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 December 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 December 31, 1997, was 1,026,366.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
DECEMBER 31, 1997
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition, December 31, 1997
(Unaudited) and September 30, 1997
Consolidated Statements of Income, (Unaudited) three months ended
December 31, 1997, and December 31, 1996
Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
three months ended December 31, 1997
Consolidated Statements of Cash Flows, (Unaudited) three months ended
December 31, 1997, and December 31, 1996
Notes to (Unaudited) Consolidated Financial Statements, December 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>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
DECEMBER 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, 1997, 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 CONDITION
ASSETS December 31, 1997 September 30, 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks ........................................... $ 586,802 $ 508,729
Interest-bearing deposits with banks .............................. 2,545,055 6,422,404
Interest-earning time deposits with financial institutions......... 1,467,573 1,565,573
Federal funds sold ................................................ 2,671,416 753,847
Mortgage-backed securities available-for-sale ..................... 6,029,082 4,356,271
Investment securities held-to-maturity (estimated market value
of $26,146,470 at December 31, 1997 and
$23,128,073 at September 30, 1997) ........................... 26,077,423 23,058,359
Mortgage-backed securities held-to-maturity (estimated market
value of $16,793,561 at December 31, 1997 and
$18,611,834 at September 30, 1997) .......................... 16,303,540 18,151,765
Loans receivable, net of allowance for credit losses
of $272,851 at December 31, 1997 and
September 30, 1997 ........................................... 60,249,463 57,110,029
Accrued interest receivable ....................................... 922,498 885,383
Federal Home Loan Bank stock, at cost ............................. 1,020,900 1,005,700
Premises and equipment ............................................ 1,094,361 1,123,311
Foreclosed real estate, net of allowances of $-0- ................. 0 0
Deferred income taxes ............................................. 0 0
Mortgage servicing rights ......................................... 157,375 149,094
Other assets ...................................................... 967,565 858,147
------------- -------------
Total Assets ............................................. $ 120,093,053 $ 115,948,612
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits .............................................. $ 3,895,981 $ 1,882,109
Savings and NOW deposits ..................................... 10,063,904 9,771,266
Other time deposits .......................................... 77,096,211 76,897,274
------------- -------------
Total deposits ........................................... 91,056,096 88,550,649
FHLB advances ................................................ 7,522,000 4,195,000
Advances from borrowers for taxes and insurance .............. 171,878 881,685
Federal income taxes
Current ................................................ (14,696) 0
Deferred ............................................... 121,318 127,909
Accrued expenses and other liabilities ....................... 255,481 1,314,001
------------- -------------
Total Liabilities ........................................ 99,112,077 95,069,244
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
December 31, 1997 September 30, 1997
----------------- ------------------
(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 ................................... 12,196,879 12,196,879
Deferred compensation - RRP shares ........................... (300,652) (329,748)
Unearned employee stock ownership plan shares ................ (650,614) (650,614)
Net unrealized gain on securities available-for-sale ......... (4,961) 15,512
Retained earnings (substantially restricted) ................. 13,458,777 13,365,792
Treasury stock, 230,021 shares at cost ....................... (3,731,017) (3,731,017)
------------- -------------
Total stockholders' equity ............................... 20,980,976 20,879,368
------------- -------------
Total liabilities and stockholders' equity ............... $ 120,093,053 $ 115,948,612
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended December 31,
(Unaudited)
1997 1996
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans receivable:
First mortgage loans ..................... $1,134,833 $ 967,638
Consumer and other loans ................. 29,305 20,527
Securities available-for-sale:
Mortgage-backed securities ............... 64,390 0
Securities held-to-maturity:
Investment securities .................... 486,080 570,919
Mortgage-backed securities ............... 314,702 421,434
---------- ----------
Total interest income .................. 2,029,310 1,980,518
---------- ----------
INTEREST EXPENSE
Deposits ...................................... 1,123,670 1,109,672
FHLB advances ................................. 62,173 0
---------- ----------
Total interest expense ................. 1,185,843 1,109,672
---------- ----------
Net interest income before provision
for loan losses ...................... 843,467 870,846
Provision for loan losses ..................... 0 5,000
---------- ----------
Net interest income after provision
for loan losses ...................... 843,467 865,846
NONINTEREST INCOME
Gain (loss) on sales of interest-earning assets 21,437 13,079
Loan origination and commitment fees .......... 22,963 17,219
Loan servicing fees ........................... 22,303 31,686
Other ......................................... 10,712 15,430
---------- ----------
Total noninterest income ............... 77,415 77,414
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended December 31,
(Unaudited)
(continued)
1997 1996
---------- ----------
<S> <C> <C>
NONINTEREST EXPENSE
Compensation and benefits ..................... 492,110 427,655
Occupancy and equipment ....................... 48,246 33,864
SAIF deposit insurance premium ................ 14,147 48,051
(Gain) loss on foreclosed real estate ......... 0 58
Other ......................................... 139,666 139,937
---------- ----------
Total noninterest expense .............. 694,169 649,565
---------- ----------
Income (loss) before provision for income taxes .. 226,713 293,695
