UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-13842
Texarkana First Financial Corporation
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 71-0771419
_________________________________ ________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3rd & Olive Streets
Texarkana, Arkansas 71854-5917
_________________________________________ ________________________
(Address of principal executive office) (Zip Code)
(870) 773-1103
_______________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of
March 31, 2000, there were issued and outstanding 1,539,342 shares of
the Registrant's Common Stock, par value $0.01 per share.
TEXARKANA FIRST FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Financial Condition as of
March 31, 2000 (unaudited) and September 30, 1999 1
Consolidated Statements of Income for the three and
six months ended March 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Cash Flows for the six months
ended March 31, 2000 and 1999 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Unaudited
March 31, September 30,
2000 1999
ASSETS
Cash and cash equivalents
Cash & due from banks........................... $ 2,294 $ 2,370
Interest bearing deposits in other banks........ 209 638
Federal funds sold.............................. 175 150
________ ________
Total cash and cash equivalents.............. 2,678 3,158
Investment securities available-for-sale........... 27,382 31,457
Mortgage-backed securities held-to-maturity........ 282 386
Federal Home Loan Bank stock....................... 1,289 1,252
Loans receivable, net of unearned income........... 170,592 161,208
Allowance for loan losses.......................... (979) (995)
Accrued interest receivable........................ 1,293 1,311
Foreclosed real estate, net........................ 171 --
Premises and equipment, net........................ 3,052 2,691
Other assets....................................... 727 679
________ ________
Total assets.................................... $206,487 $201,147
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................... $153,123 $153,992
Advances from borrowers for taxes & insurance...... 1,245 2,151
Borrowed funds..................................... 24,000 17,500
Accrued income tax................................. 81 310
Accrued expenses and other liabilities............. 626 816
________ ________
Total liabilities............................... 179,075 174,769
________ ________
Commitments and contingencies...................... -- --
________ ________
Common stock, $0.01 par value;
15,000,000 shares authorized;
1,983,750 shares issued......................... 20 20
Additional paid-in capital......................... 13,780 13,742
Common stock acquired by stock benefit plans....... (1,169) (1,448)
Treasury stock, at cost, 444,408 shares and
444,408 shares September 30, 1999............... (9,210) (9,210)
Retained earnings-substantially restricted......... 24,800 23,713
Accumulated other comprehensive income............. (809) (439)
________ ________
Total stockholders' equity................... 27,412 26,378
________ ________
Total liabilities and stockholders' equity... $206,487 $201,147
======== ========
The accompanying notes are an integral part of this statement.
Page 1
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended Ended
March 31, March 31,
2000 1999 2000 1999
Interest Income
Loans
First mortgage loans...................... $3,003 $2,833 $5,921 $5,756
Consumer and other loans.................. 447 356 866 721
Investment securities........................ 400 367 807 700
Mortgage-backed and related securities....... 85 103 172 224
______ ______ ______ ______
Total Interest Income..................... 3,935 3,659 7,766 7,401
______ ______ ______ ______
Interest Expense
Deposits..................................... 1,810 1,860 3,619 3,783
Borrowed funds............................... 316 107 555 223
______ ______ ______ ______
Total Interest Expense.................... 2,126 1,967 4,174 4,006
______ ______ ______ ______
Net Interest Income....................... 1,809 1,692 3,592 3,395
Provision for loan losses.................... -- -- -- --
______ ______ ______ ______
Net Interest Income After Provision....... 1,809 1,692 3,592 3,395
______ ______ ______ ______
Noninterest Income
Gain on sale of investments, net............. -- -- -- 10
Gain on sale of loans, net................... 1 37 1 111
Loan origination and commitment fees......... 70 97 140 215
Other........................................ 143 142 299 280
______ ______ ______ ______
Total Noninterest Income.................. 214 276 440 616
______ ______ ______ ______
Noninterest Expense
Compensation and benefits.................... 541 540 1,096 1,092
Occupancy and equipment...................... 57 58 116 114
SAIF deposit insurance premium............... 8 23 31 45
Other........................................ 175 150 340 283
______ ______ ______ ______
Total Noninterest Expense................. 781 771 1,583 1,534
______ ______ ______ ______
Income Before Income Taxes...................... 1,242 1,197 2,449 2,477
Income tax expense.............................. 410 405 856 864
______ ______ ______ ______
Net Income...................................... $ 832 $ 792 $1,593 $1,613
====== ====== ====== ======
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities......... (100) (92) (370) (174)
Reclassification of gain
included in net income.................... -- -- -- (6)
______ ______ ______ ______
Comprehensive income............................ $ 732 $ 700 $1,223 $1,433
______ ______ ______ ______
Earnings per common share - basic............ $0.575 $0.523 $1.102 $1.060
Earnings per common share - diluted.......... $0.563 $0.502 $1.072 $1.016
Weighted average shares - basic.............. 1,447 1,512 1,445 1,522
Weighted average shares - diluted............ 1,478 1,578 1,485 1,588
The accompanying notes are an integral part of this statement.
