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 June 30, 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
_________________________________________ ________________________
(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
July 26, 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
June 30, 2000 (unaudited) and September 30, 1999 1
Consolidated Statements of Income for the three and
nine months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended June 30, 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 7
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Unaudited
June 30, September 30,
2000 1999
ASSETS
Cash and cash equivalents
Cash & due from banks........................... $ 2,966 $ 2,370
Interest bearing deposits in other banks........ 2,155 638
Federal funds sold.............................. 575 150
________ ________
Total cash and cash equivalents.............. 5,696 3,158
Investment securities available-for-sale........... 27,243 31,457
Mortgage-backed securities held-to-maturity........ 267 386
Federal Home Loan Bank stock....................... 1,459 1,252
Loans receivable, net of unearned income........... 176,550 161,208
Allowance for loan losses.......................... (982) (995)
Accrued interest receivable........................ 1,627 1,311
Foreclosed real estate, net........................ 171 --
Premises and equipment, net........................ 3,355 2,691
Other assets....................................... 648 679
________ ________
Total assets.................................... $216,034 $201,147
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................... $157,609 $153,992
Advances from borrowers for taxes & insurance...... 1,748 2,151
Borrowed funds..................................... 27,750 17,500
Accrued income tax................................. 110 310
Accrued expenses and other liabilities............. 764 816
________ ________
Total liabilities............................... 187,981 174,769
________ ________
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......................... 13,800 13,742
Common stock acquired by stock benefit plans....... (1,123) (1,448)
Treasury stock, at cost, 444,408 shares and
444,408 shares September 30, 1999............... (9,210) (9,210)
Retained earnings-substantially restricted......... 25,320 23,713
Accumulated other comprehensive income............. (754) (439)
________ ________
Total stockholders' equity................... 28,053 26,378
________ ________
Total liabilities and stockholders' equity... $216,034 $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 Nine Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Interest Income
Loans
First mortgage loans...................... $3,181 $2,820 $9,102 $8,576
Consumer and other loans.................. 471 364 1,337 1,085
Investment securities........................ 439 423 1,246 1,123
Mortgage-backed and related securities....... 86 101 258 325
______ ______ ______ ______
Total Interest Income..................... 4,177 3,708 11,943 11,109
______ ______ ______ ______
Interest Expense
Deposits..................................... 1,917 1,818 5,536 5,601
Borrowed funds............................... 406 144 961 367
______ ______ ______ ______
Total Interest Expense.................... 2,323 1,962 6,497 5,968
______ ______ ______ ______
Net Interest Income....................... 1,854 1,746 5,446 5,141
Provision for loan losses.................... -- -- -- --
______ ______ ______ ______
Net Interest Income After Provision....... 1,854 1,746 5,446 5,141
______ ______ ______ ______
Noninterest Income
Gain on sale of investments, net............. -- -- -- 11
Gain on sale of loans, net................... 17 20 18 131
Loan origination and commitment fees......... 124 96 264 311
Other........................................ 160 153 459 432
______ ______ ______ ______
Total Noninterest Income.................. 301 269 741 885
______ ______ ______ ______
Noninterest Expense
Compensation and benefits.................... 524 523 1,620 1,615
Occupancy and equipment...................... 63 55 179 169
SAIF deposit insurance premium............... 8 22 39 67
Other........................................ 313 140 653 423
______ ______ ______ ______
Total Noninterest Expense................. 908 740 2,491 2,274
______ ______ ______ ______
Income Before Income Taxes...................... 1,247 1,275 3,696 3,752
Income tax expense.............................. 481 471 1,337 1,335
______ ______ ______ ______
Net Income...................................... $ 766 $ 804 $2,359 $2,417
====== ====== ====== ======
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities......... 55 (276) (315) (450)
Reclassification of gain
included in net income.................... -- -- -- (6)
______ ______ ______ ______
Comprehensive income............................ $ 821 $ 528 $2,044 $1,961
______ ______ ______ ______
Earnings per common share - basic............ $0.528 $0.548 $1.629 $1.608
