SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 30, 2000
EAST TEXAS FINANCIAL SERVICES, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 0-24848 75-2559089
--------------------------------------------------------------------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation Number)
1200 South Beckham Avenue, Tyler, Texas 75701-3319
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (903) 593-1767
--------------------------------------------------------------------------------
N/A
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
As previously reported, on June 30, 2000, East Texas Financial Services,
Inc. ("East Texas") completed its acquisition of Gilmer Financial Services, Inc.
("Gilmer"). The merger was consummated pursuant to an Agreement and Plan of
Merger, dated as of November 15, 1999, and amended as of April 25, 2000. The
consideration for the Merger was determined by arms-length negotiations between
the parties. East Texas financed the acquisition with FHLB borrowings under
existing lines of credit. This amendment is being filed to provide the
information required by Item 7(a) and (b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of businesses acquired.
Audited Financial Statements:
(i) Report of Henry & Peters, P.C., dated October 27, 1999.
(ii) Gilmer Financial Services, Inc. Consolidated Statements of
Financial Condition as of June 30, 1999 and 1998.
(iii)Gilmer Financial Services, Inc. Consolidated Statements of
Operations for the year ended June 30, 1999, 1998 and 1997.
(iv) Gilmer Financial Services, Inc. Consolidated Statements of
Stockholders' Equity for the year ended June 30, 1999, 1998
and 1997.
(v) Gilmer Financial Services, Inc. Consolidated Statements of
Cash Flows for the year ended June 30, 1999, 1998, and 1997.
(vi) Gilmer Financial Services, Inc. Notes to Consolidated
Financial Statements for the year ended June 30, 1999.
Condensed Financial Statements (unaudited):
(i) Gilmer Financial Services, Inc. Condensed Consolidated
Statement of Financial Condition as of March 31, 2000
(unaudited)
(ii) Gilmer Financial Services, Inc. Condensed Consolidated
Statement of Income for the nine-month period ended March
31, 2000 (unaudited).
(iii)Gilmer Financial Services, Inc. Condensed Consolidated
Statement of Cash Flows for the nine-month period ended
March 31, 2000 (unaudited).
(iv) Gilmer Financial Services, Inc. Notes to Financial
Statements for the nine-month period ended March 31, 2000
(unaudited).
(v) The consolidated financial statements of Gilmer Financial
Services, Inc. (Commission File No. 000-25076) for the
nine-month period ended March 31, 1999, required by this
item have been previously reported with the Commission and
are contained in the Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 1999.
(b) Pro forma financial information
Pro Forma Combined Condensed Statements (unaudited):
(i) Pro Forma Combined Condensed Statement of Financial
Condition for the quarter ended March 31, 2000 (unaudited).
(ii) Pro Forma Combined Condensed Statement of Income for the six
months ended March 31, 2000.
(iii)Pro Forma Combined Condensed Statement of Income for the
year ended September 30, 1999 (unaudited).
(iv) Notes to Pro Forma Combined Condensed Financial Statements
(unaudited).
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gilmer Financial Services, Inc.
Gilmer, Texas
We have audited the accompanying consolidated statements of financial condition
of Gilmer Financial Services, Inc., and subsidiaries, as of June 30, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30,1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gilmer Financial
Services, Inc., and subsidiaries, as of June 30, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Henry & Peters, P. C.
-------------------------
HENRY & PETERS, P. C.
Tyler, Texas
October 27, 1999
<PAGE>
GILMER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
ASSETS
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 479,624 $ 221,885
Interest-bearing deposits 1,169,319 1,428,078
Investment securities:
Available-for-sale 1,202,196 740,537
Held-to-maturity - 980
Mortgage-backed securities:
Available-for-sale 10,568,345 6,173,964
Held-to-maturity - 8,928,088
Loans receivable, net 23,826,988 24,210,781
Accrued interest receivable 415,116 409,466
Real estate acquired in settlement of loans, net 105,115 104,561
Federal Home Loan Bank stock, at cost 555,400 525,400
Office properties and equipment, at cost 275,259 279,480
Federal income taxes 66,254 76,015
Prepaid expenses and other assets 204,158 90,695
-------------- ---------------
Total assets $38,867,774 $43,189,930
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $26,885,165 $28,796,905
Accrued interest payable 52,838 29,031
Advances by borrowers for taxes and insurance 507,707 523,303
Accounts payable and accrued expenses 279,197 187,114
Advances from Federal Home Loan Bank 7,163,309 9,751,346
------------- -------------
Total liabilities 34,888,216 39,287,699
STOCKHOLDERS' EQUITY
Preferred stock; $.01 par value; 2,000,000 shares
authorized; none issued - -
Common stock; $.01 par value; 2,000,000 shares authorized;
195,755 shares issued 1,958 1,958
Additional paid-in capital 1,622,941 1,624,968
Retained earnings 2,652,062 2,458,370
Less:Shares acquired by Employee Stock Ownership Plan (86,130) (101,790)
Shares acquired by Recognition and Retention Plan (18,647) (30,273)
Treasury Stock (3,519 shares in 1999 and 4,497
shares, in 1998, at cost) (44,234) (56,527)
Accumulated other comprehensive income,
net of tax effect (148,392) 5,525
------------ ----------------
Total stockholders' equity 3,979,558 3,902,231
------------- -------------
Total liabilities and stockholders' equity $38,867,774 $43,189,930
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $2,291,476 $2,210,789 $2,015,242
Investment securities 12,929 15,291 22,132
Mortgage-backed securities 671,544 912,398 934,873
Other interest-earning assets 103,911 91,142 74,857
------------ ------------- -------------
Total interest income 3,079,860 3,229,620 3,047,104
INTEREST EXPENSE
Deposits 1,427,738 1,566,421 1,407,372
Interest on FHLB advances 472,009 459,151 520,164
------------ ------------ ------------
Total interest expense 1,899,747 2,025,572 1,927,536
----------- ----------- -----------
Net interest income 1,180,113 1,204,048 1,119,568
Provision for loan losses 139,500 263,000 129,429
------------ ------------ ------------
Net interest income after provision for loan losses 1,040,613 941,048 990,139
NONINTEREST INCOME
Gain on sale of interest-bearing assets - 15,930 -
Loan origination and commitment fees 32,714 35,202 54,371
Loan servicing fees 82,847 77,151 70,762
(Gain) loss from real estate operation 1,511 (992) (64)
Other income 237,511 122,863 80,567
------------ ------------ -------------
Total noninterest income 354,583 250,154 205,636
NONINTEREST EXPENSE
Compensation and benefits 609,344 610,888 536,312
Occupancy and equipment 45,345 45,257 57,709
Federal insurance premiums 22,607 18,316 25,013
Loss (gain) on sale of interest-earning assets 4,924 - -
SAIF special assessment - - 164,429