Page 2
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months
Ended March 31,
2000 1999
Cash Flows From Operating Activities:
Interest and dividends received.......................... $7,721 $7,439
Miscellaneous income received............................ 440 604
Interest paid............................................ (1,673) (1,407)
Cash paid to suppliers and employees..................... (1,522) (1,564)
Cash from loans sold..................................... 182 7,028
Cash paid for loans originated to sell................... (182) (6,753)
Income taxes paid........................................ (628) (877)
______ ______
Net Cash Provided By Operating Activities............. 4,338 4,470
______ ______
Cash Flows From Investing Activities:
Proceeds from call and maturity of investment securities. 3,000 5,600
Proceeds from sale of securities available for sale...... - - - -
Purchases of investment securities available for sale.... - - (10,370)
Purchases of mortgage-backed securities.................. - - - -
Collection of principal on mortgage-backed securities.... 643 1,472
Purchase of fixed assets................................. (415) (81)
Net (increase) decrease in loans......................... (9,747) 531
Cash paid for REO held for resale........................ - - (9)
Proceeds from sale of REO and other REO recoveries....... - - 1
______ ______
Net Cash Provided (Used) By Investing Activities...... (6,519) (2,856)
______ ______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit.......... (3,370) (1,116)
Net increase (decrease) in escrow funds.................. (906) (866)
Net increase (decrease) in funds borrowed................ 6,500 3,400
Purchase of treasury stock............................... - - (2,218)
Stock options exercised.................................. - - 48
Cash dividends paid on common stock...................... (523) (527)
______ ______
Net Cash (Used) By Financing Activities............... 1,701 (1,279)
______ ______
Net Increase (Decrease) In Cash and Cash Equivalents.. (480) 335
______ ______
Cash and Cash Equivalents, beginning of period.............. 3,158 2,635
______ ______
Cash and Cash Equivalents, end of period.................... $2,678 $2,970
====== ======
The accompanying notes are an integral part of this statement.
Page 3
TEXARKANA FIRST FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
Six Months
Ended March 31,
2000 1999
Reconciliation of net income to cash provided
by operating activities:
Net income.................................................. $1,593 $1,613
______ ______
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation............................................. 53 54
Amortization of discounts and premiums................... 6 35
Amortization of deferred loan fees....................... (10) (19)
Amortization of common stock acquired by benefit plans... 245 274
(Gain) loss on sales of real estate owned................ - - (12)
(Gain) loss on sales of securities available for sale.... - - (10)
Interest expense credited to saving accounts............. 2,500 2,581
Dividend and interest income added to investments........ (68) (60)
Loan fees deferred....................................... 9 24
Changes in assets and liabilities:
(Increase) decrease in interest receivable............... 18 57
Increase (decrease) in accrued interest payable.......... 1 18
Increase (decrease) in income tax payable................ 229 (13)
Net increase (decrease) in other receivables and payables (238) (72)
______ ______
Total adjustments..................................... 2,745 2,857
______ ______
Net cash provided by operations............................. $4,338 $4,470
====== ======
Supplemental schedule of noncash investing
and financing activities:
FHLB stock dividends not redeemed..................... $ 38 $ 33
Acquisition of real estate in settlement of loans..... 171 40
Loans made to finance sale of REO..................... - - 79
Page 4
TEXARKANA FIRST FINANCIAL CORPORATION
Notes to Unaudited Consolidated Financial Statements
Basis of Presentation
Texarkana First Financial Corporation (the "Company") was incorporated in
March 1995 under Texas law for the purpose of acquiring all of the capital
stock issued by First Federal Savings and Loan Association of Texarkana (the
"Association") in connection with the Association's conversion from a
federally chartered mutual savings and loan association to a stock savings and
loan association (the "Conversion"). The Conversion was consummated on July
7, 1995 and, as a result, the Company became a unitary savings and loan
holding company for the Association. Prior to the Conversion, the Company had
no material assets or liabilities and engaged in no business activity.