Earnings per common share - diluted.......... $0.511 $0.524 $1.583 $1.539
Weighted average shares - basic.............. 1,452 1,467 1,447 1,504
Weighted average shares - diluted............ 1,498 1,536 1,490 1,571
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)
Nine Months
Ended June 30,
2000 1999
Cash Flows From Operating Activities:
Interest and dividends received..........................$11,511 $10,880
Miscellaneous income received............................ 733 873
Interest paid............................................ (2,623) (2,125)
Cash paid to suppliers and employees..................... (2,130) (2,269)
Cash from loans sold..................................... 1,695 9,514
Cash paid for loans originated to sell................... (1,695) (9,096)
Income taxes paid........................................ (1,536) (1,497)
______ ______
Net Cash Provided By Operating Activities............. 5,955 6,280
______ ______
Cash Flows From Investing Activities:
Proceeds from call and maturity of investment securities. 3,000 5,089
Proceeds from sale of securities available for sale...... - - 511
Purchases of investment securities available for sale.... - - (13,370)
Purchases of mortgage-backed securities.................. - - - -
Collection of principal on mortgage-backed securities.... 890 2,005
Purchase of fixed assets................................. (745) (73)
Net (increase) decrease in loans.........................(15,435) (425)
Cash paid for REO held for resale........................ - - (13)
Proceeds from sale of REO and other REO recoveries....... - - 1
______ ______
Net Cash Provided (Used) By Investing Activities......(12,290) (6,275)
______ ______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit.......... (188) (2,368)
Net increase (decrease) in escrow funds.................. (404) (489)
Net increase (decrease) in funds borrowed................ 10,250 8,400
Purchase of treasury stock............................... - - (2,759)
Stock options exercised.................................. - - 52
Cash dividends paid on common stock...................... (785) (780)
______ ______
Net Cash Provided (Used) By Financing Activities...... 8,873 2,056
______ ______
Net Increase (Decrease) In Cash and Cash Equivalents.. 2,538 2,061
______ ______
Cash and Cash Equivalents, beginning of period.............. 3,158 2,635
______ ______
Cash and Cash Equivalents, end of period....................$ 5,696 $ 4,696
====== ======
The accompanying notes are an integral part of this statement.
Page 3
TEXARKANA FIRST FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
Nine Months
Ended June 30,
2000 1999
Reconciliation of net income to cash provided
by operating activities:
Net income.................................................. $2,359 $2,417
______ ______
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation............................................. 80 64
Amortization of discounts and premiums................... 11 33
Amortization of deferred loan fees....................... (18) (26)
Amortization of common stock acquired by benefit plans... 371 414
(Gain) loss on sales of real estate owned................ (7) - -
(Gain) loss on sales of securities available for sale.... - - (11)
Interest expense credited to saving accounts............. 3,805 3,818
Dividend and interest income added to investments........ (126) (90)
Loan fees deferred....................................... 16 32
Changes in assets and liabilities:
(Increase) decrease in interest receivable............... (316) (178)
Increase (decrease) in accrued interest payable.......... 69 25
Increase (decrease) in income tax payable................ (200) (162)
Net increase (decrease) in other receivables and payables (89) (56)
______ ______
Total adjustments..................................... 3,596 3,863
______ ______
Net cash provided by operations............................. $5,955 $6,280
====== ======
Supplemental schedule of noncash investing
and financing activities:
FHLB stock dividends not redeemed..................... $ 80 $ 49
Acquisition of real estate in settlement of loans..... 201 152
Loans made to finance sale of REO..................... 41 108
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.
On May 15, 2000, the Company and First United Bancshares, Inc., an Arkansas
corporation ("First United"), entered into an Agreement and Plan of
Reorganization ("Reorganization Agreement"). Under the terms of the
Reorganization Agreement, First United will acquire all of the outstanding
stock and existing options of the Company for $37.5 million in cash, or
$23.35208 per share. The proposed transaction is expected to close in the
third quarter of 2000. Also on May 15, 2000, the Company issued a press
release announcing the transaction. On May 25, 2000, the Company filed a Form
8-K with the Securities and Exchange Commission to report the Company's
Reorganization Agreement with First United. The Form 8-K included, as
exhibits, a copy of the Reorganization Agreement and a copy of the Company's
related press release.