Other expense 434,435 524,385 360,965
------------ ------------ ------------
Total noninterest expense 1,116,655 1,198,846 1,144,428
----------- ----------- -----------
Income (loss) before taxes 278,541 (7,644) 51,347
INCOME TAX EXPENSE 84,854 - 27,959
------------- ------------ ------------
Net income (loss) $ 193,692 $ (7,644) $ 23,388
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Unvested Unvested
Additional Shares Shares
Common Paid-in Retained Held by Held by Treasury
Stock Capital Earnings ESOP RRP Stock
--------- ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1996 $ 2,001 $ 1,679,014 $ 2,442,626 $(133,110) $(36,934) $ --
Comprehensive income:
Net income -- -- 23,388 -- -- --
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Purchase of 10,000 Treasury shares -- -- -- -- -- (125,700)
Retirement of 4,303 shares used
for RRP Plan (43) (54,046) -- -- -- 54,089
Transfer of 1,200 Treasury shares
to RRP Plan -- -- -- -- (15,084) 15,084
Accrual of RRP Plan awards -- -- -- -- 10,118 --
Principal reductions in
ESOP note payable -- -- -- 15,660 -- --
------- ----------- ----------- --------- -------- ---------
Balances, June 30, 1997 1,958 1,624,968 2,466,014 (117,450) (41,900) (56,527)
Comprehensive income:
Net loss -- -- (7,644) -- -- --
Other comprehensive income, net of tax:
Unrealized gain on securities
available-for-sale -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Accrual of RRP Plan awards -- -- -- 11,627 --
Principal reductions in
ESOP note payable -- -- -- 15,660 -- --
------- ----------- ----------- --------- -------- ---------
Balances, June 30, 1998 1,958 1,624,968 2,458,370 (101,790) (30,273) (56,527)
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Compre Total
hensive hensive Stockholders'
Income Income Equity
-------- ----------- --------
<S> <C> <C>
Balances, June 30, 1996 $(24,192) $ 3,929,405
Comprehensive income:
Net income $ 23,388 -- 23,388
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale (49,469) (49,469) (49,469)
--------
Comprehensive income $(26,081) -- --
========
Purchase of 10,000 Treasury shares (125,700)
Retirement of 4,303 shares used
for RRP Plan --
Transfer of 1,200 Treasury shares
to RRP Plan --
Accrual of RRP Plan awards 10,118
Principal reductions in
ESOP note payable 15,660
-------- ----------- -------
Balances, June 30, 1997 (73,661) 3,803,402
Comprehensive income:
Net loss $ (7,644) -- (7,644)
Other comprehensive income, net of tax:
Unrealized gain on securities
available-for-sale 79,186 79,186 79,186
--------
Comprehensive income $ 71,542 -- --
========
Accrual of RRP Plan awards 11,627
Principal reductions in
ESOP note payable -- 15,660
-------- ----------- -------
Balances, June 30, 1998 5,525 3,902,231
</TABLE>
<PAGE>
GILMER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(CONTINUED)
<TABLE>
<CAPTION>
Unvested Unvested
Additional Shares Share
Common Paid-in Retained Held by Held by Treasury
Stock Capital Earnings ESOP RRP Stock
--------- ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1998 $1,958 $ 1,624,968 $2,458,370 $(101,790) $(30,273) $(56,527)
Comprehensive income:
Net income -- -- 193,692 -- -- --
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Accrual of RRP plan awards -- -- -- 11,626 --
Exercise of stock options (978 shares) -- (2,027) -- -- -- 12,293
Principal reductions in
ESOP note payable -- -- -- 15,660 -- --
--------- -------- --------
Balances, June 30, 1999 $1,958 $ 1,622,941 $2,652,062 $ (86,130) $(18,647) $(44,234)
=== ==== ====== =========== ========== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Compre- Total
hensive hensive Stockholders'
Income Income Equity
-------- ------------ ---------
<S> <C> <C>
Balances, June 30, 1998 $ 5,525 $ 3,902,231
Comprehensive income:
Net income $ 193,692 -- 193,692
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale (153,917) (153,917) (153,917)
--------
Comprehensive income $ 39,775 -- --
========
Accrual of RRP plan awards 11,626
Exercise of stock options (978 shares) -- 10,266
Principal reductions in
ESOP note payable -- 15,660
----------- --------
Balances, June 30, 1999 $(148,392) $ 3,979,558
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 193,692 $ (7,644) $ 23,388
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 27,620 24,420 24,420
Provision for losses on loans and other real estate 139,500 263,000 129,429
Loss (gain) on sale of interest-bearing assets 4,924 (15,930) -
Contribution to ESOP Plan 15,660 15,660 15,660
Accrual of RRP Awards 11,626 11,627 10,118
Change in assets and liabilities:
Increase in accrued interest receivable (5,650) (60,823) (31,192)
Increase in mortgage servicing rights (13,746) - -
(Increase) decrease in prepaid expenses and other assets (89,663) 156,175 (108,966)
Increase (decrease) in accrued interest payable 23,807 21,579 (1,247)
Increase (decrease) in federal income taxes 9,761 (21,861) (178,612)
(Decrease) increase in deferred loan fees (3,087) (2,408) 11,783
Increase (decrease) in accounts payable and
accrued expenses 102,349 (28,783) 137,938
------------ ----------- ------------
Net cash provided by (used in) operating activities 416,793 355,012 32,719
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities 120,000 315,930 -
Purchase of investment securities (599,844) (735,000) -
Capital Expenditures (23,399) (56,296) (56,510)
Purchase of FHLB stock (30,000) (30,300) (27,900)
Proceeds from sales of mortgage loans 1,572,208 1,554,954 1,090,992
Loans originated, net (1,335,436) (2,545,955) (4,301,449)
Purchase of mortgage-backed certificates (2,933,260) (2,634,632) -
Proceeds from sale of mortgage-backed certificates 826,068 - -
Principal paydown on mortgage-backed certificates 6,501,223 2,601,677 1,107,402
----------- ----------- -----------
Net cash provided by (used in) investing activities 4,097,560 (1,529,622) (2,187,465)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in deposits (1,911,740) (309,259) 3,629,292
Net (decrease) increase in advance payments by
borrowers for property taxes and insurance (15,596) 35,589 (53,093)
Net (decrease) increase in advances from FHLB (2,588,037) 1,201,346 (380,000)
Purchase of Treasury stock - - (125,700)
------------ ----------- ------------
Net cash (used in) provided by financing activities (4,515,373) 927,676 3,070,499
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents (1,020) (246,934) 915,753
CASH AND CASH EQUIVALENTS
Beginning of year 1,649,963 1,896,897 981,144
----------- ----------- ------------
End of year $1,648,943 $1,649,963 $1,896,897
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Gilmer Financial Services, Inc. (Company), and its wholly-owned subsidiary,
Gilmer Savings Bank, FSB (Bank), and its wholly-owned subsidiary, Gilstar
Service Corporation, (Gilstar). Gilstar was activated in September, 1996, to
market mutual funds to existing retail customers interested in regular
investments, IRA's and other qualified retirement plans. Gilstar had no
significant assets or liabilities at June 30, 1998 or 1997, and its
operations were deminimus for the years then ended. All significant
intercompany transactions and balances are eliminated in consolidation.
