TEXARKANA FIRST FINANCIAL CORPORATION
1997 ANNUAL REPORT TO STOCKHOLDERS
TABLE OF CONTENTS
Page
Chairman's Letter to Stockholders................................. 1
Corporate Profile................................................. 3
Selected Financial Data........................................... 4
Supplementary Financial Information............................... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 6
Report of Independent Certified Public Accountants................ 18
Financial Statements.............................................. 19
Directors and Officers............................................ 43
Banking Locations................................................. 43
Stockholder Information........................................... 44
<PAGE>
Letter to Our Stockholders
On behalf of your board of Directors, we take great pleasure in presenting our
third annual report, the first report covering a full two years of operation
as a unitary savings and loan holding company. While we take pride in the
Company's per share market price of $23.75 on September 30, 1997 versus the
$10.00 initial public offering price of July, 1995, we cannot control the
market price except through our performance. We hope that continued
excellence in performance on our part will continue to improve the market
value of your Company's stock. We are committed to giving our best efforts in
return for your investment.
At the January 21, 1997 meeting of the Board of Directors, Josh R. Morriss,
Jr. nominated, and the Board elected me Chairman of the Company and the
Association. I am proud to succeed Mr. Morriss who served as Chairman of the
Association since 1982 and as Chairman of the Company since its inception.
Mr. Morriss will continue as a board member and I will continue as Chief
Executive Officer of the Company and the Association. Also, Mr. John E.
Harrison was elected President of the Company and the Association and will
continue as Chief Operating Officer of the Company and the Association.
Fiscal year 1997 was a challenging and rewarding year. It was a challenge
because we began the year with $9.1 million less in earning assets as a result
of three actions planned and executed in fiscal 1996, including $933,000 to
purchase 62,300 Company shares for employee benefit plans, $1.6 million to
repurchase 99,187 Company shares being held as treasury shares, $5.7 million
to pay a special distribution to stockholders, and the $835,000 special SAIF
assessment. It was rewarding because the operating results were excellent and
we achieved our primary objectives of profitable growth and improved return on
stockholder's equity.
Growth, increased earnings and superior asset quality are reflected in the
following comparisons of fiscal year 1997 to fiscal year 1996. Growth was
accomplished in all major categories of total assets, loans and deposits.
Profitability is reflected in increases in the major components of net
interest income and net income. Asset quality is reflected in the superior
asset quality ratios. Total assets increased 7.8% to $178.7 million while net
income increased 20.1% to $2.9 million and the return on average assets
improved to 1.71% from 1.46%. Loans, net of unearned income, increased 8.5% to
$148.5 million and deposits increased 7.6% to $143.2 million while net
interest income increased 2.7% to $6.4 million and the net interest margin
remained at 3.90%. While this is rewarding in itself, the true reward is the
profitable growth without sacrificing asset quality. At September 30, 1997,
asset quality ratios remained favorable with the ratio of nonperforming loans
to total loans at .19% and the ratio of nonperforming assets to total assets
at .23%.
At the end of fiscal year 1997, with loans at 83.1% of total assets and one-
to-four family mortgages at 69.3% of total loans, we remain a full-service
institution which specializes in single-family mortgage financing. During
fiscal year 1997, mortgage loans increased $10.4 million or 8.2% while
commercial and consumer loans increased $1.0 million or 7.3%.
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The outlook for fiscal 1998 is bright. Loan demand is expected to remain
strong with interest rates favorable for borrowers. Mr. Travis Mauldin was
employed August 1, 1997 as executive vice president of the Company and the
Association. Mr. Mauldin's 28 years of experience in lending, specializing in
mortgage lending, will enhance our specialty of mortgage financing. During
fiscal 1998, we will begin origination of FHA and VA loans for resale to an
independent mortgage company.
Our stockholder's equity to assets ratio continues to exceed industry
standards. Although this demonstrates our solid financial position, excess
equity results in a lower than desired rate of return on equity. During
fiscal 1997, we were able to continue with positive measures to reduce the
equity to asset ratio to 15.3% from 15.9%. First, $1.5 million was used to
purchase 97,558 additional Company shares to be held as treasury shares.
Second, the quarterly dividend to stockholders was increased to $.14 per share
from $.1125 per share. In Fiscal year 1998, we will continue to pursue
prudent means to improve the rate of return on equity including dividends and
stock repurchases.
In Fiscal 1998, construction will begin on our new branch facility in
Texarkana, Texas. We are excited about the opportunity to provide a more
convenient location for the Texas customers of our border city. We believe
that, in our community, customers appreciate and respond to convenient
locations and face-to-face hospitality while conducting their business.
Our new branch facility in DeQueen, Arkansas was completed in August. At
September 30, 1997, the DeQueen branch had deposits of $17.9 million, an
increase of 8.0% over the previous year, and loans of $12.8 million, an
increase of 30.8% over the previous year. We expect the DeQueen area to
remain a strong market and we are confident that our additional commitment in
the market will result in an increase in the market share of loans and
deposits.
Growth in the Texarkana area is evident with new businesses, new highways, new
streets, industrial expansions, new industries and a new apartment complex and
golf course. The interchange of Loop 245 and I-49 is under construction and
work will begin in 1998 on the first segment of I-49 South to Shreveport,
Louisiana. Tyson's Foods opened a new $30 million poultry processing plant in
Miller county and J. J. Earnest opened a new $5 million asphalt plant in
Texarkana. New businesses also include Books-A-Million, Toys "R" US, Office
Depot and a third Albertsons food store. Twenty new restaurants opened in
1997, including Chili's, Bennigan's, I Hop, TaMolly's and two Waffle Houses.
Hibernia Corporation, a New Orleans bank holding company, completed its merger
of Hibernia National Bank of Texas with Texarkana National Bancshares and
Guaranty Bank of Mt. Pleasant, Texas opened a branch in Texarkana.
Altogether, during 1997, new businesses and expansions of existing businesses
have created 1,000 new jobs which will result in $12 million new payroll
dollars annually.
As always, the success of fiscal year 1997 was the result of the hard work and
dedication of our employees and directors and the support of our stockholders.
We take this opportunity to give sincere thanks to our special friends who
happen to be our employees, depositors, borrowers and stockholders.
Sincerely,
/s/ James W. McKinney
James W. McKinney
Chairman and Chief Executive Officer
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CORPORATE PROFILE
Texarkana First Financial Corporation ("the "Company") was incorporated in
March 1995 under Texas law for the purpose of acquiring all of the capital
stock issued by First Federal Savings and Loan Association of Texarkana (the
"Association") in connection with the Association's conversion from a
federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association (the "Conversion"). The
Conversion was consummated on July 7, 1995 and, as a result, the Company
became a unitary savings and loan holding company for the Association. The
Company has no significant assets other than the shares of the Association's
common stock acquired in the Conversion, the loan to the Employee Stock
Ownership Plan ("ESOP") and that portion of the net proceeds of the Conversion
retained by the Company, and has no significant liabilities. The Company has
no other subsidiaries and the Association has no subsidiaries.
The Association is a federally chartered stock savings and loan association
which conducts business through its main office and four full service branch
offices. The Association is primarily engaged in attracting deposits from the
general public and using these funds primarily to originate single-family
(one-to-four units) residential loans and to a significantly lesser extent,
nonresidential or commercial real estate loans, construction loans on
primarily residential properties, consumer loans and multi-family loans. To a
limited extent, the Association also invests in securities issued by the
United States Government and agencies thereof and mortgage-backed securities.
The Association derives its income principally from interest earned on loans
and investments and, to a lesser extent, from fees received in connection with
the origination of loans and for other services. The Association's primary
expenses are interest expense on deposits and general operating expenses.
Funds for activities are provided primarily by deposits, amortization and
prepayments of outstanding loans and other sources. The Association's goal is
to continue to serve its market area of southwest Arkansas and northeast Texas
as a community oriented, independent financial institution dedicated primarily
to financing home ownership while providing needed financial services to its
customers in an efficient manner.
The Company's and the Association's executive offices are located at Third and
Olive Streets, Texarkana, Arkansas 71854 and their telephone number is (870)
773-1103.
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SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
Years Ended September 30 1997 1996 1995 1994 1993
________ ________ ________ ________ ________
SUMMARY INCOME STATEMENT
Interest income...........$ 13,417 $ 12,745 $ 11,236 $ 9,528 $ 9,928
Interest expense.......... 6,982 6,480 6,042 5,035 5,553
Net interest income....... 6,435 6,265 5,194 4,493 4,375
Provision for loan losses. -- -- 177 -- 162
Noninterest income........ 755 753 665 1,277 728
Noninterest expense(1).... 2,604 3,335 2,367 2,010 1,981
Income before income tax.. 4,586 3,683 3,315 3,760 2,960
Income tax expense........ 1,702 1,282 1,312 1,219 1,121
Net income(1)............. 2,884 2,401 2,003 2,541 1,839
PER COMMON SHARE(2)
Net income(fully diluted). $ 1.64 $ 1.31 $ .40 N/A N/A
Cash dividends declared(3) $ .50 $ 3.45 -- N/A N/A
Dividend payout ratio..... 29.20% 269.64% -- N/A N/A
Book value(end of year)... $15.32 $14.02 $16.54 N/A N/A
Market price(end of year). $23.75 $14.25 $13.25 N/A N/A
Market/book(end of year).. 155.03% 101.64% .80% N/A N/A
YEAR-END BALANCES
Total assets..............$178,710 $165,747 $160,652 $140,178 $137,956
Investment securities..... 21,176 17,458 21,432 17,004 17,771
Loans receivable, net..... 148,471 136,805 123,309 118,548 112,245
Deposits.................. 143,207 133,071 124,953 124,496 124,512
Stockholders' equity...... 27,380 26,424 32,808 12,996 10,455
PERFORMANCE RATIOS
Net interest margin....... 3.90% 3.90% 3.59% 3.40% 3.30%
Return on average assets.. 1.71 1.46 1.35 1.85 1.34
Return on average equity.. 10.74 7.34 10.92 21.44 19.20
Operating efficiency(4)... 36.22 47.52 40.40 34.84 38.82
ASSET QUALITY RATIOS
Nonperforming loans to
total loans.............. .19% .15% .17% .09% .42%
Nonperforming assets to
total assets............. .23 .17 .33 .53 1.91
Allowance for loan losses
to nonperforming loans... 401.43 540.09 536.92 872.32 234.30
Allowance for loan losses
to total loans........... .76 .82 .91 .81 .98
Net charge-offs to
average total loans...... .015 .003 .004 .14 .20
CAPITAL RATIOS
Average equity to assets.. 15.89% 19.90% 12.32% 8.64% 6.96%
Tier 1 capital to assets.. 15.29 15.95 15.40 9.26 7.59
Tier 1 capital to
risk-adjusted assets..... 25.82 27.78 28.68 16.47 14.75
____________________
(1) 1996 includes the special SAIF assessment of $835,000 ($515,000 net).
(2) Per share data for 1995 is for the period beginning July 7, the date
of the initial public offering.
(3) 1996 includes a $3.00 special one-time distribution.
(4) Noninterest expense to net interest income plus noninterest income.
