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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 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)
(Registrant's telephone number, including area code) (903) 593-1767
--------------
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 June 30, 2000, was 1,162,320.
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
June 30, 2000
--------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition, June 30, 2000
(Unaudited) and September 30, 1999.................................................................. 4
Consolidated Statements of Income, (Unaudited) three months and nine months ended
June 30, 2000 and June 30, 1999..................................................................... 5
Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
nine months ended June 30, 2000..................................................................... 6
Consolidated Statements of Cash Flows, (Unaudited) nine months ended
June 30, 2000, and June 30, 1999.................................................................... 7
Notes to (Unaudited) Consolidated Financial Statements, June 30, 2000............................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................... 15
Part II - Other Information
Item 1. Legal Proceedings............................................................................... 23
Item 2. Changes In Securities........................................................................... 23
Item 3. Defaults Upon Senior Securities................................................................. 23
Item 4. Submission of Matters To a Vote of Security Holders............................................. 23
Item 5. Other Information............................................................................... 23
Item 6. Exhibits and Reports on Form 8-K................................................................ 23
Signature Page................................................................................................. 25
</TABLE>
2
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
June 30, 2000
--------------------------------------------------------------------------------
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, 1999, 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.
On June 30, 2000 the Company acquired by merger 100% of the common stock of
Gilmer Financial Services, Inc. and it's wholly owned subsidiary Gilmer Savings
Bank, F.S.B. ("Gilmer") The acquisition was accounted for as a purchase
transaction. The Statement of Financial Condition reflects, at June 30, 2000,
the acquisition of Gilmer. The assets and liabilities of Gilmer were recorded at
their fair market values. The difference in the purchase price and the fair
market value of the assets and liabilities acquired is recorded as goodwill. The
statements of income for the three and nine months ended June 30, 2000 and June
30, 1999 do not reflect income of Gilmer for those periods. Income from the
acquired assets and liabilities will be accounted for prospectively. See Note 7
for a discussion of the "proforma" affects of the acquisition on the Company's
financial statements.
Net income for the nine months ended June 30, 1999 has been restated to reflect
an adjustment by the Company's independent auditors at September 30, 1999. Other
non-interest income was decreased by $39,000 and income tax expense was
decreased by $13,260 to reflect the restatement. The restatement was related to
the recovery of a deficiency judgement against a borrower filed in a prior
period. The recovery was reported as other non-interest income during the nine
month period ending June 30, 1999 and was restated and added to the Company's
general valuation allowance at the September 30, 1999 audit.
3
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS June 30, 2000 September 30, 1999
-------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 1,007,891 $ 1,019,937
Interest-bearing deposits with banks 2,805,202 974,627
Interest-earning time deposits with financial institutions 1,289,000 2,461,617
Federal funds sold 0 0
Investment securities available-for-sale 7,691,011 5,918,750
Mortgage-backed securities available-for-sale 45,286,010 32,893,809
Investment securities held-to-maturity (estimated market
value of $26,986,744 at June 30, 2000, and
$29,948,866 at September 30, 1999) 27,967,369 30,481,413
Mortgage-backed securities held-to-maturity (estimated
market value of $4,801,441 at June 30, 2000
and $5,949,914 at September 30, 1999) 4,688,000 5,806,975
Loans receivable, net of allowance for credit losses of $1,099,200
at June 30, 2000 and $270,039 at September 30, 1999 96,841,766 67,250,334
Accrued interest receivable 1,582,211 1,167,245
Federal Home Loan Bank stock, at cost 4,048,700 2,283,000
Premises and equipment 2,786,262 2,607,213
Foreclosed real estate and repossessed property, net 77,160 0
Goodwill 2,435,579 0
Mortgage servicing rights 272,620 266,010
Other assets 1,604,817 593,991
------------------ ------------------
Total Assets $ 200,383,598 $ 153,724,921
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest deposits $ 3,600,439 $ 2,021,914
Interest-bearing deposits 101,980,220 85,517,925
------------------ ------------------
Total deposits 105,580,659 87,539,839
FHLB advances 76,315,782 45,057,877
Advances from borrowers for taxes and insurance 1,131,268 823,755
Federal income taxes
Current (73,703) 0
Deferred 0 108,184
Accrued expenses and other liabilities 1,523,691 1,775,938
------------------ ------------------
Total liabilities 184,477,697 135,305,593
------------------ ------------------
Stockholders' equity:
Preferred stock, $0.01 par value, 500,000
shares authorized, none outstanding
Common stock, $0.01 par value, 5,500,000 shares authorized,
1,884,492 shares issued and 1,162,320 outstanding 18,845 18,845
Additional paid-in-capital 12,397,167 12,397,167
Deferred compensation - RRP shares (9,698) (96,985)
Unearned employee stock ownership plan shares (442,059) (442,059)
Accumulated Other Comprehensive Income (loss) (919,532) (148,174)
