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 December 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 71854-5917
_________________________________________ ________________________
(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
December 31, 1999, there were issued and outstanding 1,539,342 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
December 31, 1999 (unaudited) and September 30, 1999 1
Consolidated Statements of Income for the three months
ended December 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Cash Flows for the three months
ended December 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 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Unaudited
December 31, September 30,
1999 1999
ASSETS
Cash and cash equivalents
Cash & due from banks............................ $ 2,940 $ 2,370
Interest bearing deposits in other banks......... 1,932 638
Federal funds sold............................... 150 150
________ ________
Total cash and cash equivalents............... 5,022 3,158
Investment securities available-for-sale............ 27,778 31,457
Mortgage-backed securities held-to-maturity......... 297 386
Federal Home Loan Bank stock........................ 1,270 1,252
Loans receivable, net of unearned income............ 166,735 161,208
Allowance for loan losses........................... (992) (995)
Accrued interest receivable......................... 1,519 1,311
Foreclosed real estate, net......................... -- --
Premises and equipment, net......................... 2,850 2,691
Other assets........................................ 651 679
________ ________
Total assets..................................... $205,130 $201,147
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits............................................ $151,763 $153,992
Advances from borrowers for taxes & insurance....... 1,049 2,151
Borrowed funds...................................... 24,200 17,500
Accrued federal income tax.......................... 442 176
Accrued state income tax............................ 188 134
Accrued expenses and other liabilities.............. 796 816
________ ________
Total liabilities................................ 178,438 174,769
________ ________
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.......................... 13,763 13,742
Common stock acquired by stock benefit plans........ (1,403) (1,448)
Treasury stock, at cost, 444,408 shares and
444,408 shares September 30, 1999................ (9,210) (9,210)
Retained earnings-substantially restricted.......... 24,231 23,713
Accumulated other comprehensive income.............. (709) (439)
________ ________
Total stockholders' equity.................... 26,692 26,378
________ ________
Total liabilities and stockholders' equity.... $205,130 $201,147
======== ========
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 Ended
December 31
1999 1998
Interest income:
Loans:
First mortgage loans............................. $ 2,918 $ 2,923
Consumer and other loans......................... 419 365
Investments - taxable............................... 407 333
Mortgage-backed and related securities.............. 87 121
_______ _______
Total interest income............................ 3,831 3,742
_______ _______
Interest expense:
Deposits............................................ 1,809 1,923
Borrowed funds...................................... 239 116
_______ _______
Total interest expense........................... 2,048 2,039
_______ _______
Net interest income.............................. 1,783 1,703
Provision for loan losses........................... -- --
_______ _______
Net interest income after provision.............. 1,783 1,703
_______ _______
Noninterest income:
Gain on sale of investments, net.................... -- 10
Gain on sale of loans, net.......................... -- 87
Loan origination and commitment fees................ 70 118
Other............................................... 156 138
_______ _______
Total noninterest income......................... 226 353
_______ _______
Noninterest expense:
Compensation and benefits........................... 555 552
Occupancy and equipment............................. 59 56
SAIF deposit insurance premium...................... 23 22
Other............................................... 165 146
_______ _______
Total noninterest expense........................ 802 776
_______ _______
Income before income taxes............................. 1,207 1,280
Income tax expense..................................... 446 459
_______ _______
Net income............................................. $ 761 $ 821
======= =======
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities (270) (82)
Reclassification of gain included in net income -- (6)
_______ _______
Comprehensive income 491 733
======= =======
Earnings per common share - basic.................. $ 0.527 $ 0.536
Earnings per common share - diluted................ $ 0.510 $ 0.514
Weighted average shares - basic.................... 1,443,222 1,531,409
Weighted average shares - diluted.................. 1,491,013 1,598,156
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)
Three Months Ended
December 31,
1999 1998
Cash Flows From Operating Activities:
Interest and dividends received....................... $ 3,586 $ 3,754
Miscellaneous income received......................... 213 341
Interest paid......................................... (768) (671)
Cash paid to suppliers and employees.................. (663) (689)
Cash from loans sold.................................. -- 3,944
Cash paid for loans originated to sell................ -- (3,669)
Income taxes paid..................................... (126) (9)
_______ _______
Net Cash Provided By Operating Activities........... 2,242 3,001
_______ _______
Cash Flows From Investing Activities:
Proceeds from call and maturity of
investment securities............................... 3,000 3,250
Proceeds from sale of securities
