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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-13842
Texarkana First Financial Corporation
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 71-0771419
_________________________________ ________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3rd & Olive Streets
Texarkana, Arkansas 71854
_________________________________________ ________________________
(Address of principal executive office) (Zip Code)
(870) 773-1103
_______________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of
June 30, 1999, there were issued and outstanding 1,561,342 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, 1999 (unaudited) and September 30, 1998 1
Consolidated Statements of Income for the three and
nine months ended June 30, 1999 and 1998 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
TEXARKANA FIRST FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Unaudited
June 30, September 30,
1999 1998
ASSETS
Cash and cash equivalents
Cash & due from banks........................... $ 2,081 $ 2,341
Interest bearing deposits in other banks........ 1,510 249
Federal funds sold.............................. 1,105 45
________ ________
Total cash and cash equivalents.............. 4,696 2,635
Investment securities available-for-sale........... 30,967 25,651
Mortgage-backed securities held-to-maturity........ 565 849
Federal Home Loan Bank stock....................... 1,235 1,185
Loans receivable, net of unearned income........... 156,153 155,781
Allowance for loan losses.......................... (995) (1,003)
Accrued interest receivable........................ 1,509 1,331
Foreclosed real estate, net........................ 18 56
Premises and equipment, net........................ 2,397 2,387
Other assets....................................... 851 579
________ ________
Total assets.................................... $197,396 $189,451
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................... $153,405 $151,955
Advances from borrowers for taxes & insurance...... 1,581 2,070
Borrowed funds..................................... 15,000 6,600
Accrued federal income tax......................... 217 330
Accrued state income tax........................... 144 194
Accrued expenses and other liabilities............. 693 886
________ ________
Total liabilities............................... 171,040 162,035
________ ________
Commitments and contingencies...................... -- --
________ ________
Common stock, $0.01 par value;
15,000,000 shares authorized;
1,983,750 shares issued......................... 20 20
Additional paid-in capital......................... 13,713 13,627
Common stock acquired by stock benefit plans....... (1,508) (1,831)
Treasury stock, at cost, 422,408 shares and
307,758 shares September 30, 1998............... (8,682) (5,996)
Retained earnings-substantially restricted......... 23,142 21,469
Accumulated other comprehensive income............. (329) 127
________ ________
Total stockholders' equity................... 26,356 27,416
________ ________
Total liabilities and stockholders' equity... $197,396 $189,451
======== ========
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,
1999 1998 1999 1998
Interest Income
Loans
First mortgage loans...................... $2,820 $2,838 $8,576 $8,510
Consumer and other loans.................. 364 342 1,085 1,007
Investment securities........................ 423 369 1,123 992
Mortgage-backed and related securities....... 101 137 325 412
______ ______ ______ ______
Total Interest Income..................... 3,708 3,686 11,109 10,921
______ ______ ______ ______
Interest Expense
Deposits..................................... 1,818 1,909 5,601 5,587
Borrowed funds............................... 144 89 367 264
______ ______ ______ ______
Total Interest Expense.................... 1,962 1,998 5,968 5,851
______ ______ ______ ______
Net Interest Income....................... 1,746 1,688 5,141 5,070
Provision for loan losses.................... -- (100) -- (100)
______ ______ ______ ______
Net Interest Income After Provision....... 1,746 1,788 5,141 5,170
______ ______ ______ ______
Noninterest Income
Gain on sale of investments, net............. -- -- 11 --
Gain on sale of loans, net................... 20 48 131 213
Loan origination and commitment fees......... 96 104 311 296
Other........................................ 153 111 432 335
______ ______ ______ ______
Total Noninterest Income.................. 269 263 885 844
______ ______ ______ ______
Noninterest Expense
Compensation and benefits.................... 523 519 1,615 1,565
Occupancy and equipment...................... 55 55 169 160
SAIF deposit insurance premium............... 22 22 67 67
Other........................................ 140 136 423 422
______ ______ ______ ______
Total Noninterest Expense................. 740 732 2,274 2,214
______ ______ ______ ______
Income Before Income Taxes...................... 1,275 1,319 3,752 3,800
Income tax expense.............................. 471 477 1,335 1,394
______ ______ ______ ______
Net Income...................................... $ 804 $ 842 $2,417 $2,406
====== ====== ====== ======
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities...... (276) (29) (450) (32)
Reclassification of gain
included in net income................. -- -- (6) --