Income tax expense (benefit) ..................... 82,409 110,465
---------- ----------
NET INCOME (LOSS) ................................ $ 144,304 $ 183,230
========== ==========
Earnings per common share and earnings per
common share - assuming dilution ................. $ 0.15 $ 0.18
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED
December 31, 1997
Common Unearned Unallocated Net Unrealized
Stock and RRP ESOP Gain on Avail. Retained
Paid in Capital Shares Shares For Sale Securities Earnings
--------------- ------ ------ ------------------- --------
<S> <C> <C> <C> <C> <C>
Balance September 30, 1997 .... $ 12,209,443 $ (329,748) $ (650,614) $ 15,512 $ 13,365,792
Deferred compensation
amortization ............. -- 29,096 -- -- --
Purchase of treasury
stock at cost ............ -- -- -- -- --
Payment of cash dividends ..... -- -- -- -- (50,082)
Accrued dividends - RRP stock . -- -- -- -- (1,237)
Net change in unrealized
gain on securities
available for sale, net of
deferred taxes of $10,547 -- -- -- (20,473) --
Net income for the three
months ended
December 31, 1997 ........ -- -- -- -- 144,304
Balance December 31, 1997 ..... $ 12,209,443 $ (300,652) $ (650,614) $ (4,961) $ 13,458,777
<CAPTION>
Total
Treasury Stockholders'
Stock Equity
----- ------
<S> <C> <C>
Balance September 30, 1997 .... $ (3,731,017) $ 20,879,368
Deferred compensation
amortization ............. -- 29,096
Purchase of treasury
stock at cost ............ -- --
Payment of cash dividends ..... -- (50,082)
Accrued dividends - RRP stock . -- (1,237)
Net change in unrealized
gain on securities
available for sale, net of
deferred taxes of $10,547 -- (20,473)
Net income for the three
months ended
December 31, 1997 ........ -- 144,304
Balance December 31, 1997 ..... $ (3,731,017) $ 20,980,976
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For The Three Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 144,304 $ 183,230
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred loan origination fees ........ (1,483) (69)
Amortization of premiums and discounts on investment
securities, mortgage-backed securities, and loans 29,964 34,002
Amortization of deferred compensation ................. 29,096 29,095
Compensation charge related to release of ESOP shares . 31,216 28,994
Depreciation .......................................... 25,413 16,875
Deferred income taxes ................................. 3,956 4,567
Stock dividends on FHLB stock ......................... (15,200) (13,900)
Amortization of mortgage servicing rights ............. 8,686 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 ................ 3,889 0
Other Assets ........................................ 0 0
Loans ............................................... (21,438) (4,925)
Loans held for sale ................................. 0 0
Proceeds from loan sales .............................. 1,596,651 1,184,950
Origination of loans held for sale .................... 0 0
(Increase) decrease in:
Accrued interest receivable ......................... (37,115) (59,325)
Other assets ........................................ (109,418) 136,571
Accrued loan loss reserve ........................... 0 5,000
Increase (decrease) in:
Federal income tax payable .......................... 0 100,854
Accrued expenses and other liabilities .............. (1,073,216) (655,252)
Capitalized interest on time deposits ................. 0 0
----------- -----------
Net cash provided (used) by operating activities ............ 615,305 990,667
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
Purchases of interest earning time deposits ........................... $ 0 $ 0
Net decrease (increase) in fed funds sold ............................. (1,917,569) (2,074,079)
Purchases of obligations - U.S. Govt. and agencies
held-to-maturity .................................................. (6,533,031) (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 ......................................... 3,500,000 3,000,000
Purchases of mortgage-backed securities available-for-sale............. (2,029,452) 0
Purchases of mortgage-backed securities held-to-maturity .............. 0 0
Principal pmts on mortgage-backed securities available-for-sale........ 312,146 0
Principal payments on mortgage-backed securities
held-to-maturity .................................................. 1,847,047 1,628,759
Net originations and principal collections on loans ................... (4,762,692) (3,721,670)
Acquisition cost related to foreclosed real estate .................... 0 (5,252)
Proceeds from sale of foreclosed real estate .......................... 0 58,300
Expenditures for premises and equipment ............................... (352) 0
----------- -----------
Net cash provided (used) by investing activities ........................ (9,485,903) (2,013,520)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits, savings, and NOW accounts ............ 2,306,510 352,830
Time deposits ........................................................ 198,937 (154,908)
FHLB advances ........................................................ 15,738,500 0
Repayment of FHLB advances ........................................... (12,411,500) 0
Advances from borrowers for taxes and insurance ...................... (709,807) (768,788)
Dividends paid to stockholders .......................................... (51,318) (53,965)
Purchase of treasury stock .............................................. 0 0
----------- -----------
Net cash provided (used) by financing activities ........................ 5,071,322 (624,831)
----------- -----------
Net increase (decrease) in cash and cash equivalents .................... (3,799,276) (1,647,684)
Cash and cash equivalents at beginning of the period .................... 6,931,133 5,699,647
----------- -----------
Cash and cash equivalents at end of the period .......................... $ 3,131,857 $ 4,051,963
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
For the Three Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Supplemental disclosure:
Cash paid for:
Interest on deposits .................................................. $ 561,505 $ 559,672
Income taxes .......................................................... $ 0 $ 5,157
Transfers from loans to real estate
acquired through foreclosures ......................................... $ 0 $ 197,595
Loan losses charged to valuation allowance .............................. $ 0 $ 1,185
Recoveries credited to loan loss reserves ............................... $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended September 30, 1997.
