agricultural lending
The Company also provides an extensive selection of deposit instruments.
These include:
- multiple checking and NOW accounts for both personal and business accounts
- various savings accounts, including those for minors
- money market accounts
- tax qualified deposit accounts such as Individual Retirement Accounts
- a broad array of certificate of deposit products
The Company also supports its customers by providing services such as:
- functioning as a federal tax depository
- providing access to merchant bankcard services
- supplying various forms of electronic funds transfer
- providing debit cards and credit cards
- providing telephone banking.
Through its trust and estate planning and its personal investment financial
counseling services, the Company offers a wide variety of mutual funds, equity
investments, and fixed and variable annuities.
In future periods, the Company plans to commence providing insurance products
and services to both its retail and commercial banking customers including
property, casualty, life, and health insurance.
The Company participates in the wholesale capital markets through the management
of its security portfolio and its use of various forms of wholesale funding. The
Company's security portfolio contains a variety of instruments, including
callable debentures, taxable and non-taxable debentures, fixed and adjustable
rate mortgage backed securities, and collateralized mortgage obligations.
The Company's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense on interest-bearing liabilities. The Company's operations are
also affected by non-interest income, such as service charges, loan fees, and
gains and losses from the sale of newly originated loans. The Company's
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, data processing expense and
provisions for loan losses.
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COMPETITION
The Company faces a high degree of competition. In its market areas, there are
numerous small banks and several larger national and regional financial banking
groups. These competitors, who have branch banks in many of the Company's
markets, include banks such as Bank of America, First Star, and United Missouri
Bank. The Company also competes with insurance companies, savings and loan
associations, credit unions, leasing companies, mortgage companies, and other
financial service providers. Many of the banks and other financial institutions
with which the Company competes have capital resources and legal lending limits
substantially in excess of the capital resources and legal lending limits of the
Company.
The Company competes for loans and deposits principally based on the
availability and quality of services provided, responsiveness to customers,
interest rates, loan fees and office locations. The Company actively solicits
deposit customers and competes by offering them high quality customer service
and a complete product line. The Company believes its personalized customer
service, broad product line and banking franchise enable it to compete
effectively in its market area.
In order to compete with other financial service providers, the Company relies
upon local community involvement, personal service, and the resulting personal
relationships of its staff and customers, and the development and sale of
specialized products and services tailored to meet its customers' needs.
The Company faces competition for its personnel. The Company competes through
its emphasis as a community banking culture and through the use of its ESOP.
Management believes that the Company is able to compete for personnel
effectively in the Company's market areas because the ESOP provides incentives
for employees to join the Company and motivation to enhance shareholder value.
The Company will also face significant competition from other financial
institutions in any potential acquisitions. Many of these competitors have
substantially greater resources than the Company.
The Company has four wholly owned bank subsidiaries. The table below presents
information concerning these subsidiaries.
4
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<TABLE>
<CAPTION>
Number of Asset Size at
Name of Bank Banking Locations Lending Limit December 31, 1999
------------- ------------------ --------------- -----------------
(In Millions)
----------------------------------
<S> <C> <C> <C>
TeamBank, N.A. 12 $ 3.8 $ 321
Freeman, Missouri
an national banking
associaiton
Iola Bank and Trust 1 1.7 85
Company
Iola, Kansas, a Kansas
state charted bank
First National Bank 2 0.8 58
and Trust Co., Inc.
Parsons, Kansas, a
national banking
association
Community Bank 3 1.0 57
Prairie Village, Kansas, a
Kansas state chartered
bank
</TABLE>
MARKET AREA SERVED MARKET AREA SERVED
TEAMBANK, N.A. TeamBank, N.A. has banking locations in Kansas, Missouri and
Nebraska. TeamBank, N.A.'s primary Kansas service area is in Miami County,
Kansas. Located in the Kansas City metropolitan area, Miami County adjoins
Johnson County, Kansas.
TeamBank, N.A.'s Miami County branches are located in Paola, the county seat of
Miami County, and Osawatomie, the second largest city in the county. Another
TeamBank, N.A. Kansas branch location is Ottawa, which is the county seat of
adjoining Franklin County, Kansas. TeamBank, N.A. also operates two branches in
Johnson County, Kansas. TeamBank, N.A. is chartered in Freeman, Missouri,
located in Cass County, Missouri, which adjoins Miami County, Kansas. However,
TeamBank, N.A.'s primary Missouri service area is in Barton and Vernon counties
which adjoin each other and are located in the southwest section of Missouri
along the Kansas-Missouri border. TeamBank, N.A. also operates three facilities
in the Omaha, Nebraska metropolitan area. The primary Nebraska service area is
in Douglas and Sarpy Counties.
IOLA BANK AND TRUST COMPANY. The primary Kansas service area of Iola Bank
and Trust Company is in Allen County, Kansas.
FIRST NATIONAL BANK AND TRUST CO., INC. First National Bank and Trust Co.,
Inc.'s primary Kansas service area is in Labette County, Kansas.
COMMUNITY BANK. Community Bank has three banking locations in Kansas.
Community Bank's two primary service areas are Dickinson County, Kansas along
the I-70 corridor, and Johnson County, Kansas.
5
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GROWTH AND OPERATING STRATEGIES
The Company's growth strategy is focused on a combination of acquisitions,
existing branch growth and establishing new branches.
ACQUISITIONS. Management believes that the consolidation in the banking
industry, along with the easing of branch banking throughout Kansas, Missouri,
Nebraska, Oklahoma and Iowa, as well as increased regulatory burdens, concerns
about technology and marketing, are likely to lead owners of community banks
within these areas to explore the possibility of sale or combination with a
broader-based holding company such as the Company.
In addition, branching opportunities have arisen as a result of divestiture of
branches by large national and regional bank holding companies of certain
overlapping branches resulting from consolidations. As a result, branch
locations have become available from time to time for purchase. The Company
completed three branch acquisitions and one bank holding company from 1997
through 1999. See note 14 to the Consolidated Financial Statements in Item 8.
Management's strategy in assimilating acquisitions is to emphasize revenue
growth as well as continuously review the operations of the acquired entities
and streamline operations where feasible. Management does not believe that
implementing wholesale administrative cost reductions in acquired institutions
are beneficial to our long-term growth, because significant administrative
changes in smaller banks can have an adverse impact on customer satisfaction in
the acquired institution's community. However, management has determined that
certain processing and accounting functions can be consolidated immediately upon
acquisition to achieve higher productivity levels without compromising customer
service. Increases in revenue growth are emphasized by offering customers a
broader product line consistent with full service banking.
BRANCH EXPANSION. Since 1994, the Company has established three new branches.
Because of the significant economic growth in the Omaha, Nebraska area, as well
as Johnson County, Kansas, over the past several years, management intends to
focus short-term branch expansion in these two areas. However, the Company does
not rule out branch expansion in other areas experiencing economic growth.
The Company has considered and intends to consider a variety of criteria when
evaluating potential acquisition candidates or branching opportunities. These
include:
- the geographic market location of the potential acquisition target or
branch and demographics of the surrounding community;
- the financial soundness of a potential acquisition target;
- opportunities to improve the efficiency and/or asset quality of an
acquisition target through merger;
- the effect of the acquisition on earnings per share and book value. The
Company seeks to undertake acquisitions that will be accretive to earnings
within 18 months of the acquisition;
- whether the Company has sufficient management and other resources to
integrate or add the operations of the target or branch; and
- the investment required for, and opportunity costs of, the acquisition
or branch.
INTERNAL GROWTH. The Company believes that its largest source of internal
growth is through its ongoing solicitation program conducted by bank
presidents and lending officers, followed by referrals from customers. The
primary reason for referrals is positive customer feedback regarding the
Company's customer service and response time.
The Company's goal in continuing its expansion is to maintain a profitable,
customer-focused financial institution. The Company believes that its
existing structure, management, data and operational systems are sufficient
to achieve further internal growth in asset size, revenues and capital
without proportionate increases in operating costs. This
6
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growth should also allow the Company to increase the lending limits of its
banks, thereby enabling it to increase its ability to serve the needs of
existing and new customers. The Company's operating strategy has always been
to provide high quality community banking services to its customers and
increase market share through active solicitation of new business, repeat
business and referrals from customers, and continuation of selected
promotional strategies.
For the most part, the Company's banking customers seek a banking
relationship with a service-oriented community banking organization. The
Company's operational systems have been designed to facilitate personalized
service. Management believes its banking locations have an atmosphere which
facilitates personalized services and decision-making, yet are of sufficient
financial size with broad product lines to meet customers' needs. Management
also believes that economic expansion in the Company's market areas will
continue to contribute to internal growth. Through the Company's primary
emphasis on customer service and its management's banking experience, the
Company intends to continue internal growth by attracting customers and
primarily focusing on the following:
- PRODUCTS OFFERED - The Company offers personal and corporate banking
services, trusts and estate planning, mortgage origination, mortgage
servicing, personal investment, and financial counseling services as
well as telephone banking. It offers a full range of commercial banking
services, including the following: checking accounts, ATM's, checking
accounts with interest, savings accounts, money market accounts,
certificates of deposit, NOW accounts, Individual Retirement Accounts,
brokerage and residential mortgage services, branch banking, and Team
Financial Visa debit cards and Visa/MC credit cards. The Company also
offers installment loans, including auto, recreational vehicle, and
other secured and unsecured loans sourced directly by its branches. See
"Loans" below for a discussion of products the Company provides to
commercial accounts.
- OPERATIONAL EFFICIENCIES - The Company seeks to maximize operational and
support efficiencies consistent with maintaining high quality customer
service. All of the Company's banks are on a common information system
designed to enhance customer service and improve efficiencies by
providing system-wide voice and data communication connections. The
Company has consolidated loan processing, bank balancing, financial
reporting, investment management, information system, payroll and
benefit management, loan review and audit.
- MARKETING ACTIVITIES - The Company focuses on an active solicitation
program for new business, as well as identifying and developing products
and services that satisfy customer needs. The Company's marketing
programs also utilize local print and promotional materials in each
location. The Company also actively sponsors community events within its
branch areas. The Company believes that active community involvement
contributes to its long-term success.
LOANS
The Company provides a broad range of commercial and retail lending services.
Each of the Company's banks follow a uniform credit policy which contains
underwriting and loan administration criteria, levels of loan commitment, loan
types, credit criteria, concentration limits, loan administration, loan review
and grading and related matters. In addition, the Company provides ongoing loan
officer training and review, obtains outside independent loan reviews and
operates a centralized processing and servicing center for loans. At December
31, 1999, substantially all loans outstanding were to customers within our
market areas.
LOAN ADMINISTRATION. The Company maintains a loan committee approach to lending,
which it believes yields positive results in both responsiveness to customer
needs and asset quality. Each of the Company's subsidiary banks has a loan
committee, which meets at least once per week to review and discuss loans. Each
bank also has a loan level threshold, which, if exceeded, requires the approval
of the Company's loan committee, which meets on an on-call basis. Loans greater
than $2.5 million require the approval of the Company's board of directors.
Interest rates charged on loans vary with the degree of risk, maturity, costs of
underwriting and servicing, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, availability of funds and government regulations.
7
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REAL ESTATE LOANS. These loans include various types of loans for which the
Company holds real property as collateral. Interest rates on these loans
typically adjust annually. Real estate construction loans include commercial and
residential real estate construction loans, but are principally made to builders
to construct business buildings or single and multi-family residences. Real
estate construction loans typically have maturities of six to 12 months, and
charge origination fees. Terms may vary depending upon many factors, including
location, type of project and financial condition of the borrower. It is our
standard practice in making commercial loans to receive real estate as
collateral in addition to other appropriate collateral. Therefore, loans
categorized in the other real estate loan category can be characterized as
commercial loans, which are secured by real estate. Commercial loans secured by
real estate typically have adjustable interest rates. The primary risks of real
estate mortgage loans include the borrower's inability to pay and deterioration
in value of real estate that is held as collateral.
COMMERCIAL LOANS. These loans consist primarily of loans to businesses for
various purposes, including revolving lines of credit and equipment financing.
The loans secured by collateral other than real estate, generally mature within
one year, have adjustable interest rates and are secured by inventory, accounts
receivable, machinery, government guarantees, or other commercial assets.
Revolving lines of credit are generally for business purposes, mature annually
and have adjustable interest rates. The primary repayment risk of commercial
loans is the failure of the borrower's business due to economic or financial
factors.
AGRICULTURAL LOANS. The Company makes a variety of agricultural loans which are
included in real estate and commercial loans. These loans relate to equipment,
livestock, crops and farmland. The primary risks of agricultural loans include
the prices of crops and livestock, as well as weather conditions.
INSTALLMENT LOANS. Installment loans are primarily to individuals, are typically
secured by the financed assets, generally have terms of two to five years and
bear interest at fixed rates. These loans usually are secured by motor vehicles
or other personal assets and in some instances are unsecured. The primary risk
of consumer lending relates to the personal circumstances of the borrower.
LETTERS OF CREDIT
In the ordinary course of business, the Company issues letters of credit. See
note 15 to Item 8 - Financial Statements and Supplementary Data. The Company
applies the same credit standards to these commitments as it uses in all its
lending activities and has included these commitments in its lending risk
evaluations. The Company's exposure to credit loss under letters of credit is
represented by the amount of these commitments.
EMPLOYEES
As of December 31, 1999, the Company had approximately 235 full-time equivalent
employees. Neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement. Management considers the Company's relationship
with its employees to be good.
PRINCIPAL SOURCES OF REVENUE
The Company's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense on interest-bearing liabilities. The Company's operations are
also affected by non-interest income, such as service charges, loan fees, and
gains and losses from the sale of newly originated loans. The Company's
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, data processing expense and
provisions for loan losses.
8
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SUPERVISION AND REGULATION
GOVERNMENT REGULATION
The Company and its banks are extensively regulated under federal and Kansas
law. These laws and regulations are primarily intended to protect depositors and
the deposit insurance fund of the Federal Deposit Insurance Corporation, not
shareholders of the Company. The following information is qualified in its
entirety by reference to the particular statutory and regulatory provisions. Any
change in applicable laws, regulations or regulatory policies may have a
material effect on the business, operations and prospects of the Company and its
banks. The Company is unable to predict the nature or extent of the effects that
fiscal or monetary policies, economic controls or new federal or state
legislation may have on its business and earnings in the future.
THE COMPANY
GENERAL. Prior to March 13, 2000, the Company operated as a bank holding company
registered under the Bank Holding Company Act of 1956 subject to regulation,
supervision and examination by the Federal Reserve. The Company is required to
file an annual report and the other periodic reports as the Federal Reserve now
requires or may require.
On March 11, 2000, the Gramm-Leach-Bliley Act ("GLBA") became effective. This
law will permit bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. A bank holding company may become
a financial holding company by filing a declaration that the bank holding
company wishes to become a financial holding company and if each of its
subsidiary banks is well capitalized under the FDICIA prompt corrective action
provisions, is well managed, and has at least a satisfactory rating under the
Community Reinvestment Act (CRA).
No regulatory approval will be required for a financial holding company to
acquire a company, other than a bank or savings association, engaged in
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board. The GLBA
defines "financial in nature" to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities; and activities that the
Board has determined to be closely related to banking. A national bank also may
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development and real estate investment, through a
financial subsidiary of the bank, if the bank is well capitalized, well managed
and has at least a satisfactory CRA rating.
Although it preserves the Federal Reserve as the umbrella supervisor of
financial holding companies, the GLBA defers the administration of the
non-banking activities to the customary regulators of insurers, broker-dealers,
investment companies and banks. Thus, the various state and federal regulators
of a financial holding company's operating subsidiaries would retain their
jurisdiction and authority over such operating entities. As the umbrella
supervisor, however, the Federal Reserve has the potential to affect the
operations and activities of financial holding companies' subsidiaries through
its power over the financial holding company parent. The GLBA contains
restrictions on financial institutions regarding the sharing of customer
nonpublic personal information with non-affiliated third parties unless the
customer has had an opportunity to opt out of the disclosure. The GLBA also
imposes periodic disclosure requirements concerning a financial institution's
policies and practices regarding data sharing with affiliated and non-affiliated
parties.
Subsidiary banks of a financial holding company or national banks with financial
subsidiaries must continue to be well capitalized and well managed in order to
continue to engage in activities that are financial in nature without regulatory
actions or restrictions, which could include divestiture of the financial in
nature subsidiary or subsidiaries. In addition, a financial holding company or a
bank may not acquire a company that is engaged in activities that are financial
in nature unless each of the subsidiary banks of the financial holding company
or the bank has CRA rating of satisfactory or better.
9
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On March 13, 2000, the Company became a financial holding company. As noted
above, this allows the Company to engage in financial activities, which it
formerly could not do. The Company intends to diversify into other financial
activities, such as insurance.
ACQUISITIONS. As a bank holding company, The Company is required to obtain the
prior approval of the Federal Reserve before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or bank
holding company. The Federal Reserve will not approve any acquisition, merger or
consolidation that would have a substantial anti-competitive effect, unless the
anti-competitive effects of the proposed transaction are outweighed by a greater
public interest in meeting the needs and convenience of the community. The
Federal Reserve also considers managerial resources, current and projected
capital positions and other financial factors in acting on acquisition or merger
applications.
CAPITAL ADEQUACY. The Federal Reserve monitors the regulatory capital adequacy
of bank holding companies. As discussed below, the Company's banks are also
subject to the regulatory capital adequacy requirements of the Federal Deposit
Insurance Corporation, the Comptroller of the Currency, and Kansas regulations,
as applicable. The Federal Reserve uses a combination of risk-based guidelines
and leverage ratios to evaluate the regulatory capital adequacy of the Company.
The Federal Reserve has adopted a system using risk-based capital adequacy
guidelines to evaluate the regulatory capital adequacy of bank holding
companies. The guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of at least $150 million. Under the
risk-based capital guidelines, different categories of assets are assigned to
different risk categories based generally on the perceived credit risk of the
asset. The risk weights of the particular category are multiplied by the
corresponding asset balances and added together to determine a risk-weighted
asset base. Some off balance sheet items, such as loan commitments in excess of
one year, mortgage loans sold with recourse and letters of credit, are added to
the risk-weighted asset base by converting them to a credit equivalent and
assigning them to the appropriate risk category. For purposes of the Federal
Reserve's regulatory risk-based capital guidelines, total capital is defined as
the sum of core and secondary capital elements, with secondary capital being
limited to 100% of core capital. For bank holding companies, core capital, also
known as Tier 1 capital, generally includes common shareholders' equity,
perpetual preferred stock and minority interests in consolidated subsidiaries,
less goodwill and other intangible assets. No more than 25% of core capital
elements may consist of cumulative preferred stock. Secondary capital, also
known as Tier 2 capital, generally includes the allowance for loan losses
limited to 1.25% of weighted risk assets, certain forms of perpetual preferred
stock, as well as hybrid capital instruments. The Federal Reserve's regulatory
guidelines require a minimum ratio of qualifying total capital to weighted risk
assets of 8%, of which at least 4% should be in the form of core capital. At
December 31, 1999, the Company's core capital was $30.2 million.
