UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One)
x
|
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2008
OR
o
|
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the
transition period from
to
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)
Registrants
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer, and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting
company
x
|
(Do not check if a
smaller reporting company)
|
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date.
There were 3,596,103
shares of the Registrants common stock, no par value, outstanding as of May 15,
2008.
TEAM FINANCIAL, INC. AND
SUBSIDIARIES
Unaudited
Consolidated Statements of Financial Condition
(Dollars in thousands)
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
15,866
|
|
$
|
20,258
|
|
Federal funds sold and interest bearing bank
deposits
|
|
39,536
|
|
9,926
|
|
Cash and cash equivalents
|
|
55,402
|
|
30,184
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
Available for sale, at fair value (amortized cost
of $150,898 and $166,369 at March 31, 2008 and December 31, 2007,
respectively)
|
|
153,403
|
|
165,848
|
|
Non-marketable equity securities (amortized cost
of $9,579 and $9,493 at March 31, 2008 and December 31, 2007,
respectively)
|
|
9,579
|
|
9,493
|
|
Total investment securities
|
|
162,982
|
|
175,341
|
|
|
|
|
|
|
|
Loans receivable, net of unearned fees
|
|
578,545
|
|
560,861
|
|
Allowance for loan losses
|
|
(8,261
|
)
|
(5,987
|
)
|
Net loans receivable
|
|
570,284
|
|
554,874
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
5,385
|
|
5,599
|
|
Premises and equipment, net
|
|
21,877
|
|
22,083
|
|
Assets acquired through foreclosure
|
|
955
|
|
934
|
|
Goodwill
|
|
4,708
|
|
10,700
|
|
Intangible assets, net of accumulated amortization
|
|
2,376
|
|
2,523
|
|
Bank owned life insurance policies
|
|
20,949
|
|
20,739
|
|
Other assets
|
|
2,604
|
|
2,087
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
847,522
|
|
$
|
825,064
|
|
|
|
|
|
|
|
Liabilities and Stockholders
Equity
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Checking deposits
|
|
$
|
174,429
|
|
$
|
187,356
|
|
Savings deposits
|
|
28,129
|
|
25,848
|
|
Money market deposits
|
|
67,883
|
|
68,472
|
|
Certificates of deposit
|
|
386,154
|
|
347,710
|
|
Total deposits
|
|
656,595
|
|
629,386
|
|
Federal funds purchased and securities sold under
agreements to repurchase
|
|
2,354
|
|
2,969
|
|
Federal Home Loan Bank advances
|
|
107,993
|
|
108,005
|
|
Notes payable
|
|
2,096
|
|
2,195
|
|
Subordinated debentures
|
|
22,681
|
|
22,681
|
|
Accrued expenses and other liabilities
|
|
7,173
|
|
6,777
|
|
|
|
|
|
|
|
Total liabilities
|
|
798,892
|
|
772,013
|
|
|
|
|
|
|
|
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; 4,506,830 and 4,502,791 shares issued; 3,596,103 and 3,575,064
shares outstanding at March 31, 2008 and December 31, 2007,
respectively
|
|
27,972
|
|
27,916
|
|
Capital surplus
|
|
275
|
|
308
|
|
Retained earnings
|
|
30,449
|
|
37,149
|
|
Treasury stock, 910,727 and 927,727 shares of
common stock at cost at March 31, 2008, and December 31, 2007,
respectively
|
|
(11,719
|
)
|
(11,978
|
)
|
Accumulated other comprehensive income (loss)
|
|
1,653
|
|
(344
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
48,630
|
|
53,051
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
847,522
|
|
$
|
825,064
|
|
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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
Interest Income:
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
10,572
|
|
$
|
9,930
|
|
Taxable investment securities
|
|
1,800
|
|
2,003
|
|
Nontaxable investment securities
|
|
321
|
|
287
|
|
Other
|
|
190
|
|
174
|
|
|
|
|
|
|
|
Total interest income
|
|
12,883
|
|
12,394
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Checking deposits
|
|
291
|
|
544
|
|
Savings deposits
|
|
45
|
|
52
|
|
Money market deposits
|
|
426
|
|
514
|
|
Certificates of deposit
|
|
4,156
|
|
3,544
|
|
Federal funds purchased and securities sold under
agreements to repurchase
|
|
13
|
|
2
|
|
Federal Home Loan Bank advances payable
|
|
1,166
|
|
1,113
|
|
Notes payable and other borrowings
|
|
31
|
|
4
|
|
Subordinated debentures
|
|
343
|
|
402
|
|
|
|
|
|
|
|
Total interest expense
|
|
6,471
|
|
6,175
|
|
|
|
|
|
|
|
Net interest income before provision for loan
losses
|
|
6,412
|
|
6,219
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
2,574
|
|
230
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
3,838
|
|
5,989
|
|
|
|
|
|
|
|
Non-Interest Income:
|
|
|
|
|
|
Service charges
|
|
830
|
|
817
|
|
Trust fees
|
|
161
|
|
169
|
|
Gain on sales of mortgage loans
|
|
180
|
|
145
|
|
Gain on sales of investment securities
|
|
158
|
|
|
|
Bank-owned life insurance income
|
|
245
|
|
237
|
|
Other
|
|
401
|
|
367
|
|
|
|
|
|
|
|
Total non-interest income
|
|
1,975
|
|
1,735
|
|
|
|
|
|
|
|
Non-Interest Expenses:
|
|
|
|
|
|
Salaries and employee benefits
|
|
3,503
|
|
3,130
|
|
Occupancy and equipment
|
|
842
|
|
735
|
|
Data processing
|
|
719
|
|
737
|
|
Professional fees
|
|
391
|
|
450
|
|
Marketing
|
|
78
|
|
110
|
|
Supplies
|
|
78
|
|
81
|
|
Intangible asset amortization
|
|
156
|
|
140
|
|
Goodwill impairment
|
|
5,992
|
|
|
|
Other
|
|
975
|
|
786
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
12,734
|
|
6,169
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
(6,921
|
)
|
1,555
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
(509
|
)
|
387
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,412
|
)
|
$
|
1,168
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
(1.79
|
)
|
$
|
0.32
|
|
Diluted income (loss) per share
|
|
$
|
(1.77
|
)
|
$
|
0.32
|
|
Shares applicable to basic income per share
|
|
3,579,486
|
|
3,595,103
|
|
Shares applicable to diluted income per share
|
|
3,628,586
|
|
3,697,358
|
|
See
accompanying notes to the unaudited consolidated financial statements
4
Team Financial, Inc. And Subsidiaries
Unaudited Consolidated Statements of Comprehensive
Income
(Loss)
(In thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,412
|
)
|
$
|
1,168
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
Unrealized gains on investment securities
available for sale net of tax of $1,083 and $162 for the three months ended
March 31, 2008 and March 31, 2007, respectively
|
|
2,101
|
|
311
|
|
|
|
|
|
|
|
Reclassification adjustment for gains included in
net income net of tax of $(54) and $0 for the three months ended
March 31, 2008 and March 31, 2007, respectively
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
1,997
|
|
311
|
|
Comprehensive income (loss)
|
|
$
|
(4,415
|
)
|
$
|
1,479
|
|
See
accompanying notes to the unaudited consolidated financial statements
5
Team Financial, Inc. And Subsidiaries
Unaudited Consolidated Statements of Changes In Stockholders
Equity
Three
Months Ended March 31, 2008
(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, 2007
|
|
$
|
27,916
|
|
$
|
308
|
|
$
|
37,149
|
|
$
|
(11,978
|
)
|
$
|
(344
|
)
|
$
|
53,051
|
|
Treasury stock purchased (7,600 shares)
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
(102
|
)
|
Common stock issued in connection with employee
benefit plans (4,039 shares)
|
|
56
|
|
|
|
|
|
|
|
|
|
56
|
|
Contribution of shares of treasury stock to
Company ESOP (17,000 shares)
|
|
|
|
|
|
|
|
249
|
|
|
|
249
|
|
Issuance of Treasury stock in connection with
compensation plans (7,600 shares)
|
|
|
|
(65
|
)
|
|
|
112
|
|
|
|
47
|
|
Recognition of stock-based compensation
|
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
Net loss
|
|
|
|
|
|
(6,412
|
)
|
|
|
|
|
(6,412
|
)
|
Dividends ($0.08 per share)
|
|
|
|
|
|
(288
|
)
|
|
|
|
|
(288
|
)
|
Other comprehensive income net of $1,029 in taxes
|
|
|
|
|
|
|
|
|
|
1,997
|
|
1,997
|
|
BALANCE, March 31, 2008
|
|
$
|
27,972
|
|
$
|
275
|
|
$
|
30,449
|
|
$
|
(11,719
|
)
|
$
|
1,653
|
|
$
|
48,630
|
|
See accompanying notes to the unaudited consolidated financial
statements
6
Team Financial, Inc. and Subsidiaries
Unaudited Consolidated Statements Of Cash Flows
(Dollars In thousands)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,412
|
)
|
$
|
1,168
|
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
|
|
|
|
|
|
Goodwill impairment
|
|
5,992
|
|
|
|
Provision for loan losses
|
|
2,574
|
|
230
|
|
Depreciation and amortization
|
|
517
|
|
499
|
|
Impairment of assets
|
|
7
|
|
10
|
|
Contribution of treasury shares to ESOP
|
|
249
|
|
|
|
Stock-based compensation expense
|
|
32
|
|
68
|
|
Change in bank owned life insurance
|
|
(210
|
)
|
(204
|
)
|
Net gain on sales of investment securities
|
|
(158
|
)
|
|
|
Stock dividends
|
|
(86
|
)
|
(105
|
)
|
Net gain on sales of mortgage loans
|
|
(180
|
)
|
(142
|
)
|
Net gain on sales of assets
|
|
(7
|
)
|
(8
|
)
|
Proceeds from sale of mortgage loans
|
|
14,354
|
|
9,658
|
|
Origination of mortgage loans for sale
|
|
(12,889
|
)
|
(8,347
|
)
|
Net increase (decrease) in other assets
|
|
(349
|
)
|
334
|
|
Net increase in accrued expenses and other liabilities
|
|
(588
|
)
|
(381
|
)
|
Net cash provided by operating activities
|
|
2,846
|
|
2,780
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Net increase in loans
|
|
(19,372
|
)
|
(18,980
|
)
|
Proceeds from sale of VISA Initial Public Offering
|
|
111
|
|
|
|
Proceeds from maturities and principal reductions of investment securities
|
|
31,967
|
|
3,687
|
|
Purchases of investment securities
|
|
(16,499
|
)
|
(7,938
|
)
|
Purchase of premises and equipment, net
|
|
(151
|
)
|
(1,918
|
)
|
Proceeds from sales of assets
|
|
117
|
|
223
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(3,827
|
)
|
(24,926
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Net increase in deposits
|
|
27,209
|
|
1,412
|
|
Net decrease in federal funds purchased and securities sold under
agreements to repurchase
|
|
(615
|
)
|
(106
|
)
|
Payments on Federal Home Loan Bank advances
|
|
(12
|
)
|
(156,155
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
|
156,144
|
|
Payments on notes payable
|
|
(1,421
|
)
|
(1,461
|
)
|
Proceeds from notes payable
|
|
1,322
|
|
1,369
|
|
Common stock issued
|
|
56
|
|
15
|
|
Purchase of treasury stock
|
|
(102
|
)
|
(348
|
)
|
Issuance of treasury stock
|
|
47
|
|
|
|
Dividends paid on common stock
|
|
(286
|
)
|
(287
|
)
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
26,199
|
|
583
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
25,218
|
|
(21,563
|
)
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
30,184
|
|
37,150
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
55,402
|
|
$
|
15,587
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest
|
|
$
|
6,052
|
|
$
|
5,955
|
|
Income taxes (net of refunds)
|
|
567
|
|
806
|
|
|
|
|
|
|
|
Noncash activities related to operations
|
|
|
|
|
|
Assets acquired through foreclosure
|
|
$
|
139
|
|
$
|
|
|
See accompanying notes to the unaudited consolidated financial
statements
7
Team
Financial, Inc and Subsidiaries
Notes to Unaudited Consolidated Financial
Statements
Three
month periods ended March 31, 2008 and 2007
(1) Basis
of Presentation
The accompanying
unaudited consolidated financial statements of Team Financial, Inc. and
Subsidiaries have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
necessary for a comprehensive presentation of financial condition and results
of operations required by U.S. generally accepted accounting principles for
complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of results have been included.
The consolidated financial statements should be read in conjunction with
the audited consolidated financial statements included in our Annual Report on Form 10-K/A
for the year ended December 31, 2007.
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,
2007 statement of financial condition has been derived from the audited
consolidated financial statements as of that date. Certain amounts in the 2007 financial
statements have been reclassified to conform to the 2008 presentation. The results of the quarter ended March 31,
2008, are not necessarily indicative of the results that may occur for the year
ending December 31, 2008.
(2)
Recent Accounting Pronouncements
In September 2006,
the Financial Accounting Standards Board (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
was effective for the Company on January 1, 2008 and did not 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
was effective for the Company on January 1, 2008 and did not 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 to
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
8
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 was effective for the Company on January 1,
2008 and did not have a significant impact on the Companys financial position,
operations or cash flows.
(3)
Stock Based Compensation
The Companys 1999 Stock
Incentive Plan and 2007 Stock Incentive Plan provide for the following stock
and stock-based awards: restricted stock, stock options, stock
appreciation rights and performance shares.
As of March 31, 2008, up to 15,100 shares of our common stock were
available to be issued under the 1999 Stock Incentive Plan and up to 343,750
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 these plans. 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.
The Company accounts for
all share-based transactions according to the provisions set forth in 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 months ended March 31,
2008 and 2007, the Company recognized share-based compensation expense of
approximately $32,000 and $68,000, respectively.