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
Earnings per share for the three months ended December 31, 1997 and 1996, has
been computed based on net income divided by the weighted average number of
common shares outstanding during the period. For the three months ended December
31, 1997 and 1996, the weighted average number of shares outstanding totaled
961,304 and 1,002,964 shares respectively
Earnings per common share - assuming dilution, for the three months ended
December 31, 1997 and 1996, has been computed based on net income divided by the
weighted average number of common shares outstanding. In addition, it includes
the effects of all dilutive potential common shares that were outstanding during
the period. For the three months ended December 31, 1997 and 1996, the weighted
average number of shares outstanding for earnings per share - assuming dilution
totaled 993,829 and 1,013,056 shares respectively.
For both earnings per share and earnings per common share - assuming dilution
and as prescribed by the American Institute of Certified Public Accountants
Statement of Position 93-6 ("SOP 93-6") Employer's Accounting for Employees
Stock Ownership Plans, the weighted average number of shares outstanding does
not include unallocated Employee Stock Ownership Plan ("ESOP") shares.
See Part I, Item 1 - Note 4 to consolidated financial statements for further
information on the changes applicable for earnings per share reporting.
See Part II, Item 6 - Exhibits for a detailed presentation of the earnings per
share calculation for the three-month periods ended December 31, 1997 and 1996.
<PAGE>
NOTE 3 - SECURITIES
The amortized cost and estimated market values of investment securities
held-to-maturity as of December 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 ........... $ 2,509,325 $ 14,025 $ 0 $ 2,523,350
U. S. government agency
23,568,098 71,217 16,195 23,623,120
----------- ----------- ----------- -----------
Total debt securities $26,077,423 $ 85,242 $ 16,195 $26,146,470
----------- ----------- ----------- -----------
</TABLE>
The amortized cost and estimated market values of investment securities
held-to-maturity as of December 31, 1997, by contractual maturity are shown
below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less .................... $ 9,504,316 $ 9,517,149
Due after one year through two years ....... 8,069,604 8,084,345
Due after two years through three years .... 5,988,368 6,032,289
Due after three years through five years ... 2,515,135 2,512,687
----------- -----------
Total debt securities .............. $26,077,423 $26,146,470
----------- -----------
</TABLE>
As of December 31, 1997, the weighted average yield on the Company's investment
security held-to-maturity portfolio was approximately 6.07% 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 6.05%.
<PAGE>
The carrying values and estimated market values of mortgage-backed and related
securities available-for-sale as of December 31, 1997, by type of security are
as follows:
<TABLE>
<CAPTION>
Principal Unamortized Unearned Unrealized Carrying
Balance Premiums Discounts Gain/(Loss) Value
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fixed Rate .... $ 0 $ 0 $ 0 $ 0 $ 0
Adjustable Rate 5,833,464 203,135 0 (7,517) 6,029,082
----------- ----------- ----------- ----------- -----------
$ 5,833,464 $ 203,135 $ 0 $ (7,517) $ 6,029,082
----------- ----------- ----------- ----------- -----------
</TABLE>
The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of December 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 .... $ 3,163,270 $ 0 $ 7,279 $ 3,155,991 $ 3,164,560
Adjustable Rate 13,073,684 89,345 15,480 13,147,549 13,629,001
----------- ----------- ----------- ----------- -----------
$16,236,954 $ 89,345 $ 22,759 $16,303,540 $16,793,561
----------- ----------- ----------- ----------- -----------
</TABLE>
The overall yield on the Company's mortgage-backed securities portfolio as of
December 31, 1997, was approximately 7.22%.
NOTE 4 - CURRENT ACCOUNTING ISSUES
SFAS NO. 128 In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. The Statement simplifies the standards for computing EPS and makes
them comparable with international EPS standards.
SFAS No. 128 replaces the presentation of primary EPS previously prescribed in
Accounting Principles Board Opinion (APB) No. 15, Earnings Per Share, with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
<PAGE>
Basic EPS does not include dilution and is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15.
The Statement is effective for financial statements issued for periods ending
after December 15, 1997. The Company adopted the Statement as required.
SFAS No. 129 In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 129, Disclosure of
Information About Capital Structure. It requires information about capital
structure to be disclosed in three separate categories: information about
securities, liquidation preference of preferred stock and redeemable stock.
The Statement is effective for financial statements issued for periods ending
after December 15, 1997. The Company adopted the Statement as required.
The Company has not issued any preferred or redeemable stock and does not
anticipate any disclosure requirements for these types of capital instruments.
The Company has issued stock options and certain disclosure requirements related
to the number of shares, vesting, and exercise price of the options are required
to be disclosed in the financial statements. (See Note 5 to the Consolidated
Financial Statements of this report for a detailed presentation of the Company's
stock option plan.)
SFAS No. 130 In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS ) No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in general purpose financial
statements. Comprehensive income includes net income and several other items
that current accounting standards require to be recognized outside of net
income.
