-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFQojhN41QnNpPdF448q9Na6Bed6eHc+qFKg77nR+6lN3hlHR/tDmDB20YU0Q8g3 9KfxdN6ujVo7h3bKUEuNiA== /in/edgar/work/20000913/0000914317-00-000625/0000914317-00-000625.txt : 20000922 0000914317-00-000625.hdr.sgml : 20000922 ACCESSION NUMBER: 0000914317-00-000625 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAST TEXAS FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000929646 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 752559089 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-24848 FILM NUMBER: 722363 BUSINESS ADDRESS: STREET 1: 1200 S BECKHAM AVE CITY: TYLER STATE: TX ZIP: 75701 BUSINESS PHONE: 9035931767 MAIL ADDRESS: STREET 1: 1200 SOUTH BECKHAM AVE CITY: TYLER STATE: TX ZIP: 75701 8-K/A 1 0001.txt AMENDMENT TO THE FORM 8-K 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) 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). 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 GILMER FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1999 AND 1998
1999 1998 ---------------- --------------- ASSETS 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 =========== ===========
See accompanying notes to consolidated financial statements. GILMER FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997 ------------- ------------- ------------- 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 =========== ============ ============
See accompanying notes to consolidated financial statements. GILMER FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Unvested Unvested Additional Shares Shares Common Paid-in Retained Held by Held by Treasury Stock Capital Earnings ESOP RRP Stock --------- ----------- ---------- ---------- --------- ---------- 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)
Accumulated Other Compre- Compre Total hensive hensive Stockholders' Income Income Equity -------- ----------- -------- 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
GILMER FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (CONTINUED)
Unvested Unvested Additional Shares Share Common Paid-in Retained Held by Held by Treasury Stock Capital Earnings ESOP RRP Stock --------- ----------- ---------- ---------- --------- ---------- 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) === ==== ====== =========== ========== ========= ======== ========
Accumulated Other Compre- Compre- Total hensive hensive Stockholders' Income Income Equity -------- ------------ --------- 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 ========= ===========
See accompanying notes to consolidated financial statements. GILMER FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997 ------------- ------------- ------------- 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 ========== ========== ==========
See accompanying notes to consolidated financial statements. 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. 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. 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.
June 30, ------------------------------------------- Cash paid during the year for: 1999 1998 1997 ------------ ------------- ------------- Interest $ 1,884,382 $ 2,003,994 $ 1,928,783 ============ ============ =========== Income taxes $ 10,000 $ 34,940 $ 160,081 ============ ============ ===========
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:
Available-for-sale --------------------------------------------------------------------------- June 30, 1999 --------------------------------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- ------------- ------------ 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 ========== ============= ============ ============ Available-for-sale --------------------------------------------------------------------------- June 30, 1998 --------------------------------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- ------------- ------------- Municipal bonds $ 735,000 $ 5,537 $ - $ 740,537 ----------- ------------- ------------- ----------- $ 735,000 $ 5,537 $ - $ 740,537 =========== ============= ============= ===========
GILMER FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999, 1998 AND 1997 CONTINUED NOTE 2 - INVESTMENT SECURITIES - CONTINUED
Held-to-maturity ------------------------------------------------------------------- June 30, 1998 ------------------------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------- -------------- -------------- ------------ American Housing $ 980 $ - $ 5 $ 975 -------------- -------------- -------------- ------------ $ 980 $ - $ 5 $ 975 ============== ============== ============== ============
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:
Available-for-sale --------------------------------------------------------- June 30, 1999 --------------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------- ------------- ----------- 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 =========== ======== =========== ===========
Available-for-Sale ------------------------------------------------------ June 30, 1998 Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ------- ---------- ---------- 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 ========== ======= ========== ==========
GILMER FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999, 1998 AND 1997 CONTINUED NOTE 3 - MORTGAGE-BACKED AND RELATED SECURITIES - CONTINUED
Held-to-maturity ------------------------------------------------------- June 30, 1998 ------------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ---------- ----------- ----------- 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 ========== ======= ========== ==========
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 =========== =========== 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 ========= ========= 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:
1999 1998 --------------------------- -------------------------------- Amount Percent Amount Percent ------ ------- ------ ------- 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 =========== ====== =========== ======
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. 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. 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. 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.