Stock-based compensation
expense for options with a vesting period during the three months ended March 31,
2008 was estimated using the Black-Scholes option pricing model with the
following assumptions:
|
|
One-year options
|
|
Three-year options
|
|
Expected life in years
|
|
5
|
|
8
|
|
Expected volatility
|
|
17.29
|
%
|
17.45
|
%
|
Risk-fee interest rate
|
|
3.45
|
%
|
2.47
|
%
|
Annual rate of quarterly dividends
|
|
2.09
|
%
|
2.42
|
%
|
The following table
summarizes option activity for the three months ended March 31, 2008:
|
|
|
|
Weighted
|
|
Weighted average
|
|
Aggregate
|
|
|
|
Number of
|
|
average exercise
|
|
remaining contractual
|
|
Intrinsic
|
|
|
|
optioned shares
|
|
price per share
|
|
life in years
|
|
Value
|
|
Outstanding at December 31, 2007
|
|
335,700
|
|
$
|
12.17
|
|
|
|
|
|
Granted
|
|
45,000
|
|
14.81
|
|
|
|
|
|
Exercised
|
|
(7,600
|
)
|
10.43
|
|
|
|
|
|
Expired or forfeited
|
|
(1,750
|
)
|
14.81
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
371,350
|
|
12.45
|
|
6.5
|
|
$
|
1.65
|
|
Exercisable at March 31, 2008
|
|
272,100
|
|
11.49
|
|
5.5
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys
nonvested options as of March 31, 2008 and changes during the quarter then
ended are presented below:
9
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
average grant
|
|
|
|
shares
|
|
date fair value
|
|
Nonvested at December 31, 2007
|
|
56,000
|
|
$
|
2.72
|
|
Granted
|
|
45,000
|
|
1.61
|
|
Nonvested at March 31, 2008
|
|
101,000
|
|
2.61
|
|
|
|
|
|
|
|
|
On March 31, 2008,
there was approximately $76,000 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.
(4) Stock Repurchase Program
There
were 7,600 shares of common stock repurchased during the quarter ended March 31,
2008 at an average price of $13.46 per share under a stock repurchase program
authorized by the Board of Directors that allows the repurchase of up to
400,000 shares. At March 31, 2008,
there were 194,678 shares of our common stock remaining for possible repurchase. See Note 13, Subsequent Events for more
information on potential impacts to this program.
(5) Dividend Declared
On
March 3, 2008, we declared a quarterly cash dividend of $0.08 per share to
all common shareholders of record on March 31, 2008, payable on April 18,
2008. See Note 13, Subsequent Events for
more information on potential impacts to future dividends.
(6) Investment Securities
The following tables summarize the amortized cost, gross unrealized
gains and losses, and fair value of investment securities at March 31,
2008 and December 31, 2007.
10
|
|
March 31, 2008
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(In thousands)
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. Agency Securities
|
|
$
|
24,409
|
|
$
|
846
|
|
$
|
|
|
$
|
25,255
|
|
Mortgage-backed securities
|
|
86,801
|
|
1,763
|
|
(147
|
)
|
88,417
|
|
Nontaxable Municipal Securities
|
|
31,147
|
|
514
|
|
(199
|
)
|
31,462
|
|
Taxable Municipal Securities
|
|
4,435
|
|
384
|
|
|
|
4,819
|
|
Other debt securities
|
|
3,976
|
|
|
|
(683
|
)
|
3,293
|
|
Total investment securities available for sale
|
|
150,768
|
|
3,507
|
|
(1,029
|
)
|
153,246
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
Marketable
|
|
130
|
|
39
|
|
(12
|
)
|
157
|
|
Non-marketable
|
|
9,579
|
|
|
|
|
|
9,579
|
|
Total investment securities
|
|
$
|
160,477
|
|
$
|
3,546
|
|
$
|
(1,041
|
)
|
$
|
162,982
|
|
|
|
December 31, 2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
value
|
|
|
|
(In thousands)
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. Agency Securities
|
|
$
|
50,842
|
|
$
|
414
|
|
$
|
(31
|
)
|
$
|
51,225
|
|
Mortgage-backed securities
|
|
78,672
|
|
486
|
|
(1,156
|
)
|
78,002
|
|
Nontaxable Municipal Securities
|
|
28,151
|
|
301
|
|
(133
|
)
|
28,319
|
|
Taxable Municipal Securities
|
|
4,435
|
|
28
|
|
(95
|
)
|
4,368
|
|
Other debt securities
|
|
4,139
|
|
|
|
(366
|
)
|
3,773
|
|
Total investment securities available for sale
|
|
166,239
|
|
1,229
|
|
(1,781
|
)
|
165,687
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
Marketable
|
|
130
|
|
42
|
|
(11
|
)
|
161
|
|
Non-marketable
|
|
9,493
|
|
|
|
|
|
9,493
|
|
Total investment securities
|
|
$
|
175,862
|
|
$
|
1,271
|
|
$
|
(1,792
|
)
|
$
|
175,341
|
|
Management does not believe that any of the securities with unrealized losses at March 31, 2008 are other than temporarily impaired due to changes in market rate from the date of purchase.
These unrealized losses are considered temporary based on our ability and intent to hold until values recover.
(7) Loans
Major classifications of loans at March 31, 2008 and December 31, 2008
are as follows:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
Principal
|
|
Percent of
|
|
Principal
|
|
Percent of
|
|
|
|
Balance
|
|
Total
|
|
Balance
|
|
Total
|
|
Loans secured by real
estate:
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
74,032
|
|
12.8
|
%
|
$
|
77,961
|
|
13.9
|
%
|
Construction and land development
|
|
224,040
|
|
38.5
|
|
210,083
|
|
37.4
|
|
Commercial
|
|
165,934
|
|
28.7
|
|
156,085
|
|
27.7
|
|
Farmland
|
|
28,297
|
|
4.9
|
|
28,380
|
|
5.1
|
|
Multifamily
|
|
3,943
|
|
0.7
|
|
3,855
|
|
0.7
|
|
Commercial and industrial
|
|
58,932
|
|
10.2
|
|
59,770
|
|
10.7
|
|
Agricultural
|
|
7,876
|
|
1.4
|
|
8,350
|
|
1.5
|
|
Installment loans
|
|
9,760
|
|
1.7
|
|
10,506
|
|
1.9
|
|
Obligations of state and
political subdivisions
|
|
5,645
|
|
1.0
|
|
5,628
|
|
1.0
|
|
Lease financing
receivables
|
|
881
|
|
0.2
|
|
993
|
|
0.2
|
|
Gross loans
|
|
579,340
|
|
100.1
|
|
561,611
|
|
100.1
|
|
Less unearned fees
|
|
(795
|
)
|
(0.1
|
)
|
(750
|
)
|
(0.1
|
)
|
Total loans receivable
|
|
$
|
578,545
|
|
100.0
|
%
|
$
|
560,861
|
|
100.0
|
%
|
Included in one-to-four
family real estate loans were loans held for sale of approximately $570,000 at
March 31, 2008 and $1.9 million at December 31, 2007.
A
summary of non-performing assets is as follows for the dates indicated:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Non-performing assets:
|
|
(Dollars
in thousands)
|
|
Non-accrual loans
|
|
$
|
11,787
|
|
$
|
6,069
|
|
Loans 90 days past due and still accruing
|
|
1,302
|
|
233
|
|
Restructured loans
|
|
660
|
|
669
|
|
Non-performing loans
|
|
13,749
|
|
6,971
|
|
Other real estate owned
|
|
955
|
|
934
|
|
Total non-performing assets
|
|
$
|
14,704
|
|
$
|
7,905
|
|
Non-performing loans as a
percentage of total loans
|
|
2.38
|
%
|
1.24
|
%
|
Non-performing assets as a
percentage of total assets
|
|
1.73
|
%
|
0.96
|
%
|
Information
regarding impaired loans is summarized as follows:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Impaired loans for which a
related allowance has been provided
|
|
$
|
9,622
|
|
$
|
5,471
|
|
Impaired loans for which a
related allowance has not been provided
|
|
2,165
|
|
1,439
|
|
Total impaired loans
|
|
$
|
11,787
|
|
$
|
6,910
|
|
|
|
|
|
|
|
Allowance related to
impaired loans
|
|
$
|
1,513
|
|
$
|
648
|
|
(8) Allowances
for Loan Losses
A
summary of the allowances for loan losses for the three months ended March 31,
2008 and 2007 is as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Dollars
In thousands)
|
|
Allowance at beginning of
period
|
|
$
|
5,987
|
|
$
|
5,715
|
|
Provision for loan losses
|
|
2,574
|
|
230
|
|
Loans charged off
|
|
(358
|
)
|
(140
|
)
|
Recoveries
|
|
58
|
|
28
|
|
Allowance at end of period
|
|
$
|
8,261
|
|
$
|
5,833
|
|
(9) Commitments and Contingencies
C
ommitments to
extend credit to our customers with unused approved lines of credit were
approximately $125.1 million at March 31, 2008. Additionally, the contractual amount of
standby letters of credit at March 31, 2008 was approximately $6.9
million. These commitments involve
credit risk in excess of the amount stated in the consolidated balance
sheet. Exposure to credit loss in the event
of nonperformance by the customer is represented by the contractual amount of
those instruments.
(10) Income Taxes
As a result of the
Companys net operating loss for the three months ended March 31, 2008,
the Company had an income tax benefit of $509,000 for the three months ended March 31,
2008, compared to income tax expense of $387,000 for the three months ended March 31,
2007.
The effective tax (benefit)/expense rate for the three months ended March 31,
11
2008, was (7.4%),
compared to a 24.9% for the three months ended March 31, 2007. The effective tax rate is typically 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, the Company has performed an analysis and has taken the position that it is
not more likely than not that certain state tax benefits will be recognized in
the future. As of the three months ended
March 31, 2008 approximately $759,000 of unrecognized tax benefits related to
certain state tax benefits, and approximately $7,000 of unrecognized tax
benefits related to acquisition costs were included in other liabilities within
the consolidated balance sheet. During
the first quarter of 2008, a total of approximately $59,000 was added to these
reserves. 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 position is effectively settled or
the statute of limitations expires.
During the fourth quarter of 2008, when the 2004 related statute of
limitations expires, the Company expects to recognize approximately $79,000 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, which therefore has an impact on the effective tax rate. Interest and penalties associated with the
above-mentioned unrecognized tax benefits approximated $240,000 ($218,000
after-tax) at March 31, 2008.
The Companys federal and various state income
tax returns for the years 2004 through 2007 remain subject to review by the
various tax authorities.
(11) Fair Value Measurements
Effective January 1,
2008, the Company adopted SFAS No. 157,
Fair Value
Measurements
, which provides a framework for measuring fair value
within generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. SFAS 157 identifies three primary valuation
techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other
relevant information generated by market transactions involving identical or
comparable assets or liabilities. The
income approach uses valuation techniques to convert future amounts such as
cash flows or earnings, to a single present amount. The measurement is based on
the value indicated by current market expectations about those future
amounts. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset.
SFAS No. 157
establishes a fair value hierarchy and prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The fair value
hierarchy gives the highest priority to observable inputs such as quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3).
The maximization of observable inputs and the minimization of the use of
unobservable inputs are required.
Classification within the fair value hierarchy is based upon the
objectivity of the inputs that are significant to the valuation of an asset or
liability as of the measurement date.
The three levels within the fair value hierarchy are characterized as
follows:
Level
1
- Quoted prices
(unadjusted) in active markets for identical assets or liabilities that the
Company has the ability to access at the measurement date.
Level
2
- Inputs other
than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include: quoted prices
for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability;
and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
Level
3
- Unobservable
inputs for the asset or liability for which there is little, if any, market
activity for the asset or liability at the measurement date. Unobservable
inputs reflect the Companys own assumptions about what market participants
would use to price the asset or liability. These inputs may include internally
developed
12
pricing models,
discounted cash flow methodologies, as well as instruments for which the fair
value determination requires significant management judgment.
The Company measures
financial assets and liabilities at fair value in accordance with SFAS No. 157. These measurements involve various valuation
techniques and assume that the transactions would occur between market
participants in the most advantageous market for the Company. The following is a summary of valuation
techniques utilized by the Company for its significant financial assets and
liabilities:
Valuation techniques for
instruments at fair value on a recurring basis
The Companys valuation
techniques used for financial instruments measured at fair value on a recurring
basis is described below.
Available for sale investment securities
The available for sale
securities are recorded at fair value on a recurring basis. Exchange-traded equities have quoted prices
in an active market and are classified as Level 1. U.S. government agencies, mortgage-backed
securities, and corporate debt securities are valued using industry-standard
models that consider assumptions, including interest rates, yield curves,
volatilities, prepayment speeds, loss severities, credit risks and default
rates as well as other observable relevant economic measures. Municipal bonds securities are valued using a
type matrix, or grid, pricing in which securities are benchmarked against the
treasury rate based on their credit ratings.
These measurements are classified as Level 2.
|
|
March 31, 2008
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
153,403
|
|
$
|
157
|
|
$
|
153,246
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
153,403
|
|
$
|
157
|
|
$
|
153,246
|
|
$
|
|
|
Valuation techniques for
instruments at fair value on a nonrecurring basis
The Companys valuation
techniques used for other financial instruments measured at fair value on a
nonrecurring basis is described below. Other
than as noted below, no fair value adjustments were recognized in the current
period on these instruments.
Private equity stock and
restricted stock
Non-marketable equity
stock consists of private equity stock and restricted stock. Private equity stock is carried at cost and
reviewed periodically for impairment based on estimated fair value. Carrying cost would be reduced for other than
temporary impairments. Federal Reserve
Bank and Federal Home Loan Bank stock is held by the bank subsidiaries as
required for regulatory purposes and sale or liquidation of this stock is
restricted. Non-marketable equity stock
is currently carried at cost which approximates fair value and these securities
are classified as Level 3.