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SUPPLEMENTARY FINANCIAL INFORMATION
Selected Quarterly Operating Results
(Dollars In Thousands, Except Per Share Data)
Fourth Third Second First
Quarter Quarter Quarter Quarter
_______ _______ _______ _______
Year Ended September 30, 1997
Interest income.............. $3,486 $3,415 $3,283 $3,233
Interest expense............. 1,851 1,744 1,687 1,700
Net interest income.......... 1,635 1,671 1,596 1,533
Provision for loan losses.... -- -- -- --
Noninterest income........... 216 202 163 174
Noninterest expense(1)....... 651 602 626 725
Net income(1)................ 756 797 712 619
Per common share:
Net income (diluted)(1)...... $ .42 $ .46 $ .41 $ .35
Cash dividends(2)............ .1400 .1400 .1125 .1125
Common stock price:
High........................ 24.88 19.50 17.38 15.63
Low......................... 19.38 15.63 14.75 13.63
Last trade.................. 23.75 19.50 16.50 15.63
Selected ratios (annualized):
Net interest margin.......... 3.80% 4.03% 3.98% 3.79%
Return on average assets(1).. 1.71 1.87 1.74 1.50
Return on average equity(1).. 11.01 11.79 10.82 9.30
Year Ended September 30, 1996
Interest income.............. $3,244 $3,185 $3,177 $3,139
Interest expense............. 1,664 1,606 1,614 1,596
Net interest income.......... 1,580 1,579 1,563 1,543
Provision for loan losses.... -- -- -- --
Noninterest income........... 200 226 159 168
Noninterest expense(1)....... 1,478 657 611 589
Net income(1)................ 220 744 710 727
Per common share:
Net income(1)................$ .12 $ .40 $ .39 $ .39
Cash dividends(2)............ 3.1125 .1125 .1125 .1125
Common stock price:
High........................ 17.13 16.63 15.25 15.13
Low......................... 13.63 14.88 13.63 13.25
Last trade.................. 14.25 15.75 14.75 14.13
Selected ratios (annualized):
Net interest margin.......... 3.82% 3.96% 3.92% 3.90%
Return on average assets(1).. .52 1.82 1.74 1.80
Return on average equity(1).. 2.87 8.96 8.47 8.71
____________________
(1) The fourth quarter of 1996 includes the special SAIF assessment of
$835,000 ($515,000 net of tax).
(2) The fourth quarter of 1996 includes a $3.00 special one-time distribution.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of results of operations is intended to
assist in understanding the financial condition and results of operations of
the Company. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and the accompanying
Notes to Consolidated Financial Statements and the other sections contained in
this Annual Report.
The Company's results of operations depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The Company's
results of operations also are affected by the provision for loan losses, the
level of its noninterest income and expenses, and income tax expense.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap,"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount
of interest-rate sensitive liabilities, and is considered negative when the
amount of interest-rate sensitive liabilities exceeds the amount of interest-
rate sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect. As of September 30, 1997, the Association estimates that
its one-year gap was a negative 21.3% and its ratio of interest-earning assets
to interest-bearing liabilities maturing or repricing within one year was
82.4%.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the Company's results of operations,
management has implemented and continues to monitor asset and liability
management policies to better match the maturities and repricing terms of the
Association's interest-earning assets and interest-bearing liabilities. Such
policies have consisted primarily of: (i) emphasizing the origination of
adjustable-rate mortgage loans ("ARMs"); and (ii) selling its fixed-rate
residential mortgage loans.
The Association focuses its lending activities on the origination of one year
adjustable-rate residential mortgage loans and, to a lesser extent, three- and
five-year adjustable rate residential mortgage loans. Although adjustable-
rate loans involve certain risks, such loans decrease the risks associated
with changes in interest rates. As a result of the Association's efforts, as
of September 30, 1997, $100.2 million or 95.3% of the Association's portfolio
of one-to-four family residential mortgage loans consisted of ARMs.
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In order to offer a full range of loan products to its customers, the
Association continues to originate fixed-rate loans and sell such loans to the
Federal Home Loan Mortgage Corporation ("FHLMC"). During the years ended
September 30, 1997 and 1996, such sales amounted to $2.2 million and $2.2
million, respectively. Such sales were conducted as a means of minimizing the
interest rate risk associated with such loans.
Deposits are the Association's primary funding source and the Association
prices its deposit accounts based upon competitive factors and the
availability of prudent lending and investment opportunities. Pursuant to
this policy, the Association has generally neither engaged in sporadic
increases or decreases in interest rates paid nor offered the highest rates
available in its deposit market except upon specific occasions to control
deposit flow or when market conditions have created opportunities to attract
longer-term deposits. In addition, the Association does not pursue an
aggressive growth strategy which would force the Association to focus
exclusively on competitors' rates rather than deposit affordability. This
policy has assisted the Association in controlling its cost of funds.
Net Portfolio Value
Management also presently monitors and evaluates the potential impact of
interest rate changes upon the market value of the Association's portfolio
equity and the level of net interest income on a quarterly basis. The OTS
adopted a final rule in August 1993 incorporating an interest rate risk
component into the risk-based capital rules and under such rule, an
institution with a greater than "normal" level of interest rate risk will be
subject to a deduction of its interest rate component from total capital for
purposes of calculating the risk-based capital requirement. An institution
with a greater than "normal" interest rate risk is defined as an institution
that would suffer a loss of net portfolio value ("NPV") exceeding 2.0% of the
estimated market value of its assets in the event of a 200 basis point
increase or decrease in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and off-
balance sheet contracts. A resulting change in NPV of more than 2% of the
estimated market value of an institution's assets will require the institution
to deduct from its capital 50% of that excess change. The rule provides that
the OTS will calculate the interest rate risk component quarterly for each
institution. The OTS has recently indicated that no institution will be
required to deduct capital for interest rate risk until further notice.
Small, highly capitalized institutions, such as the Association, which have
less than $300 million of assets and a risk-based capital ratio in excess of
12% are not generally subject to the interest rate risk component. Although
First Federal is not subject to the interest rate risk component of the risk-
based capital rules, the maturity/rate data is voluntarily submitted to the
OTS so that management remains aware of the potential impact of interest rate
changes as reported quarterly by the OTS in its interest rate risk exposure
report.
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The following table presents First Federal's NPV as of September 30, 1997, as
calculated by the OTS, based on information which was provided to the OTS by
First Federal.
Net Portfolio Value
______________________________________________________________________________
Estimated
Change in NPV As A
Interest Rates Estimated % of PV Amount Percent
(basis points) NPV of Assets of Change of Change
________________ _____________ ______________ _____________ ___________
(Dollars in Thousands)
+400 bp $26,555 15.34% $-5,832 -18%
+300 bp 28,786 16.31 -3,601 -11
+200 bp 30,586 17.05 -1,801 -6
+100 bp 31,787 17.49 -600 -2
0 bp 32,387 17.64
-100 bp 32,576 17.61 +189 +1
-200 bp 32,802 17.59 +415 +1
-300 bp 33,286 17.68 +899 +3
-400 bp 34,065 17.89 +1,678 +5
Risk Measures: 200 bp Rate Shock 9-30-97 6-30-97 3-31-97
______________________________________________ _______ _______ _______
Pre-Shock NPV Ratio: NPV as % of PV of Assets 17.64% 17.88% 18.68%
Exposure Measure: Post-Shock NPV Ratio 17.05% 16.99% 17.81%
Sensitivity Measure: Change in NPV Ratio -59 bp -89 bp -87 bp
Changes in Financial Condition
General. The Company's assets increased $13.0 million or 7.8% to $178.7
million at September 30, 1997 from $165.7 million at September 30, 1996. The
increase was due primarily to increases of $11.7 million or 8.5% in loans
receivable and $3.7 million or 21.3% in investments, which were partially
offset by a decrease of $2.8 million or 31.7% in cash and cash equivalents.
The Company's total liabilities increased $12.0 million or 8.6% due primarily
to increases of $10.1 million or 7.6% in deposits and $2.1 million or 74.6% in
borrowed funds.
Cash and Cash Equivalents. Cash and federal funds sold decreased $2.8 million
or 31.7% to $6.1 million at September 30, 1997 from $8.9 million at September
30, 1996. In addition to normal operating uses, the cash funds were used
primarily to fund increased loan demand, payment of dividends and purchase of
additional shares of Company common stock.
Investments. Investments increased $3.7 million or 21.3% to $21.2 million at
September 30, 1997 from $17.4 million at September 30, 1996. Proceeds from
maturing investments were used primarily to fund increased loan demand.
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Loans Receivable. Loans receivable, net of unearned income, increased $11.7
million or 8.5% to $148.5 million at September 30, 1997 from $136.8 million at
September 30, 1996. The increase in loans was the result of increases of
$10.7 million or 8.7% in real estate loans and $1.9 million or 18.4% in
consumer loans, and a decrease of $.9 million or 27.0% in commercial loans.
Nonperforming Assets. Total nonperforming assets increased $123,000 or 43.3%
to $407,000 or .23% of total assets at September 30, 1997 compared to $284,000
or .17% of total assets at September 30, 1996. At September 30, 1997,
nonperforming loans were $280,000 or .18% of total loans compared to $212,000
or .15% of total loans at September 30, 1996. Foreclosed real estate owned
increased $55,000 or 76.4% to $127,000 at September 30, 1997 from $72,000 at
September 30, 1996. At September 30, 1997, the allowance for loan losses was
$1.1 million or .74% of total loans and 401.43% of nonperforming loans
compared to $1.1 million or .82% of total loans and 540.09% of nonperforming
loans at September 30, 1996. Net charge-offs were $21,000 and $4,000 for
fiscal years ended September 30, 1997 and 1996, respectively.
Deposits. Deposits increased $10.1 million or 7.6% to $143.2 million at
September 30, 1997 from $133.1 million at September 30, 1996. The increase in
deposits was the result of increases of $11.0 million or 9.8% in certificates
of deposit and $300,000 or 4.7% in NOW accounts, and decreases of $700,000 or
11.2% in savings accounts and $500,000 or 6.8% in money market accounts. The
additional deposits were used primarily to fund increased loan demand.
Borrowed Funds. Total borrowings increased $2.1 million to $5.0 million at
September 30, 1997 from $2.9 million at September 30, 1996. In fiscal year
1997, borrowings were utilized to purchase GNMA adjustable rate mortgage-
backed securities with advances from the FHLB of Dallas. In fiscal year 1996,
borrowings, which were utilized to minimize any loss from the sale of
investment securities, provided cash for the payment of the $3.00 per share
special one-time distribution to stockholders.
Stockholders' Equity. Stockholders' equity increased $1.0 million to $27.4
million at September 30, 1997 from $26.4 million at September 30, 1996. The
increase was primarily the result of retained earnings which was partially
offset by the purchase of additional treasury shares at a cost of $1.5
million. Net income increased $483,000 or 20.1% to $2.9 million for fiscal
1997 compared to $2.4 million for fiscal 1996. The ratio of stockholders'
equity to total assets was 15.3% at September 30, 1997 compared to 15.9% at
September 30, 1996.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The
following table presents, for the periods indicated, the interest income and
rates earned on average interest-earning assets, the interest expense and
rates paid on average interest-bearing liabilities, and the net interest
income and net interest margin which is net interest income divided by average
interest-earning assets. Since interest-earning assets do not include any
tax-exempt securities except for applicable state income taxes, income and
rates include no adjustment for a tax-equivalent basis.
Year Ended September 30,
___________________________________________________________
1997 1996 1995
___________________ ___________________ ___________________
Average Income/ Average Income/ Average Income/
Balance Expense Balance Expense Balance Expense
Rate Rate Rate
($) ($) (%) ($) ($) (%) ($) ($) (%)
___________________ ___________________ ___________________
(Dollars in Thousands)
ASSETS
Earning assets:
Loans receivable... 141,830 11,997 8.46 129,182 10,850 8.40 121,074 9,769 8.07
Investments........ 21,099 1,264 5.99 29,527 1,738 5.89 21,124 1,277 6.05
Mortgage-backed
securities........ 2,119 156 7.35 2,067 157 7.60 2,450 190 7.76
_______ ______ _______ ______ _______ ______
Earning assets.... 165,048 13,417 8.13 160,776 12,745 7.93 144,648 11,236 7.77
______ ______ ______
Nonearning assets... 3,994 3,601 4,242
_______ _______ _______
Total assets...... 169,042 164,377 148,890
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Transaction and
savings accounts.. 20,661 559 2.70 20,243 553 2.73 20,605 627 3.04
Other time deposits 117,718 6,376 5.42 107,866 5,919 5.49 106,087 5,412 5.10
Short-term
borrowings........ 827 47 5.72 143 8 5.87 39 3 6.50
_______ ______ _______ ______ _______ ______
Interest-bearing
liabilities...... 139,206 6,982 5.02 128,252 6,480 5.05 126,731 6,042 4.77
______ ______ ______
Noninterest-bearing
liabilities........ 2,976 3,420 3,818
_______ _______ _______
Total liabilities. 142,182 131,672 130,549
Equity.............. 26,860 32,705 18,341
_______ _______ _______
Total liabilities
and equity....... 169,042 164,377 148,890
======= ======= =======
Net interest income. 6,435 6,265 5,194
===== ===== =====
Net interest spread. 3.11 2.88 3.00
Net interest margin. 3.90 3.90 3.59
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Rate/Volume Analysis. The following table describes the extent to which
changes in volume and changes in interest rates of interest-related assets and
liabilities have affected interest income and expense during the periods
indicated. Volume change is computed by multiplying the change in volume by
the prior year rate. Rate change is computed by multiplying the change in
rate by the prior year volume. Changes not solely due to volume or rate
changes are allocated to rate.
