FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
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 0-24848
East Texas Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2559089
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification number)
1200 South Beckham, Tyler, Texas 75701
(Address of principal executive offices) (Zip code)
(903) 593-1767
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Securities Exchange Act of 1934 during the past 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. [x] Yes [ ] No
The number of shares of the registrant's common stock ($.01 par value)
outstanding as of March 31, 1997, was 1,079,285.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition, March 31, 1997
(Unaudited) and September 30, 1996
Consolidated Statements of Income, (Unaudited) three months and six
months ended March 31, 1997, and March 31, 1996
Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
six months ended March 31, 1997
Consolidated Statements of Cash Flows, (Unaudited) six months ended
March 31, 1997, and March 31, 1996
Notes to (Unaudited) Consolidated Financial Statements, March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II - Other Information
Item 1. Legal Proceedings.
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters To a Vote of Security Holders
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signature Page
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
East Texas Financial Services, Inc. (the "Company") was formed in September of
1994 for the purpose of acquiring all of the common stock of First Federal
Savings and Loan Association of Tyler (the "Association"), concurrent with its
conversion from the mutual to stock form of ownership. The Company completed its
initial public stock offering of 1,215,190 shares of $.01 par value common stock
on January 10, 1995. The Company utilized approximately one half of the net
stock sale proceeds to acquire all of the common stock issued by the
Association. For additional discussion of the Company's formation and intended
operations, see the Form S-1 Registration Statement (No. 33-83758) filed with
the Securities and Exchange Commission and the Company's annual report on Form
10-KSB for the fiscal year ended September 30, 1996, also filed with the
Commission.
The financial statements presented in this Form 10-QSB reflect the consolidated
financial condition and results of operations of the Company and its wholly
owned subsidiary, First Federal Savings and Loan Association of Tyler.
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDIITON
ASSETS March 31, 1997 September 30, 1996
-------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks ....................................... $ 497,869 $ 704,615
Interest-bearing deposits with banks .......................... 7,031,396 4,995,032
Interest earning time deposits with financial
institutions .................................................. 1,663,573 1,663,573
Federal funds sold ............................................ 309,230 480,285
Investment securities held-to-maturity (estimated market
value of $25,992,393 at March 31, 1997, and
$30,114,685 at September 30, 1996) ....................... 26,108,843 30,138,744
Mortgage-backed securities held-to-maturity (estimated market
value of $21,283,941at Marh 31, 1997, and
$25,383,579 at September 30, 1996) ....................... 20,857,307 24,948,793
Loans receivable, net of allowance for credit
losses of $273,659 at March 31, 1997, and $289,120
at September 30, 1996 .................................... 51,797,970 47,925,067
Accrued interest receivable ................................... 900,672 930,657
Federal Home Loan Bank stock, at cost ......................... 976,100 948,500
Premises and equipment ........................................ 943,086 970,184
Foreclosed real estate, net of allowances of $-0- ............. 76,224 0
Deferred income taxes ......................................... 117,223 130,825
Mortgage servicing rights ..................................... 130,327 119,845
Other assets .................................................. 279,570 416,816
------------- -------------
Total Assets ......................................... $ 111,689,390 $ 114,372,936
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits .......................................... $ 1,686,177 $ 2,889,861
Savings and NOW deposits ................................. 10,399,745 11,099,604
Other time deposits ...................................... 77,704,798 77,671,666
------------- -------------
Total deposits ....................................... 89,790,720 91,661,131
Advances from borrowers for taxes and insurance .......... 387,053 917,222
Federal income taxes
Current ............................................ (3,854) 5,044
Deferred ........................................... 0 0
Accrued expenses and other liabilities ................... 265,572 858,926
------------- -------------
Total Liabilities .................................... 90,439,491 93,442,323
------------- -------------
<PAGE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDIITON
(Continued)
March 31, 1997 September 30, 1996
-------------- ------------------
(Unaudited)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value, 500,000
shares authorized, none outstanding
Common stock, $.01 par value, 5,500,000 shares authorized,
1,256,387 shares issued .................................. 12,564 12,564
Additional paid-in capital ............................... 12,112,516 12,112,516
Deferred compensation - RRP shares ....................... (387,938) (446,129)
Unearned employee stock ownership plan shares ............ (763,206) (763,206)
Retained earnings (substantially restricted) ............ 13,072,976 12,811,881
Treasury stock, 177,102 shares at cost ................... (2,797,013) (2,797,013)
------------- -------------
Total stockholders' equity ........................... 21,249,899 20,930,613
------------- -------------
Total liabilities and stockholders' equity ........... $ 111,689,390 $ 114,372,936
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
Ended March 31, Ended March 31,
(Unaudited) (Unaudited)
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable:
First mortgage loans ..................... $1,005,529 $ 860,684 $1,973,167 $1,726,091
Consumer and other loans ................. 20,401 18,951 40,928 38,110
Investment securities ......................... 539,240 603,547 1,110,159 1,231,821
Mortgage-backed securities .................... 389,152 523,206 810,586 1,085,052
---------- ---------- ---------- ----------
Total interest income .................. 1,954,322 2,006,388 3,934,840 4,081,074
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits ...................................... 1,094,930 1,131,328 2,204,602 2,274,192
---------- ---------- ---------- ----------
Total interest expense ................. 1,094,930 1,131,328 2,204,602 2,274,192
---------- ---------- ---------- ----------
Net interest income before provision
for loan losses ...................... 859,392 875,060 1,730,238 1,806,882
Provision for loan losses ..................... 0 0 5,000 0
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses ...................... 859,392 875,060 1,725,238 1,806,882
---------- ---------- ---------- ----------
NONINTEREST INCOME
Gain (loss) on sales of interest-earning assets 18,243 30,210 31,322 57,960