DEREGISTRATION AS A PUBLIC REPORTING COMPANY
Effective May 19, 1999, the Company deregistered its stock with the
Securities and Exchange Commission (SEC). Accordingly, the Company no longer
is required to file quarterly or annual reports with the SEC.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Company accounts for and classifies debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as
follows:
HELD-TO-MATURITY
Debt and equity securities that management has the positive intent and
ability to hold until maturity are classified as held-to-maturity and
are carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts. Premiums are amortized and
discounts are accreted using the level interest yield method over the
estimated remaining term of the underlying security.
AVAILABLE-FOR-SALE
Debt and equity securities that will be held for indefinite periods of
time, including securities that may be sold in response to changes in
market interest or prepayment rates, needs for liquidity and changes in
the availability of and the yield of alternative investments are
classified as available-for-sale. These assets are carried at market
value. Market value is determined using published quotes as of the close
of business. Unrealized gains and losses are excluded from earnings and
reported net of tax as a separate component of retained earnings until
realized.
TRADING SECURITIES
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at market value, with unrealized gains and
losses included in earnings.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are presented at cost, less accumulated
depreciation. Depreciation is generally computed using straight-line and
accelerated methods over the estimated useful life of the assets.
FEDERAL INCOME TAXES
The provision for Federal income taxes is calculated on pre-tax accounting
income after giving effect to the bad debt deduction allowed by the Internal
Revenue Code. Deferred Federal income taxes have been provided on items
treated differently for financial accounting and Federal income tax purposes
using the assets and liability method of accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109.
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate and other assets acquired in settlement of loans are recorded at
the balance of the loan or at estimated fair value less the estimated costs
to sell, whichever is less, at the date acquired. Adjustments are made to
reflect declines, if any, in net realizable values below the recorded amount.
Costs directly related to the development or improvement of real estate
acquired in settlement of loans are capitalized. Costs of holding real estate
acquired in settlement of loans, principally taxes, are expensed. Gain on
sale of real estate acquired in settlement of loans is currently recognized
to the extent allowed by generally accepted accounting principles.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees and discounts. The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged
off or an allowance is established based on management's periodic evaluation.
The allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to
the extent cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back
to normal, in which case the loan is returned to accrual status. Currently,
the allowance for loan losses is formally reevaluated on a quarterly basis.
LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income over the
contractual life of the loans, adjusted for estimated prepayments which have
been adjusted to the Company's historical prepayment experience. Commitment
fees and costs relating to commitments whose likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is recognized
over the life of the loan as an adjustment yield.
FORECLOSED REAL ESTATE
Real estate properties acquired through loan foreclosure are initially
recorded at the lower of cost (loan balance) or fair value, less estimated
costs of disposition, at the date of foreclosure. Costs relating to
development and improvement of property are capitalized, whereas costs
relating to holding property are expensed.
MORTGAGE SERVICING RIGHTS
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the estimated fair value of those
rights. Fair values are estimated using discounted cash flows based on
current market interest rates and market data regarding sales of mortgage
servicing rights. The Bank sells predominately single-family first mortgage
loans with simple risk characteristics and uses a single stratum for purposes
of measuring impairment. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights exceed their fair value.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standard No. 123 "Accounting for
Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. The impact of stock-based compensation is immaterial
for all years presented.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). This statement, which the Company will be required to adopt,
establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
new standard requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company adopted
SFAS 130 beginning July 1, 1998.
CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------
Cash paid during the year for: 1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Interest $ 1,884,382 $ 2,003,994 $ 1,928,783
============ ============ ===========
Income taxes $ 10,000 $ 34,940 $ 160,081
============ ============ ===========
</TABLE>
During the years ended June 30, 1999, 1998, and 1997, the Company transferred
from loans to real estate acquired through foreclosure approximately $24,000,
$46,000, and $162,000, respectively.