In addition to the risk-based capital guidelines, the Federal Reserve, the
Federal Deposit Insurance Corporation and the Comptroller of the Currency use a
leverage ratio as an additional tool to evaluate capital adequacy. The leverage
ratio is defined by the Federal Reserve to be a company's core capital divided
by its average total consolidated assets, and the Comptroller of the Currency's
and Federal Deposit Insurance Corporation's definitions are similar. Based upon
the current capital status of the Company, the applicable minimum required
leverage ratio is 4%.
The table below presents the Company's ratios of (1) total capital to
risk-weighted assets, (2) core capital to risk-weighted assets and (3) core
capital to average assets, at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------
Ratio Actual Minimum Required
- --------------------------------------- ------- ----------------
<S> <C> <C>
Total capital to risk weighted assets 10.49% 8.00%
Core capital to risk weighted assets 9.45% 4.00%
Core capital to average assets 5.94% 4.00%
</TABLE>
Failure to meet the regulatory capital guidelines may result in the initiation
by the Federal Reserve of appropriate supervisory or enforcement actions.
10
<PAGE>
THE BANKS
GENERAL. The Company owns four banks. The deposits of all of the banks are
insured by the Federal Deposit Insurance Corporation. Iola Bank and Trust
Company and Community Bank are subject to supervision and regulation by the
Federal Deposit Insurance Corporation. In addition, Iola Bank and Trust
Company and Community Bank are regulated by the Kansas Office of the State
Bank Commissioner. TeamBank N.A. and First National Bank and Trust Company,
as national banks, are subject to regulation by the Comptroller of the
Currency.
PERMISSIBLE ACTIVITIES. A Kansas state chartered bank may not engage in any
activity not permitted for national banks, unless the institution complies
with applicable capital requirements and the Federal Deposit Insurance
Corporation determines that the activity poses no significant risk to the
Bank Insurance Fund. Iola Bank and Trust Company and Community Bank are
presently not involved in the types of transactions covered by this
limitation.
COMMUNITY REINVESTMENT ACT. Enacted in 1977, the federal Community
Reinvestment Act has become important to financial institutions, including
their holding companies. Financial institutions have a continuing and
affirmative obligation, consistent with safe and sound operations of such
institutions, to serve the "convenience and needs" of the communities in
which they are chartered to do business, including low- and moderate-income
neighborhoods. The Community Reinvestment Act currently requires that
regulators consider an applicant's Community Reinvestment Act record when
evaluating certain applications, including charters, branches and
relocations, as well as mergers and consolidations. The applicable federal
regulators regularly conduct Community Reinvestment Act examinations to
assess the performance of financial institutions and assign one of four
ratings to the institution's records of meeting the credit needs of its
community. During their last examinations, ratings of at least satisfactory
were received by all of the Company's banks. As a result, management believes
that the performance of the Company's banks under the Community Reinvestment
Act will not impede regulatory approvals of any proposed acquisitions or
branching opportunities.
DIVIDEND RESTRICTIONS. Dividends paid by the Company's banks provide a
substantial amount of the operating and investing cash flow of the Company.
Under Kansas law, the current dividends can be paid only from undivided
profits after deducting losses, but before declaring dividends a bank must
transfer 25% of its net profits since the last preceding dividend to its
surplus fund until the surplus fund equals the total capital stock.
With respect to national banks, the directors of any such bank may quarterly,
semiannually, or annually declare a dividends of so much of the bank's
undivided profits as they deem expedient, except until the bank's surplus
fund equals its common capital at which time, no dividends may be declared
unless the bank has carried to the surplus fund at least one-tenth of the
bank's net income of the preceding half year in the case of quarterly or
semiannual dividends, or at least one-tenth of its net income of the
preceding two consecutive half-year periods in the case of annual dividends.
However, the Comptroller of the Currency's approval is required if the total
of all dividends declared by a bank in any calendar year exceeds the total of
its net income of that year combined with its retained net income of the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.
EXAMINATIONS. The Company's banks are examined from time to time by their
primary federal banking regulators. Based upon an evaluation, the examining
regulator may revalue a bank's assets and require that it establish specific
reserves to compensate for the difference between the value determined by the
regulator and the book value of the assets. The Kansas Office of the State
Bank Commissioner also conducts examinations of state-chartered banks. Both
of these regulators may accept the results of a federal examination in lieu
of conducting an independent examination. Kansas regulators have the
authority to revalue the assets of a state-chartered institution and require
it to establish reserves.
CAPITAL ADEQUACY. The Federal Deposit Insurance Corporation and the
Comptroller of the Currency have adopted regulations establishing minimum
requirements for the capital adequacy of insured institutions. The
requirements address both risk-based capital and leverage capital, with
risk-based assets and core and secondary capital being determined in
basically the same manner as described above for bank holding companies. The
Federal Deposit Insurance Corporation or the Comptroller of the Currency may
establish higher minimum requirements if, for example, a bank has previously
received special attention or has a high susceptibility to interest rate risk.
11
<PAGE>
The Federal Deposit Insurance Corporation risk-based capital guidelines
require state non-member banks and national banks to have a ratio of total
capital to total risk-weighted assets of 8%, of which total capital at least
4% points should be in the form of core capital.
The table below presents the regulatory capital ratios of the Iola Bank and
Trust Company and Community Bank at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------
Iola Bank and Trust Company Community Bank
------------------------------ -------------------------
Ratio Actual Minimum Required Actual Minimum Required
- --------------------------------------- ---------- ----------------- ------- ----------------
<S> <C> <C> <C> <C>
Total capital to risk weighted assets 14.69% 8.00% 13.13% 8.00%
Core capital to risk weighted assets 13.62% 4.00% 11.89% 4.00%
Core capital to average assets 7.83% 4.00% 7.17% 4.00%
</TABLE>
The Comptroller of the Currency risk-based capital guidelines require national
banks to maintain a minimum ratio of total capital, after deductions, to
weighted risk assets of 8%, and national banks and state non-member banks must
have and maintain core capital in an amount equal to at least 3% of adjusted
total assets; but for all but the most highly rated banks, the minimum core
leverage ratio is to be 3% plus an additional cushion of at least 100 to 200
basis points. The applicable guideline for TeamBank, N.A. and First National
Bank of Parsons are 4%.
The table below presents the regulatory capital ratios of TeamBank N.A. and
First National Bank of Parsons at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------
Teambank, N.A. First National Bank of Parsons
--------------------------- ------------------------------
Ratio Actual Minimum Required Actual Minimum Required
- ------------------------------------- ------ ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Total capital to risk weighted assets 12.30% 8.00% 16.06% 8.00%
Core capital to risk weighted assets 11.33% 4.00% 14.94% 4.00%
Core capital to average assets 7.47% 4.00% 8.40% 4.00%
</TABLE>
Banks with regulatory capital ratios below the required minimum are subject to
administrative actions, including the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance without a hearing in
the event the institution has no tangible capital.
The Federal Deposit Insurance Corporation and Comptroller of the Currency
regulators have adopted regulations that define five capital levels: well
capitalized, adequately capitalized, undercapitalized, severely undercapitalized
and critically undercapitalized. An institution is critically undercapitalized
if it has a tangible equity to total assets ratio that is equal to or less than
2%. An institution is well capitalized if it has a total risk-based capital
ratio of 10% or greater, core risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater, and the institution is not subject to an order,
written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. An
institution is adequately capitalized if it has a total risk-based capital ratio
of 8% or greater, a core risk-based capital ratio of 4% or greater, and a
leverage ratio of 4% or greater.
The Federal Deposit Insurance Corporation Improvement Act requires the federal
banking regulators to take prompt corrective action to resolve the problems of
insured depository institutions, including capital-deficient institutions. In
addition to requiring the submission of a capital restoration plan, the Federal
Deposit Insurance Corporation Improvement Act contains broad restrictions on
activities of institutions that are not adequately capitalized involving asset
growth, acquisitions, branch establishment, and expansion into new lines of
business. With limited exceptions, an insured depository institution is
prohibited from making capital distributions, including dividends, and is
prohibited from paying management fees to control persons if the institution
would be undercapitalized after any distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
12
<PAGE>
transactions with affiliates, removal of management, and other restrictions.
The regulators have limited discretion in dealing with a critically
undercapitalized institution and are virtually required to appoint a receiver
or conservator if the capital deficiency is not promptly corrected.
REAL ESTATE LENDING EVALUATIONS. The federal regulators have adopted uniform
standards for evaluations of loans secured by real estate or made to finance
improvements to real estate. Banks are required to establish and maintain
written internal real estate lending policies consistent with safe and sound
banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan to value
ratio limitations on real estate loans, which generally are equal to or less
than the loan to value limitations established by the Company's banks.
DEPOSIT INSURANCE PREMIUMS. Deposits of the Company's banks are insured up to
the regulatory limit by the FDIC and are subject to deposit assessments. The
assessment schedule for banks ranges from 0 to 27 cents per $100 of deposits,
based on capital and supervisory factors. The banks' insured deposits are
subject to assessment payable to Bank Insurance Fund. An institution's
assessment is based on the assignment of the institution by the Federal
Deposit Insurance Corporation to one of three capital groups and to one of
three supervisory subgroups. The capital groups are well capitalized,
adequately capitalized and undercapitalized. The three supervisory subgroups
are Group A, for financially solid institutions with only a few minor
weaknesses, Group B, for those institutions with weaknesses which, if
uncorrected could cause substantial deterioration of the institution and
increase the risk to the deposit insurance fund, and Group C, for those
institutions with a substantial probability of loss to the fund absent
effective corrective action. Currently, all four of the Company's banks are
in Group A.
BRANCHING AUTHORITY. National banks headquartered in Missouri, such as
TeamBank, N.A., have the same branching rights in Missouri as banks chartered
under Missouri law. Missouri law grants Missouri-chartered banks the
authority to establish branches anywhere in the State of Missouri, subject to
receipt of all required regulatory approvals.
Kansas law permits a Kansas bank to install remote service units, also known
as automatic teller machines, throughout the state. Remote service units
which are not located at the principal place of business of the bank or at a
branch location of the bank must be available for use by other banks and
their customers on a non-discriminatory basis. Federal law generally allows
national banks to establish branches in locations, which do not violate state
law.
INTERSTATE BANKING LEGISLATION. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, which became effective September 1995, has
eliminated many of the historical barriers to the acquisition of banks by
out-of-state bank holding companies. This law facilitates the interstate
expansion and consolidation of banking organizations by permitting: (1) bank
holding companies that are adequately capitalized and managed, subject to
certain limitations, to acquire banks located in states outside their home
states regardless of whether acquisitions are authorized under the laws of
the host state; (2) the interstate merger of banks after June 1, 1997,
subject to the right of individual states either to pass legislation
providing for earlier effectiveness of mergers or to opt out of this
authority prior to that date; (3) banks to establish new branches on an
interstate basis provided that this action is specifically authorized by the
law of the host state; (4) foreign banks to establish, with approval of the
appropriate regulators in the United States, branches outside their home
states to the same extent that national or state banks located in that state
would be authorized to do so; and (5) banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations as agent for any bank or thrift affiliate, whether the affiliate
is located in the same or different state.
CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in a
state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is not possible to predict the outcome
of these changes.
One of the major additional burdens imposed on the banking industry is the
increased authority of federal agencies to regulate the activities of federal
and state banks and their holding companies. The Federal Reserve, the
Comptroller of the Currency and the Federal Deposit Insurance Corporation have
extensive authority to police unsafe or unsound practices and violations of
applicable laws and regulations by depository institutions and their
13
<PAGE>
holding companies. These agencies can assess civil money penalties and other
laws have expanded the agencies' authority in recent years, and the agencies
have not yet fully tested the limits of their powers. In addition, the Kansas
Office of the State Bank Commissioner possesses broad enforcement powers to
address violations of Kansas banking laws by banks chartered in Kansas.
MONETARY POLICY AND ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of the
Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
The Federal Reserve's monetary policies have materially affected the
operating results of commercial banks in the past and are expected to
continue to do so in the future. The nature of future monetary policies and
the effect of these policies on the business and earnings of the Company and
its subsidiaries cannot be predicted.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K, which are
not statements of historical fact, constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act (the
"Act"), including, without limitation, the statements specifically identified
as forward-looking statements within this document. In addition, certain
statements in future filings by the Company with the Securities and Exchange
Commission, in press releases, or in oral and written statements made by or
with the approval of the Company which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples
of forward-looking statements included, bat are not limited to: (i)
projections of revenue, income or loss, earnings or loss per share, the
payment or non-payment of dividends, capital structure and other financial
items, (ii) statements of plans and objectives of the Company or its
management or Board of Directors, including those relating to products or
services, (iii) statements of future economic performance and (iv) statements
"anticipates", "expects", "intends", "plans", "targets", and similar
expression are intended to identify forward-looking statements but are not
the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties, which may cause
actual results to differ materially from those in such statements. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to : (i) the strength
of the U.S. economy in general and the strength of the local economies in
which operations are conducted; (ii) the effects of and changes in trade,
monetary and fiscal policies and laws, including interest rate policies of
the Federal Reserve Board; (iii) inflation, interest rates, market and
monetary fluctuations; (iv the timely development of and acceptance of new
products and services and perceived overall value of these products and
services by users; (v) changes in consumer spending, borrowing and savings
habits; (vi) technological changes; (vii) acquisitions; (viii) the ability to
increase market shares and control expenses; (ix) the effect of changes in
laws and regulations (including laws and regulations concerning taxes,
banking, and securities) with which the Company and its subsidiaries must
comply; (x) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as the Financial Accounting
Standards Board, (xi) changes in the company's organization, compensation and
benefits plans; (xii) the costs and effects of litigation and of unexpected
or adverse outcomes in such litigation; and (xiii) the success of the Company
at managing risks involve in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made to reflect the occurrence of unanticipated
events.
14
<PAGE>
ITEM 2. PROPERTIES
The table below presents property information concerning the offices of the
Company and its subsidiary banks.
<TABLE>
<CAPTION>
Square
Name and Address of Office Year Opened Type of Interest Footage of Facility
- -------------------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
Team Financial, Inc. 1986 Leased 5,000
8 West Peoria
Paola, Kansas 66071
TeamBank, N.A., Paola Branch 1986 Owned 17,951
1 South Pearl
Paola, Kansas 66071
East Bank - Paola Branch 1988 Owned 9,630
1515 Baptiste Drive
Paola, Kansas 66071
TeamBank, N.A., DeSoto Branch 1994 Owned 6,800
34102 West 92 Street
DeSoto, Kansas 66018
TeamBank, N.A., Freeman 1997 Leased 1,375
100 West Main Street
Freeman, Missouri 64746-0246
TeamBank, N.A., Lamar Branch 1997 Leased 2,650
127 West 11th Street
Lamar, Missouri 64759
TeamBank, N.A., Nevada Branch 1997 Owned 16,000
201 East Cherry
Nevada, Missouri 64772
TeamBank, N.A., Osawatomie Branch 1993 Owned 4,756
6th and Brown
Osawatomie, Kansas 66064
TeamBank, N.A., Ottawa Branch 1998 Owned 8,000
421 South Hickory
Ottawa, Kansas 66067
TeamBank, N.A., Spring Hill Branch 1994 Leased 600
110 East Wilson
Spring Hill, Kansas 66083
TeamBank N.A., Nebraska 1996 Leased 4,679
(Main Office)
1902 Harlan Drive
Bellevue, Nebraska 68005
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Square
Name and Address of Office Year Opened Type of Interest Footage of Facility
- -------------------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
TeamBank N.A., Nebraska - Bellevue 1996 Leased 1,980
Branch
7001 South 36th
Bellevue, Nebraska 68147
TeamBank N.A., Nebraska - Omaha 1998 Leased 3,000
Branch
2809 South 160th Street, #20
Omaha, Nebraska 68130
Iola Bank and Trust Company 1990 Owned 13,768
(Main Office)
119 East Madison
Iola, Kansas 66749
First National Bank of Parsons 1992 Owned 11,000
(including drive in)
1902 Main
Parsons, Kansas 66357
Community Bank - Chapman 1922 Owned 8,847
(Main Office)
446 N. Marshall
Chapman, Kansas 67431
Community Bank - Prairie Village 1992 Owned 3,602
Branch
5206 West 95th Street
Prairie Village, Kansas 66207
Community Bank - Abilene 1992 Owned 2,174
Branch
418 N.W. 3rd
Abilene, Kansas 67410
Community Bank - Chapman 1906 Owned 7,132
Leased building
102 East Fifth Street
Chapman, Kansas 67431
</TABLE>
Other than the Spring Hill branch, which is leased on a month-to-month basis,
all of the leased properties are leased from unrelated third parties and are
subject to long-term leases, none of which expire prior to the year 2002.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company's subsidiary, Community Bank is a defendant in a 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 the fiscal year. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our security holders during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the amount of cash
dividends paid on the Company's common stock and the high and low closing
prices per share of the Company's common stock as reported on the Nasdaq
National Market. The Company's common stock began trading on the Nasdaq
National Market on June 22, 1999. These quotations represent the prices
between dealers and do not include retail mark ups, mark downs or commissions
and may not represent actual transactions.
<TABLE>
<CAPTION>
Dividends Declared Common Stock
Quarter ended Per Share High Low
- ------------- ------------------ ---- ---
<S> <C> <C> <C>
December 31, 1999 $0.05 $11.000 $ 8.625
September 30, 1999 $0.05 $11.250 $ 10.125
June 30, 1999 $0.05 $11.375 $ 10.875
March 31, 1999 $0.05 N/A N/A
Year -----
$0.20
</TABLE>
At March 3, 2000 the Company had approximately 290 holders of record of its
common stock; management estimates that the number of beneficial owners is
significantly greater.
The Company has paid yearly dividends on its common stock since 1987. In past
years dividend payments were advantageous to the Company, because under the
Internal Revenue Code, certain dividends paid to the ESOP were deductible as
long as the ESOP had debt outstanding. However, since the Company's initial
public offering in June 1999, the ESOP has not had significant debt
outstanding. Notwithstanding the loss of the deductibility of dividends paid
to the ESOP, the Company initiated quarterly dividends on its common stock of
$.05 per share beginning in April 1999. Although the Company currently
intends to continue the payment of dividends, the Company cannot give any
assurance that it will continue to pay or declare dividends on its common
stock in the future.