Retained earnings (substantially restricted) 13,728,460 13,675,391
Treasury stock, 722,172 shares at cost (8,867,282) (6,984,857)
------------------ ------------------
Total stockholder's equity 15,905,901 18,419,328
------------------ ------------------
Total liabilities and stockholders' equity $ 200,383,598 $ 153,724,921
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
(Unaudited) (Unaudited)
2000 1999 2000 1999
------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loan Receivable:
First Mortgage $ 1,241,608 $ 1,099,806 $ 3,556,737 $ 3,327,777
Consumer and other loans 173,537 101,023 507,028 260,141
Securities available for sale:
Investment securities 206,167 4,030 489,014 56,220
Mortgage-backed securities 639,798 416,196 1,857,124 992,788
Securities held to maturity:
Investment securities 447,488 564,969 1,384,029 1,450,009
Mortgage-backed securities 89,142 115,175 270,040 432,185
Deposits with banks 13,671 31,185 48,486 115,181
----------- ----------- ----------- -----------
Total interest income 2,811,411 2,332,384 8,112,458 6,634,301
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,032,272 1,051,220 3,070,096 3,180,472
FHLB advances 941,269 475,237 2,504,825 1,032,074
Interest Expense to other banks 0 0 21,979 0
----------- ----------- ----------- -----------
Total interest expense 1,973,541 1,526,457 5,596,900 4,212,546
----------- ----------- ----------- -----------
Net interest income before
provision for loan losses 837,870 805,927 2,515,558 2,421,755
Provision for loan losses 4,043 0 4,445 0
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 833,827 805,927 2,511,113 2,421,755
----------- ----------- ----------- -----------
NONINTEREST INCOME
Gain(loss) on sale of interest-earning assets 7,985 22,437 31,167 127,502
Loan origination and commitment fees 13,476 17,930 33,259 64,988
Loan servicing fees 16,485 23,667 47,817 53,400
Gain on foreclosed real estate 0 (352) (855) (50)
Other 39,211 16,543 83,339 37,792
----------- ----------- ----------- -----------
Total noninterest income 77,157 80,225 194,727 283,632
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and benefits 533,270 543,784 1,601,780 1,572,468
Occupancy and equipment 126,006 195,827 386,202 310,718
SAIF deposit insurance premium 4,433 (27,533) 22,135 (1,069)
Loss on foreclosed real estate 0 0 0 2,069
Other 109,197 88,250 320,378 402,571
----------- ----------- ----------- -----------
Total noninterest expense 772,906 800,328 2,330,495 2,286,757
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes 138,078 85,824 375,345 418,630
Income tax expense (benefit) 50,618 36,974 141,323 162,370
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 87,460 $ 48,850 $ 234,022 $ 256,260
=========== =========== =========== ===========
Earnings per common share $ .08 $ .04 $ .21 $ .19
Earnings per common share - assuming dilution .08 .04 .20 .19
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED
June 30, 2000
<TABLE>
<CAPTION>
Unrealized
Common Stock Unearned Unallocated Gain(loss)on
and Additional RRP ESOP AFS Retained Treasury
Paid in Capital Shares Shares Securities Earnings Stock
--------------- ------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1999 $ 12,416,012 $ (96,985) $ (442,059) $ (148,174) $ 13,675,391 $ (6,984,857)
Comprehensive income:
Net Income 234,022
Unrealized holding gains (771,358)
Comprehensive income
Deferred compensation
amortization 87,287
Purchase of treasury stock
at cost (1,882,425)
Payment of cash dividends (180,953)
Balance June 30, 2000 $ 12,416,012 $ (9,698) $ (442,059) $ (919,532) $ 13,728,460 $ (8,867,282)
============== ============= ============ ============ ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Total
Comprehensive Stockholders'
Income Equity
----------------- ---------------
<S> <C> <C>
Balance September 30, 1999 $ $ 18,419,328
Comprehensive income:
Net Income 234,022
Unrealized holding gains (771,358)
----------------
Comprehensive income $ (537,336) (537,336)
================
Deferred compensation
amortization 87,287
Purchase of treasury stock
at cost (1,882,425)
Payment of cash dividends (180,953)
Balance June 30, 2000 15,905,901
===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
2000 1999
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 234,022 $ 256,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan origination fees (2,899) 5,042
Amortization of premiums and discounts on investment
securities, mortgage-backed securities, and loans 34,034 118,528
Amortization of deferred compensation 87,286 87,286
Compensation charge related to release of ESOP shares 38,250 50,319
Depreciation 110,918 83,647
Deferred income taxes 25,298 39,381
Stock dividends on FHLB stock (174,900) (56,100)
Origination of mortgage servicing rights (27,348) (106,128)
Amortization of mortgage servicing rights 45,158 54,936
Net (gain) loss on sale of:
Securities held to maturity 0 0
Foreclosed real estate 0 2,069
Fixed assets 0 0
Net loss on disposal of fixed assets 0 0
Other assets 0 0
Loans (3,251) (21,374)
Loans held for sale 0 0
Net (gain) loss on disposal of fixed assets 228 0
Proceeds from loan sales 2,363,199 8,751,313
Originations of loans held for sale 0 0
Proceeds from sale of fixed assets 0 0
(Increase) decrease in:
Accrued interest receivable (38,911) (178,190)
Other assets (667,846) 665,034
Accrued loan loss 0 1,208
Increase (decrease) in:
Federal income tax payable (2,186) (50,822)
Accrued expenses and other liabilities (826,743) (521,831)
Capitalized interest on time deposits 0 0
----------- -----------
Net cash provided (used) by operating activities 1,194,309 9,180,578
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months End
June 30,
2000 1999
-------------------------------------------------
<S> <C> <C>
Cash flows from investing activities
Net cash used in acquisition activities (3,085,573) 0
Purchases of interest earning time deposits 0 (600,000)
Net decrease (increase) in fed funds sold 0 129,187
Purchases of obligations - U.S. Govt. and agencies
held to maturity (1,468,672) (11,986,719)
Proceeds from maturity of time deposits 1,172,617 0
Proceeds from maturities of obligations - U.S. Govt.