SAIF SPECIAL ASSESSMENT
Gilmer Savings is a member of SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance
is backed by the full faith and credit of the United States Government. As
insurer, the FDIC imposes deposit insurance premiums. Legislation to
recapitalize the SAIF was enacted in September of 1996. The legislation
provided for a one-time assessment to be imposed on all deposits assessed at
the SAIF rates, as of March 31, 1995, in order to recapitalize the SAIF.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------------------------------------------------------------
June 30, 1999
---------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Corporate bonds $ 480,100 $ - $ 22,391 $ 457,709
American Housing 735,000 9,487 - 744,487
------------ ------------- ------------- ------------
$1,215,100 $ 9,487 $ 22,391 $1,202,196
========== ============= ============ ============
<CAPTION>
Available-for-sale
---------------------------------------------------------------------------
June 30, 1998
---------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Municipal bonds $ 735,000 $ 5,537 $ - $ 740,537
----------- ------------- ------------- -----------
$ 735,000 $ 5,537 $ - $ 740,537
=========== ============= ============= ===========
</TABLE>
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
Held-to-maturity
-------------------------------------------------------------------
June 30, 1998
-------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
American Housing $ 980 $ - $ 5 $ 975
-------------- -------------- -------------- ------------
$ 980 $ - $ 5 $ 975
============== ============== ============== ============
</TABLE>
The scheduled maturities of investment securities at June 30, 1999, were as
follows:
Available-for-sale
securities
-------------------------------
Estimated
Amortized Market
Cost Value
------------- ------------
Due in one year or less $ 120,000 $ 120,506
Due from one to five years 365,000 369,979
Due from five to ten years 730,100 711,711
Due from ten to twenty years - -
Due in over twenty years - -
----------- ------------
$ 1,215,100 $ 1,202,196
=========== ============
NOTE 3 - MORTGAGE-BACKED AND RELATED SECURITIES
The amortized cost and estimated market values of mortgage-backed and related
securities are summarized as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------------------------------------------
June 30, 1999
---------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
GNMA certificates $ 2,369,992 $ - $ 39,182 $ 2,330,810
FNMA certificates 4,158,325 - 125,541 4,032,784
FHLMC certificates 2,104,284 - 49,615 2,054,669
General Electric Capital Mortgage 2,147,674 2,408 - 2,150,082
-------- ----------- -----------
$10,780,275 $ 2,408 $ 214,338 $10,568,345
=========== ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
------------------------------------------------------
June 30, 1998
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
GNMA certificates $ 58,965 $ - $ 375 $ 58,590
FNMA certificates 4,338,883 - 11,698 4,327,185
FHLMC certificates 1,773,481 14,708 - 1,788,189
---------- ------- ---------- ----------
$6,171,329 $14,708 $ 12,073 $6,173,964
========== ======= ========== ==========
</TABLE>
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 3 - MORTGAGE-BACKED AND RELATED SECURITIES - CONTINUED
<TABLE>
<CAPTION>
Held-to-maturity
-------------------------------------------------------
June 30, 1998
-------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA certificates $2,858,140 $ 6,676 $ 34,314 $2,830,502
FNMA certificates 2,339,357 57 35,607 2,303,807
FHLMC certificates 1,135,552 2,813 16,999 1,121,366
General Electric Capital Mortgage 2,595,039 18,987 -- 2,614,026
---------- ------- ---------- ----------
$8,928,088 $28,533 $ 86,920 $8,869,701
========== ======= ========== ==========
</TABLE>
During the year ended June 30, 1999, the Bank transferred securities with a
cost of approximately $8,600,000 (market did not differ significantly from
cost) previously classified as held-to-maturity to the available-for-sale
category.
The scheduled maturities of mortgage-backed securities at June 30, 1999, were
as follows:
Available-for-sale
securities
--------------------------------
Estimated
Amortized Market
Cost Value
------------- -------------
Due in one year or less $ 1,673 $ 1,673
Due from one to five years 2,300,038 2,299,321
Due from five to ten years 1,079,846 1,063,709
Due from ten to twenty years 3,542,698 3,449,101
Due in over twenty years 3,856,020 3,754,541
----------- -----------
$10,780,275 $10,568,345
=========== ===========
NOTE 4 - LOANS RECEIVABLE
Loans receivable at June 30, consisted of the following:
1999 1998
-------------- --------------
MORTGAGE LOANS
Single-family residential $12,674,954 $12,308,383
Multi-family residential 212,669 260,358
Commercial 3,474,544 3,453,740
Construction 847,144 1,505,757
------------- -------------
17,209,311 17,528,238
NON-MORTGAGE LOANS
Secured by deposits 328,103 338,147
Home improvement 807,112 950,426
Commercial business 2,421,825 2,466,535
Other - consumer 3,911,376 4,602,023
------------- -------------
7,468,416 8,357,131
------------- -------------
Total loans 24,677,727 25,885,369
Less:
Loans in process 179,518 776,923
Deferred fees and discounts 222,519 557,115
Allowance for losses 448,702 340,550
------------- -------------
Total loans receivable, net $23,826,988 $24,210,781
=========== ===========
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 4 - LOANS RECEIVABLE CONTINUED
An analysis of the activity in the allowance for loan losses follows:
June 30,
---------------------------------------
1999 1998 1997
--------- ---------- ----------
Balance, beginning of year $340,550 $309,208 $214,724
Provision for losses 139,500 263,000 129,429
Charge-offs, net (31,348) (231,658) (34,945)
--------- -------- ---------
Balance, end of year $448,702 $340,550 $309,208
======== ======== ========
Loans receivable from officers, directors, and employees aggregated
$1,176,566 and $798,100, at June 30, 1999 and 1998, respectively.
Nonaccrual loans for which interest has been reduced totaled approximately
$389,000 and $577,000, at June 30, 1999 and 1998, respectively. Interest
income that would have been reported under the original terms of such loans
was approximately $12,000 and $14,000, for the years ended June 30, 1999 and
1998, respectively. The Company is not committed to lend additional funds to
debtors whose loans have been modified.
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of those
loans is summarized as follows:
June 30,
------------------------------------------
1999 1998 1997
----------- ----------- ------------
Mortgage loans underlying FHLMC
pass-through securities $10,482,137 $10,704,352 $10,607,168
=========== =========== ===========
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, is summarized as follows:
1999 1998
---------- ----------
Investment securities $ 62,031 $ 32,729
Mortgage-backed securities 54,710 93,097
Loans receivable 298,375 283,640
--------- ---------
$415,116 $409,466
======== ========
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at June 30, are summarized by major
classification as follows:
1999 1998
---------- ----------
Land $ 80,842 $ 80,842
Buildings 194,060 187,444
Furniture, equipment, and autos 392,473 375,690
--------- ---------
Total 667,375 643,976
Accumulated depreciation 392,116 364,496
--------- ---------
Total net $275,259 $279,480
======== ========
Depreciation expense for the years ended June 30, 1999, 1998, and 1997 was
$27,620, $24,420, and $24,420, respectively.
NOTE 7 - FEDERAL INCOME TAX
The Company files a consolidated income tax return with the Bank and Gilstar.
Federal income tax receivable shown in the accompanying statements of
financial condition at June 30, consists of the following:
1999 1998
---------- ----------
Current income tax $ 6,189 $ 73,244
Deferred income tax 60,065 2,771
--------- -----------
$ 66,254 $ 76,015
========= =========
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 7 - FEDERAL INCOME TAX
Federal income tax expense shown in the accompanying statements of income
consisted of the following:
June 30,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
Current $ 88,303 $ 132 $ 31,806
Deferred (3,449) (132) (3,847)
---------- ----------- ----------
$ 84,854 $ - $ 27,959
========= =========== =========
Deferred tax expense results from timing differences principally relating to
the recognition of loan fees and timing of bad debts for tax and financial
reporting purposes.
