UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-13842
Texarkana First Financial Corporation
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 71-0771419
_________________________________ ________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3rd & Olive Streets
Texarkana, Arkansas 71854
_________________________________________ ________________________
(Address of principal executive office) (Zip Code)
(870) 773-1103
_______________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of
March 31, 1999, there were issued and outstanding 1,588,592 shares of the
Registrant's Common Stock, par value $0.01 per share.
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TEXARKANA FIRST FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Financial Condition as of
March 31, 1999 (unaudited) and September 30, 1998 1
Consolidated Statements of Income for the three and
six months ended March 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Cash Flows for the six months
ended March 31, 1999 and 1998 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Unaudited
March 31, September 30,
1999 1998
ASSETS
Cash and cash equivalents
Cash & due from banks........................... $ 2,142 $ 2,341
Interest bearing deposits in other banks........ 93 249
Federal funds sold.............................. 735 45
________ ________
Total cash and cash equivalents.............. 2,970 2,635
Investment securities available-for-sale........... 28,852 25,651
Mortgage-backed securities held-to-maturity........ 663 849
Federal Home Loan Bank stock....................... 1,219 1,185
Loans receivable, net of unearned income........... 155,306 155,781
Allowance for loan losses.......................... (1,002) (1,003)
Accrued interest receivable........................ 1,273 1,331
Foreclosed real estate, net........................ 36 56
Premises and equipment, net........................ 2,414 2,387
Other assets....................................... 675 579
________ ________
Total assets.................................... $192,406 $189,451
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................... $153,421 $151,955
Advances from borrowers for taxes & insurance...... 1,203 2,070
Borrowed funds..................................... 10,000 6,600
Accrued federal income tax......................... 360 330
Accrued state income tax........................... 150 194
Accrued expenses and other liabilities............. 631 886
________ ________
Total liabilities............................... 165,765 162,035
________ ________
Commitments and contingencies...................... - - - -
________ ________
Common stock, $0.01 par value;
15,000,000 shares authorized;
1,983,750 shares issued......................... 20 20
Additional paid-in capital......................... 13,683 13,627
Common stock acquired by stock benefit plans....... (1,553) (1,831)
Treasury stock, at cost, 395,158 shares and
307,758 shares September 30, 1998............... (8,027) (5,996)
Retained earnings-substantially restricted......... 22,571 21,469
Accumulated other comprehensive income............. (53) 127
________ ________
Total stockholders' equity................... 26,641 27,416
________ ________
Total liabilities and stockholders' equity... $192,406 $189,451
======== ========
The accompanying notes are an integral part of this statement.
Page 1
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TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended Ended
March 31, March 31,
1999 1998 1999 1998
Interest Income
Loans
First mortgage loans...................... $2,833 $2,838 $5,756 $5,672
Consumer and other loans.................. 356 335 721 665
Investment securities........................ 367 322 700 623
Mortgage-backed and related securities....... 103 146 224 275
______ ______ ______ ______
Total Interest Income..................... 3,659 3,641 7,401 7,235
______ ______ ______ ______
Interest Expense
Deposits..................................... 1,860 1,841 3,783 3,678
Borrowed funds............................... 107 89 223 175
______ ______ ______ ______
Total Interest Expense.................... 1,967 1,930 4,006 3,853
______ ______ ______ ______
Net Interest Income....................... 1,692 1,711 3,395 3,382
Provision for loan losses.................... - - - - - - - -
______ ______ ______ ______
Net Interest Income After Provision....... 1,692 1,711 3,395 3,382
______ ______ ______ ______
Noninterest Income
Gain on sale of investments, net............. - - - - 10 - -
Gain on sale of loans, net................... 37 91 111 165
Loan origination and commitment fees......... 97 106 215 192
Other........................................ 142 128 280 224
______ ______ ______ ______
Total Noninterest Income.................. 276 325 616 581
______ ______ ______ ______
Noninterest Expense
Compensation and benefits.................... 540 535 1,092 1,046
Occupancy and equipment...................... 58 51 114 105
SAIF deposit insurance premium............... 23 23 45 45
Other........................................ 150 142 283 286
______ ______ ______ ______
Total Noninterest Expense................. 771 751 1,534 1,482
______ ______ ______ ______
Income Before Income Taxes...................... 1,197 1,285 2,477 2,481
Income tax expense.............................. 405 477 864 917
______ ______ ______ ______
Net Income...................................... $ 792 $ 808 $1,613 $1,564
====== ====== ====== ======
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities......... (92) (14) (174) (3)
Reclassification of gain
included in net income.................... - - - - (6) - -
______ ______ ______ ______
Comprehensive income............................ $ 700 $ 794 $1,433 $1,561
====== ====== ====== ======
Earnings per common share - basic............ $0.523 $0.494 $1.060 $0.953
Earnings per common share - diluted.......... $0.502 $0.470 $1.016 $0.909
Weighted average shares - basic.............. 1,512 1,634 1,522 1,640
Weighted average shares - diluted............ 1,578 1,717 1,588 1,720
The accompanying notes are an integral part of this statement.
