TEXARKANA FIRST FINANCIAL CORPORATION
1996
ANNUAL REPORT TO STOCKHOLDERS
TEXARKANA FIRST FINANCIAL CORPORATION
1996 ANNUAL REPORT TO STOCKHOLDERS
TABLE OF CONTENTS
PAGE
President'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................ 17
Financial Statements.............................................. 18
Directors and Officers............................................ 39
Banking Locations................................................. 39
Stockholder Information........................................... 40
[LOGO]
LETTER TO OUR STOCKHOLDERS
On behalf of your Board of Directors, we take great pleasure in presenting
our second annual report, the first report covering a full year of operation
as a unitary savings and loan holding company.
Fiscal year 1996 was an exciting and rewarding year. It was exciting because
the formation of the holding company and the conversion of First Federal from
a mutual to a stock savings and loan association was completed in 1995,
giving us the opportunity to make fiscal year 1996 a benchmark year as the
first full year of operation under our new corporate structure. It was
rewarding because the operating results were excellent and we achieved our
primary objective of profitable growth.
Controlled growth, increased profits and improved asset quality are reflected
in the following comparisons of fiscal year 1996 to fiscal year 1995. 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; and asset quality is reflected in improved
asset quality ratios. Total assets increased 3.2% to $165.7 million while
net income increased 19.9% to $2.4 million and the return on average assets
improved to 1.46% from 1.35%. Loans increased 11.1% to $135.7 million and
deposits increased 6.5% to $133.1 million while net interest income increased
20.6% to $6.3 million and the net interest margin improved to 3.90% from
3.59%. While these figures demonstrate our financial strength, the true
reward was maintaining our profitable growth without sacrificing asset
quality as reflected in the following two key asset quality ratios. The
ratio of nonperforming loans to total loans improved to .15% from .17% and
the ratio of nonperforming assets to total assets improved to .17% from .33%.
While the 1996 fiscal year results were favorable, they would have been even
more so were it not for the special assessment to replenish the
under-capitalized Savings Association Insurance Fund. First Federal's share
of the assessment was $835,000 (pre-tax) which was assessed late in the
fourth quarter. Although we are less than pleased with the assessment, we
remain grateful that we can report favorable results in spite of the
assessment and look forward to the resulting reduction in the annual deposit
assessment rates that will occur in fiscal 1997 and thereafter.
Our primary objective for fiscal year 1997 is simply "more of the same" -
with continued emphasis on profitable growth, maintaining superior asset
quality, improvement of the ratio of return on stockholders' equity and
expanding our facilities for the convenience of our customers. At the end of
fiscal year 1996, with loans at 81.8% of total assets and one-to-four family
mortgages at 69.8% of total loans, we consider our institution to be a
full-service institution which specializes in single-family mortgage
financing and we will continue to emphasize what we do well. However,
additional emphasis will be placed on commercial business loans and consumer
loans.
1
As a result of historical earnings and the net proceeds raised in the
Conversion, our stockholders' equity to assets ratio greatly exceeded
industry standards. Again, although this demonstrates our solid financial
position, excess equity results in a lower than desired rate of return on
equity. During fiscal 1996, we took three positive steps to reduce the
equity to assets ratio from 20.4% at September 30, 1995 to 15.9% at September
30, 1996. First, $933,000 was used to purchase 62,300 shares for employee
benefit plans. Second, $1.6 million was used to repurchase 99,197 shares.
Third, and possibly most important, $5.7 million was used to pay a $3.00 per
share special tax-free distribution to stockholders. We will continue to
pursue prudent means to improve the rate of return on equity including
dividends and stock repurchases.
In August of 1996, construction began on our new branch facility in DeQueen,
Arkansas. Construction is scheduled to be completed in January of 1997. For
fiscal 1996, the DeQueen branch experienced a 15% growth in deposits and a
50% increase in outstanding loans. With the new facility, we expect growth
in the DeQueen area to continue during fiscal 1997.
In September of 1996, a future building site for a new branch facility in
Texarkana, Texas was purchased. Plans for the new facility are in process
with construction expected to begin during fiscal 1997. We are excited about
the opportunity to provide a more convenient location for the Texas customers
of our border city.
The success of fiscal year 1996 would not have been possible without the hard
work and dedication of our employees and directors and the support of our
stockholders. We take this opportunity to give thanks for the past and ask
for "more of the same" for fiscal 1997 and the future.
Sincerely,
/s/ James W. McKinney
James W. McKinney
President and Chief Executive Officer
2
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
(501) 773-1103.
3
SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
YEARS ENDED SEPTEMBER 30 1996 1995 1994 1993 1992
________ ________ ________ ________ ________
SUMMARY INCOME STATEMENT
Interest income............. $ 12,745 $ 11,236 $ 9,528 $ 9,928 $ 11,052
Interest expense............ 6,480 6,042 5,035 5,553 7,127
Net interest income......... 6,265 5,194 4,493 4,375 3,925
Provision for loan losses... -- 177 -- 162 607
Noninterest income.......... 753 665 1,277 728 552
Noninterest expense(1)...... 3,335 2,367 2,010 1,981 2,688
Income before income tax.... 3,683 3,315 3,760 2,960 1,182
Income tax expense.......... 1,282 1,312 1,219 1,121 823
Net income(1)............... 2,401 2,003 2,541 1,839 359
PER COMMON SHARE(2)
Net income ............... $ 1.31 $ .40 N/A N/A N/A
Cash dividends declared(3).. $ 3.45 -- N/A N/A N/A
Dividend payout ratio....... 269.64% -- N/A N/A N/A
Book value(end of year)..... $14.02 $16.54 N/A N/A N/A
Market price(end of year)... $14.25 $13.25 N/A N/A N/A
Market/book(end of year).... 101.64% .80% N/A N/A N/A
YEAR-END BALANCES
Total assets................ $165,747 $160,652 $140,178 $137,956 $139,809
Investment securities....... 17,458 21,432 17,004 17,771 14,220
Loans receivable, net....... 135,660 122,160 117,571 111,111 106,031
Deposits.................... 133,071 124,953 124,496 124,512 128,322
Stockholders' equity........ 26,424 32,808 12,996 10,455 8,616
PERFORMANCE RATIOS
Net interest margin......... 3.90% 3.59% 3.40% 3.30% 2.96%
Return on average assets.... 1.46 1.35 1.85 1.34 .26
Return on average equity.... 7.34 10.92 21.44 19.20 4.25
Operating efficiency(4)..... 47.52 40.40 34.84 38.82 60.04
ASSET QUALITY RATIOS
Nonperforming loans to
total loans................ .15% .17% .09% .42% 2.13%
Nonperforming assets to
total assets............... .17 .33 .53 1.91 2.25
Allowance for loan losses
to nonperforming loans..... 540.09 536.92 872.32 234.30 50.81
Allowance for loan losses
to total loans............. .82 .91 .81 .98 1.08
Net charge-offs to
average total loans........ .003 .004 .14 .20 .000
CAPITAL RATIOS
Average equity to assets.... 19.90% 12.32% 8.64% 6.96% 6.12%
Core capital to assets...... 16.55 15.40 9.26 7.59 6.15
Risk-based capital to
risk-adjusted assets....... 28.54 28.68 16.47 14.75 12.73
_______________
(1) 1996 includes the special SAIF assessment of $835,000 ($515,000 net of
tax).