______ ______ ______ ______
Comprehensive income......................... $ 528 $ 813 $1,961 $2,374
====== ====== ====== ======
Earnings per common share - basic............ $0.548 $0.517 $1.608 $1.470
Earnings per common share - diluted.......... $0.524 $0.490 $1.539 $1.400
Weighted average shares - basic.............. 1,467 1,629 1,504 1,636
Weighted average shares - diluted............ 1,536 1,718 1,571 1,719
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,
1999 1998
Cash Flows From Operating Activities:
Interest and dividends received......................... $10,880 $10,636
Miscellaneous income received........................... 873 840
Interest paid........................................... (2,125) (2,087)
Cash paid to suppliers and employees.................... (2,269) (1,793)
Cash from loans sold.................................... 9,514 10,651
Cash paid for loans originated to sell.................. (9,096) (7,713)
Income taxes paid....................................... (1,497) (1,346)
_______ _______
Net Cash Provided By Operating Activities............ 6,280 9,188
_______ _______
Cash Flows From Investing Activities:
Proceeds from call and maturity of investment securities 5,089 8,605
Proceeds from sale of securities available for sale..... 511 --
Purchases of investment securities available for sale... (13,370) (12,631)
Purchases of mortgage-backed securities................. -- (4,482)
Collection of principal on mortgage-backed securities... 2,005 1,628
Purchase of fixed assets................................ (73) (116)
Net (increase) decrease in loans........................ (425) (5,669)
Cash paid for REO held for resale....................... (13) (19)
Proceeds from sale of REO and other REO recoveries...... 1 390
_______ _______
Net Cash Provided (Used) By Investing Activities..... (6,275) (12,294)
_______ _______
Cash Flows From Financing Activities:
Net increase (decrease) in savings,
demand deposits, and certificates of deposit......... (2,368) 4,459
Net increase (decrease) in escrow funds................. (489) (350)
Net increase (decrease) in funds borrowed............... 8,400 2,111
Purchase of treasury stock.............................. (2,759) (1,348)
Stock options exercised................................. 52 8
Cash dividends paid on common stock..................... (780) (743)
_______ _______
Net Cash (Used) By Financing Activities.............. 2,056 4,137
_______ _______
Net Increase (Decrease) In Cash and Cash Equivalents. 2,061 1,031
_______ _______
Cash and Cash Equivalents, beginning of period............. 2,635 6,053
_______ _______
Cash and Cash Equivalents, end of period................... $ 4,696 $ 7,084
======= =======
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,
1999 1998
Reconciliation of net income to cash provided
by operating activities:
Net income................................................. $ 2,417 $ 2,406
_______ _______
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation............................................ 64 81
Amortization of discounts and premiums.................. 33 33
Amortization of deferred loan fees...................... (26) (26)
Amortization of common stock acquired by benefit plans.. 414 458
(Gain) loss on sales of real estate owned............... -- (5)
(Gain) loss on sales of securities available for sale... (11) --
Provision for loan losses............................... -- (100)
Interest expense credited to saving accounts............ 3,818 3,784
Dividend and interest income added to investments....... (90) (88)
Loan fees deferred...................................... 32 30
Changes in assets and liabilities:
(Increase) decrease in interest receivable.............. (178) (220)
Increase (decrease) in accrued interest payable......... 25 (20)
Increase (decrease) in income tax payable............... (162) 35
Net increase(decrease) in other receivables and payables (56) 2,820
_______ _______
Total adjustments.................................... 3,863 6,782
_______ _______
Net cash provided by operations............................ $ 6,280 $ 9,188
======= =======
Supplemental schedule of noncash investing
and financing activities:
FHLB stock dividends not redeemed.................... $ 49 $ 51
Acquisition of real estate in settlement of loans.... 152 254
Loans made to finance sale of REO.................... 108 126
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 nine months ended June 30, 1999
are not necessarily indicative of the results to be expected for the year
ending September 30, 1999. Although net income was fairly consistent for the
first three quarters, earnings for the full fiscal year will be impacted by
the repurchase of Company stock and various economic conditions. The
unaudited consolidated financial statements and notes thereto should be read
in conjunction with the audited financial statements and notes thereto for the
year ended September 30, 1998, contained in the Company's annual report to
stockholders.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted-average
number of shares of common stock outstanding. Stock options outstanding are
included in the calculation of fully diluted earnings per share. Shares
acquired by the ESOP are accounted for in accordance with Statement of
Position 93-6 and are not included in the weighted-average shares outstanding
until the shares are committed to be released for allocation to ESOP
participants.