A reconciliation of tax computed at the statutory Federal corporate income
tax rate to the actual provision for income tax expense is as follows:
1999 1998 1997
--------- --------- ----------
Computed "Expected" income tax $ 94,706 $ (2,599) $ 17,458
Adjustments:
Other, net (9,852) 2,599 10,501
--------- --------- ----------
Total $ 84,854 $ - $ 27,959
========= ========= =========
The Company is allowed a special bad debt deduction, using the "experience"
method and subject to certain limitations based on aggregate loans and
savings account balances at the end of the year. If the amounts that qualify
as deductions for Federal income tax purposes are later used for purposes
other than for bad debt losses, they will be subject to Federal income tax at
the then current corporate rate. Retained earnings for the year ended June
30, 1999, includes approximately $300,000, for which Federal income tax has
not been provided.
NOTE 8 - DEPOSITS
Deposits at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Passbook savings $ 1,035,787 3.85 $ 874,196 3.04
Money market accounts 1,137,428 4.23 1,307,237 4.54
Checking accounts 1,646,651 6.13 1,466,361 5.09
------------ ------- ------------- -------
3,819,866 14.21 3,647,794 12.67
Certificates of deposit:
2% to 3.99% 5,014 .02 25,199 .08
4% to 5.99% 19,123,731 71.13 17,951,528 62.34
6% to 7.99% 3,833,583 14.26 7,076,285 24.57
8% to 9.99% 102,971 .38 96,099 .34
------------ -------- --------------- ---------
23,065,299 85.79 25,149,111 87.33
------------ ------- ------------ -------
$26,885,165 100.00 $28,796,905 100.00
=========== ====== =========== ======
</TABLE>
Scheduled maturities of certificates of deposit at June 30, are as follows:
2000 2001 2002 and thereafter
------------- ------------- -------------------
2% to 3.99% $ 5,014 $ - $ -
4% to 5.99% 15,513,149 3,027,851 582,731
6% to 7.99% 1,847,330 272,409 1,713,844
8% to 9.99% 1,036 10,534 91,401
------------- ------------- -------------
$17,366,529 $3,310,794 $2,387,976
=========== ========== ==========
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000, was approximately $7,227,00 and $7,155,000,
at June 30, 1999 and 1998, respectively.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 8 - DEPOSITS - CONTINUED
Interest expense on deposits summarized at June 30, are as follows:
1999 1998 1997
------------ ------------- -------------
Money market $ 45,885 $ 44,880 $ 34,096
Passbook savings 29,887 25,512 31,220
Certificates of deposit 1,330,113 1,479,829 1,336,905
NOW accounts 21,853 16,200 5,151
------------ ------------- --------------
$1,427,738 $1,566,421 $1,407,372
========== ========== ==========
NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at June 30, consisted of the
following:
Interest
Due Dates Rate 1999 1998
----------------------- --------- ------------ -------------
July 15, 1998 5.52% $ $4,900,000
September 23,1998 5.59% 1,600,000
February 16, 1999 9.91% 120,000
July 16, 1999 5.05% 2,950,000 -
August 2, 1999 5.07% 500,000 -
October 18, 1999 4.53% 1,000,000 -
February 15, 2000 5.88% 120,000 120,000
February 15, 2001 5.94% 20,000 20,000
February 15, 2002 5.98% 25,000 25,000
February 17, 2003 6.00% 100,000 100,000
September 2, 2003 6.25% 2,098,309 2,516,346
February 16, 2004 6.01% 100,000 100,000
February 15, 2005 6.04% 100,000 100,000
February 15, 2006 6.05% 150,000 150,000
----------- -----------
$7,163,309 $9,751,346
========== ==========
The Bank has pledged its portfolio of first mortgage loans as well as
mortgage-backed securities with a book value of $6,096,500 and $9,354,241, at
June 30, 1999 and 1998, respectively, as collateral on advances from the
FHLB.
The maximum amount of FHLB advances outstanding at any month end during 1999
and 1998, were $10,214,885 and $9,751,346, respectively. The average amount
of FHLB advances outstanding during 1999 and 1998, were $7,980,596 and
$8,711,302, respectively.
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company is a party to certain financial
instruments, with off-balance-sheet risk, to meet the financing needs of its
customers. The off-balance-sheet instruments include commitments to extend
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount reflected in the financial
statements. The contract or notional amounts of these instruments reflect the
extent of involvement and exposure to credit loss the Company has in these
particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer, provided
that the terms established in the contract are met. Commitments generally
have fixed expiration dates and may require payment of a fee. Since some
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - CONTINUED
The Company applies the same credit policies in making commitments as it does
for on-balance-sheet instruments. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary, upon extension of credit is based on management's credit
evaluation of the borrower. Collateral held varies but may include real
estate, accounts receivable, inventory, property, plant and equipment.
NOTE 11 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The economy of the Company's market area, East Texas, is directly related to
the oil and gas industry. Oil prices have had an indirect effect on the
Company's business. Although the Company has a diversified loan portfolio, a
significant portion of its loans are secured by real estate. Repayment of
these loans is in part dependent upon the economic conditions in the market
area. Part of the risk associated with real estate loans has been mitigated
since much of this group represents loans secured by residential dwellings
that are primarily owner occupied. Losses on this type of loan have
historically been less than those on speculative properties. Many of the
remaining real estate loans are secured primarily with owner occupied
commercial real estate. The Company's loan policy requires appraisal prior to
funding any real estate loans and outlines the appraisal requirements on
those renewing.
NOTE 12 - RETIREMENT PLAN
The Company has a defined contribution profit sharing plan that covers all
employees. The plan allows employees to contribute up to 15% of their gross
pay into a trust fund with a contribution to be matched up to 5% by the
Company. The trust funds are maintained by the Company. For the years ended
June 30, 1999, 1998, and 1997, the Company contributed $16,983, $13,634, and
$13,601, respectively, to the plan.
NOTE 13 - EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has established an Employee Stock Ownership Plan (ESOP) for
employees age 21 or older who have at least one year of credited service with
the Bank. The ESOP will be funded by the Bank's contributions made in cash
(which primarily will be invested in common stock) or common stock. Benefits
may be paid either in shares of common stock or in cash.
In February 1995, the ESOP borrowed $156,600 from the Company and used the
proceeds to purchase 15,660 shares of Company common stock at $10 a share.
The note is due in semi-annual installments plus interest through 2005, and
had a balance of $86,130 and $101,790, at June 30, 1999 and 1998,
respectively. The note payable and related interest are eliminated in
consolidation.
ESOP plan expense included in compensation and benefits in the accompanying
statement of earnings totaled $15,660, $15,660, and $15,660, for the years
ended June 30, 1999, 1998 and 1997, respectively.