17
<PAGE>
Kansas law permits the Company to pay dividends on its common stock when it
is solvent and when dividend payments would not render it insolvent. Under
Kansas law, dividends may be declared and paid only out of the unsecured,
unrestricted earned surplus of a corporation. The Company's ability to pay
cash dividends largely depends on the amount of cash dividends paid to it by
its subsidiary banks. Capital distributions, including dividends by financial
institutions such as the Company's subsidiary banks, is subject to
restrictions tied to the institutions' earnings and capital. Payment of
dividends on the Company's common stock depends on payment of dividends to it
by its subsidiary banks. Generally, without prior regulatory approval, the
Company cannot pay dividends during any calendar year in excess of the sum of
their earnings during that year and the two previous years, less any other
distributions during that period. At December 31, 1999, the Company could
have paid total dividends to us of approximately $6.8 million without prior
regulatory approval.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations data:
Interest income $ 32,902 $ 31,854 $ 26,137 $ 21,635 $ 19,661
Interest expense 16,823 16,573 12,887 10,462 9,745
Net interest margin 16,079 15,281 13,250 11,173 9,916
Provision for loan losses 902 1,486 1,095 623 245
Other income 4,583 4,606 3,279 2,812 2,708
Other expenses 15,471 15,384 12,667 10,132 10,034
Income tax 1,120 673 553 938 701
Net income 3,169 2,344 2,214 2,292 1,644
Consolidated Balance Sheet data:
Total assets 518,205 442,352 386,996 300,007 260,268
Total loans 309,255 256,126 223,675 183,494 161,492
Allowance for loan losses 3,320 2,541 1,629 1,518 1,289
Investment securities available for sale 136,901 109,296 103,304 68,806 67,245
Investment securities held to maturity 25,630 25,742 22,399 17,889 13,204
Nonperforming assets (1) 3,205 3,578 1,962 2,215 2,203
Deposits 435,116 384,347 333,864 258,890 225,691
Stockholders' equity and ESOP redeemable
common stock 37,569 25,401 22,642 19,392 15,796
Per Common Share (3):
Basic income per share 0.93 0.85 0.84 1.02 0.74
Book value per share (2) 9.16 8.49 7.68 6.87 6.28
Tangible book value per share (2) 6.67 6.53 6.21 6.64 6.25
Dividends paid per common share 0.20 0.23 0.23 0.23 0.22
Dividend payout ratio 0.22 0.27 0.27 0.23 0.30
Key Ratios:
Net interest margin (4) 3.89% 4.00% 4.36% 4.48% 4.26%
Return on average assets 0.70% 0.56% 0.67% 0.85% 0.66%
Return on average stockholders equity (2) 10.27% 10.00% 10.49% 12.96% 11.33%
Core risk based capital ratio (2) 9.45% 7.05% 6.97% 9.39% 8.97%
Total risk based capital ratio (2) 10.49% 8.00% 7.61% 10.15% 9.72%
Leverage ratio (2) 5.96% 4.50% 5.39% 6.94% 6.01%
Nonperforming assets to total assets 0.62% 0.81% 0.51% 0.74% 0.85%
Nonperforming loans to total loans 0.78% 1.04% 0.71% 1.03% 1.05%
Allowance for loan losses to total loans 1.07% 0.99% 0.73% 0.83% 0.80%
Allowance for loan losses to nonperforming loans 137.59% 95.10% 102.13% 80.36% 73.83%
</TABLE>
(1) Includes loans 90 days or more delinquent and still accruing interest,
nonaccrual loans, and other real estate owned.
(2) Includes redeemable common stock held by ESOP for years prior to 1999.
(3) No difference exists between basic and diluted earnings per share.
Gives effect to the five for one stock split of the common stock in
December 1998.
(4) On a tax equivalent basis.
19
<PAGE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT AND RISK FACTORS
Management's discussion and analysis is written to provide greater detail of
the financial condition and the results of operations of the Company. This
analysis should be read in conjunction with the audited Consolidated
Financial Statements contained within this report, including the Notes
thereto. The Company's future operating results may be affected by various
trends and factors that are beyond the Company's control. These include the
factors set forth in "Forward-Looking Statements." Accordingly, past results
and trends may not be reliable indicators of future results or trends. With
the exception of historical information, the matters discussed below include
forward-looking statements that involve risks and uncertainties. The Company
cautions readers that a number of important factors discussed in this Report
could affect the Company's actual results and cause actual results to differ
materially from those in the forward-looking statements.
OVERVIEW
The Company's earnings over the past three years have increased a total of
38%. During that same period, December 31, 1997 to December 31 1999, total
assets grew by 72%. While asset growth has resulted in increases in revenues,
these increases have been offset by operating expenses, increases in
provisions for loan losses and amortization of premiums paid in acquisitions
accounted for by the purchase method. The Company believes, however, that its
existing management and systems are capable of supporting additional growth
without significant increases in administrative costs to integrate the growth
into operations. The Company's strategy takes into account, and its
experience is, that it takes up to 18 months to realize meaningful net income
improvements from acquisitions and expansion. The Company began experiencing
net income improvements during fiscal 1999 as net income increased 35% over
the prior year. During fiscal 1999 revenues increased, other operating
expenses remained level, and provision for loan losses decreased during the
year.
At December 31, 1999 total assets of the Company were $518.2 million, an
increase of $75.8 million or 17% from $442.4 million in total assets as of
December 31, 1998. Total assets at December 31, 1997 were $387.0 million. The
increase as of December 31, 1999 was primarily the result of $19.3 million in
internal asset growth and $56.5 million from the acquisition of
ComBankshares, Inc. during the fourth quarter of 1999. The increase as of
December 31, 1998 was the result of internal asset growth and the purchase of
a NationsBank branch in Ottawa, Kansas completed during the first quarter of
1998.
Net income totaled $3.2 million for 1999 compared to $2.3 million for 1998.
The 35% improvement was the result of an improvement in net interest income
of $798,000, a reduction in provision for loan losses of $584,000, and a
program to control expenses resulting in only a slight increase in other
expenses of $87,000. Net income totaled $2.3 million for 1998 compared to
$2.2 million for 1997. Net income in 1998 improved as a result of increased
net interest income of $2.0 million and other income of $1.3 million. These
increases were offset by increased provisions for loan losses of $391,000 and
other expenses of $2.7 million.
20
<PAGE>
ANALYSIS OF THE RESULTS OF OPERATIONS
NET INTEREST INCOME
The Company's income is derived primarily from net interest income. Net
interest income is the difference between interest income, principally from
loans, investment securities and federal funds sold, and interest expense,
principally on customer deposits and other borrowings. Changes in net
interest income result from changes in volume and interest rates earned and
expensed. Volume refers to the average dollar levels of interest-earning
assets and interest-bearing liabilities.
The following tables set forth the average balances of interest-earnings
assets and interest-bearing liabilities, as well as the amount of interest
income or interest expense and the average rate for each category of
interest-earning assets and interest-bearing liabilities on a tax-equivalent
basis assuming a 34% tax rate for the periods indicated. Included in the
average balances are non-accruing loans. Loan fees are included in interest
income. Average balances are computed on a daily basis.
<TABLE>
<CAPTION>
------------------------------- -----------------------------
Year Ended December 31, 1999 Year Ended December 31, 1998
------------------------------- -----------------------------
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) $267,695 $23,825 8.90% $245,012 $ 23,183 9.46%
Investment securities-taxable 115,745 7,450 6.44% 115,461 7,127 6.17%
Investment securities-nontaxable (4) 26,441 1,763 6.67% 22,387 1,717 7.67%
Federal funds sold and
interest-bearing deposits 12,894 467 3.62% 13,455 411 3.06%
--------- ------- ----- -------- -------- -----
Total interest earning assets $422,774 33,505 7.93% $396,315 32,438 8.19%
========= ------- ----- ======== -------- -----
INTEREST PAYING LIABILITIES:
Savings deposits and interest
bearing checking $132,744 $ 3,878 2.92% 126,963 3,890 3.06%
Time deposits 207,731 10,878 5.24% 198,006 10,654 5.51%
Federal funds purchased and
securities sold under agreements
to repurchase 9,865 490 4.97% 9,987 528 5.29%
Notes Payable 24,984 1,577 6.31% 18,461 1,238 6.71%
-------- ------ ----- -- ------ ------ -----
Total interest bearing liabilities $375,324 16,823 4.48% $ 353,417 16,573 4.69%
======== ------- ----- ========= ------ -----
Net interest income (tax equivalent) $ 16,682 $15,865
======== =======
Interest rate spread 3.44% 3.50%
Net interest earning assets 47,450 42,898
Net interest margin (4) 3.95% 4.000%
Ratio of average interest bearing ==== =====
liabilities to average interest
earning assets 88.78% 89.18%
===== =====
<CAPTION>
-----------------------------
Year Ended December 31, 1997
-----------------------------
Average Average
Balance Interest Rate
------- -------- -------
(Dollars In Thousands)
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable, net (1)(2)(3) $200,747 $ 19,475 9.70%
Investment securities-taxable 85,688 5,458 6.37%
Investment securities-nontaxable (4) 16,151 1,253 7.76%
Federal funds sold and
interest-bearing deposits 11,338 377 3.33%
-------- -------- -----
Total interest earning assets $313,924 26,563 8.46%
======== -------- -----
INTEREST PAYING LIABILITIES:
Savings deposits and interest
bearing checking $101,734 3,186 3.13%
Time deposits 153,135 8,608 5.62%
Federal funds purchased and
securities sold under
agreements to repurchase 10,654 569 5.34%
Notes Payable 7,272 524 7.21%
-------- ------ -----
Total interest bearing liabilities $272,795 12,887 4.72%
======== ------ =====
Net interest income (tax equivalent) $13,676
=======
Interest rate spread 3.74%
Net interest earning assets 41,129
Net interest margin (4) 4.36%
=====
Ratio of average interest bearing
liabilities to average interest
earning assets 86.90%
======
</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 twelve months ended December 31, 1999 - $903,000, 1998 - $974,000,
and 1997 - $905,000.
(4) Yield is adjusted for the tax effect of tax exempt securities. The
tax effects for the twelve months ended December 31, 1999 was
$603,000, 1998 - 584,000 and 1997 - $426,000.
Total interest income on a tax equivalent basis totaled $33.5 million,
representing an increase of $1.7 million or 3.3%, from $32.4 million during
1998. The overall increase in interest income was primarily the result of the
internal growth in loans of $26.5 million or 10% during the year. Interest
income on loans was negatively impacted by a 0.56% decrease in the yield
earned on loans, from 8.90% in 1999 compared to 9.46% in 1998. Interest
income was increased to a lesser extent by a $5.6 million increase in
investment securities, excluding the acquisition of ComBankshares, Inc. The
volume increase in investment securities was offset by the decrease in yield
of .07% to 6.10% for taxable investment securities, and 0.51% to 7.16% for
non-taxable investment securities when compared to 1998. The fourth quarter
acquisition of ComBankshares, Inc. contributed $353,000 to total interest
income for 1999.
Total interest expense was $16.8 million for 1999, a $250,000 or 1.5%
increase from $16.6 million in 1998. The primary contributor to the increase
over 1998 was a $6.5 million increase in the average balance of notes payable
to
21
<PAGE>
$25.0 million in 1999 from $18.5 million in 1998. The increase in notes
payable was the result of an increase in the average balances borrowed from
the Federal Home Loan Bank during the year. The additional borrowings were
used to leverage a matched investment in mortgage-backed securities during
the year at an average net positive spread of 1.39%. The average rate on
interest bearing liabilities decreased 0.21% from 4.69% in 1998 to 4.48% in
1999, positively impacting net interest income. The decrease in the average
rate paid on interest-bearing liabilities is the result of a reduction in the
long term notes payable of the Company, as the Company paid down $7.5 million
in long term notes with proceeds from the initial public offering of stock.
Notes payable increased again in December of the fourth quarter in
conjunction with the acquisition of ComBankshares, Inc. The addition in total
interest expense related to this acquisition during the fourth quarter was
$170,000.
As a result of the changes described above, the net interest income on a tax
equivalent basis increased to $16.4 million, representing an increase of
$562,000, or 3.5%, from $15.9 million during 1998.
Total interest income on a tax equivalent basis was $32.4 million for 1998
compared to $26.6 million in 1997, representing a 22.12% increase. The
overall increase in interest income was the result of the Company's purchase
of a NationsBank branch in the first quarter of 1998, which resulted in
increased deposits of approximately $32.0 million. These deposits were used
to fund loans as the Company's growth strategy continued, with the remainder
placed in investment securities. Deployment of purchased deposits into loans,
the highest yielding interest-earning assets, takes a significant period of
time to complete. This time lag of deployment of assets from the branch
purchase also contributed to the decreases in net interest margin for 1997
and 1998. Interest income on loans increased $3.7 million, or 19.04%,
primarily due to increased loan volume in 1998. For 1998, the average balance
of loans increased by $44.3 million or 22.05%. Interest income on loans in
1998 was negatively impacted by a 0.24% decrease in the yield earned on
loans, 9.46% in 1998 compared to 9.70% in 1997. Tax equivalent interest
income on investment securities increased $2.1 million, or 31.78%, primarily
due to increased volume in 1998. For 1998, the average combined investment
balances increased by $36.0 million or 35.36%.
Total interest expense was $16.6 million for 1998 compared to $12.9 million
for 1997, representing a 28.60% increase. Interest expense on savings and
interest-bearing checking increased $697,000, or 21.91%, primarily as a
result of an increase in the balance of these deposits of $25.2 million, or
24.80% in 1998 compared to 1997. Interest expense on time deposits increased
$2.3 million, or 26.89%, primarily as a result of an increase in the average
balance of these deposits of $44.9 million, or 29.30% in 1998. Interest
expense on notes payable increased $714,000, or 136.26%, primarily as a
result of an increase in the average balance of these borrowings of $11.2
million, or 153.86% in 1998 compared to 1997. Additional borrowings in 1998
were necessary to fund the acquisition of the branch noted above, meet $1.4
million of payments associated with repurchase obligations under its ESOP and
redeem $937,000 of mandatory equity replacement notes.
As a result of the changes described above, the net interest income on a tax
equivalent basis increased $2.2 million, or 16.01% for 1998 compared to 1997.
22
<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
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>
---------------------------------------------- ---------------------------------------------
Year Ended December 31, 1999 Year Ended December 31, 1998
Compared To Compared To
Year Ended December 31, 1998 Year Ended December 31, 1997
---------------------------------------------- --------------------------------------------
Increase (Decrease) Due To: Increase (Decrease) Due To:
---------------------------------------------- --------------------------------------------
Volume / Volume /
Volume Rate Rate Net Volume Rate Rate Net
------ ---- ---- --- ------ ---- ---- ---
INTEREST INCOME: (In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable, net (1) (2) (3) $2,146 ($1,377) $ (127) $ 642 $ 4,294 $ (480) $ (106) $ 3,708
Investment securities-taxable 18 304 1 323 1,897 (169) (59) 1,669
Investment securities-nontaxable (4) 311 (225) (40) 46 484 (14) (6) 464
Federal funds sold and
interest-bearing deposits (17) 75 (2) 56 70 (31) (5) 34
------ ------- ------ ------ ------- ------ ------ -------
TOTAL INTEREST INCOME 2,458 (1,223) (168) 1,068 6,745 (694) (176) 5,875
INTEREST EXPENSE:
Savings deposits and interest bearing
checking 177 (181) (8) (12) 790 (69) (17) 704
Time deposits 536 (548) (27) (39) 2,522 (165) (48) 2,309
Federal funds purchased and
securities sold under agreements
to repurchase (6) (33) 1 (38) (36) (6) 1 (41)
Notes Payable & FHLB Advances 437 (73) (25) 339 806 (36) (56) 714
------ ------- ------ ------ ------- ------ ------ -------
TOTAL INTEREST EXPENSE 1,144 (835) (59) 250 4,082 (276) (120) 3,686
NET CHANGE IN NET INTEREST INCOME $1,314 $ (388) $(109) $ 818 $2,663 $(418) $ (56) $ 2,189
------ ------- ------ ------ ------- ------ ------ -------
</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
twelve months ended December 31, 1999 - $903,000, 1998 - $974,000
and 1997 - $905,000
(4) Yield is adjusted for the tax effect of tax exempt securities.
The tax effects for the twelve months ended December 31, 1999 - $603,000,
1998 -$584,000 and 1997 - $426,000.
OTHER INCOME
The following table sets forth the Company's other income for the indicated
periods.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service Charges $ 2,352 $ 2,039 $ 1,670
Trust Fees 597 454 408
Gain on sale of mortgage loans 413 664 268
Gain on sales of investment securities 1 18 2
Mortgage servicing fees 315 267 239
Credit card fees 126 148 147
ATM and debit card fees 168 145 70
Other 611 871 475
------- ------- -------
Total Other Income $ 4,583 $ 4,606 $ 3,279
======= ======= =======
</TABLE>
23
<PAGE>
Other income was $4.6 million for 1999, a $23,000 decrease from 1998. In
1999, service charges increased $313,000, trust fees increased $143,000, and
mortgage servicing fees increased $48,000 as a result of an additional volume
of accounts. Gain on sale of mortgage loans decreased $251,000 from 1998 as
the Company originated fewer fixed rate residential loans and more adjustable
rate residential loans due to the rising rate environment during 1999. The
Company typically sells fixed rate residential loans with servicing retained
to the secondary market generating a gain on the sale and maintains variable
rate residential loans as held for portfolio.
Other income was $4.6 million for 1998 compared to $3.3 million for 1997,
representing a 40.47% increase. In 1998, service charges increased $369,000
and trust fees increased $46,000 in 1998 as a result of a larger customer
base. Gain on sale of mortgage loans increased $396,000 in 1998 as a result
of the lower rate environment, which generated significant refinancings.
OTHER EXPENSES
The following table presents the Company's operating expenses for the
indicated periods:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1999 1998 1997
--------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
Salaries and employee benefits $ 7,654 $ 7,835 $ 6,419
Occupancy and equipment 1,782 1,805 1,668
Data processing 1,494 1,265 1,033
Professional fees 596 645 519
Marketing 291 479 395
Supplies 251 320 264
Goodwill amortization 453 405 140
Conversion 151 - -
Other 2,799 2,630 2,229
-------- -------- --------
Total Other Expenses $ 15,471 $ 15,384 $ 12,667
======== ======== ========
</TABLE>
Other expenses were $15.5 million for 1999 compared to $15.4 million for
1998. The slight increase is attributable to an emphasis by management to
control expenses. Salaries and benefits expense, which represents 49% of
total other expenses decreased 2.3% or $181,000, from 1998. Data processing
fees increased $229,000 from $1.3 million in 1998 to $1.5 million in 1999 due
to the additional volume of accounts in conjunction with the Company's growth.