Loan origination and commitment fees .......... 10,074 28,111 27,293 37,542
Loan servicing fees ........................... 15,251 29,377 46,937 59,988
Other ......................................... 16,985 8,836 32,415 30,550
---------- ---------- ---------- ----------
Total noninterest income ............... 60,553 96,534 137,967 186,040
---------- ---------- ---------- ----------
<PAGE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(continued)
Three Months Six Months
Ended March 31, Ended March 31,
(Unaudited) (Unaudited)
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Compensation and benefits ..................... 418,099 385,840 845,754 787,823
Occupancy and equipment ....................... 38,196 35,855 72,060 74,918
SAIF deposit insurance premium ................ 3,124 55,344 51,175 112,383
(Gain) loss on foreclosed real estate ......... 5,633 1,768 5,691 4,852
Other ......................................... 162,273 156,713 302,210 296,356
---------- ---------- ---------- ----------
Total noninterest expense .............. 627,325 635,520 1,276,890 1,276,332
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes .. 292,620 336,074 586,315 716,590
Income tax expense (benefit) ..................... 106,827 122,612 217,292 260,801
---------- ---------- ---------- ----------
NET INCOME (LOSS) ................................ $ 185,793 $ 213,462 $ 369,023 $ 455,789
========== ========== ========== ==========
Earnings per common share
$ 0.19 $ 0.19 0.37 $ 0.40
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED
March 31, 1997
Common
Stock and Unearned Unallocated Total
Paid in RRP ESOP Retained Treasury Stockholders'
Capital Shares Shares Earnings Stock Equity
------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance October 1, 1996 ..... $ 12,125,080 $ (446,129) $ (763,206) $ 12,811,881 $ (2,797,013) $ 20,930,613
Deferred compensation
amortization
-- 58,191 -- -- -- 58,191
Payment of cash dividends
-- -- -- (104,634) -- (104,634)
Accrued dividends - RRP stock
-- -- -- (3,294) -- (3,294)
Net income for the six
months ended
March 31, 1997
-- -- -- (369,023) -- 369,023
Balance March 31, 1997 ...... $ 12,125,080 $ (387,938) $ (763,206) $ 13,072,976 $ (2,797,013) $ 21,249,899
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For The Six Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 369,023 $ 183,230
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred loan origination fees ........ (1,194) (69)
Amortization of premiums and discounts on investment
securities, mortgage-backed securities, and loans 54,068 34,002
Amortization of deferred compensation ................. 58,191 29,095
Compensation charge related to release of ESOP shares . 46,350 28,994
Depreciation .......................................... 33,801 16,875
Deferred income taxes ................................. 13,602 4,567
Stock dividends on FHLB stock ......................... (27,600) (13,900)
Amortization of mortgage servicing rights.............. 13,307 0
Net (gain) loss on sale of:
Securities held to maturity ......................... 0 0
Foreclosed real estate .............................. 0 0
Net loss on disposal of fixed assets ................ 0 0
Other Assets ........................................ 0 0
Loans ............................................... (31,321) (4,925)
Loans held for sale ................................. 0 0
Proceeds from loan sales .............................. 1,950,639 1,184,950
Originations of loans held for sale ................... 0 0
(Increase) decrease in:
Accrued interest receivable ......................... 29,985 (59,325)
Other assets ........................................ 292,289 136,571
Accrued loan loss reserve ........................... 5,000 5,000
Increase (decrease) in:
Federal income tax payable .......................... (8,898) 100,854
Accrued expenses and other liabilities .............. (639,709) (655,252)
Capitalized interest on time deposits ................. 0 0
----------- -----------
Net cash provided (used) by operating activities ............ 2,157,533 990,667
----------- -----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from investing activities:
Purchases of interest earning time deposits ............ $ (98,000) $ 0
Net decrease (increase) in fed funds sold .............. 171,055 (2,074,079)
Purchases of obligations - U.S. Govt. and agencies
held-to-maturity ................................... (3,513,046) (997,578)
Proceeds from maturity of time deposits ................ 98,000 98,000
Proceeds from sale of securities held-to-maturity ...... 0 0
Proceeds from maturity of securities held-to-maturity .. 0 0
Proceeds from maturities of obligations - U.S. Govt. and
agencies held-to-maturity .......................... 7,500,000 3,000,000
Purchases of mortgage-backed securities
held-to-maturity ................................... 0 0
Principal payments on mortgage-backed securities
held-to-maturity ................................... 4,080,367 1,628,759
Net originations and principal collections on loans .... (6,225,858) (3,721,670)
Acquisition cost related to foreclosed real estate ..... (9,489) (5,252)
Proceeds from sale of foreclosed real estate ........... 184,269 58,300
Expenditures for premises and equipment ................ (6,703) 0
----------- -----------
Net cash provided (used) by investing activities ......... 2,180,595 (2,013,520)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits, savings, and NOW
accounts ........................................... (1,903,542) 352,830
Time deposits ......................................... 33,131 (154,908)
Advances from borrowers for taxes and insurance ....... (530,169) (768,788)
Dividends paid to stockholders ........................... (107,930) (53,965)
Purchase of treasury stock ............................... 0 0
----------- -----------
Net cash provided (used) by financing activities ......... (2,508,510) (624,831)
----------- -----------
Net increase (decrease) in cash and cash equivalents ..... 1,829,618 (1,647,684)
Cash and cash equivalents at beginning of the period ..... 5,699,647 5,699,647
----------- -----------
Cash and cash equivalents at end of the period ........... $ 7,529,265 $ 4,051,963
=========== ===========
<PAGE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(continued)
For the Six Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Supplemental disclosure:
Cash paid for:
Interest on deposits ................................... $ 1,115,923 $ 559,672
Income taxes ........................................... $ 212,701 $ 5,157
Transfers from loans to real estate
acquired through foreclosures .......................... $ 419,527 $ 197,595
Loan losses charged to valuation allowance ............... $ 54,083 $ 1,185
Recoveries credited to loan loss reserve ................. $ 33,622 $ 0
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments which are, in the
opinion of management, necessary for fair presentation. These financial
statements have not been audited by an independent accountant. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations for interim
reporting. The Company believes that the disclosures are adequate to make the
information not misleading. However, these financial statements should be read
in conjunction with the financial statement and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended September 30, 1996.