NOTE 14 - STOCK OPTION AND INCENTIVE PLAN
The October 12, 1995 stockholders' meeting, certain directors and officers
were granted options to purchase 10,761 shares of the Company's common stock
under its Stock Option and Incentive Plan. The option price of $10.50 per
share was the fair market value at the date of grant. The options are
exercisable beginning one year from date of grant, and vest at a rate of 20%
per year. No additional options have been granted. During the year ended June
30, 1999, options for 978 shares were exercised and the Company reissued
treasury shares. The difference in the cost of the treasury shares ($12,293)
and the option proceeds was charged to additional paid-in capital. At June
30, 1999, there were 9,783 options outstanding.
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 15 - RECOGNITION AND RETENTION PLAN
The Board of Directors of the Company adopted and obtained stockholder
approval at the October 12, 1995 stockholder's meeting, a Recognition and
Retention Plan (RRP) to enable the Company to provide officers and employees
with a proprietary interest in the Company as incentive to contribute to its
success. Officers and employees of the Company who are selected by members of
a committee appointed by the Board of Directors of the Company will be
eligible to receive benefits under the RRP.
The RRP is managed initially by the non-employee directors of the Company who
serve as trustees of the trust established pursuant to the RRP. The trustees
have the responsibility to invest all funds contributed by the RRP to the
trust created for the RRP (Trust).
The Company has available to award 7,830 shares of Company stock and in the
year ended June 30, 1996 awarded 4,303 shares, with the remainder being
reserved for future award. During the year ended June 30, 1997, the Company
awarded an additional 1,200 shares and used Treasury shares to fund the
award. During the year ended June 30, 1999, 120 shares were forfeited and
reverted back to the plan. The shares granted are in the form of restricted
stock to be earned and payable over a five-year period at the rate of 20% per
year, effective on the date of stockholder ratification. Compensation expense
in the amount of the fair market value of the common stock at the date of the
grant to the officer or employee will be recognized pro rata over the five
years during which the shares are earned and payable. RRP Plan expense
totaled $11,627, $11,627, and $10,118 for the years ended June 30, 1999,
1998, and 1997, respectively.
NOTE 16 -REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - a possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct material
effect on the Bank's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of risk-based capital to risk-weighted assets and of core and
tangible capital to total assets. Management believes, as of June 30, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of August 3, 1998, the most recent notification from the Office of Thrift
Supervision categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum risk-based, core and tangible ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institutions category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual: Adequacy Purposes: Action Provisions:
--------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
--------------------
Risk-based capital
(to risk-weighted assets) $4,311,861 19.4% $1,776,000 8.0% $2,219,913 10.0%
Core capital (to total assets) $4,032,648 10.3% $1,559,677 3.0% $2,339,516 6.0%
Tangible capital
(to total assets) $4,032,648 10.3% $584,879 1.5% $1,949,596 5.0%
</TABLE>
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 16 -REGULATORY MATTERS - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
--------------------
Risk-based capital
(to risk-weighted assets) $4,104,659 18.3% $1,776,000 8.0% $2,220,000 10.0%
Core capital (to total assets) $3,798,470 8.8% $1,295,475 3.0% $2,590,950 6.0%
Tangible capital
(to total assets) $3,798,470 8.8% $647,738 1.5% $2,159,125 5.0%
</TABLE>
Effective December 2, 1998, the Bank executed a Supervisory Agreement
(Agreement) with the Office of Thrift Supervision, the Bank's primary
regulator, whereby the Bank agreed to take certain specified corrective
actions related to:
(1) Compliance with Regulations
(2) Real Estate Lending Standards
(3) Asset Classification
(4) Loans to Executive Officers, Directors, and Principal
Stockholders
In accordance with the Agreement, the Bank is required to submit, on a
quarterly basis, a resolution adopted by its Board of Directors that to the
best of their knowledge and belief, that the Bank has complied with each
provision of the Supervisory Agreement currently in effect. At June 30, 1999,
management believes that they are in compliance with the agreement.
NOTE 17 - CONTINGENCIES
The Bank was a plaintiff in a lawsuit filed in District Court in Upshur
County for the wrongful dishonor of a cashier's check in the amount of
$145,000 issued by another financial institution. The $145,000 related to the
charge-off of this claim is included in other expense for the year ended June
30, 1998. The subsequent collection by the Bank upon settlement of the claim
is included in other income in the amount of $123,822 and the balance was
credited as a recovery on loans for the year ended June 30, 1999.
NOTE 18 - PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Gilmer Financial Services, Inc. (parent
company only) follows:
CONDENSED BALANCE SHEET
-----------------------
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash $ 11,669 $ 18,280
Account receivable(payable),Gilmer Savings Bank, FSB (26,918) (16,308)
Note receivable, Gilmer Savings Bank, FSB 86,130 101,790
Investment in Gilmer Savings Bank, FSB, at equity 3,994,807 3,900,260
----------- -----------
$4,065,688 $4,004,022
========== ==========
Stockholders' equity $4,065,688 $4,004,022
========== ==========
</TABLE>
CONDENSED STATEMENT OF INCOME
-----------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
------------- --------------
<S> <C> <C>
Interest income $ 7,852 $ 9,108
Income tax benefit 18,624 7,101
Stock service and professional fees (62,629 (54,563)
---------- ----------
Loss before equity in undistributed
earnings of subsidiary (36,153) (38,354)
Equity in undistributed earnings of subsidiary 229,845 30,713
--------- ----------
Net (loss) income $193,692 $ (7,641)
======== ==========
</TABLE>
<PAGE>
GILMER FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
CONTINUED
NOTE 19 - YEAR 2000 ISSUE
The Year 2000 issue relates to electronic data processing systems and other
electronic equipment that have used a two-digit field rather than a
four-digit field to represent the year. As a result, system failures and data
processing errors could occur and have an adverse effect on the Bank's
operations. Management has implemented an action plan in order to prepare its
systems and equipment for the Year 2000 date change. The Bank's action plan
consists of five phases which include awareness, assessment, renovation,
validation, and implementation. Currently, the Bank is in the latter stages
of the validation and implementation phases. In addition, management has
developed a business resumption contingency plan that addresses both internal
and external system failures. The Bank is following the Year 2000 project
management process as prescribed by the Federal Financial Institution's
Examination Council. Because of the unprecedented nature of the Year 2000
issue, its effects and the success of related remediation efforts will not be
fully determinable until the Year 2000 and thereafter.
<PAGE>
Gilmer Financial Services, Inc.