Goodwill amortization increased $48,000 or 11.8% from 1998 primarily as a
result of amortization of goodwill established by premiums paid on branch and
bank acquisitions in the fourth quarter of 1999, early 1998, and the latter
part of 1997. Recent acquisitions of the Company 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
$9.3 million at December 31, 1999.
Conversion expense of $151,000 was the result of system conversion of one of
the Company's banks from an independent data processing service provider to
the Company's data processing service provider in order to increase future
operating efficiencies.
Other expenses were $15.4 million for 1998 compared to $12.7 million for
1997, representing a 21.45% increase. The increase was attributable to an
increase in salaries and employee benefits of $1.4 million resulting from
employees who were retained in acquisitions and new employees hired in
connection with a branch opening. Amortization of intangibles was $405,000
for 1998, an increase of $265,000 or 189%, compared to 1997.
24
<PAGE>
INCOME TAX EXPENSE
The Company recorded income tax expense of $1.1 million for 1999, versus an
income tax expense of $673,000 for 1998, representing an increase of 66.42%.
The Company's effective tax rate increased to approximately 26% for 1999, up
from approximately 22% 1998. The Company's effective tax rate is less than
the statutory federal rate of 34% due primarily to municipal interest income
and the income tax benefit resulting from dividends paid to the ESOP. Under
the Internal Revenue Code, the Company can deduct dividends paid to its ESOP
under limited circumstances. In conjunction with the Company's initial public
offering of stock on June 15 of this fiscal year, the ESOP issued 300,000
shares to pay off debt held in the ESOP. As a result, the Company no longer
qualifies for the tax treatment under this tax code and its tax rate has
increased.
Income tax expense for 1998 was up 21.70% from 1997. The effective tax rate
for 1997 was 20%.
COMPREHENSIVE INCOME
Comprehensive income is the total of net income and other comprehensive
income. The Company's other comprehensive income component is composed of the
change in equity resulting from a decrease in the market value of the
Company's available for sale investment securities, due to the increase in
interest rates. Comprehensive income was $614,000 for 1999, down $1.9 million
from $2.6 million in 1998. The decrease was primarily the result of $2.8
million decrease in other comprehensive income. For 1998, comprehensive
income increased $57,000 from $2.5 million in 1997 to $2.6 million in 1998.
The increase was primarily the result of an increase in net income for 1998
of $130,000.
ANALYSIS OF FINANCIAL CONDITION
OVERVIEW
The Company reported total assets of $518.2 million at December 31, 1999, an
increase of 17% from $442.4 million at December 31, 1998. Average assets rose
$31.2 million, or 7%, to $452.5 million during the year. This increase
primarily reflects strong loan growth during the year, which was funded by
investment securities, time deposits, and federal funds purchased.
LOAN PORTFOLIO COMPOSITION
The following tables present the composition of the Company's loan portfolio
by type of loan at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------
Principal Percent Principal Percent Principal Percent
Balance of Total Balance of Total Balance of Total
--------- -------- --------- --------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate
One to four family $103,772 34% $ 85,093 33% $ 74,049 33%
Construction and land development 20,350 7% 14,411 6% 12,292 5%
Other 43,245 14% 25,809 10% 26,816 12%
-------- ---- -------- ---- -------- ----
Total 167,367 54% 125,313 49% 113,157 51%
Commercial 94,711 31% 95,155 37% 75,679 34%
Installment and other 47,536 15% 35,975 14% 35,154 16%
-------- ---- -------- ---- -------- ----
Gross Loans 309,614 100% 256,443 100% 223,990 100%
Less unearned fees 359 317 315
-------- -------- --------
Total loans receivable 309,255 256,126 223,675
Less allowance for loan losses 3,320 2,541 1,629
-------- -------- --------
Total net loans receivable $305,935 $253,585 $222,046
======== ======== ========
<CAPTION>
December 31,
------------------------------------------------
1996 1995
------------------------------------------------
Principal Percent Principal Percent
Balance of Total Balance of Total
--------- -------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Loans secured by real estate
One to four family $ 63,575 35% $ 57,618 36%
Construction and land development 9,608 5% 6,265 4%
Other 20,655 11% 20,576 13%
-------- --- -------- --
Total 93,838 51% 84,459 52%
Commercial 57,709 31% 47,728 30%
Installment and other 32,274 18% 29,585 18%
-------- --- -------- --
Gross Loans 183,821 100% 161,772 100%
Less unearned fees 327 280
-------- --------
Total loans receivable 183,494 161,492
Less allowance for loan losses 1,518 1,289
-------- --------
Total net loans receivable $181,976 $160,203
======== ========
</TABLE>
25
<PAGE>
As of December 31, 1999, total loans receivable were $309.3 million compared
to $256.1 million at December 31, 1998, representing an increase of $53.1
million. This increase consists of $26.6 million in internal growth in loans
and $26.5 million from the acquisition of ComBankshares, Inc. in the fourth
quarter of 1999. The internal growth for the year resulted primarily from an
increase in variable rate residential mortgage loans. Total loans receivable
at December 31, 1998 increased by $32.4 million compared to total loans
receivable of $223.7 million at December 31, 1997. The increase resulted
primarily from internal growth, and was funded through an increase in
deposits associated with the acquisition of a NationsBank branch in the first
quarter of 1998.
Real estate mortgage loans represent the largest type of loans of the
Company. At December 31, 1999, these loans of $167.4 million increased 33.56%
from $125.3 million at December 31, 1998. These loans at December 31, 1998
increased by $12.1 million, or 10.74%, compared to real estate mortgage loans
of $113.2 million at December 31, 1997. Included in real estate mortgage
loans are 1 to 4 family residential loans with a balance of $103.8 million at
December 31, 1999. Substantially all of these loans were originated in the
Company's market area. Additionally, included in real estate mortgage loans
are real estate mortgage loans held for sale. The Company will typically sell
fixed rate mortgage loans to permanent investors with the servicing rights
retained. Capitalized servicing rights are recorded at the time the loan is
sold, thereby increasing the gain on sale by such amount. At December 31,
1999 the balance of real estate mortgages held for sale was $1.4 million.
Real estate construction loans consist primarily of single-family
construction in the Company's primary market areas. The balance of these
loans was $20.4 million at December 31, 1999 compared to $14.4 million at
December 31, 1998. The Company recently has experienced steady growth in its
markets increasing in each of the last five years to $20.4 million at
December 31, 1999 from $6.3 million at December 31, 1995.
Commercial loans include loans to service, retail, wholesale, and light
manufacturing businesses. At December 31, 1999, commercial loans, excluding
agricultural and lease financial receivables, were $62.7 million compared to
$67.1 million at December 31, 1998, and $55.4 million at December 31, 1997.
Included within commercial loans are agricultural loans to farmers for
production and other agricultural needs. At December 31, 1999, agricultural
loans were $24.3 million compared to $25.0 million at December 31, 1998, and
$19.6 million at December 31, 1997, reflecting an overall increase of 23.98%.
Installment and other loans include automobile, residential, and other
personal loans. The majority of these loans are installment loans with fixed
interest rates. Although increasing in dollar amount, installment and other
loans have been decreasing as a percentage of total loans over the past
several years at the Company places more emphasis on growing the real estate
and commercial portion of their loan portfolio. The slight increase in the
mix of installment loans at December 31, 1999 was the result of the fourth
quarter acquisition of ComBankshares, Inc. The Company also has a small
portfolio of credit card loans.
The Company believes that its philosophy in extending credit is relatively
conservative in nature, with a presumption that most credit should have both
a primary and secondary source of repayment, and that the primary source
should generally be operating cash flows, while the secondary source should
generally be collateral or guarantees of principals, for business
obligations. The Company's lending policy requires both loan officer and loan
committee approval for significant credits.
At December 31, 1999 total net loans receivable totaled 70.31% of total
deposits and 59.04% of total assets.
26
<PAGE>
LOAN MATURITIES
The following tables present, at December 31, 1999 and 1998, loans by
maturity in each major category of the Company's portfolio based on
contractual repricing schedules. Actual maturities may differ from the
contractual repricing maturities shown below as a result of renewals and
prepayments. Loan renewals are re-evaluated using substantially the same
credit procedures that are used when loans are made.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------
Over one year
through five years Over five years
One year ---------------------------- ----------------------------
or less Fixed Rate Floating Rate Fixed Rate Floating Rate Total
-------- ---------- ------------- ---------- ------------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate
One to four family $ 30,055 $ 4,075 $ 25,328 $ 27,853 $ 16,461 $ 103,772
Construction and land development 18,649 1,075 606 - 21 20,350
Other 22,554 7,266 4,742 7,151 1,531 43,245
-------- -------- ----------- --------- ---------- ---------
Total 71,258 12,416 30,676 35,004 18,013 167,367
Commercial and industrial 51,042 17,388 13,359 3,338 1,815 86,942
Lease financing receivables 4,561 1,554 1,194 298 162 7,769
Installment and other 11,485 33,441 287 2,295 29 47,536
-------- -------- ----------- --------- ---------- ---------
Gross Loans 138,346 64,799 45,516 40,935 20,019 309,614
Less unearned fees 52 83 177 24 23 359
-------- -------- ----------- --------- ---------- ---------
Total loans receivable $138,294 $ 64,716 $ 45,339 $ 40,910 $ 19,996 $ 309,255
======== ======== =========== ========= ========== =========
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------
Over one year
through five years Over five years
One year ---------------------------- ----------------------------
or less Fixed Rate Floating Rate Fixed Rate Floating Rate Total
-------- ---------- ------------- ---------- ------------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate
One to four family $ 24,323 $ 4,497 $ 21,325 $ 23,310 $ 11,638 $ 85,093
Construction and land development 13,402 768 155 86 - 14,411
Other 11,641 3,215 5,751 4,077 1,125 25,809
-------- -------- ----------- --------- ---------- ---------
Total 49,366 8,480 27,231 27,473 12,763 125,313
Commercial and industrial 59,865 17,743 11,309 5,061 500 94,478
Lease financing receivables - - - - - -
Installment and other 9,499 25,662 233 1,198 60 36,652
-------- -------- ----------- --------- ---------- ---------
Gross Loans 118,730 51,885 38,773 33,732 13,323 256,443
Less unearned fees 42 75 152 25 23 317
-------- -------- ----------- --------- ---------- ---------
Total loans receivable $118,688 $ 51,810 $ 38,621 $ 33,707 $ 13,300 $ 256,126
======== ======== =========== ========= ========== =========
</TABLE>
27
<PAGE>
NONPERFORMING LOANS
Nonperforming loans consist of loans 90 days or more delinquent and still
accruing interest, nonaccrual loans, and restructured loans. When, in the
opinion of management, a reasonable doubt exists as to the collectibility of
interest, regardless of the delinquency status of a loan, the accrual of
interest income is discontinued and any interest accrued to date is reversed
through a charge to income. While a loan is on nonaccrual status, it is the
Company's policy that interest income is recognized only after payment in
full of principal. Generally, management places loans which are greater that
90 days past due on nonaccrual. At December 31, 1999 and 1998, the Company
had an insignificant amount of restructured loans.
The following table presents information concerning the nonperforming assets
of the Company at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,792 $ 2,241 $ 1,078 $ 1,652 $ 1,458
Loans 90 days past due and
still accruing 621 431 517 236 232
------- ------- ------- ------- -------
Nonperforming loans 2,413 2,672 1,595 1,888 1,690
Other real estate owned 792 906 367 327 513
------- ------- ------- ------- -------
Total nonperforming assets $ 3,205 $ 3,578 $ 1,962 $ 2,215 $ 2,203
======= ======= ======= ======= =======
Nonperforming loans as a
percentage of total loans 0.78% 1.04% 0.71% 1.03% 1.05%
Nonperforming loans as a
percentage of total assets 0.62% 0.81% 0.51% 0.74% 0.85%
</TABLE>
Total nonperforming assets totaled $3.2 million at December 31, 1999 compared
to $3.6 million at December 31, 1998, representing a decrease of 10.4%. Other
real estate owned at December 31, 1999 consisted of 18 properties held by the
Company's subsidiary banks. One property with an aggregate book value of
$158,000 represents a commercial real estate lot foreclosed in 1998. Three
properties represent commercial properties with a book value of $307,000.
Management is not aware of any adverse trend relating to the Company's loan
portfolio.
As of December 31, 1999 and 1998, there were no significant balance of loans
excluded from nonperforming loans set forth above, where known information
about possible credit problems of borrowers caused management to have serious
doubts as to the ability of such borrowers to comply with the present loans
repayment terms and which may resulting in such loans becoming nonperforming.
ALLOWANCE FOR LOAN LOSSES
Management maintains its allowance for loan 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 assumption and judgments about
the ultimate collectibility of the loan portfolio and provides an allowance
for potential loan losses based upon a percentage of the outstanding balances
and for specific loans if their ultimate collectibility is considered
questionable. Since certain lending activities involve greater risks, the
percentage applied to specific loan types may vary. The allowance is
increased by provisions for loan losses and reduced by loans charged off, net
of recoveries.
28
<PAGE>
The following table sets forth information regarding changes in the allowance
for loan losses of the Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Average total loans $267,695 $245,012 $200,747 $165,725 $158,958
Total loans at end of period $309,255 $256,126 $223,675 $183,494 $161,492
Allowance at beginning of year $ 2,541 $ 1,629 $ 1,518 $ 1,289 $ 1,199
Loans charged off:
Real Estate:
One to four family (20) (14) (6) (8) (9)
Construction - - - - -
Other - - - - -
Commercial (198) (169) (655) (316) (72)
Lease financing receivables (19) - - - -
Installment and other (542) (540) (481) (371) (199)
-------- -------- -------- -------- --------
Total charge-offs (779) (723) (1,142) (695) (280)
Recoveries
Real Estate:
One to four family 23 1 - - 9
Construction - - - - -
Other - - - 9 -
Commercial 38 28 59 49 46
Lease financing receivables 1 - - - -
Installment and other 161 120 99 92 70
-------- -------- -------- -------- --------
Total recoveries 223 149 158 150 125
Net (charge-offs) recoveries (556) (574) (984) (545) (155)
Provision for loan losses 902 1,486 1,095 623 245
Allowance of acquired bank 433 - - 151 -
-------- -------- -------- -------- --------
Allowance at end of period $ 3,320 $ 2,541 $ 1,629 $ 1,518 $ 1,289
======== ======== ======== ======== ========
Ratio of net charge-offs to
average total loans (0.21)% (0.23)% (0.49)% (0.33)% (0.10)%
Allowance to total loans at
end of period 1.07% 0.99% 0.73% 0.83% 0.80%
Allowance to nonperfoming loans 137.59% 95.10% 102.13% 80.36% 73.83%
</TABLE>
The allowance for loan losses has increased steadily over the last five years
due to the Company's growth in its loan portfolio as well as to increase the
loan coverage ratios as a percent of total loans. Management's philosophy is
to maintain loan loss reserves at or near 1.00% of total loans. The allowance
for loans losses at December 31, 1999 was $3.3 million compared to $2.5
million for 1998, $1.6 million for 1997, $1.5 million for 1996, and $1.3
million for 1995. The allowance for loan loss to total loans at December 31,
1999 increased to 1.07% primarily due to provisions taken for the Company's
internal loan growth, as well as an increase of $433,000 in allowances
obtained with the acquisition of ComBankshares, Inc. in the fourth quarter of
1999.
Net charge-offs were $556,000 for the year ended 1999, compared to $574,000
for 1998, $984,000 for 1997, $545,000 for 1996, and $155,000 for 1995.
Charge-offs were higher in 1997 as a result of a large commercial loan
customer which filed for bankruptcy. As a result, charge-offs of $557,000
were recognized on this loan.
The Company's lending personnel are responsible for continuous monitoring of
the loan portfolio. Additionally, since 1997, the Company has retained an
independent loan review company, which reviews the loan portfolio on a
quarterly basis to determine compliance with loan policy, including the
appropriateness of risk ratings assigned to individual loans, as well as the
allowance for loan losses. The allowance for loan losses is based primarily
on management's estimates of possible loan losses from the foregoing
processes and historical experience. The Company's loan portfolio is also
subject to periodic examination by regulatory agencies. These agencies may
require charge-offs or additions to the allowance based upon their judgments
about information available at the time of their examination.
29
<PAGE>
The following tables present an allocation of the allowance for loan losses
by loan category as of the dates indicated. The allocation tables should not
be interpreted as an indication of the specific amounts, by loan
classification, to be charged to the allowance. Management believes that the
table may be a useful device for assessing the adequacy of the allowances as
a whole. The table has been derived in part by applying historical loan loss
ratios to both internally classified loans and the portfolio as a whole to
determine the allocation of the loan losses attributable to each category of
loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- ---------------------------
Loans in Loans in Loans in
Category Category Category
as of as of as of
Amount Percentage Amount Percentage Amount Percentage
of Gross of Total of Gross of Total of Gross of Total
Allowance Loans Allowance Loans Allowance Loans
--------- ---------- --------- ---------- --------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate
One to four family $ 250 33.6% $ 213 33.2% $ 185 33.1%
Construction and
land development 16 6.6% 36 5.6% 31 5.5%
Other 85 14.0% 65 10.2% 67 12.1%
Commercial and industrial 1,012 28.1% 945 36.8% 750 33.5%
Lease financing receivables 50 2.5% - - - -
Installment and other 836 15.2% 550 14.2% 537 15.8%
Unallocated 1,071 - 732 - 59 -
------- ----- ------- ----- ------- ------
$ 3,320 100.0% $ 2,541 100.0% $ 1,629 100.0%
======= ===== ======= ===== ======= ======
<CAPTION>
December 31,
--------------------------------------------------
1996 1995
---------------------- -----------------------
Loans in Loans in
Category Category
as of as of
Amount Percentage Amount Percentage
of Gross of Total of Gross of Total
Allowance Loans Allowance Loans
--------- ---------- --------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Loans secured by real estate
One to four family $ 159 34.7% $ 144 35.7%
Construction and
land development 24 5.2% 16 3.9%
Other 52 11.3% 31 12.6%
Commercial and industrial 577 31.3% 477 29.3%
Lease financing receivables - - - -
Installment and other 484 17.5% 444 18.3%
Unallocated 222 - 157 -
------- ----- ------- -----
$ 1,518 100.0% $ 1,289 100.0%
======= ===== ======= =====
</TABLE>
The provision for loan losses takes into account many factors such as the
Company's prior experience with loan losses and an evaluation of the risks in
the loan portfolio at any given time, including changes in economic,
operating, and other conditions of borrowers, the economies in the Company's
areas of operations and to a lesser extent, the national economy. This is a
good faith estimate only and is subject to several factors beyond the control
of the Company.