The financial data and results of operations for interim periods presented may
not necessarily reflect the results to be anticipated for the complete year.
NOTE 2 - EARNINGS PER SHARE
For purposes of calculating earnings per common share and as prescribed by the
American Instituted of Certified Public Accountants Statement of Position 93-6
("SOP 93-6") Employers' Accounting For Employees Stock Ownership Plans, the
weighted average number of shares outstanding, excluding unallocated Employee
Stock Ownership Plan ("ESOP") shares, was used. For the three months and six
months ended March 31, 1997, the weighted average number of shares outstanding
for earnings per share calculation purposes was 1,002,964. (See Part II, Item 6
- - Exhibits for a detailed presentation of the earnings per share calculation for
the three month and six month periods ended March 31, 1997.)
NOTE 3 - SECURITIES
The amortized cost and estimated market values of investment securities
held-to-maturity as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Debt securities:
U. S. Treasury ........... $ 3,513,470 $ 1,447 $ 25,521 $ 3,489,397
U. S. government agency
22,595,373 47,177 139,553 22,502,997
----------- ----------- ----------- -----------
Total debt securities $26,108,843 $ 48,624 $ 165,074 $25,992,393
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
NOTE 3 - Continued
The amortized cost and estimated market values of investment securities
held-to-maturity as of March 31, 1997, by contractual maturity are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less ...................... $12,515,653 $12,552,911
Due after one year through two years ........ 8,007,773 7,942,753
Due after two years through three years ...... 4,581,431 4,518,739
Due after three years through five years ..... 1,003,986 977,991
----------- -----------
Total debt securities ................ $26,108,843 $25,992,393
----------- -----------
</TABLE>
As of March 31, 1997, the weighted average yield on the Company's investment
security portfolio was approximately 6.15% while the Company's overall
investment portfolio, including securities held-to-maturity, overnight deposits
and interest earning time deposits with other financial institutions was
approximately 6.00%.
The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of March 31, 1997, by issuer are as follows:
<TABLE>
<CAPTION>
Estimated
Principal Unamortized Unearned Carrying Market
Balance Premiums Discounts Value Value
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FHLMC ............................. $16,891,934 $ 92,308 $ 39,500 $16,944,742 $17,255,317
FNMA .............................. 3,885,618 26,947 -0- 3,912,565 4,028,624
----------- ----------- ----------- ----------- -----------
$20,777,552 $ 119,255 $ 39,500 $20,857,307 $21,283,941
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
NOTE 3 - Continued
The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of March 31, 1997, by type of security are as
follows:
<TABLE>
<CAPTION>
Estimated
Principal Unamortized Unearned Carrying Market
Balance Premiums Discounts Value Value
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fixed Rate .... $ 4,349,368 $ 0 $ 23,525 $ 4,325,843 $ 4,244,787
Adjustable Rate 16,428,184 119,256 19,156 16,531,464 17,039,154
----------- ----------- ----------- ----------- -----------
$20,777,552 $ 119,256 $ 42,681 $20,857,307 $21,283,941
----------- ----------- ----------- ----------- -----------
</TABLE>
Unrealized gains and losses on mortgage-backed and related securities
held-to-maturity as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate Total
Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FHLMC .. $ 448 $ 81,504 $391,631 $ 0 $392,079 $ 81,504
FNMA ... 0 0 116,059 0 116,059 0
-------- -------- -------- -------- -------- --------
$ 448 $ 81,504 $507,690 $ 0 $508,138 $ 81,504
-------- -------- -------- -------- -------- --------
</TABLE>
The overall yield on the Company's mortgage-backed securities portfolio as of
March 31, 1997, was approximately 7.32%.
NOTE 4 - CURRENT ACCOUNTING ISSUES
SFAS NO. 123 In October 1995 the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-Based Compensation which established a fair
value based method of accounting for stock-based compensation plans. It
encourages entities to adopt that method in place of the provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees, for all arrangements
under which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on the
price of its stock. It permits entities to continue to use the intrinsic value
method included in APB No. 25, but regardless of the method used to account for
the compensation cost associated with stock option and similar plans, it
requires employers to show significant expanded disclosures, including the pro
forma amount of net income (and earnings per share) as if the fair value-based
method were used to account for stock-based compensation.
<PAGE>
NOTE 4 - CURRENT ACCOUNTING ISSUES - Continued
Beginning October 1, 1996, the effective date for the Statement, the Company
elected to continue using the accounting and disclosure methods prescribed by
APB No. 25 for its current plan and to continue using the accounting methods
prescribed by APB No. 25 but disclose in the footnotes information on a fair
value basis for any future stock-based compensation plans.
SFAS NO. 125 Statement of Financial Accounting Standards No. 125, Accounting For
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings and for the
extinguishment of financial liabilities. It is based on the consistent
application of the financial-components approach. The Statement requires the
recognition of financial assets and servicing assets that are controlled by an
entity, the derecognition of financial assets and servicing assets where control
is surrendered, and the derecognition of liabilities when they are extinguished.
The Statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and shall be
applied prospectively. The Company adopted the Statement as required.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The principle business of the Company is that of a community-oriented financial
institution attracting deposits from the general public and using such deposits
to originate one- to four-family residential loans and, to a lesser extent,
commercial real estate, one- to four-family construction, multi-family and
consumer loans. These funds have also been used to purchase mortgage-backed
securities, U. S. government and agency obligations and other permissible
securities. The ability of the Company to attract deposits is influenced by a
number of factors, including interest rates paid on competing investments,
account maturities and levels of personal income and savings. The Company's cost
of funds is influenced by interest rates on competing investments and general
market rates of interest. Lending activities are influenced by the demand for
real estate loans and other types of loans, which is in turn affected by the
interest rates at which such loans are made, general economic conditions
affecting loan demand, the availability of funds for lending activities,
economic conditions and changes in real estate values.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan and
investment portfolios and the interest paid on deposits and borrowings. Results
of operations are also affected by the Company's provision for loan losses and
the net gain(loss) on sales of interest earning assets and loan fees. The
Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities.
FINANCIAL CONDITION
Total assets were $111.7 million at March 31, 1997, a $2.7 million or 2.3%
decrease from the $114.4 million reported at the Company's fiscal year ended
September 30, 1996. The decrease was primarily attributable to an $8.1 million
decrease in investment and mortgage-backed securities held-to-maturity. The
decrease in securities was partially offset by a $2.0 million increase in
interest-bearing deposits with banks, primarily overnight deposits at the
Federal Home Loan Bank of Dallas, and a $3.9 million increase in loans
receivable balances.
Total liabilities decreased by $3.0 million to $90.4 million at March 31, 1997,
compared to $93.4 million at September 30, 1996. The decrease was the result of
a $530,000 decline in advances from mortgage borrowers for taxes and insurance
as year end taxes were paid on behalf of borrowers. Also, a $1.9 million decline
in total deposits, approximately $1.5 million of which was also the result of
year end payments for mortgage borrowers' taxes and insurance out of Fannie Mae
custodial accounts held at First Federal Savings and Loan Association, accounted
for the remainder of the decrease.
<PAGE>
Stockholders' equity increased by $319,000 to $21.2 million at March 31, 1997,
compared to $20.9 million at September 30, 1996, primarily the result of the net
income for the quarter.
Cash, interest-bearing deposits with bank and federal funds sold totaled $7.8
million at March 31, 1997, an increase of $1.6 million from the $6.2 million
reported at September 30, 1996. Balances in these accounts fluctuate as loan
payments and deposits are received from customers as well as with maturities of
investment securities and disbursement of loan proceeds, deposit withdrawals,
and payment of operating expenses.
Investment securities held-to-maturity totaled $26.1 million at March 31, 1997,
compared to $30.1 million at September 30, 1996. Balances in the portfolio are
determined by the Company's cash flow needs and will vary over time.
During the six months ended March 31, 1997, cash proceeds from maturing
investment securities were redirected to fund loan originations and to fund
deposit withdrawals. At March 31, 1997, the portfolio contained $12.5 million in
securities with maturities of less than one year, $8.0 million with maturities
of one through two years, $5.5 million with maturities of two through three
years and $1.0 million with maturities of three through four years.
At March 31, 1997, the yield on the portfolio was approximately 6.15%
The Company's mortgage-backed securities portfolio totaled $20.9 million at
March 31, 1997, compared to $24.9 million at September 30, 1996. The decrease
was due to principal payments received on the portfolio during the period,
including the maturity of a fixed rate "balloon" security with a remaining
balance of approximately $1.0 million. The weighted average yield on the
portfolio was approximately 7.32% at March 31, 1997.
Loans receivable totaled $51.8 million at March 31, 1997, an increase of $3.9
million over the $47.9 million reported at September 30, 1996. The continued
growth in the loans receivable portfolio was a result of the Company's continued
aggressive pricing of its fixed rate fifteen year term mortgage loans. The
Company has continued to price this product at levels below the market but
higher than short term investment alternatives. At March 31, 1997, the fifteen
year loan portfolio totaled approximately $21.9 million, with a weighted average
yield of approximately 7.44%. For the six months ended March 31, 1997, the
Company reported total loan originations of $9.7 million.
Foreclosed real estate owned totaled $76,000 at March 31, 1997, compared to none
at September 30, 1996, and down $43,000 from the $119,000 reported at December
31, 1996. The balance was comprised of two single-family dwellings located in
Tyler, Texas. The properties were recorded at their "fair value" and were being
marketed for sale. (See - "Asset Quality".)
Total deposits were $89.8 million at March 31, 1997, a $1.9 million decrease
from the $91.7 million reported at September 30, 1996. The Association's average
funds cost was 4.92% at March 31, 1997, up thirteen basis points from the 4.79%
reported at September 30, 1996.
Advances from borrowers for taxes and insurance decreased $530,000 to $387,000
at March 31, 1997, compared to $917,000 at September 30, 1996. The decrease was
a result of year end tax payments made on the Association's mortgage loan
servicing portfolio.
<PAGE>
Stockholders' equity was $21.2 million at March 31, 1997, up $319,000 from the
$20.9 million reported at September 30, 1996. The increase was attributable to
the $369,000 net income for the six months ended March 31, 1997, plus a $58,000
increase in Deferred Compensation - RRP shares, resulting from the continuing
amortization of the cost of the shares, less $108,000 in cash dividends declared
and paid during the period.
RESULTS OF OPERATIONS
The Company's net income is dependent primarily upon net interest income, the
difference or spread between the average yield earned on loans and investments
and the average rate paid on deposits, as well as the relative amounts of such
assets and liabilities. The Company, like other financial intermediaries, is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different times, or on a different basis, than
its interest earning assets.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996
General. Net income for the three months ended March 31, 1997, was $186,000 or
$.19 per share, compared to $213,000 or $.19 per share for the quarter ended
March 31, 1996, a $27,000 or 13.0% decline in net income. The decrease in net
income was attributable to a $36,000 decline in non-interest income and a
$15,000 decline in net interest income after provisions for loan losses, both of
which were partially offset by an $8,000 decrease in noninterest expenses and a
$16,000 decrease in income tax expenses.