Change Change
1997 from 1996 1996 from 1995
____________________ ____________________
Increase(Decrease) Increase(Decrease)
Due to Due to
____________________ ____________________
(Dollars in Thousands) Total Volume Rate Total Volume Rate
_____ ______ _____ _____ ______ _____
Change in interest income:
Loans receivable..........$1,147 $1,062 $ 85 $1,081 $ 654 $ 427
Investments............... (474) (496) 22 461 508 ( 47)
Mortgage-backed securities (1) 4 (5) ( 33) ( 30) ( 3)
_____ _____ _____ _____ _____ _____
Total interest income.... 672 570 102 1,509 1,132 377
_____ _____ _____ _____ _____ _____
Change in interest expense:
Transaction and
savings accounts......... 5 11 (6) ( 74) ( 11) ( 63)
Other time deposits....... 458 508 (50) 507 91 416
Short-term borrowings..... 39 40 (1) 5 7 ( 2)
_____ _____ _____ _____ _____ _____
Total interest expense... 502 559 (57) 438 87 351
_____ _____ _____ _____ _____ _____
Net interest income......$ 170 $ 11 $ 159 $1,071 $1,045 $ 26
===== ===== ===== ===== ===== =====
Comparison of Results of Operations for the Years Ended September 30, 1997 and
1996
General. The Company's net income was $2.9 million for fiscal 1997 compared
to $2.4 million for fiscal 1996. The increase of $483,000 or 20.1% during
fiscal 1997 was primarily due to an increase of $170,000 in net interest
income, an increase of $2,000 in noninterest income and a decrease of $731,000
in noninterest expense, all of which were partially offset by an increase in
income tax expense.
Net Interest Income. The Company's net interest income increased $170,000 or
2.7% to $6.4 million for fiscal 1997 compared to $6.3 million for fiscal 1996.
The increase was due to an increase of $672,000 or 5.3% in interest income
which was partially offset by an increase of $502,000 or 7.7% in interest
expense. The increase in interest income was due to an increase in both the
average balance of and average yield on interest earning assets while the
increase in interest expense was due to an increase in the average balance of
interest bearing liabilities, partially offset by a decline in the average
rate. For fiscal year 1997 compared to fiscal year 1996, the net interest
margin was 3.90% and 3.90%, respectively, and the net interest spread was
3.11% and 2.88%, respectively.
11
<PAGE>
Interest Income. During fiscal 1997 compared to fiscal 1996, total interest
income increased $672,000 or 5.3% of which $570,000 was due to an increase in
average balance and $102,000 was due to an increase in average yield. The
average balance of total earning assets increased $4.3 million to $165.0
million from $160.8 million and the average yield increased to 8.13% from
7.93%. The increase in total interest income was due to an increase in income
on loans, partially offset by a decrease in income on investments. Interest
income on loans increased $1.1 million or 10.6% of which $1.0 million was due
to an increase in average balance and $.1 million was due to an increase in
average yield. The increase in the average balance of loans to $141.8 million
from $129.2 million was due to increased loan demand while the increase in the
average yield to 8.46% from 8.40% primarily reflects the increase in market
interest rates, particularly during the first half of fiscal 1997. Interest
income on investments decreased $474,000 or 27.3% of which $496,000 was due to
a decrease in average balance, partially offset by an increase of $22,000 due
to an increase in average yield.
Interest Expense. During fiscal 1997 compared to fiscal 1996, total interest
expense increased $502,000 or 7.7% of which $559,000 was due to an increase in
average balance, partially offset by $57,000 due to a decline in average rate.
The average balance of total interest-bearing liabilities increased $10.9
million to $139.2 million from $128.3 million and the average rate declined to
5.02% from 5.05%. The increase in total interest expense was due primarily to
an increase in interest on deposits which increased $463,000 or 7.2% of which
$519,000 was due to an increase in average balance, partially offset by a
decrease of $56,000 due to a decline in average rate to 5.01% from 5.05%.
Provision for Loan Losses. No provisions were made for loan losses during
fiscal 1997 and fiscal 1996. The $177,000 provision for loan losses during
fiscal 1995 was due primarily to management's assessment at such time of an
increased risk of loss in light of a proposed closing of a major local
employer which employed approximately 2,500 persons in 1995 and currently
employees approximately 1,600 persons. However, the Base Realignment and
Closure Commission removed the depot from the closure list but proposed a
transfer of certain operations to another depot. The reduction due to base
realignments was completed October 1997 and resulted in a workforce reduction
of approximately 600 employees. No provision for loan losses has been
recorded for the last ten successive quarters due to the consistently
favorable ratio of nonperforming loans to total loans of .19%, .15% and .17%
at September 30, 1997, 1996 and 1995, respectively. Management believes that
the current allowance for loan losses is adequate based upon prior loss
experience, the volume and type of lending conducted by the Association,
industry standards, past due loans and the current economic conditions in the
market area.
Noninterest Income. Noninterest income increased $2,000 or .3% to $755,000
for fiscal 1997 compared to $753,000 for fiscal 1996. Such increase was
primarily due to increases in service charge income and gain on sale of loans,
and decreases of loan origination fees and various other noninterest income
items. See Note 16 of the Notes to the Consolidated Financial Statements for
comparison of other noninterest income items.
Noninterest Expense. Noninterest expense decreased $731,000 or 21.9% to $2.6
million for fiscal 1997 compared to $3.3 million for fiscal 1996. The
decrease was primarily due to decreases in SAIF deposit insurance premium and
legal and professional expense, which were partially offset by an increase in
compensation and benefits expense. The increase in compensation and benefits
was due to a $91,000 or 9.3% increase in compensation and a $215,000 or 42.9%
increase in benefits. The increase in compensation expense was the result of
adding two additional staff members and normal salary and merit increases.
The increase in benefits expense was due primarily to expenses related to the
ESOP and the employee and director stock benefit plans. See Note 16 of the
Notes to the Consolidated Financial Statements for comparison of other
noninterest expense items.
12
<PAGE>
Income Taxes. Income tax expense amounted to $1.7 million for fiscal 1997 and
$1.3 million for fiscal 1996, resulting in effective tax rates of 37.1% and
34.8% respectively. See Note 10 of the Notes to the Consolidated Financial
Statements.
Comparison of Results of Operations for the Years Ended September 30, 1996 and
1995
General. The Company's net income was $2.4 million for fiscal 1996 compared
to $2.0 million for fiscal 1995. The increase of $398,000 or 19.9% during
fiscal 1996 was primarily due to an increase of $1.1 million in net interest
income, a decrease of $177,000 in the provision for loan losses and a decrease
of $300,000 in the provision for losses on foreclosed real estate, all of
which were partially offset by a special SAIF deposit premium assessment of
$835,000.
Net Interest Income. The Company's net interest income increased $1.1million
or 20.6% to $6.3 million for fiscal 1996 compared to $5.2 million for fiscal
1995. The increase in net interest income was due to a $1.5 million or 13.4%
increase in interest income which was partially offset by a $438,000 or 7.2%
increase in interest expense. The increase in interest income was primarily
due to an increase in both the average balance of and average yield on loans
receivable while the increase in interest expense was primarily due to an
increase in the average rate paid on deposits. The decrease in the interest
rate spread from 3.00% in fiscal 1995 to 2.88% in fiscal 1996 was more than
offset by an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities to 125.36% for fiscal 1996 compared to
114.14% for fiscal 1995.
Interest Income. During fiscal 1996 compared to fiscal 1995, total interest
income increased $1.5 million or 13.4% of which $1.1 million was due to an
increase in average balance and $377,000 was due to an increase in average
yield. The average balance of total earning assets increased $16.1 million to
$160.8 million from $144.7 million and the average yield increased to 7.93%
from 7.77%. The increase in total interest income was due primarily to
increases in income on loans and investments. Interest income on loans
increased $1.1 million or 11.1% of which $654,000 was due to an increase in
average balance and $427,000 was due to an increase in average yield. The
increase in the average balance of loans to $129.2 million from $121.1 million
was due to increased loan demand while the increase in the average yield to
8.40% from 8.07% primarily reflects the increase in market interest rates,
particularly during the first half of fiscal 1996. Interest income on
investments increased $461,000 or 36.1% of which $508,000 was due to an
increase in average balance, partially offset by a decrease of $47,000 due to
a decline in average yield. The increase in the average balance of
investments to $29.5 million from $21.1 million was partially offset by the
decline in the average yield to 5.89% from 6.05%.
Interest Expense. During fiscal 1996 compared to fiscal 1995, total interest
expense increased $438,000 or 7.2% of which $87,000 was due to an increase in
average balance and $351,000 was due to an increase in average rate. The
average balance of total interest-bearing liabilities increased $1.5 million
to $128.2 million from $126.7 million and the average rate increased to 5.05%
from 4.77%. The increase in total interest expense was due primarily to an
increase in interest on deposits which increased $433,000 or 7.2% of which
$80,000 was due to an increase in average balance and $353,000 was due to an
increase in average rate. The increase in the average rate paid on deposits
to 5.05% from 4.77% primarily reflects the increase in market interest rates
during fiscal 1996.
Provision for Loan Losses. No provisions were made for loan losses during
fiscal 1996. The $177,000 provision for loan losses during fiscal 1995 was
due primarily to management's assessment at such time of an increased risk of
loss in light of a proposed closing of a major local employer.
13
<PAGE>
Noninterest Income. Noninterest income increased $88,000 or 13.2% to $753,000
for fiscal 1996 compared to $665,000 for fiscal 1995. Such increase was
primarily due to an increase of $55,000 in loan origination and commitment
fees, primarily as a result of increased loan production. See Note 16 of the
Notes to the Consolidated Financial Statements for comparison of other
noninterest income items.
Noninterest Expense. Noninterest expense increased $968,000 or 40.9% to $3.3
million for fiscal 1996 compared to $2.4 million for fiscal 1995. The
increase was primarily due to a $835,000 increase in SAIF deposit insurance
premium resulting from a special assessment in the fourth quarter, and a
$281,000 or 23.4% increase in compensation and benefits. These increases in
noninterest expense were partially offset by a $300,000 decrease in the
provision for loss on foreclosed real estate. The increase in compensation
and benefits was due to a $79,000 or 8.7% increase in compensation and a
$202,000 or 67.4% increase in benefits. The increase in compensation expense
was the result of adding two additional staff members and normal salary and
merit increases. The increase in benefits expense was due primarily to
expenses related to the ESOP for a full year in fiscal 1996 compared to three
months, beginning in July, in fiscal 1995. See Note 16 of the Notes to the
Consolidated Financial Statements for comparison of other noninterest expense
items.
Income Taxes. Income tax expense amounted to $1.3 million for both fiscal
1996 and 1995, resulting in effective tax rates of 34.8% and 39.6%
respectively. See Note 10 of the Notes to the Consolidated Financial
Statements.
Liquidity and Capital Resources
The Association's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The
Association's primary sources of funds are deposits, amortization, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from
operations. While scheduled loan amortization and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Association manages
the pricing of its deposits to maintain a steady deposit balance. In
addition, the Association invests excess funds in overnight deposits and other
short-term interest-earning assets which provide liquidity to meet lending
requirements. The Association has generally been able to generate enough cash
through the retail deposit market, its traditional funding source, to offset
the cash utilized in investing activities. As an additional source of funds,
the Association may borrow from the FHLB of Dallas and has only recently
utilized this source of funds.