INVESTMENTS
The Company invests a portion of its available funds in short-term and
long-term instruments, including federal funds sold and investment
securities. The Company's investment portfolio is designed to provide
liquidity for cash-flow requirements, to assist in managing interest rate
risk, and to provide collateral for certain public deposits and other
borrowing arrangements. At December 31, 1999, 1998, and 1997, the investment
portfolio was comprised principally of obligations of U.S. Government or its
agencies, obligations of states and political subdivisions, and
mortgage-backed securities.
The following table presents the Company's investments in certain securities
accounted for as available for sale and held to maturity. "Other" investments
is comprised of Federal Home Loan Bank stock, Federal Reserve Bank stock,
mutual funds, and certain equity securities, all of which carry no stated
maturity.
30
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------- --------------
Securities available for sale: (In Thousands)
<S> <C> <C>
U.S. Treasury Securities and government agencies $ 58,012 $ 43,172
Obligations of state and political subdivisions 2,828 2,471
Mortgage-backed securities 70,592 59,785
Other 5,469 3,868
--------- ---------
Total available for sale securities 136,901 109,296
--------- ---------
Securities held to maturity:
U.S. Treasury Securities and government agencies 2,300 3,925
Obligations of state and political subdivisions 22,580 21,817
Other 750 -
--------- ---------
Total held to maturity securities 25,630 25,742
--------- ---------
Total Investment securities $ 162,531 $ 135,038
========= =========
</TABLE>
At December 31, 1999 and 1998, the investment portfolio did not contain
investments which were considered to be derivatives, structured notes or
similar instruments that are classified as "High-Risk Securities" as defined
by the Federal Financial Institutions Examinations Council.
The following tables set forth a summary of the maturities in the investment
portfolio at December 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------
Over one year Over five years
through through
One year or less five years ten years
---------------- ------------------- -------------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 11,230 6.65% $ 32,278 6.14% $ 14,508 6.73%
Obligations of states and political
subdivisions 4,795 8.13% 11,609 7.63% 3,961 7.32%
Mortgage-backed securities 12,138 6.50% 33,498 6.43% 10,993 7.01%
Other (1) 4,964 - - - - -
-------- -------- --------
$ 33,128 $ 77,385 $ 29,462
======== ======== ========
<CAPTION>
December 31, 1999
------------------------------------------
Over ten years Total
---------------- -------------------
Amount Yield Amount Yield
------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and agencies $ 3,551 6.72% $ 61,568 6.24%
Obligations of states and political
subdivisions 5,043 7.42% 25,408 7.46%
Mortgage-backed securities 13,962 6.47% 70,591 6.69%
Other (1) - - 4,964 -
------- --------
$22,556 $162,531
======= ========
</TABLE>
(1) Other securities consist principally of Federal Home Loan Bank stock,
Federal Reserve Bank stock, and mutual funds which have no stated maturity.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------
Over one year Over five years
through through
One year or less five years ten years
---------------- ------------------- -------------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 14,297 6.35% $ 30,895 6.23% $ 1,412 5.73%
Obligations of states and political
subdivisions 1,219 7.62% 7,472 7.47% 9,714 7.40%
Mortgage-backed securities 28,029 5.95% 23,719 6.16% 6,502 6.10%
Other (1) 3,868 - - - - -
-------- -------- --------
$ 47,413 $ 62,086 $ 17,628
======== ======== ========
<CAPTION>
December 31, 1998
------------------------------------------
Over ten years Total
---------------- -------------------
Amount Yield Amount Yield
------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and agencies $ 493 5.96% $ 47,097 6.25%
Obligations of states and political
subdivisions 5,883 7.41% 24,288 7.43%
Mortgage-backed securities 1,535 5.73% 59,785 6.04%
Other (1) - - 3,868 -
------- --------
$ 7,911 $135,038
======= ========
</TABLE>
(1) Other securities consist principally of Federal Home Loan Bank stock,
Federal Reserve Bank stock, and mutual funds which have no stated maturity.
31
<PAGE>
DEPOSITS
The Company's primary source of funds has historically been customer
deposits, which totaled $435.1 million at December 31, 1999, a $50.8 million
increase from December 31, 1998. Deposits increased to $384.3 million at
December 31, 1998 from $333.9 at December 31, 1997 primarily due to branch
acquisitions.
The following table sets forth the average balances and weighted average
rates for the Company's categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- ----------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
(Dollars In Thousand)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand $ 42,706 0.00% $ 39,707 0.00% $ 32,493 0.00%
Interest-bearing demand 112,258 2.99% 107,412 3.12% 85,065 3.18%
Savings 20,486 2.64% 19,551 2.68% 16,669 2.84%
Time 207,731 5.24% 198,006 5.52% 153,135 5.62%
-------- -------- -------
Total $383,180 $364,676 $287,362
======== ======== ========
</TABLE>
The following table summarizes at December 31, 1999 and December 31, 1998,
the Company's certificates of deposit of $100,000 or more by time remaining
until maturity.
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
REMAINING MATURITY
Less than three months $28,764 $19,911
Three months up to six months 17,379 9,650
Six months up to one year 14,220 8,834
One year and over 10,996 7,073
------- -------
Total $71,359 $45,468
======= =======
</TABLE>
FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK BORROWINGS
The subsidiary banks are members of the Federal Home Loan Bank of Topeka
(FHLB), which is one of 12 regional Federal Home Loan Banks. The FHLB system
functions as a central bank providing credit for members. As members of the
FHLB, the Company's subsidiary banks are entitled to borrow funds from the
FHLB and are required to own FHLB stock in an amount determined by a formula
based upon total assets and FHLB borrowings. The Company's subsidiary banks
may use FHLB borrowings to supplement deposits as a source of funds. At
December 31, 1999, FHLB borrowings aggregated $24.1 million, compared to $9.2
million at December 31, 1998, and $2.6 million at December 31, 1997. At
December 31, 1999, based on its FHLB stockholdings, the aggregate available
and unused borrowing capacity of the Company's subsidiary banks was
approximately $67.9 million, which was available through a line of credit an
term advances. FHLB borrowings are collateralized by FHLB stock and certain
qualifying mortgage loans of the Company's subsidiary banks.
A variety of borrowing terms and maturities can be chosen from the FHLB.
Maturities available range generally from one day up to 15 years. Interest
rates can be either fixed or variable and prepayment options are available if
desired. The FHLB offers both amortizing and non-amortizing advances. To
date, FHLB stock has been redeemable at the preset price of $100 per share,
but there can be no assurance that this policy will continue.
Two of the Company's banks, TeamBank, N.A. and First National Bank and Trust
Co., are member banks of the Federal Reserve Bank of Kansas City and may use
the Federal Reserve Bank discount window to meet short-term
32
<PAGE>
funding needs. These loans are available on a secured basis. Generally the
banks pledge U.S. Government or qualifying municipal securities for these
notes. None of the Company's subsidiary banks have utilized short-term
Federal Reserve Bank borrowings for over five years.
CAPITAL RESOURCES
The Company monitors compliance with bank and bank holding company regulatory
capital requirements, focusing primarily on risk-based guidelines. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent upon the amount and composition of assets recorded on the balance
sheet, and the amount and composition of off-balance sheet items, in addition
to the level of capital. Included in the risk-based capital method are two
measures of capital adequacy, core capital and total capital, which consists
of core and secondary capital. Core capital, also known as Tier 1 capital,
generally includes common shareholders' equity, perpetual preferred stock and
minority interests in consolidated subsidiaries, less goodwill and intangible
assets. No more than 25% of core capital elements may consist of cumulative
preferred stock. Total risk based capital, also known as Tier 2 capital,
generally includes the allowance for loan losses limited to 1.25% of weighted
risk assets, certain forms of perpetual preferred stock, as well as hybrid
capital instruments.
The following tables present the Company's capital ratios as of the indicated
dates.
<TABLE>
<CAPTION>
Risk Based Capital Ratios
--------------------------------------------------------------------
At December 31,
--------------------------------------------------------------------
1999 1998 1997
------------------ ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Core capital $ 30,133 9.45% $18,936 7.05% $ 17,823 6.97%
Core capital minimum requirement (1) 12,756 4.00% 10,737 4.00% 10,224 4.00%
-------- ------ -------- ------ -------- -------
Excess $17,377 5.45% $ 8,199 3.05% $ 7,599 2.97%
======== ====== ======== ====== ======== =======
Total risk based capital 33,453 10.49% 21,477 8.00% 19,452 7.61%
Total risk based capital requirement 25,512 8.00% 21,474 8.00% 20,450 8.00%
-------- ------ -------- ------ --------- -------
Excess (deficit) $ 7,941 2.49% $ 3 0.00% $ (998) (0.39)%
======== ====== ======== ====== ========= =======
Total risk adjusted assets $318,896 $260,433 $255,621
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Leverage Ratios
--------------------------------------------------------------------
At December 31,
--------------------------------------------------------------------
1999 1998 1997
------------------ ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Core capital $ 30,133 5.94% $18,936 4.50% $ 17,823 5.39%
Core capital minimum requirement (2) 20,283 4.00% 16,847 4.00% 13,235 4.00%
-------- ------ -------- ------ --------- -------
Excess $ 9,850 1.94% $ 2,089 0.50% $ 4,588 1.39%
======== ====== ======== ====== ========= =======
Average total assets $507,069 $421,184 $330,884
======== ======== =========
</TABLE>
(1) Based on risk-based capital guidelines of the Federal Reserve, a bank
holding company is required to maintain a core capital to risk-adjusted
assets ratio of 4% and a total capital, risk-based, to risk- adjusted
assets ratio of 8%.
(2) The leverage ratio is defined as the ratio of core capital to average
tangible assets. Based on Federal Reserve guidelines, a bank holding
company generally is required to maintain a leverage ratio in excess of
4%.
33
<PAGE>
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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 December 31, 1999 and December 31, 1998 these liquid assets
totaled $159.4 million and $141.2 million, respectively. Management believes
the Company's sources of liquidity are adequate to meet expected cash needs
for the foreseeable future.
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 Company monitors
its assets and liability mix monthly in an effort to maintain consistent
earnings performance through control of interest rate risk.
Below is a static gap schedule for the Company as of December 31, 1999. This
is just one of several tools which may be used to measure and manage interest
rate sensitivity. Earning assets and interest-bearing liabilities are
presented below within selected time intervals based on their repricing and
maturity characteristics. In this view, the sensitivity position is perfectly
matched when an equal amount of assets and liabilities reprice during any
given time period. Excess assets or liabilities repricing in a given time
period results in the interest rate gap shown in the table. A positive gap
indicates more assets than liabilities will reprice in that time period,
while a negative gap indicates more liabilities than assets will reprice.
34
<PAGE>
<TABLE>
<CAPTION>
STATIC GAP ANALYSIS AT DECEMBER 31, 1999
---------------------------------------------------------------------
Three months
Less than to less than One to Over
Three Months One Year Five Years Five Years Total
------------ ------------- ---------- ---------- -----
Interest Earning Assets: (Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net of unearned income $ 52,220 $ 87,767 $ 87,410 $ 81,858 $309,255
Investment securities available for sale 5,873 22,030 64,815 44,182 136,901
Investment securities held to maturity 651 660 8,899 15,420 25,630
Federal funds sold and interest bearing deposits 2,690 94 313 - 3,097
Other interest earning assets 1,953 - - - 1,953
-------- -------- --------- -------- --------
Total interest earning assets 63,387 110,551 161,437 141,460 476,835
-------- -------- --------- -------- --------
Interest Bearing Liabilities:
Savings deposits and interest-bearing checking 147,174 - - - 147,174
Time deposits under $100,000 35,058 89,234 45,905 121 170,318
Time deposits over $100,000 28,764 31,599 10,090 906 71,359
Federal funds purchased and securities
sold under agreements to repurchase 8,501 726 - - 9,227
Federal Home Loan Bank Advances - 2,426 16,629 5,000 24,055
Notes Payable 9,924 - - - 9,924
-------- -------- --------- -------- --------
Total interest bearing liabilities 229,421 123,985 72,624 6,027 432,057
-------- -------- --------- -------- --------
Periodic Repricing Gap (166,034) (13,434) 88,813 135,433 44,778
Cumulative Repricing Gap (166,034) (179,468) (90,655) 44,778
Periodic Repricing Gap as a percent
of interest earning assets (261.94)% (12.15)% 55.01% 95.74%
Cumulative Repricing Gap as a percent
of interest earning assets (261.94)% (162.34)% (56.15)% 31.65%
</TABLE>
The table indicates that the Company is liability sensitive in the less than
three-month period and the three months to less than one-year period, and it
is asset sensitive for all other periods. This means that during the first
two period classifications, interest bearing liabilities reprice faster than
interest earning assets, thereby improving net interest income when rates are
falling and reducing net income when rates are rising. While the "static gap"
method is a widely used measure of interest sensitivity, it is not, in
management's opinion, the only indicator of the Company's rate sensitivity.
The following table indicates that at December 31, 1999, 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 $ 15,927 $(474) (2.89)%
100 basis point rise 16,092 (308) (1.88)
base rate scenario 16,401 - -
100 basis point decline 16,591 190 1.16
200 basis point decline 16,899 499 3.04
</TABLE>
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.