and agencies held to maturity 4,000,000 9,725,000
Purchases of FHLB stock (992,500) (1,293,600)
Purchases of investment securities available-for-sale (949,445) (3,561,793)
Purchases of mortgage-backed securities available-for-sale (6,908,715) (24,545,208)
Principal payments on mortgage-backed securities available for sale 2,112,653 4,571,801
Principal payments on mortgage-backed securities held to maturity 1,108,807 4,544,859
Net originations and principal collections on loans (10,232,495) (10,938,321)
Capitalized acquisition cost related to foreclosed real estate (4,221) 0
Proceeds from sale of foreclosed real estate 6,325 32,432
Expenditures for premises and equipment (44,894) (454,202)
---------------- --------------
Net cash provided (used) by investing activities (15,286,113) (34,376,564)
---------------- --------------
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits, savings, NOW accounts 1,028,624 3,568,987
Time deposits (5,831,366) (2,511,372)
FHLB Advances 429,257,606 250,300,669
Repayment of FHLB Advances (406,248,084) (222,963,758)
Other borrowed money 1,500,000 0
Repayment of other borrowed money (1,500,000) 0
Advances from borrowers for taxes and insurance (233,429) (261,237)
Dividends paid to stockholders (180,593) (208,782)
Purchase of treasury stock (1,882,425) (729,831)
Proceeds from sale of common stock 0 0
---------------- --------------
Net cash provided (used) by financing activities 15,910,333 27,194,676
---------------- --------------
Net increase (decrease) in cash and cash equivalents 1,818,529 1,998,690
Cash and cash equivalents at beginning of the period 1,994,564 1,697,058
---------------- --------------
Cash and cash equivalents at end of the period $ 3,813,093 $ 3,695,748
================ ==============
Supplemental disclosure:
Cash paid for:
Interest on deposits $ 1,336,577 $ 1,671,547
Interest on FHLB advances and other borrowed funds $ 2,526,804 $ 1,032,074
Income taxes $ 76,553 $ 149,969
Transfers from loans to real estate
acquired through foreclosures $ 2,966 $ 0
Loans charged off to loan loss reserves $ 3,184 $ 1,280
Recoveries credited to loan loss reserves $ 10,191 $ 72
Acquisition activity:
Fair value of noncash assets acquired $ 32,841,706 $ 0
Fair value of liabilities assumed $ 32,191,712 $ 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
8
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments which are, in the
opinion of management, necessary for fair presentation. These financial
statements have not been audited by an independent accountant. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations for interim
reporting. The Company believes that the disclosures are adequate to make the
information not misleading. However, these financial statements should be read
in conjunction with the financial statement and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended September 30, 1999.
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 common share for the three months and nine months ended June 30,
2000 and 1999, 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 June 30, 2000 and 1999, the weighted average number of shares
outstanding totaled 1,096,007 and 1,311,317, shares respectively. For the nine
months ended June 30, 2000 and 1999, the weighted average number of shares
outstanding totaled 1,135,707 and 1,346,919 shares respectively.
Earnings per common share - assuming dilution, for the three months and nine
months ended June 30, 2000 and 1999, 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 June 30, 2000 and
1999, the weighted average number of shares outstanding for earnings per share -
assuming dilution totaled 1,096,007 and 1,338,365, shares respectively. For the
nine months ended June 30, 2000 and 1999, the weighted average number of shares
outstanding for earnings per share - assuming dilution totaled 1,151,954 and
1,365,419 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 II, Item 6 - Exhibits for a detailed presentation of the earnings per
share calculation for the three month and nine month period ended June 30, 2000
and 1999.
9
<PAGE>
NOTE 3 - SECURITIES
The carrying values and estimated market values of investment securities
available-for-sale as of June 30, 2000, 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>
Corporate debt $7,500,000 $60,084 $ 97,693 $ (350,777) $7,111,614
Municipal bonds 585,000 0 0 (5,603) 579,397
---------- ------- --------- ----------- ----------
$8,085,000 $60,084 $ 97,693 $ (356,380) $7,691,011
---------- ------- --------- ----------- ----------
</TABLE>
The amortized cost and estimated market values of investment securities
held-to-maturity as of June 30, 2000, 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. government agency $27,967,369 $988 $(981,613) $26,986,744
----------- ---- --------- -----------
Total debt securities $27,967,369 $988 $(981,613) $26,986,744
----------- ---- --------- -----------
</TABLE>
The amortized cost and estimated market values of investment securities
held-to-maturity as of June 30, 2000, by contractual maturity are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------------- -----------------
<S> <C> <C>
Due in one year or less $ 1,999,950 $ 2,000,527
Due after one year through two years 2,000,000 1,950,816
Due after two years through three years 13,500,514 13,070,825
Due after three years through six years 10,466,905 9,964,576
----------- -----------
Total debt securities $27,967,369 $26,986,744
----------- -----------
</TABLE>
As of June 30, 2000, approximately $25,500,000 of the securities had call
options exercisable at the discretion of the issuer. Approximately $13.5 million
of the securities were immediately callable. The remainder had call dates that
varied between July 2000 and June 2001.
10
<PAGE>
The carrying values and estimated market values of mortgage-backed and related
securities available-for-sale as of June 30, 2000, 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 $ 9,667,438 $ 32,105 $ 53,006 $ (244,015) $ 9,402,522
Adjustable Rate 37,163,864 250,825 15,698 (1,515,503) 35,883,488
----------- -------- ----------- ------------ -----------
$46,831,302 $282,930 $ 68,704 $ (1,759,518) 45,286,010
----------- -------- ----------- ------------ -----------
</TABLE>
The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of June 30, 2000, 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 $ 3,250 $ 0 $ 0 $ 3,250 $ 3,010
Adjustable Rate 4,652,373 36,523 4,146 4,684,750 4,798,431
---------- ------- ---------- ---------- ----------
$4,655,623 $36,523 $ 4,146 $4,688,000 $4,801,441
---------- ------- ---------- ---------- ----------
</TABLE>
NOTE 4 - CURRENT ACCOUNTING ISSUES
SFAS No. 133
------------
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives in the statement of financial position at fair value. The Company
currently does not invest in any derivative instruments or hedging activities as
defined in this Statement.
