UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2004
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 of incorporation or organization)		(I.R.S. Employer Identification No.)

 

8 West Peoria, Suite 200, Paola, Kansas 66071

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone, including area code:  (913) 294-9667

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     ý     No     o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes     o     No     ý

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

There were 3,988,478 shares of the Registrant’s common stock, no par value, outstanding as of November 4, 2004.

 

 

Part I.  Financial Information
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition as of September 30, 2004 and December 31, 2003
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003
	Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2004 and 2003
	Unaudited Consolidated Statements of Changes In Stockholders’ Equity for the Nine Months Ended September 30, 2004
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis Of Financial Condition and Results Of Operations
Item 3.	Quantitative and Qualitative Disclosure About Market Risk
Item 4.	Controls and Procedures
Part II.  Other Information
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits
Signature Page
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes- Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes- Oxley Act of 2002
Exhibit 32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
Exhibit 32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350

 

2

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Financial Condition

(Dollars In Thousands)

 

		September 30, 2004			December 31, 2003
Assets
Cash and due from banks		$	13,375		$	14,135
Interest bearing bank deposits		3,976			4,667
Cash and cash equivalents		17,351			18,802
Investment securities:
Available for sale, at fair value (amortized cost of $199,687 and $218,377 at September 30, 2004 and December 31, 2003, respectively)		201,969			221,252
Total investment securities		201,969			221,252
Loans receivable, net of unearned fees		381,904			348,095
Allowance for loan losses		(4,866		)	(4,506		)
Net loans receivable		377,038			343,589
Accrued interest receivable		3,884			4,002
Premises and equipment, net		16,064			14,132
Assets acquired through foreclosure		233			1,117
Goodwill		15,463			14,538
Intangible assets, net of accumulated amortization		5,182			5,830
Bank owned life insurance policies		18,291			17,756
Other assets		2,970			8,778
Total assets		$	658,445		$	649,796
Liabilities and Stockholders’ Equity
Deposits:
Checking deposits		$	163,782		$	165,448
Savings deposits		32,775			32,715
Money market deposits		53,282			47,804
Certificates of deposit		195,102			200,192
Total deposits		444,941			446,159
Federal funds purchased and securities sold under agreements to repurchase		22,416			7,180
Federal Home Loan Bank advances		111,962			111,234
Notes payable and other borrowings		3,500			3,232
Subordinated debentures		16,005			16,005
Accrued expenses and other liabilities		7,185			13,582
Total liabilities		606,009			597,392
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; 4,461,553 and 4,449,638 shares issued; 3,988,478 and 4,099,555 shares outstanding at September 30, 2004 and December 31, 2003, respectively		27,551			27,448
Capital surplus		292			292
Retained earnings		27,742			25,979
Treasury stock, 473,075 and 350,083 shares of common stock at cost at September 30, 2004 and December 31, 2003, respectively		(4,656		)	(3,212		)
Accumulated other comprehensive income		1,507			1,897
Total stockholders’ equity		52,436			52,404
Total liabilities and stockholders’ equity		$	658,445		$	649,796

 