Condensed Consolidated Statement of Financial Condition (Unaudited)
March 31, 2000
Assets
Cash and equivalents 1,482,729
Investment securities available-for-sale 1,050,952
Mortgage-backed securities available-for-sale 9,090,319
Loans receivable, net of allowance 22,948,093
Accrued interest receivable 366,289
Federal Home Loan Bank stock, at cost 579,800
Premises and equipment 256,778
Other assets 515,548
--------------
Total Assets 36,290,508
==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits 23,261,955
Federal Home Loan Bank advances 8,837,145
Escrow, Federal income taxes and other liabilities 802,741
--------------
Total liabilities 32,901,841
--------------
Total stockholders' equity 3,388,667
Total liabilities & stockholders' equity 36,290,508
==============
See accompanying notes to the unaudited condensed financial statements.
<PAGE>
Gilmer Financial Services, Inc.
Condensed Consolidated Statement of Income (Unaudited)
Nine Months
Ended
March 31, 2000
Interest income
Loans receivable 1,579,536
Securities available-for-sale 441,177
Securities held-to-maturity 0
Deposits with banks 66,667
------------
Total interest income 2,087,380
------------
Interest expense
Deposits 919,520
Federal Home Loan Bank advances 383,468
Other 0
------------
Total interest expense 1,302,988
------------
Net interest income 784,392
Provision for loan losses 695,500
------------
Net interest income after provision for loan losses 88,892
Noninterest income
Gain (loss) on sale of assets (14,373)
Loan origination and servicing fees 52,710
Other 117,201
------------
Total noninterest income 155,538
------------
Noninterest expense
Compensation and benefits 453,942
Occupancy and equipment 32,230
Other 460,811
------------
Total noninterest expense 946,983
------------
Income (loss) before provision for income taxes (702,553)
------------
Income tax expense (benefit) (239,470)
------------
Net Income (463,083)
============
See accompanying notes to the unaudited condensed financial statements.
<PAGE>
Gilmer Financial Services, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net cash provided by (used in) operating activities 218,321
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities 120,000
Purchases of mortgage-backed securities (492,187)
Principal paydown on mortgage-backed securities 1,744,490
Net change in loans receivable 195,170
Purchases of premises and equipment (2,634)
----------------
Net cash provided (used) by investing activities 1,564,839
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (3,623,210)
Net increase in advances from FHLB 1,673,836
----------------
Net cash provided (used) by financing activities (1,949,374)
Net increase (decrease) in cash and cash equivalents (166,214)
CASH AND CASH EQUIVALENTS
Beginning of year 1,648,943
---------------
End of year 1,482,729
===============
SUPPLEMENTAL INFORMATION
Cash paid for income taxes 17,000
Cash paid for interest on deposits 955,080
Cash paid for interest on FHLB advances 383,468
</TABLE>
See accompanying notes to the unaudited condensed financial statements.
<PAGE>
Gilmer Financial Services, Inc.
Notes to Condensed Financial Statements
Nine Months ended March 31, 2000 (unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 8-K and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine-month period ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending June 30, 2000. For
further information, refer to the consolidated financial statements for the
year ended June 30, 1998 and notes thereto included herein.
2. The condensed consolidated statement of income for the nine months ended
March 31, 2000 includes $695,500 in provision for loan losses. The
provision was made by East Texas Financial Services as part of its due
diligence prior to March 31, 2000. Such provision was actually recorded by
East Texas Financial Services on June 30, 2000 as part of its purchase
accounting entries.
<PAGE>
East Texas Financial Services, Inc. and Gilmer Financial Services, Inc.
Pro Forma Combined Condensed Statement of Financial Condition (unaudited)
March 31, 2000
<TABLE>
<CAPTION>
East Texas Gilmer
Financial Financial
Services, Inc. Services, Inc. Adjustments Note Pro Forma
Assets
<S> <C> <C> <C> <C> <C>
Cash and equivalents 3,287,739 1,482,729 4,770,468
Investment securities available-for-sale 6,279,944 1,050,952 7,330,896
Mortgage-backed securities available-for-sale 36,517,765 9,090,319 45,608,084
Investment securities held-to-maturity 28,492,766 0 28,492,766
Mortgage-backed securities held-to-maturity 5,097,182 0 5,097,182
Loans receivable, net of allowance 70,668,125 22,948,093 93,616,218
Accrued interest receivable 1,174,723 366,289 1,541,012
Federal Home Loan Bank stock, at cost 2,932,200 579,800 3,512,000
Premises and equipment 2,575,221 256,778 (5,031) 2 2,826,968
Mortgage servicing rights and other assets 1,154,314 515,548 78,706 4,6 1,748,568
Goodwill 1,963,740 3 1,963,740
--------------- -------------- -------------- --------------
Total assets 158,179,979 36,290,508 2,037,415 196,507,902
=============== ============== ============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits 83,095,124 23,261,955 106,357,079
Federal Home Loan Bank advances 57,777,064 8,837,145 5,426,082 1 72,040,291
Escrow, Federal income taxes and other liabilities 883,954 802,741 1,686,695
--------------- -------------- -------------- --------------
Total liabilities 141,756,142 32,901,841 5,426,082 180,084,065
--------------- -------------- -------------- --------------
Total stockholders' equity 16,423,837 3,388,667 (3,388,667) 16,423,837
--------------- -------------- -------------- --------------
Total liabilities & stockholders' equity 158,179,979 36,290,508 2,037,415 196,507,902
=============== ============== ============== ==============
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed financial
statements.
<PAGE>
East Texas Financial Services, Inc. and Gilmer Financial Services, Inc.