(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.
4
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, 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
YEAR ENDED SEPTEMBER 30, 1995
Interest income.............. $3,175 $2,846 $2,672 $2,543
Interest expense............. 1,609 1,594 1,466 1,373
Net interest income.......... 1,566 1,252 1,206 1,170
Provision for loan losses.... -- -- 100 77
Noninterest income........... 185 141 161 178
Noninterest expense.......... 547 478 692 650
Net income................... 788 594 289 332
Per common share(3):
Net income................... $ .40 $ n/a $ n/a $ n/a
Cash dividends............... -- n/a n/a n/a
Common stock price:
High........................ 13.88 n/a n/a n/a
Low......................... 12.25 n/a n/a n/a
Last trade.................. 13.25 n/a n/a n/a
Selected ratios (annualized):
Net interest margin.......... 3.86% 3.48% 3.53% 3.32%
Return on average assets..... 1.91 1.61 .82 .93
Return on average equity..... 9.53 17.14 8.57 9.93
_______________
(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.
(3) Per share data for 1995 is for the period beginning July 7, 1995, the
date of the initial public offering.
5
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, 1996, the
Association estimates that its one-year gap was a negative .90% and its ratio
of interest-earning assets to interest-bearing liabilities maturing or
repricing within one year was 99.11%.
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, 1996, $90.3 million or 92.1% of the
Association's portfolio of one-to-four family residential mortgage loans
consisted of ARMs.
6
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, 1996 and 1995, such sales amounted to $2.2 million and $1.5
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.
7
The following table presents First Federal's NPV and the ratio of NPV to the
present value ("PV") of assets as of September 30, 1996, 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 $27,243 17.14% $-5,319 -16%
+300 bp 29,253 18.07 -3,308 -10
+200 bp 30,931 18.79 -1,630 -5
+100 bp 32,048 19.22 -513 -2
0 bp 32,561 19.34
-100 bp 32,537 19.21 -24 0
-200 bp 32,248 18.95 -313 -1
-300 bp 32,152 18.77 -409 -1
-400 bp 32,348 18.74 -213 -1
Risk Measures: 200 bp Rate Shock 9-30-96 6-30-96 3-31-96
___________________________________________ _______ _______ _______
Pre-Shock NPV Ratio: NPV as % of PV of Assets 19.34% 19.70% 19.14%
Exposure Measure: Post-Shock NPV Ratio 18.79% 19.04% 18.76%
Sensitivity Measure: Change in NPV Ratio -55 bp -66 bp -38 bp
CHANGES IN FINANCIAL CONDITION
GENERAL. The Company's assets increased $5.1 million or 3.2% to $165.7
million at September 30, 1996 from $160.7 million at September 30, 1995. The
increase was due primarily to an increase of $13.5 million or 11.1% in loans
receivable, net, partially offset by decreases of $5.0 million in cash and
cash equivalents and $3.3 million in investment securities. The Company's
total liabilities increased $11.5 million or 9.0% due primarily to increases
of $8.1 million or 6.5% in deposits and $2.8 million in borrowed funds.
CASH AND CASH EQUIVALENTS. Cash and federal funds sold decreased $5.0
million or 36.0% to $8.9 million at September 30, 1996 from $13.8 million at
September 30, 1995. In addition to normal operating uses, the cash funds
were used primarily to fund increased loan demand and the payment of
dividends including a $3.00 per share special one-time distribution.
INVESTMENTS. Investments decreased $4.0 million or 18.5% to $17.4 million at
September 30, 1996 from $21.4 million at September 30, 1995. Proceeds from
maturing investments were used primarily to fund increased loan demand.
8
LOANS RECEIVABLE. Loans receivable, net increased $13.5 million or 11.1% to
$135.7 million at September 30, 1996 from $122.2 million at September 30,
1995. Increases were realized in all loan types with increases of $10.1
million or 8.6% in real estate loans, $2.3 million or 239.3% in commercial
loans and $2.2 million or 28.6% in consumer loans. The Association intends
to continue to place additional emphasis on commercial business loans and
consumer loans.
NONPERFORMING ASSETS. Total nonperforming assets decreased $250,000 or 46.8%
to $284,000 or .17% of total assets at September 30, 1996 compared to
$534,000 or .33% of total assets at September 30, 1995. At September 30,
1996, nonperforming loans were $212,000 or .15% of total loans compared to
$214,000 or .17% of total loans at September 30, 1995. Foreclosed real
estate owned, net decreased $248,000 or 77.5% to $72,000 at September 30,
1996 from $320,000 at September 30, 1995. At September 30, 1996, the
allowance for loan losses was $1.1 million or .82% of total loans and 540.09%
of nonperforming loans compared to $1.1 million or .91% of total loans and
536.92% of nonperforming loans at September 30, 1995. Net charge-offs were
$4,000 and $5,000 for fiscal years ended September 30, 1996 and 1995,
respectively.
DEPOSITS. Deposits increased $8.1 million or 6.5% to $133.1 million at
September 30, 1996 from $125.0 million at September 30, 1995. Increases were
realized in all deposit types with increases of $478,000 or 8.2% in NOW
accounts, $324,000 or 4.2% in money market accounts, $895,000 or 17.8% in
savings accounts and $6.4 million or 6.1% in certificates of deposit. The
additional deposits were used primarily to fund increased loan demand.
BORROWED FUNDS. Total borrowings increased $2.8 million to $2.9 million at
September 30, 1996 from $62,000 at September 30, 1995. In September 1996,
the Company borrowed $475,000 from a local financial institution on a
short-term basis, and sold $2.4 million of securities with repurchase
agreements. The loan and the repurchase agreements matured in October 1996
and were repaid at that time. The borrowings provided cash needed on a
temporary basis due to the payment of the $3.00 per share special one-time
distribution to stockholders on September 25, 1996. Borrowings were utilized
to minimize any loss from the sale of securities.
STOCKHOLDERS' EQUITY. Stockholders' equity decreased $6.4 million to $26.4
million at September 30, 1996 from $32.8 million at September 30, 1995. The
decrease was primarily the result of $933,000 for the purchase of 62,300
shares for employee benefit plans, $1.6 million for the repurchase of 99,187
shares, and $6.5 million for the payment of dividends, including a $5.7
million special one-time distribution. Net income increased $398,000 or
19.9% to $2.4 million for fiscal 1996 compared to $2.0 million for fiscal
1995. The ratio of stockholders' equity to total assets was 15.9% at
September 30, 1996 compared to 20.4% at September 30, 1995.
9
AVERAGE BALANCES, NET INTEREST INCOME, AND YIELDS EARNED AND RATES PAID. The
following table presents, for the periods indicated, the interest income and
rates earned on average interest-earning assets, the interest expense and
rates paid on average interest-bearing liabilities, and the net interest
income and net interest margin which is net interest income divided by
average interest-earning assets. Since interest-earning assets do not
include any tax-exempt securities except for applicable state income taxes,
income and rates include no adjustment for a tax-equivalent basis.