All savings institutions are required to maintain an average daily balance of
liquid assets equal to a certain percentage of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one
year or less. The liquidity requirement may vary from time to time (between
4% and 10%) depending upon economic conditions and savings flows of all
savings institutions. At the present time, the required minimum liquid asset
ratio is 5%. At September 30, 1997, the Association's liquidity ratio was
12.15%.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Association maintains
a strategy of investing in various lending products such as single-family
residential loans. The Association uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing savings certificates and savings
withdrawals and fund loan commitments. At September 30, 1997, the total
approved loan commitments outstanding, excluding construction loans, amounted
to $3.7 million. At the same date, the unadvanced
14
<PAGE>
portion of construction loans approximated $3.2 million. Certificates of
deposit scheduled to mature in one year or less at September 30, 1997 totaled
$89.3 million. Investment securities scheduled to mature in one year or less
at September 30, 1997 totaled $2.3 million. Management believes that a
significant portion of maturing deposits will remain with the Association.
As of September 30, 1997, the Association's regulatory capital was well in
excess of all applicable regulatory requirements. See "Selected Financial
Data" and Note 14 of the Notes to the Consolidated Financial Statements.
Recent Accounting Developments
In December 1994, the AICPA issued SOP 94-6, "Disclosure of Certain
Significant Risks and Uncertainties" requiring entities to disclose specified
information, including a description of certain risks and uncertainties. SOP
94-6 requires four new disclosures related to: (1) the nature of an entities
operations, (2) a statement about the use of estimates in the financial
statements, (3) uncertainties concerning estimates that affect financial
statement amounts if it is reasonably possible that the estimates that will
change within a year and that change could be material to the financial
statements, and (4) risks related to concentrations in volume of business,
sources of supply, revenue or market or geographic area if those
concentrations expose the entity to risk of a disruption in operations within
a year. The first two disclosures will always be necessary whereas the
disclosure about uncertainties of significant estimates and the disclosure
about risks related to concentrations apply if criteria specified in SOP 94-6
are met. SOP 94-6 is effective for fiscal years ending after December 15,
1995.
In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. It does not apply to financial instruments,
long-term customer relationships of a financial institution (core deposits),
mortgage and other servicing rights and deferred tax assets. The Statement
requires the review of long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances include, for
example, a significant decrease in market value of an asset, a significant
change in use of an asset, an adverse change in a legal factor that could
effect the value of an asset. If such an event occurs and it is determined
that the carrying value of the asset may not be recoverable, an impairment
loss should be recognized as measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Fair value can be
determined by a current transaction, quoted market prices or present value of
estimated expected future cash flows discounted at the appropriate rate. The
Statement is effective for fiscal years beginning after December 15, 1995.
Implementation of SFAS No. 121 is not expected to have a material impact on
the Company's financial condition or results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights", amending FASB Statement No. 65, "Accounting for Certain Mortgage
Banking Activities", to require that a mortgage banking enterprise recognize
as separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. Mortgage servicing rights are to be amortized
in proportion to and over the period of estimated net servicing income and are
to be evaluated for impairment based on their fair value. This Statement
applies prospectively in fiscal years beginning after December 15, 1995, to
transactions in which a mortgage banking enterprise sells or securitizes
mortgage loans with servicing rights retained. The Company adopted SFAS No.
122 effective October 1, 1996, with no material impact on the Company's
financial condition or results of operations.
15
<PAGE>
In October 1995, the FASB issued SFAS no. 123, "Accounting for Stock-Based
Compensation", requiring companies to provide new disclosures about employee
stock options in the form of a note to the financial statements based on their
fair value at the date of grant. Companies are permitted to switch to the
fair value method to record compensation cost for new and modified employee
stock options. Since options granted to employees generally are not traded on
an exchange, companies are required to use recognized option pricing models to
estimate the fair values. Valuations of option pricing models depend on such
factors as the relationship of the underlying stock's price to the price of
the option, expected dividend yields, expected volatility of the Company's
stock price, the expected level of risk-free interest rates and the expected
time remaining until the option expires. Valuations of the same pricing model
could change if different assumptions were made. Option values are dependent
on the future performance of the Company's stock and overall stock market
conditions and there can be no assurance that the calculated values from an
option pricing model will be realized. Companies are, however, allowed to
measure compensation cost of all employee stock compensation plans using the
intrinsic value based method of accounting. Companies that elect to remain
with the existing accounting are required to make disclosures as if this
statement had been adopted. The new disclosures are required in financial
statements for fiscal years beginning after December 15, 1995, with earlier
application permitted. The disclosures must include the proforma effects of
options and other awards granted in fiscal years beginning after December 15,
1994. The Company, as permitted, has elected not to adopt the fair value
accounting provisions of SFAS 123 and will continue to apply APB Opinion 25
and related Interpretations in accounting for plans and provide the required
proforma disclosures of SFAS 123.
In February 1997, the FASB issued final standards on earnings per share
("EPS") under two new pronouncements, Statement of Financial Accounting
Standards No. 128 and SFAS 129 which include standards for computing and
presenting EPS and for disclosing information about an entity's capital
structure. The standards for EPS apply to entities with publicly held common
stock or potential common stock, while the standards for disclosure about
capital structure apply to all entities. The standards eliminate the
presentation of primary EPS and require presentation of basic EPS, the
principal difference being that common stock equivalents will not be
considered in the computation of basic EPS. The standards also require dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and require a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS would include no
dilution and would be computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS would reflect the potential dilution that could occur
if the potential common shares were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. The standards require restatement of all prior-period EPS data
presented. SFAS 128 and SFAS 129 are effective for periods ending after
December 15, 1997 and earlier application is not permitted.
Recent Legislation
The deposits of the Association are currently insured by the Savings
Association Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance
Fund ("BIF"), the federal deposit insurance fund that covers commercial bank
deposits, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The previously underfunded status of the
SAIF resulted in the introduction of federal legislation intended to, among
other things, recapitalize the SAIF and address the resulting premium
disparity between the two insurance funds. On September 30, 1996, The Omnibus
Appropriations Act was signed into law. The legislation authorized a one-time
charge on SAIF insured institutions in the amount of .657 dollars for every
16
<PAGE>
one hundred dollars of assessable deposits. Additional provisions of the Act
include new BIF and SAIF premiums and the merger of BIF and SAIF. The new BIF
and SAIF premiums will include a premium for repayment of the Financing
Corporation ("FICO") bonds plus any regular insurance assessment, currently
nothing for the lowest risk category institutions. Until full pro-rata FICO
sharing is in effect, the FICO premiums for BIF and SAIF will be 1.3 and 6.4
basis points, respectively, beginning January 1, 1997. Full pro-rata FICO
sharing is to begin no later than January 1, 2000. BIF and SAIF are to be
merged on January 1, 1999, provided the bank and savings association charters
are merged by that date. As a result of this legislation, the Association's
assessment amounted to $835,000 which was included in expense in September,
the fourth quarter of fiscal 1996, and paid in November, the first quarter of
fiscal 1997. While the one-time special assessment resulted in a significant
reduction of the fiscal 1996 earnings, the resulting lower premiums benefited
the fiscal 1997 earnings and will continue to benefit future years earnings.
In August 1996, the Small Business Job Protection Act was signed into law.
This act repealed the percentage method of computing the bad debt deduction
for tax years beginning after December 31, 1995. The state of Arkansas
repealed the deduction effective for years beginning after January 1, 1997.
If certain conditions apply, the Company would have to include in income
previous bad debt deductions. For federal tax purposes the conditions do not
apply, and so long as the Association (the Company's subsidiary) continues to
qualify as a thrift or a bank no repayment of the tax on prior bad debt
deductions will be required. Should the Association fail to qualify as a
thrift or bank, the tax would have to be repaid ratably over a six year
period. The Association is currently in no jeopardy of failing to qualify as
a thrift or bank. The Company will have to repay tax on approximately $1.5
million of bad debt deductions for state tax purposes. The Company has made
provision of $89,000 for this tax in the current and prior financial
statements and expects this repayment to have no further effect on income.
In July, 1997, congress passed the 1997 Tax Law which contained both
individual and business tax provisions. Although the majority of the law's
provisions relate to individuals, it also contains several business related
provisions. Business related provisions include extensions of special tax
credits that were scheduled to expire in 1997, a new welfare-to-work tax
credit, modification of alternative minimum tax provisions, a change in the
net operating carryforward/carryback periods, new rules affecting IRAs and
modifications of rules affecting tax-qualified retirement plans and certain
other retirement savings vehicles. The 1997 Tax Law will have no material
impact on the Company's financial condition or results of operations.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms
of historical dollars, without considering changes in relative purchasing
power over time due to inflation.
Unlike most industrial companies, virtually all of the Company's and the
Association's assets and liabilities are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.
17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
November 3, 1997
The Board of Directors and Stockholders
Texarkana First Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Texarkana First Financial Corporation and subsidiary as of
September 30, 1997 and 1996, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the years
in the three-year period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texarkana
First Financial Corporation and subsidiary as of September 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Wilf & Henderson, P.C.
Wilf & Henderson, P. C.
Certified Public Accountants
18
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share Data)
At September 30,
ASSETS 1997 1996
_______ _______
Cash and cash equivalents
Cash and due from banks $ 1,147 $ 1,481
Interest-bearing deposits in other banks 3,331 1,829
Federal funds sold 1,575 5,550
_______ _______
Total cash and cash equivalents 6,053 8,860
Investment securities available for sale 18,767 14,887
Mortgage-backed securities held to maturity 1,293 1,518
Federal Home Loan Bank stock 1,116 1,053
Loans receivable 148,471 136,805
Allowance for loan losses (1,124) (1,145)
Accrued interest receivable 1,176 1,207
Foreclosed real estate held for sale, net 127 72
Premises and equipment, net 2,382 2,014
Other assets 449 476
_______ _______
Total assets $178,710 $165,747
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $143,207 $133,071
Advances from borrowers for taxes and insurance 1,920 1,865
Borrowed funds 4,989 2,858
Accrued federal income tax 302 25
Accrued state income tax 216 138
Accrued expenses and other liabilities 696 1,366
_______ _______
Total liabilities 151,330 139,323
_______ _______
Commitments and contingencies -- --
_______ _______
Common stock, $0.01 par value; 15,000,000 shares authorized;
1,983,750 shares issued and outstanding 20 20
Additional paid-in capital 13,485 13,052
Common stock acquired by employee benefit plans (2,208) (2,147)
Treasury stock, at cost; 196,745 shares and 99,187 shares at
September 30, 1997 and September 30, 1996, respectively (3,103) (1,567)
Unrealized gain (loss) on securities
available for sale, net of tax 81 (8)
Retained earnings substantially restricted 19,105 17,074
_______ _______
Total stockholders' equity 27,380 26,424
_______ _______
Total liabilities and stockholders' equity $178,710 $165,747
======= =======
See accompanying notes to consolidated financial statements.
19
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
For the years ended September 30,
1997 1996 1995
_______ _______ _______
Interest income:
Loans:
First mortgage loans $10,782 $ 9,962 $ 9,121
Consumer and other loans 1,215 888 648
Investments - taxable 1,264 1,738 1,277
Mortgage-backed and related securities 156 157 190
_______ _______ _______
Total interest income 13,417 12,745 11,236
_______ _______ _______
Interest expense:
Deposits 6,935 6,472 6,039
Borrowed funds 47 8 3
_______ _______ _______
Total interest expense 6,982 6,480 6,042
_______ _______ _______
Net interest income 6,435 6,265 5,194
Provision for loan losses -- -- (177)
_______ _______ _______
Net interest income after
provision for loan losses 6,435 6,265 5,017
_______ _______ _______
Noninterest income:
Gain (loss) on sale of repossessed assets, net 24 21 77
Loan origination and commitment fees 283 336 281
Gain (loss) on sale of securities
available for sale, at net -- (3) --
Other non interest income 448 399 307
_______ _______ _______
Total noninterest income 755 753 665
_______ _______ _______
Noninterest expense:
Compensation and benefits 1,788 1,482 1,201
Occupancy and equipment 173 168 158
Federal insurance premiums 123 1,136 288
Provisions and losses on foreclosed real estate -- -- 300
Other 520 549 420
_______ _______ _______
Total noninterest expense 2,604 3,335 2,367
_______ _______ _______
Income before income taxes 4,586 3,683 3,315
Income taxes 1,702 1,282 1,312
_______ _______ _______
Net income $ 2,884 $ 2,401 $ 2,003
======= ======= =======
Earnings per common share (a)
Primary earnings per share $ 1.68 $ 1.31 $ 0.40
Fully diluted earnings per share $ 1.64 $ 1.31 $ 0.40
Weighted average number of shares
Primary 1,720,070 1,833,786 1,844,928
Fully diluted 1,755,606 1,832,494 1,844,928
(a) Earnings per share for 1995 are calculated from July 7, 1995, the date
of the initial public offering, to September 30, 1995.
