TEAM FINANCIAL, INC. AND SUBSIDIARIES
Unaudited
Consolidated Statements of Financial Condition
(In thousands)
|
|
September 30,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
14,673
|
|
$
|
14,529
|
|
Federal funds sold and interest bearing
bank deposits
|
|
6,426
|
|
22,621
|
|
Cash and cash equivalents
|
|
21,099
|
|
37,150
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
Available for sale, at fair value
(amortized cost of $173,224 and $171,301 at September 30, 2007 and December
31, 2006, respectively)
|
|
171,906
|
|
170,079
|
|
Non-marketable equity securities (amortized
cost of $9,387 and $9,061 at September 30, 2007 and December 31, 2006,
respectively)
|
|
9,387
|
|
9,061
|
|
Total investment securities
|
|
181,293
|
|
179,140
|
|
|
|
|
|
|
|
Loans receivable, net of unearned fees
|
|
516,101
|
|
486,497
|
|
Allowance for loan losses
|
|
(5,855
|
)
|
(5,715
|
)
|
Net loans receivable
|
|
510,246
|
|
480,782
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
5,965
|
|
5,558
|
|
Premises and equipment, net
|
|
21,722
|
|
17,628
|
|
Assets acquired through foreclosure
|
|
915
|
|
817
|
|
Goodwill
|
|
10,700
|
|
10,700
|
|
Intangible assets, net of accumulated
amortization
|
|
2,672
|
|
2,659
|
|
Bank-owned life insurance policies
|
|
20,532
|
|
19,926
|
|
Other assets
|
|
2,218
|
|
2,068
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
777,362
|
|
$
|
756,428
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Checking deposits
|
|
$
|
168,818
|
|
$
|
194,979
|
|
Savings deposits
|
|
26,562
|
|
28,536
|
|
Money market deposits
|
|
70,835
|
|
57,123
|
|
Certificates of deposit
|
|
316,995
|
|
282,244
|
|
Total deposits
|
|
583,210
|
|
562,882
|
|
Federal funds purchased and securities sold
under agreements to repurchase
|
|
3,588
|
|
6,215
|
|
Federal Home Loan Bank advances
|
|
108,026
|
|
108,069
|
|
Notes payable
|
|
200
|
|
200
|
|
Subordinated debentures
|
|
22,681
|
|
22,681
|
|
Accrued expenses and other liabilities
|
|
7,148
|
|
5,864
|
|
|
|
|
|
|
|
Total liabilities
|
|
724,853
|
|
705,911
|
|
|
|
|
|
|
|
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; 4,502,791 and 4,501,516
shares issued; 3,600,064 and 3,594,784 shares outstanding at September 30,
2007 and December 31, 2006, respectively
|
|
27,916
|
|
27,901
|
|
Capital surplus
|
|
272
|
|
680
|
|
Retained earnings
|
|
36,785
|
|
34,449
|
|
Treasury stock, 902,727 and 906,732 shares
of common stock at cost at September 30, 2007, and December 31, 2006,
respectively
|
|
(11,594
|
)
|
(11,707
|
)
|
Accumulated other comprehensive loss
|
|
(870
|
)
|
(806
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
52,509
|
|
50,517
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
777,362
|
|
$
|
756,428
|
|
See accompanying notes to the unaudited consolidated
financial statements
3
TEAM FINANCIAL, INC. AND SUBSIDIARIES
Unaudited
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
10,384
|
|
$
|
9,266
|
|
$
|
30,597
|
|
$
|
25,878
|
|
Taxable investment securities
|
|
2,015
|
|
2,015
|
|
6,007
|
|
5,829
|
|
Nontaxable investment securities
|
|
326
|
|
256
|
|
906
|
|
796
|
|
Other
|
|
190
|
|
115
|
|
570
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
12,915
|
|
11,652
|
|
38,080
|
|
32,925
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Checking deposits
|
|
435
|
|
460
|
|
1,488
|
|
1,399
|
|
Savings deposits
|
|
47
|
|
57
|
|
149
|
|
163
|
|
Money market deposits
|
|
628
|
|
417
|
|
1,662
|
|
994
|
|
Certificates of deposit
|
|
3,874
|
|
3,010
|
|
11,098
|
|
7,815
|
|
Federal funds purchased and securities sold
under agreements to repurchase
|
|
39
|
|
36
|
|
128
|
|
124
|
|
FHLB advances payable
|
|
1,175
|
|
1,139
|
|
3,414
|
|
3,402
|
|
Notes payable and other borrowings
|
|
5
|
|
94
|
|
12
|
|
137
|
|
Subordinated debentures
|
|
406
|
|
411
|
|
1,210
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
6,609
|
|
5,624
|
|
19,161
|
|
15,222
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for
loan losses
|
|
6,306
|
|
6,028
|
|
18,919
|
|
17,703
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
91
|
|
131
|
|
398
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses
|
|
6,215
|
|
5,897
|
|
18,521
|
|
17,140
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income:
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
950
|
|
951
|
|
2,675
|
|
2,702
|
|
Trust fees
|
|
184
|
|
173
|
|
602
|
|
555
|
|
Gain on sales of mortgage loans
|
|
145
|
|
125
|
|
444
|
|
455
|
|
Loss on sales of investment securities
|
|
(5
|
)
|
(74
|
)
|
(4
|
)
|
(164
|
)
|
Bank-owned life insurance income
|
|
242
|
|
220
|
|
717
|
|
650
|
|
Other
|
|
391
|
|
372
|
|
1,141
|
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
1,907
|
|
1,767
|
|
5,575
|
|
5,288
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
3,441
|
|
2,985
|
|
9,638
|
|
9,238
|
|
Occupancy and equipment
|
|
947
|
|
735
|
|
2,524
|
|
2,231
|
|
Data processing
|
|
783
|
|
749
|
|
2,305
|
|
2,170
|
|
Professional fees
|
|
435
|
|
250
|
|
1,107
|
|
1,100
|
|
Marketing
|
|
167
|
|
109
|
|
446
|
|
284
|
|
Supplies
|
|
104
|
|
63
|
|
296
|
|
249
|
|
Intangible asset amortization
|
|
156
|
|
141
|
|
422
|
|
436
|
|
Trust Preferred Securities redemption
amortization
|
|
|
|
823
|
|
|
|
823
|
|
Other
|
|
955
|
|
858
|
|
2,670
|
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
6,988
|
|
6,713
|
|
19,408
|
|
19,050
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
1,134
|
|
951
|
|
4,688
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
226
|
|
196
|
|
1,201
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
908
|
|
$
|
755
|
|
$
|
3,487
|
|
$
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.25
|
|
$
|
0.21
|
|
$
|
0.97
|
|
$
|
0.67
|
|
Diluted income per share
|
|
$
|
0.25
|
|
$
|
0.20
|
|
$
|
0.95
|
|
$
|
0.66
|
|
Shares applicable to basic income per share
|
|
3,616,515
|
|
3,594,401
|
|
3,609,033
|
|
3,821,758
|
|
Shares applicable to diluted income per
share
|
|
3,695,337
|
|
3,692,392
|
|
3,682,588
|
|
3,912,655
|
|
See accompanying notes to the unaudited
consolidated financial statements
4
Team Financial, Inc. And Subsidiaries
Unaudited
Consolidated Statements of Comprehensive Income
(In thousands)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
908
|
|
$
|
755
|
|
$
|
3,487
|
|
$
|
2,573
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investment
securities available for sale net of tax of $671 and $839 for the three
months ended September 30, 2007 and September 30, 2006, respectively; and net
of tax of $(33) and $(194) for the nine months ended September 30, 2007 and
September 30, 2006, respectively
|
|
1,301
|
|
1,628
|
|
(67
|
)
|
(374
|
)
|
Reclassification adjustment for gains
included in net income net of tax of $2
and $25 for the three months ended September 30, 2007 and September 30, 2006,
respectively; and net of tax of $1 and $56 for the nine months ended
September 30, 2007 and September 30, 2006, respectively
|
|
3
|
|
49
|
|
3
|
|
108
|
|
Other comprehensive income (loss), net
|
|
1,304
|
|
1,677
|
|
(64
|
)
|
(266
|
)
|
Comprehensive income
|
|
$
|
2,212
|
|
$
|
2,432
|
|
$
|
3,423
|
|
$
|
2,307
|
|
See
accompanying notes to the unaudited consolidated financial statements
5
Team Financial, Inc. And Subsidiaries
Unaudited
Consolidated Statements of Changes In Stockholders Equity
Nine Months Ended September 30, 2007
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
Total
|
|
|
|
Common
|
|
Capital
|
|
Retained
|
|
Treasury
|
|
comprehensive
|
|
stockholders
|
|
|
|
stock
|
|
surplus
|
|
earnings
|
|
stock
|
|
income (loss)
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December
31, 2006
|
|
$
|
27,901
|
|
$
|
680
|
|
$
|
34,449
|
|
$
|
(11,707
|
)
|
$
|
(806
|
)
|
$
|
50,517
|
|
Treasury stock
purchased (76,395 shares)
|
|
|
|
|
|
|
|
(1,184
|
)
|
|
|
(1,184
|
)
|
Common stock
issued in connection with employee benefit plans (1,275 shares)
|
|
15
|
|
|
|
|
|
|
|
|
|
15
|
|
Exercise of stock
options (80,400 shares)
|
|
|
|
(519
|
)
|
|
|
1,297
|
|
|
|
778
|
|
Recognition of