available for sale.................................. -- 500
Purchases of investment securities
available for sale.................................. -- --
Purchases of mortgage-backed securities............... -- --
Principal collected on mortgage-backed securities..... 454 784
Purchase of fixed assets.............................. (186) (55)
Net (increase) in loans............................... (5,507) (95)
Cash paid for REO held for resale..................... -- (8)
Proceeds from sale of REO and other REO recoveries.... -- 80
_______ _______
Net Cash Provided (Used) By Investing Activities.... (2,239) 4,456
_______ _______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit........ (3,474) (1,723)
Net increase (decrease) in escrow funds............... (1,103) (1,089)
Net increase (decrease) in funds borrowed............. 6,700 3,400
Purchase of treasury stock............................ -- (1,068)
Stock options exercised............................... -- 8
Cash dividends paid on common stock................... (262) (266)
_______ _______
Net Cash (Used) By Financing Activities............. 1,861 (738)
_______ _______
Net Increase (Decrease) In Cash and Cash Equivalents 1,864 6,719
_______ _______
Cash and Cash Equivalents, beginning of period.......... 3,158 2,635
_______ _______
Cash and Cash Equivalents, end of period................ $ 5,022 $ 9,354
======= =======
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
Three Months Ended
December 31,
1999 1998
Reconciliation of net income to cash provided
by operating activities:
Net income.............................................. $ 761 $ 821
_______ _______
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation.......................................... 27 28
Amortization of discounts and premiums................ (3) 20
Amortization of deferred loan fees.................... (7) (13)
Amortization of common stock acquired by benefit plans 126 137
(Gain) loss on sales of real estate owned............. -- 1
(Gain) loss on sales of securities available for sale. -- (10)
Interest expense credited to saving accounts.......... 1,244 1,304
Dividend and interest income added to investments..... (33) (31)
Loan fees deferred.................................... 5 15
Changes in assets and liabilities:
(Increase) decrease in interest receivable............ (207) 20
Increase (decrease) in accrued interest payable....... 37 64
Increase (decrease) in income tax payable............. 320 451
Net increase (decrease) in other
receivables and payables............................ (28) 194
_______ _______
Total adjustments................................... 1,481 2,180
_______ _______
Net cash provided by operations......................... $ 2,242 $ 3,001
======= =======
Supplemental schedule of noncash investing
and financing activities:
FHLB stock dividends not redeemed................... $ 18 $ 17
Acquisition of real estate in settlement of loans... -- 22
Loans made to finance sale of REO................... -- 79
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 months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the year ending
September 30, 2000. Earnings for the full fiscal year will be impacted by any
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, 1999, 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
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 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/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.
Page 6
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At December 31, 1999, the estimated one-year gap was a negative 71.0% and the
ratio of rate-sensitive assets to rate-sensitive liabilities maturing or
repricing within one year was 58.5%.
At December 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.
Percentage Change in
Change in _____________________________
Interest Rates Net Portfolio Net Interest
(Basis Points) Value Income
_______________ _____________ ____________
+300 -16.1% -12.9%
+200 -8.9% -8.6%
+100 -3.6% -4.3%
-100 +2.4% +4.0%
-200 +4.9% +8.0%
-300 +7.9% +12.0%
Changes in Financial Condition
General
The Company's assets increased $4.0 million (2.0%) to $205.1 million at
December 31, 1999 from $201.1 million at September 30, 1999. The increase was
due primarily to increases of $5.5 million (3.4%) in loans receivable and $1.9
million (59.0%) in cash and cash equivalents, partially offset by a decrease
of $3.8 million (11.3%) in investments. The Company's total liabilities
increased $3.7 million (2.1%) due primarily to an increase of $6.7 million
(38.3%) in borrowed funds, partially offset by decreases of $2.2 million
(1.4%) in deposits and $1.1 million (51.2%) in borrowers' escrow balances
(property tax payments are made in the first two quarters of the fiscal year).
Cash and Cash Equivalents
Cash and federal funds sold increased $1.9 million (59.0%) to $5.0 million at
December 31, 1999 from $3.2 million at September 30, 1999. The increase was
due primarily to increases in cash and interest-bearing deposits in other
banks.
Investments
Investments decreased $3.8 million (11.3%) to $29.3 million at December 31,
1999 from $33.1 million at September 30, 1999. Proceeds from maturing
investments were utilized for Y2K cash liquidity.
Page 7
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Loans Receivable
Loans receivable, net of unearned income, increased $5.5 million (3.4%) to
$166.7 million at December 31, 1999 from $161.2 million at September 30, 1999.
The increase in loans was the result of an increase of $4.2 million (2.9%) in
real estate loans and an increase of $1.3 million (7.4%) in commercial and
consumer loans. The increase was due to additional loan demand, including
home equity loans, and the retention of fixed-rate mortgage loans. In the
quarter ended December 31, 1999, $17.1 million of loans were originated. $6.0
million of single-family mortgage loans were originated and none were sold.