Net Interest Income. For the three months ended March 31, 1997, net interest
income before provisions for loan losses totaled $859,000, down $15,000 or 1.8%
from the $875,000 reported for the quarter ended March 31, 1996. For the quarter
ended March 31, 1997, total interest income was $2.0 million, unchanged from the
quarter ended March 31, 1996. As a percentage of interest earning assets, total
interest income was approximately 7.14% for the quarter ended March 31, 1997, up
three basis points from 7.11% for the same quarter in 1996.
Interest income on loans receivable totaled $1.0 million for the quarter ended
March 31, 1997, an increase of $146,000 or 16.6% over the $880,000 reported for
the same quarter in 1996. As a percentage of $51.0 million of average loans
receivable balances, interest income from loans receivable equaled 8.04%, on an
annualized basis, for the current quarter, compared to 8.18% on an average
balance of $43.0 million for the prior year. The increase in average balances
outstanding and a decrease in the overall yield in the portfolio was a result of
the Company's continued emphasis of its fifteen year fixed term and rate
portfolio lending program. Loans were originated at interest rates below
competition but greater than comparable investment alternatives. For the quarter
ended March 31, 1997, the Company originated $4.3 million in loans.
Approximately $681,000 were sold into the secondary market, while the remainder
were placed into the loan portfolio.
Interest income from the investment securities and overnight funds portfolio
totaled $539,000 for the three months ended March 31, 1997, compared to $604,000
for the same period in 1996, a $65,000 or 10.7% decrease. The decrease resulted
from a $3.4 million decline in average balances outstanding in the portfolio for
the quarter ended March 31, 1997, compared to the same quarter in 1996, as
balances in maturing securities were redirected to the Company's lending
operations. Also, the average yield in the portfolio declined to 6.08% for the
quarter ended March 31, 1997, from 6.21% for the same quarter in 1996, as higher
yielding securities matured during the past 12 months.
<PAGE>
Interest income from the Company's mortgage-backed securities portfolio declined
to $389,000 for the three months ended March 31, 1997, compared to $523,000 for
the three months ended March 31, 1996, a $134,000 or 25.6% decline. Continued
prepayments on the adjustable rate securities in the portfolio caused the
average balance outstanding in the portfolio to decline to $22.1 million for the
quarter ended March 31, 1997, from $30.0 million for the quarter ended March 31,
1996. The company redirected the resulting cash flows into its portfolio lending
operations. Despite a slight increase in the average yield of the portfolio to
7.05% for the quarter ended march 31, 1997, from 6.98% for the quarter ended
March 31, 1996, the declining balances accounted for the significant decline in
interest income in the portfolio.
Interest paid to depositors totaled $1.1 million for the quarter ended March 31,
1997, unchanged from the $1.1 million reported for the same quarter in 1996.
Average deposit balances outstanding decreased $1.9 million to $90.0 million for
the current year quarter from $92.7 million for the same quarter in 1996. The
Company's average funds cost was approximately 4.92% at March 31, 1997, compared
to 4.78% at March 31, 1996.
For the quarter ended March 31, 1997, the Company's net interest income as a
percentage of average interest earning assets was 3.14%, up four basis points
from the 3.10% reported for the quarter ended March 31, 1996.
Provision for Loan Losses. The Company made no provision for loan losses for the
quarter ended March 31, 1997, or for the quarter ended March 31, 1996. (See -
"Asset Quality".)
Non-Interest Income. Non-interest income decreased to $61,000 for the quarter
ended March 31, 1997, from $97,000 for the quarter ended March 31, 1996. The
decrease was attributable to a $12,000 decrease in gains on sales of assets, an
$18,000 decrease in loan origination and commitment fees and a $14,000 decrease
in loan servicing fees. The decrease in all of these categories was attributable
to the Company's portfolio lending program.
Over the last several quarters, the Company has placed more of its loans
originated into portfolio than were sold. The result was that fewer gains on the
sale of loans were reported under the accounting requirements of Statement of
Financial Accounting Standards ("SFAS") No. 122, Accounting For Mortgage
Servicing Rights - An Amendment of SFAS No. 65. Also, the market for fixed rate
and term loans of the type the Company is originating and placing into portfolio
has been less receptive to origination and commitment fees.
Non-Interest Expense. Total non-interest expense decreased to $627,000 for the
three months ended March 31, 1997, from $636,000 for the same period in 1996.
The decrease was primarily attributable to a $52,000 decline in deposit
insurance premiums as a result of the reduction in on-going SAIF premiums after
the special one-time contribution made by the Company in 1996 to help
recapitalize the SAIF. The reduction in SAIF premiums was partially offset by a
$32,000 increase in compensation and benefits expense. The increased
compensation and benefits expense was directly related to additional expenses
related to the Company's Employee Stock Ownership Plan as the value of the stock
scheduled to be released to participants in the current fiscal year increased
and was recognized as additional expense. In addition, the Company increased its
accrual in anticipation of increased funding on its defined benefit pension plan
for the fiscal year. Increases in employee salaries for the current year also
contributed to the increase.
<PAGE>
Provision For Income Taxes. The Company incurred federal income tax expense of
$107,000 or 36.5% of pre-tax income for the three months ended March 31, 1997,
compared to $123,000 or 36.5% of pre-tax income for the same period in 1996.
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996
General. For the six months ended March 31, 1997, the Company reported net
income of $369,000 or $.37 per share, compared to $456,000 or $.40 per share for
the six months ended March 31, 1996, an $87,000 or 19.1% decline in net income.
The decrease was attributable to an $82,000 decline in net interest income after
provisions for loan losses and a $48,000 decline in non-interest income, which
were partially offset by a $44,000 decrease in income tax expenses.
Net Interest Income. For the six months ended March 31, 1997, net interest
income after provision for loan losses totaled $1.7 million, an $82,000 or 4.5%
decrease from the $1.8 million reported for the same period in 1996. Total
interest income was $3.9 million, or 7.16% of average interest earning assets
for the six month period ended March 31, 1997, compared to $4.1 million or 7.23%
of average interest earning assets for the same period in 1996.