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 September 30						Nine Months Ended September 30
		2004			2003			2004			2003
Interest Income:
Interest and fees on loans		$	5,740		$	5,807		$	17,162		$	17,574
Taxable investment securities		1,847			1,606			5,568			5,275
Non-taxable investment securities		308			292			909			804
Other		18			26			74			131
Total interest income		7,913			7,731			23,713			23,784
Interest Expense:
Deposits
Checking deposits		144			108			397			424
Savings deposits		51			56			160			189
Money market deposits		121			121			357			441
Certificates of deposit		1,145			1,307			3,409			4,177
Federal funds purchased and securities sold under agreements to repurchase		48			12			82			34
FHLB advances payable		1,190			1,259			3,675			3,744
Notes payable and other borrowings		41			37			171			141
Subordinated debentures		388			388			1,165			1,165
Total interest expense		3,128			3,288			9,416			10,315
Net interest income before provision for loan losses		4,785			4,443			14,297			13,469
Provision for loan losses		261			832			821			1,319
Net interest income after provision for loan losses		4,524			3,611			13,476			12,150
Non-Interest Income:
Service charges		1,086			966			2,928			2,667
Trust fees		179			159			491			433
Insurance agency commissions		1,281			1,377			3,393			3,687
Gain on sales of mortgage loans		241			946			961			2,368
Gain (loss) on sales of investment securities		(25		)	145			(54		)	295
Bank owned life insurance income		198			219			623			672
Other		366			706			1,126			1,587
Total non-interest income		3,326			4,518			9,468			11,709
Non-Interest Expenses:
Salaries and employee benefits		3,459			3,389			10,346			10,372
Occupancy and equipment		780			653			2,280			2,042
Data processing		632			579			1,884			1,610
Professional fees		289			292			958			907
Marketing		157			112			378			310
Supplies		104			121			295			331
Intangible asset amortization		227			309			740			985
Disposal of branch assets		—			—			—			258
Other		949			984			2,871			2,802
Total non-interest expenses		6,597			6,439			19,752			19,617
Income before income taxes		1,253			1,690			3,192			4,242
Income taxes		101			546			458			1,133
Net income		$	1,152		$	1,144		$	2,734		$	3,109
Shares applicable to basic income per share		4,036,234			4,091,169			4,072,913			4,097,041
Basic income per share		$	0.29		$	0.28		$	0.67		$	0.76
Shares applicable to diluted income per share		4,074,086			4,125,981			4,117,100			4,127,215
Diluted income per share		$	0.28		$	0.28		$	0.66		$	0.75

 

See accompanying notes to the unaudited consolidated financial statements

 

4

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(Dollars In Thousands)

 

		Three Months Ended September 30						Nine Months Ended September 30
		2004			2003			2004			2003
Net Income		$	1,152		$	1,144		$	2,734		$	3,109
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available for sale net of tax of $1,280 and $(1) for the three months ended September 30, 2004 and 2003, respectively; and $(221) and $(945) for the nine months ended September 30, 2004 and 2003, respectively.		2,484			(1,081		)	(426		)	(1,831		)
Reclassification adjustment for gains (losses) included in net income net of tax of $9 and $(49) for the three months ended September 30, 2004 and 2003, respectively; and $18 and $(100) for the nine months ended September 30, 2004 and 2003, respectively.		16			(96		)	36			(195		)
Other comprehensive income (loss), net		2,500			(1,177		)	(390		)	(2,026		)
Comprehensive income (loss)		$	3,652		$	(33	)	$	2,344		$	1,083

 

See accompanying notes to the unaudited consolidated financial statements

 

5

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Changes In Stockholders’ Equity

Nine Months Ended September 30, 2004

(Dollars In Thousands, Except Per Share Data)

 

		Common Stock			Capital surplus			Retained earnings			Treasury Stock			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance, December 31, 2003		$	27,448		$	292		$	25,979		$	(3,212	)	$	1,897		$	52,404
Treasury stock purchased (122,992 shares)		—			—			—			(1,444		)	—			(1,444		)
Common stock issued in connection with compensation plans (11,915 shares)		103			—			—			—			—			103
Net income		—			—			2,734			—			—			2,734
Dividends ($0.24 per share)		—			—			(971		)	—			—			(971		)
Other comprehensive loss net of $(203) in taxes		—			—			—			—			(390		)	(390		)
Balance, September 30, 2004		$	27,551		292			27,742			$	(4,656	)	1,507			52,436

 

See accompanying notes to the unaudited consolidated financial statements

 

6

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Cash Flows

(Dollars In Thousands)

 