The Statement is effective for fiscal years beginning after June 15, 1999. The
Company adopted the Statement as required.
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 generally vest at a rate of 20% per
year beginning at the date of the grant. The Company uses treasury stock for the
exercise of options. The following is a summary of changes in options
outstanding:
11
<PAGE>
Options outstanding
Balance, September 30, 1995 103,411
Granted -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
=======
On March 25, 1998, the Company completed a 3 for 2 stock split in the form of a
50% dividend. As a result of the split, the number of outstanding options,
option price, options exercisable at year end, and shares available for future
grants were adjusted as follows:
Options outstanding
Balance, September 30, 1997 150,411
Granted -0-
Exercised at $9.42 per share (1,568)
Forfeited and expired -0-
---------
Balance, September 30, 1998 148,843
Granted -0-
Exercised at $9.42 per share (1,567)
Forfeited and expired -0-
---------
Balance, September 30, 1999 147,276
=======
Options exercisable at June30, 2000 under stock option plan 116,258
=========
Shares available for future grants 27,162
========
During the nine months ended June 30, 2000, no options were exercised, issued,
or forfeited.
12
<PAGE>
NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK
The outstanding advances from the FHLB consisted of the following at June 30,
2000:
Maturity Balance Rate
---------- ----------- ------
07/06/2000 $ 6,100,000 6.68%
07/11/2000 $36,277,000 6.54%
07/11/2000 $ 3,600,000 6.54%
07/11/2000 $ 1,700,000 6.59%
07/27/2000 $ 8,000,000 6.66%
07/27/2000 $ 1,000,000 6.67%
07/27/2000 $ 1,000,000 6.70%
07/27/2000 $ 5,526,400 6.70%
02/15/2001 $ 20,000 5.94%
02/15/2002 $ 25,000 5.98%
02/17/2003 $ 100,000 6.00%
09/01/2000 $ 1,653,383 6.25%
02/16/2004 $ 100,000 6.01%
12/31/2004 $ 247,446 6.09%
01/03/2005 $ 98,163 6.03%
02/15/2005 $ 100,000 6.04%
02/15/2006 $ 150,000 6.05%
01/01/2013 $ 446,841 6.09%
01/01/2013 $ 424,647 6.13%
02/01/2013 $ 421,235 5.91%
03/03/2014 $ 901,796 5.45%
04/01/2014 $ 869,828 5.97%
05/01/2014 $ 1,184,572 5.66%
06/01/2014 $ 902,501 5.90%
07/01/2014 $ 834,517 6.38%
08/01/2014 $ 606,008 6.37%
09/01/2014 $ 764,946 6.59%
10/01/2014 $ 670,779 6.86%
11/03/2014 $ 1,655,064 6.77%
12/01/2014 $ 565,645 6.57%
01/01/2015 $ 370,012 6.73%
Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB),
advances are secured by all stock and deposit accounts in the FHLB, mortgage
collateral, securities collateral, and other collateral.
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NOTE 7 - PRO FORMA SUMMARY FINANCIAL INFORMATION
On June 30, 2000, the Company completed its acquisition of Gilmer Financial
Services, Inc. (GFSI) and its wholly owned subsidiary, Gilmer Savings Bank,
exchanging $26.10 in cash for each share of GFSI common stock outstanding. The
total cost of the acquisition was approximately $5.4 million. At the date of
acquisition, GFSI had approximately $35.1 million in assets, $22.9 million in
deposits, and 3.0 million in shareholders' equity. Pursuant to the merger
agreement, Gilmer Financial Services, Inc was merged into the Company's wholly
owned subsidiary, First Federal Savings and Loan Association of Tyler, Inc. The
combined entity now operates as one institution under the name of First Federal
Savings and Loan. The Company utilized short-term advances from the Federal Home
Loan Bank to fund the transaction and accounted for the acquisition under the
purchase method of accounting. Under purchase accounting rules, the assets
acquired and the liabilities assumed were adjusted to their estimated fair
value. Goodwill amounting to $2.4 million related to this transaction was
recorded and will be amortized on a straight line basis over fifteen years. The
results of operations of GFSI are not reflected in the Company's consolidated
statements of income at June 30, 2000, because the acquisition took place at the
end of the period.
The following (unaudited) pro forma consolidated results of operations have been
prepared as if the acquisition of GFSI had occurred at October 1, 1999 and 1998,
respectively:
Nine Months
Ended June 30,
(Unaudited)
2000 1999
---- ----
Revenue $ 10,533,359 $ 9,427,529
Net Income (loss) (685,708) 18,278
Net Income (loss) per share - basic (0.60) 0.01
Net Income (loss) per share - diluted (0.60) 0.01
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had the acquisition been consummated as of that time, nor is it
intended to be a projection of future results.
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<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
June 30, 2000
--------------------------------------------------------------------------------
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, commercial real estate, one-
to four-family construction, multi-family, commercial and consumer loans. These
funds have also been used to purchase mortgage-backed securities, U. S.
government and agency obligations and other permissible investments. The Company
also borrows funds from the Federal Home Loan Bank of Dallas ("FHLB") to fund
loans and to purchase 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.