Subsequent to the acquisition of the Association, the Company has engaged in
no significant activity other than holding the stock of the Association and
engaging in certain passive investment activities.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair statement of results for the interim periods.
The results of operations for the three and six months ended March 31, 2000
are not necessarily indicative of the results to be expected for the year
ending September 30, 2000. Earnings for the full fiscal year will be impacted
by various economic conditions. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes thereto for the year ended September 30, 1999,
contained in the Company's annual report to stockholders.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted-average
number of shares of common stock outstanding. Stock options outstanding are
included in the calculation of fully diluted earnings per share. Shares
acquired by the ESOP are accounted for in accordance with Statement of
Position 93-6 and are not included in the weighted-average shares outstanding
until the shares are committed to be released for allocation to ESOP
participants.
Page 5
TEXARKANA FIRST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of results of operations is intended to
assist in understanding the financial condition and results of operations of
the Company. The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on interest-
earning assets and interest expense on interest-bearing liabilities. The
Company's results of operations also are affected by the provision for loan
losses, the level of its noninterest income and expenses, and income tax
expense.
Asset/Liability Management and Interest Rate Risk
The objective of asset/liability management is to maximize net interest margin
within an acceptable level of interest rate risk.
Net interest income is the primary component of net income and interest rate
risk is a significant exposure. Interest rate risk can be defined as the
amount of forecasted net interest income that may be gained or lost due to
favorable or unfavorable movements in interest rates.
In order to minimize the potential for adverse effects of material and
prolonged changes in interest rates on the Company's results of operations,
management has implemented and continues to monitor asset and liability
policies to better match the maturities and repricing terms of rate-sensitive
assets and rate-sensitive liabilities. Management also monitors and
evaluates, on a quarterly basis, the potential impact of interest rate changes
upon the Company's net portfolio value and net interest income.
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate margin that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of rate-sensitive assets and rate-
sensitive liabilities which either reprice or mature within a given period of
time. The difference, or the interest rate repricing "gap", provides an
indication of the extent to which an institution's interest rate margin will
be affected by changes in interest rates. A gap is considered positive when
the amount of rate-sensitive assets exceeds the amount of rate-sensitive
liabilities, and is considered negative when the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets. During a period of
rising interest rates, a negative gap would cause a decrease in net interest
income, while a positive gap would cause an increase in net interest income.
During a period of declining interest rates, a negative gap would cause an
increase in net interest income, while a positive gap would cause a decrease
in net interest income.
Page 6
At March 31, 2000, the estimated one-year gap was a negative 92.0% and the
ratio of rate-sensitive assets to rate-sensitive liabilities maturing or
repricing within one year was 52.1%.
At March 31, 2000, assuming instantaneous interest rate changes sustained for
a twelve-month period, the following table presents the estimated percent of
change in the net portfolio value and net interest income for various changes
in interest rates (100 basis points equals 1%). Estimates are based upon
numerous assumptions. Actual sensitivity to interest rate changes could vary
significantly if actual experience differs from assumptions used in making the
calculations. Net portfolio value is the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts, if any.