To Be Well Capitalized Under For Capital Prompt Corrective Actual: Adequacy Purposes: Action Provisions: -------------------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ---------- --------- ---------- --------- ---------- --------- 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%
GILMER FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999, 1998 AND 1997 CONTINUED NOTE 16 -REGULATORY MATTERS - CONTINUED
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%
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 -----------------------
1999 1998 ------------- ------------- 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 ========== ==========
CONDENSED STATEMENT OF INCOME -----------------------------
Year Ended Year Ended June 30, 1999 June 30, 1998 ------------- -------------- 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) ======== ==========
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. 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. 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. Gilmer Financial Services, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended March 31, 2000 CASH FLOWS FROM OPERATING ACTIVITIES 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
See accompanying notes to the unaudited condensed financial statements. 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. East Texas Financial Services, Inc. and Gilmer Financial Services, Inc. Pro Forma Combined Condensed Statement of Financial Condition (unaudited) March 31, 2000
East Texas Gilmer Financial Financial Services, Inc. Services, Inc. Adjustments Note Pro Forma Assets 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 =============== ============== ============== ==============
See accompanying notes to the unaudited pro forma combined condensed financial statements. East Texas Financial Services, Inc. and Gilmer Financial Services, Inc. Pro Forma Combined Condensed Statement of Income (Unaudited) Six Months Ended March 31, 2000
East Texas Gilmer Financial Financial Services, Inc. Services, Inc. Adjustments Note Pro Forma Interest income 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)
See accompanying notes to the unaudited pro forma combined condensed financial statements. East Texas Financial Services, Inc. and Gilmer Financial Services, Inc. Pro Forma Combined Condensed Statement of Income (Unaudited) Year Ended September 30, 1999
East Texas Gilmer Financial Financial Services, Inc. Services, Inc. Adjustments Note Pro Forma Interest income 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
See accompanying notes to the unaudited pro forma combined condensed financial statements. 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. (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. 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 EX-2.2 2 0002.txt AMENDMENT TO AGREEMENT AND PLAN OF MERGER EXHIBIT 2.2 AMENDMENT TO AGREEMENT AND PLAN OF MERGER This Amendment to Agreement and Plan of Merger (this "Amendment") is entered into by and between East Texas Financial Services, Inc. ("Buyer") and Gilmer Financial Services, Inc. ("Seller"). WHEREAS, Buyer and Seller have entered into that certain Agreement and Plan of Merger, dated as of November 15, 1999 (the "Agreement"), and WHEREAS, Buyer and Seller wish to amend and waive certain provisions of the Agreement as set forth below, NOW, THEREFORE, in consideration of the premises and the agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I AMENDMENTS TO THE AGREEMENT 1.0 Treatment of Capital Stock Paragraph 2.3(d), on page 8 of the Agreement is hereby amended and revised to read in its entirety as follows: (d) each share of Seller Common Stock (other than Dissenting Shares), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into and become the right to receive $26.10 in cash without interest (the "Merger Consideration"). 1.1 Options Paragraph 2.5, on pages 8 and 9 of the Agreement is hereby amended and revised to read in its entirety as follows: Each holder of an option to purchase Seller Common Stock outstanding on the date hereof and remaining outstanding at the Effective Time shall receive from Buyer, as of the Effective Time, whether or not the option is then exercisable, a cash payment in an amount equal to the product of (i) the number of shares of Seller Common Stock subject to such option at the Effective Time and (ii) the excess, if any, of $26.10 over the exercise price per share of such option, net of any cash which must be withheld under federal and state income and employment tax requirements. Such cash payments shall be in consideration for, and shall result in, the settlement and cancellation of all such options. As a condition to the receipt of a cash payment in cancellation of options, each option holder shall execute a cancellation agreement in substantially the form attached hereto as Exhibit D. 1.2 Indemnification; Insurance Paragraph 5.9(a) and (b), on pages 33 and 34 of the Agreement are hereby amended and revised to read in their entirety as follows: 5.9(a) INTENTIONALLY LEFT BLANK. (b) INTENTIONALLY LEFT BLANK. 