On August 11, 2000, the Company mailed a Proxy Statement and Notice of Special
Meeting of Shareholders to be held on September 13, 2000 to consider and vote
upon a proposal to approve and adopt the Company's Reorganization Agreement
with First United. The proxy statement is available free of charge both on
the SEC's web site (www.sec.gov) and from the Company's corporate secretary.
On April 16, 2000, First United entered into an Agreement and Plan of Merger
with BancorpSouth, Inc., a Mississippi corporation and registered bank holding
company. In the proposed transaction ("BancorpSouth Transaction"), First
United is to merge with and into BancorpSouth and First United common stock is
to be converted into shares of BancorpSouth common stock at an exchange ratio
of 1.125 shares of BancorpSouth common stock per share of First United common
stock. If the BancorpSouth Transaction closes before the Company's merger
with First United, BancorpSouth will succeed First United as a party to the
Company's proposed merger with First United and will assume the rights,
interests and obligations of First United.
Page 5
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 nine months ended June 30, 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 as well as merger related charges for the
pending acquisition of the company by First United. 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 6
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.
Forward-Looking Information
In addition to discussing historical information, certain matters included in
or incorporated into this report relate to the financial condition, results of
operations and business of the Company which are not historical facts, but
which are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. When used herein, the words
"anticipate," "believe," "estimate," "expect," "will" and similar expressions
are generally intended to identify forward-looking statements. The forward-
looking statements in this report involve known and unknown risks and
uncertainties and reflect what we currently anticipate will happen in each
case. What actually happens could differ materially from what we currently
anticipate will happen due to a variety of factors, including, among others,
(i) increased competitive pressures among financial services companies; (ii)
changes in the interest rate environment; (iii) general economic conditions,
internationally, nationally, in Arkansas, in Texas or in our local market
area.; and (iv) legislation or regulatory requirements or changes adversely
affecting the business of the Company. Readers should not place undue
expectations on any "forward-looking statements." We are not promising to
make any public announcement when we consider "forward-looking statements" in
this document are no longer accurate, whether as a result of new information,
what actually happens in the future or for any other reason.
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.
Page 7
In order to minimize the potential for adverse effects of material and
prolonged changes in interest rates on the Company's results of operations,
management has implemented and continues to monitor asset and liability
policies to better match the maturities and repricing terms of rate-sensitive
assets and rate-sensitive liabilities. Management also monitors and
evaluates, on a quarterly basis, the potential impact of interest rate changes
upon the Company's net portfolio value and net interest income.
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate margin that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of rate-sensitive assets and rate-
sensitive liabilities which either reprice or mature within a given period of
time. The difference, or the interest rate repricing "gap", provides an
indication of the extent to which an institution's interest rate margin will
be affected by changes in interest rates. A gap is considered positive when
the amount of rate-sensitive assets exceeds the amount of rate-sensitive
liabilities, and is considered negative when the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets. During a period of
rising interest rates, a negative gap would cause a decrease in net interest
income, while a positive gap would cause an increase in net interest income.
During a period of declining interest rates, a negative gap would cause an
increase in net interest income, while a positive gap would cause a decrease
in net interest income.
At June 30, 2000, the estimated one-year gap was a negative 89.2% and the
ratio of rate-sensitive assets to rate-sensitive liabilities maturing or
repricing within one year was 52.9%.
