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 March 31, 2005
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)

 

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 4,039,095 shares of the Registrant’s common stock, no par value, outstanding as of May 6, 2005.

 

 

Part I.  Financial Information
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition as of March 31, 2005 and December 31, 2004
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2005 and 2004
	Unaudited Consolidated Statements of Changes In Stockholders’ Equity for the Three Months Ended March 31, 2005
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004
	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 10.1	Employment Agreement Between Team Financial, Inc. and Robert J. Weatherbie dated December 28, 2004
Exhibit 10.2	Employment Agreement Between Team Financial, Inc. and Michael L. Gibson dated January 13, 2005
Exhibit 10.29	Employment Agreement Between TeamBank N.A. and Carolyn S. Jacobs dated January 13, 2005
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes- Oxley Act of 2002

 

2

 

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

 

3

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Financial Condition

(In thousands)

 

		March 31, 2005			December 31, 2004
Assets
Cash and due from banks		$	12,379		$	13,718
Interest bearing bank deposits		4,748			21,023
Cash and cash equivalents		17,127			34,741
Investment securities:
Available for sale, at fair value (amortized cost of $197,384 and $190,369 at March 31, 2005 and December 31, 2004, respectively)		196,204			191,842
Total investment securities		196,204			191,842
Loans receivable, net of unearned fees		388,711			378,771
Allowance for loan losses		(5,028		)	(4,898		)
Net loans receivable		383,683			373,873
Accrued interest receivable		4,031			3,819
Premises and equipment, net		15,072			15,317
Assets acquired through foreclosure		688			408
Goodwill		10,700			10,700
Intangible assets, net of accumulated amortization		3,659			3,811
Bank owned life insurance		18,638			18,460
Other assets		2,670			2,830
Assets of discontinued operations		—			8,282
Total assets		$	652,472		$	664,083
Liabilities and Stockholders’ Equity
Deposits:
Checking deposits		$	165,826		$	183,650
Savings deposits		34,213			32,749
Money market deposits		50,635			49,931
Certificates of deposit		210,192			201,620
Total deposits		460,866			467,950
Federal Funds purchased and securities sold under agreements to repurchase		6,826			5,669
Federal Home Loan Bank advances		111,905			111,915
Notes payable and other borrowings		1,601			3,544
Subordinated debentures		16,005			16,005
Accrued expenses and other liabilities		3,445			4,864
Liabilities of discontinued operations		—			1,282
Total liabilities		600,648			611,229
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; 4,499,470 and 4,496,753 shares issued; 4,039,095 and 4,034,178 shares outstanding at March 31, 2005 and December 31, 2004, respectively		27,880			27,849
Additional paid-in-capital		296			306
Retained earnings		28,938			28,264
Treasury stock, 460,375 and 462,575 shares of common stock at cost at March 31, 2005, and December 31, 2004, respectively		(4,512		)	(4,537		)
Accumulated other comprehensive income (loss)		(778		)	972
Total stockholders’ equity		51,824			52,854
Total liabilities and stockholders’ equity		$	652,472		$	664,083

 

See accompanying notes to the unaudited consolidated financial statements

 

4

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

 

		Three Months Ended March 31
		2005			2004
Interest Income:
Interest and fees on loans		$	6,230		$	5,569
Taxable investment securities		1,810			1,902
Nontaxable investment securities		290			298
Other		76			37
Total interest income		8,406			7,806
Interest Expense:
Deposits:
Checking deposits		226			126
Savings deposits		52			56
Money market deposits		140			121
Certificates of deposit		1,347			1,160
Federal funds purchased and securities sold under agreements to repurchase		23			12
FHLB advances payable		1,164			1,238
Notes payable and other borrowings		32			29
Subordinated debentures		388			388
Total interest expense		3,372			3,130
Net interest income before provision for loan losses		5,034			4,676
Provision for loan losses		145			250
Net interest income after provision for loan losses		4,889			4,426
Non-Interest Income:
Service charges		904			830
Trust fees		187			151
Gain on sales of mortgage loans		215			343
Gain on sales of investment securities		—			6
Bank owned life insurance income		208			215
Other		321			415
Total non-interest income		1,835			1,960
Non-Interest Expenses:
Salaries and employee benefits		2,617			2,672
Occupancy and equipment		672			663
Data processing		689			612
Professional fees		335			279
Marketing		61			60
Supplies		79			89
Intangible asset amortization		156			208
Other		822			867
Total non-interest expenses		5,431			5,450
Net income from continuing operations before income taxes		1,293			936
Income tax expense		297			158
Net income from continuing operations		996			778
Net income from discontinued operations, net of tax		—			50
Net income		$	996		$	828
Basic income per share from continuing operations		$	0.25		$	0.19
Diluted income per share from continuing operations		$	0.24		$	0.19
Basic income per share from discontinued operations		$	—		$	0.01
Diluted income per share from discontinued operations		$	—		$	0.01
Basic income per share		$	0.25		$	0.20
Diluted income per share		$	0.24		$	0.20
Shares applicable to basic income per share		4,036,945			4,103,527
Shares applicable to diluted income per share		4,091,956			4,153,923