Year Ended September 30,
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ----------------------
Average Income/ Average Income/ Average Income/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
($) ($) (%) ($) ($) (%) ($) ($) (%)
------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
ASSETS
Earning assets:
Loans receivable..... 129,182 10,850 8.40 121,074 9,769 8.07 113,575 8,448 7.44
Investments.......... 29,527 1,738 5.89 21,124 1,277 6.05 15,538 830 5.34
Mortgage-backed
securities.......... 2,067 157 7.60 2,450 190 7.76 3,154 250 7.93
------ ------ ------ ------ ------ ------
Total earning assets 160,776 12,745 7.93 144,648 11,236 7.77 132,267 9,528 7.20
------ ------ ------
Nonearning assets..... 3,601 4,242 4,909
------ ------ ------ ------
Total assets........ 164,377 148,890 137,176
------ ------ ------ ------
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Transaction and
savings accounts.... 20,243 553 2.73 20,605 627 3.04 22,624 584 2.58
Other time deposits.. 107,866 5,919 5.49 106,087 5,412 5.10 99,940 4,451 4.45
Short-term borrowings 143 8 5.87 39 3 6.50 -- --
------- ------ ------ ------ ------ ------
Total interest-
bearing liabilities 128,252 6,480 5.05 126,731 6,042 4.77 122,564 5,035 4.11
------ ------ ------
Noninterest-bearing
liabilities.......... 3,420 3,818 2,762
------- ------ -------
Total liabilities... 131,672 130,549 125,326
Stockholders' equity.. 32,705 18,341 11,850
------- ------ ------
Total liabilities
and equity......... 164,377 148,890 137,176
------- ------ ------
------- ------ ------
Net interest income... 6,265 5,194 4,493
------ ------ ------
------ ------ ------
Net interest spread... 2.88 3.00 3.09
Net interest margin... 3.90 3.59 3.40
10
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
1996 from 1995 1995 from 1994
____________________ ____________________
Increase(Decrease) Increase(Decrease)
Due to Due to
____________________ ____________________
Total Volume Rate Total Volume Rate
_____ ______ _____ _____ ______ _____
(Dollars in Thousands)
Change in interest income:
Loans receivable............... $1,081 $ 654 $ 427 $1,321 $ 558 $ 763
Investments.................... 461 508 ( 47) 447 298 149
Mortgage-backed securities..... ( 33) ( 30) ( 3) ( 60) ( 56) ( 4)
_____ _____ _____ _____ _____ _____
Total interest income......... 1,509 1,132 377 1,708 800 908
_____ _____ _____ _____ _____ _____
Change in interest expense:
Transaction and
savings accounts.............. ( 74) ( 11) ( 63) 43 ( 52) 95
Other time deposits............ 507 91 416 964 275 689
Short-term borrowings.......... 5 7 ( 2) -- -- --
_____ _____ _____ _____ _____ _____
Total interest expense........ 438 87 351 1,007 223 784
_____ _____ _____ _____ _____ _____
Net interest income........... $1,071 $1,045 $ 26 $ 701 $ 577 $ 124
===== ===== ===== ===== ===== =====
11
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 $1.1
million 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 improvement in the
net interest margin to 3.90% in fiscal 1996 from 3.59% in fiscal 1995
resulted from the 20.6% increase in net interest income versus the 11.1%
increase in average earning assets. 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 which currently
employees approximately 2,500 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 has been delayed and is currently scheduled to begin on or after
October 1997, and is expected to result in a workforce reduction of
approximately 500 to 600 employees. No provision for loan
12
losses has been recorded for the last six successive quarters due to the
consistently favorable ratio of nonperforming loans to total loans of .15%,
.17% and .09% at September 30, 1996, 1995 and 1994, 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 $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 11 of the Notes to the Consolidated Financial
Statements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1995
AND 1994
GENERAL. The Company's net income amounted to $2.0 million for fiscal 1995
compared to $2.5 million for fiscal 1994. The decrease during fiscal 1995
was primarily due to a non-recurring income tax refund of $554,000 recognized
in fiscal 1994.
NET INTEREST INCOME. The Company's net interest income increased $701,000 or
15.6% to $5.2 million for fiscal 1995 compared to $4.5 million for fiscal
1994. The increase in net interest income was due to a $1.7 million or 17.9%
increase in interest income which was partially offset by a $1.0 million or
20.0% 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 3.09% in fiscal 1994 to 3.00% in fiscal 1995 was
more than offset by an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities to 114.14% for fiscal 1995
compared to 107.92% for fiscal 1994.
INTEREST INCOME. Interest income on loans increased by $1.3 million or 15.6%
during fiscal 1995 compared to fiscal 1994. The increase in interest income
on loans was due to an increase in the weighted average yield earned on such
assets to 8.07% for fiscal 1995 compared to 7.44% for fiscal 1994 as well as
an increase of $7.5 million or 6.6% in the average balance to $121.1 million
for fiscal 1995 compared to $113.6 million for fiscal 1994. The increase in
the average balance was due to increased loan demand while the increase in
the weighted average yield earned primarily reflects the increase in market
interest rates, particularly during the first half of fiscal 1995. Interest
income on investment securities increased $447,000 or 53.8% to $1.3
13
million for fiscal 1995 compared to $830,000 for fiscal 1994. Such increase
was primarily due to an increase in the average balance of investment
securities, due in part to the investment of net proceeds from the Conversion
in such assets.
INTEREST EXPENSE. Interest expense increased $1.0 million or 20.0% during
fiscal 1995 primarily as a result of an increase in the average rate paid on
deposits to 4.77% compared to 4.11% during fiscal 1994. Such increase in the
average rate paid primarily reflects the increase in market interest rates
during fiscal 1995.
PROVISION FOR LOAN LOSSES. The provision for loan losses amounted to
$177,000 for fiscal 1995. The Company did not make any provisions for fiscal
1994. The Company establishes provisions for loan losses, which are charged
to operations, in order to maintain the allowance for loan losses at a level
which is deemed to be appropriate based upon management's assessment of prior
loss experience, the volume and type of lending conducted by the Association,
industry standards, past due loans, economic conditions in the Association's
market area and generally any other factors related to the collectibility of
the Association's loan portfolio. The increase in the provision for fiscal
1995 was primarily due to management's assessment of the increased risk of
loss in the Association's loan portfolio during such time.
NONINTEREST INCOME. Noninterest income decreased $612,000 or 47.9% to
$665,000 for fiscal 1995 compared to fiscal 1994. Such decrease was
primarily due to a non-recurring income tax refund of $554,000 recognized in
fiscal 1994. See Note 19 of the Notes to the Consolidated Financial
Statements. In addition, loan origination and commitment fees decreased
$119,000 or 29.7% to $281,000 for fiscal 1995 compared to fiscal 1994
primarily as a result of reduced loan production.
NONINTEREST EXPENSE. Noninterest expenses increased $357,000 or 17.7% to
$2.4 million for fiscal 1995 compared to $2.0 million for fiscal 1994. Such
increase was primarily due to a $146,000 or 13.8% increase in compensation
and benefits as well as a $182,000 or 154.2% increase in provisions and other
losses on foreclosed real estate. The increase in compensation and benefits
was due to normal salary and merit increases. The increase in provisions and
other losses on foreclosed real estate was primarily due to additional
write-downs on the Association's one remaining foreclosed property.
INCOME TAXES. Income tax expense amounted to $1.3 million and $1.1 million
for fiscal 1995 and 1994, respectively, resulting in effective tax rates of
39.6% and 30.1%, respectively. See Note 11 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 but has not generally utilized this source of funds.