35
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report 37
Consolidated Statements of Financial Condition as of December 31, 1999 and 1998 38
Consolidated Statements of Operations for the
Fiscal Years Ended December 31, 1999, 1998, and 1997 39
Consolidated Statements of Comprehensive Income for the
Fiscal Years Ended December 31, 1999, 1998, and 1997 40
Consolidated Statements of Changes In Stockholders' Equity 41
Consolidated Statements of Cash Flows for the
Fiscal Years Ended December 31, 1999, 1998, and 1997 42
Notes to Consolidated Financial Statements 43
</TABLE>
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Team Financial, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Team Financial, Inc. and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, comprehensive
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit included examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Team
Financial, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Kansas City, Missouri
February 11, 2000
37
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 17,458 $ 27,397
Federal funds sold and interest bearing bank deposits 5,049 4,502
------------ ------------
Cash and cash equivalents 22,507 31,899
------------ ------------
Investment securities
Available for sale, at estimated fair value (amortized cost of $139,618 and
$108,385 at December 31, 1999 and December 31, 1998, respectively) 136,901 109,296
Held to maturity, at cost (estimated fair value of $25,135 and $26,621
at December 31, 1999 and December 31, 1998, respectively) 25,630 25,742
------------ ------------
Total investment securities 162,531 135,038
------------ ------------
Loans receivable, net of unearned fees 309,255 256,126
Allowance for loan and lease losses (3,320) (2,541)
------------ ------------
Net loans receivable 305,935 253,585
------------ ------------
Accrued interest receivable 4,911 4,102
Premises and equipment, net 9,770 8,560
Assets acquired through foreclosure 792 906
Goodwill, net of accumulated amortization 9,263 5,850
Other assets 2,496 2,412
------------ ------------
Total Assets $ 518,205 $ 442,352
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking Deposits $ 124,415 $ 117,901
Savings Deposits 22,135 20,266
Money Market Deposits 46,889 41,560
Certificates of Deposits 241,677 204,620
------------ ------------
Total Deposits 435,116 384,347
------------ ------------
Federal Funds purchased and securities sold
under agreements to repurchase 9,227 6,273
Federal Home Loan Bank Advances 24,055 9,160
Notes payable 9,924 13,900
Accrued expenses and other liabilities 2,314 3,271
------------ ------------
Total Liabilities 480,636 416,951
------------ ------------
Redeemable common stock held by ESOP, net of unearned compensation - 16,876
------------ ------------
Stockholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized, no shares issued -
Common stock, no par value, 50,000,000 shares authorized; 4,157,053 and
3,020,098 shares issued; 4,130,048 and 2,993,093 shares outstanding at
December 31, 1999 and December 31, 1998 25,268 13,980
Capital surplus 122 122
Retained Earnings 14,356 11,921
Treasury stock, 27,005 shares of common stock at cost (187) (187)
Accumulated other comprehensive income (1,990) 565
Unearned compensation - (1,000)
Less redeemable common stock held by ESOP, net of unearned compensation - (16,876)
------------ ------------
Total stockholders' equity 37,569 8,525
------------ ------------
Total liabilities and stockholders' equity $ 518,205 $ 442,352
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
38
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 23,825 $ 23,183 $ 19,475
Taxable investment securities 7,450 7,127 5,458
Nontaxable investment securities 1,160 1,133 827
Other 467 411 377
------------------ ------------------ ------------------
Total interest income 32,902 31,854 26,137
------------------ ------------------ ------------------
INTEREST EXPENSE:
Deposits
Checking Deposits 1,856 2,016 1,672
Savings Deposits 542 523 474
Money Market Deposits 1,480 1,351 1,040
Certificates of Deposits 10,878 10,917 8,608
Federal funds sold and securities sold
under agreements to repurchase 490 528 569
FHLB advances 892 300 156
Notes payable 685 938 368
------------------ ------------------ ------------------
Total interest expense 16,823 16,573 12,887
------------------ ------------------ ------------------
Net interest income before provision for loan losses 16,079 15,281 13,250
Provision for loan losses 902 1,486 1,095
------------------ ------------------ ------------------
Net interest income after provision for loan losses 15,177 13,795 12,155
------------------ ------------------ ------------------
OTHER INCOME:
Service charges 2,352 2,039 1,670
Trust fees 597 454 408
Gain on sales of mortgage loans 413 664 268
Gain on sales of investment securities 1 18 2
Other 1,220 1,431 931
------------------ ------------------ ------------------
Total other income 4,583 4,606 3,279
------------------ ------------------ ------------------
OTHER EXPENSES:
Salaries and employee benefits 7,654 7,835 6,419
Occupancy and equipment 1,782 1,805 1,668
Data processing 1,494 1,265 1,033
Professional fees 596 645 519
Marketing 291 479 395
Supplies 251 320 264
Goodwill amortization 453 405 140
Conversion 151 - -
Other 2,799 2,630 2,229
------------------ ------------------ ------------------
Total other expenses 15,471 15,384 12,667
------------------ ------------------ ------------------
Income before income taxes 4,289 3,017 2,767
Income taxes 1,120 673 553
------------------ ------------------ ------------------
Net income $ 3,169 $ 2,344 $ 2,214
================== ================== ==================
Shares applicable to basic and diluted income per share 3,403,478 2,765,632 2,645,300
------------------ ------------------ ------------------
Basic and diluted income per share $ 0.93 $ 0.85 $ 0.84
================== ================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Net Income $ 3,169 $ 2,344 $ 2,214
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities available for sale (2,554) 228 280
net of tax $(1,073), $126, and $169 in 1999, 1998, and 1997, respectively
Reclassification adjustment for gains included in net income
net of tax $0, $(4), and $0 in 1999, 1998, and 1997, respectively (1) (22) (1)
-------------- -------------- -------------
Other comprehensive income (2,555) 206 279
-------------- -------------- -------------
Comprehensive income $ 614 $ 2,550 $ 2,493
============== ============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED UNEARNED TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS COMPENSATION STOCK INCOME
-------- ---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 12,689 $ 122 $ 8,732 $ (1,746) $ (363) $ 80
Common stock issued in connection with
compensation plans (9,540 shares) 61 - - - - -
Common stock issued in connection with
private placement ( 115,265 shares) 1,084 - - - - -
Net Earnings - - 2,214 - - -
Dividends ($0.23 per share) - - (683) - - -
Principal payments on ESOP notes payable - - - 295 - -
Market value adjustment to redeemable
ESOP common stock - - - - - -
Other comprehensive income - - - - - 279
-------- ---------- -------- ------------ -------- -------------
BALANCE, December 31, 1997 13,834 - 10,263 (1,451) (363) 359
Common stock issued in connection with
compensation plans (20,273 shares) 146 - - - - -
Net Earnings - - 2,344 - - -
Dividends ($0.23 per share) - - (686) - - -
Treasury stock purchased (74,310 shares) - - - - (869) -
Treasury stock sold in connection with
private placement ( 31,995 shares) - 31 - - 343 -
Treasury stock sold in exchange
for notes payable (67,810 shares) - 91 - - 702 -
Principal payments on ESOP notes payable - - - 451 - -
Market value adjustment to redeemable
ESOP common stock - - - - - -
Other comprehensive income - - - - - 206
-------- ---------- -------- ------------ -------- -------------
BALANCE, December 31, 1998 13,980 122 11,921 (1,000) (187) 565
Issuance of common stock in connection with
initial public offering (850,000 shares) 8,331 - - 1,000 - -
Common stock issued in connection with
compensation plans (8,710 shares) 65 - - - - -
Common stock issued for acquisitions
(278,245 shares) 2,892 - - - - -
Net Earnings - - 3,169 - - -
Dividends ($0.20 per share) - - (734) - - -
Other comprehensive income - - - - - (2,555)
-------- ---------- -------- ------------ -------- -------------
BALANCE, December 31, 1999 $ 25,268 $ 122 $ 14,356 $ - $ (187) $ (1,990)
======== ========== ======== ============ ======== =============
</TABLE>
<TABLE>
<CAPTION>
LESS REDEEMABLE
COMMON STOCK
HELD BY EMPLOYEE
STOCK OWNERSHIP PLAN, TOTAL
NET OF UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
--------------------- -------------
<S> <C> <C>
BALANCE, December 31, 1996 $ (14,876) $ 4,516
Common stock issued in connection with
compensation plans (9,540 shares) - 61
Common stock issued in connection with
private placement ( 115,265 shares) - 1,084
Net Earnings - 2,214
Dividends ($0.23 per share) - 683
Principal payments on ESOP notes payable - 295
Market value adjustment to redeemable
ESOP common stock 3,267 3,267
Other comprehensive income - 279
--------------------- -------------
BALANCE, December 31, 1997 (18,143) 4,499
Common stock issued in connection with
compensation plans (20,273 shares) - 146
Net Earnings - 2,344
Dividends ($0.23 per share) - (686)
Treasury stock purchased (74,310 shares) - (869)
Treasury stock sold in connection with
private placement ( 31,995 shares) - 374
Treasury stock sold in exchange
for notes payable (67,810 shares) - 793
Principal payments on ESOP notes payable - 451
Market value adjustment to redeemable
ESOP common stock 1,267 1,267
Other comprehensive income - 206
--------------------- -------------
BALANCE, December 31, 1998 (16,876) 8,525
Issuance of common stock in connection with
initial public offering (850,000 shares) 16,876 26,207
Common stock issued in connection with
compensation plans (8,710 shares) - 65
Common stock issued for acquisitions
(278,245 shares) - 2,892
Net Earnings - 3,169
Dividends ($0.20 per share) - (734)
Other comprehensive income - (2,555)
--------------------- -------------
BALANCE, December 31, 1999 $ - $ 37,568
===================== =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
41
<PAGE>
TEAM FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,169 $ 2,344 $ 2,214
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 902 1,486 1,095
Depreciation and amortization 2,223 1,642 1,118
Allocation of ESOP shares - 451 295
Net gain on sales of investment securities (1) (18) (2)
Net gain on sales of mortgage loans (413) (664) (268)
Net gain (loss) on sales of assets acquired through
foreclosure 151 (4) (12)
Proceeds from sale of mortgage loans 37,107 49,024 20,212
Origination of mortgage loans for sale (33,270) (53,269) (20,119)
Net increase in other assets 569 (617) (938)
Net (decrease) increase in accrued expenses and other liabilities (156) (148) 40
------------ ------------- ------------
Net cash provided by operating activities 10,281 227 3,635
------------ ------------- ------------
Cash flows from investing activities:
Net increase in loans (30,591) (25,818) (23,465)
Proceeds from sale of investment securities available-for-sale 17 13,756 13,179
Proceeds from maturities and principal reductions of
investment securities available-for-sale 48,364 36,703 14,216
Purchases of investment securities available-for-sale (57,661) (56,251) (61,515)
Proceeds from maturities and principal reductions of
investment securities held-to-maturity 5,460 4,624 1,658
Purchases of investment securities held-to-maturity (5,195) (8,017) (6,188)
Purchase of bank premises and equipment, net of sales (1,694) (825) (1,321)
Proceeds from sales for payments on assets acquired through
foreclosure 67 70 127
Cash (paid) received in acquisitions, net of cash (received) paid (4,432) 28,501 46,368
------------ ------------- ------------
Net cash used in investing activities (45,665) (7,257) (16,941)
------------ ------------- ------------
Cash flows from financing activities:
Net increase in deposits 6,307 16,875 5,500
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase 2,954 (7,285) 3,250
Payments on Federal Home Loan Bank advances (8,105) (45) (2,264)
Proceeds from Federal Home Loan Bank advances 19,000 6,600 1,425
Payments on notes payable (11,250) (1,386) (1,945)
Proceeds of notes payable 9,424 5,000 7,900
Common stock issued 8,396 146 1,145
Purchase of treasury stock - (869) -
Sales of treasury stock - 374 -
Dividends paid on common stock (734) (686) (683)
------------ ------------- ------------
Net cash provided by financing activities 25,992 18,724 14,328
------------ ------------- ------------
Net change in cash and cash equivalents (9,392) 11,694 1,022
Cash and cash equivalents at beginning of the period 31,899 20,205 19,183
------------ ------------- ------------
Cash and cash equivalents at end of the period $ 22,507 $ 31,899 $ 20,205
============ ============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,575 $ 16,587 $ 12,764
Income taxes 825 670 930
============ ============= ============
Noncash activities related to acquisitions:
Investing activities:
Increase in investments $ 21,985 $ - $ -
Net increase in loans 26,498 2,903 17,680
Increase in premises and equipment 1,042 426 1,675
Financing Activities:
Increase in deposits 44,462 33,608 69,474
Noncash financing activities - issuance of
treasury stock in exchange for notes payable $ - $ 793 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies, together with those disclosed elsewhere in
the consolidated financial statements, represent the significant accounting
policies used in presenting the accompanying consolidated financial statements.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Team Financial, Inc. and its wholly owned subsidiaries, Team
Financial Acquisition Subsidiary, TeamBank, N.A., Iola Bank and Trust Company,
First National Bank and Trust Company, and Community Bank (collectively the
"Company"). All material inter-company transactions, profits, and balances are
eliminated in consolidation. As described in note 10, the employees of the
Company and its subsidiary participate in the Team Financial Employee Stock
Ownership Plan (ESOP). At December 31, 1999 and 1998, the ESOP owned 1,206,834
and 1,582,700 shares, respectively (approximately 29% and 53%, respectively), of
the Company's outstanding common stock.
On June 21, 1999, the Company completed an initial public offering, whereby the
Company and its ESOP sold 700,000 and 300,000 shares, respectively, of common
stock at $11.25 per share. On July 15, 1999, the Company sold an additional
150,000 shares as part of the over allotment option associated with the initial
public offering. Total expenses of the offering approximated $1.6 million. The
Company's shares are listed and traded on the Nasdaq National Market under the
symbol TFIN.
The net proceeds to the Company from the sale of the common stock including the
over-allotment option, were $8.3 million. The net proceeds were used by the
Company to repay $7.3 million of debt, which bore interest at 1% under prime and
was due on June 30, 1999. The remaining proceeds of $1.0 million were
contributed to TeamBank N.A., one of the Company's subsidiary banks, to be used
by the Bank for internal growth. Although the Company did not receive any of the
proceeds from the selling shareholder's sale of shares, the ESOP repaid $1.0
million in borrowings, which eliminated the Company's liability as primary
obligor and increased its stockholders' equity. In connection with the repayment
of ESOP debt, the Company will incur a one-time federal tax expense of
approximately $60,000.
During the second quarter of 1999, the Company completed the merger by and among
two of its subsidiaries, TeamBank Nebraska and TeamBank, N.A., where TeamBank,
N.A. was the surviving corporation. The merger is expected to increase operating
efficiencies. The Company incurred one-time conversion expenses of $151,000 to
integrate the data processing systems.
In December 1999, the Company acquired ComBankshares, Inc., and its subsidiary
Community Bank with a total asset size of approximately $52 million. This
acquisition has been accounted for by the purchase method and, accordingly, the
results of operations from the date of purchase have been included in the
consolidated financial statements. The Company also announced, during the fourth
quarter ended December 31, 1999, that it had reached an agreement to acquire
Fort Calhoun Investment Co., and its subsidiary Fort Calhoun State Bank with
total assets of approximately $22 million. The acquisition is subject to the
approval of bank regulators. The Company expects the acquisition to close in the
first quarter of 2000.
FINANCIAL STATEMENT PRESENTATION AND USE OF ESTIMATES - The financial statements
have been prepared in accordance with generally accepted accounting principles.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities as of the balance sheet dates and revenues and
expenses for the reporting years. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - For the purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, federal funds
sold, securities purchased under agreements to resell, and certificates of
deposit.
SECURITIES AVAILABLE-FOR-SALE - Securities to be held for indefinite periods of
time, including securities that management intends to use as a part of its
asset/liability strategy that may be sold in response to changes in interest
rates, loan prepayments, or other factors, are classified as available-for-sale
and carried at estimated fair value. Gains or losses on the sale of securities
are determined using the specific identification method. Premiums and discounts
are recognized in interest income using the interest method over the period to
maturity. Unrealized
43
<PAGE>
holding gains or losses, net of tax, for securities available-for-sale are
reported as a component of other comprehensive income.
SECURITIES HELD-TO-MATURITY - Securities held-to-maturity are recorded at
amortized cost with any premium or discount recognized in interest income using
the interest method over the period to maturity. The Company has the positive
intent and ability to hold these securities to maturity. A decline in the market
value of any security below cost that is deemed other than temporary is charged
to income resulting in the establishment of a new cost basis for the security.
The Company designates securities as held-to-maturity or available-for-sale upon
acquisition.
LOANS - Loans are stated at unpaid principal balances, reduced by unearned fees.
Interest on loans is accrued and credited to income as it is earned using the
simple interest method on daily balances of the principal amount outstanding.
However, interest is generally not accrued on loans over 90 days contractually
delinquent. In addition, interest is not accrued on loans that are less than 90
days contractually delinquent, but where management has identified concern over
future collection. Accrued interest income is reversed when a loan is placed on
non-accrual status. Payments received on non-accrual loans are split between
principal and interest based upon the terms of the underlying note. Fees
received on loans in excess of amounts representing the estimated cost of
origination are deferred and credited to income using the interest method.
MORTGAGE BANKING - Loans originated and intended for sale in the secondary
market are accounted for under SFAS No. 65, ACCOUNTING FOR CERTAIN MORTGAGE
BANKING ACTIVITIES, and SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. Loans held for sale in the
secondary market are carried at the lower of aggregate cost or estimated fair
value. Unrealized losses are recognized via a charge against operations through
the establishment of a valuation reserve. Realized gains and losses on such
loans are accounted for under the specific identification method. Qualified loan
origination fees and costs are retained and not amortized during the period the
loans are held for sale.
Typically, loans are sold to permanent investors with the Company retaining the
right to service the loans. Service fees are recorded in income when earned.
Capitalized servicing rights are recorded at the time the loan is sold, thereby
increasing the gain on sale by such amount, and subsequently amortized over nine
years on a straight-line basis. Any remaining unamortized amount is charged to
expense in the related loan is repaid prior to maturity.
Management monitors the capitalized mortgage servicing rights for impairment
based on the fair value of those rights, as determined on a quarterly basis.
Any impairment is recognized through a valuation allowance.
ALLOWANCES FOR ESTIMATED LOAN LOSSES - The Company accounts for impaired loans
in accordance with SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN, as amended by SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN - INCOME RECOGNITION AND DISCLOSURES. SFAS No. 114 generally requires all
creditors to account for impaired loans, except those loans that are accounted
for at fair value or at the lower of cost or fair value, at the present value of
the expected future cash flows discounted at the loan's effective interest rate
at the date of initial impairment, or, as a practical expedient, at the loan's
observable market prices or fair value of the collateral if the loan is
collateral dependent. SFAS No. 114 indicates that a creditor should evaluate the
collectibility of both contractual interest and contractual principal when
assessing the need for a loss accrual.
The Company considers a loan to be impaired when it is deemed probable by
management that the Company will be unable to collect all contractual principal
and interest payments in accordance with the terms of the original loan
agreement. However, when determining whether a loan is impaired, management also
considers the loan documentation, the current ratio of the loan's balance to
collateral value, and the borrower's present financial position. Included as
impaired loans are all loans contractually delinquent 90 days or more, all loans
upon which accrual of interest has been suspended, and all loans that have a
specific loss allowance applied to adjust the loan to fair value.
The Company applies the measurement provisions of SFAS No. 114 to all loans in
its portfolio, and utilizes the cash-basis method of accounting for payments
received on impaired loans.
Management believes that allowance for loan losses are adequate. However,
additions to or recaptures from the allowances may be necessary based upon
changes in economic conditions, borrower financial status, the regulatory
44
<PAGE>
environment, real estate values, and loan portfolio size and composition. Many
of these factors are beyond the Company's control and, accordingly, periodic
provisions for estimated loan losses may vary from time to time. In addition,
various regulatory agencies, are an integral part of the examination process,
periodically review the Company's allowance for estimated loan losses. Such
agencies may develop judgments different from those of management and may
require the Company to recognize provision against operations.
REAL ESTATE OWNED - Real estate acquired through foreclosure is initially
recorded at the lower of cost or fair value less estimated cost to sell. If fair
value less cost to sell is less than amortized cost, a charge against the
allowance for estimate loan losses is recorded at property acquisition. Declines
in property value subsequent to acquisition are charged to operations.
Recognition of gains on the sale of real estate is dependent upon the
transaction meeting certain criteria relating to the nature of the property and
the terms of the sale and potential financing. These criteria are presented
within SFAS No. 66 ACCOUNTING FOR SALES OF REAL ESTATE, and APB No. 21, INTEREST
ON RECEIVABLES AND PAYABLES. Under certain circumstances, a gain on sale of real
estate, or a portion thereof, may be deferred until the criteria are met. Losses
on disposition of real estate, including expenses incurred in connection with
the disposition, are charged to operations.
PREMISES AND EQUIPMENT - Land is carried at cost. Other premises and equipment
are reported at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over
the estimate useful lives of the assets or the term of the related lease,
whichever is shorter. The useful lives for the principal classes of assets are:
<TABLE>
<CAPTION>
ASSETS USEFUL LIFE
- ------------------------------------ -----------------------
<S> <C>
Buildings and improvements 5 to 40 years
Furniture, fixtures, and equipment 3 to 10 years
</TABLE>
GOODWILL - The Company computes amortization via the straight-line method over
the estimated useful lives of the related assets. Goodwill resulting from the
acquisition of bank branches and subsidiaries represents the excess of the
purchase price for the fair value of the net assets acquired or net liabilities
assumed. Goodwill is amortized straight-line over periods ranging from fifteen
to twenty years.
INCOME TAXES - The Company and its subsidiaries file consolidated federal income
tax returns. Certain income and expense items are treated differently for
financial reporting purposes than for income tax purposes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
the difference between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period
financial statements to conform them to the current fiscal year presentation.
EARNINGS PER SHARE - Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, or resulted from issuance of common
stock that then share in earnings. Potentially dilutive securities consisted of
stock options awarded on December 31, 1999.
RECENT ACCOUNTING DEVELOPMENTS - 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.