Page 5
TEXARKANA FIRST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At June 30, 1999, the Company's assets amounted to $197.4 million as compared
to $189.4 million at September 30, 1998, a $7.9 million (4.2%) increase.
Investments increased $5.1 million (18.4%), cash and cash equivalents
increased $2.1 million (78.2%) and loans, net of unearned income increased $.4
million (.2%) (with $9.5 million of loans sold during the nine month period).
Asset quality remains strong with a ratio of nonperforming assets to total
assets of .28% and .18% as of June 30, 1999 and September 30, 1998,
respectively, and a ratio of nonperforming loans and debt restructurings to
total loans of .34% and .19%, respectively. The ratio of allowance for loan
losses to total loans was .64% at June 30, 1999 and .64% at September 30,
1998.
Liabilities increased $9.0 million (5.6%) to $171.0 million at June 30, 1999
compared to $162.0 million at September 30, 1998. Deposits increased $1.5
million (1.0%) primarily in savings and interest bearing transaction accounts
and borrowers' escrow balances decreased $.5 million (23.6%) (property tax
payments are made in the first two quarters of the fiscal year). Borrowed
funds increased $8.4 million (127.3%). At June 30, 1999, the $15.0 million in
borrowed funds consisted of three Federal Home Loan Bank notes with various
maturities and call provisions and an average rate of 4.42%.
Stockholders' equity amounted to $26.4 million (13.4% of total assets) at June
30, 1999 compared to $27.4 million (14.5% of total assets) at September 30,
1998. The retained earnings balance reflects the $2,417,000 net income from
operations, less dividends declared. The treasury stock balance reflects the
net increase of 114,650 shares of common stock, including 3,650 shares of
exercised options. Accumulated other comprehensive income decreased $.5
million, reflecting the decline in the fair market value of available for sale
investments.
Comparison of Results of Operations for the Three Month and Nine Month Periods
Ended June 30, 1999 and 1998
General.
For the three months ended June 30, 1999 compared to the same period ended
June 30, 1998, earnings per share and return on average equity were higher
while net income and return on average assets were lower.
Page 6
For the nine months ended June 30, 1999 compared to the same period ended June
30, 1998, net income, earnings per share and return on average equity were
higher while return on average assets was lower.
For the three month and nine month periods ended June 30, 1999, decreases in
average equity, resulting from the purchase of additional shares of common
stock to be held as treasury shares, contributed to the increases in the
return on average equity and earnings per share. Total average earning assets
and total average interest bearing liabilities were both higher. Lower rates
on earning assets (investments and loans) were mostly offset by lower rates on
interest bearing liabilities (deposits and borrowed funds).
For the three most recent quarters ended June 30, 1999, March 31, 1999 and
December 31, 1998, respectively, the yield on total average earning assets was
7.78%, 7.88% and 7.92%; the rate on total average interest bearing liabilities
was 4.77%, 4.92% and 5.02%; the interest rate spread was 3.02%, 2.96% and
2.89%; and, the net interest margin was 3.66%, 3.65% and 3.60%.
For the three months ended June 30, 1999, net income was $804,000 compared to
$842,000 for the same period ended June 30, 1998. The decrease of $38,000
(4.5%) in net income was due to a $100,000 credit to provision for loan losses
in June 1998 and an increase of $2,000 in net noninterest expense, all of
which were partially offset by an increase of $58,000 in net interest income
and a decrease of $6,000 in income tax expense.
For the three months ended June 30, 1999 and June 30, 1998, basic earnings per
share was $.55 and $.52, respectively (diluted EPS of $.52 and $.49,
respectively). Return on average assets (ROA) was 1.64% and 1.80%,
respectively, return on average equity (ROE) was 12.11% and 11.97%,
respectively, and the operating efficiency ratio was 36.7% and 37.5%,
respectively.