SFAS No. 130 requires companies to display comprehensive income in its financial
statements, to classify items of comprehensive income by their nature in their
financial statements and to display accumulated balances of comprehensive income
in stockholders' equity separately from retained earnings and addition paid-in
capital.
The Statement is effective for fiscal years beginning after December 31, 1997.
The Company adopted the Statement as required.
SFAS No. 131 In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosure About
Segments of and Enterprise and Related Information. The Statement requires
entities to report certain information about their operating segments in a
complete set of financial statements. It requires them to report certain
enterprise-wide information about their products and services, activities in
different geographic regions and their reliance on major customers, and to
disclose certain segment information in their interim financial statements.
The Statement is effective for fiscal years beginning after December 15, 1997.
The Company has not determined the effects, if any, that the disclosure
requirements will have on its financial statements. The Company adopted the
Statement as required.
<PAGE>
NOTE 5 - STOCK OPTION AND INCENTIVE PLAN
The 1995 Stock Option and Incentive Plan (the "Stock Option Plan") provides for
awards in the form of stock options, stock appreciation rights, limited stock
appreciation rights, and restricted stock.
Options to purchase shares of common stock of the Company may be granted to
selected directors, officers and key employees. The number of shares of common
stock reserved for issuance under the stock option plan was equal to 121,519 or
10% of the total number of common shares issued pursuant to the conversion. The
option exercise price cannot be less than the fair market value of the
underlying common stock as of the date of the option grant, and the maximum
option term cannot exceed ten years. Awards vest at a rate of 20% per year
beginning at the date of the grant. The Company plans to use treasury stock for
the exercise of options. The following is a summary of changes in options
outstanding:
<TABLE>
<CAPTION>
<S> <C>
Options outstanding
Balance, September 30, 1995 ............................... 103,411
Granted at $14.125 per share ........................ -0-
Exercised at $14.125 per share ...................... (2,090)
Forfeited and expired ............................... -0-
Balance, September 30, 1996 .................................... 101,321
Granted ............................................. -0-
Exercised at $14.125 per share ...................... (1,056)
Forfeited and expired ............................... -0-
Balance, September 30, 1997 .............................. 100,276
========
Options exercisable at year end under stock option plan ........ 38,233
========
Shares available for future grants ............................. 18,108
========
</TABLE>
During the quarter ended December 31, 1997, there were no changes to the options
outstanding.
NOTE 6 - FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB or future filings by the Company with the
Securities and Exchange Commission, the Company's press releases or other public
or shareholder communications or in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project",
"believe" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities, and competitive and regulatory factors, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected.
<PAGE>
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
DECEMBER 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 $120.1 million at December 31, 1997, a $4.2 million increase
from the $115.9 million reported at September 30, 1997, the Company's most
recent fiscal year end. The increase in total assets was the result of a $3.1
million increase in loans receivable, a $3.0 million increase in investment
securities held-to-maturity and a $1.7 million increase in mortgage-backed
securities available-for-sale. The increases were partially offset by a $2.0
million decrease in interest-bearing deposits with banks and federal funds sold
and a $1.8 million decrease in mortgage-backed securities held-to-maturity.
The increase in loans receivable was the result of the Company's continued
emphasis on one- to four-family portfolio loans. During the quarter ended
December 31, 1997, the Company continued its policy of placing all one- to
<PAGE>
four-family loans with original terms of less than or equal to 15 years and with
interest rates of greater than or equal to 7.00% into portfolio. Continued lower
mortgage rates influenced borrowers to select fixed rate loans and, as result,
the Company was able to increase its loans receivable portfolio. Subsequent to
December 31, 1997, mortgage loan rates for 15 year loans fell below the
Company's 7.00% threshold. Management made the decision to then sell these loans
into the secondary market. A sustained period of declining mortgage rates could
impede the Company's ability to continue to increase its loans receivable
portfolio as few, if any, loans would be placed into portfolio. The result could
be an overall decline in the Company's yield on earning assets as cash flows
normally directed to loans are reinvested into lower yielding assets.
Also, the Company was able to originate approximately $1.4 million in commercial
real estate loans during the quarter ended December 31, 1997. The fixed interest
rate loans ranged in size from $140,000 to $500,000, had interest rates ranging
from 7.25% to 8.50% and had terms of less than 20 years. The loans were funded
with borrowed funds ("advances") from the Federal Home Loan Bank of Dallas
("FHLB"). The advances were designed to mirror the terms of the loans with
respect to original maturity of the loan and, if applicable, any balloon
payments. In addition, the advances were set up to amortize over the same
schedule as the corresponding loan and the interest rates on the advances were
fixed for the term of the advance. The advances had interest rates that ranged
between 6.00% and 6.15%. The result was a gross margin on each of the loans of
between 125 and 235 basis points. Subject to prudent underwriting standards,
favorable borrowing rates and continued strength in the local economy, the
Company expects to continue to originate small to medium sized commercial real
estate loans and fund them with advances from the FHLB.
At December 31, 1997, loans receivable totaled $60.2 million, compared to $57.1
million at September 30, 1997. For the quarter ended December 31, 1997, the
Company originated approximately $8.1 million in loans.