14
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, 1996, the Association's liquidity ratio
was 17.10%.
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, 1996, the total approved loan commitments outstanding, excluding
construction loans, amounted to $2.5 million. At the same date, the
unadvanced portion of construction loans approximated $3.6 million.
Certificates of deposit scheduled to mature in one year or less at September
30, 1996 totaled $80.9 million. Investment securities scheduled to mature in
one year or less at September 30, 1996 totaled $3.1 million. Management
believes that a significant portion of maturing deposits will remain with the
Association.
As of September 30, 1996, the Association's regulatory capital was well in
excess of all applicable regulatory requirements. See "Selected Financial
Data" and Note 15 of the Notes to the Consolidated Financial Statements.
RECENT ACCOUNTING DEVELOPMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," affecting the accounting
for investments in all debt and equity securities, which are to be classified
in one of three categories for fiscal years beginning after December 15,
1993. Securities that an institution has the positive intent and ability to
hold to maturity are to be reported at amortized cost. Securities that are
bought and held principally for the purpose of selling them in the near term
are to be classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Other securities are to be
classified as securities available for sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. The Association adopted SFAS No. 115
effective October 1, 1994. On November 15, 1995, the FASB issued a guide to
implementation of SFAS No. 115 which permitted institutions, on a one time
basis, to move securities from one category to another (i.e., from held to
maturity to available for sale without penalty until December 31, 1995.) On
November 30, 1995, the Company reclassified its investment securities as
available for sale from held to maturity. The adoption of SFAS No. 115 has
not had a material adverse effect on the Company's financial condition or
results of operations.
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 93-6, Employers' Accounting
for Employee Stock Ownership Plans ("ESOPs"), which is effective for years
beginning after December 15, 1993. SOP 93-6 requires the application of its
guidance for shares acquired by ESOPs after December 31, 1992 but not yet
committed to be released as of the beginning of the year SOP 93-6 is adopted.
SOP 93-6 will, among other things, change the measure of compensation expense
recorded by employers for leveraged ESOPs from the cost of ESOP shares to the
fair value of ESOP shares. The Company and the Association adopted the ESOP
in connection with the Conversion, which
15
purchased 7% of the Common Stock sold in the Conversion. Under SOP 93-6, the
Company will recognize compensation cost 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 the Company's ESOP shares differ from the
cost of such shares, this differential will be charged or credited to equity.
Employers with internally leveraged ESOPs such as the Company will not
report the loan receivable from the ESOP as an asset and will not report the
ESOP debt from the employer as a liability. The application of SOP 93-6 has
not had a material adverse 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.
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 BIF has achieved a fully funded
status in contrast to the SAIF and, therefore, the Federal Deposit Insurance
Corporation ("FDIC") recently substantially reduced the average deposit
insurance premium paid by commercial banks to a level significantly below the
average premium paid by savings institutions.
The underfunded status of the SAIF has resulted in the introduction of
federal legislation intended to, among other things, recapitalize the SAIF
and address the resulting premium disparity. On September 30, 1996, The
Omnibus Appropriations Act was signed into law. The legislation authorized a
one-time charge on SAIF insured deposits at a rate of 65.7 basis points per
$100.00 of March 31, 1995 deposits. As a result, First Federal's assessment
amounted to $835,000 ($515,000 net of tax). 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. While the one-time special assessment has a
significant impact on the current year earnings, the resulting lower annual
premiums will benefit future earnings.
16
[Letterhead]
REPORT OF INDEPENDENT AUDITORS
November 15, 1996
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and No. 109, "Accounting for
Income Taxes," on October 1, 1994 and 1993, respectively.
/s/ Wilf & Henderson, P.C.
WILF & HENDERSON, P.C.
Certified Public Accountants
17
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share Data)
AT SEPTEMBER 30,
------------------------
ASSETS 1996 1995
--------- ---------
Cash and cash equivalents
Cash and due from banks $ 1,481 $ 1,125
Interest-bearing deposits in other banks 1,829 4,823
Federal funds sold 5,550 7,900
--------- ----------
Total cash and cash equivalents 8,860 13,848
Investment securities available for sale 14,887 1,007
Investment securities held to maturity -- 17,153
Mortgage-backed securities held to maturity 1,518 2,280
Federal Home Loan Bank stock 1,053 992
Loans receivable, net 135,660 122,160
Accrued interest receivable 1,207 1,060
Foreclosed real estate held for sale, net 72 320
Premises and equipment, net 2,014 1,743
Other assets 476 89
--------- ----------
Total assets $ 165,747 $ 160,652
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 133,071 $ 124,953
Advances from borrowers for taxes and insurance 1,865 1,944
Borrowed funds 2,858 63
Accrued federal income tax 25 395
Accrued state income tax 138 163
Accrued expenses and other liabilities 1,366 326
--------- ----------
Total liabilities 139,323 127,844
--------- ----------
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 13,052 19,134
Common stock acquired by employee benefit plans (2,147) (1,353)
Treasury stock, at cost, 99,187 shares (1,567) --
Unrealized gain (loss) on securities available for sale, net of tax (8) 8
Retained earnings substantially restricted 17,074 14,999
--------- ----------
Total stockholders' equity 26,424 32,808
--------- ----------
Total liabilities and stockholders' equity $165,747 $160,652
--------- ----------
--------- ----------
See accompanying notes to consolidated financial statements.
18
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
For the years ended September 30,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Interest income:
Loans:
First mortgage loans $ 9,962 $ 9,121 $ 7,933
Consumer and other loans 888 648 515
Investments - taxable 1,738 1,277 830
Mortgage-backed and related securities 157 190 250
----------- ----------- -------
Total interest income 12,745 11,236 9,528
----------- ----------- -------
Interest expense:
Deposits 6,472 6,039 5,035
Borrowed funds 8 3 --
----------- ----------- -------
Total interest expense 6,480 6,042 5,035
----------- ----------- -------
Net interest income 6,265 5,194 4,493
Provision for loan losses -- (177) --
----------- ----------- -------
Net interest income after provision for loan losses 6,265 5,017 4,493
----------- ----------- -------
Noninterest income:
Gain (loss) on sale of repossessed assets, net 21 77 13
Loan origination and commitment fees 336 281 400
Investment securities gain (loss), net (3) -- --
Other non interest income 399 307 310
Income from tax refunds net of tax and expenses -- -- 554
----------- ----------- -------
Total noninterest income 753 665 1,277
----------- ----------- -------
Noninterest expense:
Compensation and benefits 1,482 1,201 1,055
Occupancy and equipment 168 158 148
SAIF deposit insurance premium 1,136 288 284
Provisions and other losses on foreclosed real estate -- 300 118
Other 549 420 405
----------- ----------- -------
Total noninterest expense 3,335 2,367 2,010
----------- ----------- -------
Net noninterest income (expense) (2,582) (1,702) (733)
----------- ----------- -------
Income before income taxes and cumulative effect of
change in accounting principle 3,683 3,315 3,760
Income tax expense 1,282 1,312 1,130
----------- ----------- -------
Income before cumulative effect of change in
accounting principle 2,401 2,003 2,630
Cumulative effect of change in accounting for income tax -- -- (89)
----------- ----------- -------
Net income $ 2,401 $ 2,003 $ 2,541
----------- ----------- -------
Earnings per common share (a) $ 1.31 $ 0.40 $ N/A
Weighted average number of shares outstanding 1,832,272 1,844,928 N/A
(a) Earnings per share for 1995 are calculated since July 7, 1995, the date
of the initial public offering.