Collateral dependent impaired
loans
Collateral dependent
impaired loans are carried at fair value based on the value of the underlying
collateral. Loans are not recorded at
fair value on a recurring basis. However,
nonrecurring fair value adjustments are recorded on certain loans to reflect
partial write-downs that are based on the observable market price or current
appraised value of the collateral. The
value of the collateral is determined based on external appraisals and internal
13
assessments which inputs
may not be observable. Therefore,
collateral dependent impaired loans are Level 3. The carrying value of these impaired loans
was $11,787.3 million at March 31, 2008 with no charges-offs on impaired
loans during the current quarter, and related allowance increased by $865,000.
Mortgage Servicing Rights
Mortgage servicing rights
are measured at fair value and amortized over the period of estimated net
servicing income initially. These rights
do not trade in an active market with readily observable prices. Therefore, the fair value is assessed
quarterly based on a valuation model that calculates the discounted cash flow
based on the assumptions that market participants use in estimating the future
net servicing income. The model
incorporates assumptions such as estimate of prepayment speeds, market discount
rates and cost of servicing. The fair
value measurements are classified as Level 3.
(12) Goodwill and Other Intangible Assets
Due to the adverse
changes in the business climate in which the Company operates, goodwill
impairment tests were performed as of March 31, 2008 relating to the
financial statement carrying value of goodwill of our two subsidiary banks,
TeamBank, N.A. and Colorado National Bank, in accordance with Statement of
Financial Accounting Standards Number 142,
Goodwill and Other
Intangible Assets
. The banks
are currently treated as separate reporting units for purposes of goodwill
impairment testing. Prior to the
goodwill impairment tests, TeamBank, N.A. had approximately $4.7 million of
goodwill and Colorado National Bank had approximately $6.0 million of
goodwill. Through the valuations, the
Company determined that the goodwill associated with Colorado National Bank was
impaired by $6.0 million. This
impairment resulted in a direct charge to earnings and had no associated tax
benefits. The impairment charge is
reflected in the Companys accompanying consolidated financial statements as of
March 31, 2008.
Below is a summary of
goodwill and other intangible assets and changes during the period (in
thousands):
|
|
|
|
Core Deposit
|
|
Mortgage
|
|
Non-compete
|
|
|
|
Goodwill
|
|
Intangible
|
|
Servicing
Rights
|
|
Agreement
|
|
Balance at December 31, 2007
|
|
$
|
10,700
|
|
$
|
1,900
|
|
$
|
274
|
|
$
|
349
|
|
Additions
|
|
|
|
|
|
10
|
|
|
|
Amortization
|
|
|
|
(108
|
)
|
(19
|
)
|
(29
|
)
|
Impairment
|
|
(5992
|
)
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
4,708
|
|
$
|
1,792
|
|
$
|
265
|
|
$
|
320
|
|
(13) Subsequent Events
On April 15, 2008,
the Company entered into an employment agreement with its Chairman and Chief
Executive Officer, Robert J. Weatherbie.
Also on April 15, 2008, Richard J. Tremblay, resigned as a member
of the Companys Board of Directors and as the Companys Chief Financial
Officer. Mr. Tremblays resignation
resulted in the forfeiture of 25,000 stock options. The terms of Mr. Weatherbies employment
agreement and Mr. Tremblays resignation are described in a Current Report
on Form 8-K filed with the Securities and Exchange Commission on April 21,
2008.
In connection with a
recent examination of the Banks, on April 24, 2008, both of the Companys
subsidiary banks (the Banks) received a letter from the Office of the
Comptroller of the Currency (the OCC), Kansas City South Field office,
indicating that it believes the Banks are deemed to be in troubled condition
for purposes of Section 914 of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, and, as a result, the Banks are subject
to specified restrictions on operations.
These letters were received before the OCCs issuance of its examination
report and were based upon the OCC staffs determination that the Banks had
deficiencies in credit administration practices, loan risk rating systems, loan
loss allowance methodologies, and levels of classified assets. The restrictions provide that: (1) the Banks must notify the OCC 90
days before adding or replacing a member of their respective boards of
directors or employing any, or promoting any existing employee as a senior
executive
14
officer, and (2) the
Banks may not, except under certain circumstances, enter into any agreements to
make severance or indemnification payments or make any such payments to
institution-affiliated parties. We
expect to cooperate with the OCC to address any regulatory concerns.
Due to the
above-mentioned letters received from the OCC and the accompanying
restrictions, the Company was informed on May 13, 2008 that it is no longer in technical
compliance with some of the terms of its line of credit agreement. The Company has received notification that
the lender will grant a waiver through June 30, 2008, the date of the maturity
of the line of credit. Typically the Company renews this line of credit as of
June 30
th
each year, and the Company will seek to renew
this line of credit again during the second quarter of 2008. While the Company
expects that the line of credit will be renewed, it cannot assure that the line
of credit will be renewed.
On May 5, 2008, the
Company infused $1,750,000 and $250,000 in capital to TeamBank, N.A. and
Colorado National Bank, respectively.
The capital infusions were funded through the Companys existing line of
credit, and the remaining available borrowing capacity under the line of credit
is $2 million. We expect to seek further increases in the level of the Banks
regulatory capital in the near term, and in order to do so, we expect to
consider several alternatives, including seeking additional equity and debt as
well as reducing or suspending dividends on our common stock or ceasing to
repurchase stock under our stock repurchase program. We cannot, however, assure
that we will be successful in raising additional equity or debt, that the
capital adequacy levels or loan loss reserves of the Banks will be deemed
satisfactory by our banking regulators, that the Banks will not be subject to
additional regulatory action, or the impact of such actions on debt covenants.
On May 2, 2008, the
Board of Directors approved a merger of our two subsidiary banks, TeamBank,
N.A. and Colorado National Bank, subject to approval by our banking
regulators. The merger is expected to
cost up to approximately $225,000 to complete.
Afterwards, we expect approximately $225,000 in annual cost savings
resulting from operational efficiencies.
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 21 locations in Kansas,
Missouri, Nebraska and Colorado through our wholly owned banking subsidiaries,
TeamBank, N.A and Colorado National Bank (the Banks). Our presence in Kansas
consists of nine locations in the Kansas City metropolitan area and three
locations in southeast Kansas. We operate two locations in south-western
Missouri, three in the metropolitan area of Omaha, Nebraska, and four in the
Colorado Springs, Colorado metropolitan area.
Our 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. Our
operations are also affected by non-interest income, such as service charges,
loan fees, and gains and losses from the sales of mortgage loans. Our principal operating expenses, aside from
interest expense, consist of compensation and employee benefits, occupancy
costs, data processing expense and provisions for loan losses.
We
recorded a net loss of $6.4 million, or $1.79 basic and $1.77 diluted loss per
share for the three months ended March 31, 2008, compared to net income of
$1,168,000, or $.32 basic and diluted income per share for the three months
ended March 31, 2007. The net loss of $6.4 million was driven by a non-cash
$6.0 million impairment charge for the write-off of our goodwill associated
with Colorado National Bank. During the three months ended March 31, 2008, we
also recorded $2.6 million in provisions for loan losses.
The
following table presents selected financial data for the three months ended March 31,
2008 and 2007 (dollars in thousands, except per share data):
|
|
As of and For
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
Net income (loss)
|
|
$
|
(6,412
|
)
|
$
|
1,168
|
|
Basic income (loss) per share
|
|
$
|
(1.79
|
)
|
$
|
0.32
|
|
Diluted income (loss) per share
|
|
$
|
(1.77
|
)
|
$
|
0.32
|
|
Return on average assets
|
|
(3.09
|
)%
|
0.62
|
%
|
Return on average equity
|
|
(47.76
|
)%
|
9.33
|
%
|
Average equity to average assets
|
|
6.46
|
%
|
6.67
|
%
|
Efficiency Ratio
|
|
151.83
|
%
|
77.56
|
%
|
Due
to the letters received from the OCC and the accompanying restrictions, we may
consider decreasing our loan balances, reducing dividends or ceasing
repurchasing of our stock under the stock repurchase agreement.
15
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 Annual Report
on Form 10-K/A for the year ended December 31, 2007, 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 Form 10-K/A. As a result of a review
of various national banking-related publications, as well as a recent
pronouncement of, and informal discussions with, our primary banking regulator,
the Office of the Comptroller of the Currency (the OCC), and in response to
additional data becoming available, the assumptions and estimates of the
allocations attributable to deteriorating market conditions
in
our allowance for loan loss calculation
were
significantly
increased as of March 31, 2008. We
recorded a provision for loan losses of $2.6 million during the three months
ended March 31, 2008, $2.0 million of which was related to the increased
estimates of the allocations attributable to the foregoing regulatory guidance
and deteriorating market conditions. There have been no other material changes
to our critical accounting policies or the estimates made pursuant to those
policies during our most recent quarter.
Regulatory Environment
In connection with a
recent examination of our subsidiary banks, on April 24, 2008, the Banks
each received a letter from the OCC, Kansas City South Field office, indicating
that it believes the Banks are deemed to be in troubled condition for
purposes of Section 914 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, and, as a result, the Banks are subject to
specified restrictions on operations. These letters were received before the
OCCs issuance of its examination report and were based upon the OCC staffs
determination that the Banks had deficiencies in credit administration
practices, loan risk rating systems, loan loss allowance methodologies, and
levels of classified assets. The restrictions provide that: (1) the Banks
must notify the OCC 90 days before adding or replacing a member of their
respective boards of directors or employing any, or promoting any existing
employee as a senior executive officer, and (2) the Banks may not, except
under certain circumstances, enter into any agreements to make severance or
indemnification payments or make any such payments to institution-affiliated
parties. We expect to cooperate with the OCC to address any regulatory
concerns.
As of the date of this filing, we have not received the examination
report of the OCC, but we expect that, in light of the above determination of
the Kansas City South Field Office, the Banks will be advised to continue to
increase their loan loss reserves, increase their regulatory capital ratios,
and closely monitor classified and non-performing assets.
FINANCIAL CONDITION
Total assets at March 31,
2008, were $847.5 million compared to $825.1 million at December 31, 2007,
an increase of $22.5 million, or 2.7%. This increase was primarily a result of
an increase in cash and cash equivalents of $25.2 million and an increase in
loans receivable of $17.7 million offset by a decrease in investment securities
of $12.3 million. Total deposits increased $27.2 million to $656.6 million at March 31,
2008 compared to $629.4 million at December 31, 2007. The increase in cash
and cash equivalents and total deposits was primarily a result of a certificate
of deposit campaign in our Colorado market. At March 31, 2008, those funds
were kept liquid as cash and had not been used to fund increases in loans or
investment securities. Management intends to use the excess cash to fund future
increases in the securities portfolio.
Investment Securities
Total investment securities
were $163.0 million at March 31, 2008, compared to $175.3 million at December 31,
2007, a decrease of 12.3 million, or 7.0%. This decrease was primarily due to
managements decision not to reinvest called investments and excess liquidity
in the securities markets.
Management does not
believe that any of the securities with unrealized losses at March 31,
2008 are other than temporarily impaired.
The following tables set
forth a summary of the contractual maturities in the investment portfolio at
March 31, 2008 and December 31, 2007.
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over one
year
|
|
Over
five years
|
|
|
|
|
|
|
|
|
|
|
|
One year
or less
|
|
through
five years
|
|
through
ten years
|
|
Over ten
years
|
|
Total
|
|
|
|
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
|
|
(Dollars
In Thousands)
|
Government-sponsored entities
|
|
$
|
1,014
|
|
3.25
|
%
|
$
|
4,531
|
|
3.45
|
%
|
$
|
14,537
|
|
5.55
|
%
|
$
|
5,173
|
|
5.81
|
%
|
$
|
25,255
|
|
5.13
|
%
|
Obligations of
states and political subdivisions
|
|
$
|
508
|
|
4.19
|
|
$
|
7,954
|
|
4.35
|
|
$
|
10,748
|
|
3.97
|
|
$
|
17,071
|
|
4.88
|
|
$
|
36,281
|
|
4.48
|
|
Other
|
|
|
|
|
|
|
|
|
|
298
|
|
6.02
|
|
2,995
|
|
5.22
|
|
$
|
3,294
|
|
5.29
|
|
|
|
$
|
1,522
|
|
|
|
$
|
12,485
|
|
|
|
$
|
25,583
|
|
|
|
$
|
25,239
|
|
|
|
$
|
64,830
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,416
|
|
5.17
|
|
Equity Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,736
|
|
|
|
Total investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,982
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over one
year
|
|
Over
five years
|
|
|
|
|
|
|
|
|
|
|
|
One year
or less
|
|
through
five years
|
|
through
ten years
|
|
Over ten
years
|
|
Total
|
|
|
|
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
|
|
(Dollars
In Thousands)
|
Government-sponsored entities
|
|
$
|
7,497
|
|
3.74
|
%
|
$
|
8,820
|
|
3.86
|
%
|
$
|
26,327
|
|
5.19
|
%
|
$
|
8,581
|
|
5.25
|
%
|
$
|
51,225
|
|
4.76
|
%
|
Obligations of
states and political subdivisions
|
|
$
|
399
|
|
4.41
|
|
$
|
8,086
|
|
4.35
|
|
$
|
10,937
|
|
3.96
|
|
$
|
13,265
|
|
5.17
|
|
$
|
32,687
|
|
4.55
|
|
Other
|
|
|
|
|
|
|
|
|
|
448
|
|
6.02
|
|
3,325
|
|
5.15
|
|
$
|
3,773
|
|
5.25
|
|
|
|
$
|
7,896
|
|
|
|
$
|
16,906
|
|
|
|
$
|
37,712
|
|
|
|
$
|
25,171
|
|
|
|
$
|
87,685
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,002
|
|
5.15
|
|
Equity Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,654
|
|
|
|
Total investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,341
|
|
|
|
16
Loans
Receivable
Loans
receivable increased $17.7 million, or 3.2%, to $578.5 million at March 31,
2008, compared to $560.9 million at December 31, 2007. This increase was
primarily due to a $14.0 million increase in construction and land development
loans coupled with a $9.9 million increase in our non-farm, nonresidential
loans.