45
<PAGE>
2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value
of investment securities are presented below:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------------- ----------
Available for sale: (In Thousands)
Debt Securities:
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 4,495 $ 9 $ 12 $ 4,492
U.S. Agency Securities 54,311 35 826 53,520
Mortgage-backed securities 72,434 302 2,144 70,592
Nontaxable Municipal Securities 2,050 13 30 2,033
Taxable Municipal Securities 785 12 2 795
Other debt securities 512 -- 7 505
---------- ---------- ---------- ----------
Total Debt Securities 134,587 371 3,021 131,937
---------- ---------- ---------- ----------
Equity Securities 5,031 -- 67 4,964
---------- ---------- ---------- ----------
Total Available for Sale Securities 139,618 371 3,088 136,901
---------- ---------- ---------- ----------
Held to maturity:
Debt Securities:
U.S. Agency Securities 2,300 -- 44 2,256
Nontaxable Municipal Securities 22,175 97 527 21,745
Taxable Municipal Securities 405 5 22 388
Other debt securities 750 -- 4 746
---------- ---------- ---------- ----------
Total Held to Maturity Securities 25,630 102 597 25,135
---------- ---------- ---------- ----------
$ 165,248 $ 473 $ 3,685 $ 162,036
========== ========== ========== ==========
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------------- ----------
Available for sale: (In Thousands)
Debt Securities:
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 7,503 $ 143 $ -- $ 7,646
U.S. Agency Securities 34,882 670 26 35,526
Mortgage-backed securities 59,735 347 297 59,785
Taxable Municipal Securities 2,397 75 1 2,471
Other debt securities 192 -- -- 192
-------- -------- -------- --------
Total Debt Securities 104,709 1,235 324 105,620
-------- -------- -------- --------
Equity Securities 3,676 -- -- 3,676
-------- -------- -------- --------
Total Available for Sale Securities 108,385 1,235 324 109,296
-------- -------- -------- --------
Held to maturity:
Debt Securities:
U.S. Treasury Securities 200 2 -- 202
U.S. Agency Securities 3,725 12 4 3,733
Nontaxable Municipal Securities 21,817 882 13 22,686
-------- -------- -------- --------
Total Held to Maturity Securities 25,742 896 17 26,621
-------- -------- -------- --------
$134,127 $ 2,131 $ 341 $135,917
========= ========= =========== ========
</TABLE>
Gross realized gains and losses on sale of investment securities available for
sale are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1999 1998 1997
---------- ------------- ----------
(In Thousands)
<S> <C> <C> <C>
Gain on investment securities available for sale $ 1 $ 20 $ 2
Loss on investment securities available for sale
-- 2 --
---------- ---------- ----------
Net gain on investment securities available for sale $ 1 $ 18 $ 2
========== ========== ==========
Proceeds from the sale of investment
securities available for sale $ 17 $ 13,756 $ 13,179
========== ========== ==========
</TABLE>
47
<PAGE>
Maturities of investment securities classified as available-for-sale and
held-to-maturity are listed in the following table. Maturities dates of mortgage
backed investment securities are estimated maturity dates.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Amortized Fair
Cost Value
--------- --------
Available-for-sale: (In Thousands)
<S> <C> <C>
Due less than one year $ 31,605 $ 30,589
Due after one through five years 69,267 68,488
Due after five through ten years 20,318 19,848
Due after ten years 14,497 14,142
Other investments 3,931 3,833
------- -------
139,618 136,901
------- -------
Held-to-maturity:
Due less than one year 1,311 1,274
Due after one through five years 8,897 8,688
Due after five through ten years 9,614 9,505
Due after ten years 5,807 5,668
------- -------
25,630 25,135
------- -------
Total $165,248 $162,036
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------
Amortized Fair
Cost Value
--------- --------
Available-for-sale: (In Thousands)
<S> <C> <C>
Due less than one year $ 42,040 $ 42,102
Due after one through five years 51,413 52,163
Due after five through ten years 8,722 8,797
Due after ten years 2,342 2,366
Other investments 3,868 3,868
-------- --------
108,385 109,296
-------- --------
Held-to-maturity:
Due less than one year 1,443 1,458
Due after one through five years 9,923 10,134
Due after five through ten years 8,831 9,229
Due after ten years 5,545 5,800
-------- --------
25,742 26,621
-------- --------
Total $134,127 $135,917
======== ========
</TABLE>
48
<PAGE>
Equity securities consist primarily of Federal Home Loan Bank and Federal
Reserve Bank stock.
The Company pledges investment securities to secure public deposits and for
other purposes as required by state law. The following table presents the pledge
status of the Company's investment securities:
INVESTMENT SECURITIES PLEDGED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
-------------- --------------
(In Thousands)
<S> <C> <C>
Amortized Cost $ 111,139 $ 93,913
Estimated Fair Value 108,397 95,240
</TABLE>
49
<PAGE>
3. LOANS
Major classifications of loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------
Loans Receivable Fixed Adjustable Total Mix
---------- ----------- ------------ ---------
Loans secured by real estate (Dollars In Thousands)
<S> <C> <C> <C> <C>
One to four family $ 38,135 $ 65,637 $ 103,772 33%
Construction and land development 14,791 5,559 20,350 6%
Non-farm, non-residential 10,876 12,293 23,169 7%
Farmland 5,939 12,032 17,971 6%
Multifamily 899 1,206 2,105 1%
Commercial and industrial 27,447 35,213 62,660 20%
Agricultural 8,944 15,338 24,282 8%
Installment loans 41,380 676 42,056 14%
Obligations of state and political
subdivision 4,851 629 5,480 2%
Lease financing receivables 7,769 -- 7,769 3%
------- --------- --------- ----
Gross Loans 161,031 148,583 309,614
------- --------- ---------
Less unearned fees 219 140 359 0%
------- --------- --------- ----
Total loans receivable $160,812 $ 148,443 $ 309,255 100%
======== ========= ========= ====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------
Loans Receivable Fixed Adjustable Total Mix
---------- ----------- --------- ---------
Loans secured by real estate (Dollars In Thousands)
<S> <C> <C> <C> <C>
One to four family $ 30,330 $ 54,763 $ 85,093 33%
Construction and land development 13,788 623 14,411 5%
Non-farm, non-residential 3,345 4,280 7,625 3%
Farmland 3,884 12,776 16,660 7%
Multifamily 597 927 1,524 1%
Commercial and industrial 27,684 39,404 67,088 26%
Agricultural 11,417 13,548 24,965 10%
Installment loans 34,676 861 35,537 14%
Obligations of state and political subdivision 2,751 112 2,863 1%
Lease financing receivables 677 -- 677 0%
-------- -------- -------- ---
Gross Loans 129,149 127,294 256,443
Less unearned fees 217 100 317 0%
-------- -------- -------- ---
Total loans receivable $128,932 $127,194 $256,126 100%
======== ======== ======== ===
</TABLE>
Included in real estate mortgage loans are loans held for sale of approximately
$1,379,000 and $6,321,000 at December 31, 1999 and 1998, respectively.
50
<PAGE>
As summary of non performing assets is presented as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
-------------- --------------
Non-Performing Assets: (In Thousands)
<S> <C> <C>
Non-accrual loans
Real estate loans $ 445 $ 455
Commercial and industrial 1,043 1,527
Installment loans 298 259
Lease financing receivables 6 -
------------ ------------
Total Non-accrual loans 1,792 2,241
------------ ------------
Loans Past Due 90 Days or More Still Accruing
Real estate loans $ 292 $ 240
Commercial and industrial 292 177
Installment loans 37 14
Lease financing receivables - -
------------ ------------
Total Past Due 90 Days or More Still Accruing 621 431
------------ ------------
Total Non-Performing Loans 2,413 2,672
Other real estate owned 792 906
-------------- ------------
Total non-performing assets $ 3,205 $ 3,578
============== =============
</TABLE>
Impaired loans, exclusive of nonaccrual loans, are considered insignificant at
December 31, 1999 and 1998, as is the amount of interest income reported on such
loans during their impairment period.
Activity related to loans made to directors and executive officers of the
Company during 1999 is presented below. Such loans were made in the ordinary
course of business on normal credit terms, including interest rate and
collateralization (In Thousands):
<TABLE>
<CAPTION>
<S> <C>
Loans to executive officers January 1, 1999 $ 3,635
Additions 1,889
Additions from acquisitions 12
Amounts collected (2,023)
--------------
Balance December 31, 1999 $ 3,513
==============
</TABLE>
The Company's primary market areas in Kansas are Miami County, Allen County,
Labette County, Johnson County, Dickinson County and surrounding counties. The
primary market areas in Nebraska are Douglas County and Sarpy County and in
Missouri are Vernon County and Barton County. Accordingly, the majority of the
loans made by the Company's subsidiary banks are within these primary market
areas.
51
<PAGE>
4. MORTGAGE BANKING ACTIVITIES
The Company services first mortgage loans for permanent investors. Escrow
balances are held on deposit for first mortgage loans serviced in the Company's
subsidiary banks. The aggregate first mortgage loans serviced and escrow
balances held were approximately:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
----- ----
(In Thousands)
<S> <C> <C>
Mortgage loans serviced $ 124,217 $ 107,368
Escrow deposits 144 225
</TABLE>
Included in gain on sales of mortgage loans are capitalized mortgage servicing
rights. A summary of the mortgage servicing rights, which are included in other
assets for the years ended December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998 1997
---- ---- ----
Mortgage Servicing Rights (In Thousands)
<S> <C> <C> <C>
Balance January 1 $ 601 $ 290 $ 151
Mortgage servicing rights capitalized during the year 374 445 182
Amortization (153) (134) (33)
Valuation allowance - - (10)
----- ----- -----
Balance December 31 $ 822 $ 601 $ 290
===== ===== =====
</TABLE>
Service fees earned by the Company (net of amortization of capitalized
mortgage servicing rights), included in other income in the accompanying
consolidated statements of operations, are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service fees earned $ 315 $ 267 $ 239
===== ===== =====
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES
A summary of the allowances for loan losses for the years ended December 31,
1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of period $ 2,541 $ 1,629 $ 1,518
Provision for estimated loan losses 902 1,486 1,095
Charge-offs (779) (723) (1,142)
Allowance for loan losses of acquired bank 433 - -
Recoveries 223 149 158
------- ------- -------
Balance, end of period $ 3,320 $ 2,541 $ 1,629
======= ======= =======
</TABLE>
52
<PAGE>
6. BANK PREMISES AND EQUIPMENT
Major classifications of bank premises and equipment at December 31, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Land $ 1,044 $ 1,038
Bank premises 9,820 8,181
Furniture, fixtures, and equipment 6,548 6,251
------- -------
17,412 15,470
Less accumulated depreciation 7,642 6,910
------- -------
$ 9,770 $ 8,560
======= =======
</TABLE>
Depreciation expense aggregating $875,000, $830,000, and $852,000 for the years
ended December 31, 1999, 1998, and 1997, respectively has been included in
occupancy and equipment expense in the accompanying consolidating statements of
operations.
7. DEPOSIT ACCOUNTS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- ---------
(In Thousands)
<S> <C> <C>
Demand:
Noninterest bearing $ 46,265 $ 42,234
-------- --------
Interest bearing:
NOW 78,150 75,667
Money Market 46,889 41,560
-------- --------
125,039 117,227
-------- --------
Total demand 171,304 159,461
Savings 22,135 20,266
Time 241,677 204,620
-------- --------
Total Deposits $435,116 $384,347
======== ========
Time Deposits of $100,000 and over $ 71,359 $ 45,468
======== ========
</TABLE>
53
<PAGE>
Principal maturities of time deposits at December 31, 1999 are as follows (In
Thousands):
<TABLE>
<CAPTION>
Year Amount
- ---- -------------
<C> <C>
2000 $ 177,514
2001 41,166
2002 6,753
2003 8,510
2004 6,207
Thereafter 1,528
-------------
$ 241,677
=============
</TABLE>
8. SECURITIES SOLD UNDER AGREEEMENTS TO REPURCHASE
The Company's obligation to repurchase securities sold at December 31, 1999 and
1998 aggregated $4,827,000 and $6,273,000, respectively. Information concerning
securities sold under agreements to repurchase is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------- ----------
(Dollars In Thousands)
<S> <C> <C>
Average monthly balance during the year $5,873 $ 7,479
Weighted average interest rate during the year 4.96% 4.83%
Maximum month-end balance during the year $9,268 $12,491
====== =======
</TABLE>
At December 31, 1999, such agreements were secured by investment securities.
Pledged securities are maintained by a safekeeping agent under the control of
the Company.
54
<PAGE>
9. ADVANCES FROM THE FEDERAL HOME LOAN BANK AND NOTES PAYABLE
Following is a summary of the advances from the Federal Home Loan bank and notes
payable at December 31, 1999 and 1998 (Dollars In Thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable related to ESOP borrowings, at interest rates ranging from 5.60%
to 6.75% due in 2002 and 2004. Note paid off with ESOP proceeds from
Initial Public Offering $ -- $ 1,000
Note payable of to unrelated bank, interest at 1% under prime rate (7.75% at
December 31, 1998), due June 30, 1999, secured by common stock of
subsidiary banks -- 12,400
Unsecured notes payable of interest at 7.0% due in 2000 and 1999, respectively 500 500
Note payable line of credit of Team Financial, Inc. to unrelated bank, interest
floating at 1.75% over one month LIBOR (7.27% at December 31, 1999), due
December 31, 2000, secured by common stock of subsidiary banks 5,000 --
Borrowing under a line of credit to unrelated bank, interest floating at 1.75%
over one month LIBOR (7.57% at December 31, 1999), due
December 31, 2002, secured by common stock of subsidiary banks
Maximum credit limit as of December 31, 1999 was $15,000,000 4,424 --
Federal Home Loan Bank borrowings by certain subsidiary banks at interest rates
ranging from 4.27% to 6.97%; maturities ranging from 1999 to 2013; secured by
real estate loans, investments securities, and Federal Home Loan Bank stock 24,055 9,160
------- -------
$33,979 $23,060
======= =======
</TABLE>
The Company maintains a line of credit of $15,000,000 to an unrelated bank with
interest floating at 1.75% over one month LIBOR, due December 31, 2002. As of
December 31, 1999, the Company had $4,424,000 outstanding on the line of credit
with an available balance of $10,576,000. The Company's subsidiary banks
maintain lines of credit with the Federal Home Loan Bank totaling $92,000,000.
As of December 31, 1999 the Company's subsidiary banks had $24,055,000
outstanding on the line of credit with an available balance of $67,945,000.
Principal maturities on advances from the Federal Home Loan Bank and notes
payable outstanding at December 31, 1999 are as follows (In Thousands):
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
2000 $ 5,924
2001 1,400
2002 5,000
2003 3,651
2004 12,000
Thereafter 6,004
-----------
$ 33,979
===========
</TABLE>
Management expects to renew the loan for $5,000,000 maturing December 31, 2000,
but can provide no assurance to that effect.
55
<PAGE>
10. EMPLOYEE BENEFIT PLANS
Eligible employees of the Company and subsidiary banks participate in an
employee stock ownership plan (ESOP), which was formed in 1986. The Company had
related ESOP borrowings under bank loan agreements (see note 9) that qualify as
"exempt loans" under Internal Revenue Code (IRC) Section 4975 (d) (3), the
proceeds of which were used to acquire Company common stock. Those funds, in
turn, were used by the Company to acquire certain subsidiary banks.
Contributions, along with dividends on unallocated shares of common stock, are
used by the ESOP to make payments of principal and interest on the bank loans.
On December 31, 1998, the debt related to the ESOP was recorded as debt and the
shares pledged as collateral are reported as unearned compensation in the
accompanying consolidated statements of the financial condition. Unearned
compensation is reduced as the related notes payable are reduced or increased
upon additional ESOP borrowings. At December 31, 1998 participants had been
allocated 1,448,140 shares of the Company's common stock. These shares were
redeemable under certain circumstances by former employees at the fair value of
the common stock and, accordingly, were classified, net of unearned
compensation, outside of stockholders' equity. The repurchase obligation of the
Company at December 31, 1998 aggregated approximately $16,876,000. On June 21,
1999, the Company completed an initial public offering, whereby the Company and
its ESOP sold 700,000 and 300,000 shares, respectively of common stock at $11.25
per share. A portion of the proceeds were used by the ESOP to repay $1.0 million
in borrowings, which eliminated the Company's unearned compensation balance as
primary obligor and increased stockholders' equity.
ESOP contributions by the Company and the banks charged to salaries and benefits
expense in 1999, 1998, and 1997 aggregated $278,000, $542,000, and $624,000
respectively.
In May 1994, the Company adopted an employee stock purchase plan. The plan
provides employees the opportunity to purchase common stock in the Company
pursuant to Section 423 of the IRC. The Company issued 6,492; 8,710; and 6,500
shares in January 2000, 1999, and 1998, respectively, in exchange for cash of
$56,000; $65,000; and $45,000.
In January 1996, the Company implemented a bonus program, which awards employees
for their performance based on certain financial and growth targets determined
by management. Bonus awards are at the discretion of the compensation committee
and may consist of cash, common stock, or a combination thereof. The Company and
subsidiary banks charged $232,000, $459,000, and $139,000 to salaries and
benefits expense as a result of this bonus program in 1999, 1998, and 1997,
respectively.
In November 1998, the Board of Directors of the Company approved the Team
Financial, Inc. 401(k) Savings Plan. The Plan became effective January 1, 1999.
Employees, meeting certain conditions, are eligible to participate in the Plan
immediately upon their employment date. The Company will match 50% of the first
6% of compensation which employees contribute to the Plan. The Company's
contributions will vest ratably over five years.
In May of 1999, the Board of Directors of the Company approved a Stock Incentive
Plan ( the "Plan"), which provides for several different types of stock and
stock-based awards. The Plan became effective July 1,1999. Employees meeting
certain conditions are eligible to participate in the Plan. The selection of
participants will be solely within the discretion of the Board of Directors. The
stock incentive awards authorized to be distributed under the Plan on a stand
alone, combination, or tandem basis are (i) stock options, (ii) stock
appreciation rights, (iii) other stock based awards. Pursuant to the Plan,
70,000 shares of Team Financial, Inc. common stock are reserved for issuance
under the stock option components of the Plan. On December 31, 1999, the Company
granted stock options to acquire 55,000 shares for $8.94 per share. These
options vest over 10 years and expire on December 31, 2009.
The Company applies Accounting Principals Board ("APB") Opinion No. 25 and
related interpretations in accounting for the Stock Incentive Plan. Under APB
No. 25, compensation cost for stock options is measured as the excess, if any,
of the fair market value of the Company's stock at the date of grant over the
amount the employee must pay to acquire the stock. Because the Plan provides for
the issuance of stock options at a price of no less than the fair market value
at the date of grant, no compensation costs has been recognized for the stock
option components of the Plan.
56
<PAGE>
Had compensation costs for the stock option components of the Plan been
determined based upon the fair value at the date of grant consistent with SFAS
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------- -------------
(Dollars In Thousands, Except Per Share Data)
Net income:
<S> <C> <C> <C>
As reported $ 3,169 $ 2,344 $ 2,214
Pro forma 3,143 2,344 2,214
Basic and diluted earnings per share
As reported $ 0.93 $ 0.85 $ 0.84
Pro forma 0.92 0.85 0.84
Shares utilized in basic and diluted 3,403,478 2,765,632 2,645,300
earnings per share
</TABLE>
The fair value of options was estimated using the following weighted average
information; risk free interest rate of 7.00%, expected life of 10 years,
expected volatility of stock price of 15.58% and expected dividends of 1.91%
per year.