		Nine Months Ended September 30,
		2004			2003
Cash flows from operating activities:
Net income		$	2,734		$	3,109
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		821			1,319
Depreciation and amortization		2,458			3,883
Change in bank owned life insurance		(535		)	(623		)
Net (gain) loss on sales of investment securities		54			(295		)
FHLB stock dividends		(157		)	—
Net gain on sales of mortgage loans		(961		)	(2,368		)
Net loss on sales of assets		99			78
Disposal of branch assets		—			258
Proceeds from sale of mortgage loans		46,701			114,101
Origination of mortgage loans for sale		(47,078		)	(103,368		)
Net decrease (increase) in other assets		6,173			(635		)
Net decrease in accrued expenses and other liabilities		(6,184		)	(427		)
Net cash provided by operating activities		4,125			15,032
Cash flows from investing activities:
Net increase in loans		(32,945		)	(6,631		)
Proceeds from sale of investment securities available-for-sale		8,642			3,037
Proceeds from maturities and principal reductions of investment securities available-for-sale		58,745			107,722
Purchases of investment securities available-for-sale		(49,361		)	(113,511		)
Cash paid for contingent payment on acquisition		(925		)	—
Purchase of premises and equipment, net		(2,945		)	(2,783		)
Proceeds from sales on assets		519			950
Net cash used in investing activities		(18,270		)	(11,216		)
Cash flows from financing activities:
Net decrease in deposits		(1,218		)	(18,871		)
Net increase in federal funds purchased and securities sold under agreement to repurchase		15,236			1,259
Payments on Federal Home Loan Bank advances		(12,051		)	(1,058		)
Proceeds of Federal Home Loan Bank Advances		12,782			—
Payments on notes payable		(6,285		)	(2,936		)
Proceeds of notes payable		6,551			200
Common stock issued		103			50
Purchase of treasury stock		(1,444		)	(437		)
Dividends paid on common stock		(980		)	(776		)
Net cash provided by (used in) financing activities		12,694			(22,569		)
Net change in cash and cash equivalents		(1,451		)	(18,753		)
Cash and cash equivalents at beginning of the period		18,802			35,558
Cash and cash equivalents at end of the period		$	17,351		$	16,805
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	9,492		$	10,420
Income taxes		$	1,000		$	3,065
Non-cash activities related to operations:
Assets acquired through foreclosure		$	962		$	339
Loans to facilitate the sale of real estate acquired through foreclosure		658			—

 

See accompanying notes to the unaudited consolidated financial statements

 

7

 

Team Financial, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Three and nine month periods ended September 30, 2004 and 2003

 

(1)           Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Team Financial, Inc. and Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial condition and results of operations required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included.  The consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

 

The interim consolidated financial statements include the accounts of Team Financial, Inc. and its wholly owned subsidiaries required to be consolidated according to accounting principles generally accepted in the United States of America.  Intercompany balances and transactions have been eliminated.  The consolidated financial statements do not include the accounts of our wholly owned statutory trust, Team Financial Capital Trust I.  See Note 2, Recent Accounting Pronouncements, below for further discussion.  The December 31, 2003 consolidated statement of financial condition has been derived from the audited consolidated financial statements as of that date.  Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentation.  The results of the interim periods ended September 30, 2004, are not necessarily indicative of the results that may occur for the year ending December 31, 2004.

 

(2)           Recent Accounting Pronouncements

 

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities, (FIN 46).  FIN 46 provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests and results of operations of a VIE need to be included in a company’s financial statements.  VIEs are generally defined in FIN 46 as entities that either do not have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling financial interest.  In December 2003, the FASB issued a revised FIN 46 (FIN 46R), which required public companies to apply FIN 46 to special purpose entities by periods ending after December 15, 2003. We have a statutory trust, Team Financial Capital Trust I (the “Trust”) that was formed in 2001 for the purpose of issuing $15.5 million of Trust Preferred Securities. As a result of applying FIN 46R, the Trust is not consolidated in the financial statements of Team Financial, Inc.  The impact of deconsolidating the Trust at December 31, 2003 was reporting $16.0 million of subordinated debentures of Team Financial, Inc., payable to the Trust and a $480,000 investment in the Trust.