Although
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 determined that we participate in larger loan pools where we may
not be the lead lender, but which still provides the Company with interest
income. During the three months ended March 31, 2008, approximately $2.7
million of our $17.7 million in loan growth was from loan participations. Some
of the loan pools in which we participate are outside of our primary market
areas. Although management does not have an estimate of how long the currently
challenging operating environment will persist, it is expected to continue
through 2008.
We
currently have a high concentration in construction and land development loans.
The current economic downturn in the housing market, particularly as it relates
to our market areas, coupled with our high concentration in these loans, has
prompted the need for increased allowances for loan losses and increased levels
of capital to provide protection from unexpected losses if market conditions
deteriorate further. In order to provide ample capital ratios and decrease our
concentration in real estate construction and land development loans, we may
decrease these loan balances in the near future through a variety of channels,
including but not limited to loan sales to other financial institutions.
The following table
presents the composition of our loan portfolio by type of loan at the dates
indicated.
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
Principal
|
|
Percent of
|
|
Principal
|
|
Percent of
|
|
|
|
Balance
|
|
Total
|
|
Balance
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Loans secured by
real estate:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
74,032
|
|
12.8
|
%
|
$
|
77,961
|
|
13.9
|
%
|
Construction and land development
|
|
224,040
|
|
38.5
|
|
210,083
|
|
37.4
|
|
Commercial
|
|
165,934
|
|
28.7
|
|
156,085
|
|
27.7
|
|
Farmland
|
|
28,297
|
|
4.9
|
|
28,380
|
|
5.1
|
|
Multifamily
|
|
3,943
|
|
0.7
|
|
3,855
|
|
0.7
|
|
Commerical and industrial
|
|
58,932
|
|
10.2
|
|
59,770
|
|
10.7
|
|
Agricultural
|
|
7,876
|
|
1.4
|
|
8,350
|
|
1.5
|
|
Installment loans
|
|
9,760
|
|
1.7
|
|
10,506
|
|
1.9
|
|
Obligations of state & political subdivisions
|
|
5,645
|
|
1.0
|
|
5,628
|
|
1.0
|
|
Lease financing receivables
|
|
881
|
|
0.2
|
|
993
|
|
0.2
|
|
Gross loans
|
|
579,340
|
|
100.1
|
|
561,611
|
|
100.1
|
|
Less unearned fees
|
|
(795
|
)
|
(0.1
|
)
|
(750
|
)
|
(0.1
|
)
|
Total loans receivable
|
|
$
|
578,545
|
|
100.0
|
%
|
$
|
560,861
|
|
100.0
|
%
|
Included in one-to-four
family real estate loans were loans held for sale of approximately $570,000 at March 31,
2008 and $1.9 million at December 31, 2007.
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 our non-performing assets at the dates indicated:
17
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
(Dollars
in thousands)
|
|
Non-performing assets:
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
11,787
|
|
6,069
|
|
Loans 90 days past due and still accruing
|
|
1,302
|
|
233
|
|
Restructured loans
|
|
660
|
|
669
|
|
Nonperforming loans
|
|
13,749
|
|
6,971
|
|
Assets acquired through foreclosure
|
|
955
|
|
934
|
|
Total nonperforming assets
|
|
$
|
14,704
|
|
7,905
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of total loans
|
|
2.38
|
%
|
1.24
|
%
|
Nonperforming assets as a percentage of total assets
|
|
1.73
|
%
|
0.96
|
%
|
Information regarding
impaired loan is summarized as follows:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
(In
thousands)
|
|
Impaired loans for which a
related allowance has been provided
|
|
$
|
9,622
|
|
$
|
5,471
|
|
Imparied loans for which a
related allowance has not been provided
|
|
$
|
2,165
|
|
$
|
1,439
|
|
Total Impaired Loans
|
|
$
|
11,787
|
|
$
|
6,910
|
|
|
|
|
|
|
|
Allowance related to
impaired loans
|
|
$
|
1,513
|
|
$
|
648
|
|
Non-performing assets totaled $14.7 million at March 31, 2008, compared
to $7.9 million at December 31, 2007, representing a increase of approximately
$6.8 million, or 86.1%. Non-performing loans were the largest component of
non-performing assets during both periods, and were approximately $13.7 million
at March 31, 2008 compared to $7.0 million at December 31, 2007, an increase of
approximately $6.7 million, or 95.7%.
We are experiencing a trend of increasing non-performing loans and classified loans that are not yet considered non-performing as a result of the current difficult economic conditions being experienced in our market areas and nationwide. The slowdown in the housing market has impacted some of our borrowers and their ability to repay according to their original terms, especially those with construction and land development loans. Although we believe these loans are adequately collateralized, we are actively working with these borrowers to minimize any loss exposure that the Company may be subject to as a result of the slowdown in the economy.
The increase in non-performing loans during the three months ended
March 31, 2008 was largely due to a $5.7 million increase in non-accrual loans,
primarily as a result of a group of real estate loans in our Kansas City
metropolitan market totaling approximately $2.7 million that were on
non-accrual status at March 31, 2008, but at December 31, 2007 were performing
and accruing interest. Additionally, some of the other large relationships
included in non-accrual at March 31, 2008 included a group of commercial real
estate loans in the Kansas City metropolitan market totaling $1.7 million, $1.0
million in loans to a residential builder in the Colorado Springs market that
is currently in foreclosure, and $717,000 of land development loans to a
borrower in the Kansas City metropolitan market.
Subsequent to March 31, 2008, we have experienced a continued increase
in non-accrual loans, and as of May 12, 2008, we estimate that non-accrual
loans approximated $12.6 million, an increase of 6.8% from $11.8 million at
March 31, 2008. Subsequent to March 31, 2008, we have since reversed
approximately $20,000 of interest earned during the first quarter of 2008 as a
result of the increase in non-accrual loans. The increase in non-accrual loans
since March 31, 2008 was primarily due to a group of real estate loans in the
Kansas City metropolitan area.
Loans 90 days past due and still accruing interest also increased during the three months ended March 31, 2008. The increase in loans 90 days past due and still accruing interest was a result of loans totaling $540,000 to one borrower in the Kansas City metropolitan area and a $543,000 loan in the Colorado Springs market. Subsequent to March 31, 2008, loans 90 day past due and still accruing interest have decreased $452,000 primarily due to payments being received on the loans totaling $540,000 and loans totaling $543,000 transferring to non-accrual status in May.
In addition to the non-performing loans mentioned above, we have also identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. These loans are primarily classified as substandard or doubtful for regulatory purposes under our internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. As of the date of this filing, such loans totaled approximately $31.9 million compared to $20.2 million at December 31, 2007, an increase of 20.3%. Management is in the process of addressing any outstanding issues with
18
these credits in order to remove the loans from the
classified loan list as soon as practicable and maximize the Companys chances
of full payment in accordance with the terms of the loan agreements.
Restructured loans at March 31,
2008 and December 31, 2007 consisted of seven and eight relationships,
respectively, the largest of which was an agricultural loan for approximately
$499,000 restructured through the Farmers Home Administration.
Other real estate owned
at March 31, 2008 consisted of ten properties including six commercial
buildings totaling approximately $805,000, three one-to-four family properties
totaling approximately $101,000, 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 practicable.
Our loan portfolio is
continuously monitored for possible non-performing assets as information
becomes available.
Allowance
for loan losses
We maintain 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, we make various assumptions and judgments about the
ultimate collectibility of our loan portfolio and provide 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.
During
the three months ended March 31, 2008, we significantly increased our
allowance for loan losses through a charge to provision for loan losses. The
increase was primarily the result of a review of national banking-related
publications, as well as a recent pronouncement of, and informal discussions
with, our primary banking regulator, the OCC, which indicated that the economic
downturn in the national housing market has accelerated and is more pronounced
than previously estimated. Our Banks have concentrations in this area of
lending through real estate construction and land development loans. The
Federal Deposit Insurance Corporation has recommended that financial
institutions such as our Banks, that have concentration levels in these types
of loans, increase their levels of loan loss allowances and increase capital to
provide ample protection from unexpected losses if market conditions deteriorate
further. As a result of this guidance and additional data becoming available
relating to the national economy, and more specifically to our market areas, we
have considerably increased our Banks allowance for loan loss allocations for
the three months ended March 31, 2008. Due to the downturn in the economy
in our market areas, and the recent significant increases in classified loans,
we may increase our allowance for loan loss allocations in the future if deemed
necessary.
The following table
summarizes our allowance for loan losses:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Dollars In thousands)
|
|
Allowance at beginning of period
|
|
$
|
5,987
|
|
$
|
5,715
|
|
Provision for loan losses
|
|
2,574
|
|
230
|
|
Loans charged off
|
|
(358
|
)
|
(140
|
)
|
Recoveries
|
|
58
|
|
28
|
|
Allowance at end of period
|
|
$
|
8,261
|
|
$
|
5,833
|
|
|
|
|
|
|
|
Annualized net charge-offs as a percent of total loans
|
|
0.21
|
%
|
0.09
|
%
|
Allowance as a percent of total loans
|
|
1.43
|
%
|
1.17
|
%
|
Allowance as a pecent of non-performing loans
|
|
91.74
|
%
|
100.19
|
%
|
The allowance for loan
losses as a percent of total loans was 1.43% at March 31, 2008 compared to
1.07% at December 31, 2007 and 1.17% at March 31, 2007.
The allowance for loan
losses as a percent of non-performing loans was 91.74% at March 31, 2008,
compared to 85.87% at December 31, 2007 and 100.19% at March 31,
2007. The allowance for loan losses as a percent of non-
19
performing loans of
91.74% at March 31, 2008 increased compared to December 31, 2007 due
to the significant increase in the allowance for loan losses discussed above.
Goodwill
and Intangible Assets
Due to the adverse
changes in the business climate in which we operate, we have performed goodwill
impairment tests as of March 31, 2008 relating to the financial statement
carrying value of goodwill at the Banks, in accordance with Statement of
Financial Accounting Standards Number 142,
Goodwill and Other
Intangible Assets
. The Banks are currently treated as separate
reporting units for purposes of goodwill impairment testing. Prior to the
goodwill impairment tests, TeamBank, N.A. had approximately $4.7 million of
goodwill and Colorado National Bank had approximately $6.0 million of goodwill.
Through the valuations, the Company determined that the goodwill associated
with Colorado National Bank was impaired by $6.0 million. This impairment
resulted in a direct charge to earnings and had no associated tax benefits. The
impairment charge is reflected in the Companys accompanying financial
statements as of March 31, 2008.
Deposits
Total
deposits increased approximately $27.2 million, or 4.3%, to $656.6 million at March 31,
2008 from $629.4 million at December 31, 2007. This increase was primarily
a result of an increase in certificates of deposits as a result of branch
promotional campaigns offset by a decrease in public funds.
The decrease in checking deposits was
primarily due to a decrease in public funds, which is generally expected during
the first quarter due to seasonality.
Principal
maturities of time deposits at March 31, 2008 were as follows:
Year ending December 31:
|
|
(Dollars in thousands)
|
|
June 30, 2008
|
|
$
|
123,628
|
|
September 30, 2008
|
|
60,698
|
|
December 31, 2008
|
|
106,704
|
|
Total 2008
|
|
291,030
|
|
2009
|
|
82,004
|
|
2010
|
|
8,700
|
|
2011
|
|
2,165
|
|
2012
|
|
1,591
|
|
Thereafter
|
|
664
|
|
Total
|
|
$
|
386,154
|
|
Notes
Payable
During
the three months ended March 31, 2008, our notes payable decreased from
$2.2 million to $2.1 million, or approximately $100,000. The decrease was
attributed to a decline in treasury tax and loan accounts.
On
April 30, 2008 we drew $2 million on our existing line of credit to fund
capital infusions to the Banks. Our remaining available borrowing capacity
under the line of credit is $2 million.
Due to the
above-mentioned letters received from the OCC and the accompanying
restrictions, we received notice from our lender on May 13, 2008 that we are no
longer in technical compliance with some of the terms of our line of credit
agreement; however we have been granted a waiver of the non-compliance through
the maturity date of the note. We typically renew the line of credit as of June 30
th
each year, and we will seek to renew this line of credit again during the
second quarter of 2008. While we do expect that this credit facility will be
renewed, we cannot assure that it will be renewed.
20
Regulatory
Capital
We are subject to
regulatory capital requirements administered by the Federal Reserve, the
Federal Deposit Insurance Corporation and the Comptroller of the Currency. Failure
to meet the regulatory capital guidelines may result in the initiation by our
regulators of appropriate supervisory or enforcement actions.
As of March 31, 2008 and
December 31, 2007, we met all defined regulatory capital adequacy requirements
to which we are subject. Our ratios at March 31, 2008 were as follows:
|
|
Team
|
|
TeamBank,
|
|
Colorado
|
|
Minimum
|
|
Ratio
|
|
Financial, Inc.
|
|
N.A.
|
|
National Bank
|
|
Required
|
|
Total capital to risk weighted assets
|
|
10.30
|
%
|
10.59
|
%
|
10.28
|
%
|
8.00
|
%
|
Core capital to risk weighted assets
|
|
8.17
|
%
|
9.38
|
%
|
9.07
|
%
|
4.00
|
%
|
Core capital to average assets
|
|
6.73
|
%
|
7.89
|
%
|
6.69
|
%
|
4.00
|
%
|
As discussed above, we
have increased allowances for loan losses and increased levels of capital at
each of the Banks to provide protection from unexpected losses if market
conditions deteriorate further. Specifically, on May 5, 2008, we infused
$1,750,000 and $250,000 in capital to TeamBank, N.A. and Colorado National
Bank, respectively. We expect to seek further increases in the level of the
Banks regulatory capital in the near term, and in order to do so, we expect to
consider several alternatives, including seeking additional equity and debt as
well as reducing or suspending dividends on our common stock or ceasing to
repurchase stock under our stock repurchase program. We cannot, however, assure
that we will be successful in raising additional equity or debt, that the
capital adequacy levels or loan loss reserves of the Banks will be deemed
satisfactory by our banking regulators, that the Banks will not be subject to
additional regulatory action, or the impact of such actions on debt covenants.