See accompanying notes to consolidated financial statements.
19
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
Unrealized
Common Gain (Loss)
Stock on Available
Additional Acquired by for Sale Total
Common Paid-in Stock Benefit Treasury Securities Retained Stockholders'
Stock Capital Plans Stock (net of tax) Earnings Equity
--------- ------------ --------------- ---------- -------------- ----------- -------------
At October 1, 1993 $ -- $ -- $ -- $ -- $ -- $ 10,455 $ 10,455
Net income -- -- -- -- -- 2,541 2,541
------ -------- ---------- ------- ------- -------- ---------
At September 30, 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 of 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
See accompanying notes to consolidated financial statements.
20
TEXARKANA FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
------- ------- -------
Cash Flows From Operating Activities:
Interest and dividends received $12,478 $10,981 $ 9,855
Miscellaneous income received 681 523 188
Interest paid (2,875) (1,828) (1,714)
Cash paid to suppliers and employees (2,242) (1,829) (1,801)
Cash from REO operations 49 29 51
Cash paid for REO operations (19) (25) (26)
Cash from loans sold 1,566 1,514 8,784
Cash paid for loans originated to sell (1,566) (1,514) (8,613)
Income taxes paid (1,674) (1,154) (1,124)
------- ------- -------
Net Cash Provided By Operating Activities 6,398 6,697 5,600
------- ------- -------
Cash Flows From Investing Activities:
Proceeds from call and maturities of investment securities 11,500 1,500 6,500
Proceeds from sale of investment securities available for sale 1,387 -- --
Purchases of investment securities (9,593) (6,264) (7,498)
Collection of principal on mortgage-backed securities 762 430 1,771
FHLB stock redeemed -- -- 50
Recovery of investment in service bureau 85 4 4
Purchase of fixed assets (352) (128) (49)
Sale of fixed assets -- 18 --
Net (increase) in loans (13,623) (4,941) (6,612)
Proceeds from sale of REO and other REO recoveries 72 314 1,434
Cash paid for REO held for resale (4) (40) (25)
------- ------- -------
Net Cash Used In Investing Activities (9,766) (9,107) (4,425)
------- ------- -------
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit 4,426 (3,646) (3,310)
Net increase (decrease) in escrow funds (79) (20) 130
Net proceeds from sale of stock -- 19,144 --
Purchase of common stock for employee benefit plans (933) (1,388) --
Purchase of treasury stock (1,567) -- --
Dividend and return of capital distributions (6,263) -- --
Funds borrowed 2,815 -- --
Repayment of funds borrowed (19) -- --
------- ------- -------
Net Cash Provided By (Used In) Financing Activities (1,620) 14,090 (3,180)
------- ------- -------
Net Increase (Decrease) In Cash and Cash Equivalents (4,988) 11,680 (2,005)
Cash and Cash Equivalents, beginning of year 13,848 2,168 4,173
------- ------- -------
Cash and Cash Equivalents, end of year $ 8,860 $13,848 $ 2,168
------- ------- -------
------- ------- -------
See accompanying notes to consolidated financial statements.
21
SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
1996 1995 1994
------- ------ ------
Reconciliation of net income to cash provided
by operating activities:
Net income $2,401 $2,003 $2,541
------- ------ ------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 81 81 74
Amortization of discounts and premiums (43) 10 (17)
Amortization of common stock acquired by benefit plans 206 45 -
Amortization of deferred loan fees (18) (17) (28)
(Gain) loss on sales of real estate owned (11) (77) (13)
(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 - 300 118
Interest expense credited to saving accounts 3,693 4,103 3,294
Dividend and interest income added to investments (102) (98) (39)
Loan fees deferred 13 11 9
Changes in assets and liabilities:
(Increase) decrease in interest receivable (146) (188) 2
Increase (decrease) in accrued interest payable (88) 111 26
Increase (decrease) in income tax payable (392) 158 95
Increase (decrease) in federal refund contingency - - (649)
(Increase) decrease in loans held for sale - - 171
Net increase (decrease) in other receivables and payables 834 70 16
-------- ------ ------
Total adjustments 3,997 4,694 3,059
-------- ------ ------
Net cash provided by operations $6,398 $6,697 $5,600
======== ====== ======
Supplemental schedule of noncash investing
and financing activities:
Acquisition of real estate in settlement of loans $ 161 $ 182 $ -
Loans made to finance sale of REO 32 184 -
Assets purchased with notes payable - 63 -
Transfer of REO to real estate held for investment 320 - -
FHLB stock dividends not redeemed 62 61 39
Patronage dividend from service center - 34 -
Transfer of securities from held to maturity to available for sale 16,679 999 -
22
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(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, and 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.
23
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
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.
The Company's loans held for sale consist only of loans made with prior
commitments of purchase from the Federal Home Loan Mortgage Corporation
(FHLMC). The Company assumes no market risk on loans held for sale. In the
unlikely event the loan is refused by the FHLMC, the loan is retained in the
Company's loan portfolio and held to maturity.
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. On October 1, 1994 the Company adopted SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities;" the
result of this accounting change had no material effect on the Company's
financial statements. 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 the allowance for loan losses and 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.
24
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
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 betterments are capitalized.
INCOME TAXES
The Company and its subsidiary file separate federal income tax returns. The
subsidiary adopted SFAS 109 "Accounting for Income Taxes" effective October
1, 1994. 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 - ASSETS AVAILABLE FOR SALE
Assets available for sale at September 30, 1996 and 1995 consisted of the
following:
September 30, 1996
------------------------------------
Amortized Unrealized Fair
-----------------
Cost Gains Losses Value
--------- ------- ------- -------
U. S. Government securities $14,898 $ 122 $ 133 $14,887
======= ======= ======= =======
September 30, 1995
------------------------------------
Amortized Unrealized Fair
-----------------
Cost Gains Losses Value
--------- ------- ------- -------
U. S. Government securities $ 999 $ 8 $ -- $ 1,007
========= ======= ======= =======
In December 1995, the Company transferred $16,679 of debt related securities
to available for sale. This transfer was in accordance with a special
reassessment provision contained within a Special Report issued by the
Financial Accounting Standards Board.