 

See accompanying notes to the unaudited consolidated financial statements

 

5

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

 

		Three Months Ended March 31,
		2005			2004
Net Income		$	996		$	828
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available for sale net of tax of $903 and $619 for the three months ended March 31, 2005 and 2004, respectively		(1,750		)	1,219
Reclassification adjustment for gains included in net income net of tax of $0 and $2 for the three months ended March 31, 2005 and 2004, respectively		—			(4		)
Other comprehensive income (loss), net		(1,750		)	1,215
Comprehensive income (loss)		$	(754	)	$	2,043

 

See accompanying notes to the unaudited consolidated financial statements

 

6

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Changes In Stockholders’ Equity

Three Months Ended March 31, 2005

(In Thousands, Except Per Share Data)

 

														Accumulated
					Additional									other			Total
		Common			paid-in-			Retained			Treasury			comprehensive			stockholders’
		stock			capital			earnings			stock			income (loss)			equity
Balance, December 31, 2004		$	27,849		$	306		$	28,264		$	(4,537	)	$	972		$	52,854
Common stock issued in connection with compensation plans (2,717 shares)		31			—			—			—			—			31
Treasury stock issued in connection with compensation plans (2,200 shares)					(10		)				25						15
Net income		—			—			996			—			—			996
Dividends ($0.08 per share)		—			—			(322		)	—			—			(322		)
Other comprehensive loss net of $903 in taxes		—			—			—			—			(1,750		)	(1,750		)
Balance, March 31, 2005		$	27,880		296			28,938			$	(4,512	)	(778		)	51,824

 

See accompanying notes to the unaudited consolidated financial statements

 

7

 

Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Cash Flows

(Dollars In Thousands)

 

		Three Months Ended March 31,
		2005			2004
Cash flows from operating activities:
Net income		$	996		$	828
Net income from discontinued operations		—			(50		)
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Provision for loan losses		145			250
Depreciation and amortization		620			792
Increase in bank owned life insurance		(178		)	(183		)
Net gain on sales of investment securities		—			(6		)
FHLB stock dividends		(73		)	—
Net gain on sales of mortgage loans		(215		)	(343		)
Net loss on sales of assets		1			76
Proceeds from sale of mortgage loans		11,812			14,222
Origination of mortgage loans for sale		(11,286		)	(16,040		)
Net decrease (increase) in other assets		(2		)	258
Net (decrease) increase in accrued expenses and other liabilities		408			(613		)
Net cash (used in) provided by operating activities of continuing operations		2,228			(809		)
Net cash flows of discontinued operations		7,000			121
Net cash (used in) provided by operating activities		9,228			(688		)
Cash flows from investing activities:
Net increase in loans		(10,601		)	(7,321		)
Proceeds from sale of investment securities available-for-sale		—			16
Proceeds from maturities and principal reductions of investment securities available-for-sale		7,876			27,753
Purchases of investment securities available-for-sale		(14,975		)	(25,765		)
Purchase of premises and equipment, net		(61		)	(1,316		)
Proceeds from sales on assets		14			65
Cash paid for acquisitions		(925		)	—
Cash used in investing activities of discontinued operations		—			(1,130		)
Net cash used in investing activities		(18,672		)	(7,698		)
Cash flows from financing activities:
Net increase (decrease) in deposits		(7,084		)	3,991
Net increase in federal funds purchased and securities sold under agreement to repurchase		1,157			2,380
Payments on Federal Home Loan Bank advances		(10		)	(6		)
Payments on notes payable		(3,218		)	(3,593		)
Proceeds of notes payable		1,276			3,972
Common stock issued		31			87
Purchase of treasury stock		—			(312		)
Dividends paid on common stock		(322		)	(328		)
Net cash (used in) provided by financing activities		(8,170		)	6,191
Net change in cash and cash equivalents		(17,614		)	(2,195		)
Cash and cash equivalents at beginning of the period		34,741			18,590
Cash and cash equivalents at end of the period		$	17,127		$	16,395
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	3,173		$	3,227
Income taxes		$	21		$	471
Noncash activities related to operations
Assets acquired through foreclosure		$	280		$	377
Loans to facilitate the sale of real estate acquired through foreclosure		—			193

