Team Financial, Inc. And Subsidiaries
Consolidated Statements Of Cash Flows
(In thousands)
(Unaudited)

See accompanying notes to the unaudited consolidated financial statements

TEAM FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three month period ended March 31, 2001 and 2000

Note1:  Basis of Presentation

The accompanying unaudited consolidated financial statements of Team Financial, Inc. and Subsidiaries (the “Company”) have been prepared in accordance with 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 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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

The interim consolidated financial statements include the accounts of Team Financial, Inc. and its wholly owned subsidiaries.  Intercompany balances and transactions have been eliminated.  The December 31, 2000 statement of financial condition has been derived from the audited consolidated financial statements as of that date.  The results of the interim period ended March 31, 2001 are not necessarily indicative of the results expected for the year ending December 31, 2001.

Note 2:  Earnings Per Common Share

Basic earnings per share is based upon the weighted average number of common shares outstanding during the periods presented.  Diluted earnings 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, or resulted from issuance of common stock that then shared in earnings.

Note 3:  Stock Repurchase Program

The Board of Directors approved a stock repurchase program in January 2001, authorizing the repurchase of up to 300,000 shares of the Company’s common stock.  As of March 31, 2001, the Company had repurchased 1,600 shares of its common stock under the program at an average price of $8.66 per share.

Note 4:  Dividend Declared

On March 26, 2001, the Company declared a quarterly dividend of $0.05 per share to all shareholders of record on March 30, 2001, payable April 20, 2001.

Note 5:  Recent Accounting Pronouncements

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138.  SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities.  Upon adoption of the accounting standard, the Company reclassified its held to maturity investment security portfolio to available for sale.  The adoption of the standard did not have a significant impact on the consolidated financial statements of the Company.

Note 6:  Subsequent Event

On May 7, 2001, the Company entered into an Agreement to merge with Post Bancorp, Inc., owner of Colorado Springs National Bank.  Pursuant to the Agreement, Post Bancorp, Inc. will merge into Team Financial, Inc. and Colorado Springs National Bank will operate as a wholly-owned bank of Team Financial, Inc.  The transaction is expected to be closed in the third quarter of 2001 and is subject to regulatory approval as well as approval from stockholders of Post Bancorp, Inc.  The acquisition will be accounted for using the purchase method of accounting.

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

OVERVIEW

Team Financial, Inc. (the “Company”) is a multi-bank holding company incorporated in the State of Kansas. The Company offers full service community banking and financial services through 20 locations in the Kansas City metropolitan area, southeastern Kansas, western Missouri, and the Omaha, Nebraska metropolitan area.  The Company’s presence in Kansas consists of seven locations in the Kansas City metro area, which includes the high growth market of Johnson County, three locations in southeast Kansas and two locations along the I-70 corridor.  The Company operates three locations in western Missouri, and five in the metropolitan area of Omaha, Nebraska.  The Company’s growth over recent years has been achieved primarily through purchases of branches of large banks and through acquisitions of community banks.  Additional asset growth has occurred through internal growth at existing banks as well as from opening three new branches.  The Company’s stock is listed on the Nasdaq National Market (“NASDAQ”) under the symbol “TFIN”.

The Company’s results of operation depend primarily on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities.  The Company’s operations are also affected by non-interest income, such as service charges, loan fees, and gains and losses from the sale of newly originated mortgage loans.  The Company’s principal operating expenses, aside from interest expense, consist of salaries and employee benefits, occupancy costs, data processing expense and provisions for loan losses.

FINANCIAL CONDITION

Total assets of the Company at March 31, 2001 were $534.5 million compared to $539.6 million at December 31, 2000.  The decrease of $5.1 million was primarily due to a decrease in investment securities of $13.0 million.  The proceeds from the decrease in investment securities at March 31, 2001 versus December 31, 2000 were used to fund a $3.2 million increase in loans receivable, a $3.1 million decease in deposit balances, a $1.4 million decrease in federal funds purchased and securities sold under agreements to repurchase, and a decrease of $3.0 million in Federal Home Loan Bank advances.  The remaining $5.3 million of proceeds were invested in federal funds sold and interest bearing bank deposits.

Investment Securities:  On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138.  SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities.  Upon adoption of the accounting standard, the Company reclassified its held to maturity investment security portfolio to available for sale.