Percentage Change in
Change in _____________________________
Interest Rates Net Portfolio Net Interest
(Basis Points) Value Income
_______________ _____________ ____________
+300 -15.8% -18.1%
+200 -8.7% -12.0%
+100 -3.2% -6.0%
-100 +1.4% +5.8%
-200 +2.1% +11.7%
-300 +2.8% +17.5%
Changes in Financial Condition
General
The Company's assets increased $5.3 million (2.7%) to $206.5 million at March
31, 2000 from $201.1 million at September 30, 1999. The increase was due
primarily to increases of $9.4 million (5.8%) in loans receivable, partially
offset by decreases of $4.1 million (12.5%) in investments and $.5 million
(15.2%) in cash and cash equivalents. The Company's total liabilities
increased $4.3 million (2.5%) due primarily to an increase of $6.5 million
(37.1%) in borrowed funds, partially offset by decreases of $.9 million (.6%)
in deposits and $.9 million (42.1%) in borrowers' escrow balances (property
tax payments are made in the first two quarters of the fiscal year).
Cash and Cash Equivalents
Cash and federal funds sold decreased $.5 million (15.2%) to $2.7 million at
March 31, 2000 from $3.2 million at September 30, 1999. The decrease was due
primarily to a decrease in interest-bearing deposits in other banks.
Investments
Investments decreased $4.1 million (12.5%) to $29.0 million at March 31, 2000
from $33.1 million at September 30, 1999. Proceeds from maturing investments
were utilized to fund increases in loans.
Page 7
Loans Receivable
Loans receivable, net of unearned income, increased $9.4 million (5.8%) to
$170.6 million at March 31, 2000 from $161.2 million at September 30, 1999.
The increase in loans was the result of an increase of $7.9 million (5.5%) in
real estate loans and an increase of $1.5 million (8.6%) in commercial and
consumer loans. The increase was due to additional loan demand, including
home equity loans, and the retention of fixed-rate mortgage loans. In the six
months ended March 31, 2000, $31.0 million of loans were originated. $11.8
million of single-family mortgage loans were originated and $182,000 were
sold.
Nonperforming Assets
Nonperforming assets decreased $311,000 to $758,000 (.37% of total assets) at
March 31, 2000 compared to $1.1 million (.53% of total assets) at September
30, 1999. At March 31, 2000, nonperforming loans were $587,000 (.34% of total
loans) compared to $1.1 million (.66% of total loans) at September 30, 1999.
At March 31, 2000, the Company had $171,000 of foreclosed real estate. At
March 31, 2000, the allowance for loan losses was $979,000 (.57% of total
loans and 166.78% of nonperforming loans) compared to $995,000 (.62% of total
loans and 93.08% of nonperforming loans) at September 30, 1999. Net charge-
offs were $13,000 for the quarter ended March 31, 2000 and $3,000 for the
quarter ended December 31, 1999.
Deposits
Deposits decreased $.9 million (.6%) to $153.1 million at March 31, 2000 from
$154.0 million at September 30, 1999. The decrease in deposits was primarily
in savings accounts and certificates of deposit.
Borrowed Funds
Borrowings increased $6.5 million (37.1%) to $24.0 million at March 31, 2000
from $17.5 million at September 30, 1999. Additional borrowings, from the
FHLB of Dallas, were primarily utilized to fund increases in loans.
Stockholders' Equity
Stockholders' equity increased $1.0 million (3.9%) to $27.4 million at March
31, 2000 from $26.4 million at September 30, 1999, primarily the result of
retained earnings. The ratio of stockholders' equity to total assets was
13.3% at March 31, 2000 compared to 13.1% at September 30, 1999.
Page 8
Comparison of Results of Operations for the Three Month and Six Month Periods
Ended March 31, 2000 and 1999
General.
For the three months ended March 31, 2000 compared to the same period ended
March 31, 1999, net income, earnings per share and return on average equity
were higher while return on average assets was lower.
For the six months ended March 31, 2000 compared to the same period ended
March 31, 1999, earnings per share was higher while net income, return on
average equity and return on average assets were lower.
For the three month and six month periods ended March 31, 2000, decreases in
average shares outstanding, resulting from the purchase of additional shares
of common stock to be held as treasury shares, contributed to the increase in
earnings per share.
For the three months ended March 31, 2000 compared to the same period ended
March 31, 1999, total average earning assets (investments and loans) and total
average interest bearing liabilities (deposits and borrowed funds) were higher
and average rates on earning assets and interest bearing liabilities were
higher. The yield on total average earning assets was 7.92% and 7.88%; the
rate on total average interest bearing liabilities was 5.00% and 4.92%; the
interest rate spread was 2.93% and 2.96%; and, the net interest margin was
3.64% and 3.65%.