Page 2
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TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months
Ended March 31,
1999 1998
Cash Flows From Operating Activities:
Interest and dividends received.......................... $7,439 $7,177
Miscellaneous income received............................ 604 576
Interest paid............................................ (1,407) (1,385)
Cash paid to suppliers and employees..................... (1,564) (1,230)
Cash from loans sold..................................... 7,028 7,890
Cash paid for loans originated to sell................... (6,753) (5,165)
Income taxes paid........................................ (877) (866)
______ ______
Net Cash Provided By Operating Activities............. 4,470 6,997
______ ______
Cash Flows From Investing Activities:
Proceeds from call and maturity of investment securities. 5,600 8,605
Proceeds from sale of securities available for sale...... - - - -
Purchases of investment securities available for sale....(10,370) (10,146)
Purchases of mortgage-backed securities.................. - - (2,841)
Collection of principal on mortgage-backed securities.... 1,472 899
Purchase of fixed assets................................. (81) (102)
Net (increase) decrease in loans......................... 531 (2,229)
Cash paid for REO held for resale........................ (9) (17)
Proceeds from sale of REO and other REO recoveries....... 1 64
______ ______
Net Cash Provided (Used) By Investing Activities...... (2,856) (5,767)
______ ______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit.......... (1,116) 2,668
Net increase (decrease) in escrow funds.................. (866) (793)
Net increase (decrease) in funds borrowed................ 3,400 1,033
Purchase of treasury stock............................... (2,218) (730)
Stock options exercised.................................. 48 8
Cash dividends paid on common stock...................... (527) (497)
______ ______
Net Cash (Used) By Financing Activities............... (1,279) 1,689
______ ______
Net Increase (Decrease) In Cash and Cash Equivalents.. 335 2,919
______ ______
Cash and Cash Equivalents, beginning of period.............. 2,635 6,053
______ ______
Cash and Cash Equivalents, end of period.................... $2,970 $8,972
====== ======
The accompanying notes are an integral part of this statement.
Page 3
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TEXARKANA FIRST FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
Six Months
Ended March 31,
1999 1998
Reconciliation of net income to cash provided
by operating activities:
Net income.................................................. $1,613 $1,564
______ ______
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation............................................. 54 52
Amortization of discounts and premiums................... 35 15
Amortization of deferred loan fees....................... (19) (20)
Amortization of common stock acquired by benefit plans... 274 300
(Gain) loss on sales of real estate owned................ (12) 5
(Gain) loss on sales of securities available for sale.... (10) - -
Interest expense credited to saving accounts............. 2,581 2,502
Dividend and interest income added to investments........ (60) (58)
Loan fees deferred....................................... 24 22
Changes in assets and liabilities:
(Increase) decrease in interest receivable............... 57 (20)
Increase (decrease) in accrued interest payable.......... 18 (34)
Increase (decrease) in income tax payable................ (13) 51
Net increase (decrease) in other receivables and payables (72) 2,618
______ ______
Total adjustments..................................... 2,857 5,433
______ ______
Net cash provided by operations............................. $4,470 $6,997
====== ======
Supplemental schedule of noncash investing
and financing activities:
FHLB stock dividends not redeemed..................... $ 33 $ 34
Acquisition of real estate in settlement of loans..... 40 70
Loans made to finance sale of REO..................... 79 76
Page 4
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TEXARKANA FIRST FINANCIAL CORPORATION
Notes to Unaudited Consolidated Financial Statements
Basis of Presentation
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 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. Prior to the Conversion, the Company had
no material assets or liabilities and engaged in no business activity.