The increase in the investment securities held-to-maturity portfolio was
primarily the result of the Company's decision to transfer excess
interest-earning bank balances and federal funds sold into longer term higher
yielding investments. At December 31, 1997, the portfolio contained $9.5 million
in securities with remaining terms until maturity of less than one year, $8.1
million with remaining maturities of one through two years, $6.0 million with
remaining maturities of two through three years and $2.5 million with remaining
maturities of three through five years.
At December 31, 1997, the investment securities held-to-maturity portfolio
totaled $26.1 million, compared to $23.1 million at September 30, 1997. At
December 31, 1997, the overall yield on the portfolio was approximately 6.05%.
At December 31, 1997, the Company reported $6.0 million in mortgage-backed
securities available-for-sale, compared to $4.3 million at September 30, 1997.
The increase was the result of the Company's continued program of borrowing
funds from the FHLB and investing the proceeds into mortgage-backed and similar
securities in an effort to achieve a positive margin on the transaction.
Subject to the favorable interest rates, the Company intends, over the next
several quarters, to systematically borrow up to approximately $20.0 million
from the FHLB and invest the proceeds in adjustable rate mortgage-backed
securities to be held in an available-for-sale accounting classification. The
purpose of the program is to leverage a portion of the Company's excess capital
and to achieve a rate of return on the difference in the rate earned on the
<PAGE>
securities and the cost of the advances. The success of the program will be
dependent upon several factors, including the Company's ability to purchase
adjustable rate securities that will maintain a positive margin above the FHLB
advance rates. The Company intends to primarily borrow funds from the FHLB with
terms of approximately thirty days and invest in mortgage-backed securities with
interest rate adjustment frequencies that vary between one month and one year.
As a result, the success of the program will be dependent upon the difference
between very short term federal fund type interest rates and interest rates
comparable to U.S. Treasury bill rates. In general, the program will be more
successful as the difference in these types of interest rates widens and less
successful as the difference narrows. Also, the general level of interest rates,
which in turn affect mortgage rates, will have an effect on the success of the
program. A period of lower interest rates could have the effect of increasing
prepayments of the principal balances on the securities as borrowers on
underlying loans of the securities elect to refinance their mortgages. A rapid
period of prepayments could have the effect of decreasing the overall yield on
the program.
At December 31, 1997, the yield on the securities in the program was
approximately 6.31% while the cost of the FHLB advance was approximately 5.61%.
The Company's mortgage-backed securities held-to-maturity portfolio totaled
$16.3 million at December 31, 1997, compared to $18.2 million at September 30,
1997. The decrease was primarily due to principal payments received on the
portfolio during the quarter. The Company's decision to invest in
mortgage-backed securities held-to-maturity, as it is with investment securities
held-to-maturity, is primarily dependent upon and is counter to the Company's
ability to originate portfolio loans. The weighted average yield on the
portfolio was approximately 7.65% at December 31, 1997.
Total deposits were $91.1 million at December 31, 1997, a $2.5 million increase
from the $88.6 million reported at September 30, 1997. The increase in deposits
was primarily the result of the Company transferring funds from advances from
borrowers for taxes and insurance and custodial accounts for escrow balances on
loans sold into a temporary account designated to pay year end property taxes
for its loan customers. The balance in the account, approximately $2.0 million,
was, subsequent to December 31, 1997, withdrawn as payments to various taxing
entities were made on behalf of loan customers.
The Company's average deposit cost was approximately 4.91% at December 31, 1997,
unchanged from the 4.91% reported at September 30, 1997.
The Company reported $7.5 million in borrowed funds at December 31, 1997, an
increase of $3.3 million from the $4.2 million reported at September 30, 1997.
Approximately $6.0 million of the borrowed funds were associated with the
Company's investment in mortgage-backed securities available-for-sale. The
advance had a remaining term of less than 30 days and had an interest rate of
5.61%. The remaining $1.5 million in advances were associated with the Company's
commercial real estate loan portfolio and had a weighted average cost of
approximately 6.09%.
Stockholders' equity totaled $21.0 million at December 31, 1997, an increase of
$102,000 from the $20.9 million reported at September 30, 1997. The increase was
primarily attributable to the net income of $144,000 reported for the quarter
and a $29,000 increase in deferred compensation RRP shares. The increase was
partially offset by a $20,000 decline in net unrealized gains on securities
available-for-sale and $51,000 in cash dividends paid during the quarter .
<PAGE>
At December 31, 1997, the Company reported a book value per share of $20.44
based on 1,026,366 outstanding shares. The Company did not repurchase any
treasury stock during the quarter ended December 31, 1997 and reported 230,021
shares of treasury stock at an average cost of $16.22 per share at quarter end.
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 DECEMBER 31, 1997
AND DECEMBER 31, 1996
General. Net income for the three months ended December 31, 1997 was $144,000 or
$.15 per share, a decrease of $39,000 from the $ 183,000 or $.18 per share
reported for the three months ended December 31, 1996. The decrease in net
income was attributable to a $22,000 decline in net interest income after
provision for loan losses and a $45,000 increase in total non-interest expenses,
which were partially offset by a $28,000 decline in income tax expenses.