For the three months ended March 31, 2000, net income was $832,000 compared to
$792,000 for the same period ended March 31, 1999. The increase of $40,000
(5.1%) in net income was due to an increase of $117,000 in net interest
income, partially offset by an increase of $72,000 in net noninterest expense
and an increase of $5,000 in income tax expense.
For the three months ended March 31, 2000 and March 31, 1999, basic earnings
per share was $.58 and $.52, respectively (diluted EPS of $.56 and $.50,
respectively). Return on average assets (ROA) was 1.63% and 1.66%,
respectively, return on average equity (ROE) was 12.32% and 11.80%,
respectively, and the operating efficiency ratio was 38.6% and 39.2%,
respectively.
For the six months ended March 31, 2000, net income was $1,593,000 compared to
$1,613,000 for the same period ended March 31, 1999. The decrease of $20,000
(1.2%) in net income was due to an increase of $225,000 in net noninterest
expense, partially offset by an increase of $197,000 in net interest income
and a decrease of $8,000 in income tax expense.
For the six months ended March 31, 2000 and March 31, 1999, basic earnings per
share was $1.10 and $1.06, respectively (diluted EPS of $1.07 and $1.02,
respectively). Return on average assets (ROA) was 1.57% and 1.67%,
respectively, return on average equity (ROE) was 11.83% and 11.90%,
respectively, and the operating efficiency ratio was 39.3% and 38.2%,
respectively.
Page 9
Net Interest Income.
For the three months ended March 31, 2000, net interest income increased
$117,000 (6.9%) compared to the same period in 1999. The increase was due to
an increase of $276,000 (7.5%) in interest income, partially offset by an
increase of $159,000 (8.1%) in interest expense. For the second quarter of
fiscal 2000 compared to the second quarter of fiscal 1999, the net interest
margin was 3.64% and 3.65%, respectively, and the net interest spread was
2.93% and 2.96%, respectively.
For the six months ended March 31, 2000, net interest income increased
$197,000 (5.8%) compared to the same period in 1999. The increase was due to
an increase of $365,000 (4.9%) in interest income, partially offset by an
increase of $168,000 (4.2%) in interest expense. For the six month period of
fiscal 2000 compared to the same period of fiscal 1999, the net interest
margin was 3.63% and 3.62%, respectively, and the net interest spread was
2.91% and 2.93%, respectively.
Interest Income.
For the three months ended March 31, 2000, interest income increased $276,000
(7.5%) compared to the same period in 1999. The increase was the result of
higher average balances and higher rates. Average earning assets increased to
$199.7 million from $188.2 million and the average yield increased to 7.92%
from 7.88%.
For the six months ended March 31, 2000, interest income increased $365,000
(4.9%) compared to the same period in 1999. The increase was the result of
higher average balances partially offset by lower rates. Average earning
assets increased to $197.9 million from $187.9 million and the average yield
declined to 7.85% from 7.90%.
Interest Expense.
For the three months ended March 31, 2000, interest expense increased $159,000
(8.1%) compared to the same period in 1999. The increase was the result of
higher average balances and higher rates. Average interest bearing
liabilities increased to $171.0 million from $162.2 million and the average
rate increased to 5.00% from 4.92%.
For the six months ended March 31, 2000, interest expense increased $168,000
(4.2%) compared to the same period in 1999. The increase was the result of
higher average balances partially offset by lower rates. Average interest
bearing liabilities increased to $169.2 million from $161.6 million and the
average rate declined to 4.94% from 4.97%.
Provision for Loan Losses.
No provisions were made for loan losses during the six months ended March 31,
2000. No charge has been made to provision for loan losses since March 1995.
During this time, asset quality remained favorable with a ratio of
nonperforming loans to total loans of .34% at March 31, 2000, .66% at
September 30, 1999 and .51% at March 31, 1999.
At March 31, 2000 and September 30, 1999, the balance of the allowance for
loan losses was $979,000 and $995,000, respectively. The ratio of the
allowance for loan losses to nonperforming loans was 166.78% and 93.08%,
respectively, and the ratio of the allowance for loan losses to total loans
was .57% and .62%, respectively. Management believes that the current
allowance for loan losses is adequate based upon prior loss experience, the
volume and type of lending conducted by the Association, industry standards,
past due loans and the current economic conditions in the market area.