Subsequent to the acquisition of the Association, the Company has engaged in
no significant activity other than holding the stock of the Association and
engaging in certain passive investment activities.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair statement of results for the interim periods.
The results of operations for the three and six months ended March 31, 1999
are not necessarily indicative of the results to be expected for the year
ending September 30, 1999. Although net income was fairly consistent for the
first two quarters, earnings for the full fiscal year will be impacted by the
repurchase of Company stock and various economic conditions. The unaudited
consolidated financial statements and notes thereto should be read in
conjunction with the audited financial statements and notes thereto for the
year ended September 30, 1998, contained in the Company's annual report to
stockholders.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted-average
number of shares of common stock outstanding. Stock options outstanding are
included in the calculation of fully diluted earnings per share. Shares
acquired by the ESOP are accounted for in accordance with Statement of
Position 93-6 and are not included in the weighted-average shares outstanding
until the shares are committed to be released for allocation to ESOP
participants.
Page 5
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TEXARKANA FIRST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At March 31, 1999, the Company's assets amounted to $192.4 million as compared
to $189.4 million at September 30, 1998, a $3.0 million (1.6%) increase.
Investments increased $3.0 million (11.0%), cash and cash equivalents
increased $.3 million (12.7%) and loans, net of unearned income decreased $.5
million (.3%).
Asset quality remains strong with a ratio of nonperforming assets to total
assets of .43% and .18% as of March 31, 1999 and September 30, 1998,
respectively, and a ratio of nonperforming loans and debt restructurings to
total loans of .51% and .19%, respectively. The ratio of allowance for loan
losses to total loans was .65% at March 31, 1999 and .64% at September 30,
1998.
Liabilities increased $3.7 million (2.3%) to $165.7 million at March 31, 1999
compared to $162.0 million at September 30, 1998. Deposits increased $1.5
million (1.0%) primarily in savings and interest bearing transaction accounts
and borrowers' escrow balances decreased $.9 million (41.9%) (property tax
payments are made in the first two quarters of the fiscal year). Borrowed
funds increased $3.4 million (51.5%). In September and October of 1998,
borrowed funds were converted from 30 day Federal Home Loan Bank (FHLB)
advances to FHLB notes with various maturities and call provisions. Prior to
the conversion to FHLB notes, the FHLB advance rate was 5.49%. At March 31,
1999, the average rate of the FHLB notes was 4.28%.
Stockholders' equity amounted to $26.6 million (13.8% of total assets) at
March 31, 1999 compared to $27.4 million (14.5% of total assets) at September
30, 1998. The retained earnings balance reflects the $1,613,000 net income
from operations, less dividends declared. The treasury stock balance reflects
the net increase of 87,400 shares of common stock, including 3,400 shares of
exercised options. Accumulated other comprehensive income decreased $.2
million, reflecting the decline in the fair market value of available for sale
investments.
Comparison of Results of Operations for the Three Month and Six Month Periods
Ended March 31, 1999 and 1998
General.
For the three months ended March 31, 1999 compared to the same period ended
March 31, 1998, earnings per share and return on average equity were higher
while net income and return on average assets were lower.