At June 30, 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 -28.2% -16.3%
+200 -17.3% -10.8%
+100 -7.9% -5.4%
-100 +6.1% +5.2%
-200 +11.1% +10.4%
-300 +16.8% +15.7%
Page 8
Changes in Financial Condition
General
The Company's assets increased $14.9 million (7.4%) to $216.0 million at June
30, 2000 from $201.1 million at September 30, 1999. The increase was due
primarily to increases of $15.3 million (9.5%) in loans receivable and $2.5
million (80.4%) in cash and cash equivalents, partially offset by a decrease
of $4.1 million (12.5%) in investments. The Company's total liabilities
increased $13.2 million (7.6%) due primarily to increases of $10.3 million
(58.6%) in borrowed funds and 3.6 million (2.3%) in deposits, partially offset
by a decrease of $.4 million (18.7%) in borrowers' escrow balances (property
tax payments are made in the first two quarters of the fiscal year).
Cash and Cash Equivalents
Cash and federal funds sold increased $2.5 million (80.4%) to $5.7 million at
June 30, 2000 from $3.2 million at September 30, 1999. The increase was due
primarily to an increase in interest-bearing deposits in other banks.
Investments
Investments decreased $4.1 million (12.5%) to $29.0 million at June 30, 2000
from $33.1 million at September 30, 1999. Proceeds from maturing investments
were utilized to fund increases in loans.
Loans Receivable
Loans receivable, net of unearned income, increased $15.3 million (9.5%) to
$176.6 million at June 30, 2000 from $161.2 million at September 30, 1999.
The increase in loans was the result of an increase of $11.4 million (8.0%) in
real estate loans and an increase of $3.9 million (22.2%) 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
nine months ended June 30, 2000, $51.8 million of loans were originated.
$23.4 million of single-family mortgage loans were originated and $2.2 million
were sold.
Nonperforming Assets
Nonperforming assets decreased $62,000 to $1.0 million (.47% of total assets)
at June 30, 2000 compared to $1.1 million (.53% of total assets) at September
30, 1999. At June 30, 2000, nonperforming loans were $836,000 (.47% of total
loans) compared to $1.1 million (.66% of total loans) at September 30, 1999.
At June 30, 2000, the Company had $171,000 of foreclosed real estate. At June
30, 2000, the allowance for loan losses was $982,000 (.56% of total loans and
117.46% 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 nine months ended June 30, 2000.
Deposits
Deposits increased $3.6 million (2.3%) to $157.6 million at June 30, 2000 from
$154.0 million at September 30, 1999. The increase in deposits was primarily
in certificates of deposit.
Page 9
Borrowed Funds
Borrowings increased $10.3 million (58.6%) to $27.8 million at June 30, 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 $1.7 million (6.3%) to $28.1 million at June
30, 2000 from $26.4 million at September 30, 1999, primarily the result of
retained earnings. The ratio of stockholders' equity to total assets was
13.0% at June 30, 2000 compared to 13.1% at September 30, 1999.
Comparison of Results of Operations for the Three Month and Nine Month Periods
Ended June 30, 2000 and 1999
General.
For the three months ended June 30, 2000 compared to the same period ended
June 30, 1999, net income, earnings per share, return on average equity and
return on average assets were lower.
For the nine months ended June 30, 2000 compared to the same period ended June
30, 1999, earnings per share was higher while net income, return on average
equity and return on average assets were lower.
For the nine month period ended June 30, 2000, a decrease in average shares
outstanding, resulting from fiscal year 1999 purchases 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 June 30, 2000 compared to the same period ended
June 30, 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 8.18% and 7.78%; the
rate on total average interest bearing liabilities was 5.30% and 4.77%; the
interest rate spread was 2.88% and 3.02%; and, the net interest margin was
3.63% and 3.66%.
For the three months ended June 30, 2000, net income was $766,000 compared to
$804,000 for the same period ended June 30, 1999. The decrease of $38,000
(4.7%) in net income was due to increases of $136,000 in net noninterest
expense and $10,000 in income tax expense, partially offset by an increase of
$108,000 in net interest income.
For the three months ended June 30, 2000 and June 30, 1999, basic earnings per
share was $.53 and $.55, respectively (diluted EPS of $.51 and $.52,
respectively). Return on average assets (ROA) was 1.46% and 1.64%,
respectively, return on average equity (ROE) was 11.08% and 12.11%,
respectively, and the operating efficiency ratio was 42.1% and 36.7%,
respectively.