Net Interest Income. For the quarter ended December 31, 1997, net interest
income after provision for loan losses totaled $844,000, a decrease of $22,000
from the $866,000 reported for the quarter ended December 31, 1996. On an
annualized basis, the $843,000 in net interest income for the current quarter
was approximately 2.95% of average interest earning assets and 2.86% of average
total assets. For the quarter ended December 31, 1996, the $866,000 in reported
net interest income was approximately 3.10% of average interest earning assets
and 3.04% of average total assets. Average interest earning assets were
approximately $114.4 million for the quarter ended December 31, 1997, compared
to $111.7 million for the quarter ended December 31, 1996.
The decline in net interest income, despite the fact that average interest
earning assets increased, was primarily attributable to the continued decline in
the general level of interest rates and the narrowing of the difference in short
term and long term rates. Cash flow from the Company's interest earning assets
has increased over the past several quarters as mortgage borrowers, both local
and those associated with the Company's mortgage-backed securities portfolios,
have elected to refinance their mortgages. In addition, scheduled maturities of
the investment securities held-to-maturity portfolio have also provided
additional challenges for reinvesting cash flow in a falling interest rate
environment. The result has been, despite growth in interest earning assets, a
yield on the Company's average interest earning assets that remained unchanged
at 7.09% for the quarters ended December 31, 1997 and 1996.
Contrarily, interest rates on the Company's primary source of funds,
certificates of deposit, have not decreased as interest rates have fallen.
Continued competition for deposits in the Company's market have compelled the
Company to continue to pay higher interest rates in order to maintain current
deposit levels. On an annualized basis, the $1.2 million in total interest
expense, reported for the quarter ended December 31, 1997, was approximately
4.95% of average interest costing liabilities outstanding for the quarter. For
the quarter ended December 31, 1996, the $1.1 million in total interest expense
was approximately 4.83% of average interest costing liabilities.
<PAGE>
Total interest income was $2.0 million for the quarter ended December 31, 1997,
unchanged from the $2.0 million reported for the same quarter in 1996. Interest
income on loans receivable totaled $1.2 million or 7.94% of average loans
receivable balances outstanding for the quarter, compared to 8.04% of average
loans receivable balances for the $988,000 in interest income on loans
receivable reported for the quarter ended December 31, 1996. During the quarter
ended December 31, 1997, the Company continued its plan to place into portfolio
mortgage loans with original maturities of less than or equal to 15 years and
with interest rates of greater than or equal to 7.00%. As a result, the Company
has been able to increase its loan receivable portfolio and increase interest
income from loans receivable, despite the decline in the average yield on the
portfolio. For the quarter ended December 31, 1997, the Company originated $8.1
million in loans. Approximately $1.6 million were sold into the secondary market
while the remainder were placed into portfolio.
Interest income from investment securities available-for sale totaled $64,000
for the three months ended December 31, 1997, compared to none for the three
months ended December 31, 1996. Interest income from this portfolio is part of
the Company's plan to borrow funds from the FHLB and invest in mortgage-related
securities in an effort to achieve a margin on the difference in the investment
yield and the cost of the borrowings from the FHLB. The yield on the portfolio
was approximately 6.31% at December 31, 1997.
Interest income from the investment securities held-to-maturity and overnight
funds portfolios totaled $486,000 for the three months ended December 31, 1997,
compared to $571,000 for the same quarter in 1996. The decline was primarily the
result of a $4.2 million decrease in average balances outstanding in the
portfolios from $36.5 million for the three months ended December 31, 1996 to
$32.3 million for the three months ended December 31, 1997. During the past
several quarters, maturing investment securities have been redirected to the
Company's lending operations. Additionally, maturing investment securities that
are replaced are at lower yields. The average yield on the portfolio was
approximately 6.02% for the quarter ended December 31, 1997, compared to 6.24%
for the three months ended December 31, 1996.
Interest income from the mortgage-backed securities held-to-maturity portfolio
totaled $315,000 for the three months ended December 31, 1997, compared to
$421,000 for the same period in 1996. Continued prepayments on the adjustable
rate securities in the portfolio caused the balance to decline to $16.3 million
at December 31, 1997 from $23.3 million at December 31, 1996. The Company
redirected the cash flow from the portfolio into its lending operations.
Interest paid to depositors totaled $1.1 million for the three months ended
December 31, 1997, unchanged from the $1.1 million for the three months ended
December 31, 1996. Average deposit balances declined $2.0 million from $91.8
million at December 31, 1996 to $89.8 million at December 31, 1997. Interest on
FHLB advances was $62,000 for the three months ended December 31, 1997, compared
to none for the same period in 1996. Total interest expense as a percentage of
average interest-costing liabilities was approximately 4.95% for the three
months ended December 31, 1997, compared to 4.83% for the three months ended
December 31, 1996.
Provision For Loan Losses. The Company made no provision for loan losses for the
quarter ended December 31, 1997, compared to $5,000 for the quarter ended
December 31, 1996. (See - "Asset Quality")
Non-Interest Income. Non-interest income totaled $77,000 for the three months
ended December 31, 1997, unchanged from the $77,000 reported for the same period
in 1996.