 

We continue to include the Trust Preferred Securities issued by the Trust in Tier I capital for regulatory capital purposes.

 

(3)           Stock Compensation and Income Per Share

 

Basic income per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

 

We account for employee options under the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees with pro forma disclosures of net income and income per share, as if the fair value method of accounting defined in Statement of Financial Accounting Standards No. 123 Accounting for Stock Based Compensation (SFAS 123) had been applied.  SFAS 123 establishes a fair value based method of accounting for stock based employee compensation plans.  Under the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the vesting period.  Under SFAS 123, our net income and net income per share would have decreased as reflected in the following pro forma amounts.

 

8

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2004			2003			2004			2003
		(Dollars in thousands, except per share data)
Net income:
As reported		$	1,152		$	1,144		$	2,734		$	3,109
Compensation cost, net		22			27			66			79
Pro forma		$	1,130		$	1,117		2,668			3,030
Basic earnings per share:
As reported		$	0.29		$	0.28		$	0.67		$	0.76
Pro forma		0.28			0.27			0.66			0.74
Diluted earnings per share:
As reported		$	0.28		$	0.28		$	0.66		$	0.75
Pro forma		0.28			0.27			0.65			0.73
Shares applicable to basic earnings per share		4,036,234			4,091,169			4,072,913			4,097,041
Shares applicable to diluted earnings per share		4,074,086			4,125,981			4,117,100			4,127,215

 

(4)           Stock Repurchase Program

 

Under the stock repurchase program, we purchased 72,992 shares of common stock during the quarter ended September 30, 2004 at an average price of $11.16.  During the nine months ended September 30, 2004, 122,992 shares of common stock were purchased at an average price of $11.62.  At September 30, 2004, 296,770 shares of common stock had been repurchased since the inception of the program in 2001 at an average price of $10.81 per share.  There are 3,230 shares of common stock remaining to be repurchased under the 2001 program.  During the third quarter of 2004, the Board of Directors approved another program to repurchase up to 400,000 shares of common stock.  At September 30, 2004 all 400,000 shares under the new program are remaining to be repurchased.

 

(5)           Dividends Declared

 

On August 24, 2004, we declared a quarterly cash dividend of $0.08 per share to all common shareholders of record on September 30, 2004, payable October 20, 2004.  During the nine months ended September 30, 2004, total cash dividends of $971,000, or $.24 per share, were declared.

 

(6)           Investment Securities

 

The following tables summarize the amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2004 and December 31, 2003.

 

9

 

		September 30, 2004
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
Debt securities:
U.S. Agency securities		$	63,433		$	522		$	(242	)	$	63,713
Mortgage-backed securities		88,084			1,393			(488		)	88,989
Non-taxable Municipal securities		31,789			923			(139		)	32,573
Taxable Municipal securities		971			85			—			1,056
Other debt securities		7,026			192			(1		)	7,217
Total debt securities		191,303			3,115			(870		)	193,548
Equity securities		8,384			45			(8		)	8,421
Total available for sale securities		$	199,687		$	3,160		$	(878	)	$	201,969

 

		December 31, 2003
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
Debt securities:
U.S. Agency securities		$	77,234		$	911		$	(336	)	$	77,809
Mortgage-backed securities		91,411			1,629			(352		)	92,688
Non-taxable Municipal securities		31,352			889			(156		)	32,085
Taxable Municipal securities		1,002			79			—			1,081
Other debt securities		8,128			194			(3		)	8,319
Total debt securities		209,127			3,702			(847		)	211,982
Equity securities		9,250			36			(16		)	9,270
Total available for sale securities		$	218,377		$	3,738		$	(863	)	$	221,252

 

Management does not believe that any of the securities with unrealized losses at September 30, 2004 are other than temporarily impaired due to changes in market rate from the date of purchase to September 30, 2004.