The Company has recently expanded its product lines to include commercial and
consumer loans, debit and credit cards, an ATM machine and cards, safe deposit
boxes, and a full range of business and personal checking and deposit accounts.
With the introduction of new products and services, the Company opened an
additional full-service office located in South Tyler in 1999.
On June 30, 2000, the Company completed the acquisition of Gilmer Financial
Services, Inc. ("Gilmer" or "the Gilmer transaction") and its wholly owned
subsidiary, Gilmer Savings Bank, F.S.B. The Company acquired 100% of the
outstanding stock of Gilmer and was accounted for as a purchase transaction. The
assets and liabilities of Gilmer were recorded at their fair market values as of
June 30, 2000. The difference in the net fair value of Gilmer's assets and
liabilities and the purchase price of approximately $5.4 million was recorded as
goodwill. The statement of financial condition, the statement of changes in
stockholder's equity and the statement of cash flows reflect the acquisition of
Gilmer. The statement of income for both the nine months and three months ended
June 30, 2000 reflect only activity for the Company prior to the acquisition of
Gilmer for those periods.
FINANCIAL CONDITION
Total assets were $200.4 million at June 30, 2000, a $46.7 million increase from
the $153.7 million reported at September 30, 1999, the Company's most recent
fiscal year end. The increase in total assets was the result of a $29.6 million
increase in loans receivable, a $12.4 million increase in mortgage-backed
securities available-for-sale,
15
<PAGE>
a $1.8 million increase in investment securities available-for-sale, and a $1.8
million increase in Federal Home Loan Bank stock. The increases were partially
offset by a $2.5 million decline in investment securities held-to-maturity and a
$1.1 million decline in mortgage-backed securities held-to-maturity. The net
increase in total assets was primarily the result of the acquisition of Gilmer.
At June 30, 2000, loans-receivable totaled $96.8 million, compared to $67.3
million at September 30, 1999. The increase in loans receivable was primarily
the result of an additional $21.5 million in loans acquired in the Gilmer
transaction. The additional increase in loans-receivable of approximately $8.1
million was the result of continued efforts of the Company to originate
commercial and consumer loans and, to a lesser extent, its traditional one- to
four-family lending products.
At June 30, 2000, the Company's commercial and consumer loan portfolio was
approximately $16.1 million, including approximately $6.0 million acquired in
the Gilmer transaction. The Company had reported approximately $2.6 million in
such loans outstanding at September 30, 1999. The Company will continue to focus
its efforts on increasing its commercial and consumer loan portfolio, in
addition to traditional one- to four-family loans.
The $12.4 million increase in mortgage-backed securities available-for-sale was
primarily the result of the Gilmer transaction. The securities acquired were
primarily adjustable rate securities. The remainder of the increase in
mortgage-backed securities available-for-sale was the result of the Company's
decision to continue its program of borrowing funds from the FHLB and investing
the proceeds into mortgage-backed securities and similar securities in an effort
to achieve a positive margin on the transaction.
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 securities and the cost of the advances. The success of the program is
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 borrows funds from the FHLB with terms of
approximately thirty days and invests in mortgage-backed securities with
interest rate adjustment frequencies that vary between one month and one year.
The Company intends to maintain the size of the plan at it current level.
Alternatively, the Company may decrease the size of the program, depending upon
its ability to increase its loans receivable portfolio.
The investment securities available-for-sale portfolio consists of corporate
debt securities and municipal bonds. Both portfolios have fixed interest rates
and terms and various maturity dates of not greater than 10 years from June 30,
2000. The increase in the portfolio was primarily due to $500,000 in corporate
debt securities and $585,000 in municipal bonds acquired in the Gilmer
transaction. The additional increase was from corporate debt securities
purchased by the Company subsequent to September 30, 1999. The Company only
invests in investment grade debt with varying maturities and ratings. The
municipal bonds acquired in the Gilmer transaction were predominantly exempt
from federal income taxes.
Approximately $598,000 of the additional FHLB stock was acquired from Gilmer.
The additional $1.2 million was acquired by the Company as it borrowed
additional funds from the FHLB. The level of borrowing from the FHLB determines
the amount of FHLB stock that the Company must hold.
At June 30, 2000, the investment securities held-to-maturity totaled $28.0
million, compared to $30.5 million at September 30, 1999. The decline in the
portfolio was due to the company's decision to redirect proceeds from matured
securities in the portfolio to its lending operations.
The Company's mortgage-backed securities held-to-maturity portfolio totaled $4.7
million at June 30, 2000, compared to $5.8 million at September 30, 1999. The
decline in the portfolio was primarily due to principal payments received on the
portfolio during the period and the Company's decision to redirect such proceeds
to the loans receivable and mortgage-backed securities available-for-sale
portfolios.
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<PAGE>
Total deposits were $105.6 million at June 30, 2000, an $18.1 million increase
from the $87.5 million reported at September 30, 1999. The increase in deposits
was primarily due to the $22.9 million in deposits acquired from Gilmer, which
was partially offset by a $4.8 million decline in deposits prior to the Gilmer
acquisition. The decline in deposits was primarily the result of the Company's
decision to not pay the highest rates in the market for certificate of deposit
accounts. As a result, balances in certificate of deposit accounts declined
during the nine months ended June 30, 2000.
The Company reported $76.3 million in advances from the FHLB at June 30, 2000,
an increase of $31.3 million from the $45.1 million reported at September 30,
1999. Approximately $8.1 million of the increase was acquired from Gilmer. The
difference was the result of additional borrowings from the FHLB to fund
security purchases and loans.