stockbased compensation
|
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
Net income
|
|
|
|
|
|
3,487
|
|
|
|
|
|
3,487
|
|
Dividends ($0.32
per share)
|
|
|
|
|
|
(1,151
|
)
|
|
|
|
|
(1,151
|
)
|
Other
comprehensive income net of $(32) in taxes
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
(64
|
)
|
BALANCE, September
30, 2007
|
|
$
|
27,916
|
|
$
|
272
|
|
$
|
36,785
|
|
$
|
(11,594
|
)
|
$
|
(870
|
)
|
$
|
52,509
|
|
See accompanying notes to the unaudited consolidated
financial statements
6
Team Financial, Inc. And Subsidiaries
Unaudited
Consolidated Statements Of Cash Flows
(Dollars in thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
3,487
|
|
$
|
2,573
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
Provision for loan losses
|
|
398
|
|
563
|
|
Depreciation and amortization
|
|
1,645
|
|
1,607
|
|
Impairment of assets
|
|
14
|
|
|
|
Stock-based compensation expense
|
|
111
|
|
218
|
|
Change in bank owned life insurance
|
|
(606
|
)
|
(552
|
)
|
Net loss on sales of investment securities
|
|
4
|
|
164
|
|
Stock dividends
|
|
(325
|
)
|
(286
|
)
|
Net gain on sales of mortgage loans
|
|
(444
|
)
|
(455
|
)
|
Net (gain) loss on sales of assets
|
|
58
|
|
14
|
|
Proceeds from sale of mortgage loans
|
|
32,341
|
|
29,863
|
|
Origination of mortgage loans for sale
|
|
(29,951
|
)
|
(28,902
|
)
|
Net increase in other assets
|
|
(915
|
)
|
108
|
|
Net increase in accrued expenses and other
liabilities
|
|
1,028
|
|
1,882
|
|
Net cash provided by operating activities
|
|
6,845
|
|
6,797
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Net increase in loans
|
|
(32,313
|
)
|
(49,636
|
)
|
Proceeds from sale of investment securities
available-for-sale
|
|
1,670
|
|
10,809
|
|
Proceeds from maturities and principal
reductions of investment securities
|
|
13,370
|
|
20,133
|
|
Purchases of investment securities
|
|
(17,127
|
)
|
(25,149
|
)
|
Purchase of premises and equipment, net
|
|
(5,272
|
)
|
(1,079
|
)
|
Proceeds from sales of assets
|
|
372
|
|
66
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(39,300
|
)
|
(44,856
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Net increase in deposits
|
|
20,328
|
|
23,629
|
|
Net (decrease) increase in federal funds
purchased and securities sold under agreements to repurchase
|
|
(2,627
|
)
|
136
|
|
Payments on Federal Home Loan Bank advances
|
|
(166,188
|
)
|
(41
|
)
|
Proceeds from Federal Home Loan Bank
advances
|
|
166,145
|
|
(3,000
|
)
|
Payments on notes payable
|
|
(4,064
|
)
|
(10,480
|
)
|
Proceeds from notes payable
|
|
4,064
|
|
10,470
|
|
Proceeds from company obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely subordinated
debentures, net
|
|
|
|
6,475
|
|
Common stock issued
|
|
15
|
|
21
|
|
Purchase of treasury stock
|
|
(1,184
|
)
|
(7,197
|
)
|
Issuance of treasury stock
|
|
778
|
|
88
|
|
Dividends paid on common stock
|
|
(863
|
)
|
(927
|
)
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
16,404
|
|
19,174
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
(16,051
|
)
|
(18,885
|
)
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of
the period
|
|
37,150
|
|
34,360
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the
period
|
|
$
|
21,099
|
|
$
|
15,475
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest
|
|
$
|
18,584
|
|
$
|
15,231
|
|
Income taxes
|
|
1,751
|
|
720
|
|
|
|
|
|
|
|
Noncash activities related to operations
|
|
|
|
|
|
Assets acquired through foreclosure
|
|
$
|
448
|
|
$
|
593
|
|
Loans to facilitate the sale of real estate
acquired through foreclosure
|
|
19
|
|
131
|
|
See accompanying notes to the unaudited
consolidated financial statements
7
Team Financial, Inc. and Subsidiaries
Notes
to Unaudited Consolidated Financial Statements
Three and nine month periods ended September
30, 2007 and 2006
(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of Team
Financial, Inc. and subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes necessary for a comprehensive presentation of
financial condition and results of operations required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all normal recurring adjustments
necessary for a fair presentation of results have been included. The
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2006.
The
interim consolidated financial statements include the accounts of Team
Financial, Inc. and its wholly owned subsidiaries, Team Financial Acquisition
Subsidiary, Inc., including TeamBank, N.A. and its subsidiaries, and Post
Bancorp including Colorado National Bank, all of which are collectively
considered one segment. All material inter-company transactions, profits, and
balances are eliminated in consolidation. The consolidated financial statements
do not include the accounts of our wholly owned statutory trust, Team Financial
Capital Trust II (the Trust). In accordance with Financial Accounting
Standards Board Interpretation No. 46R,
Consolidation
of Variable Interest
Entities
(FIN 46 R), adopted in December 2003, the Trust qualifies as a special
purpose entity that is not required to be consolidated in the financial
statements of Team Financial, Inc. The Trust was formed in 2006 for the purpose
of issuing $22 million of Trust Preferred Securities. We continue to include
the Trust Preferred Securities issued by the Trust in Tier I capital for
regulatory capital purposes.
The December 31, 2006 statement of financial condition has been derived
from the audited consolidated financial statements as of that date. Certain
amounts in the 2006 financial statements have been reclassified to conform to
the 2007 presentation. The results of the interim period ended September 30,
2007, are not necessarily indicative of the results that may occur for the year
ending December 31, 2007.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 108 Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in the Current Year Financial
Statements, which provides guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 requires an entity to quantify
misstatements using both a balance sheet perspective (iron curtain approach)
and income statement perspective (rollover approach) and to evaluate whether
either approach results in quantifying an error that is material in light of
relevant quantitative and qualitative factors. Prior year misstatements must be
considered in quantifying misstatements in current year consolidated financial
statements and if the effect of those misstatements is material to the current
year, the prior year consolidated financial statements must be corrected even
though such revision previously was and continues to be immaterial to the
periods in which they originated.
During
the fourth quarter of 2006, the Company adopted SAB 108, and in accordance with
its provisions, the Company recorded a $631,000 cumulative increase, net of tax
of $215,000, to retained earnings as of January 1, 2006. The net impact of the
adoption of SAB 108 was material to the Company and resulted in an increase in
book value per share $0.03 as of this date. The prior year misstatements were
associated with certain loan origination costs which had not been deferred over
the life of the loans as an adjustment to yield as is required by
SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases
(SFAS 91), an over-accrual of the Companys self insurance fund and
certain data processing expenses that had been amortized over a shorter
duration than their useful life. This resulted in the Company recording a
$293,000 cumulative increase to deferred loan costs, net of tax of $100,000, a
$247,000 cumulative decrease to other liabilities for the self-insurance fund,
net of tax of $84,000, and a $91,000 increase to other assets for data processing,
net of tax of $31,000. All amounts had previously been considered immaterial to
the periods in which they originated. In the unaudited consolidated financial
statements and the accompanying notes thereto,
2006 data has been
adjusted to reflect the adoption and application of SAB 108.