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, draws on our line of credit and credit
facilities established through the Federal Home Loan Bank of Topeka and other
banks.
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 March 31, 2008, these assets,
approximating $208.8 million, consisted of $55.4 million in cash and cash
equivalents, and $153.4 million in investment securities available-for-sale. Approximately
$137.8 million of these investment securities were pledged as collateral for
borrowings, repurchase agreements and for public funds on deposit at March 31,
2008. Additionally, approximately $131.6 million of collateralized real estate
loans are pledged on our borrowings with the Federal home Loan Bank of Topeka.
Should the performance of these pledged loans, or the lack thereof, disqualify
those loans as collateral, we would be at risk of losing this liquidity, if the
pledged collateral is not replaced with other loans.
At March 31, 2008, we had
approximately $14.1 million borrowing capacity remaining under agreements with
Federal Home Loan Bank of Topeka.
RESULTS
OF OPERATIONS
We incurred a net loss
for the three months ended March 31, 2008 of $6.4 million, or $1.79 basic and $1.77
diluted loss per share, compared to net income of $1,168,000, or $.32 basic and
diluted income per share for the three months ended March 31, 2007. The net
loss of $6.4 million was driven by a non-cash $6.0 million impairment charge
for the write-off of our goodwill associated with Colorado National Bank.
During the three months ended March 31, 2008, we also recorded $2.6 million in
provisions for loan losses.
Net
Interest Income
Net interest income
before provision for loan losses for the three months ended March 31, 2008
totaled $6.4 million compared to $6.2 million for the same period in 2007, an
increase of 3.1%.
21
Net
interest margin, adjusted for the tax effect of tax exempt securities, as a
percent of average earning assets was 3.51% for the three months ended March 31,
2008, compared to 3.75% during the three months ended March 31, 2007. The average rate on interest earning assets
for the quarter ended March 31, 2008 decreased 42 basis points to 6.94%
from 7.36% for the quarter ended March 31, 2007. Partially offsetting the decrease on the rate
of interest earning assets was a decrease in the average cost of interest
bearing liabilities of 24 basis points to 3.72% during the three months ended March 31,
2008 from 3.96% during the three months ended March 31, 2007.
The
decreases in the rates earned on interest earning assets, and a corresponding
decrease in rates paid on interest bearing liabilities, occurred in response to
several federal funds rate cuts made by the Federal Reserve Bank during the
fourth quarter of 2007 and the first quarter of 2008. Our loan portfolio is comprised of both fixed
rate and variable rate interest earning assets, and therefore, many of the
variable rate assets and liabilities have re-priced at lower rates. However, the re-pricing of our interest
earning assets have outpaced the re-pricing of our interest bearing
liabilities, resulting in a lower net interest margin.
The
following table presents certain information relating to net interest income
for the three months ended March 31, 2008 and 2007. 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 and are presented on a
tax-equivalent basis assuming a 34% tax rate for the periods indicated.
22
|
|
Three Months Ended March 31, 2008
|
|
Three Months Ended March 31, 2007
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net (1) (2) (3)
|
|
$
|
569,440
|
|
$
|
10,608
|
|
7.49
|
%
|
$
|
492,783
|
|
$
|
9,977
|
|
8.21
|
%
|
Investment securities-taxable
|
|
135,914
|
|
1,801
|
|
5.33
|
%
|
151,728
|
|
1,968
|
|
5.26
|
%
|
Investment securities-nontaxable (4)
|
|
30,032
|
|
486
|
|
6.52
|
%
|
27,276
|
|
431
|
|
6.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
22,537
|
|
179
|
|
3.20
|
%
|
20,625
|
|
197
|
|
3.87
|
%
|
Other interest earning assets
|
|
681
|
|
10
|
|
6.08
|
%
|
681
|
|
12
|
|
7.15
|
%
|
Total interest earning assets
|
|
$
|
758,604
|
|
13,084
|
|
6.94
|
%
|
$
|
693,093
|
|
12,585
|
|
7.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and interest bearing
checking
|
|
$
|
201,040
|
|
762
|
|
1.52
|
%
|
195,621
|
|
1,109
|
|
2.30
|
%
|
Time deposits
|
|
363,108
|
|
4,156
|
|
4.60
|
%
|
302,621
|
|
3,544
|
|
4.75
|
%
|
Federal funds purchased and securities sold
under agreements to repurchase (5)
|
|
2,559
|
|
13
|
|
2.04
|
%
|
3,145
|
|
1
|
|
0.13
|
%
|
Federal Home Loan Bank advances &
other borrowings
|
|
110,086
|
|
1,198
|
|
4.37
|
%
|
108,174
|
|
1,118
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
22,681
|
|
343
|
|
6.08
|
%
|
22,681
|
|
402
|
|
7.19
|
%
|
Total interest bearing liabilities
|
|
$
|
699,474
|
|
6,471
|
|
3.72
|
%
|
$
|
632,242
|
|
6,174
|
|
3.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (tax equivalent)
|
|
|
|
$
|
6,613
|
|
|
|
|
|
$
|
6,411
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.22
|
%
|
|
|
|
|
3.40
|
%
|
Net interest earning assets
|
|
$
|
59,130
|
|
|
|
|
|
$
|
60,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4)
|
|
|
|
|
|
3.51
|
%
|
|
|
|
|
3.75
|
%
|
Ratio of average interest bearing
liabilities to average interest earning assets
|
|
92.21
|
%
|
|
|
|
|
91.22
|
%
|
|
|
|
|
(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 March 31, 2008 and 2007 were $113,000 and $226,000,
respectively.
|
(4)
|
Yield is adjusted for the tax effect of tax exempt loans and
securities. The tax effects for the three months ended March 31, 2008
and 2007 were $201,000 and $191,000, respectively.
|
(5)
|
Interest expense on federal funds purchased and securities sold under
agreements to repurchase includes imputed interest on premises under
construction. Imputed interest for the three months ended March 31, 2008
and March 31, 2007 was $0 and $35, 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 or interest
expense attributable to volume changes are calculated by multiplying the change
in volume by the average interest rate during the prior years first
quarter. 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 average volume during the prior
years first quarter. The changes in
interest income or interest expense attributable to the combined impact of
changes in volume and changes in interest rates are calculated by multiplying
the change in rate by the change in volume.
23
|
|
Three Months Ended March 31, 2007
|
|
|
|
Compared to
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Increase (Decrease) Due To:
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
|
(Dollars in Thousands)
|
|
Interest income:
|
|
|
|
|
|
|
|
Loans receivable, net (1) (2) (3)
|
|
$
|
1,606
|
|
$
|
(973
|
)
|
$
|
633
|
|
Investment securities-taxable
|
|
(216
|
)
|
13
|
|
(203
|
)
|
Investment securities-nontaxable (4)
|
|
46
|
|
8
|
|
54
|
|
Federal funds sold and interest-bearing
deposits
|
|
37
|
|
(20
|
)
|
17
|
|
Other assets
|
|
|
|
(2
|
)
|
(2
|
)
|
Total interest income
|
|
1,473
|
|
(974
|
)
|
(499
|
)
|
Interest expense:
|
|
|
|
|
|
|
|
Savings deposits and interest bearing
checking
|
|
35
|
|
(384
|
)
|
(349
|
)
|
Time deposits
|
|
730
|
|
(117
|
)
|
613
|
|
Federal funds purchased and securities sold
under agreements to repurchase (5)
|
|
|
|
11
|
|
11
|
|
Federal Home Loan Bank advances and other
borrowings
|
|
25
|
|
55
|
|
80
|
|
Subordinated debentures
|
|
2
|
|
(61
|
)
|
(59
|
)
|
Total interest expense
|
|
792
|
|
(496
|
)
|
296
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
681
|
|
$
|
(478
|
)
|
$
|
203
|
|
(1)
|
Loans are net of deferred costs, less fees.
|
(2)
|
Non-accruing loans are included in the computation of average
balances.
|
(3)
|
Loan fees are included in interest income. These fees for the three
months ended March 31, 2008 and 2007 were $113,000 and $226,000,
respectively.
|
(4)
|
Yield is adjusted for the tax effect of tax exempt securities. The
tax effects for the three months ended March 31, 2008 and 2007 were
$201,000 and $191,000, respectively.
|
(5)
|
Interest expense on federal funds purchased and securities sold under
agreements to repurchase includes imputed interest on premises under
construction. Imputed interest for the three months ended March 31, 2008
and March 31, 2007 was $0 and $35, respectively.
|
Interest earning assets
The
average rate on interest earning assets was 6.94% for the three months ended March 31,
2008, representing a decrease of 42 basis points from 7.36% for the same three
months in 2007. 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 decreased 72 basis points to 7.49% for the
three months ended March 31, 2008, compared to 8.21% for the three months
ended March 31, 2007. The loans
receivable average balance increased approximately $76.6 million for the three
months ended March 31, 2008 compared to the average balance for the same
three months in 2007, partially offsetting the decrease in the average rate
received on loans. The increase in the
average loan balances offset by the decrease in the rate earned resulted in an
increase in interest income from loans receivable of approximately $633,000.
The
average rate on investment securities adjusted for the tax effect of tax exempt
securities increased to 5.54% for the three months ended March 31, 2008,
compared to 5.39% for the three months ended March 31, 2007. This increase in the yield was offset by a
decrease in average balance of $13.1 million during the quarter ended March 31,
2008 to $165.9 million compared to average balance during the quarter ended March 31,
2007 of $179.0 million.
24
Interest bearing liabilities
The
average rate paid on interest-bearing liabilities decreased 24 basis points to
3.72% for the three months ended March 31, 2008, compared to 3.96% for the
same three months in 2007.
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 decreased 78 basis points to 1.52% for the three months March 31,
2008, compared to 2.30% for the three months ended March 31, 2007. The average rate paid on time deposits
decreased 15 basis points to 4.60% during the first quarter of 2008 compared to
4.75% during the first quarter of 2007.
The
effective interest rate on the subordinated debentures was 6.08% for the three
months ended March 31, 2008 and 7.19% for the same period of 2007.
The subordinated debentures are part of a pooled trust preferred security
at a variable rate of 1.65% above the 90-day LIBOR. The trust preferred security has a 30-year
term maturing in 2035 and a callable option in 2011, five years after the issuance
date. The issuance of the subordinated
debentures 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 types of lending and
our market areas, and other factors related to the collectibility of our loan
portfolio.
As discussed above, we have increased our Banks allowance for loan
loss allocations, and during the three months ended March 31, 2008 we recorded a provision for loan losses
totaling $2.6 million, compared to $230,000 for the three months ended March 31,
2007.
Non-Interest
Income
The
following table summarizes non-interest income for the three months ended March 31,
2008 and 2007:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Service charges
|
|
$
|
830
|
|
$
|
817
|
|
Trust fees
|
|
161
|
|
169
|
|
Brokerage service revenue
|
|
57
|
|
56
|
|
Gain on sales of mortgage loans
|
|
180
|
|
145
|
|
Gain on sales of investment securities
|
|
158
|
|
|
|
Mortgage servicing fees
|
|
42
|
|
47
|
|
Merchant processing fees
|
|
3
|
|
4
|
|
ATM and debit card fees
|
|
161
|
|
125
|
|
Bank owned life insurance income
|
|
245
|
|
237
|
|
Other
|
|
138
|
|
135
|
|
Total non-interest income
|
|
$
|
1,975
|
|
$
|
1,735
|
|
Non-interest
income increased approximately $240,000, or 13.8%, from the three months ended March 31,
2007 primarily due to a $158,000 increase in gain on sales of investment
securities, which was due to a gain on redemption of Visa, Inc.
stock. As a Visa member bank, the
Company had an obligation to share certain litigation costs of Visa and had
previously recorded this obligation. Visa held an initial public offering in March of
2008 in
25
which
it redeemed a portion of Class B stock held by member banks. The Company
received cash of $111,000 in that redemption, which was recorded as a gain on sale
of investment securities. The Companys
remaining obligation to pay for other unsettled portions of the Visa lawsuits
is approximately $65,000 and is included in other liabilities in the March 31,
2008 balance sheet. Also contributing to
the increase in total other income was a $35,000 increase in gain on sale of
mortgage loans during the three months ended March 31, 2008 compared to
the three months ended March 31, 2007.
The increase in gain on sale of mortgage loans coincided with the recent
interest rate cuts initiated by the Federal Reserve.
Non-Interest
Expense
The
following table presents non-interest expense from continuing operations for
the three months ended March 31, 2008 and 2007:
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Salaries and employee benefits
|
|
$
|
3,503
|
|
$
|
3,130
|
|
Occupancy and equipment
|
|
842
|
|
735
|
|
Data processing
|
|
719
|
|
737
|
|
Professional fees
|
|
391
|
|
450
|
|
Marketing
|
|
78
|
|
110
|
|
Supplies
|
|
78
|
|
81
|
|
Intangible asset amortization
|
|
156
|
|
140
|
|
Goodwill impairment
|
|
5,992
|
|
|
|
Other
|
|
975
|
|
786
|
|
Total other expenses
|
|
$
|
12,734
|
|
$
|
6,169
|
|
Non-interest
expense increased approximated $6.6 million for the three months ended March 31,
2008 compared to the three months ended March 31, 2007. The increase in non-interest expense was
primarily due to the non-cash $6.0 million goodwill impairment charge discussed
above, coupled with increases in salaries and employee benefits, occupancy and
equipment and increases in other non-interest expenses, which included a
significant robbery loss. Salaries and
employee benefits increased as a result of hiring additional personnel to staff
our new branches, coupled with increased compensation expense and increased
benefits expense. The increase in
occupancy was also largely due to the new branches and the associated increase
in depreciation expense.