<PAGE>
Gains on sales of interest-earning assets equaled $21,000 for the current
quarter, an $8,000 increase from the $13,000 reported for the same quarter in
1996. The increase was attributable to additional gains on the sale of mortgage
loans into the secondary market during the quarter ended December 31, 1997,
compared to the same quarter in 1996. In addition, loan origination fees
increased $6,000 to $23,000 for the three months ended December 31, 1997 from
$17,000 for the three months ended December 31, 1996. The increase was
attributable to the increase lending activity for the quarter ended December 31,
1997 compared to the same quarter in 1996.
Offsetting the increases in gains on sales of loans and loan fee income was a
$9,000 decline in loan servicing fee income to $22,000 for the current quarter,
compared to $32,000 for the quarter ended December 31, 1996. The decline was the
result, as borrowers paid of or refinanced their mortgages, of a continued
decrease of older loans in the Company's servicing portfolio with higher
servicing margins. In addition, the Company's decision to retain its fifteen
year loans and a borrower preference for such loans, has resulted in fewer sold
loans and therefore fewer additions to the loan servicing portfolio.
Non-Interest Expenses. Non-interest expenses totaled $694,000 for the three
months ended December 31, 1997, compared to $650,000 for the three months ended
December 31, 1996.
The increase in non-interest expense was primarily the result of a $65,000
increase in compensation and benefits expense from $428,000 for the three months
ended December 31, 1996 to $492,000 for the three months ended December 31,
1997. The increase in compensation and benefits expense was mostly the result of
additional compensation for two new employees added in 1997 in conjunction with
the opening of a new loan production office by the Company and the addition of a
loan officer in one of its full service locations. Also, additional expenses
associated with the funding of the Company's defined benefit pension plan and
additional expenses associated with the Company's Employee Stock Ownership Plan
accounted for a portion of the increase.
Occupancy and equipment expense increased $14,000 from $34,000 for the three
months ended December 31, 1996 to $48,000 for the three months ended December
31, 1997. The increase was also attributable to additional expenses associated
with the opening of a new loan production office in 1997.
Offsetting the increases in compensation and benefits and occupancy and
equipment expenses was a $34,000 decrease in SAIF deposit insurance premium
expense. The decrease was a result of reduced SAIF insurance premium rates once
the fund attained its minimum required level after the one-time special
assessment paid by all institutions in 1996.
Provision For Income Taxes. The Company incurred federal income tax expense of
$82,000 or 36.3% or pre-tax income for the three months ended December 31, 1997,
compared to $110,000 or 37.6% of pre-tax income for the three months ended
December 31, 1996.
ASSET QUALITY
At December 31, 1997, the Company's non-performing assets totaled $399,000 or
.33% of total assets, compared to $310,000 or .27% of total assets at September
30, 1997. The increase was primarily the result of the addition of one single
family residence. At December 31, 1997, non-performing assets was comprised of
seventeen (17) loans, the largest of which was $204,000, secured by a single
family dwellings.
<PAGE>
Non-performing loans at December 31, 1997, equaled $399,000 or .66% of loans
receivable, compared to $310,000 or .54% of loans receivable at September 30,
1997.
Classified assets totaled $819,000 or .68% of total assets at December 31, 1997,
compared to $904,000 or .78% of total assets at September 30, 1997.
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 December 31, 1997, were deemed
to be "substandard". No assets were classified "doubtful" or "loss" as of such
date.
The Company's allowance for loan losses totaled $273,0000 at December 31, 1997,
unchanged from September 30, 1997. The allowance for loan losses as a percentage
of loans receivable equaled .45% at December 31, 1997, compared to .48% at
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits from customers, advances
from the FHLB, 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, at a minimum, cash and eligible investments, in an amount of not less
than 4.0% of net withdrawable savings accounts and borrowings payable on demand
or in one year or less. Liquid assets include cash on hand, unpledged demand
deposits, certain time deposits, and, U. S Government and agency obligations.
The Association maintains a liquid asset ratio above the minimum required level
of the Office of Thrift Supervision. At December 31, 1997, the Association's
liquid asset ratio equaled 42.2%.
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 December 31,
1997, the Association had outstanding commitments to extend credit on $2.8
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 $21.0 million at December 31, 1997, an
increase of $102,000 from the $20.9 million reported at September 30, 1997. The
increase was primarily the result of the $144,000 net income reported for the
quarter ended December 31, 1997, less a $51,000 cash dividend paid during the
quarter.
As of December 31, 1997, the Company's reported book value per share, using
total stockholders' equity of $21.0 million (net of the cost of unallocated ESOP
and RRP shares) and 1,026,366 outstanding shares of common stock (the total
issued shares including unallocated ESOP and RRP shares, less treasury shares),
equaled $20.44 per share.
<PAGE>
Subsequent to the quarter ended December 31, 1997, the Company announced its
intention to pay a cash dividend of $.05 per share on February 25, 1998, to
stockholders of record at February 11, 1998.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), Congress imposed a three part capital requirement for thrift
institutions. At December 31, 1997, the Association's actual and required
capital amounts under each of the three requirements were as follows:
- - Tangible Capital (stockholders' equity) was $17.8 million or 14.8% of total
assets, exceeding the minimum requirement of 1.5% by $16.0 million.