8
(2) Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements. This statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. The Statement is effective for the Company on January
1, 2008 and is not expected to have a significant impact on the Companys
financial position, operations or cash flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities Including
an amendment of FASB Statement No. 115. This statement permits entities to choose to measure
eligible items at fair value at specified election dates. Unrealized
gains and losses on items for which the fair value option has been elected are
reported in earnings at each subsequent reporting date. The fair
value option (i) may be applied instrument by instrument, with certain
exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii)
is applied only to entire instruments and not to portions of
instruments. Statement No. 159 is effective for the Company on
January 1, 2008 and is not expected to have a significant impact on the Companys
financial position, operations or cash flows.
In
September 2006, the FASB ratified the consensus reached by the FASBs Emerging
Issues Task Force (EITF) relating to EITF 06-4, Accounting for the Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements. This EITF requires employers accounting
for endorsement split-dollar life insurance arrangements that provide a benefit
to an employee that extends to postretirement periods should recognize a
liability for future benefits in accordance with FASB Statement of Financial
Accounting Standards No. 106, Employers Accounting for Postretirement Benefits
Other Than Pensions, or Accounting Principles Board (APB) Opinion No. 12,
Omnibus Opinion 1967. Entities should recognize the effects of
applying this issue through either (a) a change in accounting principle through
a cumulative-effect adjustment to retained earnings or to other components of
equity or net assets in the statement of financial position as of the beginning
of the year of adoption or (b) a change in accounting principle through retrospective
application to all prior periods. This EITF is effective for the
Company on January 1, 2008. The Company is currently evaluating the
effect the implementation will have on its financial position, operations and
cash flows.
(3) Stock Based Compensation
The
Companys 1999 Stock Incentive Plan and 2007 Stock Incentive Plan, which was
approved by shareholders at the Companys annual meeting of shareholders in
June, 2007, provide for the following stock and stock-based
awards: restricted stock, stock options, stock appreciation rights and
performance shares. As of September 30, 2007, up to 15,850 shares of our common
stock were available to be issued under the 1999 Stock Incentive Plan and up to
400,000 shares of our common stock were available to be issued under the 2007
Stock Incentive Plan. All employees, directors and consultants are eligible to
participate in the plan. The Company generally grants stock options with either
a one-year cliff vesting schedule and a ten year expiration from the date of
grant, or with a three-year potential vesting schedule and a ten year
expiration from the date of grant, with vesting at the discretion of the
Compensation Committee of the Board of Directors, which administers both plans.
Beginning
in 2006, the Company adopted Statement of Financial Accounting Standards No.
123(R),
Share-Based Payments
, (SFAS
No. 123(R)). This statement requires that the cost resulting from all
share-based transactions be recognized in the financial statements. SFAS 123(R)
establishes fair value as the measurement objective in accounting for
share-based arrangements and requires all entities to apply a fair-value based
measurement method in accounting for share based payments with employees except
for equity instruments held by employee share ownership plans. During the three
and nine months ended September 30, 2007, the Company recognized share-based
compensation expense of approximately $(25,000) and $111,000, respectively. The
Company experienced a reversal of share-based compensation expense during the
three months ended September 30, 2007 primarily due to a decrease in the value
of our three-year options that are repriced each quarter due to the
discretionary nature of their vesting.
Stock compensation expense for options granted during the nine months
ended September 30, 2007 was estimated using the Black-Scholes option-pricing
model with the following assumptions:
9
|
|
One-year options
|
|
Three-year options
|
|
Expected life in years
|
|
5
|
|
8
|
|
Expected volatility
|
|
16.34
|
%
|
17.35
|
%
|
Risk-free interest rate
|
|
4.70
|
%
|
4.23
|
%
|
Annual rate of quarterly dividends
|
|
2.11
|
%
|
2.08
|
%
|
The following table summarizes option activity for the nine months
ended September 30, 2007:
|
|
|
|
Weighted
|
|
Weighted average
|
|
Aggregate
|
|
|
|
Number of
|
|
average exercise
|
|
remaining contractual
|
|
Intrinsic
|
|
|
|
options
|
|
price per share
|
|
life in years
|
|
Value
|
|
Outstanding at December 31, 2006
|
|
367,700
|
|
$
|
11.06
|
|
|
|
|
|
Granted
|
|
42,000
|
|
15.97
|
|
|
|
|
|
Exercised
|
|
(80,400
|
)
|
9.68
|
|
|
|
|
|
Expired or forfeited
|
|
(12,600
|
)
|
14.06
|
|
|
|
|
|
Outstanding at September 30, 2007
|
|
316,700
|
|
11.94
|
|
6.3
|
|
$
|
3.74
|
|
Exercisable at September 30, 2007
|
|
224,700
|
|
10.51
|
|
5.2
|
|
5.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys nonvested options as of September 30, 2007
and changes during the nine months ended are presented below:
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
average grant
|
|
|
|
shares
|
|
date fair value
|
|
Nonvested at December 31, 2006
|
|
72,600
|
|
$
|
2.83
|
|
Granted
|
|
42,000
|
|
3.28
|
|
Vested
|
|
(10,000
|
)
|
2.70
|
|
Expired or forfeited
|
|
(12,600
|
)
|
2.96
|
|
Nonvested at September 30, 2007
|
|
92,000
|
|
2.85
|
|
|
|
|
|
|
|
|
On
September 30, 2007, there was approximately $80,000 of unrecognized
compensation cost related to nonvested stock-based compensation awards, which
the Company expects to recognize over a weighted-average period of 1.2 years. Due
to the discretionary nature of the vesting of the three-year options, these
options are repriced each quarter, resulting in the difference between the
weighted average grant date fair value and the currently estimated unrecognized
compensation cost.
(4) Stock Repurchase
Program
There were 33,500 shares of common stock repurchased during the quarter
ended September 30, 2007 at an average price of $15.76 per share under a stock
repurchase program authorized by the Board of Directors that allows the
repurchase of up to 400,000 shares. At September 30, 2007, there were 227,278
shares of our common stock remaining to be repurchased.
(5) Dividends Declared
On August 28, 2007, we declared a quarterly cash dividend of $0.08 per
share to all common shareholders of record on September 1, 2007, payable on
October 19, 2007.
(6) Investment Securities
The following tables summarize the amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2007 and December 31, 2006.
10
|
|
September 30, 2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
54,749
|
|
$
|
153
|
|
$
|
(209
|
)
|
$
|
54,693
|
|
Mortgage-backed securities
|
|
80,635
|
|
322
|
|
(1,355
|
)
|
79,602
|
|
Non-taxable municipal securities
|
|
28,626
|
|
189
|
|
(203
|
)
|
28,612
|
|
Taxable municipal securities
|
|
4,435
|
|
14
|
|
|
|
4,449
|
|
Other debt securities
|
|
4,649
|
|
|
|
(278
|
)
|
4,371
|
|
Total debt securities
|
|
173,094
|
|
678
|
|
(2,045
|
)
|
171,727
|
|
Equity securities
|
|
9,517
|
|
53
|
|
(4
|
)
|
9,566
|
|
Total available for sale securities
|
|
$
|
182,611
|
|
$
|
731
|
|
$
|
(2,049
|
)
|
$
|
181,293
|
|
|
|
December 31, 2006
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
54,481
|
|
$
|
81
|
|
$
|
(649
|
)
|
$
|
53,913
|
|
Mortgage-backed securities
|
|
83,684
|
|
344
|
|
(1,178
|
)
|
82,850
|
|
Non-taxable municipal securities
|
|
27,148
|
|
271
|
|
(167
|
)
|
27,252
|
|
Taxable municipal securities
|
|
690
|
|
25
|
|
|
|
715
|
|
Other debt securities
|
|
5,200
|
|
32
|
|
(47
|
)
|
5,185
|
|
Total debt securities
|
|
171,203
|
|
753
|
|
(2,041
|
)
|
169,915
|
|
Equity securities
|
|
9,159
|
|
67
|
|
(1
|
)
|
9,225
|
|
Total available for sale securities
|
|
$
|
180,362
|
|
$
|
820
|
|
$
|
(2,042
|
)
|
$
|
179,140
|
|
Management
does not believe that any of the securities with unrealized losses at September
30, 2007 are other than temporarily impaired.
(7) Commitments and Contingencies
C
ommitments to
extend credit to our customers with unused approved lines of credit were
approximately $103.4 million at September 30, 2007. Additionally, the
contractual amount of standby letters of credit at September 30, 2007 was
approximately $1.7 million. These commitments involve credit risk in excess of
the loan amounts recorded in the consolidated balance sheets. Exposure to
credit loss in the event of nonperformance by the customer is represented by
the contractual amount of those instruments.