Interest income on loans receivable increased $250,000 or 14.2% to $2.0 million
for the six months ended March 31, 1997, from $1.7 million for the six months
ended March 31, 1996. The increase in income on loans receivable was primarily
attributable to a $7.0 million increase in average loans receivable balances
outstanding during the six months ended March 31, 1997, compared to the same
period in 1996. For the 1997 period, interest income on loans receivable, as a
percentage of average loans receivable balances, was 8.08%, a decrease of 15
basis points from the 8.23% reported for the 1996 period. The increase in
average balances and corresponding decrease in the average yield was
attributable to the Company's emphasis, as an alternative to available
investment security yields, in portfolio lending of fifteen year fixed and term
rate loans.
Interest income on investment securities and overnight funds was $1.1 million
for the six months ended March 31, 1997, compared to $1.2 million for the six
months ended March 31, 1996. The decrease in income was the result of a decline
in the overall yield on the portfolio from approximately 6.50% for the six
months ended March 31, 1996, to 6.13% for the six months ended March 31, 1997,
as higher yielding investment securities matured and were redirected into the
Company's portfolio lending operation or were reinvested at lower yields. In
addition, the average balance in the portfolio declined to $36.2 million during
the six months ended March 31, 1997, from $37.9 million for the six months ended
March 31, 1996.
Interest income on mortgage-backed securities was $811,000 for the six months
ended March 31, 1997, compared to $1.1 million for the six months ended March
31, 1996. The decline in earnings was a result of a decrease in average balances
outstanding in the portfolio from $31.2 million for the six months ended March
31, 1996, to $22.9 million for the six months ended March 31, 1997, as cash flow
from the portfolio was redirected to the Company's lending operations.
Interest expense was $2.2 million for the six months ended March 31, 1997, a
decrease of $70,000 from the $2.3 million reported for the six months ended
March 31, 1996. A $1.3 million decline in average balances outstanding from
$92.1 million during the six months ended March 31, 1996, to $90.7 million for
the six months ended March 31, 1997, accounted for the decrease in expense.
<PAGE>
Non-Interest Income. Non-interest income was $138,000 for the six months ended
March 31, 1997, compared to $186,000 for the six months ended March 31, 1996, a
$48,000 or 25.8% decrease. The decrease in income was directly attributable to a
decline in fees from the Company's lending operations. Gains on sales of
interest earning assets were down $27,000 as more loans were placed into
portfolio than were sold, loan origination fees were down $10,000 as the local
market demanded loans without origination fees, and loan servicing fees were
down $13,000 as the Company amortized originated mortgage servicing rights
recorded in prior periods.
Non-Interest Expense. Non-interest expense was virtually unchanged at $1.3
million for both six month periods ended March 31, 1997, and March 31, 1996.
SAIF deposit insurance premiums were $51,000 for the six month period ended
March 31, 1997, down $61,000 from the $112,000 reported for the six months ended
March 31, 1996. The decrease was a result of a reduction in on-going SAIF
insurance premiums afford to thrift institutions after the 1996 one-time special
assessment charged to all SAIF insured institutions to recapitalize the fund.
The decrease in SAIF premiums was partially offset by a $58,000 increase in
compensation and benefits expense that resulted from additional expenses related
to the Company's ESOP and defined benefit pension plans, as well as salary
increases for the current year.
Provision For Income Taxes. The Company incurred federal income tax expenses of
$217,000 or 37.1% of pre-tax income for the six months ended March 31, 1997,
compared to $261,000 or 36.4% of pre-tax income for the same period in 1996.
ASSET QUALITY
At March 31, 1997, the Company's non-performing assets totaled $274,000 or .25%
of total assets, compared to $450,000 or .39% of total assets at September 30,
1996. The decrease was primarily the result of the foreclosure and subsequent
sale of four single family residences, all of which secured one loan. The loan
was considered non-performing at September 30, 1996, and had a balance of
approximately $197,000 at that time. All four of the properties were sold during
the six month period ended March 31, 1997, and a loss of approximately $19,000
was charged to the Company's general loss reserve.
At March 31, 1997, non-performing assets was comprised of seven (7) loans,
totaling approximately $198,000 and the largest of which was $56,000, secured by
single family dwellings and $76,000 of foreclosed real estate which was
comprised of two (2) single family dwellings located in Tyler, Texas. The two
properties were being marketed for sale.
The $198,000 in non-performing loans at March 31, 1997, equaled .38% of loans
receivable, compared to $450,000 or .94% of loans receivable at September 30,
1996.
Classified assets totaled $906,000 or .81% of total assets at March 31, 1997,
compared to $999,000 or .87% of total assets at September 30, 1996.
Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent. Also, assets guaranteed by
government agencies such as the Veterans Administration and the Federal Housing
Administration are not included in classified assets but are included in
non-performing assets. All classified assets at March 31, 1997, were deemed to
be "substandard". No assets were classified "doubtful" or "loss" as of such
date.
<PAGE>
The Company's allowance for loan losses totaled $274,000 at March 31, 1997,
compared to $289,000 at September 30, 1996. The decrease in the allowance was
attributable to the approximate $19,000 charged against the reserve on the
aforementioned foreclosed real estate less the $5,000 addition added to the
reserve and charged against provision for loan losses. The allowance for loan
losses as a percentage of loans receivable equaled .53% at March 31, 1997,
compared to .60% at September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits from customers,
amortization and prepayment of loan principal (including mortgage-backed
securities), maturities of securities, sales of loans and operations.