Stockholder's equity totaled $15.9 million at June 30, 2000, a decrease of $2.5
million from the $18.4 million reported at September 30, 1999. The decrease was
primarily attributable to a $1.9 million increase in treasury stock, the payment
of cash dividends of $180,953, and a $771,000 increase in unrealized losses on
available-for-sale securities. The decrease was partially offset by net income
of $234,000 reported for the nine months ended June 30, 2000 and a $87,000
decrease in deferred compensation.
At June 30, 2000, the Company reported a book value per share of $13.68 based on
1,162,320 net outstanding shares. During the nine months ended June 30, 2000,
the Company repurchased 132,100 shares of treasury stock at an average price of
$14.25 per share. The result was an increase in the number of shares held as
treasury stock to 722,172 at an average cost of $12.28 per share.
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 JUNE 30, 2000
AND JUNE 30, 1999
General. Net income for the three months ended June 30, 2000 was $87,460 or $.08
per share, an increase of $38,600 from the $48,850 or $.04 per share reported
for the three months ended June 30, 1999. The increase in net income was
attributable to a $27,900 increase in net interest income after provision for
loan losses and a $27,400 decrease in total non-interest expense. The increase
in net interest income and the decrease in noninterest expense was partially
offset by a $3,000 decrease in net interest income and a $13,600 increase in
income tax expense.
Net Interest Income. For the quarter ended June 30, 2000, net interest income
before provision for loan losses totaled $838,000, an increase of $31,900 from
the $806,000 reported for the quarter ended June 30, 1999. On an annualized
basis, the $838,000 in net interest income was approximately 2.16% of average
interest earning assets and 2.09% of average total assets. For the quarter ended
June 30, 1999, the $806,000 in net interest income was approximately 2.44% of
average interest earning assets and 2.34% of average total assets. Average
interest earning assets were approximately $155.6 million for the quarter ended
June 30, 2000, compared to $132.1 million for the quarter ended June 30, 1999.
The increase in net interest income was primarily due to an increase in interest
earning assets to $157.9 million at June 30, 1999 from $149.1 million at
September 30, 1999. The yield on the Company's average interest-earning assets
was approximately 7.12% for the quarter ended June 30, 2000. The increase was
partially due to the Company's decision to begin offering consumer and
commercial loans and the increase in volume of such loans. In addition, the
overall rise in interest rates has helped increase the yield on interest
earnings assets.
17
<PAGE>
Total interest income was $2.8 million for the quarter ended June 30, 2000, an
increase of $479,000 from the $2.3 million reported for the same quarter in
1999. Interest income on loans-receivable totaled $1.4 million or 7.48% of
average loans receivable balances outstanding for the quarter ended June 30,
2000. For the quarter ended June 30, 1999, interest income on loans-receivable
was approximately 7.68% of average loans receivable balances.
For the quarter ended June 30, 2000, the $1.0 million in interest expense on
deposits was, on an annualized basis, approximately 4.96% of average interest
costing deposits. On an annualized basis, the $2.0 million in total interest
expense, reported for the quarter ended June 30, 2000, was approximately 5.40%
of average interest costing liabilities outstanding for the quarter. The
Company's dependence upon wholesale sources to fund loans and securities has had
the effect of increasing total interest expense.
Interest income from mortgage-backed securities available-for sale totaled
$640,000 for the three months ended June 30, 2000, compared to $416,000 for the
three months ended June 30, 1999. The increase in interest income is a direct
result of the increase in the average balance outstanding to $36.7 million at
June 30, 2000. 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 7.11% at June 30, 2000. [See "Financial Condition"]
Interest income from investment securities available-for-sale totaled $206,000
for the three months ended June 30, 2000, compared to $4,000 for the three
months ended June 30, 1999. The increase was attributable to additional
purchases of corporate debt securities by the Company in an effort to increase
the yield on the portfolio
Interest income from the investment securities held-to-maturity portfolio
totaled $447,000 for the three months ended June 30, 2000, compared to $565,000
for the same quarter in 1999. The decrease was primarily the result of a
decrease in the average balance outstanding in the portfolio and a decline in
the yield on the portfolio as higher yielding securities matured and was
replaced with lower yields.
Interest income from the mortgage-backed securities held-to-maturity portfolio
totaled $89,000 for the three months ended June 30, 2000, compared to $115,000
for the same period in 1999. Continued cash flow from prepayments on the
adjustable rate securities in the portfolio was redirected into the Company's
lending operations or to replace matured or called investment securities. The
result was a decline in interest income from the portfolio.
Interest paid to depositors totaled $1.0 million for the three months ended June
30, 2000, down $19,000 from the $1.1 million for the three months ended June 30,
1999. A decline in the average balance on deposits accounted for the decrease in
interest expense, despite an overall increase in the average cost of funds as
interest rates increased.
Interest on FHLB advances was $941,000 for the three months ended June 30, 2000,
compared to $475,000 for the same period in 1999. The increase was a direct
result of the continued increase in total FHLB advances in the Company's program
to match fund 15 year loans and securities with advances and to borrow funds for
consumer and commercial loan funding.
Provision For Loan Losses. The Company made provision for loan losses of $4,000
during the quarter ended June 30, 2000 and none for the quarter ended June 30,
1999. [See - "Asset Quality"]
Noninterest Income. Noninterest income totaled $77,000 for the three months
ended June 30, 2000, compared to $80,000 for the same period in 1999, a $3,000
decrease.