(8) Income Taxes
Income
tax expense was $226,000 for the three months ended September 30, 2007,
compared to income tax expense of $196,000 for the three months ended September
30, 2006, representing an increase of approximately $30,000. The effective tax
rate for the three months ended September 30, 2007, was 19.9%, compared to
20.6% for the three months ended September 30, 2006. Income tax expense was
$1,201,000 for the nine months ended September 30, 2007, compared to income tax
expense of $805,000 for the nine months ended September 30, 2006, representing
an increase of approximately
11
$396,000.
The effective tax rate for the nine months ended September 30, 2007, was 25.6%,
compared to 23.8% for the nine months ended September 30, 2006. The effective
tax rate is less than the statutory federal rate of 34.0% due primarily to
municipal interest income and income from the investment in bank owned life
insurance.
In
accordance with FIN 48, discussed in note 2, Recent Accounting Pronouncements,
the Company has performed an analysis and has concluded that it is not more
likely than not that certain state tax benefits will be recognized in the future.
The adoption of FIN 48 did not result in a cumulative effect adjustment for the
Company. As of the date of adoption of FIN 48, approximately $799,000 of
unrecognized tax benefits related to certain state tax benefits, and $7,000
related to acquisition costs were included in other liabilities within the
consolidated statement of financial condition.
If recognized, all of the tax benefits would increase net income,
decreasing the effective tax rate.
The Company accrues
tax expense, including interest and penalties, for unrecognized tax benefits
related to certain state tax positions based on the applicable tax rates, and
subsequently recognizes those state tax benefits when the related statutes
expire. During the fourth quarter of 2007, when the 2003 related statutes
expire, the Company expects to recognize approximately $80,000 of state tax
benefits associated with these state tax positions.
The Company
recognizes any interest and penalties related to unrecognized tax benefits in
the provision for income taxes. Interest and penalties associated with the
above-mentioned unrecognized tax benefits approximated $216,000 at September
30, 2007.
The Companys federal
tax returns for the years 2004 through 2006, and various state income tax
returns for the years 2003 through 2006 remain subject to review by the various
tax authorities.
(9) Legal Proceedings
During the third quarter of 2007, the Company incurred a charge to
other non-interest expense in the amount of $86,000 in order to settle a
portion of pending litigation regarding the endorsements of several presented
financial instruments. The Company is currently pursuing related legal action
against the presenter of those financial instruments and believes that it is
probable that any losses will be recovered. The Company does not believe that
any other pending litigation to which we are a party will have a material
adverse effect on our liquidity, financial condition, or results of operations.
As was disclosed in our Form 10-K for the year ended December 31, 2006,
on February 6, 2007, the buyer of our former insurance agency subsidiary filed
a complaint in the United States District Court for the Northern District of
Oklahoma against TeamBank, N.A. Asset Corporation, Mystic Capital Advisors
Group, LLC, Robert Weatherbie, Michael Gibson and Kevin Donoghue, claiming
breach of contract, negligent misrepresentation, fraud and misrepresentation
and civil conspiracy in connection with the sale of the insurance agency
subsidiary that was sold to the buyer effective December 31, 2004. Damages
sought from the defendants include not less than $10 million in actual damages,
not less than $10 million for consequential damages, and not less than $10
million for punitive damages.
All parties have since been dismissed from the complaint with the
exception of TeamBank, N.A., Robert Weatherbie and Michael Gibson. The case is
scheduled to go to trial in December 2007. The Company believes the claims are
without merit, and is pursuing a vigorous defense as well as available
counterclaims against the plaintiff.
12
Item 2:
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The
following is managements discussion and analysis of particular events or
circumstances that have affected the Companys financial condition or results
of operations during the periods presented in this filing.
Team Financial, Inc. is a financial holding company incorporated in the
State of Kansas. Our common stock is listed on the Nasdaq Global Market (NASDAQ)
under the symbol TFIN.
We offer full service community banking and financial services through
20 locations in Kansas, Missouri, Nebraska and Colorado through our wholly
owned banking subsidiaries, TeamBank, N.A and Colorado National Bank. Our
presence in Kansas consists of eight locations in the Kansas City metropolitan
area and three locations in southeast Kansas. We operate two locations in
western Missouri, three in the metropolitan area of Omaha, Nebraska and four in
the Colorado Springs, Colorado metropolitan area
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. Results of operations are
also affected by non-interest income, such as service charges and gains and
losses from the sales of mortgage loans. The principal operating expenses,
aside from interest expense, consist of compensation and employee benefits,
occupancy costs, data processing expense and provisions for loan losses.
The following table presents selected financial data for the three and
nine months ended September 30, 2007 and September 30, 2006 (dollars in
thousands, except per share data):
|
|
As of and For
|
|
As of and For
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
September 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Net income
|
|
$
|
908
|
|
$
|
755
|
|
$
|
3,487
|
|
$
|
2,573
|
|
Basic income per share
|
|
$
|
0.25
|
|
$
|
0.21
|
|
$
|
0.97
|
|
$
|
0.67
|
|
Diluted income per share
|
|
$
|
0.25
|
|
$
|
0.20
|
|
$
|
0.95
|
|
$
|
0.66
|
|
Return on average assets
|
|
0.47
|
%
|
0.42
|
%
|
0.61
|
%
|
0.48
|
%
|
Return on average equity
|
|
6.93
|
%
|
6.32
|
%
|
9.06
|
%
|
6.82
|
%
|
Average equity to average assets
|
|
6.73
|
%
|
6.58
|
%
|
6.72
|
%
|
7.08
|
%
|
Efficiency Ratio
|
|
85.08
|
%
|
86.12
|
%
|
79.24
|
%
|
82.86
|
%
|
During
the fourth quarter of 2006, the Company adopted SAB 108, as discussed in note
2,
Recent Accounting
Pronouncements
and in accordance with its provisions, the Company
recorded a $631,000 cumulative increase, net of tax of $215,000, to retained
earnings as of January 1, 2006. The net impact of the adoption of SAB 108 was
material to the Company and resulted in an increase in book value per share
$0.03 as of this date. The prior year misstatements were associated with
certain loan origination costs which had not been deferred over the life of the
loans as an adjustment to yield as is required by SFAS No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases (SFAS 91), an over-accrual of the
Companys self insurance fund and certain data
13
processing
expenses that had been amortized over a shorter duration than their useful life.
This resulted in the Company recording a $293,000 cumulative increase to
deferred loan costs, net of tax of $100,000, a $247,000 cumulative decrease to
other liabilities for the self-insurance fund, net of tax of $84,000, and a
$91,000 increase to other assets for data processing, net of tax of $31,000. All
amounts had previously been considered immaterial to the periods in which they
originated. In the unaudited consolidated financial statements and the
accompanying notes thereto,
2006 data has been adjusted to reflect the
adoption and application of SAB 108.
Critical
Accounting Policies
Our
accounting and reporting policies conform to accounting principles generally
accepted in the United States of America. In preparing the consolidated
financial statements and related notes, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of financial condition and revenues
and expenses for the period presented. Actual results could differ significantly
from those estimates.
The
Companys significant accounting policies are more fully described in Note 1 to
the consolidated financial statements contained in the Companys 2006 Annual
Report on Form 10-K and significant assumptions and estimates made by
management are more fully described in Managements Discussion and Analysis of
Financial Condition and Results of Operations under Critical Accounting
Policies in the Companys 2006 Annual Report on Form 10-K. There have been no
material changes to those policies or the estimates made pursuant to those
policies during the most recent quarter.
FINANCIAL CONDITION
Total assets at September 30, 2007, were $777.4 million compared to
$756.4 million at December 31, 2006, an increase of $20.9 million. The increase
was due primarily to the increase in loans receivable, which increased $29.6
million to $516.1 million at September 30, 2007, from $486.5 million at
December 31, 2006. The increase in loans receivable was funded with excess
cash, which decreased $16.1 million to $21.1 million at September 30, 2007 from
$37.2 million at December 31, 2006, and an increase in deposits, which
increased $20.3 million to $583.2 million at September 30, 2007 from $562.9
million at December 31, 2006.
Investment Securities
Total
investment securities were $181.3 million at September 30, 2007, compared to
$179.1 million at December 31, 2006, an increase of $2.2 million, or 1.2%. This
increase was primarily due to managements decision to reinvest maturing
investments and excess liquidity in the securities markets.
Management does not
believe that any of the securities with unrealized losses at September 30, 2007
are other than temporarily impaired.