See accompanying notes to consolidated financial statements.
20
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
Unrealized
Stock Gain
Acquired (Loss)
By on AFS
Common Paid-in Benefit Treasury Secur- Retained Total
Stock Capital Plans Stock ities Earnings Equity
_____ _______ ________ _______ ______ ________ _______
At October 1, 1994 $ -- $ -- $ -- $ -- $ -- $12,996 $12,996
Common stock issued 20 19,124 -- -- -- -- 19,144
Common stock acquired
by ESOP -- -- (1,388) -- -- -- (1,388)
ESOP stock committed
to be released -- 10 35 -- -- -- 45
Unrealized gain on
securities available
for sale -- -- -- -- 8 -- 8
Net income -- -- -- -- -- 2,003 2,003
____ _______ _______ _______ ____ _______ _______
At September 30, 1995 20 19,134 (1,353) -- 8 14,999 32,808
ESOP shares committed
to be released -- 67 139 -- -- -- 206
Common stock acquired
for MRP plans -- -- (933) -- -- -- (933)
Purchase treasury stock -- -- -- (1,567) -- -- (1,567)
Unrealized (loss) on
securities available
for sale -- -- -- -- (16) -- (16)
Dividends paid
from earnings -- -- -- -- -- (326) (326)
Capital distributions -- (6,149) -- -- -- -- (6,149)
Net income -- -- -- -- -- 2,401 2,401
____ _______ _______ _______ ____ _______ _______
At September 30, 1996 20 13,052 (2,147) (1,567) (8) 17,074 26,424
Common stock acquired
by benefit plans 396 (454) -- -- -- -- (58)
ESOP shares committed
to be released -- 37 210 -- -- -- 247
MRP stock amortization -- -- 183 -- -- (10) 173
Purchase treasury stock -- -- -- (1,536) -- -- (1,536)
Unrealized gain on
securities available
for sale -- -- -- -- 89 -- 89
Dividends paid
($.505 per share) -- -- -- -- -- (843) (843)
Net income -- -- -- -- -- 2,884 2,884
____ _______ _______ _______ ____ _______ _______
At September 30, 1997 $ 20 $13,485 $(2,208) $(3,103) $ 81 $19,105 $27,380
==== ======= ======= ======= ==== ======= =======
See accompanying notes to consolidated financial statements.
21
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended September 30,
1997 1996 1995
______ ______ ______
Cash Flows From Operating Activities:
Interest and dividends received $13,341 $12,478 $10,981
Miscellaneous income received 693 681 523
Interest paid (2,817) (2,875) (1,828)
Cash paid to suppliers and employees (2,803) (2,242) (1,829)
Cash from REO operations 51 49 29
Cash paid for REO operations (16) (19) (25)
Cash from loans sold 1,392 1,566 1,514
Cash paid for loans originated to sell (1,392) (1,566) (1,514)
Income taxes paid (1,465) (1,674) (1,154)
______ ______ ______
Net Cash Provided By Operating Activities 6,984 6,398 6,697
______ ______ ______
Cash Flows From Investing Activities:
Proceeds from call and maturity
of investment securities 5,500 11,500 1,500
Proceeds from sale of investment securities
available for sale 1,399 1,387 --
Purchases of securities available for sale (10,716) (9,593) (6,264)
Collection of principal on
mortgage-backed securities 340 762 430
Recovery of investment in service bureau -- 85 4
Purchase of fixed assets (457) (352) (128)
Sale of fixed assets 3 -- 18
Net (increase) in loans (11,797)(13,623) (4,941)
Proceeds from sale of REO and other REO recoveries 121 72 314
Cash paid for REO held for resale (59) (4) (40)
______ ______ ______
Net Cash Used In Investing Activities (15,666) (9,766) (9,107)
______ ______ ______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit 6,087 4,426 (3,646)
Net increase (decrease) in escrow funds 56 (79) (20)
Net proceeds from sale of stock -- -- 19,144
Purchase of stock for employee benefit plans (59) (933) (1,388)
Purchase of treasury stock (1,536) (1,567) --
Dividend and return of capital distributions (804) (6,263) --
Funds borrowed 16,635 2,815 --
Repayment of funds borrowed (14,504) (19) --
______ ______ ______
Net Cash Provided By (Used In)
Financing Activities 5,875 (1,620) 14,090
______ ______ ______
Net Increase (Decrease) In Cash and Cash Equivalents (2,807) (4,988) 11,680
Cash and Cash Equivalents, beginning of year 8,860 13,848 2,168
______ ______ ______
Cash and Cash Equivalents, end of year $ 6,053 $ 8,860 $13,848
====== ====== ======
See accompanying notes to consolidated financial statements.
22
<PAGE>
SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
1997 1996 1995
______ ______ ______
Reconciliation of net income to cash provided
by operating activities:
Net income $ 2,884 $ 2,401 $ 2,003
______ ______ ______
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 94 81 81
Amortization of discounts and premiums (44) (43) 10
Amortization of common stock
acquired by benefit plans 492 206 45
Amortization of deferred loan fees (17) (18) (17)
(Gain) loss on sales of real estate owned (10) (11) (77)
(Gain) loss on sales of fixed assets -- -- 8
(Gain) loss on investment securities
available for sale -- 3 --
(Gain) loss on sale of interest
in service center -- (33) --
Provisions for loan losses -- -- 177
Provisions for losses on real estate
held for sale -- -- 300
Interest expense credited to certificates 4,047 3,693 4,103
Dividend and interest income
added to investments (64) (102) (98)
Loan fees deferred 21 13 11
Changes in assets and liabilities:
(Increase) decrease in interest receivable 31 (146) (188)
Increase (decrease) in accrued interest payable 118 (88) 111
Increase (decrease) in income tax payable 238 (392) 158
Net increase (decrease) in other
receivables and payables (806) 834 70
______ ______ ______
Total adjustments 4,100 3,997 4,694
______ ______ ______
Net cash provided by operations $ 6,984 $ 6,398 $ 6,697
====== ====== ======
Supplemental schedule of noncash investing
and financing activities:
Acquisition of real estate
in settlement of loans $ 248 $ 161 $ 182
Loans made to finance sale of REO 134 32 184
Assets purchased with notes payable -- -- 63
Transfer of REO to real estate
held for investment -- 320 --
FHLB stock dividends not redeemed 64 62 61
Patronage dividend from service center -- -- 34
Transfer of securities from held to maturity
to available for sale -- 16,679 999
23
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996, and 1995
(Dollar amounts in thousands, except earnings per share)
Note 1 - Summary of Significant Accounting Policies
Conversion to Capital Stock Form of Ownership
On February 22, 1995, the Board of Directors of First Federal Savings and Loan
Association of Texarkana (the "Association") adopted a Plan of Conversion to
convert from a federally chartered mutual savings and loan to a federally
chartered stock savings and loan with the concurrent formation of Texarkana
First Financial Corporation (the "Company"), a unitary savings and loan
holding company. The Conversion was completed on July 7, 1995 whereby
Texarkana First Financial Corporation issued 1,983,750 shares of its common
stock in a public offering to the Association's eligible depositors and
borrowers and the Texarkana First Financial Corporation Employee Stock
Ownership Plan (the "ESOP) and resulted in proceeds to the Company of $17,755
net of $694 of costs associated with the Conversion.
Business
The Company's principal subsidiary, First Federal Savings and Loan Association
of Texarkana, is a federally-chartered stock savings and loan conducting
business from its main office in Texarkana, Arkansas and from four branches
located in Arkansas.
The Company is subject to competition from other financial institutions and
other companies that provide financial services. The Company and the
Association are subject to the regulations of certain federal agencies and
undergo periodic examinations by those regulatory authorities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
the Association. All significant intercompany transactions have been
eliminated in consolidation. Additionally, certain reclassifications have
been made in order to conform with the current year's presentation. The
accompanying consolidated financial statements have been prepared on an
accrual basis.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported values of assets and liabilities as of the date of
the statement of financial condition and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses,
the valuation of other real estate owned, and the valuation of deferred tax
assets as well as the effect of prepayments on premiums and discounts
associated with investments and mortgage-related securities. Management
believes that the allowance for loan losses, the valuations of other real
estate owned and deferred tax assets are adequate, and that the effect of
prepayments on premiums and discounts associated with investments and
mortgage-related securities has been adequately evaluated.
Various agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses, and valuation of
other real estate owned.
24
<PAGE>
Cash
For purposes of the statement of cash flows, cash and cash equivalents include
cash and interest-bearing deposits, federal funds sold, and all highly liquid
debt instruments with original maturities when purchased of three months or
less. The Company maintains cash deposits in other depository institutions
which may exceed the amount of deposit insurance available. Management
periodically assesses the financial condition of these institutions.
Assets Available for Sale
Included in assets available for sale are any investments which the Company
believes may be involved in interest rate risk, liquidity, or other
asset/liability management decisions which might reasonably result in such
assets not being held until maturity. Investments available for sale are
carried at fair value with net unrealized gains and losses included, net of
income tax, in stockholders' equity.
During the year ended September 30, 1997 the company started a policy of using
short term, 30 day, Federal Home Loan Bank (FHLB) advances to purchase
Government National Mortgage Association (GNMA) adjustable rate mortgages
(ARMS). The securities are used to secure the advances. The Company plans to
structure the ARMS so that a portion of the portfolio reprices quarterly to
offset any rise in the interest rate charged by the FHLB. The ARMS will be
liquidated to pay off the advances should the cost of borrowing exceed the
return on the ARMS.
Investments and Mortgage-Related Securities
Investments and mortgage-related securities, including equity securities that
are not readily marketable, are stated at cost, adjusted for the amortization
of premiums and the accretion of discounts using a method which approximates
level yield. Management has the ability and the intent to hold such
securities until maturity. The Company is required to maintain stock in the
Federal Home Loan Bank of Dallas ("FHLB") in an amount equal to 1% of mortgage
loans secured by residential property. Such stock is carried by the Company
at cost.
Loans Receivable
Loans held to maturity are stated at the amount of the unpaid principal
balance net of capitalized loan origination fees and certain direct
origination costs. Loan fees in excess of the direct cost of originating the
loan that result in income in excess of the market rate are deferred and taken
into income over the contractual life of the loan on a level yield basis.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon evaluation of
known and inherent risks in the loan portfolio, past loss experience, current
economic conditions, and other relevant factors. While management uses the
best information available to make such evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from
the assumptions used in making the evaluation. In addition, various agencies
as an integral part of their examination process, periodically review the
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance for loan losses based on their judgments of
information that is available to them at the time of their examination.
25
<PAGE>
Accrued Interest
Interest on loans is credited to income as it is earned. Generally, interest
income is not accrued for loans delinquent 90 days or greater. Payments
received on nonaccrual and impaired loans are applied to the outstanding
principal balance. The Company does not recognize interest on impaired loans.
Foreclosed Real Estate Held for Sale
Real estate acquired through foreclosure is classified as other real estate
owned. Other real estate owned is carried at the lower of cost or fair value,
less estimated selling costs. Fair value is generally determined through the
use of independent appraisals. In certain cases, internal cash flow analysis
are used as the basis for fair value, if such amounts are lower than the
appraised values.
Premises and Equipment
Premises and equipment are carried at cost. Depreciation and amortization are
generally computed on the straight-line method. The estimated useful lives
used to compute depreciation and amortization are 40 to 50 years for buildings
and 5 to 10 years for furniture and equipment. The cost of maintenance and
repairs is charged to expense as incurred. Significant renewals and
improvements are capitalized.