Income Tax Expense
We
experienced an income tax benefit of $509,000 for the three months ended March 31,
2008 compared to income tax expense of $387,000 for the three months ended March 31,
2007. The effective tax rate for the
three months ended March 31, 2008, was (7.4%), compared to 24.9% for the
three months ended March 31, 2007.
The effective tax (benefit)/expense 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 2008 tax benefit
rate is further impacted by the goodwill impairment during the first three
months of 2008. This impairment charge
is non-deductible for tax purposes; as a result, it decreased the expected tax
benefit by approximately 29%.
In
accordance with FIN 48, discussed in note 2, Recent Accounting Pronouncements,
the Company has performed an analysis and has taken the position that it is not
more likely than not that certain state tax benefits will be recognized in the
future. As of the three months ended
March 31, 2008, approximately $759 thousand of unrecognized tax benefits
related to certain state tax benefits, and approximately $7 thousand of
unrecognized tax benefits related to acquisition costs were included in other
liabilities within the consolidated balance sheet. During the first quarter of 2008, a total of
approximately $59,000 was added to these reserves. If recognized, all of the tax benefits would
increase net income, decreasing the effective tax rate.
26
Item 3:
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset
and Liability Management
Asset and liability management refers to managements 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 institutions liabilities
and assets in order to minimize interest rate risk is commonly referred to as
gap management.
The following table indicates that at March 31, 2008, if there had
been a sudden and sustained increase in prevailing market interest rates, our
net interest income would be expected to increase, while a decrease in rates
would indicate a decrease in net interest income.
|
|
Net interest
|
|
(Decrease)
|
|
|
|
Change in interest rates
|
|
income
|
|
increase
|
|
% change
|
|
|
|
(Dollar in thousands)
|
|
200 basis point rise
|
|
$
|
27,858
|
|
1,297
|
|
4.88
|
%
|
100 basis point rise
|
|
27,209
|
|
648
|
|
2.44
|
%
|
Base rate scenario
|
|
26,561
|
|
|
|
|
|
100 basis point decline
|
|
24,882
|
|
(1,679
|
)
|
(6.32
|
)%
|
200 basis point decline
|
|
22,544
|
|
(4,017
|
)
|
(15.12
|
)%
|
|
|
|
|
|
|
|
|
|
Item 4:
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As
of March 31, 2008, our management, including the Chief Executive Officer
and Interim Chief Financial Officer, performed an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) of
the Securities Exchange Act of 1934. Based upon that evaluation, the Chief
Executive Officer and Interim Chief Financial Officer concluded that our
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting information required to be disclosed within the time
periods specified in the Securities Exchange Commissions rules and forms.
Change in Internal Controls
No changes in our internal controls over financial reporting
have occurred during the last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal controls over
financial reporting.
27
PART II
|
|
OTHER
INFORMATION
|
Item
1.
LEGAL PROCEEDINGS
From time to time the Company is involved in
routine litigation incidental to the conduct of our business. There have been no material changes to
the status of the litigation reported under Legal Proceedings in its Form 10-K/A
for the year ended December 31, 2007, which is incorporated herein by
reference. The Company does not believe
that any pending litigation to which it is a party will have a material adverse
effect on its liquidity, financial condition, or results of operations.
Item
1A.
Risk Factors
There are numerous risks and uncertainties
that can affect our business, financial performance or share price. Set forth
below are the material risks which we believe could cause our future business,
operating results, financial condition or share price to be different than our
expectations.
A slowdown in real estate sales and a decrease in some residential real
estate values within our market areas have and may continue to adversely affect
our earnings and financial condition.
The
downturn of economic conditions in the national residential real estate market
during 2007, the continued decline in home sales, the stagnate median home
prices year-over-year in the major metropolitan areas in our market areas and
the decline in prices for newly constructed homes, resulted in an increase in
non-performing assets and our provision for loan losses for the quarter ended
March 31, 2008, as well as continued increases in nonaccrual loans and
classified loans since then. The housing
industry in the Midwest experienced a downturn during the last quarter of 2007
and continuing into 2008 reflecting, in part, decreased availability of
mortgage financing for residential home buyers, reduced demand for new home
construction resulting in some over-supply of housing inventory and increased
foreclosure rates. If these market conditions do not improve during 2008 or
deteriorate further, or if these market conditions and slowing economy
negatively impact the commercial non-residential real estate market, our
earnings and financial condition may be adversely impacted because a
significant portion of our loans are secured by real estate in our market
areas.
Our loan portfolio is concentrated in real estate lending which makes
our loan portfolio more susceptible to credit losses in the current real estate
market.
The new home real estate market in our market
areas declined during the last quarter of 2007 and continuing into 2008. Our loan portfolio has a concentration in
construction and land development loans and in commercial real estate loans
(most of which are located in our market areas and many of which involve land
development). We have a heightened
exposure to credit losses that may arise from this concentration as a result of
the downturn in the real estate sector.
If the current economic environment continues
for a prolonged period of time or deteriorates further, collateral values may
further decline and may result in increased credit losses in these loans.
Construction and development loans generally
carry a higher degree of risk than long-term financing of existing properties
because repayment depends on the ultimate completion of the project and usually
on the sale of the property or permanent financing. Specific risks include:
·
cost overruns;
·
mismanaged construction;
·
inferior or improper construction techniques;
·
economic changes or downturns during
construction;
·
zoning approvals;
·
adverse weather;
·
shortages of supplies and/or labor;
28
·
rising interest rates that may prevent sale
of the property; and
·
failure to sell completed projects or units
in a timely manner.
The occurrence of any of the preceding risks
could result in the deterioration of one or more of these loans which could
increase our non-performing assets. An increase in non-performing loans may
result in a loss of earnings from these loans, an increase in the related
provision for loan losses and an increase in charge-offs, all of which could
have a material adverse effect on our financial condition, results of
operations and/or liquidity.
Also, our construction and land development
loans could be susceptible to extended maturities or borrower defaults, and we
could experience higher credit losses and non-performing loans in this
portfolio if the economy continues to slow down, capital markets involving
commercial real estate loans deteriorate, real estate market conditions weaken
further and lenders further tighten credit standards and limit availability of
financing.
Our loan losses could exceed our allowance
for loan losses. Our average loan size continues to increase and part of our
allowance for loan losses relies on historical results which may not be
representative of future losses.
Approximately 67.2% of our loan portfolio at March 31, 2008 was composed
of construction and land development loans and commercial loans secured by real
estate. Repayment of such loans is
generally considered more subject to market risk than residential mortgage loans.
Industry experience shows that a portion of loans will become delinquent and that
a portion of these delinquent loans will require partial or entire charge-off.
Regardless of the underwriting criteria utilized, losses may be experienced as
a result of various factors beyond our control, including among other things,
changes in market conditions affecting the value of loan collateral and
problems affecting the credit strength of our borrowers and/or guarantors.
We are subject to extensive regulation that could limit or restrict our
activities.
We operate in a highly regulated industry and
are subject to examination, supervision, and comprehensive regulation by the
Office of the Comptroller of the Currency
(the OCC)
, the FDIC, and the Federal Reserve Board. Compliance
with these regulations is costly and restricts certain activities, including
payment of dividends, mergers and acquisitions, investments, loans and interest
rates charged, interest rates paid on deposits, and locations of branches. We
must also meet regulatory capital requirements. If we fail to meet these
capital and other regulatory requirements, our financial condition, liquidity,
and results of operations could be materially and adversely affected. Our
failure to remain well capitalized and well managed for regulatory purposes
could affect customer confidence, our ability to grow, our cost of funds and
higher FDIC insurance premiums, our ability to pay dividends on our capital
stock, to repurchase shares and our ability to make acquisitions.
The laws and regulations applicable to the
banking industry could change at any time, and the effects of these changes on
our business and profitability cannot be predicted. For example, new
legislation or regulation could limit the manner in which we may conduct
business, including our ability to obtain financing, attract deposits, make
loans and expand our business through opening new branch offices. Many of these
regulations are intended to protect depositors, the public, and the FDIC, not
shareholders. In addition, the burden imposed by these regulations may place us
at
29
a competitive disadvantage compared to
competitors who are less regulated. The laws, regulations, interpretations, and
enforcement policies that apply to us have been subject to significant change
in recent years, sometimes retroactively applied, and may change significantly
in the future. The cost of compliance with these laws and regulations could
adversely affect our ability to operate profitably. Moreover, as a regulated
entity, we can be requested by regulators to implement changes to our
operations.
We are subject
to an ongoing examination by our primary banking regulator, the result of which
may require us to raise additional capital and decrease our concentration in
construction and land development loans, as well as other corrective
action. National banking-related
publications, as well as a recent pronouncement of our primary banking
regulator, the OCC, have indicated that the economic downturn in the national
housing market has accelerated and is more pronounced than previously
estimated. Our Banks have concentrations in this area of lending through
real estate construction and land development loans. The Federal Deposit
Insurance Corporation has recommended that financial institutions such as our
Banks, that have concentration levels in these types of loans, increase their
levels of loan loss allowances and increase capital to provide ample protection
from unexpected losses if market conditions deteriorate further. As a
result of this guidance and additional data becoming available relating to the
national economy, and more specifically to our market areas, we have increased
our Banks allowance for loan loss allocations by an aggregate of $2
million. Specifically, on May 2, 2008 the Board of Directors of
TeamBank, N.A. approved an additional $1,750,000 to be allocated to the
allowance for loan losses, through a charge to provision for loan losses and on
May 6, 2008, the Board of Directors of Colorado National Bank, approved an
additional $250,000 to be allocated to the allowance for loan losses, through a
charge to provision for loan losses.
We infused $1,750,000 and $250,000 in capital to TeamBank, N.A. and
Colorado National Bank, respectively on May 5, 2008. We funded the
capital infusions through our existing line of credit, and our remaining
available borrowing capacity under the line of credit is $2 million.
Also, in order to increase their regulatory capital ratios and decrease their
concentrations in real estate construction and land development loans, the
Banks may decrease these loan balances through loan sales to other financial
institutions or investors. In order to provide additional capital
to the Banks, we expect to consider several alternatives, including seeking additional
equity and debt as well as reducing dividends on our common stock or ceasing
the repurchase of shares under the stock repurchase program. We cannot,
however, assure that we will be successful in raising additional equity or
debt, that the capital adequacy levels or loan loss reserves of the Banks will
be deemed satisfactory by our banking regulators, that the Banks will not be
subject to additional regulatory action, or of the impact of such actions on
debt covenants.
In connection
with the ongoing examination of the Banks, on April 24, 2008, the Banks
each received a letter from the OCC, Kansas City South Field office, indicating
that it believes the Banks are deemed to be in troubled condition for
purposes of Section 914 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, and, as a result, the Banks are subject to
specified restrictions on operations. These letters were received before
the OCCs issuance of its examination report and were based upon the OCC
staffs determination that the Banks had deficiencies in credit administration
practices, loan risk rating systems, loan loss allowance methodologies, and
levels of classified assets. The restrictions provide that:
(1) the Banks must notify the OCC 90 days before adding or replacing a
member of their respective
30
boards of
directors or employing any, or promoting any existing employee as a senior
executive officer, and (2) the Banks may not, except under certain
circumstances, enter into any agreements to make severance or indemnification
payments or make any such payments to institution-affiliated parties. We
expect to cooperate with the OCC to quickly address any regulatory concerns.
Any further significant deterioration in these market conditions could
have a material adverse affect on our business, financial condition and results
of operation.
We may be
required by our primary banking regulator to raise additional capital, but
capital may not be available.
We are required by regulatory authorities to
maintain adequate levels of capital to support our operations. To the extent
that regulatory authorities require us to increase our capital ratios or we
further expand our asset base, primarily through loan growth, we will be
required to support this growth with additional capital. Our primary regulator, the OCC has indicated
to us informally that we should consider increasing the capital ratios of our
subsidiary Banks, although we have not received their formal, written recommendations
or requirements in this area. Based on this recommendation, we have infused
capital totaling $2 million into our Banks.
Should we seek to raise additional capital in the near term through
equity and/or debt, we have $2 million of additional borrowing capacity on our existing
line of credit, which is up for renewal in the second quarter of 2008. We cannot assure that the line of credit will
be renewed, or that we will be able to raise additional capital.
Our ability to raise additional capital will
depend on conditions in the capital markets, which are outside of our control,
and on our financial performance, which has deteriorated as discussed elsewhere
in this report. Accordingly, we cannot
assure our ability to raise additional capital when needed or on economical
terms. If we cannot raise additional capital when needed, we expect we will be
subject to increased regulatory supervision and the likely imposition of
restrictions on our ability to make loans and grow our business. Also, these restrictions could negatively
impact our ability to seek to expand our operations and result in increases in
operating expenses and reductions in revenues that would negatively affect our
operating results.
Increase in our allowance for loan losses will result in reduced
earnings.
We are exposed to the risk that our customers
will be unable to repay their loans according to their terms and that any
collateral securing the payment of their loans will not be sufficient to assure
full repayment. We continually evaluate
the collectibility of our loan portfolio and provide an allowance for loan
losses that we believe is adequate based upon such factors as:
·
the risk
characteristics of various classifications of loans;
·
previous loan
loss experience;
·
specific loans
that have loss potential;
·
delinquency
trends;
·
estimated fair
value of the collateral;
·
current
economic conditions;
·
the views of
our regulators; and
·
geographic and
industry loan concentrations.
31
Many of these factors are difficult to
predict or estimate accurately, particularly in a changing economic
environment. If our evaluation is incorrect and borrower defaults cause losses
exceeding the portion of our allowance for loan losses allocated to those
loans, our earnings could be significantly and adversely affected. We may experience losses in our loan
portfolio or perceive adverse trends that require us to significantly increase
our allowance for loan losses in the future, such as occurred in 2008 to date,
which would reduce future earnings. In
addition, our regulators may require our Banks to increase or decrease our
allowance for loan losses.
Our
nonresidential real estate loans expose us to increased lending risks.