Loans Receivable
Loans receivable increased $29.6 million, or 6.1%, to $516.1 million at
September 30, 2007, compared to $486.5 million at December 31, 2006. This
increase was primarily due to continued increases in construction and land
development loans.
During the nine months ended September 30, 2007, loans receivable increased
$29.6 million compared to loan growth of $48.4 million during the same period
in 2006. We have seen a significant decline in, and competition for, loan
originations in recent months. In circumstances where internal growth has not
been possible, management has compensated by participating in larger loan pools
where we may not be the lead bank, but which still provides the Company with
interest income. During the nine months ended September 30, 2007, approximately
$14.6 million of our $29.6 million in loan growth was from participations. Some
of the loan pools in which we participate are outside of our primary market
areas, and as of September 30, 2007, loan balances to customers outside of our
primary market areas approximated $15.1 million. Although management does not
have an estimate of how long the currently challenging operating environment
will persist, it is expected to continue in the near future.
The following table presents the composition of the loan portfolio by
type of loan at the dates indicated.
14
|
|
September 30, 2007
|
|
December 31, 2006
|
|
|
|
Principal
|
|
Percent of
|
|
Principal
|
|
Percent of
|
|
|
|
Balance
|
|
Total
|
|
Balance
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Loans secured by real estate:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
79,564
|
|
15.4
|
%
|
$
|
84,078
|
|
17.3
|
%
|
Construction and land development
|
|
178,790
|
|
34.7
|
|
136,835
|
|
28.1
|
|
Nonfarm/nonresidential
|
|
142,845
|
|
27.7
|
|
145,747
|
|
30.0
|
|
Farmland
|
|
29,096
|
|
5.6
|
|
29,196
|
|
6.0
|
|
Multifamily
|
|
4,531
|
|
0.9
|
|
5,109
|
|
1.1
|
|
Commerical and industrial
|
|
58,027
|
|
11.2
|
|
60,177
|
|
12.4
|
|
Agricultural
|
|
7,575
|
|
1.5
|
|
7,226
|
|
1.4
|
|
Installment loans
|
|
10,045
|
|
1.9
|
|
10,344
|
|
2.1
|
|
Obligations of state and political
subdivisions
|
|
4,933
|
|
1.0
|
|
5,286
|
|
1.1
|
|
Other
|
|
1,064
|
|
0.2
|
|
3,031
|
|
0.6
|
|
Gross loans
|
|
516,470
|
|
100.1
|
|
487,029
|
|
100.1
|
|
Less unearned fees
|
|
(369
|
)
|
(0.1
|
)
|
(532
|
)
|
(0.1
|
)
|
Total loans receivable
|
|
$
|
516,101
|
|
100.0
|
%
|
$
|
486,497
|
|
100.0
|
%
|
Included in one-to-four family real estate loans were loans held for sale
of approximately $0.6 million at September 30, 2007 and $2.6 million at
December 31, 2006.
Non-performing Assets
Non-performing assets consist of loans 90 days or more delinquent and
still accruing interest, non-accrual loans, restructured loans and assets
acquired through foreclosure. Loans are generally placed on non-accrual status
when principal or interest is 90 days or more past due, unless the loans are
well-secured and in the process of collection. Loans may be placed on
non-accrual status earlier when, in the opinion of management, reasonable doubt
exists as to the full, timely collection of interest or principal.
The following table summarizes non-performing assets:
|
|
September 30, 2007
|
|
December 31, 2006
|
|
|
|
(Dollars in thousands)
|
|
Non-performing assets:
|
|
|
|
|
|
Non-accrual loans
|
|
$
|
4,407
|
|
$
|
7,918
|
|
Loans 90 days past due and still accruing
|
|
3,108
|
|
434
|
|
Restructured loans
|
|
643
|
|
1,010
|
|
Non-performing loans
|
|
8,158
|
|
9,362
|
|
Other real estate owned
|
|
915
|
|
817
|
|
Total non-performing assets
|
|
$
|
9,073
|
|
$
|
10,179
|
|
Non-performing loans as a percentage of total
loans
|
|
1.58
|
%
|
1.92
|
%
|
Non-performing assets as a percentage of total
assets
|
|
1.17
|
%
|
1.35
|
%
|
Non-performing assets totaled $9.1 million at September 30, 2007
compared to $10.2 million at December 31, 2006. Non-performing loans
were the largest component of non-performing assets during both periods, and
were approximately $8.2 million at September 30, 2007 compared to $9.4 million
at December 31, 2006, a decrease of approximately $1.2 million.
During
the third quarter of 2007, non-performing loans increased $3.3 million,
primarily due to a $2.4 million increase in loans 90 days past due and still
accruing interest.
The
increase in loans 90 days past due and still accruing interest was
15
largely
due to a group of loans in our Missouri market from a diversified commercial
customer
totaling $2.6 million that were on
non-accrual status at December 31, 2006, were paid current as of March 31,
2007, and were 90 days past due and still accruing interest at September 30,
2007. Management actively worked with the borrower to resolve the delinquencies
during the first three quarters of 2007, and subsequent to September 30, 2007,
all loans to this borrower were of performing status.
Included
in non-accrual loans at September 30, 2007 were several loans. The largest
three relationships included in non-accrual at September 30, 2007 included a
$458,000 commercial loan secured by real estate, a $351,000 commercial loan
that, subsequent to September 30, 2007 has been paid in full, and a $300,000
commercial loan secured by real estate and business assets that management is
actively seeking resolution with the borrower.
Restructured
loans at September 30, 2007 consisted of six relationships, the largest of
which included three agricultural loans for approximately $509,000 which were
restructured through Farm Service Agency and are therefore 75% guaranteed.
Other
real estate owned at September 30, 2007 consisted of seven properties including
five commercial buildings totaling approximately $755,000, one one-to-four
family properties totaling approximately $113,000, and one piece of vacant land
for approximately $47,000. The properties are all located within our market
areas. Management is working to sell the real estate as soon as practical.
The
loan portfolio is continuously monitored for possible non-performing assets as
information becomes available. The magnitude of any increase in non-performing
loans is not determinable.
Allowance for loan losses
Management
maintains an allowance for loan losses based on historical experience, an
evaluation of economic conditions and regular review of delinquencies and loan
portfolio quality. Based upon these factors, management makes various
assumptions and judgments about the ultimate collectibility of the loan
portfolio and provides an allowance for probable loan losses based upon a
percentage of the outstanding balances and for specific loans if their ultimate
collectibility is considered questionable. Actual losses may differ due to
changing conditions or information that is currently not available.
The following table summarizes the allowance for loan losses:
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
Allowance at beginning of period
|
|
$
|
5,715
|
|
$
|
5,424
|
|
Provision for loan losses
|
|
398
|
|
563
|
|
Loans charged off
|
|
(475
|
)
|
(387
|
)
|
Recoveries
|
|
217
|
|
169
|
|
Allowance at end of period
|
|
$
|
5,855
|
|
$
|
5,769
|
|
|
|
|
|
|
|
Annualized net charge-offs as a percent of
total loans
|
|
0.07
|
%
|
0.06
|
%
|
Allowance as a percent of total loans
|
|
1.13
|
%
|
1.23
|
%
|
Allowance as a pecent of non-performing
loans
|
|
71.77
|
%
|
67.37
|
%
|
The allowance for loan losses as a percent of non-performing loans
increased at September 30, 2007, compared to September 30, 2006 due to a
decrease in non-performing loans at September 30, 2007 to $8.2 million from
$8.6 million at September 30, 2006. This decrease was primarily due to a
decrease in restructured loans from September 30, 2006 compared to September
30, 2007.
16
Deposits
Total deposits increased approximately $20.3 million to $583.2 million
at September 30, 2007 from $562.9 million at December 31, 2006. This increase
was primarily a result of an increase in certificates of deposits as a result
of branch promotional campaigns and an increase in public funds, offset by a
decrease in checking deposits.