Nonperforming Assets
Nonperforming assets decreased $277,000 to $792,000 (.39% of total assets) at
December 31, 1999 compared to $1.1 million (.53% of total assets) at September
30, 1999. At December 31, 1999, nonperforming loans were $792,000 (.48% of
total loans) compared to $1.1 million (.66% of total loans) at September 30,
1999. At December 31, 1999, the Company had no foreclosed real estate. At
December 31, 1999, the allowance for loan losses was $992,000 (.59% of total
loans and 125.25% of nonperforming loans) compared to $995,000 (.62% of total
loans and 93.08% of nonperforming loans) at September 30, 1999. Net charge-
offs were $3,000 and $0, respectively, for quarters ended December 31, 1999
and September 30, 1999.
Deposits
Deposits decreased $2.2 million (1.4%) to $151.8 million at December 31, 1999
from $154.0 million at September 30, 1999. The decrease in deposits was
primarily in transaction accounts.
Borrowed Funds
Borrowings increased $6.7 million (38.3%) to $24.2 million at December 31,
1999 from $17.5 million at September 30, 1999. Additional borrowings, from
the FHLB of Dallas, were primarily utilized to fund increases in loans.
Stockholders' Equity
Stockholders' equity increased $.3 million (1.2%) to $26.7 million at December
31, 1999 from $26.4 million at September 30, 1999, primarily the result of
retained earnings. The ratio of stockholders' equity to total assets was
13.0% at December 31, 1999 compared to 13.1% at September 30, 1999.
Page 8
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Comparison of Results of Operations for the Three Month Periods Ended December
31, 1999 and 1998
General
For the three months ended December 31, 1999 compared to the same period ended
December 31, 1998, net income was $60,000 less, primarily due to a decrease of
$87,000 in gain on sale of loans (no loans were sold in the current quarter).
Total average earning assets and total average interest-bearing liabilities
were both higher. Lower rates on earning assets (investments and loans) were
offset by lower rates on interest-bearing liabilities (deposits and borrowed
funds).
For the three months ended December 31, 1999 and December 31, 1998,
respectively, the yield on total average earning assets was 7.77% and 7.92%;
the rate on total average interest-bearing liabilities was 4.87% and 5.02%;
the interest rate spread was 2.90% and 2.89%; and, the net interest margin was
3.62% and 3.60%.
For the three months ended December 31, 1999, net income was $761,000 compared
to $821,000 for the same period ended December 31, 1998. The decrease of
$60,000 (7.3%) in net income was due to a decrease of $127,000 in noninterest
income and an increase of $26,000 in noninterest expense, which were partially
offset by an increase of $80,000 in net interest income and a decrease of
$13,000 in income tax expense.
For the three months ended December 31, 1999 and December 31, 1998, net income
per common share was $.53 and $.54, respectively (diluted EPS of $.51 and
$.51, respectively). Return on average assets (ROA) was 1.50% and 1.69%,
respectively, and return on average equity (ROE) was 11.33% and 11.99%,
respectively. The operating efficiency ratio was 39.9% and 37.7%,
respectively.
Net Interest Income
For the three months ended December 31, 1999, net interest income increased
$80,000 (4.7%) compared to the same period in 1998. The increase was due to
an increase of $89,000 (2.4%) in interest income, partially offset by an
increase of $9,000 (.4%) in interest expense. For the first quarter of fiscal
2000 compared to the first quarter of fiscal 1999, the net interest margin was
3.62% and 3.60%, respectively, and the net interest spread was 2.90% and
2.89%, respectively.
Interest Income
For the three months ended December 31, 1999, interest income increased
$89,000 (2.4%) 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 $196.2 million from $187.6 million and the average
yield declined to 7.77% from 7.92%.
Interest Expense
For the three months ended December 31, 1999, interest expense increased
$9,000 (.4%) 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 $167.3 million from $161.0 million and the
average rate declined to 4.87% from 5.02%
Page 9
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Provision for Loan Losses
No provisions were made for loan losses during the three months ended December
31, 1999. No charge has been made to provision for loan losses since March
1995. During this time, asset quality remained consistently favorable with a
ratio of nonperforming loans to total loans of .48% at December 31, 1999, .66%
at September 30, 1999 and .33% at December 31, 1998.