25
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 3 - SECURITIES TO BE HELD TO MATURITY
Securities to by held to maturity at September 30, 1996 and 1995 consisted of
the following:
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
======= ======= ======= =======
September 30 , 1995
------------------------------------
Amortized Unrealized Fair
Cost Gains Losses Value
------------------------------------
Debt securities:
U. S. Government securities $17,153 $ 159 $ 190 $17,122
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation securities 1,301 38 -- 1,339
Federal National Mortgage
Association securities 979 5 -- 984
Equity securities:
Federal Home Loan Bank stock 992 -- -- 992
------- -------- ------- -------
$20,425 $ 202 $ 190 $20,437
======= ======= ======= =======
The scheduled maturities of securities available for sale and held to
maturity (other than equity securities) at September 30, 1996 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 $ 2,000 $ 1,999 $ -- $
Due from one to five years 12,475 12,345 809 804
Due from five to ten years 423 543 --
Due after ten years -- -- 709 734
------- -------- -------- --------
$14,898 $14,887 $ 1,518 $ 1,538
======= ======== ======== ========
NOTE 4 - ACCRUED INTEREST RECEIVABLE
Accrued interest at September 30, 1996 and 1995 is summarized as follows:
September 30,
----------------
1996 1995
------- -------
Investment securities available for sale $ 257 $ 203
Mortgage-backed securities held to maturity 15 44
Loans receivable 935 813
------- -------
$ 1,207 $ 1,060
======= =======
26
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 5 - LOANS RECEIVABLE
Loans receivable at September 30, 1996 and 1995 consist of the following:
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
Real estate loans:
One-to-four family $ 98,031 $ 91,811
Multi-family 1,503 1,581
Nonresidential real estate and land 19,765 17,741
Construction residential 6,254 5,117
Construction commercial 1,564 800
-------- --------
Total real estate loans 127,117 117,050
-------- --------
Commercial loans 3,264 962
Consumer loans 10,107 7,859
-------- --------
Total loans 140,488 125,871
Less: Loans in process 3,571 2,444
Deferred fees and discounts 112 118
Allowance for loan losses 1,145 1,149
-------- --------
Net loans $135,660 $122,160
-------- --------
-------- --------
Nonaccruing and renegotiated loans at September 30, 1996, 1995, and 1994 were
$68, $42, and $43, 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,
--------------------
1996 1995 1994
---- ---- ----
Contractual interest income $6 $7 $5
Interest income recognized (2) (3) (3)
-- -- --
Interest income foregone $4 $4 $2
-- -- --
-- -- --
The activity in the allowance for loan losses is summarized as follows:
SEPTEMBER 30,
--------------------------
1996 1995 1994
------ ------ ------
Balance, beginning of the year $1,149 $ 977 $1,134
Provisions charged to income -- 177 --
Charge-offs (4) (6) (157)
Recoveries -- 1 --
------ ------ ------
$1,145 $1,149 $ 977
------ ------ ------
------ ------ ------
27
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 6 - 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,
---------------------------
1996 1995 1994
------- ------- -------
Federal Home Loan Mortgage Corporation $22,500 $23,054 $24,238
Others 1,336 1,400 1,450
------- ------- -------
Total $23,836 $24,454 $25,688
------- ------- -------
------- ------- -------
NOTE 7 - FORECLOSED REAL ESTATE HELD FOR SALE
Foreclosed real estate and related allowances at September 30, 1996 and 1995
consisted of the following:
SEPTEMBER 30,
------------------
1996 1995
----- -----
Foreclosed real estate:
Balance, beginning of the period $ 754 $ 897
Additions to foreclosed real estate 165 218
Sales of foreclosed real estate (93) (361)
Transfer to real estate held for investment (754) --
----- ------
Balance, end of the period $ 72 $ 754
----- ------
----- ------
Allowance for loss:
Balance, beginning of the period $(434) $ (262)
Provisions charged to income -- (300)
Charge-offs 434 128
----- ------
Balance, end of the period $ -- $ (434)
----- ------
----- ------
Net foreclosed real estate $ 72 $ 320
----- ------
----- ------
NOTE 8 - PREMISES AND EQUIPMENT
Premises and equipment at September 30, 1996 and 1995 consisted of the
following:
SEPTEMBER 30,
-------------------
1996 1995
------- -------
Land $ 734 $ 415
Office buildings and improvements 1,996 1,992
Furniture and equipment 400 376
------- -------
3,130 2,783
Less accumulated depreciation (1,116) (1,040)
------- -------
Premises and equipment, net of accumulated depreciation $ 2,014 $ 1,743
------- -------
------- -------
Depreciation expense was $ 81, $ 81, and $ 74 for the years ended September
30, 1996, 1995 and 1994, respectively.
The Company has contracted for construction of a new branch office. The
total contract amount is $470. Costs of $4 had been incurred through
September 30, 1996.
28
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 9 - DEPOSITS
The major types of saving deposits by weighted interest rates, amounts, and
the percentages of such types are as follows:
September 30, 1996 September 30, 1995
--------------------------- ---------------------------
Weighted Weighted
Interest Interest
Rate Amount % Rate Amount %
-------- ------ ------ -------- ------ -----
Noninterest bearing
deposits 0% $1,204 1% 0% $847 1%
Now accounts 2.35% 5,098 4% 2.35% 5,000 4%
Money market and passbook 3.25% 13,984 10% 3.25% 12,766 10%
------- ----- ------ -----
20,286 15% 18,613 15%
Certificates of deposits 4.71% 112,785 85% 5.49% 106,340 85%
------- ----- ------- -----
Totals $133,071 $100% $124,953 $100%
------- ----- ------- -----
------- ----- ------- -----
A summary of certificates of deposit by maturity is as follows:
September 30,
------------------------
1996 1995
-------- --------
Within one year $ 80,867 $ 71,247
One to two years 16,515 19,018
Two to three years 8,430 9,174
Four to five years 2,991 4,117
Thereafter 3,982 2,784
--------- --------
$112,785 $106,340
--------- --------
--------- --------
At September 30, 1996, 1995, and 1994, respectively, interest expense on
deposits for the indicated period is summarized as follows:
September 30,
-------------------------
1996 1995 1994
----- ----- -----
Money market $ 262 $ 299 $303
Passbook savings 168 210 166
Now 123 118 115
Certificates of deposit 5,919 5,412 4,451
------ ------ -------
$6,472 $6,039 $5,035
------ ------ -------
------ ------ -------
The aggregate amount of deposits with a minimum denomination of $100 was
$16,061 at September 30, 1996 and $13,104 at September 30, 1995. Deposits in
excess of $100 are not covered by federal deposit insurance.
NOTE 10 - 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, 1996 was $43 and at September 30, 1995 was $63. The note is payable in
three annual installments of $24, at a 6.5% interest rate.
The Company had a short term loan outstanding secured by common stock of the
Association in the amount of $475. The loan matured October 23, 1996 and
bore interest at 8.25%.
29
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 10 - BORROWED FUNDS - CONTINUED
The Company entered into sales of securities under agreements to repurchase
(the Agreements), which are treated as financings. The obligation to
repurchase securities sold is reflected as a liability in the consolidated
statements of financial condition. The dollar amount of securities
underlying the Agreements are delivered to the broker who arranged the
transaction. The Agreements call for the repurchase of the identical
securities. The maximum amount outstanding at any month-end during fiscal
year 1996 was $2,340. The average monthly amount outstanding during 1996 was
$195. Information related to the Agreements as of September 30, 1996 is as
follows:
Loan Asset Asset
Maturity Carrying Market Loan Loan
Date Value Value Amount rate
-------- -------- ------ ------ -----
Federal Home Loan Bank Note 10/18/96 $1,399 $1,399 $1,377 5.58%
Federal National Mortgage
Association Certificate 10/18/96 1,000 983 963 5.58%
------ ------ ------
$2,399 $2,382 $2,340
------ ------ ------
------ ------ ------
NOTE 11 - FEDERAL AND STATE INCOME TAXES
The Company and the Association file federal and state income tax returns on
a fiscal year basis. If certain conditions are met in determining taxable
income, the Association is allowed a special bad debt deduction based on a
percentage of taxable income, presently 8%, or on specified experience
formulas. The Association used the percentage method for the periods ended
September 30, 1996, 1995, and 1994. As a result of the use of the percentage
method in prior years, retained earnings include approximately $2,304 and
$2,309 at September 30, 1996 and 1995, 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. 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 $783 at September 30, 1996 and $785 at
September 30, 1995. 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. If
the Company continues to qualify as a small bank with assets under $500,000
the Company will not be required to repay the tax on prior percentage of
income bad debt deductions. Should the Company fail to meet this
requirement, the tax will have to be repaid ratably over a six year period.