Page 6
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For the six months ended March 31, 1999 compared to the same period ended
March 31, 1998, net income, earnings per share and return on average equity
were higher while return on average assets was lower.
For the three month and six month periods ended March 31, 1999, decreases in
average equity, resulting from the purchase of additional shares of common
stock to be held as treasury shares, contributed to the increases in the
return on average equity and earnings per share. Total average earning assets
and total average interest bearing liabilities were both higher. Lower rates
on earning assets (investments and loans) were partially offset by lower rates
on interest bearing liabilities (deposits and borrowed funds).
For the three most recent quarters ended March 31, 1999, December 31, 1998 and
September 30, 1998, respectively, the yield on total average earning assets
was 7.88%, 7.92% and 7.99%; the rate on total average interest bearing
liabilities was 4.92%, 5.03% and 5.14%; the interest rate spread was 2.96%,
2.89% and 2.85%; and, the net interest margin was 3.65%, 3.60% and 3.62%.
For the three months ended March 31, 1999, net income was $792,000 compared to
$808,000 for the same period ended March 31, 1998. The decrease of $16,000
(2.0%) in net income was due to a decrease of $19,000 in net interest income
and an increase of $69,000 in net noninterest expense, both of which were
partially offset by a decrease of $72,000 in income tax expense of which
$42,000 was a tax benefit for the vested value in excess of the award value
for Management Recognition Plan shares which vested in January and February of
1999.
For the three months ended March 31, 1999 and March 31, 1998, basic earnings
per share was $.52 and $.49, respectively (diluted EPS of $.50 and $.47,
respectively). Return on average assets (ROA) was 1.64% and 1.78%,
respectively, return on average equity (ROE) was 11.80% and 11.78%,
respectively, and the operating efficiency ratio was 39.2% and 36.9%,
respectively.
For the six months ended March 31, 1999, net income was $1,613,000 compared to
$1,564,000 for the same period ended March 31, 1998. The increase of $49,000
(3.1%) in net income was due to an increase of $13,000 in net interest income
and a decrease of $53,000 in income tax expense, which were partially offset
by an increase of $17,000 in net noninterest expense.
For the six months ended March 31, 1999 and March 31, 1998, basic earnings per
share was $1.06 and $.95, respectively (diluted EPS of $1.02 and $.91,
respectively). Return on average assets (ROA) was 1.66% and 1.72%,
respectively, return on average equity (ROE) was 11.90% and 11.32%,
respectively, and the operating efficiency ratio was 38.2% and 37.4%,
respectively.
Page 7
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Net Interest Income.
For the three months ended March 31, 1999, net interest income decreased
$19,000 (1.1%) compared to the same period in 1998. The decrease was due to
an increase of $37,000 (1.9%) in interest expense, partially offset by an
increase of $18,000 (.5%) in interest income. For the second quarter of
fiscal 1999 compared to the second quarter of fiscal 1998, the net interest
margin was 3.65% and 3.87%, respectively, and the net interest spread was
2.96% and 3.07%, respectively.
For the six months ended March 31, 1999, net interest income increased $13,000
(.4%) compared to the same period in 1998. The increase was due to an
increase of $166,000 (2.3%) in interest income, partially offset by an
increase of $153,000 (4.0%) in interest expense. For the six month period of
fiscal 1999 compared to the same period of fiscal 1998, the net interest
margin was 3.62% and 3.82%, respectively, and the net interest spread was
2.93% and 3.03%, respectively.
Interest Income.
For the three months ended March 31, 1999, interest income increased $18,000
(.5%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average earning
assets increased to $188.2 million from $179.4 million and the average yield
declined to 7.88% from 8.23%.
For the six months ended March 31, 1999, interest income increased $166,000
(2.3%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average earning
assets increased to $187.9 million from $177.5 million and the average yield
declined to 7.90% from 8.17%.
Interest Expense.
For the three months ended March 31, 1999, interest expense increased $37,000
(1.9%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average interest
bearing liabilities increased to $162.2 million from $151.8 million and the
average rate declined to 4.92% from 5.16%.