Mortgage Servicing Rights
Effective October 1, 1996, the Company adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." This standard requires the Company to recognize
servicing rights as assets, regardless of how such assets were acquired.
Additionally, the Company is required to assess the fair value of these assets
at each reporting date to determine impairment. Mortgage servicing rights are
being amortized on a straight line basis over periods not exceeding 8 years.
Income Taxes
Deferred tax assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets are recognized for future deductible temporary differences.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Net Income Per Share
Net income per share of common stock has been computed on the basis of the
weighted-average number of shares of common stock outstanding. For the year
ended September 30, 1995 earnings per share was computed on earnings from July
7, 1995, the date of the initial public offering, to September 30, 1995.
Note 2 - Debt and Equity Securities
Assets available for sale at September 30, 1997 consisted of the following:
September 30, 1997
_____________________________
Amortized Unrealized Fair
Cost Gains Losses Value
________ _____ ______ ______
U. S. Government and agencies debt securities $13,184 $140 $17 $13,307
Government National Mortgage Association ARM's 5,460 7 7 5,460
______ ___ __ ______
$18,644 $147 $24 $18,767
====== === == ======
26
<PAGE>
At September 30, 1997 securities totaling $2,850 were pledged to secure
municipal jumbo certificates of deposit. GNMA ARM's of $5,460 are also
pledged to secure borrowings from the Federal Home Loan Bank, see Note 9.
Proceeds from the sale of available for sale securities during the year ended
September 30, 1997, totaled $1,399, and there was no gain or loss on these
sales.
Assets available for sale at September 30, 1996 consisted of the following:
September 30, 1996
_____________________________
Amortized Unrealized Fair
Cost Gains Losses Value
________ _____ ______ ______
U. S. Government and agencies debt securities $14,898 $122 $133 $14,887
====== === === ======
Securities to be held to maturity at September 30, 1997 and 1996 consisted of
the following:
September 30, 1997
_____________________________
Amortized Unrealized Fair
Cost Gains Losses Value
________ _____ ______ ______
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation securities $ 588 $31 $-- $ 619
Federal National Mortgage
Association securities 705 6 -- 711
Equity securities:
Federal Home Loan Bank Stock 1,116 -- -- 1,116
______ ___ ___ ______
$2,409 $37 $-- $2,446
====== === === ======
September 30, 1996
_____________________________
Amortized Unrealized Fair
Cost Gains Losses Value
________ _____ ______ ______
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation securities $709 $25 $-- $734
Federal National Mortgage
Association securities 809 -- 5 804
Equity securities:
Federal Home Loan Bank Stock 1,053 -- -- 1,053
______ ___ ___ ______
$2,571 $25 $ 5 $2,591
====== === === ======
The scheduled maturities of securities available for sale and held to
maturity, excluding equity securities, at September 30, 1997 follows.
Mortgage-backed securities are allocated among periods based on date of final
payoff.
Available for sale Held to maturity
__________________ __________________
Amortized Fair Amortized Fair
Cost Value Cost Value
_________ _______ _________ _______
Due in one year or less $ 1,000 $ 999 $ 164 $ 166
Due from one to five years 12,184 12,308 541 545
Due from five to ten years -- -- 455 477
Due after ten years 5,460 5,460 133 142
_________ _______ _________ _______
$18,644 $18,767 $1,293 $1,330
========= ======= ========= =======
27
<PAGE>
Note 3 - Accrued Interest Receivable
Accrued interest at September 30, 1997 and 1996 is summarized as follows:
September 30,
_______________
1997 1996
______ ______
Investment securities available for sale $164 $257
Mortgage-backed securities held to maturity 13 15
Loans receivable 999 935
______ ______
$1,176 $1,207
====== ======
Note 4 - Loans Receivable
Loans receivable at September 30, 1997 and 1996 consist of the following:
September 30,
__________________
1997 1996
________ ________
Real estate loans:
One-to-four family $105,163 $98,031
Multi-family 806 1,503
Nonresidential real estate and land 25,889 19,765
Construction residential 4,916 6,254
Construction commercial 704 1,564
________ ________
Total real estate loans 137,478 127,117
Commercial loans 2,384 3,264
Consumer loans 11,966 10,107
________ ________
Total loans 151,828 140,488
Less: Loans in process 3,241 3,571
Deferred fees and discounts 116 112
________ ________
Net loans $148,471 $136,805
======== ========
Nonaccruing and renegotiated loans at September 30, 1997, 1996, and 1995 were
$0, $68, and $42, respectively. The Company is not committed to lend
additional funds to debtors whose loans have been modified. Interest income
that would have been recorded under the original terms of such loans and the
interest income actually recognized for the periods is as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Contractual interest income $ -- $ 6 $ 7
Interest income recognized -- (2) (3)
______ ______ ______
Interest income foregone $ -- $ 4 $ 4
====== ====== ======
28
<PAGE>
The activity in the allowance for loan losses is summarized as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Balance, beginning of the year $1,145 $1,149 $977
Provisions charged to income -- -- 177
Charge-offs (21) (4) (6)
Recoveries -- -- 1
______ ______ ______
$1,124 $1,145 $1,149
====== ====== ======
Note 5 - Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of those
loans are summarized as follows:
September 30,
_________________________
1997 1996 1995
_______ _______ _______
Federal Home Loan Mortgage Corporation $22,116 $22,500 $23,054
Others 1,246 1,336 1,400
_______ _______ _______
Total $23,362 $23,836 $24,454
======= ======= =======
As a result of the adoption of SFAS No. 122 "Accounting for Mortgage Servicing
Rights" at October 1, 1996, the Company capitalized a total of $30 in
originated mortgage servicing rights, during the year ended September 30, 1997
and amortized $2 of these rights.
Note 6 - Foreclosed Real Estate Held for Sale
Foreclosed real estate and related allowances at September 30, 1997 and 1996
consisted of the following:
September 30,
_____________
1997 1996
_____ _____
Balance, beginning of the period $72 $754
Additions to foreclosed real estate 307 165
Sales of foreclosed real estate (252) (93)
Transfer to real estate held for investment -- (754)
_____ _____
Balance, end of the period $ 127 $ 72
===== =====
Allowance for loss:
Balance, beginning of the period $ -- $(434)
Provisions charged to income -- --
Charge-offs -- 434
_____ _____
Balance, end of the period $ -- $ --
===== =====
Net foreclosed real estate $ 127 $ 72
===== =====
29
<PAGE>
Note 7 - Premises and Equipment
Premises and equipment at September 30, 1997 and 1996 consisted of the
following:
September 30,
______________
1997 1996
______ ______
Land $ 643 $ 734
Office buildings and improvements 2,428 1,996
Furniture and equipment 500 400
______ ______
3,571 3,130
Less accumulated depreciation (1,189) (1,116)
______ ______
Premises and equipment, net of accumulated depreciation $2,382 $2,014
====== ======
Depreciation expense was $94, $ 81, and $ 81 for the years ended September 30,
1997, 1996, and 1995, respectively.
Note 8 - Deposits
The major types of saving deposits by weighted interest rates, amounts, and
the percentages of such types are as follows:
September 30, 1997 September 30, 1996
______________________ ______________________
Weighted Weighted
Interest Interest
Rate Amount % Rate Amount %
________ ________ ____ ________ ________ ____
Noninterest bearing deposits 0% $ 1,360 1% 0% $ 1,204 1%
NOW accounts 2.25% 3,043 2% 2.25% 2,687 2%
Super NOW accounts 2.50% 2,219 2% 2.50% 2,411 2%
Money market and passbook 3.25% 12,757 9% 3.25% 13,984 11%
________ ____ ________ ____
19,379 14% 20,286 15%
Certificates of deposits 5.50% 123,828 86% 5.47% 112,785 85%
________ ____ ________ ____
Totals $143,207 100% $133,071 100%
======== ==== ======== ====
A summary of certificates of deposit by maturity is as follows:
September 30,
__________________
1997 1996
________ ________
Within one year $ 89,328 $ 80,867
One to two years 15,534 16,515
Two to three years 11,603 8,430
Four to five years 4,137 2,991
Thereafter 3,226 3,982
________ ________
$123,828 $112,785
======== ========
30
<PAGE>
At September 30, 1997, 1996, and 1995, respectively, interest expense on
deposits for the indicated period is summarized as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Money market $ 262 $ 262 $ 299
Passbook savings 173 168 210
Now 124 123 118
Certificates of deposit 6,376 5,919 5,412
______ ______ ______
$6,935 $6,472 $6,039
====== ====== ======
The aggregate amount of deposits with a minimum denomination of $100 was
$23,365 at September 30, 1997 and $16,061 at September 30, 1996. Deposits in
excess of $100 are not covered by federal deposit insurance.
Note 9 - Borrowed Funds
The Company has an outstanding obligation for the financing of land purchased
for a new branch office building site. The outstanding balance at September
30, 1997 was $22 and at September 30, 1996 was $43. The note is payable in
annual installments of $24, at a 6.5% interest rate.
At September 30, 1996, the Company had a short term loan outstanding secured
by common stock of the Association in the amount of $475. The loan matured
and was paid in full on October 23, 1996. The loan bore interest at 8.25%.
During the year ended September 30,1996, the Company entered into sales of
securities under agreements to repurchase (the Agreements), which were treated
as financings. The obligation to repurchase securities sold was reflected as
a liability in the consolidated statements of financial condition. The dollar
amount of securities underlying the Agreements were delivered to the broker
who arranged the transaction. The Agreements called for the repurchase of
the identical securities. All Agreements were settled prior to October 31,
1996. The maximum amount outstanding at any month-end during fiscal year 1996
was $2,340. The average monthly amount outstanding during 1996 was $195. At
September 30, 1996, the asset carrying value was $2,399, the asset market
value was $2,382, the loan amount was $2,340, and the loan rate was 5.58%
During the year ended September 30, 1997, the company obtained short term
advances from the Federal Home Loan Bank. The advances are under the terms
of its collateral agreement with the FHLB. GNMA securities carried as
available for sale, with a market value of $5,460, are the primary collateral
for these advances. The Company also has a blanket security agreement
pledging first mortgage loans to secure the loans. At September 30, 1997
the Company owed the FHLB $4,967. The advances are renewed every thirty days,
bear interest at 5.54%, and the next maturity is October 27, 1997.
Note 10 - Federal and State Income Taxes
The Company and the Association file federal and state income tax returns on
a fiscal year basis. For purposes of computing federal income tax, if certain
conditions were met in determining taxable income, the Association was allowed
a special bad debt deduction of 8% of taxable income or a specified amount
based on experience formulas. The Association used the percentage method for
the periods ended September 30, 1996, and 1995. As a result of the use of the
percentage method in prior years, retained earnings include approximately
$2,502 and $2,386 at September 30, 1997 and 1996, respectively, for which no
deferred income tax liability has been recognized. These amounts represent an
allocation of income to bad debt deductions for tax purposes only.
31
<PAGE>
Reduction of amounts so allocated for purposes other than tax bad debt losses
or adjustments arising from carryback of net operating losses would create
income for tax purposes only, which would be subject to the then current
corporate income tax rate. The unrecorded deferred income tax liability on
the above amounts was approximately $851 at September 30, 1997 and $811 at
September 30, 1996.
In August 1996, the "Small Business Job Protection Act" was signed into law.
This act repealed the percentage method of computing the bad debt deduction
for tax years beginning after December 31, 1995, and in certain circumstances
requires the repayment of bad debt deductions previously taken. As long as the
Company's subsidiary continues to qualify as a thrift or a bank no repayment
of the tax on prior bad debt deductions will be required for federal tax
purposes. The state of Arkansas repealed the deduction effective for years
beginning after January 1, 1997. The Company will have to repay tax on
approximately $1,523 of bad debt deductions for state tax purposes. The
Company has made provision for this tax in the current and prior financial
statements and expects this repayment to have no effect on income.