 

See accompanying notes to the unaudited consolidated financial statements

 

8

 

Team Financial, Inc and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Three month period ended March 31, 2005 and 2004

 

(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, 2004.

 

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 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 I (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 2001 for the purpose of issuing $15.5 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, 2004 statement of financial condition has been derived from the audited consolidated financial statements as of that date.  Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation.  The results of the interim period ended March 31, 2005, are not necessarily indicative of the results that may occur for the year ending December 31, 2005.

 

(2)  Recent Accounting Pronouncements

 

In December of 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payments, (“SFAS 123R”).  This statement requires that the cost resulting from all share-based transactions be recognized in the financial statements. SFAS 123R 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.  SFAS 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supercedes Accounting Principal Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and is effective as of the beginning of the first annual reporting period beginning after June 15, 2005.   We apply APB 25 to account for stock incentive plans which requires compensation cost be recognized as the excess, if any, of the fair market value of our stock at the date of grant over the amount the employee must pay to acquire the stock.  In accordance with SFAS 123, we report the effect on net income as if the transactions were accounted for using the fair value method in footnote 4.  The adoption of SFAS 123R, in fiscal year 2006, will result in higher salaries and employee benefits expense in future periods.

 

(3)   Discontinued Operations

 

On February 25, 2005, we completed the sale of our insurance agency subsidiary, Team Insurance Group, Inc.  We sold all the issued and outstanding shares of the insurance agency subsidiary to an unaffiliated

 

9

 

third party for total cash consideration of $7,000,000, plus or minus any adjustments to the closing balance sheet to reflect the difference between the total equity of Team Insurance Group, Inc. as of December 31, 2004 and the purchase price.  Our investment in Team Insurance Group, Inc. as of December 31, 2004 and February 25, 2005 was approximately $7,000,000.  There was no gain or loss recorded on the sale of the subsidiary during the three month period ended March 31, 2005.  The sale was effective December 31, 2004, and therefore, the operating activities of the insurance subsidiary during 2005 were assumed by the new owners.  The buyer asserted on May 9, 2005, balance sheet adjustments of $283,000, which are being reviewed by management.  Additionally, the buyer has until August 25, 2006 to contest representations and warranties.  Any adjustments to the purchase price could result in a loss on the sale of the subsidiary.

 

As a result of the sale, the operations related to the insurance agency subsidiary during the three months ended March 31, 2004 have been reclassified as discontinued operations in the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements.

 

The following table presents the net assets of Team Insurance Group, Inc. as of December 31, 2004:

 

		2004
		(In thousands)
Cash		$	1,033
Premises and equipment, net		571
Goodwill		5,514
Intangible assets, net of accumulated amortization		1,039
Other assets		125
Accrued expenses and other liabilities		(1,282		)
Total net assets		$	7,000

 

Summarized results of operations of the insurance agency for the three months ended March 31, 2004 are as follows:

 

10

 

		2004
		(In thousands)
Insurance agency commissions		$	1,200
Other interest income		22
Total income		1,222
Salary and employee benefits		830
Occupancy and equipment		77
Professional fees		8
Marketing		29
Supplies		11
Intangible asset amortization		42
Other		141
Total expenses		1,138
Net income from discontinued operations before income taxes		84
Income tax expense		34
Net income from discontinued operations, net of tax		$	50

 

(4)   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 SFAS No. 123 Accounting for Stock Based Compensation 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 service period, which is usually the vesting period.  Under SFAS No. 123, our net income and net income per share would have decreased as reflected in the following pro forma amounts.