For the six months ended March 31, 1999, interest expense increased $153,000
(4.0%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average interest
bearing liabilities increased to $161.6 million from $150.2 million and the
average rate declined to 4.97% from 5.15%.
Provision for Loan Losses.
No provisions were made for loan losses during the six months ended March 31,
1999. No charge has been made to provision for loan losses since March 1995.
During this time, asset quality remained favorable with a ratio of
nonperforming loans to total loans of .51% at March 31, 1999, .19% at
September 30, 1998 and .19% at September 30, 1997.
At March 31, 1999 and September 30, 1998, the balance of the allowance for
loan losses was $1.0 million and $1.0 million, respectively. The ratio of the
allowance for loan losses to nonperforming loans was 126.20% and 342.32%,
respectively, and the ratio of the allowance for loan losses to total loans
was .65% and .64%, 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.
Page 8
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Noninterest Income.
For the three months ended March 31, 1999, noninterest income decreased
$49,000 (15.1%) compared to the same period in 1998. The decrease was
primarily due to decreases of $54,000 in net gain on sale of loans and $9,000
in loan origination fees, which were partially offset by an increase of
$14,000 in other noninterest income (primarily service charges and loan
servicing fees).
For the six months ended March 31, 1999, noninterest income increased $35,000
(6.0%) compared to the same period in 1998. The increase was primarily due to
increases of $56,000 in other noninterest income and $23,000 in loan
origination fees, which were partially offset by a decrease of $54,000 in net
gain on sale of loans. The increase in other noninterest income consisted
primarily of increases of $36,000 in service charges, $10,000 in loan
servicing fees and $7,000 in net gain on sale of repossessed assets. Although
the number and amount of mortgage loans originated and sold during the two
periods was approximately equal, the net gain on sale of loans was lower for
the most recent six month period.
Noninterest Expense.
For the three months ended March 31, 1999, noninterest expense increased
$20,000 (2.7%) compared to the same period in 1998. The increase was
primarily due to increases of $5,000 in compensation and benefits, $7,000 in
occupancy and equipment and $8,000 in other noninterest expense.
For the six months ended March 31, 1999, noninterest expense increased $52,000
(3.5%) compared to the same period in 1998. The increase was primarily due to
increases of $46,000 in compensation and benefits and $9,000 in occupancy and
equipment, which were partially offset by a decrease of $3,000 in other
noninterest expense.
Liquidity and Capital Resources
The Company's assets consist primarily of cash and cash equivalents and the
shares of the Association's common stock. The Association's deposit retention
and growth has remained steady. The ratio of loans to deposits was 101.2% at
March 31, 1999 and 102.5% at September 30, 1998. From September 30, 1998 to
March 31, 1999, investments available for sale increased $3.2 million (12.5%)
and cash and cash equivalents increased $.3 million (12.7%). Liquidity
remains adequate for current operating needs. At March 31, 1999, the
Association's liquidity ratio was 14.6% compared to the required regulatory
minimum of 4.0%.
The Company's and the Association's regulatory capital remains well in excess
of all applicable regulatory requirements. At March 31, 1999, the Company's
tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were
13.87%, 23.09% and 23.65%, respectively, and the Association's tier 1
leverage, tier 1 risk-based and total risk-based capital ratios were 13.67%,
22.80% and 23.36%, respectively. Pursuant to FDICIA and OTS regulations, an
institution is deemed to be "adequately capitalized" with capital ratios equal
to or above 4.0%, 4.0% and 8.0%, respectively, and "well capitalized" with
capital ratios equal to or above 5.0%, 6.0% and 10.0%, respectively.
Page 9
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Asset/Liability Management and Interest Rate Risk
The objective of asset/liability management is to maximize net interest margin
within an acceptable level of interest rate risk.