1.3 Employment Agreement Paragraph 5.11(b), on page 35 of the Agreement is hereby amended and revised to read in its entirety as follows: Seller Bank shall have entered into a Departure Agreement in the form of Exhibit F attached hereto and hereby made a part hereof with Gary P. Cooper, who shall have cancelled and terminated his current employment agreement with Seller Bank for a payment of $75,000, which amount has been heretofore taken into account in the determination and calculation of the Merger Consideration. At the Effective Time and subject to Seller's shareholder approval as a part of the Merger, Gary P. Cooper shall be paid such cancellation amount and, if Mr. Cooper so desires, it shall also assign to Mr. Cooper the life insurance/annuity policy it holds on his life for a price equal to the greater of the policy's then-current book value to Seller Bank or the cash value of such policy. 1.4 Exhibits Exhibit E shall be deleted from the Agreement and shall not be replaced. Exhibit D shall be amended so that each reference in the Cancellation Agreement to "$29.50" shall be replaced with "$26.10." Exhibit F entitled "Departure Agreement" shall be included as an Exhibit to the Agreement in the form attached to this Amendment and made a part hereof for all purposes. 1.5 Disclosure Schedule The Disclosure Schedule referred to in the Agreement is supplemented as of the date hereof. The supplemented Disclosure Schedule is attached to this Amendment and made a part hereof for all purposes. 1.6 Waiver of Certain Events under the Operating Covenants Seller and Buyer acknowledge that from the date of the Agreement to the date hereof, there have been certain events that have occurred which are contrary to the operating covenants set forth in Section 5.6 of the Agreement. These events have been disclosed in the attached supplement to the Disclosure Schedules. Buyer agrees to waive any right it may have under the Agreement to terminate such Agreement based on the above described effects so long as the Seller is operated in the ordinary course, in accordance with Section 5.6 of the Agreement during the period from the date of the Agreement, as amended and continuing until the Effective Date, except as provided in Section 5.6(a) of the Agreement; and provided that such waiver shall not affect any right of Buyer to terminate such Agreement, as amended, based on the failure of Seller to comply with any covenants set forth in the Agreement, as amended during the period from the date of the Agreement, as amended, and continuing until the Effective Date. 1.7 Waiver of Condition Buyer and Seller acknowledge that Seller has suffered effects to its financial condition, results of operations, business, management, loan portfolio, regulatory relationships with the Office of Thrift Supervision, ability to consummate the corporate merger and related transactions and other matters as described in the supplement to the Disclosure Schedules that may constitute a Material Adverse Effect of the Seller, but that the Seller believes that the effects identified by the Buyer may not constitute a Material Adverse Effect of the Seller. Buyer agrees to waive any right it may have under the Agreement to terminate such Agreement based on the above-described effects so long as the Seller is operated in the ordinary course and in accordance with the terms and conditions set forth in the Agreement, and provided that such waiver shall not affect any right of Buyer to terminate such Agreement as amended based on the failure of Seller to comply with any condition to its performance set forth therein, or any of its representations, warranties or other obligations under the Agreement. 1.8 Reference to and Effect on the Merger Agreement Upon execution of this Amendment, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in any document related thereto, or executed in connection herewith, shall mean and be reference to the Agreement as amended hereby, and the Agreement and this Amendment shall be read together and construed as one single instrument. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed by the parties. Unless otherwise defined in this Amendment, all capitalized terms used herein shall have the meanings ascribed to them in the Agreement. 