 

11

 

		Three Months Ended March 31,
		2005			2004
		(In thousands, except per share data)
Net income:
As reported		$	996		$	828
Compensation expense determined under fair value, net of tax		21			22
Pro forma		$	975		$	806
Basic earnings per share:
As reported		$	0.25		$	0.20
Pro forma		0.24			0.20
Diluted earnings per share:
As reported		$	0.24		$	0.20
Pro forma		0.24			0.19
Shares applicable to basic earnings per share		4,036,945			4,103,527
Shares applicable to diluted earnings per share		4,091,956			4,153,923

 

(5)  Stock Repurchase Program

 

At March 31, 2005, there were 383,230 shares of our common stock remaining to be repurchased under a stock repurchase program authorized by the Board of Directors.  There were no purchases of our stock during the quarter ended March 31, 2005.

 

(6) Dividend Declared

 

On February 22, 2005, we declared a quarterly cash dividend of $0.08 per share to all shareholders of record on March 31, 2005, payable April 20, 2005.

 

(7) Investment Securities

 

The following tables summarize the amortized cost, gross unrealized gains and losses, and fair value of investment securities at March 31, 2005 and December 31, 2004.

 

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		March 31, 2005
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			(Losses)			Value
		(In thousands)
Debt securities:
U.S. Agency securities		$	57,848		$	105		$	(1,023	)	$	56,930
Mortgage-backed securities		93,731			604			(1,547		)	92,788
Non-taxable Municipal securities		30,236			679			(123		)	30,792
Taxable Municipal securities		971			52			—			1,023
Other debt securities		6,056			78			(37		)	6,097
Total debt securities		188,842			1,518			(2,730		)	187,630
Equity securities		8,542			40			(8		)	8,574
Total available for sale securities		$	197,384		$	1,558		$	(2,738	)	$	196,204

 

		December 31, 2004
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			(Losses)			Value
		(In thousands)
Debt securities:
U.S. Agency securities		$	56,401		$	270		$	(472	)	$	56,199
Mortgage-backed securities		88,039			1,062			(435		)	88,666
Non-taxable Municipal securities		30,442			863			(73		)	31,232
Taxable Municipal securities		971			73			—			1,044
Other debt securities		6,057			139			—			6,196
Total debt securities		181,910			2,407			(980		)	183,337
Equity securities		8,459			53			(7		)	8,505
Total available for sale securities		$	190,369		$	2,460		$	(987	)	$	191,842

 

Management does not believe that any of the securities with unrealized losses at March 31, 2005 are other than temporarily impaired due to changes in market rate from the date of purchase to March 31, 2005.

 

 (8)  Commitments and Contingencies

 

Commitments to extend credit to our customers with unused approved lines of credit were approximately $78,198,000 at March 31, 2005.  Additionally, the contractual amount of standby letters of credit at March 31, 2005 was approximately $4,775,000.  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.

 

13

 

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 18 locations in Kansas, Missouri, Nebraska and Colorado through our wholly owned banking subsidiaries, TeamBank, N.A and Colorado National Bank. Our presence in Kansas consists of 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, and three 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.

 

On February 25, 2005, we completed the sale of Team Insurance Group, Inc., our insurance agency subsidiary.  Team Insurance Group, Inc., based in Tulsa, Oklahoma, operated as a subsidiary of TeamBank, N.A. since December of 2002 and offered employee benefit insurance and property and casualty insurance to businesses and individuals.  We sold all the issued and outstanding shares of the insurance agency subsidiary to an unaffiliated third party for total cash consideration of $7,000,000, plus or minus any adjustments to the closing balance sheet to reflect the difference between the total equity of Team Insurance Group, Inc. as of December 31, 2004 and the purchase price.  Our investment in Team Insurance Group, Inc. as of December 31, 2004 and February 25, 2005 was approximately $7,000,000.  There was no gain or loss recorded on the sale of the subsidiary during the three-month period ended March 31, 2005.  The sale was effective December 31, 2004, and therefore, the new owners assumed the operating activities of the insurance subsidiary during 2005.  The buyer asserted on May 9, 2005, balance sheet adjustments of $283,000, which are being reviewed by management.  Additionally, the buyer has until August 25, 2006 to contest representations and warranties.  Any adjustments to the purchase price could result in a loss on the sale of the subsidiary.