The decrease in noninterest income was primarily the result of a decline in
gains on sales of interest earning assets of $14,000 as fewer loans were sold
into the secondary market and a $7,000 decline in loan servicing fees as the
yield on servicing such loans decreased. The declines was partially offset by a
$23,000 increase in other noninterest income. Such increase was primarily due to
additional fee income generated from the Company's introduction of "free
checking" and "checking with overdraft privilege" products in 2000.
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<PAGE>
Noninterest Expenses. Noninterest expenses totaled $773.000 for the three months
ended June 30, 2000, compared to $800,000 for the three months ended June 30,
1999.
The decrease in noninterest expense was primarily the result of a $69,000
decrease in occupancy and equipment expense from $196,000 for the three months
ended June 30, 1999 to $126,000 for the three months ended June 30, 2000.
Initial expenses associated with the opening of the new full-service office
opened for business in April 1999, accounted for the extra expense in 1999. The
decrease was offset by a $32,000 increase in SAIF insurance premiums and a
$21,000 increase in other noninterest expenses.
Provision For Income Taxes. The Company incurred federal income tax expense of
$51,000 or 36.7% of pre-tax income for the three months ended June 30, 2000,
compared to $37,000 or 43.1% of pre-tax income for the three months ended June
30, 1999.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2000
AND JUNE 30, 1999
General. For the nine months ended June 30, 2000, the Company reported net
income of $234,000 or $.21 per common share and $.20 per common share - assuming
dilution, compared to $256,000 or $.19 per common share and $.19 per common
share - assuming dilution for the nine months ended June 30, 1999. The decrease
in net income was attributable to an $89,000 decrease in noninterest income and
a $44,000 increase in noninterest operating expenses, which were partially
offset by a $90,000 increase in net interest income after provisions for loan
losses and a $21,000 decrease in income tax expense.
Net Interest Income. For the nine months ended June 30, 2000, net interest
income after provisions for loan losses totaled $2.5 million, an increase of
$90,000 from the $2.4 million reported for the nine months ended June 30, 1999.
On an annualized basis, the $2.5 million in net interest income after provisions
for loan losses for the current period was approximately 2.18% of average
interest earning assets and 2.12% of average total assets. Average interest
earning assets were approximately $153.5 million for the nine months ended June
30, 2000.
Total interest income was $8.1 million or 7.05% of average interest earning
assets for the nine months ended June 30, 2000. The increase in total interest
income, from $6.6 million for the nine months ended June 30, 1999 to $8.1
million for the nine months ended June 30, 2000, was primarily attributable to
an increase in average outstanding balances of interest earning assets. Rising
interest rates and an increase in commercial and consumer loans, at higher
yields, also contributed to the increase.
Interest income on loans receivable totaled $4.1 million for the nine months
ended June 30, 2000 an increase from the $3.6 million reported for the nine
months ended June 30, 1999. Average loans receivable balance increased to $71.5
million for the nine months ended June 30, 2000. For the nine months ended June
30, 2000, the $4.1 million in interest income on loans receivable was
approximately 7.58%.
Interest income from mortgage-backed securities available-for sale totaled $1.9
million for the nine months ended June 30, 2000, compared to $993,000 for the
nine months ended June 30, 1999. Interest income from this portfolio is part of
the Company's program to borrow funds from the FHLB and invest in
mortgage-related securities in an effort to achieve a positive margin on the
difference in the investment yield and the cost of the borrowings. The increase
in income was a result of an increase in the size of the program.
Interest income on investment securities held-to-maturity totaled $1.4 million
for the nine months ended June 30, 2000, compared to $1.5 million for the nine
months ended June 30, 1999. The decrease in interest income on the portfolio was
primarily the result of a decrease in the average yield on the portfolio as
maturing investments were replaced with lower yielding investments.
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<PAGE>
Interest income on mortgage-backed securities held-to-maturity was $270,000 for
the nine months ended June 30, 2000, compared to $432,000 for the nine months
ended June 30, 1999. The decline in interest income on the portfolio was
primarily the result of a decline in the average balance outstanding in the
portfolio to $5.2 million for the nine months ended June 30, 2000. The Company
redirected cash flow from the portfolio into its lending operations, its
investment securities available-for-sale portfolio, and its investment
securities held-to-maturity portfolio. The adjustable rate feature of the
underlying loans in the securities, the higher coupon rates on such loans, and
lower rates of interest on fixed interest mortgage loans have caused borrowers
on the underlying loans to seek out opportunities to refinance their mortgages.
The result has been an increase in the cash flow from the portfolio, which
resulted in the decline in the average balances in the portfolio.
Interest income on investment securities available-for-sale totaled $489,000 for
the nine months ended June 30, 2000, compared to $56,000 for the nine months
ended June 30, 2000. The increase was a direct result of the increase in the
average size of the portfolio to $6.2 million for the nine months ended June 30,
2000. The portfolio consists primarily of corporate debt securities.
Interest expense was $5.6 million for the nine months ended June 30, 2000, an
increase of $1.4 million from the $4.2 million reported for the nine month
period ended June 30, 1999. An increase in average interest costing liabilities,
including advances from the FHLB, to $142.0 million for the nine months ended
June 30, 2000 primarily accounted for the increase in interest expense. The $5.6
million in interest expense reported for the nine month period ended June 30,
2000 was approximately 5.26% of average interest costing liabilities.