For the nine months ended June 30, 1999, net income was $2,417,000 compared to
$2,406,000 for the same period ended June 30, 1998. The increase of $11,000
(.5%) in net income was due to an increase of $71,000 in net interest income
and a decrease of $59,000 in income tax expense, all of which were partially
offset by the $100,000 credit to provision for loan losses in fiscal 1998 and
an increase of $19,000 in net noninterest expense.
For the nine months ended June 30, 1999 and June 30, 1998, basic earnings per
share was $1.61 and $1.47, respectively (diluted EPS of $1.54 and $1.40,
respectively). Return on average assets (ROA) was 1.66% and 1.75%,
respectively, return on average equity (ROE) was 11.97% and 11.54%,
respectively, and the operating efficiency ratio was 37.7% and 37.4%,
respectively.
Net Interest Income.
For the three months ended June 30, 1999, net interest income increased
$58,000 (3.4%) compared to the same period in 1998. The increase was due to
an increase of $22,000 (.6%) in interest income and a decrease of $36,000
(1.8%) in interest expense. For the third quarter of fiscal 1999 compared to
the third quarter of fiscal 1998, the net interest margin was 3.66% and 3.69%,
respectively, and the net interest spread was 3.02% and 2.90%, respectively.
Page 7
For the nine months ended June 30, 1999, net interest income increased $71,000
(1.4%) compared to the same period in 1998. The increase was due to an
increase of $188,000 (1.7%) in interest income, partially offset by an
increase of $117,000 (2.0%) in interest expense. For the nine month period of
fiscal 1999 compared to the same period of fiscal 1998, the net interest
margin was 3.64% and 3.78%, respectively, and the net interest spread was
2.96% and 2.98%, respectively.
Interest Income.
For the three months ended June 30, 1999, interest income increased $22,000
(.6%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average earning
assets increased to $191.0 million from $183.3 million and the average yield
declined to 7.78% from 8.07%.
For the nine months ended June 30, 1999, interest income increased $188,000
(1.7%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average earning
assets increased to $188.9 million from $179.4 million and the average yield
declined to 7.86% from 8.14%.
Interest Expense.
For the three months ended June 30, 1999, interest expense decreased $36,000
(1.8%) compared to the same period in 1998. The decrease was the result of
lower rates partially offset by higher average balances. Average interest
bearing liabilities increased to $165.1 million from $155.1 million and the
average rate declined to 4.77% from 5.17%.
For the nine months ended June 30, 1999, interest expense increased $117,000
(2.0%) compared to the same period in 1998. The increase was the result of
higher average balances partially offset by lower rates. Average interest
bearing liabilities increased to $162.8 million from $151.8 million and the
average rate declined to 4.90% from 5.15%.
Provision for Loan Losses.
No provisions were made for loan losses during the nine months ended June 30,
1999. No charge has been made to provision for loan losses since March 1995.
During this time, asset quality remained favorable with a ratio of
nonperforming loans to total loans of .34% at June 30, 1999, .19% at September
30, 1998 and .19% at September 30, 1997.
At June 30, 1999 and September 30, 1998, the balance of the allowance for loan
losses was $1.0 million and $1.0 million, respectively. The ratio of the
allowance for loan losses to nonperforming loans was 186.68% and 342.32%,
respectively, and the ratio of the allowance for loan losses to total loans
was .64% and .64%, respectively. Management believes that the current
allowance for loan losses is adequate based upon prior loss experience, the
volume and type of lending conducted by the Association, industry standards,
past due loans and the current economic conditions in the market area.
Page 8
Noninterest Income.
For the three months ended June 30, 1999, noninterest income increased $6,000
(2.3%) compared to the same period in 1998. The increase was primarily due to
an increase of $42,000 in other noninterest income (primarily service charges
and loan servicing fees), partially offset by decreases of $28,000 in net gain
on sale of loans and $8,000 in loan origination fees.
For the nine months ended June 30, 1999, noninterest income increased $41,000
(4.9%) compared to the same period in 1998. The increase was primarily due to
increases of $97,000 in other noninterest income and $15,000 in loan
origination fees, which were partially offset by a decrease of $82,000 in net
gain on sale of loans. The increase in other noninterest income consisted
primarily of increases of $62,000 in service charges, $14,000 in loan
servicing fees and $12,000 in net gain on sale of repossessed assets. For the
nine months ended June 30, 1999 and June 30, 1998, the amount of mortgage
loans sold was $9.4 million and $10.7 million, respectively.