Page 10
Noninterest Income.
For the three months ended March 31, 2000, noninterest income decreased
$62,000 (22.5%) compared to the same period in 1999. The decrease was
primarily due to decreases of $36,000 in net gain on sale of loans and $27,000
in loan origination fees. In the quarter ended March 31, 2000, $5.9 million
of single-family mortgage loans were originated and $182,000 were sold. In
the quarter ended March 31, 1999, $7.8 million of single-family mortgage loans
were originated and $3.2 million were sold.
For the six months ended March 31, 2000, noninterest income decreased $176,000
(28.6%) compared to the same period in 1999. The decrease was primarily due
to decreases of $110,000 in net gain on sale of loans and $75,000 in loan
origination fees, which were partially offset by an increase of $19,000 in
other noninterest income (primarily service charges). In the six months ended
March 31, 2000, $11.8 million of single-family mortgage loans were originated
and $182,000 were sold. In the six months ended March 31, 1999, $17.5 million
of single-family mortgage loans were originated and $7.3 million were sold.
Noninterest Expense.
For the three months ended March 31, 2000, noninterest expense increased
$10,000 (1.3%) compared to the same period in 1999. The increase was
primarily due to an increase of $25,000 in other noninterest expense
(primarily data processing charges), partially offset by a decrease of $15,000
in SAIF deposit insurance premiums.
For the six months ended March 31, 2000, noninterest expense increased $49,000
(3.2%) compared to the same period in 1999. The increase was primarily due to
increases of $57,000 in other non interest expense, partially offset by a
decrease of $14,000 in SAIF deposit insurance premiums. The increase in other
noninterest expense was primarily increases in data processing charges,
professional fees and depreciation of originated mortgage servicing rights.
Liquidity and Capital Resources
The Company's assets consist primarily of cash and cash equivalents and the
shares of the Association's common stock. The Company has no significant
liabilities.
The Association's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The
Association's primary sources of funds are deposits, amortization, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from
operations. While scheduled loan amortization and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Association manages
the pricing of its deposits to maintain a steady deposit balance. In
addition, the Association invests excess funds in overnight deposits and other
short-term interest-earning assets which provide liquidity to meet lending
requirements. The Association generates cash through the retail deposit
market, its traditional funding source, to provide cash for lending and
investing activities. As an additional source of funds, the Association may
borrow from the FHLB of Dallas and has utilized this source of funds with
borrowings of $24.0 million and $17.5 million at March 31, 2000 and September
30, 1999, respectively.
Page 11
All savings institutions are required to maintain an average daily balance of
liquid assets equal to a certain percentage of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one
year or less. The liquidity requirement may vary from time to time (between
4% and 10%) depending upon economic conditions and savings flows of all
savings institutions. At the present time, the required minimum liquid asset
ratio is 4.0%. At March 31, 2000, the Association's liquidity ratio was
16.3%.
The Company's and the Association's regulatory capital remains well in excess
of all applicable regulatory requirements. At March 31, 2000, the Company's
tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were
13.59%, 22.16% and 22.65%, respectively, and the Association's tier 1
leverage, tier 1 risk-based and total risk-based capital ratios were 13.18%,
21.50% and 22.00%, respectively, compared to regulatory "well capitalized"
requirements of 5.0%, 6.0% and 10.0%, respectively.
Recent Legislation
A new financial modernization bill titled the Gramm-Leach-Bliley Act (the
"Act") was signed into law in November 1999. The Act repealed the Glass-
Steagall Act and allows banks, insurance companies and security firms to
affiliate through new financial holding companies. A national bank may engage
in many new financial activities through a subsidiary. It authorizes
operating subsidiaries to sell any financial product without geographic
limitation. Activities not permitted in subsidiaries include insurance
underwriting, insurance company portfolio investing, real estate investment
and development, and merchant banking (merchant banking may be allowed in five
years if both the Fed and Treasury agree). The subsidiary operation would be
available only to well-capitalized and well-managed banks. The powers and
authorities of existing unitary thrift holding companies are grandfathered.