The Company is currently in no jeopardy of failing to meet this
requirement.
Income tax expense for the years indicated consisted of the following:
September 30,
----------------------------
1996 1995 1994
----- ---- ----
Current:
Federal $1,380 $1,086 $920
State 198 183 159
------ ------ -----
1,578 1,269 1,079
------ ------ -----
Deferred:
Federal (289) 22 20
State (7) 21 31
------ ------ -----
(296) 43 51
------ ------ -----
Total provisions $1,282 $1,312 $1,130
------ ------ -----
------ ------ -----
30
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 11 - FEDERAL AND STATE INCOME TAXES - CONTINUED
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,
------------------------------
1996 1995 1994
------ ------ ------
Effective federal and state statutory rates 38.3% 38.3% 38.3%
----- ------ ------
Expected tax at statutory rates $1,411 $1,269 $1,486
Adjustments to expected tax:
Bad debt deductions (136) 67 (88)
Income tax refunds -- -- (248)
Other 7 (24) (20)
----- ------ ------
$1,282 $1,312 $1,130
----- ------ ------
----- ------ ------
Effective tax rates 34.8% 39.6% 30.1%
----- ------ ------
----- ------ ------
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,
------------------------------
1996 1995 1994
------ ------ ------
Deferred tax assets:
Deferred loan fees $ 40 $ 42 $ 44
Special one time SAIF assessment 284 -- --
State deferred income tax 46 47 40
Employee benefit plans 68 10 --
Other 6 3 --
------ ------ ------
Deferred tax assets 444 102 84
------ ------ ------
Deferred tax liabilities:
Fixed assets (442) (418) (396)
Federal Home Loan Bank stock (150) (125) (101)
State bad debt reserves (63) (68) (52)
Other (2) -- --
----- ------ ------
Deferred tax liabilities (657) (611) (549)
------ ------ ------
Net deferred tax liabilities $(213) $(509) $(465)
------ ------ ------
------ ------ ------
NOTE 12 - 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.
NOTE 13 - DIVIDENDS
The Company received a private letter ruling from the IRS addressing the tax
implications of dividends paid during the current 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
earnings and $6,149 was determined to be a return of capital to the
shareholders.
31
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 14 - 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, 1996 and 1995, was approximately $5 and $57, respectively.
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, of which, as of September 30, 1996, 10,415 shares were committed
to be released and 6,944 shares have been allocated to participants. The
fair value of the 121,503 unearned ESOP shares was $1,731 at September 30,
1996. 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 $206 for the year ended September 30, 1996 and $45 for the year ended
September 30, 1995.
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, 1996 the Company acquired 62,300 shares of its common
stock on behalf of the MRP through open market purchases. An aggregate of
61,347 shares have been awarded to the Company's Board of Directors and
officers as of September 30, 1996, subject to vesting and other provisions of
the MRP. At September 30, 1996 the deferred cost of unearned MRP shares
totaled $933 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 $89 for the year ended
September 30, 1996.
Common stock totaling 39,675 shares has been reserved for issuance for the
Directors Stock Option Plan. 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. Such options were not dilutive during the
year ended September 30, 1996.
During the year ended September 30, 1996, 128,188 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 1996 is thirteen dollars and seventy-five
cents. Such options were dilutive during the year ended September 30, 1996,
but affected earnings per share by less than $.01 per share.
32
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 15 - REGULATORY MATTERS
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
1989 was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7,
1989. In addition to capital requirements, FIRREA includes provisions for
changes in the federal regulatory structure for institutions, including a new
deposit insurance system, increased deposit insurance premiums, and
restricted investment activities with respect to non-investment grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing related assets needed to qualify as a savings
institution. The regulations require institutions to have minimum regulatory
tangible capital equal to 1.5 percent of total assets, core capital ratio
equal to 3 percent of total assets, and risk-based capital ratio equal to 8
percent of risk-based assets. The Association, at September 30, 1996 and
1995, met the regulatory tangible capital, core capital, and risk-based
capital requirements as defined by FIRREA. Failure to meet these capital
requirements would expose the Association to regulatory sanctions.
The following schedule reconciles the Association's unconsolidated GAAP
capital to regulatory capital for the periods ended September 30, 1996 and
1995:
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------------ ---------------------------------------
TANGIBLE CORE RISK-BASED TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
-------- ------- ---------- -------- ------- ----------
GAAP capital $27,035 $27,035 $27,035 $24,515 $24,515 $24,515
Adjustments to capital:
Non-allowable assets -- -- (320) -- -- (320)
Unrealized gain loss on AFS (4) (4) (4) (8) (8) (8)
Allowable allowance for loan losses -- -- 1,094 -- -- 1,099
Regulatory capital computed 27,031 27,031 27,805 24,507 24,507 25,286
------- ------- ------- ------- ------- -------
Minimum capital requirement 2,450 4,900 7,793 2,383 4,766 7,043
------- ------- ------- ------- ------- -------
Regulatory capital excess $24,581 $22,131 $20,012 $22,124 $19,741 $18,243
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
As a percent of assets:
Minimum regulatory capital 1.5% 3.0% 8.0% 1.5% 3.0% 8.0%
Actual regulatory capital 16.6% 16.6% 28.5% 15.4% 15.4% 28.7%
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.
33
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 16 - OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows:
September 30,
--------------------------------
1996 1995 1994
--------------------------------
Other noninterest income:
Service charges on deposits $ 123 $ 114 $ 109
Other service charges and fees 88 71 63
Service fees on loans sold 85 86 86
Other 103 36 52
-------- ------- -------
399 307 310
======== ======= =======
Other noninterest expense:
Data processing charges 112 107 109
Advertising 54 55 37
Professional fees 116 37 37
OTS assessments 51 43 42
Stationary, printing, postage, and
telephone 79 70 66
Insurance and bond premiums 42 43 46
Other 95 65 68
--------- -------- -------
$ 549 $ 420 $ 405
========= ======== =======
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 $457 and $459 at September 30, 1996 and 1995,
respectively, in direct loans to officers and directors. For fiscal year
1996 new loans totaled $99, repayments totaled $101. The Company purchases a
major portion of its insurance coverage from a company partially owned by two
Board Members. The Company paid $56 and $43, for such coverage, during the
years ended September 30, 1996 and 1995, respectively. The Company paid $72
and $60 to directors for director's fees during the years ended September 30,
1996 and 1995, respectively.