Noninterest Expense.
For the three months ended June 30, 1999, noninterest expense increased $8,000
(1.1%) compared to the same period in 1998. The increase was due to increases
of $4,000 in compensation and benefits and $4,000 in other noninterest
expense.
For the nine months ended June 30, 1999, noninterest expense increased $60,000
(2.7%) compared to the same period in 1998. The increase was due to increases
of $50,000 in compensation and benefits, $9,000 in occupancy and equipment and
$1,000 in other noninterest expense.
Liquidity and Capital Resources
The Company's assets consist primarily of cash and cash equivalents and the
shares of the Association's common stock. The Association's deposit retention
and growth has remained steady. The ratio of loans to deposits was 101.8% at
June 30, 1999 and 102.5% at September 30, 1998. From September 30, 1998 to
June 30, 1999, investments available for sale increased $5.3 million (20.7%)
and cash and cash equivalents increased $2.1 million (78.2%). Liquidity
remains adequate for current operating needs. At June 30, 1999, the
Association's liquidity ratio was 20.3% compared to the required regulatory
minimum of 4.0%.
The Company's and the Association's regulatory capital remains well in excess
of all applicable regulatory requirements. At June 30, 1999, the Company's
tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were
13.48%, 22.62% and 23.16%, respectively, and the Association's tier 1
leverage, tier 1 risk-based and total risk-based capital ratios were 13.25%,
22.26% and 22.81%, respectively. Pursuant to FDICIA and OTS regulations, an
institution is deemed to be "adequately capitalized" with capital ratios equal
to or above 4.0%, 4.0% and 8.0%, respectively, and "well capitalized" with
capital ratios equal to or above 5.0%, 6.0% and 10.0%, respectively.
Page 9
Asset/Liability Management and Interest Rate Risk
The objective of asset/liability management is to maximize net interest margin
within an acceptable level of interest rate risk.
Net interest income is the primary component of net income and interest rate
risk is a significant exposure. Interest rate risk can be defined as the
amount of forecasted net interest income that may be gained or lost due to
favorable or unfavorable movements in interest rates.
In order to minimize the potential for adverse effects of material and
prolonged changes in interest rates on the Company's results of operations,
management has implemented and continues to monitor asset and liability
policies to better match the maturities and repricing terms of rate-sensitive
assets and rate-sensitive liabilities. Management also monitors and
evaluates, on a quarterly basis, the potential impact of interest rate changes
upon the Company's net portfolio value and net interest income.
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate margin that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of rate-sensitive assets and rate-
sensitive liabilities which either reprice or mature within a given period of
time. The difference, or the interest rate repricing "gap", provides an
indication of the extent to which an institution's interest rate margin will
be affected by changes in interest rates. A gap is considered positive when
the amount of rate-sensitive assets exceeds the amount of rate-sensitive
liabilities, and is considered negative when the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets. During a period of
rising interest rates, a negative gap would cause a decrease in net interest
income, while a positive gap would cause an increase in net interest income.
During a period of declining interest rates, a negative gap would cause an
increase in net interest income, while a positive gap would cause a decrease
in net interest income.
At June 30, 1999, the estimated one-year gap was a negative 66.0% and the
ratio of rate-sensitive assets to rate-sensitive liabilities maturing or
repricing within one year was 60.2%.
At June 30, 1999, assuming instantaneous interest rate changes sustained for a
twelve-month period, the following table presents the estimated percent of
change in the net portfolio value and net interest income for various changes
in interest rates (100 basis points equals 1%). Estimates are based upon
numerous assumptions. Actual sensitivity to interest rate changes could vary
significantly if actual experience differs from assumptions used in making the
calculations. Net portfolio value is the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts, if any.
Page 10
Percentage Change in
Change in _____________________________
Interest Rates Net Portfolio Net Interest
(Basis Points) Value Income
_______________ _____________ ____________
+200 -7.0% -9.1%
+100 -2.8% -4.5%
-100 +2.7% +4.3%
-200 +5.8% +8.5%
The Year 2000 Issue
Computer systems which are unable to recognize the year 2000 could fail or
create erroneous results by or at the year 2000 if the problem is not
corrected. Many existing computer programs use only two digits to identify a
year in the date field. Such programs, designed and developed without
considering the impact of a change in the century, are unable to distinguish
the year 2000 from the year 1900. Like most financial service providers, the
Company could be significantly affected by software and hardware both within
the Company and with other companies with whom it electronically or
operationally interfaces.