 

(7)           Goodwill

 

Additional goodwill of $925,000 recorded during the nine months ended September 30, 2004 related to cash consideration paid in the first quarter of 2004 to the former owners of the Quarles Agency, Inc, an insurance agency acquired in 2002.  This payment plus interest was contingently payable starting in 2004 if the agency met certain revenue benchmarks during 2003.  The contingent payment of $925,000 was recorded as additional goodwill and the related interest was expensed during the first quarter of 2004.  An additional contingent payment of $925,000 plus interest could be distributable in 2005 if revenue benchmarks are achieved during 2004.

 

(8)           Notes payable and Other Borrowings

 

The term note payable and the line of credit existing at December 31, 2003 were renegotiated during the first quarter of 2004, which resulted in combining the term note into the line of credit.  The term note was paid off using borrowings under the line of credit.  The line of credit maximum credit limit is $6,000,000 and matures June 30, 2005.

 

The following table summarizes the advances from the Federal Home Loan Bank and other borrowings at the specified periods:

 

10

 

		September 30, 2004			December 31, 2003
		(In thousands)
Note payable, interest floating at 2% over one month LIBOR (3.12% at December 31, 2003), secured by common stock of subsidiary banks		$	—		$	2,550
Borrowing under a line of credit, interest floating at 2.00% over one month LIBOR (3.65% and 3.12% at September 30, 2004 and December 31, 2003, respectively); due June 30, 2005; secured by common stock of subsidiary banks; maximum credit limit at September 30, 2004 was $6,000,000		3,400			550
Non-interest bearing unsecured notes payable, due in 2004		4			15
Other borrowings, payable on demand		96			117
Federal Home Loan Bank borrowings by certain subsidiary banks at interest rates ranging from 2.62% to 7.09%; maturities ranging from 2005 to 2019; secured by real estate loans, investments securities, and Federal Home Loan Bank stock		111,962			111,234
		$	115,462		$	114,466

 

(9)           Commitments and Contingencies

 

Commitments to extend credit to our customers with unused approved lines of credit were $70,484,000 at September 30, 2004.  Additionally, the contractual amount of standby letters of credit at September 30, 2004 was approximately $3,357,000.  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.

 

We entered into a contingent contract in connection with the acquisition of The Quarles Agency, Inc. in 2002. Contingent upon insurance agency revenue benchmark of $4,000,000 each year ending 2003 and 2004, The Quarles Agency, Inc.’s shareholders will receive cash consideration of $1,850,000 plus interest thereon at the Prime Rate published in the Wall Street Journal minus one percent. The cash consideration will be paid in two annual contingent payments of $925,000 each beginning in 2004.  Insurance revenues during 2003 met the $4,000,000 benchmark and therefore, the first annual payment of $925,000 plus interest was distributed in the first quarter of 2004.  If insurance revenues during 2004 meet the benchmark, another payment of $925,000 plus interest will be distributable in 2005.

 

11

 

Item 2:    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

Team Financial, Inc. is a financial holding company incorporated in the State of Kansas.  Our common stock is listed on the Nasdaq National Market (“NASDAQ”) under the symbol “TFIN”.

 

We offer full service community banking and financial services through 19 locations in Kansas, Missouri, Nebraska, Oklahoma and Colorado through our wholly owned banking subsidiaries, TeamBank N.A and Colorado National Bank. Our presence in Kansas consists of seven locations in the Kansas City metropolitan area and three locations in southeast Kansas. We operate two locations in western Missouri, three in the metropolitan area of Omaha, Nebraska, two in Colorado Springs, Colorado and one in Monument, Colorado.  Additionally, we provide insurance services through an insurance agency located in Tulsa, Oklahoma.