Principal maturities of time deposits at September 30, 2007 were as
follows:
Year ending December 31:
|
|
(Dollars in thousands)
|
|
2007
|
|
$
|
101,839
|
|
2008
|
|
176,745
|
|
2009
|
|
31,473
|
|
2010
|
|
3,990
|
|
2011
|
|
1,738
|
|
Thereafter
|
|
1,210
|
|
Total
|
|
$
|
316,995
|
|
Regulatory Capital
We are subject to regulatory capital requirements administered by the
Federal Reserve, the Federal Deposit Insurance Corporation and the Office of
the Comptroller of the Currency. Failure to meet the regulatory capital
guidelines may result in the initiation by the Federal Reserve of appropriate
supervisory or enforcement actions. As of September 30, 2007 and December 31,
2006, we met all applicable capital adequacy requirements. Regulatory capital
ratios at September 30, 2007, were as follows:
Ratio
|
|
Actual
|
|
Minimum Required
|
|
Total capital to risk weighted assets
|
|
11.30
|
%
|
8.00
|
%
|
Core capital to risk weighted assets
|
|
9.63
|
%
|
4.00
|
%
|
Core capital to average assets
|
|
7.72
|
%
|
4.00
|
%
|
Liquidity
Our liquidity is continuously forecasted and managed in order to
satisfy cash flow requirements of depositors and borrowers and to meet other
operating cash flow needs. We have developed internal and external sources of
liquidity to meet our liquidity needs. These sources include, but are not
limited to, the ability to raise deposits through branch promotional campaigns,
the purchase of brokered certificates of deposits, overnight funds, short term
investment securities classified as available-for-sale and draws on credit
facilities established through the Federal Home Loan Bank of Topeka.
Our most liquid assets are cash and cash equivalents and investment
securities available-for-sale. The levels of these assets are dependent on
operating, financing, lending and investing activities during any given period.
At September 30, 2007, these assets, approximating $193.0 million, consisted of
$21.1 million in cash and cash equivalents, and $171.9 million in investment
securities available-for-sale. Approximately $154.1 million of these investment
securities were pledged as collateral for borrowings, repurchase agreements and
for public funds on deposit at September 30, 2007.
At September 30, 2007, we had approximately $35.3 million borrowing
capacity remaining under existing agreements with the Federal Home Loan Bank of
Topeka, and approximately $6.0 million borrowing capacity under our corporate
line of credit.
17
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 2007 was $908,000,
or $0.25 basic and diluted income per share, an increase of 20.3%, compared to
$755,000, or $0.21 basic and $0.20 diluted income per share for the three
months ended September 30, 2006. Net income for the nine months ended September
30, 2007 was $3,487,000, or $0.97 basic and $0.95 diluted income per share,
compared to $2,573,000, or $0.67 basic and $0.66 diluted income per share for
the nine months ended September 30, 2006, an increase of $914,000, or 35.5%.
Net Interest Income
Net interest income before provision for loan losses for the three
months ended September 30, 2007 totaled $6.3 million compared to $6.0 million
for the same period in 2006, an increase of $0.3 million, or 4.6%. Net interest
income before provision for loan losses for the nine months ended September 30,
2007 totaled $18.9 million compared to $17.7 million for the same period in
2006, an increase of $1.2 million, or 6.9%.
Net interest margin, adjusted for the tax effect of tax exempt
securities, as a percent of average earning assets, was 3.69% for the three
months ended September 30, 2007, compared to 3.77% for the three months ended
September 30, 2006. Tax equivalent net interest margin as a percent of average
earning assets was 3.76% for the nine months ended September 30, 2007, and
3.77% for the nine months ended September 30, 2006. The average rate of
interest-earning assets increased 27 basis points for the quarter ended
September 30, 2007 compared to the quarter ended September 30, 2006. The
average rate of interest earning assets increased 54 basis points for the nine
months ended September 30, 2007 compared to the same period in 2006. The
average cost of interest-bearing liabilities increased 36 and 54 basis points
for the respective three and nine months ended September 30, 2007, compared to
the same periods in 2006. The result was an increase in net interest income of
$0.3 million and $1.2 million, including the tax equivalent impact on tax
exempt securities, for the three and nine months ended September 30, 2007
compared to the same periods in 2006.
The following tables present certain information relating to net
interest income for the three and nine months ended September 30, 2007 and 2006.
The average rates are derived by dividing annualized interest income or expense
by the average balance of assets and liabilities, respectively, for the periods
shown.
18
|
|
Three Months Ended September 30, 2007
|
|
Three Months Ended September 30, 2006
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net (1) (2) (3)
|
|
$
|
504,462
|
|
$
|
10,418
|
|
8.20
|
%
|
$
|
460,049
|
|
$
|
9,266
|
|
7.99
|
%
|
Investment securities-taxable
|
|
152,781
|
|
2,016
|
|
5.24
|
%
|
155,743
|
|
2,015
|
|
5.13
|
%
|
Investment securities-nontaxable (4)
|
|
28,290
|
|
494
|
|
6.93
|
%
|
28,366
|
|
451
|
|
6.31
|
%
|
Interest-bearing deposits
|
|
13,630
|
|
174
|
|
5.04
|
%
|
10,860
|
|
103
|
|
3.76
|
%
|
Other assets (5)
|
|
681
|
|
16
|
|
9.32
|
%
|
538
|
|
12
|
|
8.85
|
%
|
Total interest earning assets
|
|
$
|
699,844
|
|
$
|
13,118
|
|
7.44
|
%
|
$
|
655,556
|
|
$
|
11,847
|
|
7.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and interest bearing
checking
|
|
$
|
189,337
|
|
$
|
1,112
|
|
2.33
|
%
|
$
|
184,048
|
|
$
|
934
|
|
2.01
|
%
|
Time deposits
|
|
313,011
|
|
3,873
|
|
4.91
|
%
|
273,948
|
|
3,010
|
|
4.36
|
%
|
Federal funds purchased and securities
sold under agreements to repurchase
|
|
3,751
|
|
39
|
|
4.14
|
%
|
3,789
|
|
36
|
|
3.77
|
%
|
Federal Home Loan Bank advances and
other
borrowings
|
|
107,710
|
|
1,179
|
|
4.34
|
%
|
113,339
|
|
1,233
|
|
4.32
|
%
|
Subordinated debentures
|
|
22,681
|
|
406
|
|
7.10
|
%
|
17,935
|
|
411
|
|
9.09
|
%
|
Total interest bearing
liabilities
|
|
$
|
636,490
|
|
$
|
6,609
|
|
4.12
|
%
|
$
|
593,059
|
|
$
|
5,624
|
|
3.76
|
%
|
Net interest income (tax equivalent)
|
|
|
|
$
|
6,509
|
|
|
|
|
|
$
|
6,223
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
3.41
|
%
|
Net interest earning assets
|
|
$
|
63,354
|
|
|
|
|
|
$
|
62,497
|
|
|
|
|
|
Net interest margin (4)
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
3.77
|
%
|
Ratio of average interest bearing
liabilities
to average interest earning assets
|
|
90.95
|
%
|
|
|
|
|
88.68
|
%
|
|
|
|
|
(1)
Loans are net of deferred costs, less fees.
(2)
Non-accruing loans are included in the
computation of average balances.
(3)
The Company includes loan fees in interest
income. These fees for the three months ended September 30, 2007 and 2006 were
$188,000 and $314,000, respectively.
(4)
Yield is adjusted for the tax effect of tax
exempt securities. The tax effects for the three months ended September 30, 2007
and 2006 were $203,000 and $195,000, respectively.
(5) Interest income on other assets includes imputed interest on
premises under construction. Imputed interest for the three months ended
September 30, 2007 and September 30, 2006 was $4,000 and $0, respectively.
19
|
|
Nine Months Ended September 30, 2007
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net (1) (2) (3)
|
|
$
|
499,774
|
|
$
|
30,727
|
|
8.22
|
%
|
$
|
450,516
|
|
$
|
25,878
|
|
7.68
|
%
|
Investment securities-taxable
|
|
153,187
|
|
6,007
|
|
5.24
|
%
|
157,173
|
|
5,829
|
|
4.96
|
%
|
Investment securities-nontaxable (4)
|
|
27,712
|
|
1,373
|
|
6.62
|
%
|
28,434
|
|
1,364
|
|
6.41
|
%
|
Interest-bearing deposits
|
|
12,530
|
|
467
|
|
4.98
|
%
|
11,759
|
|
387
|
|
4.40
|
%
|
Other assets (5)
|
|
681
|
|
103
|
|
20.22
|
%
|
500
|
|
35
|
|
9.36
|
%
|
Total interest-earning assets
|
|
$
|
693,884
|
|
$
|
38,677
|
|
7.45
|
%
|
$
|
648,382
|
|
$
|
33,493
|
|
6.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and interest-bearing checking
|
|
$
|
192,631
|
|
$
|
3,300
|
|
2.29
|
%
|
$
|
187,470
|
|
$
|
2,556
|
|
1.82
|
%
|
Time deposits
|
|
305,042
|
|
11,098
|
|
4.86
|
%
|
259,188
|
|
7,815
|
|
4.03
|
%
|
Federal funds purchased and securities sold
under agreements to repurchase
|
|
3,744
|
|
128
|
|
4.57
|
%
|
4,509
|
|
124
|
|
3.68
|
%
|
Federal Home Loan Bank advances and other
borrowings
|
|
108,008
|
|
3,425
|
|
4.24
|
%
|
111,765
|
|
3,539
|
|
4.23
|
%
|
Subordinated debentures
|
|
22,681
|
|
1,210
|
|
7.13
|
%
|
16,655
|
|
1,188
|
|
9.54
|
%
|
Total interest-bearing liabilities
|
|
$
|
632,106
|
|
$
|
19,161
|
|
4.05
|
%
|
$
|
579,587
|
|
$
|
15,222
|
|
3.51
|
%
|
Net interest income (tax equivalent)
|
|
|
|
$
|
19,516
|
|
|
|
|
|
$
|
18,271
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.40
|
%
|
|
|
|
|
3.40
|
%
|
Net interest-earning assets
|
|
$
|
61,778
|
|
|
|
|
|
$
|
68,795
|
|
|
|
|
|
Net interest margin (4)
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
3.77
|
%
|
Ratio of average interest-bearing
liabilities to average interest-earning assets
|
|
91.10
|
%
|
|
|
|
|
89.39
|
%
|
|
|
|
|
(1)
Loans are net of deferred costs, less fees.