Page 10
For the nine months ended June 30, 2000, net income was $2,359,000 compared to
$2,417,000 for the same period ended June 30, 1999. The decrease of $58,000
(2.4%) in net income was due to increases of $361,000 in net noninterest
expense and $2,000 in income tax expense, partially offset by an increase of
$305,000 in net interest income.
For the nine months ended June 30, 2000 and June 30, 1999, basic earnings per
share was $1.63 and $1.61, respectively (diluted EPS of $1.58 and $1.54,
respectively). Return on average assets (ROA) was 1.53% and 1.66%,
respectively, return on average equity (ROE) was 11.57% and 11.97%,
respectively, and the operating efficiency ratio was 40.3% and 37.7%,
respectively.
Net Interest Income.
For the three months ended June 30, 2000, net interest income increased
$108,000 (6.2%) compared to the same period in 1999. The increase was due to
an increase of $469,000 (12.6%) in interest income, partially offset by an
increase of $361,000 (18.4%) in interest expense. For the third quarter of
fiscal 2000 compared to the third quarter of fiscal 1999, the net interest
margin was 3.63% and 3.66%, respectively, and the net interest spread was
2.88% and 3.02%, respectively.
For the nine months ended June 30, 2000, net interest income increased
$305,000 (5.9%) compared to the same period in 1999. The increase was due to
an increase of $834,000 (7.5%) in interest income, partially offset by an
increase of $529,000 (8.9%) in interest expense. For the nine month period of
fiscal 2000 compared to the same period of fiscal 1999, the net interest
margin was 3.63% and 3.64%, respectively, and the net interest spread was
2.90% and 2.96%, respectively.
Interest Income.
For the three months ended June 30, 2000, interest income increased $469,000
(12.6%) compared to the same period in 1999. The increase was the result of
higher average balances and higher rates. Average earning assets increased to
$205.5 million from $191.0 million and the average yield increased to 8.18%
from 7.78%.
For the nine months ended June 30, 2000, interest income increased $834,000
(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
$200.5 million from $188.9 million and the average yield increased to 7.96%
from 7.86%.
Interest Expense.
For the three months ended June 30, 2000, interest expense increased $361,000
(18.4%) 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 $176.4 million from $165.1 million and the average
rate increased to 5.30% from 4.77%.
For the nine months ended June 30, 2000, interest expense increased $529,000
(8.9%) 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 $171.6 million from $162.8 million and the average
rate increased to 5.06% from 4.90%.
Page 11
Provision for Loan Losses.
No provisions were made for loan losses during the nine months ended June 30,
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 .47% at June 30, 2000, .66% at September
30, 1999 and .34% at June 30, 1999.
At June 30, 2000 and September 30, 1999, the balance of the allowance for loan
losses was $982,000 and $995,000, respectively. The ratio of the allowance
for loan losses to nonperforming loans was 117.46% and 93.08%, respectively,
and the ratio of the allowance for loan losses to total loans was .56% 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.
Noninterest Income.
For the three months ended June 30, 2000, noninterest income increased $32,000
(11.9%) compared to the same period in 1999. The increase was primarily due
to an increase of $28,000 in loan origination fees. In the quarter ended June
30, 2000, $11.5 million of single-family mortgage loans were originated and
$2.0 million were sold. In the quarter ended June 30, 1999, $7.0 million of
single-family mortgage loans were originated and $2.3 million were sold.
For the nine months ended June 30, 2000, noninterest income decreased $144,000
(16.3%) compared to the same period in 1999. The decrease was primarily due
to decreases of $113,000 in net gain on sale of loans and $47,000 in loan
origination fees, which were partially offset by an increase of $27,000 in
other noninterest income (primarily service charges). In the nine months
ended June 30, 2000, $23.4 million of single-family mortgage loans were
originated and $2.2 million were sold. In the nine months ended June 30,
1999, $24.5 million of single-family mortgage loans were originated and $9.4
million were sold.
Noninterest Expense.