 

Results of operations depend primarily on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities.  Results of operations are also affected by non-interest income, such as service charges, insurance agency commissions, loan fees, and gains and losses from the sales of mortgage loans.  The principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, data processing expense and provisions for loan losses.

 

FINANCIAL CONDITION

 

Total assets at September 30, 2004, were $658.4 million compared to $649.8 million at December 31, 2003, an increase of $8.6 million.  Loans receivable increased $33.8 million to $381.9 million at September 30, 2004, from $348.1 million at December 31, 2003.  The increases in loans receivable were funded with decreases in investment securities, which decreased $19.3 million to $202.0 million at September 30, 2004 from $221.3 million at December 31, 2003 and through federal funds purchased and repurchase agreements which increased $15.2 million to $22.4 million at September 30, 2004 from $7.2 million at December 31, 2003.

 

Investment Securities

 

Total investment securities were $202.0 million at September 30, 2004, compared to $221.3 million at December 31, 2003, a decrease of $19.3 million, or 8.7%.  This decrease was the result of applying cash received from principal pay downs of mortgage backed securities and maturities of government agency securities to fund loan growth rather than re-investing in securities.

 

Loans Receivable

 

Loans receivable increased $33.8 million, or 9.7%, to $381.9 million at September 30, 2004, compared to $348.1 million at December 31, 2003.  This increase was primarily due to increases in the commercial and commercial real estate portfolios in our markets of $26.6 million, or 16.6%, to $186.9 million at September 30, 2004, compared to $160.3 million at December 31, 2003.

 

The following table presents the composition of the loan portfolio by type of loan at the dates indicated.

 

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		September 30, 2004					December 31, 2003
		Principal Balance			Percent of Total		Principal Balance			Percent of Total
		(Dollars in thousands)
Loans secured by real estate:
One-to-four family		$	91,509		24.0	%	$	93,711		26.9	%
Construction and land development		51,368			13.4		43,748			12.5
Commercial		116,762			30.5		103,568			29.8
Other		18,269			4.8		15,161			4.4
Commerical		70,171			18.4		56,716			16.3
Agricultural		14,742			3.9		14,018			4.0
Installment loans		12,187			3.2		15,566			4.5
Other		7,693			2.0		6,253			1.8
Gross loans		382,701			100.2		348,741			100.2
Less unearned fees		(797		)	(0.2	)	(646		)	(0.2	)
Total loans receivable		$	381,904		100.0	%	$	348,095		100.0	%

 

Included in one-to-four family real estate loans were loans held for sale of approximately $2.2 million at September 30, 2004 and $1.2 million at December 31, 2003.

 

Non-performing Assets

 

Non-performing assets consist of loans 90 days or more delinquent and still accruing interest, non-accrual loans, restructured loans and assets acquired through foreclosure.  Loans are generally placed on non-accrual status when principal or interest is 90 days or more past due, unless the loans are well-secured and in the process of collection.  Loans may be placed on non-accrual status earlier when, in the opinion of management, reasonable doubt exists as to the full, timely collection of interest or principal.

 

The following table summarizes non-performing assets:

 

		September 30, 2004			December 31, 2003
		(Dollars in thousands)
Non-performing assets:
Non-accrual loans
Real estate loans		$	2,571		$	4,464
Commerical, industrial, and agricultural		992			890
Installment loans		42			106
Lease fianancing receivables		9			21
Total non-accrual loans		3,614			5,481
Loans 90 days past due and still accruing
Real estate loans		76			400
Commerical, industrial, and agricultural		436			223
Installment loans		—			18
Total past due 90 days and still accruing		512			641
Restructured loans		1,058			1,138
Non-performing loans		5,184			7,260
Other real estate owned		233			1,117
Total non-performing assets		$	5,417		$	8,377
Non-performing loans as a percentage of total loans		1.36		%	2.09		%
Non-performing assets as a percentage of total assets		0.82		%	1.29		%

 

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