Net interest income is the primary component of net income and interest rate
risk is a significant exposure. Interest rate risk can be defined as the
amount of forecasted net interest income that may be gained or lost due to
favorable or unfavorable movements in interest rates.
In order to minimize the potential for adverse effects of material and
prolonged changes in interest rates on the Company's results of operations,
management has implemented and continues to monitor asset and liability
policies to better match the maturities and repricing terms of rate-sensitive
assets and rate-sensitive liabilities. Management also monitors and
evaluates, on a quarterly basis, the potential impact of interest rate changes
upon the Company's net portfolio value and net interest income.
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate margin that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of rate-sensitive assets and rate-
sensitive 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 margin will
be affected by changes in interest rates. A gap is considered positive when
the amount of rate-sensitive assets exceeds the amount of rate-sensitive
liabilities, and is considered negative when the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets. During a period of
rising interest rates, a negative gap would cause a decrease in net interest
income, while a positive gap would cause an increase in net interest income.
During a period of declining interest rates, a negative gap would cause an
increase in net interest income, while a positive gap would cause a decrease
in net interest income.
At March 31, 1999, the estimated one-year gap was a negative 69.3% and the
ratio of rate-sensitive assets to rate-sensitive liabilities maturing or
repricing within one year was 59.1%.
At March 31, 1999, assuming instantaneous interest rate changes sustained for
a twelve-month period, the following table presents the estimated percent of
change in the net portfolio value and net interest income for various changes
in interest rates (100 basis points equals 1%). Estimates are based upon
numerous assumptions. Actual sensitivity to interest rate changes could vary
significantly if actual experience differs from assumptions used in making the
calculations. Net portfolio value is the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts, if any.
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Percentage Change in
Change in _____________________________
Interest Rates Net Portfolio Net Interest
(Basis Points) Value Income
_______________ _____________ ____________
+200 -3.5% -9.9%
+100 -1.2% -5.0%
-100 +1.4% +4.7%
-200 +3.4% +9.4%
The Year 2000 Issue
Computer systems which are unable to recognize the year 2000 could fail or
create erroneous results by or at the year 2000 if the problem is not
corrected. Many existing computer programs use only two digits to identify a
year in the date field. Such programs, designed and developed without
considering the impact of a change in the century, are unable to distinguish
the year 2000 from the year 1900. Like most financial service providers, the
Company could be significantly affected by software and hardware both within
the Company and with other companies with whom it electronically or
operationally interfaces.
Management is aware of the potential problems and the costs required to
prevent material adverse consequences. Management has adopted a Year 2000
Plan, approved by the Board of Directors, and has appointed a committee to
implement the plan. The committee has assessed the Company's exposure;
scheduled necessary in-house hardware and software upgrades and replacements;
initiated formal communications with all major outside vendors, suppliers,
creditors and borrowers; scheduled testing of all operating systems; and
provided for a contingency plan for all critical systems.
The Company's core processing systems are outsourced through a contract with a
third party vendor. The Company's and the vendor's Year 2000 readiness is
reviewed and monitored by the OTS.
According to the Company's implementation schedule, hardware and software
upgrades and replacements were to be completed by December 31, 1998, and
validation testing of software was to be completed by March 31, 1999.
Implementation of the Year 2000 Plan is on schedule. In-house hardware and
software upgrades and replacements were completed November 30, 1998. Vendor
software modifications are 100% completed. The Company has participated in
the testing process as part of a user group which has evaluated testing
methodology and prepared its own test data along with that of other group
members. Initial testing was completed October 16, 1998. Test results have
been reviewed and final testing was completed April 12, 1999. Test results
were successful and all critical systems were determined to be Year 2000
ready. The contingency plan for all critical systems has been completed and
approved by management and the Board of Directors.
