UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number: 000-26335

TEAM FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

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.

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Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Financial Condition

(Dollars In Thousands)

See accompanying notes to the unaudited consolidated financial statements

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Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Operations

(Dollars In Thousands, Except Per Share Data)

See accompanying notes to the unaudited consolidated financial statements

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Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(Dollars In Thousands)

See accompanying notes to the unaudited consolidated financial statements

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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)

See accompanying notes to the unaudited consolidated financial statements

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Team Financial, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Cash Flows

(Dollars In Thousands)

See accompanying notes to the unaudited consolidated financial statements

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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.

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(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.

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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:

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(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.

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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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