For the three months ended June 30, 2000, noninterest expense increased
$168,000 (22.7%) compared to the same period in 1999. The increase was
primarily due to an increase of $173,000 in other noninterest expense,
partially offset by a decrease of $14,000 in SAIF deposit insurance premiums.
The increase in other noninterest expense was primarily due to increases of
$144,000 in merger related expenses, $9,000 in advertising expense, $4,000 in
data processing expense and $4,000 in telephone and postage expense.
For the nine months ended June 30, 2000, noninterest expense increased
$217,000 (9.5%) compared to the same period in 1999. The increase was
primarily due to an increase of $230,000 in other non interest expense,
partially offset by a decrease of $28,000 in SAIF deposit insurance premiums.
The increase in other noninterest expense was primarily due to increases of
$144,000 in merger related expenses, $11,000 in advertising expense, $26,000
in data processing expense and $7,000 in telephone and postage expense.
Page 12
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 $27.8 million and $17.5 million at June 30, 2000 and September
30, 1999, respectively.
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 June 30, 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 June 30, 2000, the Company's
tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were
13.26%, 21.79% and 22.27%, respectively, and the Association's tier 1
leverage, tier 1 risk-based and total risk-based capital ratios were 13.05%,
21.44% and 21.92%, 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.
Page 13
The Act requires all financial institutions to disclose their privacy policies
to their customers at the time a relationship is created and then annually on
sharing customer information with affiliates and third parties. Customers
must be notified that they may opt-out of sharing with nonaffiliated third
parties, with certain exceptions. The Act extends the Community Reinvestment
Act compliance examination cycle for community banks (banks and thrifts with
less than $250 million in assets) to five years if they had an "outstanding"
rating and to four years if they had a "satisfactory" rating.
The Act also provides for modernization of the Federal Home Loan Bank System.
Governance of the FHLBanks will be decentralized, allowing Bank directors to
elect their chairman and vice chairman, and membership in the FHLB becomes
voluntary for all members.
Under the Act, the Federal Reserve Board is the umbrella supervisor of
financial holding companies, and state and federal regulators will
functionally regulate insurance and securities affiliates. The FDIC retains
full authority to allow state chartered banks to continue to engage in
grandfathered activities and to approve new activities that go beyond the
powers of national banks.
Recent Accounting Developments
In 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 14
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
None.
Item 5. Other Information
On June 26, 2000, the Company declared a quarterly dividend in the
amount of $.17 per share, payable July 26, 2000 to stockholders of
record on July 12, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Earnings Per Share Computation
(b) Form 8-K: A Report on Form 8-K was filed on May 25, 2000,
reporting Item 5, "Other Events," and Item 7, "Financial Statements
and Exhibits." The Form 8-K was filed to report that the Company
entered into a merger agreement and plan of reorganization with First
United Bancshares, Inc. on May 15, 2000.
Page 15
TEXARKANA FIRST FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXARKANA FIRST FINANCIAL CORPORATION
/s/ James W. McKinney
Date: August 14, 2000 By: ______________________________
James W. McKinney
Chairman and CEO
/s/ James L. Sangalli
Date: August 14, 2000 By: ______________________________
James L. Sangalli
Chief Financial Officer
Page 16
Form 10-Q
Exhibit 11
EARNINGS PER SHARE COMPUTATION
Three Months Ended Nine Months Ended
June 30, June 30,
_____________________ _____________________
2000 1999 2000 1999
__________ __________ __________ __________
Net Income........................$ 765,802 $ 804,171 $2,358,537 $2,417,191
========= ========= ========= =========
Weighted average shares:
Common shares outstanding....... 1,451,580 1,466,850 1,447,402 1,503,528
Common stock equivalents
due to assumed exercise
of stock options.............. 46,671 68,970 42,199 67,186
_________ _________ _________ _________
Common shares
assuming dilution........... 1,498,251 1,535,820 1,489,601 1,570,714
========= ========= ========= =========
Net income per common share:
Basic........................... $ .528 $ .548 $1.629 $1.608
Assuming dilution............... $ .511 $ .524 $1.583 $1.539
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