 

As a result of the sale, the operations related to the insurance agency subsidiary during the three months ended March 31, 2004 have been reclassified as discontinued operations.  Summarized results of operations of the insurance agency for the three months ended March 31, 2004 are as follows:

 

14

 

		2004
		(In thousands)
Insurance agency commissions		$	1,200
Other interest income		22
Total income		1,222
Salary and employee benefits		830
Occupancy and equipment		77
Professional fees		8
Marketing		29
Supplies		11
Intangible asset amortization		42
Other		141
Total expenses		1,138
Net income from discontinued operations before income taxes		84
Income tax expense		34
Net income from discontinued operations, net of tax		$	50

 

FINANCIAL CONDITION

 

Total assets at March 31, 2005, were $652.5 million compared to $664.1 million at December 31, 2004, a decrease of $11.6 million.  This decrease was primarily a result of a decrease in cash and cash equivalents of  $17.6 million.  Cash and cash equivalents were used to fund the loans receivable increase of $9.9 million to $388.7 million at March 31, 2005, from $378.8 million at December 31, 2004.  Total deposits decreased $7.1 million to $460.9 million at March 31, 2005 compared to $468.0 million at December 31, 2004, contributing to the decrease in cash and cash equivalents.

 

Investment Securities

 

Total investment securities were $196.2 million at March 31, 2005 compared to $191.8 million at December 31, 2004, an increase of $4.4 million, or 2.3%.  This increase was due to investing excess cash in the securities markets, which offset a decrease in the market value of the investment portfolio due to decreased market rates.

 

Loans Receivable

 

Loans receivable increased $9.9 million, or 2.6%, to $388.7 million at March 31, 2005, compared to $378.8 million at December 31, 2004, primarily due to growth in the construction and land development loans, which increased $7.6 million , or 15.4%, to $57.0 million at March 31, 2005, compared to $49.4 million at December 31, 2004.

 

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

 

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		March 31, 2005					December 31, 2004
		Principal			Percent of		Principal			Percent of
		Balance			Total		Balance			Total
		(Dollars in thousands)
Loans secured by real estate:
One-to-four family		$	89,410		23.0	%	$	87,633		23.1	%
Construction and land development		56,964			14.7		49,388			13.0
Commercial		118,530			30.4		122,007			32.2
Other		24,049			6.2		17,781			4.7
Commerical		67,391			17.3		67,970			18.0
Agricultural		13,920			3.6		14,919			3.9
Installment loans		13,529			3.5		13,691			3.6
Other		5,684			1.5		6,172			1.7
Gross loans		389,477			100.2		379,561			100.2
Less unearned fees		(766		)	(0.2	)	(790		)	(0.2	)
Total loans receivable		$	388,711		100.0	%	$	378,771		100.0	%

 

Included in one-to-four family real estate loans were loans held for sale of approximately $2.8 million at March 31, 2005 and $3.1 million at December 31, 2004.

 

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:

 

		March 31, 2005			December 31, 2004
		(Dollars in thousands)
Non-accrual loans		$	2,005		$	1,281
Loans 90 days past due and still accruing		619			420
Restructured loans		1,035			1,053
Non-performing loans		3,659			2,754
Other real estate owned		688			408
Total non-performing assets		$	4,347		$	3,162
Non-performing loans as a percentage of total loans		0.94		%	0.73		%
Non-performing assets as a percentage of total assets		0.67		%	0.48		%

 

Non-performing assets totaled $4.3 million at March 31, 2005, compared to $3.2 million at December 31, 2004, representing an increase of approximately $1.1 million, or 34.4%.   The increase in non-performing assets was primarily a result of an increase in non-accrual loans.

 

Non-performing loans were approximately $3.7 million at March 31, 2005 and $2.8 million at December 31, 2004.  Included in non-performing loans at March 31, 2005 were several small non-accrual loans.  The largest three loans included in non-accrual at March 31, 2005 were $315,000 for a commercial building, $278,000 to an automotive

 

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