At December 31, 1999 and September 30, 1999, the balance of the allowance for
loan losses was $992,000 and $995,000, respectively, and the ratio of the
allowance for loan losses to nonperforming loans was 125.25% and 93.08%,
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
For the three months ended December 31, 1999, noninterest income decreased
$127,000 (36.0%) compared to the same period in 1998. The decrease was
primarily due to decreases of $87,000 in gain on sale of loans and $48,000 in
loan origination fees, partially offset by an increase of $18,000 in other
noninterest income, primarily service charges and fees. The decreases in gain
on sale of loans and loan origination fees were the result of decreases in the
number and amount of single-family mortgage loans originated and sold. In the
quarter ended December 31, 1999, $6.0 million of single-family mortgage loans
were originated and none were sold. In the quarter ended December 31, 1998,
$9.7 million of single-family mortgage loans were originated and $4.0 million
were sold.
Noninterest Expense
For the three months ended December 31, 1999, noninterest expense increased
$26,000 (3.4%) compared to the same period in 1998. The increase was
primarily due to an increase of $19,000 in other noninterest expense,
primarily in data processing charges which includes a $9,000 conversion fee
for a customer information system.
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 Company has no significant
liabilities.
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 generates cash through the retail deposit
market, its traditional funding source, to provide cash for lending and
investing activities. As an additional source of funds, the Association may
borrow from the FHLB of Dallas and has utilized this source of funds with
borrowings of $24.2 million and $17.5 million at December 31, 1999 and
September 30, 1999, respectively.
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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 4%. At December 31, 1999, the Association's liquidity ratio was
17.03%.
The Company's and the Association's regulatory capital remains well in excess
of all applicable regulatory requirements. At December 31, 1999, the
Company's tier 1 leverage, tier 1 risk-based and total risk-based capital
ratios were 13.29%, 21.98% and 22.50%, respectively, and the Association's
tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were
12.85%, 21.27% and 21.79%, respectively, compared to regulatory "well
capitalized" requirements of 5.0%, 6.0% and 10.0%, respectively.
The Year 2000 Issue
Implementation of the Year 2000 Plan involved both direct and indirect costs.
Direct costs include hardware and software upgrades and replacements, and
charges by third party software vendors. Indirect costs principally consist
of existing employee time related to implementation of the Year 2000 Plan. In
the Company's Year 2000 Plan, total cost associated with Year 2000 compliance
were budgeted at approximately $35,000. Actual total cost was $32,800.
The Company and its subsidiary experienced no Y2K related problems.
Recent Legislation
A new financial modernization bill titled the Gramm-Leach-Bliley Act (the
"Act") was signed into law in November 1999. The Act repealed the Glass-
Steagall Act and allows banks, insurance companies and security firms to
affiliate through new financial holding companies. A national bank may engage
in many new financial activities through a subsidiary. It authorizes
operating subsidiaries to sell any financial product without geographic
limitation. Activities not permitted in subsidiaries include insurance
underwriting, insurance company portfolio investing, real estate investment
and development, and merchant banking (merchant banking may be allowed in five
years if both the Fed and Treasury agree). The subsidiary operation would be
available only to well-capitalized and well-managed banks. The powers and
authorities of existing unitary thrift holding companies are grandfathered.
Sale of existing unitaries can be to financial companies only. The Office of
Thrift Supervision can continue to grant unitary charters to financial
companies, but cannot grant charters to nonfinancial companies. The Act
repealed the Savings Association Insurance Fund special reserve and allows the
FDIC to return nearly $1 billion to the SAIF general reserves.
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The Act requires all financial institutions to disclose their privacy policies
to their customers at the time a relationship is created and then annually on
sharing customer information with affiliates and third parties. Customers
must be notified that they may opt-out of sharing with nonaffiliated third
parties, with certain exceptions. The Act extends the Community Reinvestment
Act compliance examination cycle for community banks (banks and thrifts with
less than $250 million in assets) to five years if they had an "outstanding"
rating and to four years if they had a "satisfactory" rating.
The Act also provides for modernization of the Federal Home Loan Bank System.
Governance of the FHLBanks will be decentralized, allowing Bank directors to
elect their chairman and vice chairman, and membership in the FHLB becomes
voluntary for all members.
Under the Act, the Federal Reserve Board is the umbrella supervisor of
financial holding companies, and state and federal regulators will
functionally regulate insurance and securities affiliates. The FDIC retains
full authority to allow state chartered banks to continue to engage in
grandfathered activities and to approve new activities that go beyond the
powers of national banks.
Recent Accounting Developments
In January 1999, the Company adopted SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This statement amends SFAS 65 to
require that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting mortgage-
backed securities or other retained interest based on its ability and intent
to sell or hold those investments. This statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans
by a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a nonmortgage
banking enterprise.
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.