Page 11
<PAGE>
Implementation of the Year 2000 Plan involves both direct and indirect costs
which are charged to earnings as incurred. Direct costs include hardware and
software upgrades and replacements, potential charges by third party software
vendors, and resulting costs if the contingency plan for critical systems must
be implemented. Indirect costs principally consist of existing employee time
related to implementation of the Year 2000 Plan. Based on estimated costs
within the Year 2000 Plan, such costs will not have a material impact on the
Company's financial condition or results of operations. The incremental costs
associated with the Company's Year 2000 compliance were budgeted at
approximately $35,000. At March 31, 1999, $24,000 had been expended.
Recent Legislation
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 and the repayment will 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.
Page 12
<PAGE>
Recent Accounting Developments
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. It requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income (including, for example, unrealized
gains and losses on available for sale securities) be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement, and (b) display
the accumulated balance of other comprehensive income separately from net
worth and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Since the statement is
disclosure related, it will have no effect on the Company's financial
condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement requires disclosures for
each segment that are similar to those required under current standards with
the addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly
basis. It also requires geographic data by country, as opposed to broader
geographic regions as permitted under current standards. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. Since the statement is limited to additional
disclosure, it will have no effect on the Company's financial condition or
results of operation.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when prior FASB statements were issued. This statement is
effective for fiscal years beginning after December 15, 1997. Since the
statement is disclosure related, it will have no effect on the Company's
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Entities are required to carry all
derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (that is, gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies
as part of a hedging relationship and, if so, on the reason for holding it.
SFAS No. 133 is effective for financial statements issued for periods
beginning after June 15, 1999. Adoption of this statement is not expected to
have a material effect on the Company's financial condition or results of
operations.
Page 13
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
Part II
Item 1. Legal Proceedings
Neither the Company nor the Association is involved in any pending
legal proceedings other than non-material legal proceedings occurring
in the ordinary course of business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on January
26, 1999. The Information required herein is incorporated by
reference from the Notice of Annual Meeting of Stockholders and Proxy
Statement dated and filed December 21, 1998. Stockholders elected
all directors which were proposed for nomination and ratified the
appointment of Wilf & Henderson, P.C. as the Company's independent
auditors.
Item 5. Other Information
On September 1, 1998, the Company announced a plan to repurchase up
to 85,000 shares (5%) of outstanding common stock. The repurchase of
the 85,000 shares was completed on March 3, 1999.
On March 9, 1999, the Company announced a plan to repurchase up to
80,000 shares (5%) of outstanding common stock and 35,600 shares have
been repurchased as of March 31, 1999. The repurchased shares will
be held as treasury stock and will be available for general corporate
purposes.
On March 23, 1999, the Company declared a quarterly dividend in the
amount of $.16 per share, payable April 21, 1999 to stockholders of
record on April 7, 1999.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Earnings Per Share Computation
No reports on Form 8-K were filed during the period.
Page 14
<PAGE>
TEXARKANA FIRST FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXARKANA FIRST FINANCIAL CORPORATION
/s/ James W. McKinney
Date: May 12, 1999 By: ______________________________
James W. McKinney
Chairman and CEO
/s/ James L. Sangalli
Date: May 12, 1999 By: ______________________________
James L. Sangalli
Chief Financial Officer
Page 15
<PAGE>
Form 10-Q
Exhibit 11
EARNINGS PER SHARE COMPUTATION
Three Months Ended Six Months Ended
March 31, March 31,
_____________________ _____________________
1999 1998 1999 1998
__________ __________ __________ __________
Net Income........................$ 791,579 $ 807,612 $1,613,020 $1,563,883
========= ========= ========= =========
Weighted average shares:
Common shares outstanding....... 1,512,327 1,634,042 1,521,868 1,640,167
Common stock equivalents
due to assumed exercise
of stock options.............. 65,715 82,685 66,230 79,693
_________ _________ _________ _________
Common shares
assuming dilution........... 1,578,042 1,716,727 1,588,098 1,719,860
========= ========= ========= =========
Net income per common share:
Basic........................... $ .523 $ .494 $1.060 $ .953
Assuming dilution............... $ .502 $ .470 $1.016 $ .909
E 1
<PAGE>
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