11. INCOME TAXES
Income tax expense (benefit) attributable to income from operations for 1999,
1998, and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ---------
(In Thousands)
<S> <C> <C> <C>
Current $ 1,238 $ 730 $ 366
Deferred (118) (57) 187
-------- ------- -------
Total $ 1,120 $ 673 $ 553
======== ======= =======
</TABLE>
Following is a reconciliation between income tax expense attributable to income
from operations and the amount computed by multiplying earnings before income
taxes by the statutory federal income tax rate of 34%:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------------ --------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $ 1,458 $ 1,026 $ 941
Interest on obligations of state and political
subdivisions (445) (362) (249)
State income taxes, net of federal tax benefit 163 114 7
Income tax benefit on dividends paid to ESOP (27) (125) (132)
Other (29) 20 (14)
-------- -------- -------
Income tax expense attributable to income from
operations $ 1,120 $ 673 $ 553
======== ======== =======
</TABLE>
57
<PAGE>
The income tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(In Thousands)
<S> <C> <C>
DEFERRED TAX ASSETS
Investment securities $ 1,228 $ -
Allowance for loan losses 647 346
Acquired net operating loss carryforwards 311 294
Deferred compensation 72 74
Loans 11 21
State taxes 2 -
--------- --------
Total gross deferred tax assets 2,271 735
--------- --------
DEFERRED TAX LIABILITIES
Investment securities $ - $ 348
Mortgage servicing rights 279 205
Bank premises and equipment 174 138
FHLB stock 180 115
Other 58 38
State taxes - 5
--------- --------
Total gross deferred tax liabilities 691 849
--------- --------
Net deferred tax asset (liability) $ 1,580 $ (114)
========= ========
</TABLE>
The net operating loss carryforward, if not utilized, will expire in 2003.
Beginning in 2000, the Company will be required to begin recapturing its tax bad
debt reserves of approximately $1,230,000 that had previously been established
under Internal Revenue Code Section 585. A portion of this amount will be
included in taxable income over each of the next four years according to the
appropriate provisions of the Code. Tax expense has previously been provided on
this amount, and the related deferred tax liability of $1,224,000 is included in
deferred taxes. A valuation allowance for deferred tax assets was not necessary
at December 31, 1999 or 1998.
58
<PAGE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of financial instruments at December 31, 1999 and 1998, including
methods and assumptions utilized, are set forth below:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities $ 163,000 $ 162,000 $ 135,000 $ 136,000
========= ========= ========= =========
Loans, net of unearned discounts and allowance
for loan losses $ 306,000 $ 307,000 $ 254,000 $ 256,000
========= ========= ========= =========
Demand deposits $ 46,000 $ 46,000 $ 42,000 $ 43,000
Money market and NOW deposits 125,000 125,000 117,000 117,000
Savings deposits 22,000 22,000 20,000 20,000
Time deposits 242,000 241,000 205,000 206,000
========= ========= ========= =========
Total deposits $ 435,000 $ 434,000 $ 384,000 $ 386,000
========= ========= ========= =========
Notes payable and FHLB Advances $ 34,000 $ 34,000 $ 23,000 $ 23,000
========= ========= ========= =========
</TABLE>
METHODS AND ASSUMPTIONS
The estimated fair value of investment securities is based on bid prices
published in financial newspapers or bid quotations received from securities
dealers.
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by maturity using a weighted average pool rate. In
estimating the fair value of loans, the carrying amount is reduced by the
allowance for loan losses. The estimated fair value is calculated by discounting
scheduled cash flow through the estimated maturity using estimated market
discount rates based upon the Company's average cost of funds that reflect the
interest rate risk inherent in the loans reduced by the allowance for loan
losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, NOW accounts, and money market
accounts, is equal to the amount payable on demand. The fair value of interest
bearing time deposits is based on the discounted value of contractual cash flows
of such deposits. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
The carrying value of all notes payable approximates fair value, as all notes
are either based upon floating market rates of interest or based upon fixed
rates, which approximate market rates.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. Fair value estimates are based on existing
balance sheet financial instruments without attempting to
59
<PAGE>
estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
13. CAPITAL ADEQUACY
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below for the Company's significant subsidiary
banks) of total risk-based and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1999, that the banks meet all capital adequacy
requirements to which they are subject.
<TABLE>
<CAPTION>
To be well-capitalized
under prompt
For capital corrective
Actual Adequacy Purposes Action Provision
--------------------- ------------------- ------------ ----------
Amount Ratio Amount Ratio Amount Ratio
----------- -------- ----------- --------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999
TeamBank, N.A.
Risk-based capital (to risk weighted assets) $25,421 12.30% $16,532 8.00% $20,665 10.00%
Tier 1 capital (to risk weighted assets) 23,416 11.33% 8,266 4.00% 12,399 6.00%
Tier 1 capital (to average assets) 23,416 7.47% 12,546 4.00% 15,683 5.00%
Iola Bank and Trust Company
Risk-based capital (to risk weighted assets) 7,144 14.69% 3,891 8.00% 4,863 10.00%
Tier 1 capital (to risk weighted assets) 6,623 13.62% 1,945 4.00% 2,918 6.00%
Tier 1 capital (to average assets) 6,623 7.83% 3,385 4.00% 4,231 5.00%
First National Bank and Trust Company
Risk-based capital (to risk weighted assets) 5,377 16.06% 2,679 8.00% 3,349 10.00%
Tier 1 capital (to risk weighted assets) 5,002 14.94% 1,339 4.00% 2,009 6.00%
Tier 1 capital (to average assets) 5,002 8.40% 2,382 4.00% 2,978 5.00%
Community Bank
Risk-based capital (to risk weighted assets) 3,859 13.13% 2,350 8.00% 2,938 10.00%
Tier 1 capital (to risk weighted assets) 3,492 11.89% 1,175 4.00% 1,763 6.00%
Tier 1 capital (to average assets) 3,492 7.17% 1,949 4.00% 2,437 5.00%
</TABLE>
14. MERGERS AND ACQUISITIONS
In March 1998, the Company assumed the branch deposits and acquired certain
assets, consisting of loans, accrued interest, and premises and equipment, of a
NationsBank branch located in Ottawa, Kansas. The deposits and their accrued
interest payable approximated $33,777,000 and the acquired assets aggregated
$3,585,000. The Company paid a premium of $1,922,000 in connection with the
transaction, which has been recorded as goodwill in the accompanying
consolidated financial statements and is being amortized over fifteen years.
During the second quarter, the Company completed the merger by and among two of
its subsidiaries, TeamBank Nebraska and TeamBank, N.A., where the TeamBank, N.A.
was the surviving corporation. The merger is expected to increase operating
efficiencies. The Company incurred one-time conversion expenses of $151,000 to
integrate the data processing systems.
In December 1999 the Company acquired ComBankshares, Inc. and its subsidiary
Community Bank with total assets of approximately $52 million. The total
purchase price was $5,833,000, consisting of cash of $2,941,000 and 278,245
shares of common stock. The purchase resulted in a premium of approximately
$3,867,000, which has been recorded as goodwill in the accompanying consolidated
financial statements and is being amortized over
60
<PAGE>
twenty years. This acquisition has been accounted for by the purchase method
and, accordingly, the results of operations from the date of purchase have been
included in the consolidated financial statements.
The table below presents supplemental pro forma information for 1999 and 1998 as
if the ComBankshares, Inc. acquisition were made on January 1, 1998 at the same
purchase price, based on estimates and assumptions considered appropriate:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998
----------- ------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income $ 36,721 $ 35,946
Interest expense 18,932 18,801
Provision for estimated loan losses 999 1,558
Net income 3,245 2,509
Shares applicable to EPS 3,658,854 3,043,877
Earnings per share $ 0.89 $ 0.82
</TABLE>
The Company also announced that it had reached an agreement to acquire Fort
Calhoun Investment Co., and its subsidiary Fort Calhoun State Bank with total
assets of approximately $22 million. The acquisition will compliment the
Company's presence in the Omaha, Nebraska metropolitan area. The acquisition is
subject to the approval of bank regulators. The Company expects the acquisition
to close in the first quarter of 2000.
15. COMMITMENTS AND CONTINGENCIES
Standby letters of credit were approximately $2,443,000 and $2,658,000 and
outstanding loan commitments and available lines of credit with customer were
approximately $53,548,000 and $45,115,000 at December 31, 1999 and 1998,
respectively. Substantially all letters of credit and loan commitments are at
variable interest rates, which approximate market rates. The credit risk
involved in issuing these standby letters of credit and loan commitments is
essentially the same as that involved in extending loans to customers.
61
<PAGE>
16. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
TEAM FINANCIAL, INC
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,050 $ 616
Investment in subsidiaries 46,171 38,141
Other 845 740
------------ ------------
Total Assets $ 48,066 $ 39,497
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term debt $ 9,924 $ 13,900
Other 573 196
Redeemable common stock held by ESOP, net - 16,876
Non redeemable stockholders' equity 37,569 8,525
------------ ------------
Total liabilities and stockholders' equity $ 48,066 $ 39,497
============ ============
</TABLE>
TEAM FINANCIAL, INC
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME:
Dividends from subsidiaries $ 2,042 $ 2,300 $ 1,601
Interest income 22 29 19
Other expense, net (1,901) (2,363) (1,396)
-------------- ------------- --------------
Income (loss) before equity in
undistributed earnings of subsidiaries 163 (34) 224
Increase in undistributed equity of subsidiaries 2,261 1,418 1,264
-------------- ------------- --------------
Income before income taxes 2,424 1,384 1,488
Income tax benefit 745 960 726
-------------- ------------- --------------
Net income $ 3,169 $ 2,344 $ 2,214
============== ============= ==============
</TABLE>
62
<PAGE>
TEAM FINANCIAL, INC
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,169 $ 2,344 $ 2,214
Increase in undistributed equity of subsidiaries (2,261) (1,418) (1,264)
Allocation of ESOP shares - 451 295
Other 272 218 (237)
---------- --------- ---------
Net cash provided by operating activities 1,180 1,595 1,008
---------- --------- ---------
Cash flows from investing activities:
Capital contributions to subsidiaries (1,000) (4,000) (7,000)
Acquisition of subsidiary (7,324) - -
Other - (42) (161)
---------- --------- ---------
Net cash used in investing activities (8,324) (4,042) (7,161)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 9,424 5,000 7,700
Principal payments on long-term debt (12,400) (1,388) (1,745)
Purchase of treasury stock - (869) 1,145
Proceeds from sale of treasury stock - 374 -
Issuance of common stock 11,288 146 -
Dividends paid on common stock (734) (686) (683)
---------- --------- ---------
Net cash provided by financing activities 7,578 2,577 6,417
---------- --------- ---------
Net increase in cash and cash equivalents 434 130 264
Cash and cash equivalents at beginning of the year 616 486 222
---------- --------- ---------
Cash and cash equivalents at end of the year $ 1,050 $ 616 $ 486
========== ========= =========
Noncash financing activities - issuance of treasury
stock to retire notes payable $ - $ 793 $ -
========== ========= =========
</TABLE>
The primary source of funds available to the Company is the payment of dividends
by the subsidiaries. Subject to maintaining certain minimum regulatory capital
requirements, regulations limit the amount of dividends that may be paid without
prior approval of the subsidiaries' regulatory agencies. At December 31, 1999
the subsidiaries could pay dividends of $6,791,000 without prior regulatory
approval.
63
<PAGE>
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results:
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
---------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Year Ended 1999
- ---------------------------------------------------
Interest income $ 7,892 $ 7,865 $ 8,276 $ 8,869
Interest expense 4,028 4,027 4,199 4,569
Provision for estimated loan losses 183 203 291 225
Net income 827 759 794 789
Shares applicable to EPS 2,867,000 2,959,972 3,827,346 3,918,079
Earnings per share $ 0.29 $ 0.26 $ 0.21 $ 0.20
Year Ended 1998
- ---------------------------------------------------
Interest income $ 7,526 $ 7,947 $ 8,260 $ 8,121
Interest expense 3,907 4,270 4,332 4,064
Provision for estimated loan losses 446 278 351 411
Net income 435 447 763 699
Shares applicable to EPS 2,753,000 2,756,047 2,732,813 2,779,821
Earnings per share $ 0.16 $ 0.16 $ 0.28 $ 0.25
</TABLE>
18. SUBSEQUENT EVENTS
The Company announced, during the fourth quarter ended December 31, 1999 that it
had reached an agreement to acquire Fort Calhoun Investment Co., and its
subsidiary Fort Calhoun State Bank with total assets of approximately $22
million. The acquisition will compliment the Company's presence in the Omaha,
Nebraska metropolitan area. The acquisition is subject to the approval of bank
regulators. The Company expects the acquisition to close in the first quarter of
2000.
19. PENDING LEGAL ITEMS
The Company's subsidiary, Community Bank is a defendant in a 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 the fiscal year. 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.
64
<PAGE>
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.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURES
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included in our Proxy Statement
with respect to our 2000 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of December 31, 1999, under the caption "Election
of Directors", and is incorporated in this Annual Report by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in our Proxy Statement
with respect to our 2000 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of December 31, 1999, under the caption "Executive
Compensation", and is incorporated in this Annual Report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in our Proxy Statement
with respect to our 2000 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of December 31, 1999, under the caption "Stock
Ownership", and is incorporated in this Annual Report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in our Proxy Statement
with respect to our 2000 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of December 31, 1999, under the caption "Certain
Transactions With Affiliates", and is incorporated in this Annual Report by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
These documents are listed in the Index to Consolidated Financial
Statements under Item 8.
2. Financial Statement Schedules
All financial statement schedules required by Article 9 of
Regulation S-X have been included in the consolidated financial
statements or are either not applicable or not significant.
3. 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. (1)
3.1 Restated and Amended Articles of Incorporation of Team Financial,
Inc. (2).
3.2 Amended Bylaws of Team Financial, Inc. (2)
10.1 Employment Agreement between Team Financial, Inc. and Robert J.
Weatherbie dated January 1, 1999 (2)
10.2 Employment Agreement between Team Financial, Inc. and Michael L.
Gibson dated January 1, 1999 (2)
10.3 Employment Agreement between Team Financial, Inc. and Rick P.
Bartley dated January 1, 1999 (2)
66
<PAGE>
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 (2).
10.5 Data Processing Services Agreement between TeamBanc, Inc. (now
Team Financial, Inc.) and M&I Data Services, Inc. dated
December 22, 1992 (2).
10.6 401K Plan of Team Financial, Inc. 401(k) Trust, effective January 1,
1999 and administered by Nationwide Life Insurance Company (2).
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. (2)
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. (2)
10.9 The following documents regarding the loan agreement between Team
Financial, Inc., Team Financial, Inc. Employee Stock Ownership Plan and
Commerce Bank all of which are dated August 30, 1997, unless otherwise
noted: (i) Term Loan Agreement and Amendment One to Term Loan Agreement
dated October 31, 1997; (ii) Term Note in the principal amount of
$200,018; (iii) Collateral Assignment; (iv) ESOP Note (and Pledge
Agreement) in the amount of $200,018; and (v) Lending Agreement. (2)
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. (2)
10.11 Team Financial, Inc. Employee Stock Ownership Plan Summary. (2)
10.12 Team Financial, Inc. 1999 Stock Incentive Plan. (2)
10.13 Rights Agreement between Team Financial, Inc. and American
Securities Transfer & Trust, Inc. dated June 3, 1999. (2)
10.14 Team Financial, Inc. - Employee Stock Purchase Plan. (2)
11.1 Statement regarding Computation of per share earnings - see
consolidated financial statements.
(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.
(b) Reports on Form 8-K Filed During the Quarter Ended December 31, 1999.
(b.1) Report on Form 8-K Filed on December 17, 1999 reporting the
acquisition of ComBankshares, Inc.
(b.2) Report on Form 8-K Filed on January 4, 1999 amending 8-K filed on
December 17, 1999.
67
<PAGE>
Additional
Exhibit
- -----------
21 Subsidiaries of Team Financial, Inc. (3)
24.1 Power of attorney - see signature page
27 Financial Data Schedule (3)
68
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Paola, Kansas
on March 28, 2000.
TEAM FINANCIAL, INC.
By: /S/ ROBERT J. WEATHERBIE
---------------------------------------
Robert J. Weatherbie, Chairman
and Chief Executive Officer
/S/ MICHAEL L. GIBSON
---------------------------------------
Michael L. Gibson,
Chief Financial Officer
69
<PAGE>
POWER OF ATTORNEY
Each individual whose signature appears below hereby designates and
appoints Robert J. Weatherbie and Michael L. Gibson, and each of them, as
such person's true and lawful attorneys-in-fact and agents (the
"Attorneys-in-Fact") with full power of substitution and resubstitution, for
each person and in such person's name, place, and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Annual Report on Form 10-K, which amendments may make
such changes in this Annual Report on Form 10-K as either Attorney-in-Fact
deems appropriate and to file each such amendment with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto such Attorneys-in-Fact and each of them, full power
and authority to do and perform each and every act and think requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that such Attorneys-in-Fact or either of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on March 28, 2000.
SIGNATURES
<TABLE>
<CAPTION>
<S> <C> <C>
Robert J. Weatherbie Director, Chairman and Chief Executive March 28, 2000
/s/ Robert J. Weatherbie Officer (Principal Executive Officer)
Michael L. Gibson Director, President-Acquisitions/ March 28, 2000
/s/ Michael L. Gibson Investments and Chief Financial
Officer
Montie K. Taylor Director March 28, 2000
/s/ Montie K. Taylor
R.G. (Gary) Kilkenny Director March 28, 2000
/s/ R.G. (Gary) Kilkenny
Carolyn S. Jacobs Director March 28, 2000
/s/ Carolyn S. Jacobs
Neil Blakeman Director March 28, 2000
/s/ Neil Blakeman
Dennis A. Kurtenbach Director March 28, 2000
/s/ Dennis A. KurtenBach
Glen E. Gilpin Director March 28, 2000
/s/ Glen E. Gilpin
</TABLE>
70
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,458
<INT-BEARING-DEPOSITS> 5,019
<FED-FUNDS-SOLD> 30
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 136,901
<INVESTMENTS-CARRYING> 25,630
<INVESTMENTS-MARKET> 25,135
<LOANS> 309,255
<ALLOWANCE> 3,320
<TOTAL-ASSETS> 518,205
<DEPOSITS> 435,116
<SHORT-TERM> 9,227
<LIABILITIES-OTHER> 2,314
<LONG-TERM> 33,282
0
0
<COMMON> 25,268
<OTHER-SE> 12,301
<TOTAL-LIABILITIES-AND-EQUITY> 518,205
<INTEREST-LOAN> 23,825
<INTEREST-INVEST> 8,610
<INTEREST-OTHER> 467
<INTEREST-TOTAL> 32,902
<INTEREST-DEPOSIT> 14,756
<INTEREST-EXPENSE> 16,823
<INTEREST-INCOME-NET> 16,079
<LOAN-LOSSES> 902
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 15,471
<INCOME-PRETAX> 4,289
<INCOME-PRE-EXTRAORDINARY> 3,169
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,169
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 7.93
<LOANS-NON> 1,792
<LOANS-PAST> 621
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,541
<CHARGE-OFFS> 779
<RECOVERIES> 223
<ALLOWANCE-CLOSE> 3,320
<ALLOWANCE-DOMESTIC> 3,320
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