Initially, SFAS No. 133 was to be effective for financial statements issued
for fiscal periods beginning after June 15, 1999. On July 7, 1999, FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" providing for a
one year deferral to fiscal periods beginning after June 15, 2000 (the
Company's effective date of October 1, 2000). Adoption of this statement is
not expected to have a material effect on the Company's financial condition or
results of operations.
Page 12
<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
25, 2000. The Information required herein is incorporated by
reference from the Notice of Annual Meeting of Stockholders and Proxy
Statement dated and filed December 27, 1999. Stockholders elected
all directors which were proposed for nomination and ratified the
appointment of Wilf & Henderson, P.C. as the Company's independent
auditors. Voting results are contained in the Report of Inspector of
Election for the Annual Meeting of Stockholders (Exhibit 99).
Item 5. Other Information
On March 9, 1999, the Company announced a plan to repurchase up to
80,000 shares (5%) of the Company's outstanding common stock and all
shares have been repurchased as of September 21, 1999. The
repurchased shares are held as treasury stock and are available for
general corporate purposes.
On December 28, 1999, the Company declared a quarterly dividend in
the amount of $.17 per share, payable January 24, 2000 to
stockholders of record on January 10, 2000.
At the meeting of the Board of Directors on January 25, 2000, Mr.
John E. Harrison was elected Chief Executive Officer of the
Association and reelected President and Chief Operating Officer of
the Association and the Company. Mr. James W. McKinney remains
Chairman and Chief Executive Officer of the Company and Chairman of
the Association.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Earnings Per Share Computation
Exhibit 99 - Report of Inspector of Election
No reports on Form 8-K were filed during the period.
Page 13
<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: February 14, 2000 By: ______________________________
James W. McKinney
Chairman and CEO
/s/ James L. Sangalli
Date: February 14, 2000 By: ______________________________
James L. Sangalli
Chief Financial Officer
Page 14
<PAGE>
Form 10-Q
Exhibit 11
EARNINGS PER SHARE COMPUTATION
Three Months Ended
December 31,
______________________
1999 1998
__________ __________
Net Income................................... $ 760,611 $ 821,441
========= =========
Weighted average shares:
Common shares outstanding.................. 1,443,222 1,531,409
Common stock equivalents due to
assumed exercise of stock options........ 47,791 66,747
_________ _________
Common shares assuming dilution........ 1,491,013 1,598,156
========= =========
Net income per common share:
Basic...................................... $.527 $.536
Assuming dilution.......................... .510 .514
E 1
<PAGE>
Form 10-Q
Exhibit 99
REPORT OF INSPECTOR OF ELECTION
I, Larry H. Henderson, CPA , the duly appointed
representative of Texarkana First Financial Corporation , the Inspector of
Election of Texarkana First Financial Corporation (the "Company"), do hereby
certify as follows:
That an Annual Meeting of Stockholders of the Company was held at the main
office of First Federal Savings and Loan Association located at Third and
Olive Streets, Texarkana, Arkansas 71854 on Tuesday, January 25, 2000 at 3:00
p.m., Central Time, pursuant to due notice.
That before entering into the discharge of my duty, I was sworn, and the oath
so taken by me is hereto attached.
That I inspected the signed proxies used at the Annual Meeting and found the
same to be in proper form.
That there were 1,539,342 shares of common stock of the Company which could be
voted at the Annual Meeting, and that 1,131,150 shares were represented at
such meeting by the holders thereof or by proxy, which constituted a quorum.
1. That I did receive the votes of the stockholders by ballot and by proxy
with respect to the election of directors of the Company, as set forth below:
FOR WITHHOLD NOT VOTED
a. John M. Andres 1,083,992 47,158 --
b. Arthur L. McElmurry 1,084,100 47,050 --
That each of the nominees received a plurity of the total votes eligible to be
cast at the Annual Meeting and that each of the nominees has been elected as a
director by the stockholders of the Company.
2. That I did receive the votes of the stockholders by ballot and by proxy
to ratify the appointment of Wilf & Henderson, P.C. as the Company's
independent auditors for the fiscal year ending September 30, 2000, as set
forth below:
FOR AGAINST ABSTAIN NOT VOTED
1,116,485 1,715 12,950 ___
That said proposal received a majority of the total votes eligible to be cast
at the Annual Meeting and that this matter has been adopted by the
stockholders of the Company.
IN WITNESS WHEREOF, I have made this certificate and have hereunto set my hand
this 25th day of January, 2000.
INSPECTOR OF ELECTION
/s/ Larry H. Henderson
By:______________________________
Larry H. Henderson, CPA
E 2
<PAGE>
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