- - Core Capital (Tangible capital plus certain intangible assets) was $17.8
million or 14.8% of total assets, exceeding the minimum requirement of 3.0% by
$14.2 million.
- - Risk-based Capital (Core capital plus general loan and valuation allowances
less an adjustment for capitalized mortgage servicing rights) equaled $18.1
million of 38.9% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $14.4 million.
At December 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
DECEMBER 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
On January 21, 1998, the Company's Annual Stockholders' Meeting was held to
elect directors and ratify the appointment of independent auditors for the
current fiscal year. The following are the voting results of each of these
matters submitted to stockholders:
The election of Gerald W. Free, For 848,244
Jim M. Vaughn, M.D., and H. H. Richardson, Jr. Against 0
As directors for a three year term ending Abstain 2,612
January 2001. Broker Non-Votes 0
Ratification of the appointment of Bryant For 848,244
And Welborn, LLP, as independent Against 0
Auditors for the fiscal year ending Abstain 2,612
September 30, 1998.
The text of the matters referred to in this Item 4 is set forth in the
Proxy Statement dated December 23, 1997, previously filed with the
Securities and Exchange Commission.
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
<PAGE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, the Company filed a report
on Form 8-K on October 28, 1997, to report the issuance of a press
release dated October 28, 1997, announcing the Company's intention to
pay, on November 26, 1997, a cash dividend of $.05 per share for the
quarter ended Septemer 30, 1997, to stockholders of record on November
2, 1997.
During the quarter ended December 31, 1997, the Company filed a report
on Form 8-K on December 1, 1997, to report the issuance of a press
release dated December 1, 1997, announcing the Company's earnings for
the year ended September 30, 1997.
<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: February 9, 1998 /s/ Gerald W. Free
------------------
Vice Chairman, President and CEO
(Principal Executive Officer)
Date: February 9, 1998 /s/ Derrell W. Chapman
-----------------------
Vice President/COO/CFO
(Principal Financial and Accounting Officer)
COMPUTATIONS OF EARNINGS PER SHARE
Three Months Ended
December 31, 1997
Less
Total Shares Unallocated Shares Used For
Outstanding ESOP Shares EPS Calculation
----------- ----------- ---------------
September 30, 1997 1,026,366 65,062 961,304
October 31, 1997 1,026,366 65,062 961,304
November 30, 1997 1,026,366 65,062 961,304
December 31, 1997 1,026,366 65,062 961,304
Weighted average number of shares
outstanding for the quarter ended
December 31, 1997, for earnings per
share calculation 961,304
Stock options outstanding at December 31, 1997: 100,276
-------
Exercise price of stock options: $14.125 per share
-----------------
Average stock price for three month period: $20.906
-------
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------- -----------
Basic Earnings Per Share 1997 1996
----------- -----------
<S> <C> <C>
Income available to common stockholders .. $ 144,304 $ 183,230
=========== ===========
Weighted average number of common shares
outstanding for basic EPS calculation . 961,304 1,002,964
=========== ===========
Basic Earnings Per Share .... $ .15 $ .18
=========== ===========
Diluted Earnings Per Share
Income available to common stockholders .. $ 144,304 $ 183,230
=========== ===========
Weighted average number of common shares
outstanding for basic EPS calculation . 961,304 1,002,964
Weighted average common shares issued
under stock option plans .............. 100,276 101,321
Less weighted average shares assumed
repurchased with proceeds ............. (67,751) (91,229)
----------- -----------
Weighted average number of common shares
outstanding for diluted EPS calculation 993,829 1,013,056
=========== ===========
Diluted Earnings Per Share ...... $ .15 $ .18
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EAST TEXAS FINANCIAL SERVICES, INC., AT
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 586,802
<INT-BEARING-DEPOSITS> 4,012,628
<FED-FUNDS-SOLD> 2,671,416
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,029,082
<INVESTMENTS-CARRYING> 42,380,963
<INVESTMENTS-MARKET> 42,940,031
<LOANS> 60,522,314
<ALLOWANCE> 272,851
<TOTAL-ASSETS> 120,093,053
<DEPOSITS> 91,056,096
<SHORT-TERM> 6,142,000
<LIABILITIES-OTHER> 1,380,000
<LONG-TERM> 0
0
0
<COMMON> 12,564
<OTHER-SE> 20,968,412
<TOTAL-LIABILITIES-AND-EQUITY> 120,093,053
<INTEREST-LOAN> 1,164,138
<INTEREST-INVEST> 865,172
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,029,310
<INTEREST-DEPOSIT> 1,123,670
<INTEREST-EXPENSE> 1,185,843
<INTEREST-INCOME-NET> 843,467
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 694,169
<INCOME-PRETAX> 226,713
<INCOME-PRE-EXTRAORDINARY> 144,304
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,304
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 7.09
<LOANS-NON> 142,462
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 200,582
<ALLOWANCE-OPEN> 272,851
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 272,851
<ALLOWANCE-DOMESTIC> 84,043
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 188,808
</TABLE>