Total investment securities decreased $13.0 million, or 8.2%, to $144.0 million at March 31, 2001 from December 31, 2000.  The decrease in investment securities from December 31, 2000 was due to investment securities being called from the Company by the debt issuers, as the debt issuers chose to re-finance the debt at more favorable rates.

The Company’s securities portfolio serves as a source of liquidity and earnings and contributes to the management of interest rate risk.  The debt securities portfolio is comprised primarily of obligations collateralized by U.S. Government agencies (mainly in the form of mortgage-backed securities), U.S. Government agency securities, U.S. Treasury securities, and municipal obligations.  With the exception of municipal obligations, the maturity structure of the debt securities portfolio is generally short-term in nature or indexed to variable rates.

Loans Receivable:  Loans receivable increased $3.2 million, or 0.9%, to $335.1 million at March 31, 2001 compared to $331.9 million at December 31, 2000.  The increase in loans receivable was the result of growth in the Company’s commercial loans of $7.2 million and one-to-four family residential loan growth of $1.3 million.  The Company’s agricultural loans decreased $2.6 million and installment loans decreased $3.6 million.

During fiscal year 2000, the Company began placing more emphasis on and allocating more resources to commercial lending at its banking locations.  During the first quarter of 2000, the Company increased its commercial lending staff in the Kansas City metro area at Community Bank.  Community Bank specializes in commercial lending.  The increased management efforts on building the commercial loan portfolio allowed the Company to increase its mix of commercial loans as a percent of its total loan portfolio.  Commercial loans have increased $18.4 million from March 31, 2000 to March 31, 2001 and comprise 32.2% of the loan portfolio at March 31, 2001 versus 27.6% of the loan portfolio at March 31, 2000.  Commercial loans contain more risk and generally require higher reserves than other loans in the Company’s loan portfolio.

The substantial majority of the Company’s residential mortgage loan production is underwritten in compliance with the requirements for sale to or conversion to mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA), or the Government National Mortgage Association (GNMA).  The Company will typically sell fixed rate mortgage loans to permanent investors and retain the servicing rights at the Company’s discretion.  The majority of the Company’s commercial loans include loans to service, retail, wholesale, and light manufacturing businesses.  These loans are made at rates based on the prevailing national prime interest rate, as well as fixed rates for terms generally ranging from three to five years. Installment loans include automobile, residential, credit card, and other personal loans.  The majority of the installment loans are loans with fixed interest rates.

Non-performing Assets: Non-performing assets consist of loans 90 days or more delinquent and still accruing interest, non-accrual loans and other real estate owned (OREO).  OREO represents real estate properties acquired through foreclosure or by deed in lieu of foreclosure and is classified as assets acquired through foreclosure on the balance sheet until the property is sold.  Commercial loans, residential real estate loans, and installment 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 the Company’s non-performing assets:

Non-performing assets totaled $5.0 million at March 31, 2001 compared to $4.6 million at December 31, 2000, representing an increase of 9.7%.  The increase in non-performing assets was generated from a $194,000 increase in non-performing loans resulting from two commercial credits, and an increase in assets acquired through foreclosure of $248,000.  Assets acquired through foreclosure consisted of 11 properties, an increase from 9 properties at December 31, 2000.  During the quarter seven new properties were added totaling $432,000, with five properties removed during the quarter totaling $184,000.

Much of the increase in non-performing assets during the 2000 fiscal year was essentially generated from a $926,000 increase in non-performing loans resulting from three large credits occurring at the bank the Company acquired in the fourth quarter of 1999, and a $300,000 increase related to a bankruptcy.  During the quarter ended March 31, 2001, the Company experienced an additional upward trend in non-performing assets.  Depending on economic conditions over the next few quarters, the Company may experience further deterioration in its credit quality.

As of March 31, 2001, there were no significant loans excluded from non-performing loans set forth above, where known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in such loans becoming non-performing.

Allowance for loan losses:  Management maintains its allowance for loan losses based on industry standards, historical experience, and an evaluation of economic conditions.  The Company regularly reviews delinquencies and loan portfolio quality.  Based upon such factors, management makes various assumptions and judgments about the ultimate collectibility of the loan portfolio and provides an allowance for probable loan losses based upon a percentage of the outstanding balances and for specific loans if their ultimate collectibility is considered questionable.