Income tax expense for the years indicated consisted of the following:
September 30,
______________________
1997 1996 1995
______ ______ ______
Current:
Federal $1,142 $1,380 $1,086
State 207 198 183
______ ______ ______
1,349 1,578 1,269
______ ______ ______
Deferred:
Federal 317 (289) 22
State 36 (7) 21
______ ______ ______
353 (296) 43
______ ______ ______
Total provisions $1,702 $1,282 $1,312
====== ====== ======
A reconciliation of tax expense computed by applying the statutory corporate
tax rate to earnings before taxes and the tax expense shown in the
accompanying statements of operations is as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Effective federal and state statutory rates 38.3% 38.3% 38.3%
______ ______ ______
Expected tax at statutory rates $1,756 $1,411 $1,269
Adjustments to expected tax:
Bad debt deductions -- (136) 67
Interest not taxable for state (30) (39) (20)
Employee benefit plan differences (22) 27 --
Other (2) 19 (4)
______ ______ ______
$1,702 $1,282 $1,312
====== ====== ======
Effective tax rates 37.1% 34.8% 39.6%
====== ====== ======
32
<PAGE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Deferred tax assets:
Deferred loan fees $ 40 $ 40 $ 42
Special one time SAIF assessment -- 284 --
State deferred income tax 58 46 47
Employee benefit plans 89 68 10
Other -- 6 3
______ ______ ______
Deferred tax assets 187 444 102
______ ______ ______
Deferred tax liabilities:
Fixed assets (430) (442) (418)
Federal Home Loan Bank stock (176) (150) (125)
State bad debt reserves (94) (63) (68)
Other (53) (2) --
______ ______ ______
Deferred tax liabilities (753) (657) (611)
______ ______ ______
Net deferred tax liabilities $(566) $(213) $(509)
====== ====== ======
Note 11 - Commitments and Contingencies
The Company is subject to a number of asserted and unasserted potential claims
encountered in the normal course of business. In the opinion of management
and legal counsel, the resolution of these claims will not have a material
adverse effect on the Company's financial position, liquidity, or results of
operation.
As of September 30, 1997 the company is committed to the funding of
approximately $6,979 of loans. The Company had off balance sheet financial
instruments representing credit risk in the form of lines of credit in the
amount of $427 at September 30, 1997 and $506 at September 30, 1996.
Note 12 - Dividends
During the year ended September 30, 1996, the Company received a private
letter ruling from the IRS addressing the tax implications of dividends paid
during that year. The private letter ruling stated that dividends from the
Company were not taxable to the recipient to the extent they exceeded earnings
and profits. During the year the Company paid total dividends of three
dollars and forty-five cents per share or $6,475. Of this amount $326 was
determined to be a payment from accumulated earnings and $6,149 was
determined to be a return of capital to the shareholders.
Note 13 - Employee Benefit Plans
The Association has a contributory defined contribution pension plan for all
eligible employees. Retirement benefits under this form of pension plan are
limited to the value of each participant's account at the time of retirement;
therefore, vested benefits will not exceed the value of the participant's
account at any time. The cost of the plan for the periods ended September 30,
1997 and 1996, was approximately $5 and $5, respectively.
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<PAGE>
In connection with the Conversion, as discussed in Note 1, the Company
established the ESOP for the benefit of eligible employees. The Company
purchased 138,862 shares of common stock on behalf of the ESOP in the
Conversion. In December 1996, the Company purchased an additional 26,730
shares with the proceeds from dividends on the unallocated ESOP shares. As of
September 30, 1997, 12,420 shares were committed to be released and 23,504
shares have been allocated to participants. The fair value of the 129,668
unearned ESOP shares was $3,079 at September 30, 1997.
The Company accounts for its ESOP in accordance with Statement of Position
93-6, "Employers' Accounting For Employee Stock Ownership Plans", which
requires the Company to recognize compensation expense equal to the fair value
of the ESOP shares during the periods in which they become committed to be
released. To the extent that the fair value of ESOP shares differs from the
cost of such shares, this differential will be charged or credited to equity.
Management expects the recorded amount of expense to fluctuate as continuing
adjustments are made to reflect changes in the fair value of the ESOP shares.
The Company recorded compensation related to the ESOP of $311 for the year
ended September 30, 1997 and $206 for the year ended September 30, 1996. ESOP
shares are considered outstanding as they are committed to be released for
purposes of computing earnings per share
On December 27, 1995, the Board approved an Employee Stock Program, Management
Recognition Plans (MRP) for officers and directors, and a Directors Stock
Option Plan subject to the approval of the stockholders. The shareholders
approved these plans at the January 1996 shareholders meeting. The purpose of
these plans is to retain personnel of experience and ability by providing
employees and non-employee directors with compensation for their past services
and as an incentive for such services in the future.
As of September 30, 1997 the Company has acquired 65,135 shares of its common
stock on behalf of the MRP through open market purchases. An aggregate of
65,135 shares have been awarded to the Company's Board of Directors and
officers as of September 30, 1997, subject to vesting and other provisions of
the MRP. At September 30, 1997 the deferred cost of unearned MRP shares
totaled $808 and is recorded as a charge against stockholders' equity.
Compensation expense will be recognized ratably over the five year vesting
period only for those shares awarded. The Company recorded compensation and
employee benefit expense related to the MRP of $193 for the year ended
September 30, 1997 and $89 for the year ended September 30, 1996.
Common stock totaling 39,676 shares has been reserved for issuance for the
Directors Stock Option Plan. During the year ended September 30, 1997, 3,968
options were granted and are exercisable by the Bank's non-employee
directors, subject to vesting and other provisions of the Option Plan. The
exercise price per share for the options granted in fiscal 1997 is fifteen
dollars twelve and one half cents. During the year ended September 30, 1996,
35,708 options were granted and are exercisable by the Bank's non-employee
directors, subject to vesting and other provisions of the Option Plan. The
exercise price per share for the options granted in fiscal 1996 is fourteen
dollars and twenty-five cents.
Common stock totaling 138,188 shares, net of forfeitures, has been granted to
the Company's key employees. During the year ended September 30, 1997, 12,000
options were granted and are exercisable by the Company's key employees,
subject to vesting and other provisions of the Employee Stock Program. The
exercise price per share for the options granted in fiscal 1997 is twenty one
dollars and twenty five cents per share. During the year ended September 30,
1996, 126,188 options, net of forfeitures, were granted and are exercisable by
the Company's key employees, subject to vesting and other provisions of the
Employee Stock Program. The exercise price per share for the options granted
in fiscal 1996 is thirteen dollars and seventy-five cents.
34
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation" (SFAS 123). This statement encourages, but does not require,
the adoption of fair value accounting for stock based compensation to
employees. The Company, as permitted, has elected not to adopt the fair value
accounting provisions of SFAS 123, and has instead continued to apply APB
Opinion 25 and related Interpretations in accounting for plans and provide the
required proforma disclosures of SFAS 123. Had the grant date fair value
provisions been adopted, for the year ended September 30, 1997, additional
compensation of $137 would have been recognized, net income would have been
$2,747, and primary earnings per share would have been $1.60. For the year
ended September 30, 1996, the Company would have recognized additional
compensation of $22, net income would have been $2,379, and primary earnings
per share would have been $1.30.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, dividend yields of 3.00%, expected
volatility of 60% and 64%, risk free interest rates of 6.51% and 6.04%, and
expected lives of 7 and 8 years. The following weighted-average assumptions
were used for grants in 1996, dividend yields of 3.00%, expected volatility of
65% and 70%, risk free interest rate of 5.57% and 6.86%, and expected lives
of 7 and 8 years. A summary of the status of the Company's two fixed stock
option plans as of September 30, 1997, 1996, and 1995 and changes during the
years then ended is as follows:
September 30,
____________________________________________________
1997 1996 1995
________________ ________________ ________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
_______ ________ _______ ________ _______ ________
Outstanding
beginning of year 163,896 $13.859 -- $ -- -- $ --
Granted 15,968 19.728 163,896 13.859 -- --
Exercised -- -- -- -- -- --
Forfeited (2,000) 13.750 -- -- -- --
_______ _______ _______
Outstanding end of year 177,864 $14.387 163,896 $13.859 -- $ --
======= ======= =======
Options exercisable
at year end 27,084
Weighted average fair
value of options granted
during the year $ 5.36 $ 4.10
Shares outstanding at September 30, 1997 and the contractual life of those
shares is as follows:
Remaining
Number Contractual
Exercise Prices Outstanding Life
___________ ___________
$13.75 126,188 9.0
$14.25 35,708 8.3
$15.125 3,968 9.3
$21.25 12,000 9.8
___________ ___________
Total shares and weighted average
contractual life 177,864 8.9
=========== ===========
35
<PAGE>
Note 14 - Regulatory Matters
The plan of Conversion described in Note 1 provides for the establishment of a
special liquidation account for the benefit of eligible account holders and
the supplemental eligible account holders in an amount equal to the net worth
of the Association as of the date of its latest statement of financial
condition contained in the final offering circular used in connection with the
conversion. The liquidation account will be maintained for the benefit of
eligible account holders and supplemental eligible account holders who
continue to maintain their accounts at the Association after the conversion.
The liquidation account will be reduced from time to time to the extent that
qualifying account balances are reduced. In the event of a complete
liquidation, each eligible and supplemental eligible account holder will be
entitled to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held. The Company may not declare or pay cash dividends on its shares of
common stock if the effect thereof would cause the Company's stockholders'
equity to be reduced below applicable regulatory capital maintenance
requirements for insured institutions or below the special liquidation account
referred to above.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must met
specific capital guidelines that involve quantitative measures of the
Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined in the regulations), and of Tier I capital
(as defined in the regulations) to average assets (as defined in the
regulations). Management believes, as of December 31, 1997, that the Company
meets all capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Company must maintain minimum total risk-based, Tier I risk-based, Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institutions
category.
Tangible, core, and tier I capital are computed as a percentage of adjusted
total assets of $178,587 and risk based capital is computed as a percent of
total risk weighted assets of $108,657, for the year ended September 30, 1997
in the following table. Tangible, core, and tier I capital are computed as a
percentage of adjusted total assets of $165,755 and risk based capital is
computed as a percent of total risk weighted assets of $97,930, for the year
ended September 30, 1996 in the following table.
36
<PAGE>
The following sets forth the Company's compliance with each of the regulatory
capital requirements as of September 30, 1997, and 1996.
As of September 30, 1997: Risked
Tangible Core Tier I Based
Capital Capital Capital Capital
_______ _______ _______ _______
Total regulatory capital $27,299 $27,299 $27,299 $28,055
Minimum required regulatory capital 2,679 5,358 7,143 8,693
_______ _______ _______ _______
Excess regulatory capital $24,620 $21,941 $20,156 $19,362
======= ======= ======= =======
Requlatory capital as a percentage of assets 15.29% 15.29% 15.29% 25.82%
Minimum capital required
as a percentage of assets 1.50% 3.00% 4.00% 8.00%
_______ _______ _______ _______
Excess regulatory capital
as a percent of assets 13.79% 12.29% 11.29% 17.82%
======= ======= ======= =======
As of September 30, 1996: Risked
Tangible Core Tier I Based
Capital Capital Capital Capital
_______ _______ _______ _______
Total regulatory capital $26,432 $26,432 $26,432 $27,206
Minimum required regulatory capital 2,486 4,973 6,630 7,834
_______ _______ _______ _______
Excess regulatory capital $23,946 $21,459 $19,802 $19,372
======= ======= ======= =======
Requlatory capital as a percent of assets 15.95% 15.95% 15.95% 27.78%
Minimum capital required
as a percent of assets 1.50% 3.00% 4.00% 8.00%
_______ _______ _______ _______
Excess regulatory capital
as a percent of assets 14.45% 12.95% 11.95% 19.78%
======= ======= ======= =======
Note 15 - SFAS No. 128, "Earnings Per Share"
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15 "Earnings Per
Share", and makes them comparable to international EPS standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and the denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior period EPS data
presented. The Company has not yet determined the effect, if any, the
adoption of this statement will have on its EPS disclosure.