Noninterest Income. Noninterest income was $195,000 for the nine months ended
June 30, 2000, compared to $284,000 for the nine months ended June 30, 1999. The
decrease was directly attributable to fewer gains on sales of interest earning
assets, and loan origination fees as mortgage lending activity decreased with
rising interest rates. Losses on sales on interest earning assets totaled
$31,000 for the nine month period ended June 30, 2000, compared to $128,000 for
the nine months ended June 30, 1999. Loan origination and commitment fees were
$33,000 for the nine months ended June 30, 2000, compared to $65,000 for the
nine months ended June 30, 1999. The declines in loan fee income and gains on
sales of loans were partially offset by a $46,000 increase in other noninterest
income. The increase was due to additional fee income from new checking account
products introduced by the Company in 2000.
Noninterest Expense. Noninterest expense was reported as $2.3 million for the
nine month period ended June 30, 2000, a $44,000 increase from the $2.3 million
reported for the nine months ended June 30, 1999.
The increase in noninterest expense was primarily the result of a $30,000
increase in compensation and benefits expense for the nine months ended June 30,
2000. The increase in compensation and benefits expense was the result of
additional compensation for additional staff employed at the Company's new
office location. 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 totaled $386,000 for the nine months ended June
30, 2000, compared to $311,000 for the nine months ended June 30, 1999. The
increase was attributable to additional expenses associated with the opening of
the new full-service office.
Provision For Income Taxes. The Company incurred federal income tax expense of
$141,000 or 37.7% of pre-tax income for the nine months ended June 30, 2000,
compared to $162,000 or 38.8% of pre-tax income for the nine months ended June
30, 1999.
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<PAGE>
ASSET QUALITY
At June 30, 2000, the Company's non-performing assets totaled $1.1 million or
.55% of total assets, compared to $768,000 or .50% of total assets at September
30, 1999.
Non-performing loans at June 30, 2000 equaled $1.0 million or 1.06% of loans
receivable, compared to $768,000 or 1.14% of loans receivable at September 30,
1999.
Classified assets totaled $2.5 million or 1.23% of total assets at June 30,
2000, compared to $1.1 million or .71% of total assets at September 30, 1999.
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.
The Company's allowance for loan losses totaled $1,099,200 at June 30, 2000,
compared to $270,039 at September 30, 1999. The allowance for loan losses as a
percentage of loans receivable equaled 1.14% at June 30, 2000 and .40% at
September 30, 1999.
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.
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 June 30, 2000,
the Association had outstanding commitments to extend credit on $4.4 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 $15.9 million at June 30, 2000, a decrease of
$2.5 million from the $18.4 million reported at September 30, 1999. The decrease
was the result of the $1.9 increase in treasury stock, a $771,358 increase in
unrealized losses on securities available for sale, and the $180,953 in cash
dividends paid. The decrease was offset by the $234,000 net income reported for
the three month period ended June 30, 2000, and a $87,287 decrease in deferred
compensation.
As of June 30, 2000, the Company's reported book value per share, using total
stockholders' equity of $15.9 million (net of the cost of unallocated ESOP and
RRP shares) and 1,162,320 outstanding shares of common stock (the total issued
shares including unallocated ESOP and RRP shares, less treasury shares), equaled
$13.68 per share.
Subsequent to the quarter ended June 30, 2000, the Company announced its
intention to pay a cash dividend of $.05 per share on August 23, 2000, to
stockholders of record at August 8, 2000.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), Congress imposed capital requirements for thrift institutions. At
June 30, 2000, the Association's actual and required capital amounts under each
of the requirements were as follows:
- Core Capital (Tangible capital plus certain intangible assets) was $13.5
million or 6.77% of total assets, exceeding the minimum requirement of 4.0% by
$5.5 million.
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<PAGE>
- Risk-based Capital (Core capital plus general loan and valuation allowances
less an adjustment for capitalized mortgage servicing rights) equaled $14.6
million or 11.41% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $4.4 million.
At June 30, 2000, the Association was considered a "well capitalized"
institution under the prompt corrective action requirements of the Federal
Deposit Insurance Corporation Improvement Act of 1991.
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.
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.
22
<PAGE>
EAST TEXAS FINANCIAL SERVICES, INC.
AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 2000
--------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material legal proceedings to which the Company or the
Association is a party or of which any of their property is subject. From
time-to-time, the Association is a party to various legal proceedings
incident to the conduct of its business.
Item 2. Changes In Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submissions Of Matters To A Vote Of Security Holders
----------------------------------------------------
None
Item 5. Other Information.
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed herewith:
Exhibit 11.0 - Computation of Earnings Per Share
Exhibit 27.0 - Financial Data Schedule
23
<PAGE>
(b) Reports on Form 8-K
During the quarter ended June 30, 2000, the Company filed a report on
Form 8-K on April 28, 2000, to report the issuance of a press release
dated April 28, 2000, announcing the Company's intention to pay, on
May 24, 2000, a cash dividend of $.05 per share for the quarter ended
March 31, 2000, to stockholders of record on May 9, 2000.
Durning the quarter ended June 30, 2000, the Company filed a report
on Form 8-K on April 28, 2000, to report the issuance of a press
release dated April 28, 2000, announcing the Company's earnings for
the quarter ending June 30, 2000.
During the quarter ended June 30, 2000, the Company filed a report on
Form 8-K on June 30, 2000 to report the issuance of a press release
dated June 30, 2000, announcing the completion of its acquisition of
Gilmer Financial Services, Inc.
24
<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: August 21, 2000 /s/ Gerald W. Free
--------------------------------
Vice Chairman, President and CEO
(Principal Executive Officer)
Date: August 21, 2000 /s/ Derrell W. Chapman
-----------------------
Vice President/COO/CFO
(Principal Financial and Accounting Officer)
25