(2)
Non-accruing loans are included in the computation of
average balances.
(3)
The Company includes loan fees in interest income. These
fees for the nine months ended September 30, 2007 and 2006 were $551,000 and
$1,037,000, respectively.
(4)
Yield is adjusted for the tax effect of tax exempt securities. The tax
effects for the nine months ended September 30, 2007 and 2006 were $597,000 and
$568,000, respectively.
(5) Interest income on other assets includes imputed interest on
premises under construction. Imputed
interest for the nine months ended September 30, 2007 and September 30, 2006
was $67,000 and $0, respectively.
The following table presents the components of changes in net interest
income, on a tax equivalent basis, attributed to volume and rate. Changes in
interest income and interest expense attributable to volume changes are
calculated by multiplying the change in volume by the average interest rate
during the prior years respective three or nine months periods. The changes in
interest income and interest expense attributable to change in interest rates
are calculated by multiplying the change in interest rate by the average volume
during the prior years respective three or nine months periods. The changes in
interest income and 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.
20
|
|
Three Months Ended September 30, 2007
Compared To
|
|
Nine Months Ended September 30, 2007
Compared To
|
|
|
|
Three Months Ended September 30, 2006
|
|
Nine Months Ended September30, 2006
|
|
|
|
Increase (decrease) due to
|
|
Increase (decrease) due to
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
|
(Dollars
in thousands)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net (1) (2) (3)
|
|
$
|
895
|
|
$
|
257
|
|
$
|
1,152
|
|
$
|
2,829
|
|
$
|
2,019
|
|
$
|
4,848
|
|
Investment securities-taxable
|
|
(38
|
)
|
38
|
|
|
|
(148
|
)
|
327
|
|
179
|
|
Investment securities-nontaxable (4)
|
|
(1
|
)
|
44
|
|
43
|
|
(35
|
)
|
44
|
|
9
|
|
Interest-bearing deposits
|
|
26
|
|
45
|
|
71
|
|
25
|
|
55
|
|
80
|
|
Other assets (5)
|
|
3
|
|
1
|
|
4
|
|
13
|
|
55
|
|
68
|
|
Total interest income
|
|
$
|
885
|
|
$
|
385
|
|
$
|
1,270
|
|
$
|
2,684
|
|
$
|
2,500
|
|
$
|
5,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and interest bearing checking
|
|
$
|
27
|
|
$
|
149
|
|
176
|
|
$
|
70
|
|
$
|
673
|
|
$
|
743
|
|
Time deposits
|
|
429
|
|
435
|
|
864
|
|
1,382
|
|
1,901
|
|
3,283
|
|
Federal funds purchased and securities sold
under agreements to repurchase
|
|
|
|
3
|
|
3
|
|
(21
|
)
|
25
|
|
4
|
|
Federal Home Loan Bank advances and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
(61
|
)
|
8
|
|
(53
|
)
|
(118
|
)
|
5
|
|
(113
|
)
|
Subordinated debentures
|
|
109
|
|
(114
|
)
|
(5
|
)
|
430
|
|
(408
|
)
|
22
|
|
Total interest expense
|
|
504
|
|
481
|
|
985
|
|
1,743
|
|
2,196
|
|
3,939
|
|
Net change in net interest income
|
|
$
|
381
|
|
$
|
(96
|
)
|
$
|
285
|
|
$
|
941
|
|
$
|
304
|
|
$
|
1,245
|
|
(1) Loans are net of deferred costs, less
fees.
(2) Non-accruing loans are included in the
computation of average balances.
(3) The Company includes loan fees in
interest income. These fees for the three months ended September 30, 2007 and
2006 were $188,000 and $314,000, and for the nine months ended September 30,
2007 and 2006 were $551,000 and $1,037,000.
(4) Yield is adjusted for the tax effect of
tax exempt securities. The tax effects for the three months ended September 30,
2007 and 2006 were $203,000 and $195,000, and for the nine months ended
September 30, 2007 and 2006 were $597,000 and $568,000.
(5) Interest income on other assets includes
imputed interest on premises under construction. Imputed interest for the three months ended
September 30, 2007 and September 30, 2006 was $4,000 and $0, respectively. Imputed interest for the nine months ended
September 30, 2007 and September 30, 2006 was $67,000 and $0, respectively.
Interest-earning
assets
The average rate on interest-earning assets was 7.44% for the three
months ended September 30, 2007, representing an increase of 27 basis points
from 7.17% for the same three months ended 2006. The average rate on
interest-earning assets was 7.45% for the nine months ended September 30, 2007,
representing an increase of 54 basis points from 6.91% for the same nine months
ended 2006. Interest-earning assets are comprised of loans receivable,
investment securities, interest-bearing deposits and an investment in a
non-consolidated wholly owned subsidiary that was formed for the purpose of
issuing trust preferred securities.
The average rate on loans receivable increased 21 basis points to 8.20%
for the three months ended September 30, 2007, compared to 7.99% for the three
months in September 30, 2006. The average rate on loans receivable increased 54
basis points to 8.22% for the nine months ended September 30, 2007, compared to
7.68% for the nine months ended September 30, 2006. The average balance of
loans receivable increased approximately $44.4 million during the three months
ended September 30, 2007 compared to the same three months in 2006 and $49.3
million during the nine months ended September 30, 2007 compared to the same
nine months in 2006. The combination of the rate increases and average balance
increases resulted in an increase in interest income from loans receivable of
$1.2 million, or 12.4%, during the third quarter of 2007 compared to the third
quarter of 2006 and an increase of $4.8 million, or 18.7%, during the nine
months ended September 30, 2007 compared to the same period in 2006.
21
The average rate on investment securities, adjusted for the tax effect
of tax exempt securities, increased 19 basis points to 5.50% for the quarter
ended September 30, 2007 compared to 5.31% for the quarter ended September 30,
2006 and 27 basis points to 5.45% for the nine months ended September 30, 2007,
compared to 5.18% for the nine months ended September 30, 2006. This increase
in average interest rate was offset by a decrease in the average balances of
investment securities during the three and nine months ended September 30, 2006
of $3.0 million and $4.7 million, respectively, compared to the same periods of
the previous year.
Interest-bearing liabilities
The average rate paid on interest-bearing liabilities increased 36
basis points to 4.12% for the three months ended September 30, 2007, compared
to 3.76% for the same three months in 2006. The average rate paid on
interest-bearing liabilities increased 54 basis points to 4.05% for the nine
months ended September 30, 2007, compared to 3.51% for the same nine months in
2006. Interest-bearing liabilities are comprised of savings and interest
bearing checking deposits, time deposits, federal funds purchased and
securities sold under agreements to repurchase, holding company notes payable,
Federal Home Loan Bank advances and other borrowings, and subordinated
debentures held by our subsidiary trust which issued trust preferred
securities.
The average rate paid on interest-bearing savings and interest-bearing
checking deposits increased 32 basis points to 2.33% for the three months ended
September 30, 2007 compared to 2.01% for the three months ended September 30,
2006. The average rate paid on time deposits increased 55 basis points to 4.91%
during the third quarter of 2007 from 4.36% during the second quarter of 2006. The
average rate paid on interest-bearing savings and interest-bearing checking
deposits increased 47 basis points to 2.29% for the nine months ended September
30, 2007, compared to 1.82% for the nine months ended September 30, 2006. The
average rate paid on time deposits increased 83 basis points to 4.86% during
the nine months ended September 30, 2007 compared to 4.03% during the nine
months ended September 30, 2006.