Management is aware of the potential problems and the costs required to
prevent material adverse consequences. Management has adopted a Year 2000
Plan, approved by the Board of Directors, and has appointed a committee to
implement the plan. The committee has assessed the Company's exposure;
scheduled necessary in-house hardware and software upgrades and replacements;
initiated formal communications with all major outside vendors, suppliers,
creditors and borrowers; scheduled testing of all operating systems; and
provided for a contingency plan for all critical systems.
The Company's core processing systems are outsourced through a contract with a
third party vendor. The Company's and the vendor's Year 2000 readiness is
reviewed and monitored by the OTS.
According to the Company's implementation schedule, hardware and software
upgrades and replacements were to be completed by December 31, 1998, and
validation testing of software was to be completed by March 31, 1999.
Implementation of the Year 2000 Plan is on schedule. In-house hardware and
software upgrades and replacements were completed November 30, 1998. Vendor
software modifications are 100% completed. The Company has participated in
the testing process as part of a user group which has evaluated testing
methodology and prepared its own test data along with that of other group
members. Initial testing was completed October 16, 1998. Test results have
been reviewed and final testing was completed April 12, 1999. Test results
were successful and all critical systems were determined to be Year 2000
ready. The contingency/business-resumption plan for all mission critical
systems has been completed and approved by management and the Board of
Directors.
Page 11
Implementation of the Year 2000 Plan involves both direct and indirect costs
which are charged to earnings as incurred. Direct costs include hardware and
software upgrades and replacements, potential charges by third party software
vendors, and resulting costs if the contingency plan for critical systems must
be implemented. Indirect costs principally consist of existing employee time
related to implementation of the Year 2000 Plan. Based on estimated costs
within the Year 2000 Plan, such costs will not have a material impact on the
Company's financial condition or results of operations. The incremental costs
associated with the Company's Year 2000 compliance were budgeted at
approximately $35,000. Actual total costs are expected to be slightly less
than budgeted. At June 30, 1999, $27,000 had been expended.
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 May 20, 1999, FASB
issued an Exposure Draft providing for a one year deferral with the new
effective date to be for fiscal periods beginning after June 15, 2000 (the
Company's effective date of October 1, 2000). Adoption of this statement is
not expected to have a material effect on the Company's financial condition or
results of operations.
Page 12
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 March 9, 1999, the Company announced a plan to repurchase up to
80,000 shares (5%) of outstanding common stock and 58,100 shares have
been repurchased as of June 30, 1999. The repurchased shares are held
as treasury stock and are available for general corporate purposes.
On June 29, 1999, the Company declared a quarterly dividend in the
amount of $.16 per share, payable July 28, 1999 to stockholders of
record on July 14, 1999.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Earnings Per Share Computation
No reports on Form 8-K were filed during the period.
Page 13
TEXARKANA FIRST FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXARKANA FIRST FINANCIAL CORPORATION
/s/ James W. McKinney
Date: August 10, 1999 By: ______________________________
James W. McKinney
Chairman and CEO
/s/ James L. Sangalli
Date: August 10, 1999 By: ______________________________
James L. Sangalli
Chief Financial Officer
Page 14
Form 10-Q
Exhibit 11
EARNINGS PER SHARE COMPUTATION
Three Months Ended Nine Months Ended
June 30, June 30,
_____________________ _____________________
1999 1998 1999 1998
__________ __________ __________ __________
Net Income........................$ 804,171 $ 842,427 $2,417,191 $2,406,310
========= ========= ========= =========
Weighted average shares:
Common shares outstanding....... 1,466,850 1,629,066 1,503,528 1,636,467
Common stock equivalents
due to assumed exercise
of stock options.............. 68,970 88,680 67,186 82,897
_________ _________ _________ _________
Common shares
assuming dilution........... 1,535,820 1,717,746 1,570,714 1,719,364
========= ========= ========= =========
Net income per common share:
Basic........................... $ .548 $ .517 $1.608 $1.470
Assuming dilution............... $ .524 $ .490 $1.539 $1.400
E 1