Sale of existing unitaries can be to financial companies only. The Office of
Thrift Supervision can continue to grant unitary charters to financial
companies, but cannot grant charters to nonfinancial companies. The Act
repealed the Savings Association Insurance Fund special reserve and allows the
FDIC to return nearly $1 billion to the SAIF general reserves.
The Act requires all financial institutions to disclose their privacy policies
to their customers at the time a relationship is created and then annually on
sharing customer information with affiliates and third parties. Customers
must be notified that they may opt-out of sharing with nonaffiliated third
parties, with certain exceptions. The Act extends the Community Reinvestment
Act compliance examination cycle for community banks (banks and thrifts with
less than $250 million in assets) to five years if they had an "outstanding"
rating and to four years if they had a "satisfactory" rating.
Page 12
The Act also provides for modernization of the Federal Home Loan Bank System.
Governance of the FHLBanks will be decentralized, allowing Bank directors to
elect their chairman and vice chairman, and membership in the FHLB becomes
voluntary for all members.
Under the Act, the Federal Reserve Board is the umbrella supervisor of
financial holding companies, and state and federal regulators will
functionally regulate insurance and securities affiliates. The FDIC retains
full authority to allow state chartered banks to continue to engage in
grandfathered activities and to approve new activities that go beyond the
powers of national banks.
Recent Accounting Developments
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Entities are required to carry all
derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (that is, gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies
as part of a hedging relationship and, if so, on the reason for holding it.
Initially, SFAS No. 133 was to be effective for financial statements issued
for fiscal periods beginning after June 15, 1999. On July 7, 1999, FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" providing for a
one year deferral to fiscal periods beginning after June 15, 2000 (the
Company's effective date of October 1, 2000). Adoption of this statement is
not expected to have a material effect on the Company's financial condition or
results of operations.
On December 30, 1999, the SEC adopted new rules and amendments, including the
requirement that independent auditors review the financial information
included in quarterly reports on Form 10-Q or 10-QSB prior to filing such
reports with the SEC. Registrants must obtain reviews of interim financial
information starting with reports to be filed for fiscal quarters ending on or
after March 15, 2000.
Page 13
TEXARKANA FIRST FINANCIAL CORPORATION
Part II
Item 1. Legal Proceedings
Neither the Company nor the Association is involved in any pending
legal proceedings other than non-material legal proceedings occurring
in the ordinary course of business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on January
25, 2000. The Information required herein is incorporated by
reference from the Notice of Annual Meeting of Stockholders and Proxy
Statement dated and filed December 27, 1999. Stockholders elected
all directors which were proposed for nomination and ratified the
appointment of Wilf & Henderson, P.C. as the Company's independent
auditors.
Item 5. Other Information
On March 28, 2000, the Company declared a quarterly dividend in the
amount of $.17 per share, payable April 25, 2000 to stockholders of
record on April 11, 2000.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Earnings Per Share Computation
No reports on Form 8-K were filed during the period.
Page 14
TEXARKANA FIRST FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXARKANA FIRST FINANCIAL CORPORATION
/s/ James W. McKinney
Date: May 5, 2000 By: ______________________________
James W. McKinney
Chairman and CEO
/s/ James L. Sangalli
Date: May 5, 2000 By: ______________________________
James L. Sangalli
Chief Financial Officer
Page 15
Form 10-Q
Exhibit 11
EARNINGS PER SHARE COMPUTATION
Three Months Ended Six Months Ended
March 31, March 31,
_____________________ _____________________
2000 1999 2000 1999
__________ __________ __________ __________
Net Income........................$ 832,124 $ 791,579 $1,592,735 $1,613,020
========= ========= ========= =========
Weighted average shares:
Common shares outstanding....... 1,447,403 1,512,327 1,445,313 1,521,868
Common stock equivalents
due to assumed exercise
of stock options.............. 30,813 65,715 39,843 66,230
_________ _________ _________ _________
Common shares
assuming dilution........... 1,478,216 1,578,042 1,485,156 1,588,098
========= ========= ========= =========
Net income per common share:
Basic........................... $ .575 $ .523 $1.102 $1.060
Assuming dilution............... $ .563 $ .502 $1.072 $1.016
E 1