At March 31, 2008, $390 million,
or 67.2%, of our loan portfolio consisted of construction and land development
loans and commercial loans secured by real estate. These types of loans generally expose a
lender to greater risk of non-payment and loss than residential mortgage loans
because repayment of the loans often depends on the income stream of the borrowers.
Such loans expose us to additional risks because they typically are made on the
basis of the borrowers ability to make repayments from the cash flow of the
borrowers business and are secured by collateral that may depreciate over
time. These loans typically involve larger loan balances to single borrowers or
groups of related borrowers compared to residential mortgage loans. Because
such loans generally entail greater risk than residential mortgage loans, and
due to the declining economic conditions in our market areas, we may need to
increase our allowance for loan losses in the future to account for the
increase in probable incurred credit losses associated with such loans. Also,
many of our nonresidential real estate borrowers have more than one loan
outstanding with us. Consequently, an adverse development with respect to one
loan or one credit relationship can expose us to a significantly greater risk
of loss compared to an adverse development with respect to a residential
mortgage loan.
The banking regulators are giving commercial
real estate lending greater scrutiny, and have required banks with higher
levels of commercial real estate loans to implement more stringent
underwriting, internal controls, risk management policies and portfolio stress
testing, as well as possibly higher levels of allowances for losses and capital
levels as a result of commercial real estate lending growth and exposures. We recently received letters from the OCC
indicating that it believes our subsidiary Banks are deemed to be in troubled
condition and specifically citing that our Banks had deficiencies in credit
administration practices, loan risk rating systems, loan loss allowance
methodologies and levels of classified assets.
We expect to cooperate with the OCC to address any regulatory concerns
and, as previously indicated, that they may request that we consider increasing
our levels of allowance for loan losses and increase the capital ratios of our
Banks.
Our
stock price can be volatile.
Our stock price can fluctuate
widely in response to a variety of factors. Factors include actual or
anticipated variations in our quarterly operating results, recommendations by
securities analysts, operating and stock price performance of other companies,
news reports, results of litigation and other factors, including those
described in this Risk Factors section. Our common stock also has a low
average daily trading volume, which limits a persons ability to quickly
accumulate or quickly divest themselves of large blocks of our stock. In
addition, a low average trading volume can lead to significant price swings
even when a relatively small number of shares are being traded.
32
Our decisions regarding credit risk may materially and adversely affect
our business.
Making loans and other extensions of credit
is an essential element of our business. Although we seek to mitigate risks
inherent in lending by adhering to specific underwriting practices, we may
incur losses on loans that meet our underwriting criteria, and these losses may
exceed our loan loss reserves. The risk of nonpayment is affected by a number
of factors, including:
·
the duration of the credit;
·
credit risks of a particular customer;
·
changes in economic and industry conditions;
and
·
in the case of a collateralized loan, risks
resulting from uncertainties about the future value of the collateral.
While we generally underwrite the loans in
our portfolio in accordance with our own internal underwriting guidelines and
regulatory supervisory limits, in certain circumstances we have made loans that
exceed either our internal underwriting guidelines, supervisory limits, or both
as provided by the regulations. We
generally consider making such loans only after taking into account the
financial strength of the borrower and/or guarantor. The number of loans in our
portfolio with loan-to-value ratios in excess of supervisory limits, our
internal guidelines, or both could increase the risk of delinquencies or
defaults in our portfolio. Any such delinquencies or defaults could have an
adverse affect on our results of operations and financial condition.
We depend on the accuracy and completeness of information about clients
and counterparties and our financial condition could be adversely affected if
we rely on misleading information.
In deciding whether to extend credit or to
enter into other transactions with clients and counterparties, we may rely on
information furnished to us by or on behalf of clients and counterparties,
including financial statements and other financial information, which we do not
independently verify. We also may rely on representations of clients and
counterparties as to the accuracy and completeness of that information and,
with respect to financial statements, on reports of independent auditors. For
example, in deciding whether to extend credit to clients, we may assume that a
customer's audited financial statements conform with GAAP and present fairly,
in all material respects, the financial condition, results of operations and
cash flows of the customer. Our financial condition and results of operations
could be negatively impacted to the extent we rely on financial statements that
do not comply with GAAP or are materially misleading.
Our small to medium-sized business target markets may have fewer
financial resources to weather a downturn in the economy.
We target the banking and financial services needs of small and
medium-sized businesses. These businesses generally have fewer financial
resources in terms of capital borrowing capacity than larger entities. If
general economic conditions negatively impact these businesses in the markets
in which we operate, our business, financial condition, and results of
operation could be adversely affected.
We are subject
to ongoing changes in monetary policy and the economic environment.
The policies of regulatory authorities, including the monetary policy
of the Federal Reserve, have a significant effect on the operating results of
financial holding companies and their subsidiaries. Among the means available
to the Federal Reserve to affect the money supply are open market
33
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 our business and earnings cannot
be predicted.
Liquidity needs could adversely affect our financial condition and
results of operation.
We rely on dividends from our bank
subsidiaries as our primary source of funds. The primary sources of funds of
our bank subsidiaries are customer deposits and loan repayments. While
scheduled loan repayments are a relatively stable source of funds, they are
subject to the ability of borrowers to repay the loans. The ability of
borrowers to repay loans can be adversely affected by a number of factors,
including changes in economic conditions, adverse trends or events affecting
business industry groups, reductions in real estate values or markets, business
closings or lay-offs, inclement weather, natural disasters and international
instability.
Additionally, deposit levels may be affected
by a number of factors, including rates paid by competitors, general interest
rate levels, regulatory capital requirements, returns available to customers on
alternative investments and general economic conditions. Accordingly, we may be
required from time to time to rely on secondary sources of liquidity to meet
withdrawal demands or otherwise fund operations. Such sources include proceeds
from Federal Home Loan Bank advances, sales of investment securities and loans,
and federal funds lines of credit from correspondent banks, as well as
out-of-market time deposits. While we believe that these sources are currently
adequate, there can be no assurance they will be sufficient to meet future
liquidity demands, particularly if we continue to grow and experience
increasing loan demand. We may be required to slow or discontinue loan growth,
capital expenditures or other investments or liquidate assets should such
sources not be adequate.
Efforts to comply with the Sarbanes-Oxley Act of 2002 will
continue to involve significant expenditures, and non-compliance with the
Sarbanes-Oxley Act of 2002 may adversely affect our business.
The Sarbanes-Oxley Act of 2002, and the related rules
and regulations promulgated by the SEC that are now applicable to us, have
increased the scope, complexity, and cost of corporate governance, reporting,
and disclosure practices. We have experienced, and expect to continue to
experience, greater compliance costs, including costs of completing our audits
and the costs related to maintaining and certifying internal controls, as a
result of the Sarbanes-Oxley Act. We expect these new rules and regulations to
continue to increase our accounting, legal, and other costs, and to make some
activities more difficult, time consuming, and costly. In the event that we are
unable to maintain or achieve compliance with the Sarbanes-Oxley Act and
related rules, we may be adversely affected.
We evaluate our internal control systems in order to
allow management to report on, our internal control over financial reporting,
as required by Section 404 of the Sarbanes-Oxley Act. If we
34
identify significant deficiencies or material
weaknesses in our internal control over financial reporting that we cannot
remediate in a timely manner, the trading price of our common stock could
decline, our ability to obtain any necessary equity or debt financing could
suffer, and our common stock could ultimately be delisted from The Nasdaq
Global Market. In this event, the liquidity of our common stock would be
severely limited and the market price of our common stock would likely decline
significantly.
We rely heavily
on our management team, and the unexpected loss of key employees may adversely
affect our operations.
Much of our success to date has been
influenced strongly by our ability to attract and retain senior management
experienced in banking and financial services. Our ability to attract and
retain executive officers, management teams and loan officers of our operating
subsidiaries will continue to be important to the successful implementation of
our strategies. The unexpected loss of services of any key management
personnel, or the inability to recruit and retain qualified personnel in the
future, could have an adverse affect on our business, financial condition and
results of operations.
We may not be
successful in implementing our internal growth strategy due to numerous
factors, which could negatively affect earnings.
We intend to seek to further an internal growth strategy, the success
of which is subject to our ability to generate an increasing level of loans and
deposits at acceptable risk levels without corresponding increases in
non-interest expenses. We may not be successful in our internal growth
strategies due to competition, delays, and other impediments resulting from
regulatory oversight and control, lack of qualified personnel, scarcity of
branch sites or deficient site selection of bank branches. In addition, the
success of our internal growth strategy will depend on maintaining sufficient
regulatory capital levels and on positive economic conditions in our primary
market areas.
We face intense
competition in all phases of our business from other banks and financial
institutions.
We compete for deposits with a large number
of depository institutions including commercial banks, savings and loan
associations, credit unions, money market funds and other financial
institutions and financial intermediaries serving our operating areas.
Principal competitive factors with respect to deposits include interest rates
paid on deposits, customer service, convenience, and location.
We compete for loans with other banks located
in our operating areas, with loan production offices of large banks
headquartered in other states, as well as with savings and loan associations,
credit unions, finance
companies, mortgage
bankers, leasing companies and other institutions. Competitive factors with
respect to loans include interest rates charged, customer service and
responsiveness in tailoring financial products to the needs of customers.
Our growth
strategy involves operating and merger and acquisition risks that may
negatively impact our profits.
We face risks in our growth strategy,
including the risks that we will be unable to expand our business through the
merging with or acquisition of other financial institutions or bank branches or
by internal growth, including the opening of new branch offices. Our ability to
grow through the opening of new branches involves risks that the growth depends
primarily on our ability to identify attractive markets and acquire or
establish branch locations in
35
those markets at reasonable costs. In
addition, we must attract the necessary deposits and generate sound loans in
those markets.
Merging with or acquiring other financial
institutions or bank branches involves these same risks, as well as additional
risks, including:
·
adverse change in the results of operations
of the acquired entities;
·
unforeseen liabilities or asset quality problems
of the acquired entities;
·
greater than anticipated costs of
integration;
·
adverse personnel relations;
·
loss of customers; and
·
deterioration of local economic conditions.
The risks discussed above may inhibit or
restrict our strategy to grow through mergers or acquisitions and branch
expansion, and may negatively impact our revenue growth and ultimately reduce
profits.
If we are unable
to successfully integrate mergers or acquisitions, our earnings could decrease.
In connection with mergers or acquisitions of other banks, bank
branches or other financial service providers, we face risks in integrating and
managing these businesses. We may also consider various merger proposals in the
future. To integrate a merger or an acquisition operationally, we must:
·
centralize and standardize policies,
procedures, practices, and processes;
·
combine employee benefit plans;
·
implement a unified investment policy and
adjust the combined investment portfolio to comply with the policy;
·
implement a unified loan policy and confirm
lending authority;
·
implement a standard loan management system;
and
·
implement a loan loss reserve policy.
Integrating a merger or an acquisition may
detract attention from our day-to-day business and may result in unexpected
costs.
Once a business is integrated, our future
prospects will be subject to a number of risks, including, among others:
·
our ability to compete effectively in new
market areas;
·
our successful retention of earning assets,
including loans;
·
our ability to generate new earning assets;
·
our ability to attract deposits;
·
our ability to achieve cost savings.
Historically, we have not implemented wholesale cost cutting after
acquisitions, preferring to adjust operational costs on an ongoing basis in
order to preserve market share and each acquired entity's standing in its
community; and
36
·
our ability to attract and retain qualified
management and other qualified personnel.
An inability to manage these factors may have
a material adverse effect on our financial condition, results of operations,
liquidity or share price.
Changes in
interest rates could affect our earnings.
Our net interest income is our largest source of revenue. Net interest
income is the difference between interest earned on loans and investments and
interest paid on deposits and other borrowings. We cannot predict or control
changes in interest rates, which are affected by national, regional and local
economic conditions and the policies of regulatory authorities. While we
continually take measures designed to manage the risks from changes in market
interest rate, changes in interest rates can still have a material adverse
effect on our earnings.
An interruption in or breach in security of our information systems may
result in a loss of customer business and have an adverse affect on our results
of operations, financial condition and cash flows.
We rely heavily on communications and information systems to conduct
its business. Any failure, interruption or breach in security of these systems
could result in failures or disruptions in our customer relationship
management, general ledger, deposits, servicing or loan origination
systems. Although we have policies and
procedures designed to prevent or minimize the effect of a failure,
interruption or breach in security of its communications or information
systems, there can be no assurance that any such failures, interruptions or
security breaches will not occur, or if they do occur, that they will be
adequately addressed by us. The
occurrence of any such failures, interruptions or security breaches could
result in a loss of customer business and have a negative effect on our results
of operations, financial condition and cash flows.
Our business operations are dependent on technology and our inability
to invest in technological improvements may adversely affect our results of
operations, financial condition and cash flows.
The
financial services industry is undergoing rapid technological changes with
frequent introductions of new technology driven products and services. In addition to better serving customers, the
effective use of technology increases efficiency and enables financial
institutions to reduce costs. Our future
success depends in part upon our ability to address the needs of our customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as create additional efficiencies in our
operations. Many of our competitors have
substantially greater resources to invest in technological improvements. We may not be able to implement new
technology driven products and service effectively or be successful in
marketing these products and services to its customers, which may negatively
affect our results of operations, financial condition and cash flows.
Any future decrease in the carrying value of
goodwill may impact earnings.
We
continue to report $4.7 million of goodwill on our books. Further adverse changes in the business
climate in which the Company operates may cause the carrying value of the
goodwill to become impaired and require a charge to earnings.
We cannot be certain that our existing line
of credit will be renewed.
We
have a $6 million line of credit with our correspondent bank of which we are
currently utilizing $4 million. The
renewal of this line of credit is scheduled for the second quarter of
2008. While the line of credit has been
renewed in the past, we cannot assure renewal in the future. Nonrenewal of the line of credit would
adversely impact our capital resources and liquidity.
Item
2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
(c) The following
table summarizes information about the shares of common stock we repurchased
during the first quarter of 2008.