Current Office of Thrift Supervision regulations require the Association to
maintain cash and eligible investments (liquid assets), in an amount equal to
5.0% of net withdrawable savings deposits and borrowings payable on demand or
within five years or less during the preceding month. Liquid assets include
cash, certain time deposits, U. S Government and agency securities having
maturities of less than five years. The Association maintains a liquid asset
ratio above the minimum required level of the Office of Thrift Supervision. At
March 31, 1997, the Association's liquid asset ratio equaled 43.7%.
The Association uses its liquidity and capital resources principally to meet
ongoing commitments to fund maturing certificates of deposit and loan
commitments, maintain liquidity and pay operating expenses. At March 31, 1997,
the Association had outstanding commitments to extend credit on $4.5 million of
real estate loans.
Management believes that present levels of liquid assets are sufficient to meet
anticipated future loan commitments as well as deposit withdrawal demands.
Total stockholders' equity equaled $21.2 million at March 31, 1997, an increase
of $319,000 from the $20.9 million reported at September 30, 1996. The increase
was primarily a result of the $369,000 net income for the six months ended March
31, 1997, partially offset by cash dividends of $108,000 paid during the period.
As of March 31, 1997, the Company's reported book value per share, using total
stockholders' equity of $21.2 million (net of the cost of unallocated ESOP and
RRP shares) and 1,079,285 outstanding shares of common stock (the total issued
shares including unallocated ESOP and RRP shares, less treasury shares), equaled
$19.69 per share.
Subsequent to the quarter ended March 31, 1997, the Company announced its
intention to pay a cash dividend of $.05 per share on May 28, 1997, to
stockholders of record at May 14, 1997. The Company also, subsequent to quarter
end, announced and completed a stock repurchase program of 53,964 shares of its
stock at an average price of $17.625 per share.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), Congress imposed a three part capital requirement for thrift
institutions. At March 31, 1997, the Association's actual and required capital
amounts under each of the three requirements were as follows:
- - Tangible Capital (stockholders' equity) was $18.1 million or 16.2% of total
assets, exceeding the minimum requirement of 1.5% by $16.4 million.
<PAGE>
- - Core Capital (Tangible capital plus certain intangible assets) was $18.1
million or 16.2% of total assets, exceeding the minimum requirement of 3.0% by
$14.8 million.
- - Risk-based Capital (Core capital plus general loan and valuation allowances
less an adjustment for capitalized mortgage servicing rights) equaled $18.4
million of 45.2% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $15.1 million.
At March 31, 1997, the Association was considered a "well capitalized"
institution under the prompt corrective action requirements of the Federal
Deposit Insurance Corporation Improvement Act of 1991.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or the
Association is a party or of which any of their property is subject. From
time-to-time, the Association is a party to various legal proceedings
incident to the conduct of its business.
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions Of Matters To A Vote Of Security Holders
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit 11.0 - Computation of Earnings Per Share
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed a report on
Form 8-K on January 22, 1997, to report the issuance of a press release
dated January 22, 1997, announcing the Company's intention to pay, on
February 26, 1997, a cash dividend of $.05 per share for the quarter
ended December 31, 1996, to stockholders of record on February 12,
1997.
During the quarter ended March 31, 1997, the Company filed a report on
Form 8-K on January 17, 1997, to report the issuance of a press release
dated January 17, 1997, announcing the Company's earnings for the
quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
East Texas Financial Services, Inc.
Date: May 7, 1997 /s/ Gerald W. Free
------------------
Gerald W. Free
Vice Chairman, President and CEO
(Principal Executive Officer)
Date: May 7, 1997 /s/ Derrell W. Chapman
-----------------------
Derrell W. Chapman
Vice President/COO/CFO
(Principal Financial and
Accounting Officer)
COMPUTATIONS OF EARNINGS PER SHARE
Quarters Ended
March 31, 1997
<TABLE>
<CAPTION>
Less
Total Shares Unallocated Shares Used For
Outstanding ESOP Shares EPS Calculation
----------- ----------- ---------------
<S> <C> <C> <C>
December 31, 1996 ................. 1,079,285 76,321 1,002,964
January 31, 1997 .................. 1,079,285 76,321 1,002,964
February 28, 1997.................. 1,079,285 76,321 1,002,964
March 31, 1997 .................... 1,079,285 76,321 1,002,964
</TABLE>
Weighted average number of shares outstanding for the
quarter ended March 31, 1997, for earnings per share
calculation (before effects of dilution) 1,002,964
Earnings Per Share Before
Effects of Dilution: = $185,793 (net income)/1,002,964
= $ .19 per share
Stock options outstanding at March 31, 1997: 101,321
Stock price for six month period:
High: $19.00 Low: $15.75 Average: $17.781
------ ------ -------
Beginning: $16.375 Ending: $17.75
------- -------
Exercise price of stock options: $14.125 per share
The potential dilution from stock options is less than 20% of the number of
common shares outstanding and the market price of the common stock exceeded the
exercise price for all months of the period. Therefore, the treasury stock
method was used for calculating the dilutive effects of the common stock
equivalents (stock options).
Primary Earnings Per Share
Under the treasury stock method, for primary earnings per share, it is assumed
that all of the outstanding options are exercised at their exercise price and
the cash proceeds received by the Company are used to purchase treasury shares
at the average market price of the common stock for the quarter. The difference
in the number of shares that could be purchased under this assumption and the
total number of stock options is added to the weighted average number of shares
outstanding for the quarter to calculate "Earnings Per Common Share and Common
Stock Equivalents".
<PAGE>
Additional shares to be added
to common shares outstanding = 101,321 - [(101,321 * $14.125)/$17.781]
= 101,321 - 80,488
= 20,833 shares
Primary Earnings Per Share = $185,793 (net income) / 1,002,964 + 20,833
= $185,793 / 1,023,797
= $.18 per share
Fully Diluted Earnings Per Share
Under the treasury stock method, for fully diluted earnings per share, it is
assumed that all of the outstanding options are exercised at their exercise
price and the cash proceeds received by the Company are used to purchase
treasury shares at the ending market price of the common stock for the quarter.