Pro Forma Combined Condensed Statement of Income (Unaudited)
Six Months Ended March 31, 2000
<TABLE>
<CAPTION>
East Texas Gilmer
Financial Financial
Services, Inc. Services, Inc. Adjustments Note Pro Forma
Interest income
<S> <C> <C> <C> <C> <C>
Loans receivable 2,648,620 1,046,034 3,694,654
Securities available-for-sale 1,500,173 291,029 1,791,202
Securities held-to-maturity 1,117,439 0 1,117,439
Deposits with banks 34,815 45,665 80,480
--------------- -------------- -------------- --------------
Total interest income 5,301,047 1,382,728 0 6,683,775
--------------- -------------- -------------- --------------
Interest expense
Deposits 2,037,824 598,303 2,636,127
Federal Home Loan Bank advances 1,563,556 282,197 148,675 1 1,994,428
Other 21,979 0 21,979
--------------- -------------- -------------- --------------
Total interest expense 3,623,359 880,500 148,675 4,652,534
--------------- -------------- -------------- --------------
Net interest income 1,677,688 502,228 (148,675) 2,031,241
--------------- -------------- -------------- --------------
Provision for loan losses 402 685,000 685,402
--------------- -------------- -------------- --------------
Net interest income after provision for loan 1,677,286 (182,772) (148,675) 1,345,839
--------------- -------------- -------------- --------------
Noninterest income
Gain (loss) on sale of assets 23,182 (12,504) 10,678
Loan origination and servicing fees 51,115 33,505 84,620
Other 43,273 75,165 118,438
--------------- -------------- -------------- --------------
Total noninterest income 117,570 96,166 0 213,736
--------------- -------------- -------------- --------------
Noninterest expense
Compensation and benefits 1,068,510 305,506 1,374,016
Occupancy and equipment 260,196 17,926 (839) 2 277,283
Other 228,883 350,868 65,458 3 645,209
--------------- -------------- -------------- --------------
Total noninterest expense 1,557,589 674,300 64,619 2,296,508
--------------- -------------- -------------- --------------
Income (loss) before provision for income taxes 237,267 (760,906) (213,294) (736,933)
--------------- -------------- -------------- --------------
Income tax expense (benefit) 90,705 (254,549) (50,264) 4 (214,108)
--------------- -------------- -------------- --------------
Net Income 146,562 (506,357) (163,030) (522,825)
=============== ============== ============== ==============
Basic earnings per common share $0.13 5 ($0.45)
Diluted earnings per common share $0.12 5 ($0.44)
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed financial
statements.
<PAGE>
East Texas Financial Services, Inc. and Gilmer Financial Services, Inc.
Pro Forma Combined Condensed Statement of Income (Unaudited)
Year Ended September 30, 1999
<TABLE>
<CAPTION>
East Texas Gilmer
Financial Financial
Services, Inc. Services, Inc. Adjustments Note Pro Forma
Interest income
<S> <C> <C> <C> <C> <C>
Loans receivable 4,810,218 2,291,476 7,101,694
Securities available-for-sale 1,698,167 684,473 2,382,640
Securities held-to-maturity 2,445,149 0 2,445,149
Deposits with banks 141,966 103,911 245,877
--------------- -------------- -------------- --------------
Total interest income 9,095,500 3,079,860 0 12,175,360
--------------- -------------- -------------- --------------
Interest expense
Deposits 4,237,906 1,427,738 5,665,644
Federal Home Loan Bank advances 1,626,225 472,009 267,506 1 2,365,740
Other 0 0 0
--------------- -------------- -------------- --------------
Total interest expense 5,864,131 1,899,747 267,506 8,031,384
--------------- -------------- -------------- --------------
Net interest income 3,231,369 1,180,113 (267,506) 4,143,976
--------------- -------------- -------------- --------------
Provision for loan losses 0 139,500 139,500
--------------- -------------- -------------- --------------
Net interest income after provision for loan 3,231,369 1,040,613 (267,506) 4,004,476
--------------- -------------- -------------- --------------
Noninterest income
Gain (loss) on sale of assets 146,113 120,084 266,197
Loan origination and servicing fees 139,229 115,561 254,790
Other 72,600 118,938 191,538
--------------- -------------- -------------- --------------
Total noninterest income 357,942 354,583 0 712,525
--------------- -------------- -------------- --------------
Noninterest expense
Compensation and benefits 2,037,691 609,344 2,647,035
Occupancy and equipment 301,821 45,345 (1,677) 2 345,489
Other 801,184 461,966 130,916 3 1,394,066
--------------- -------------- -------------- --------------
Total noninterest expense 3,140,696 1,116,655 129,239 4,386,590
--------------- -------------- -------------- --------------
Income (loss) before provision for income taxes 448,615 278,541 (396,745) 330,411
--------------- -------------- -------------- --------------
Income tax expense (benefit) 150,625 84,854 (90,952) 4 144,527
--------------- -------------- -------------- --------------
Net Income 297,990 193,687 (305,793) 185,884
=============== ============== ============== ==============
Basic earnings per common share $0.23 5 $0.14
Diluted earnings per common share $0.22 5 $0.14
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed financial
statements.
<PAGE>
Notes to the Unaudited Pro Forma Combined Condensed Financial Statements
East Texas Financial Services, Inc. And Gilmer Financial Services, Inc.
1. Represents the estimated borrowings to fund the acquisition of Gilmer
Financial Services, Inc. (GFSI). The amount includes $26.10 paid for each
outstanding share of GFSI stock and amounts due to attorneys, accountants,
advisors and other third party consultants for their services related to
this transaction. These borrowings are assumed to be in the form of
short-term advances from the Federal Home Loan Bank. Assumed borrowing
rates are 4.93% for the 12 months ended September 30, 1999 and 5.48% for
the six months ended March 31, 2000.
2. Represents the estimated fair value adjustment for fixed assets. The
adjustment relates to an asset with a remaining life of 3 years. The
adjustment is assumed to amortize on a straight line basis over this time
period into occupancy and equipment expenses.
An independent appraisal of the loan portfolio and the deposit portfolio
concluded that the book value materially equaled current fair value and
that no adjustments were appropriate for those assets and liabilities.
3. Represents the estimate of the excess of the total direct acquisition cost
over the estimated fair value of the net assets acquired based on currently
available information. Goodwill is expected to be amortized on a straight
line basis over 15 years.
4. Represents the estimated income tax effects of the estimated purchase
accounting adjustments. The estimated income tax effect is calculated at
the assumed marginal rate of 34%.
5. The weighted average number of common shares outstanding for the six months
ended March 31, 2000 totaled 1,152,678. The weighted average number of
common shares outstanding for the twelve months ended September 30, 1999
totaled 1,324,359. For the six months ended March 31, 2000, the weighted
average number of common shares outstanding, assuming dilution, totaled
1,175,462. For the twelve months ended September 30, 1999, the weighted
average number of common shares outstanding, assuming dilution, totaled
1,374,676.
6. Represents a $76,995 receivable which was created at the acquisition date.
The receivable relates to unearned ESOP shares of GFSI.
<PAGE>
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of November 15, 1999
(incorporated by reference to Exhibit 2 to East Texas's Current
Report on Form 8-K filed with the SEC on November 18, 1999).
2.2 Amendment to Agreement and Plan of Merger, dated as of April 25,
2000.
23 Consent of Accountant
99 Press Release of East Texas, dated September 3, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAST TEXAS FINANCIAL SERVICES, INC.
Date: September 11, 2000 By: /s/ Gerald W. Free
--------------------------------
Gerald W. Free
Vice Chairman, President and CEO