NOTE 19 - FEDERAL INCOME TAX AMENDED RETURNS
The Association filed amended federal income tax returns for years ended
December, 1972 through December, 1980, based on a Federal Tax Court decision
involving the computation of the percentage bad debt deduction in years
effected by net operating loss carrybacks. As a result, the Association
received refunds of tax in the amount of $374, and interest in the amount of
$417 in the year ended September 30, 1992. Two U. S. Courts of Appeals, in
different jurisdictions, subsequently reversed the Tax Court's decision,
thus causing substantial doubt as to the validity of the refunds. Because
of this uncertainty, no income related to this matter was recognized in the
year ended September 1992 or 1993. During the year ended September 30, 1994
the 2 year statute of limitations, during which the IRS could challenge a
refund claim, expired and the Association recognized the refunds as income.
The income recognized for the year ended September 30, 1994 was $554. The
amount included in earnings in the quarter ended December 1993 was $312 and
the amount included in the quarter ended September 1994 was $242. Had the
Association recognized the refunds as income in the year received, net income
for the period ended September 30, 1994 would have been $554 less than
presented in the statement of income.
34
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 20 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
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 $5,550 and $7,900 at September 30, 1996 and 1995, respectively.
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 $3,857 at September 30, 1996. This portfolio is
collateralized by real estate, commercial business assets, and vehicles. The
Company has loans outside its normal lending area to four different borrowers
in Ft. Worth, Texas in the total amount of $3,153 and $3,213 at September 30,
1996 and 1995, respectively. This portfolio is secured by four different
properties.
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.
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 - Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
commercial mortgages, residential mortgages, personal and student loans, and
nonaccrual loans. The fair value of performing loans is calculated by
discounting expected cash flows using an estimated market discount rate.
Expected cash flows include both contractual cash flows and prepayments of
loan balances, which are estimated using the last three months of portfolio
history. The estimated discount rate considers credit and interest rate risk
inherent in the loan portfolios, and other factors such as liquidity premiums
and incremental servicing costs to an investor. Management has made
estimates of fair value discount rates that it believes to be reasonable.
However, because there is no market for any of these financial instruments
management has no basis to determine whether the fair value would be
indicative of the value negotiated in an actual sale. 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.
35
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Accrued Interest Receivable - For accrued interest receivable, the carrying
amount is a reasonable estimate of fair value.
Deposit Liabilities - Under SFAS 107, 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, 1996 and 1995. 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 fair value of commitments to extend credit
is estimated as the balance outstanding on the commitment.
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
September 30, 1996 September 30, 1995
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- --------- ------------ ---------
Financial assets:
Cash and cash equivalents $ 8,860 $ 8,860 $ 13,848 $ 13,848
Assets available for sale 14,887 14,887 1,007 1,007
Investments and mortgage backed
securities 2,571 2,591 20,425 20,437
Loans receivable, net 135,660 138,590 122,160 124,068
Accrued interest 1,207 1,207 1,060 1,060
---------- --------- ---------- -----------
Total Financial Assets $ 163,185 $ 166,135 $ 158,500 $ 160,420
========== ========= ========== ===========
Financial liabilities:
Deposits $ 133,071 $ 132,803 $ 124,953 $ 127,357
Borrowed money 2,858 2,858 - -
Commitments to extend credit - 6,879 - 5,417
---------- --------- ---------- -----------
Total Financial Liabilities $ 135,929 $ 142,540 $ 124,953 $ 132,774
========== ========= ========== ===========
36
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
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, 1996 and 1995:
1996 1995
-------- --------
Assets
Cash $ 49 $ -
Loan to subsidiary - 6,536
Investment securities available for sale 2,382 -
Investment securities held to maturity - 1,775
Accrued interest receivable 37 24
Deferred tax assets 42 -
Investment in subsidiary 27,035 24,516
-------- -------
Total assets 29,545 32,851
-------- -------
-------- -------
Liabilities
Borrowed funds 2,815 -
Accrued income tax - 43
Accrued expenses and other liabilities 306 -
-------- -------
Total liabilities 3,121 43
Stockholders' equity
Common stock 20 20
Additional paid-in capital 13,052 19,134
Common stock acquired by employee benefit plans (2,147) (1,353)
Treasury stock (1,567) -
Unrealized gain (loss) on available for sale securities (8) 8
Retained earnings 17,074 14,999
-------- -------
Total stockholders' equity 26,424 32,808
-------- -------
Total liabilities and stockholders' equity $ 29,545 $32,851
-------- -------
-------- -------
CONDENSED STATEMENTS OF OPERATIONS:
For the year ended September 30, 1996 and for the period from
July 7, 1995 to September 30, 1995
1996 1995
-------- -------
Income:
Income before equity in undistributed earnings of subsidiary $ 473 $ 127
Equity in undistributed income of subsidiary 2,410 649
-------- -------
Total income 2,883 776
-------- -------
Expenses:
Compensation and employee benefits 89 -
Management fees 276 -
Professional fees 76 -
Income tax (1) 43
Other 42 -
-------- -------
Total expense 482 43
-------- -------
Net income $ 2,401 $ 733
-------- -------
-------- -------
37
TEXARKANA FIRST FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995, and 1994
(Dollar amounts in thousands, except earnings per share)
NOTE 22 - PARENT COMPANY ONLY FINANCIAL INFORMATION - CONTINUED
CONDENSED STATEMENTS OF CASH FLOW:
For the year ended September 30, 1996 and for the period from
July 7, 1995 to September 30, 1995:
1996 1995
-------- -------
Operating activities:
Interest income $ 443 $ 100
Miscellaneous income 4 -
Cash paid to suppliers and employees (390) -
Income tax paid (78) -
-------- -------
Net cash provided by (used in) operating activities (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 1,387 -
Collection of ESOP loan principal 92 24
Net cash used in investing activities (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 (933) -
Purchase of treasury shares (1,567) -
Funds borrowed 2,815 -
Dividend and return of capital distributions (6,263) -
-------- -------
Net cash provided by (used in) financing activities (5,948) 17,756
-------- -------
Net change during the period (6,487) 6,536
Cash and cash equivalents at the beginning of the period 6,536 -
-------- -------
Cash and cash equivalents at the end of the period $ 49 $ 6,536
-------- -------
-------- -------
Reconciliation of net income to net cash provided by operating activities:
Net income $ 2,401 $ 733
Undistributed earnings of subsidiary (2,410) (649)
Amortization of discounts and premiums (16) (3)
Loss on sale of securities 3 -
Increase (decrease) in income tax payable (85)
Increase (decrease) in other receivables and payables 86 19
-------- -------
Net cash provided by (used in) operating activities $ (21) $ 100
-------- -------
-------- -------
38
DIRECTORS AND EXECUTIVE OFFICERS
JOSH R. MORRISS, JR.
Chairman of the Board
JAMES W. MCKINNEY
President, Chief Executive Officer
and Director
JOHN E. HARRISON
Executive Vice President
and Director
JOHN M. ANDRES
Director
ARTHUR L. MCELMURRY
Director
DONALD N. MORRISS
Director
BANKING LOCATIONS
MAIN OFFICE
Third & Olive Streets
Texarkana, Arkansas 71854
BRANCH OFFICES
611 East Wood Street
Ashdown, Arkansas 71822
6th & S. Main
Hope, Arkansas 71801
217 W. DeQueen Avenue
DeQueen, Arkansas 71832
111 W. Shepherd
Nashville, Arkansas 71852
39
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 75504
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, 1996, the Company had approximately 432 stockholders of record.
Such holdings do not reflect the number of beneficial owners of common stock.
40