The effective interest rate on the subordinated debentures decreased
199 basis points to 7.10% for the three months ended September 30, 2007,
compared to 9.09% for the same period of 2006. The effective interest rate on
subordinated debentures decreased 241 basis points to 7.13% for the nine months
ended September 30, 2007, compared to 9.09% for the nine months ended September
30, 2006. During the third quarter of 2006,
the Company chose to redeem all of the Team
Financial Capital Trust I 9.50% Subordinated Debentures, due August 10, 2031
(the Securities) at a redemption price equal to 100% of the principal amount
of the Securities, or $16.0 million, plus interest accrued and unpaid through
September 17, 2006. As a result of the redemption of the debentures, the
Company incurred a pretax charge, recorded as other non-interest expense to
earnings of approximately $824,000 on the redemption date of the debentures. This
charge was the unamortized portion of the offering cost that was being
amortized over the original life of the debentures. To fund the redemption of
the Securities, the Company replaced the called debentures with a pooled trust
preferred security of $22.0 million at a variable rate of 1.65% above the
90-day LIBOR. The new trust preferred security has a 30-year term and a
callable option 5 years after the issuance date and did not have a placement or
annual trustee fee associated with it.
Provision for Loan Losses
A
provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical loss experience, the volume and type of lending conducted, the
status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to our market areas, and
other factors related to the collectibility of the loan portfolio. After
considering the above factors, management recorded a provision for loan losses
on loans totaling $91,000 for the three months ended September 30, 2007, and
$131,000 for the three months ended September 30, 2006. T
he provision for loan losses for the nine months
ended September 30, 2007, was $398,000, compared to $563,000 for the nine
months ended September 30, 2006. The decrease in the amount of the provision
recorded for the three and nine months ended September 30, 2007 compared to the
three and nine months ended September 30, 2006 was largely due to the decreased
loan growth in 2007 compared to 2006, coupled with fewer non-performing loans
as a percentage of total loans. Loan growth for the first nine months of 2007
was approximately $29.6 million, compared to loan growth of approximately $48.4
million for the first nine months of 2006, reducing the need to record
additional provision for loan losses.
Non-Interest Income
The following table summarizes non-interest income for the three and
nine months ended September 30, 2007, compared to the same periods ended
September 30, 2006.
22
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Service charges
|
|
$
|
950
|
|
$
|
951
|
|
$
|
2,675
|
|
$
|
2,702
|
|
Trust fees
|
|
184
|
|
173
|
|
602
|
|
555
|
|
Brokerage service revenue
|
|
60
|
|
52
|
|
161
|
|
175
|
|
Gain on sales of mortgage loans
|
|
145
|
|
125
|
|
444
|
|
455
|
|
Loss on sales of investment securities
|
|
(5
|
)
|
(74
|
)
|
(4
|
)
|
(164
|
)
|
Mortgage servicing fees
|
|
44
|
|
51
|
|
137
|
|
156
|
|
Merchant processing fees
|
|
4
|
|
7
|
|
12
|
|
16
|
|
ATM and debit card fees
|
|
150
|
|
124
|
|
420
|
|
360
|
|
Bank owned life insurance income
|
|
242
|
|
220
|
|
717
|
|
650
|
|
Other
|
|
133
|
|
138
|
|
411
|
|
383
|
|
Total non-interest income
|
|
$
|
1,907
|
|
$
|
1,767
|
|
$
|
5,575
|
|
$
|
5,288
|
|
Non-interest income for the three months ended September 30, 2007
increased approximately $140,000, or 7.9% compared to the three months ended
September 30, 2006. Non-interest income for the nine months ended September 30,
2007 increased approximately $287,000, or 5.4% compared to the nine months
ended September 30, 2006.
The primary reason for the increase in non-interest income during three
and nine months ended September 30, 2007 compared to the same periods in 2006
was due to the losses on sales of investment securities recorded as a result of
repositioning the securities portfolio during the second and third quarters of
2006 making non-interest income during those periods unusually low. Also
contributing to the increase in non-interest income for the three and nine
months ended September 30, 2007 was an increase in ATM and debit card fees and
an increase in bank owned life insurance income. Gain on sales of mortgage
loans also increased approximately $20,000, or 16.0%, during the quarter ended
September 30, 2007 compared to the same period ended September 30, 2006. Gain
on sales of mortgage loans has been slowly recovering from lows experienced in
2006 and we expect the levels of mortgage loan originations and sales and
related gains to continue to increase at a moderate pace, due to the opening of
new banking centers and additional mortgage lenders, which should help increase
the volume of loans that can be sold.
Non-Interest Expense
The following table presents non-interest expense for the three and
nine months ended September 30, 2007, compared to the same periods ended
September 30, 2006.
23
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Salaries and employee benefits
|
|
$
|
3,441
|
|
$
|
2,985
|
|
$
|
9,638
|
|
$
|
9,238
|
|
Occupancy and equipment
|
|
947
|
|
735
|
|
2,524
|
|
2,231
|
|
Data processing
|
|
783
|
|
749
|
|
2,305
|
|
2,170
|
|
Professional fees
|
|
435
|
|
250
|
|
1,107
|
|
1,100
|
|
Marketing
|
|
167
|
|
109
|
|
446
|
|
284
|
|
Supplies
|
|
104
|
|
63
|
|
296
|
|
249
|
|
Intangible asset amortization
|
|
156
|
|
141
|
|
422
|
|
436
|
|
Trust preferred securities redemption
amortization
|
|
|
|
823
|
|
|
|
823
|
|
Other
|
|
955
|
|
858
|
|
2,670
|
|
2,519
|
|
Total non-interest expenses
|
|
$
|
6,988
|
|
$
|
6,713
|
|
$
|
19,408
|
|
$
|
19,050
|
|
Non-interest expense increased $275,000, or 4.1%, for the three months
ended September 30, 2007, compared to the three months ended September 30, 2006.
Non-interest expense increased $358,000, or 1.9%, for the nine months ended
September 30, 2007 compared to the nine months ended September 30, 2006.
The increase in non-interest expense for the three and nine months
ended September 30, 2007 was primarily due to a $456,000 and $400,000 increase
in our salaries and employee benefits expense for those periods, respectively. The
increases in salaries and employee benefits were largely driven by increased
medical insurance expense. Occupancy and equipment expenses also increased $212,000
and $293,000 for the three and nine months ended September 30, 2007 primarily
due to the re-evaluation of the useful lives of our fixed assets and to
immaterial corrections of prior period depreciation differences, which resulted
in additional depreciation during the quarter. During the third quarter of
2007, we incurred $435,000 in professional fees, up approximately $185,000 from
the same period in 2006. The increase in professional fees was primarily
related to the preparation for and compliance with the provisions of the
Sarbanes-Oxley Act of 2002. Although the Company is incurring substantial costs
defending the complaint against the Company regarding the sale of our former
insurance agency subsidiary, substantially all of those costs are now being
paid by a Company liability insurance policy.
Also contributing to the increase in non-interest expenses during the
three months ended September 30, 2007 was a procedural loss for approximately
$86,000 as a result of settling a lawsuit filed in a Nebraska district court
regarding several endorsements on presented financial instruments. Offsetting
these increases was a decrease of $823,000 in the trust preferred securities
redemption amortization charge incurred as a result of the restructuring of the
trust preferred securities in September 2006.
Income Tax Expense
We recorded income tax expense of $226,000 for the three months ended
September 30, 2007, an increase of $30,000 compared to income tax expense of
$196,000 for the three months ended September 30, 2006. The effective tax rate
for the three months ended September 30, 2007 was 19.9%, compared to 20.6% for
the three months ended September 30, 2006. Income tax expense for the nine
months ended September 30, 2007 was $1,201,000, an increase of $396,000 from
$805,000 recorded for the nine months ended September 30, 2006. The effective
tax rate for the nine months ended September 30, 2007 was 25.6%, compared to
23.8% for the nine months ended September 30, 2006.
The effective tax rate is less than the statutory federal rate of 34.0%
due primarily to municipal interest income and income from the investment in
bank owned life insurance. The increase in the effective tax rate was primarily
attributable to tax-exempt income representing a smaller percentage of total
income in 2007 compared to 2006.
24