37
<PAGE>
Note 16 - Other Noninterest Income and Expense
Other noninterest income and expense amounts are summarized as follows:
September 30,
______________________
1997 1996 1995
______ ______ ______
Other noninterest income:
Service charges on deposits $156 $123 $114
Other service charges and fees 95 88 71
Service fees on loans sold 83 85 86
Other 114 103 36
______ ______ ______
448 399 307
====== ====== ======
Other noninterest expense:
Data processing charges 108 112 107
Advertising 67 54 55
Professional fees 76 116 37
OTS assessments 48 51 43
Stationary, printing, postage, and telephone 84 79 70
Insurance and bond premiums 43 42 43
Other 94 95 65
______ ______ ______
$520 $549 $420
====== ====== ======
Note 17 - Recent Legislation
In September 1996, the Omnibus Appropriations Act was signed into law. This
legislation authorized a one time charge of SAIF-insured institutions in the
amount of .657 dollars for every one hundred dollars of assessable deposits,
and an eventual merger of the SAIF and Bank Insurance Fund (BIF). The Company
included in expense $835 in the year ended September 30, 1996, related to this
legislation.
Note 18 - Related Party Transactions
The Company had a total of $425 and $457 at September 30, 1997 and 1996,
respectively, in direct loans to officers and directors. New loans totaled
$180 and $99, and repayments totaled $212 and $101 for the years ended
September 30, 1997 and 1996, respectively. The Company purchases a major
portion of its insurance coverage from a company partially owned by two Board
Members. The Company paid $41, $56, and $43 for such coverage, during the
years ended September 30, 1997, 1996 and 1995, respectively. The Company paid
$72, $72, and $60 to directors for director's fees during the years ended
September 30, 1997, 1996, and 1995 respectively.
Note 19 - Significant Group Concentrations of Credit Risk
Most of the Company's business activity is with customers located in the
Northeast Texas and Southwest Arkansas area. Loans to this group are
primarily to individual home owners and are secured by one to four family
dwellings. The Company's largest loans to one borrower and entities related to
such borrower amounted to $3,593 at September 30, 1997. This portfolio is
collateralized by commercial real estate and commercial business assets. The
Company has loans outside its normal lending area to three different borrowers
in Ft. Worth, Texas in the total amount of $2,736 and $2,919 at September 30,
1997 and 1996, respectively. This portfolio is secured by three commercial
properties.
38
<PAGE>
The Company's policy for requiring collateral on single family dwellings is
that the loan not exceed 95% of collateral value. In some cases, however,
with board approval, 100% of collateral value may be loaned. For commercial
and multi-family dwellings, 85% of loan to collateral value is required. For
loans on building sites, 80% of loan to collateral value is required. For
loans on undeveloped land, 65% of loan to collateral value is required.
The Company sells federal funds to other institutions to maximize interest
earned on idle cash. Federal funds sold are unsecured loans to the purchasing
institution. In the case of an insolvency, the Company would be at risk for
federal funds sold to the insolvent institution. Federal funds sold totaled
$1,575 and $5,550 at September 30, 1997 and 1996, respectively.
Note 20 - Derivative Financial Instruments
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. To the extent they are considered
derivatives the Company invests in mortgage backed securities. These mortgage
backed securities are purchased with government agencies guarantees from GNMA
and or FREDDIE MAC to reduce credit risk. The Company incurs interest rate
risk to the extent instruments, purchased at a premium, prepay because of
prepayment of the underlying obligations.
Note 21 - Fair Value of Financial Instruments
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. The fair values
may not represent actual values of the financial instruments that could have
been realized as of year end or that will be realized in the future.
Cash and Cash Equivalents - For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investments and Mortgage-related Securities - The fair value of longer term
investments and mortgage-related securities is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The carrying amounts of stocks with no stated maturity approximate
fair value because shares may be redeemed at par.
Loans - The fair value of performing loans is calculated by discounting
expected cash flows using an estimated market discount rate for similar loans
that would be made to borrowers with similar credit history and maturities.
The fair value for nonaccrual loans was derived through a discounted cash flow
analysis, which includes the opportunity costs of carrying a nonperforming
asset. Estimated discount rates were based on the probability of loss and the
expected time to recovery. Loans with a higher probability of loss were
assigned higher risk premiums and were discounted over long periods of time,
resulting in lower values.
Accrued Interest Receivable - For accrued interest receivable, the carrying
amount is a reasonable estimate of fair value.
39
<PAGE>
Deposit Liabilities - The fair value of deposits with no stated maturity, such
as noninterest-bearing deposits, savings and NOW accounts, and money market
and checking accounts is equal to the amount payable upon demand as of
September 30, 1997 and 1996. The fair value of certificates of deposit is
based on the present value of contractual cash flows. The discount rate used
to compute present values are estimated using the rates currently offered for
deposits of similar maturities in the Company's marketplace.
Borrowed Money - Due to the short term maturity of the loans, the carrying
amount is a reasonable estimate of the fair value.
Commitments to Extend Credit - The Company does not normally charge fees for
commitments to extend credit. Interest rates on commitments to extend credit
are normally committed for periods of less than one month. The Company does
not normally issue standby letters of credit or other financial guarantees.
Outstanding loan commitments and the unused portion of loans in progress
totaled $6,979 and $6,373 at September 30, 1997 and 1996, respectively.
Unused lines of credit totaled $427 and $506 at September 30, 1997 and 1996,
respectively. It is impractical to assign any fair value to these
commitments.
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
September 30, 1997 September 30, 1996
__________________ __________________
Carrying Fair Carrying Fair
Amount Value Amount Value
________ ________ ________ ________
Financial assets:
Cash and cash equivalents $ 6,053 $ 6,053 $ 8,860 $ 8,860
Assets available for sale 18,767 18,767 14,887 14,887
Investments and mortgage
backed securities 2,409 2,446 2,571 2,591
Loans receivable, net 148,471 151,832 136,805 138,590
Accrued interest 1,176 1,176 1,207 1,207
________ ________ ________ ________
Total Financial Assets $176,876 $180,274 $164,330 $166,135
======== ======== ======== ========
Financial liabilities:
Deposits $143,207 $142,996 $133,071 $132,803
Borrowed money 4,989 4,989 2,858 2,858
________ ________ ________ ________
Total Financial Liabilities $148,196 $147,985 $135,929 $135,661
======== ======== ======== ========
40
<PAGE>
Note 22 - Parent Company Only Financial Information
Condensed financial statements of Texarkana First Financial Corporation
(parent company) are shown below. The parent company has no significant
operating activities.
Condensed Statements of Financial Condition:
For the years ended September 30, 1997 and 1996: 1997 1996
_______ _______
Assets
Cash $152 $49
Investment securities available for sale -- 2,382
Accrued interest receivable -- 37
Dividends receivable 500 --
Federal and state income tax receivable 208 42
Investment in subsidiary 26,878 27,035
_______ _______
Total assets $27,738 $29,545
======= =======
Liabilities
Borrowed funds $ -- $ 2,815
Accrued expenses and other liabilities 358 306
_______ _______
Total liabilities 358 3,121
_______ _______
Stockholders' equity
Common stock 20 20
Additional paid-in capital 13,485 13,052
Common stock acquired by employee benefit plans (2,208) (2,147)
Treasury stock (3,103) (1,567)
Unrealized gain (loss) on available for sale securities 81 (8)
Retained earnings 19,105 17,074
_______ _______
Total stockholders' equity 27,380 26,424
_______ _______
Total liabilities and stockholders' equity $27,738 $29,545
======= =======
Condensed Statements of Operations:
For the years ended September 30, 1997 and 1996 and
for the period from July 7, 1995 to September 30, 1995: 1997 1996 1995
______ ______ ______
Income:
Income before equity in undistributed
earnings of subsidiary $ 113 $ 473 $ 127
Dividends from subsidiary 3,500 -- --
Equity in undistributed income of subsidiary (337) 2,410 649
______ ______ ______
Total income 3,276 2,883 776
______ ______ ______
Expenses:
Compensation and employee benefits 320 89 --
Management fees 221 276 --
Professional fees 20 76 --
Income tax (201) (1) 43
Other 32 42 --
______ ______ ______
Total expense 392 482 43
______ ______ ______
Net income $2,884 $2,401 $ 733
====== ====== ======
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<PAGE>
Condensed Statements of Cash Flow:
For the year ended September 30, 1997 and 1996 and for
the period from July 7, 1995 to September 30, 1995: 1997 1996 1995
______ ______ ______
Operating activities:
Interest income $ 151 $ 443 $ 100
Dividends from subsidiary 3,000 -- --
Miscellaneous income -- 4 --
Cash paid to suppliers and employees (362) (390) --
Interest paid (10) -- --
Income tax paid -- (78) --
______ ______ ______
Net cash provided by (used in)
operating activities 2,779 (21) 100
______ ______ ______
Investing activities:
Purchase of subsidiary common stock -- -- (9,572)
Purchase of assets available for sale -- (1,997) (1,772)
Proceeds from sale of assets available for sale 2,399 1,387 --
Collection of ESOP loan principal 139 92 24
______ ______ ______
Net cash provided by (used in)
investing activities 2,538 (518)(11,320)
______ ______ ______
Financing activities:
Sale of common stock in conversion,
net of conversion costs -- -- 19,144
Purchase of common stock for ESOP plan -- -- (1,388)
Purchase of common stock for employee benefit plans (59) (933) --
Purchase of treasury shares (1,536) (1,567) --
Funds borrowed 4,435 2,815 --
Borrowed funds repaid (7,250) -- --
Dividend and return of capital distributions (804) (6,263) --
______ ______ ______
Net cash provided by (used in)
financing activities (5,214) (5,948) 17,756
______ ______ ______
Net change during the period 103 (6,487) 6,536
Cash and cash equivalents at the
beginning of the period 49 6,536 --
______ ______ ______
Cash and cash equivalents at the end of the period $ 152 $ 49 $6,536
====== ====== ======
Reconciliation of net income to net cash
provided by operating activities:
Net income $2,884 $2,401 $ 733
Undistributed earnings of subsidiary -- (2,410) (649)
Excess distributions from subsidiary 337 -- --
Amortization of discounts and premiums -- (16) (3)
Amortization of employee benefit plans 199 89 --
Loss on sale of securities -- 3 --
Increase in dividends receivable from subsidiary (500) -- --
Increase (decrease) in income tax payable (173) (85) --
Increase (decrease) in other receivables and payables 32 (3) 19
______ ______ ______
Net cash provided by(used in) operating activities $2,779 $ (21) $ 100
====== ====== ======
42
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS EXECUTIVE OFFICERS
John M. Andres James W. McKinney
Managing Partner Chairman of the Board and
Thomas & Thomas Chief Executive Officer
John E. Harrison Donald N. Morriss
President, and Vice Chairman of the Board
Chief Operating Officer
Arthur L. McElmurry John E. Harrison
Retired CEO President, and
Wadley Regional Medical Center Chief Operating Officer
James W. McKinney Travis L. Mauldin
Chairman of the Board and Executive Vice President
Chief Executive Officer
Donald N. Morriss James L. Sangalli
Chairman and President Chief Financial Officer
Offenhauser & Co., Inc.
Josh R. Morriss, Jr.
Retired Chairman
Offenhauser & Co., Inc.
BANKING LOCATIONS
Main Office
Third & Olive Streets
Texarkana, Arkansas 71854
Branch Offices
611 East Wood Street 1011 W. Collin Raye Drive
Ashdown, Arkansas 71822 DeQueen, Arkansas 71832
6th & S. Main 111 W. Shepherd
Hope, Arkansas 71801 Nashville, Arkansas 71852
43
<PAGE>
STOCKHOLDER INFORMATION
TRANSFER AGENT/REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
(800)866-1340
INDEPENDENT AUDITORS
Wilf & Henderson, P.C.
1430 College Drive
P.O. Box 5197
Texarkana, Texas 75505
SPECIAL LEGAL COUNSEL
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., Suite 1200
Washington, D.C. 20005
STOCKHOLDER REQUESTS
Stockholders may request, without charge, a copy of the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission
by writing:
Debbie Rose, Secretary
Texarkana First Financial Corporation
P.O. Box 2950
Texarkana, Arkansas 75505
Stockholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Registrar and
Transfer Company.
MARKET LISTING
Shares of the Company's common stock are listed and traded on the American
Stock Exchange under the name of Texarkana, symbol "FTF". At September 30,
1997, the Company had approximately 436 stockholders of record. Such
holdings do not reflect the number of beneficial owners of common stock.
44
<PAGE>