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
Maximum Number
|
|
|
|
Total Number
|
|
|
|
Publicly
|
|
of Shares That
|
|
|
|
of Shares
|
|
Average Price
|
|
Announced
|
|
May Yet Be purchased
|
|
Period
|
|
Purchased
|
|
Paid per Share
|
|
Program
|
|
Under The Program
|
|
|
|
|
|
|
|
|
|
|
|
January 1- January 31
|
|
|
|
$
|
|
|
|
|
202,278
|
|
February 1-February 29
|
|
|
|
$
|
|
|
|
|
202,278
|
|
March 1 - March 31
|
|
7,600
|
|
$
|
13.46
|
|
7,600
|
|
194,678
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
7,600
|
|
$
|
13.46
|
|
7,600
|
|
|
|
The
Board of Directors approved a stock repurchase program, announced October 14,
2004, authorizing the repurchase of up to 400,000 shares of our common
stock. The stock repurchase program does
not have an expiration date.
Item 5:
OTHER
INFORMATION
On May 13, 2008, we were notified
by U.S. Bank, N.A. (U.S. Bank) that we were in technical default of our
Revolving Credit Agreement with U.S. Bank, dated March 18, 2004 (the Credit
Agreement) pursuant to Section 6.1 of the Credit Agreement as a result of
correspondence received on April 24, 2008 by our subsidiary banks from the
Office of the Comptroller of the Currency that our subsidiary banks were in
troubled condition for purposes of Section 914 of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, and, as a result, our subsidiary
banks are subject to specified restrictions on operations. This correspondence
would have caused the Company to violate a covenant in the Credit Agreement;
however, we have received notification from U.S. Bank that this violation will
be waived until the maturity date of the Credit Agreement. The Credit Agreement matures June 30, 2008,
at which time we expect that the Credit Agreement will be renewed, however we
cannot assure that the Credit Agreement will be renewed.
37
Item
6.
EXHIBITS
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
Restated and Amended Articles of
Incorporation of Team Financial, Inc. (1)
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Team
Financial, Inc. (8)
|
|
|
|
4.9
|
|
Indenture between Team
Financial, Inc. and Wells Fargo Bank, N.A. dated September 14, 2006
(8)
|
|
|
|
4.10
|
|
Debenture
Subscription Agreement between Team Financial, Inc. and Team Financial Capital
Trust II dated September 14, 2006 (8)
|
|
|
|
4.11
|
|
Common
Securities Subscription Agreement between Team Financial Capital Trust II and
Team Financial, Inc. dated September 14, 2006 (8)
|
|
|
|
4.12
|
|
Purchase Agreement among Team Financial Capital Trust II, Team Financial Inc., and Bear, Stearns & Co., Inc. dated September 12, 2006 (8)
|
|
|
|
4.13
|
|
Guarantee Agreement delivered by Team Financial, Inc. and Wells Fargo Bank, N.A. dated September 14, 2006 (8)
|
|
|
|
4.14
|
|
Junior
Subordinated Debenture of Team Financial, Inc. due 2036 (8)
|
|
|
|
4.15
|
|
Capital
Security Certificate of Team Financial Capital Trust II evidencing 22,000 Capital
Securities owned by Cede & Co. (8)
|
|
|
|
4.16
|
|
Common
Security Certificate of Team Financial Capital Trust II evidencing 681
Commons Securities owned by Team Financial, Inc. (8)
|
|
|
|
10.1
|
|
Employment
Agreement between Team Financial, Inc. and Robert J. Weatherbie dated
April 15, 2008. (12)
|
|
|
|
10.2
|
|
Employment
Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated March 14,
2007. (9)
|
|
|
|
10.3
|
|
Employment
Agreement between Team Financial, Inc. and Sandra J. Moll dated
March 2, 2007. (9)
|
|
|
|
10.5
|
|
Technology
Outsourcing Renewal Agreement between Team Financial, Inc. and Metavante
Corporation dated December 1, 2007. (11)
|
|
|
|
10.6
|
|
401K
Plan of Team Financial, Inc. 401(k) Trust, effective
January 1, 1999 and administered by Nationwide Life Insurance Company.
(1)
|
|
|
|
10.7-10.9
|
|
Exhibit numbers
intentionally not used.
|
|
|
|
10.10
|
|
Agreement
dated May 16, 2006 among Team Financial, Inc. and McCaffree
Financial Corporation. (7)
|
|
|
|
10.11
|
|
Team
Financial, Inc. Employee Stock Ownership Plan Summary. (1)
|
|
|
|
10.12
|
|
Team
Financial, Inc. 1999 Stock Incentive Plan. (1)
|
|
|
|
10.13
|
|
Rights
Agreement between Team Financial, Inc. and American Securities
Transfer & Trust, Inc. dated June 3, 1999. (1)
|
|
|
|
10.14
|
|
Team
Financial, Inc. Employee Stock Purchase Plan. (1)
|
|
|
|
10.15
|
|
Revolving
Credit Agreement between Team Financial, Inc. and US Bank dated
March 18, 2004. (4)
|
|
|
|
10.15.1
|
|
Amendment
to Loan Agreement and Note between Team Financial, Inc. and US Bank
dated June 30, 2007. (10)
|
|
|
|
10.18
|
|
Deferred
Compensation Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
February 1, 2002. (2)
|
|
|
|
10.19
|
|
Salary
Continuation Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
July 1, 2001. (2)
|
|
|
|
10.20
|
|
Split
Dollar Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
January 25, 2002. (2)
|
|
|
|
10.24
|
|
Deferred
Compensation Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
February 1, 2002. (2)
|
38
10.25
|
|
Salary
Continuation Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
July 1, 2001. (2)
|
|
|
|
10.26
|
|
Split
Dollar Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
January 25, 2002. (2)
|
|
|
|
10.29
|
|
Stock
Purchase Agreement dated February 7, 2005 between TeamBank, N.A. and
International Insurance Brokers, Ltd., LLC. (5)
|
|
|
|
10.30
|
|
Executive
Retirement and Release Agreement between Michael L. Gibson and Team
Financial, Inc. dated May 24, 2007. (10)
|
|
|
|
11.1
|
|
Statement
regarding Computation of per share earnings see consolidated financial
statements. (12)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (12)
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (12)
|
|
|
|
32.1
|
|
Certification of Chief Executive
Officer Pursuant to 18 U.S.C. §1350. (12)
|
|
|
|
32.2
|
|
Certification of Chief Financial
Officer Pursuant to 18 U.S.C. §1350. (12)
|
(1)
|
Filed with Registration
Statement on Form S-1 dated August 6, 2001, as amended,
(Registration Statement No. 333-76163) and incorporated herein by reference.
|
(2)
|
Filed
with Annual Report on Form 10-K for the Year Ending December 31,
2002, and incorporated herein by reference.
|
(3)
|
Filed
with Registration Statement on Form S-1 dated July 12, 2001, as
amended, Registration Statement No. 333-64934) and are incorporated
herein by reference.
|
(4)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2004
and incorporated herein by reference.
|
(5)
|
Filed
with annual report on Form 10-K for the year ended December 31,
2004, and incorporated herein by reference.
|
(6)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2006
and incorporated herein by reference.
|
(7)
|
Filed
with Form 8-K dated May 22, 2006 and incorporated herein by
reference.
|
(8)
|
Filed
with quarterly report on form 10-Q for the period ended September 30,
2006 and incorporated herein by reference.
|
(9)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2007
and incorporated herein by reference.
|
(10)
|
Filed
with quarterly report on form 10-Q for the period ended June 30, 2007
and incorporated herein by reference
|
(11)
|
Filed
with annual report on Form 10-K/A for the year ended December 31,
2007, and incorporated herein by reference.
|
(12)
|
Filed
herewith.
|
39
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
|
May 15,
2008
|
By:
|
/s/
Robert J. Weatherbie
|
|
|
Robert
J. Weatherbie
|
|
|
Chairman
and
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
Date:
|
May 15,
2008
|
By:
|
/s/
Bruce R. Vance
|
|
|
Bruce
R. Vance
|
|
|
Interim
Chief Financial Officer
|
40
Exhibit Index
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
Restated and Amended Articles of
Incorporation of Team Financial, Inc. (1)
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Team
Financial, Inc. (8)
|
|
|
|
4.9
|
|
Indenture between Team
Financial, Inc. and Wells Fargo Bank, N.A. dated September 14, 2006
(8)
|
|
|
|
4.10
|
|
Debenture
Subscription Agreement between Team Financial, Inc. and Team Financial Capital
Trust II dated September 14, 2006 (8)
|
|
|
|
4.11
|
|
Common
Securities Subscription Agreement between Team Financial Capital Trust II and
Team Financial, Inc. dated September 14, 2006 (8)
|
|
|
|
4.12
|
|
Purchase Agreement among Team Financial Capital Trust II, Team Financial Inc., and Bear, Stearns & Co., Inc. dated September 12, 2006 (8)
|
|
|
|
4.13
|
|
Guarantee Agreement delivered by Team Financial, Inc. and Wells Fargo Bank, N.A. dated September 14, 2006 (8)
|
|
|
|
4.14
|
|
Junior
Subordinated Debenture of Team Financial, Inc. due 2036 (8)
|
|
|
|
4.15
|
|
Capital
Security Certificate of Team Financial Capital Trust II evidencing 22,000
Capital Securities owned by Cede & Co. (8)
|
|
|
|
4.16
|
|
Common
Security Certificate of Team Financial Capital Trust II evidencing 681
Commons Securities owned by Team Financial, Inc. (8)
|
|
|
|
10.1
|
|
Employment
Agreement between Team Financial, Inc. and Robert J. Weatherbie dated
April 15, 2008. (12)
|
|
|
|
10.2
|
|
Employment
Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated March 14,
2007. (9)
|
|
|
|
10.3
|
|
Employment
Agreement between Team Financial, Inc. and Sandra J. Moll dated
March 2, 2007. (9)
|
|
|
|
10.5
|
|
Technology
Outsourcing Renewal Agreement between Team Financial, Inc. and Metavante
Corporation dated December 1, 2007. (11)
|
|
|
|
10.6
|
|
401K
Plan of Team Financial, Inc. 401(k) Trust, effective
January 1, 1999 and administered by Nationwide Life Insurance Company.
(1)
|
|
|
|
10.7-10.9
|
|
Exhibit numbers
intentionally not used.
|
|
|
|
10.10
|
|
Agreement
dated May 16, 2006 among Team Financial, Inc. and McCaffree
Financial Corporation. (7)
|
|
|
|
10.11
|
|
Team
Financial, Inc. Employee Stock Ownership Plan Summary. (1)
|
|
|
|
10.12
|
|
Team
Financial, Inc. 1999 Stock Incentive Plan. (1)
|
|
|
|
10.13
|
|
Rights
Agreement between Team Financial, Inc. and American Securities
Transfer & Trust, Inc. dated June 3, 1999. (1)
|
|
|
|
10.14
|
|
Team
Financial, Inc. Employee Stock Purchase Plan. (1)
|
|
|
|
10.15
|
|
Revolving
Credit Agreement between Team Financial, Inc. and US Bank dated
March 18, 2004. (4)
|
|
|
|
10.15.1
|
|
Amendment
to Loan Agreement and Note between Team Financial, Inc. and US Bank
dated June 30, 2007. (10)
|
|
|
|
10.18
|
|
Deferred
Compensation Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
February 1, 2002. (2)
|
41
10.19
|
|
Salary
Continuation Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
July 1, 2001. (2)
|
|
|
|
10.20
|
|
Split
Dollar Agreement between TeamBank, N.A. and Robert J. Weatherbie dated
January 25, 2002. (2)
|
|
|
|
10.24
|
|
Deferred
Compensation Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
February 1, 2002. (2)
|
|
|
|
10.25
|
|
Salary
Continuation Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
July 1, 2001. (2)
|
|
|
|
10.26
|
|
Split
Dollar Agreement between TeamBank, N.A. and Carolyn S. Jacobs dated
January 25, 2002. (2)
|
|
|
|
10.29
|
|
Stock
Purchase Agreement dated February 7, 2005 between TeamBank, N.A. and
International Insurance Brokers, Ltd., LLC. (5)
|
|
|
|
10.30
|
|
Executive
Retirement and Release Agreement between Michael L. Gibson and Team
Financial, Inc. dated May 24, 2007. (10)
|
|
|
|
11.1
|
|
Statement
regarding Computation of per share earnings see consolidated financial
statements. (12)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (12)
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (12)
|
|
|
|
32.1
|
|
Certification of Chief Executive
Officer Pursuant to 18 U.S.C. §1350. (12)
|
|
|
|
32.2
|
|
Certification of Chief Financial
Officer Pursuant to 18 U.S.C. §1350. (12)
|
(1)
|
Filed with Registration
Statement on Form S-1 dated August 6, 2001, as amended,
(Registration Statement No. 333-76163) and incorporated herein by
reference.
|
(2)
|
Filed
with Annual Report on Form 10-K for the Year Ending December 31,
2002, and incorporated herein by reference.
|
(3)
|
Filed
with Registration Statement on Form S-1 dated July 12, 2001, as
amended, Registration Statement No. 333-64934) and are incorporated
herein by reference.
|
(4)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2004
and incorporated herein by reference.
|
(5)
|
Filed
with annual report on Form 10-K for the year ended December 31,
2004, and incorporated herein by reference.
|
(6)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2006
and incorporated herein by reference.
|
(7)
|
Filed
with Form 8-K dated May 22, 2006 and incorporated herein by reference.
|
(8)
|
Filed
with quarterly report on form 10-Q for the period ended September 30,
2006 and incorporated herein by reference.
|
(9)
|
Filed
with quarterly report on form 10-Q for the period ended March 31, 2007
and incorporated herein by reference.
|
(10)
|
Filed
with quarterly report on form 10-Q for the period ended June 30, 2007
and incorporated herein by reference
|
(11)
|
Filed
with annual report on Form 10-K/A for the year ended December 31,
2007, and incorporated herein by reference.
|
(12)
|
Filed
herewith.
|
42
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