The difference in the number of shares that could be purchased under this
assumption and the total number of stock options is added to the weighted
average number of shares outstanding for the quarter to calculate "Earnings Per
Common Share Assuming Full Dilution".
Additional shares to be added
to common shares outstanding = 101,321 - [(101,321 * $14.125)/$17.781]
= 101,321 - 80,488
= 20,833 shares
Fully Diluted Earnings Per Share = $185,793 (net income) / 1,002,964 + 20,833
= $185,793 / 1,023,797
= $.18 per share
Since the average market price was greater than the ending market price, it was
used in the calculation of fully diluted earnings per share rather than the
ending market price.
The dilution in earnings per share from all potential dilution is less than 3%
[$.19 per share assuming no dilution compared to $.18 per share assuming full
dilution.] Therefore, the effects of dilution are considered not material and
only a single earnings per share is presented in the income statement -
"Earnings Per Common Share".
<PAGE>
COMPUTATIONS OF EARNINGS PER SHARE
Six Months Ended
March 31, 1997
<TABLE>
<CAPTION>
Less
Total Shares Unallocated Shares Used For
Outstanding ESOP Shares EPS Calculation
----------- ----------- ---------------
<S> <C> <C> <C>
September 30, 1996 ............. 1,079,285 76,321 1,002,964
October 31, 1996 ............... 1,079,285 76,321 1,002,964
November 30, 1996 .............. 1,079,285 76,321 1,002,964
December 31, 1996 .............. 1,079,285 76,321 1,002,964
January 31, 1997 ............... 1,079,285 76,321 1,002,964
February 28, 1997 .............. 1,079,285 76,321 1,002,964
March 31, 1997 ................. 1,079,285 76,321 1,002,964
</TABLE>
Weighted average number of shares outstanding for the
six months ended March 31, 1997, for earnings per
share calculation (before effects of dilution)
1,002,964
Earnings Per Share Before
Effects of Dilution: = $369,023 (net income)/1,002,964
= $ .37 per share
Stock options outstanding at March 31, 1997: 101,321
Stock price for six month period:
High: $19.00 Low: $14.75 Average: $16.696
------ ------ -------
Beginning: $15.50 Ending: $17.75
------ -------
Exercise price of stock options: $14.125 per share
The potential dilution from stock options is less than 20% of the number of
common shares outstanding and the market price of the common stock exceeded the
exercise price for all months of the period. Therefore, the treasury stock
method was used for calculating the dilutive effects of the common stock
equivalents (stock options).
Primary Earnings Per Share
Under the treasury stock method, for primary earnings per share, it is assumed
that all of the outstanding options are exercised at their exercise price and
the cash proceeds received by the Company are used to purchase treasury shares
at the average market price of the common stock for the quarter. The difference
in the number of shares that could be purchased under this assumption and the
total number of stock options is added to the weighted average number of shares
outstanding for the quarter to calculate "Earnings Per Common Share and Common
Stock Equivalents".
<PAGE>
Additional shares to be added
to common shares outstanding = 101,321 - [(101,321 * $14.125)/$16.696]
= 101,321 - 85,719
= 15,602 shares
Primary Earnings Per Share = $369,023 (net income) / 1,002,964 + 15,602
= $369,023 / 1,018,556
= $.36 per share
Fully Diluted Earnings Per Share
Under the treasury stock method, for fully diluted earnings per share, it is
assumed that all of the outstanding options are exercised at their exercise
price and the cash proceeds received by the Company are used to purchase
treasury shares at the ending market price of the common stock for the quarter.
The difference in the number of shares that could be purchased under this
assumption and the total number of stock options is added to the weighted
average number of shares outstanding for the quarter to calculate "Earnings Per
Common Share Assuming Full Dilution".
Additional shares to be added
to common shares outstanding = 101,321 - [(101,321 * $14.125)/$17.75]
= 101,321 - 80,629
= 20,692 shares
Fully Diluted Earnings Per Share = $369,023 (net income) / 1,002,964 + 20,692
= $369,023 / 1,023,656
= $.36 per share
The dilution in earnings per share from all potential dilution is less than 3%
[$.37 per share assuming no dilution compared to $.36 per share assuming full
dilution]. Therefore, the effects of dilution are considered not material and
only a single earnings per share is presented in the income statement -
"Earnings Per Common Share".
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARAY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EAST TEXAS FINANCIAL SERVICES, INC., AT
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 497,869
<INT-BEARING-DEPOSITS> 8,694,969
<FED-FUNDS-SOLD> 309,230
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 46,966,150
<INVESTMENTS-MARKET> 47,276,334
<LOANS> 52,071,629
<ALLOWANCE> 273,659
<TOTAL-ASSETS> 111,689,390
<DEPOSITS> 89,790,720
<SHORT-TERM> 0
<LIABILITIES-OTHER> 648,771
<LONG-TERM> 0
0
0
<COMMON> 12,564
<OTHER-SE> 21,237,335
<TOTAL-LIABILITIES-AND-EQUITY> 111,689,390
<INTEREST-LOAN> 2,014,095
<INTEREST-INVEST> 1,920,745
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,934,840
<INTEREST-DEPOSIT> 2,204,602
<INTEREST-EXPENSE> 2,204,602
<INTEREST-INCOME-NET> 1,730,238
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,276,890
<INCOME-PRETAX> 586,315
<INCOME-PRE-EXTRAORDINARY> 369,023
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 369,023
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 7.16
<LOANS-NON> 198,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 478,000
<ALLOWANCE-OPEN> 289,120
<CHARGE-OFFS> 54,083
<RECOVERIES> 38,622
<ALLOWANCE-CLOSE> 273,659
<ALLOWANCE-DOMESTIC> 77,652
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 196,007
</TABLE>