Allowance for loan losses was 1.14% of total loans at March 31, 2001, a decrease from 1.16% at March 31, 2000.  The decrease in the allowance for loan loss ratio as a percent of total loans for the quarter was primarily the result of charging off a real estate development loan consisting of four lots with specific allowances reserved against the loan, decreasing the allowance for loan losses.

The Company experienced net charge-offs of $359,000, or 0.11% of total loans, for the three months ended March 31, 2001 versus $95,000, or 0.03% of total loans, for the corresponding period in 2000.  The increase in net-charge offs was primarily the result of an additional $109,000 of real estate development loan charge-offs and an additional $91,000 in consumer installment loan charge-offs.  Charge-offs as a percent of total loans at March 31, 2001 is higher than the historical average for the Company.  The increase in non-performing assets the Company has experienced may increase charge-offs in future periods.

The following table summarizes the Company’s allowance for loan and lease losses:

Liabilities:  Total liabilities were $492.2 million at March 31, 2001, a decrease of $7.6 million from $499.8 million at December 31, 2000.  The decrease is largely related to a decrease in deposits and borrowed funds as the Company used proceeds from investment security calls to reduce borrowed funds.

Deposits:  Total deposits decreased $3.1 million from December 31, 2000, to a balance at March 31, 2001 of  $439.1 million.  The decrease in deposits was related to a decrease in checking deposits of $3.4 million and certificates of deposit of $1.3 million.  The decrease in checking deposits and certificates of deposit balances was attributable to a cyclical decrease in semi annual tax deposits received from municipal organizations during December and June of each year.

Federal Home Loan Bank Advances:  Federal Home Loan Bank advances decreased $3.0 million to a balance of $27.9 million at March 31, 2001.  The decrease was due to advances paid off with the proceeds from the decrease in  investment securities.

Notes Payable:  Notes Payable decreased $900,000 from December 31, 2000 to a balance of $13.5 million at March 31, 2001.  The decrease was attributable to the normal quarterly principal payment of $125,000 and a pay down on the Company’s line of credit as a function of cash management at the parent company.

Equity:  The Company’s Board of Directors approved a stock repurchase program in January 2001 authorizing the repurchase of up to 300,000 shares of the Company’s common stock.  As of March 31, 2001 the Company had repurchased 1,600 under the program at an average price of $8.66 per share.

Regulatory Capital:  The Company is subject to regulatory capital requirements administered by 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 the Federal Reserve of appropriate supervisory or enforcement actions.  As of March 31, 2001, the Company met all capital adequacy requirements to which it is subject and management does not anticipate any difficulty in meeting these requirements on an ongoing basis.  The Company’s ratios at March 31, 2001 were as follows:

Liquidity

The Company continuously forecasts and manages its liquidity in order to satisfy cash flow requirements of depositors and borrowers and allow the Company to meet its own cash flow needs.  The Company has developed internal and external sources of liquidity to meet its continued growth needs.  These include, but are not limited to, the ability to raise deposits through branch promotional campaigns, maturity of overnight funds, short term investment securities classified as available-for-sale and draws on credit facilities established through the Federal Home Loan Bank.  The Company’s most liquid assets are cash and cash equivalents and investment securities available-for-sale.  The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period.  At March 31, 2001 and December 31, 2000 these liquid assets totaled $175.0 million and $157.7 million, respectively.  Management believes the Company’s sources of liquidity are adequate to meet expected cash needs for the foreseeable future.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income before provision for loan losses for the three months ended March 31, 2001 totaled $4.7 million, compared to $4.5 million for the same period in 2000.  The increase of $193,000 was primarily attributable to the additional net interest income contributed from the operations of the acquisition of Fort Calhoun Investment Co. during the first quarter of 2000.

The Company’s net interest margin as a percent of average earning assets decreased for the quarter ended March 31, 2001 compared to the same quarter a year ago.  For the three months ended March 31, 2001, net interest margin decreased to 3.85% from 3.92% for the three months ended March 31, 2000.  The decrease is primarily attributable to the acquisition of Fort Calhoun State Investment Co. during the first quarter of 2000.  Fort Calhoun Investment Co.’s assets consisted primarily of one-to-four family residential loans and investment securities which provides lower yields than the Company’s assets prior to the acquisition.  The acquisition was primarily responsible for the increase in average earning assets of $30.7 million to $510.8 million for the three months ended March 31, 2001.