1.9 Authority Relative to the Amendment The execution, delivery and performance of the Agreement as amended by this Amendment and the consummation of the transactions contemplated thereby and hereby have been duly and effectively authorized by all necessary corporate action of the parties, except that the Seller must receive the approval of its stockholders. ARTICLE II EFFECTIVE DATE 2.0 Effective Date of This Amendment This Amendment shall be effective as of April 25, 2000. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed in counterparts by its duly authorized officers this 25 day of April, 2000. GILMER FINANCIAL SERVICES, INC. Attest: _________________________ By: _____________________________________ ________________, Secretary Gary P. Cooper, President EAST TEXAS FINANCIAL SERVICES, INC. Attest: ___________________________ By: ____________________________________ __________________, Secretary Gerald W. Free, President EXHIBIT F DEPARTURE AGREEMENT This Departure Agreement ("Agreement") is made and entered into as of the ____ day of ___________, 2000 (the "Effective Date") by and among Gilmer Savings Bank, FSB (the "Bank") and Gary P. Cooper ("Cooper"). R E C I T A L S WHEREAS, pursuant to that certain Employment Agreement among the Bank and Cooper dated as of September 14, 1994 (the "Employment Agreement"), Cooper is employed by the Bank; and WHEREAS, Cooper is willing to voluntarily resign his employment with the Bank, as well as his positions as an officer, director and employee of the Bank, its subsidiaries and affiliates including, without limitation, Gilmer Financial Services, Inc. (collectively, the "Other Entities"), and the Bank and the Other Entities desire to accept Cooper's resignation as a director, officer and employee in return for the consideration provided for in this Agreement; WHEREAS, Gilmer Financial Services, Inc. is a party to an Agreement and Plan of Merger dated November 15, 1999 with East Texas Financial Services, Inc. (the "Merger"); and WHEREAS, Cooper and the Bank desire to set forth their agreements with respect to Cooper's departure from the Bank. A G R E E M E N T S NOW, THEREFORE, in consideration of the Recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto agree as follows: 1. The Bank waives its right to receive ninety (90) days' prior written notice of Cooper's resignation pursuant to Section 6(b) of the Employment Agreement. 2. Effective on the closing of the Merger: (i) the Employment Agreement shall be terminated, (ii) Cooper shall resign his positions as an officer, director and employee of the Bank and each of the Other Entities, and execute and deliver to the Bank a resignation letter in substantially the same form as the letter attached hereto as Exhibit A and (iii) Cooper shall receive, subject to --------- shareholder approval, from the Merger Consideration due the shareholders of Gilmer Financial Services, Inc. the sum of Seventy-Five Thousand and No/100 Dollars ($75,000.00) as payment in full. Effective on July 1, 2000, unless the Merger Agreement has been extended in writing by Gilmer Financial Services, Inc.: (i) the Employment Agreement shall be terminated, (ii) Cooper shall resign his positions as an officer, director and employee of the Bank and each of the Other Entities, and execute and delivery to the Bank a resignation letter in substantially the same form as the letter attached hereto as Exhibit A and (iii) --------- the Bank shall not be responsible to pay any amount to Cooper. The alternative effective times of the Employment Agreement termination and Cooper's resignation will be referred to herein as the "Effective Date." Nothing contained herein limits the rights of the Bank to terminate Cooper pursuant to the terms of the Employment Agreement, including but not limited to the right of the Bank to terminate Cooper pursuant to Section 6 of the Agreement or as otherwise allowed by law. Until the termination of the Employment Agreement as provided herein, Cooper will continue to provide the services set forth therein, except that he will not engage in any lending activities on behalf of the Bank. 3. Except for the right to receive his pro rata consideration payable to stockholders pursuant to Section 2.3(a), his respective right to payment for his unvested rights under the Restricted Stock Plan pursuant to Section 2.3(e), and his rights to the proceeds of the liquidation of the Gilmer Financial Services, Inc. Employee Stock Ownership Plan pursuant to Section 5.11(d) of that certain Agreement and Plan of Merger between East Texas Financial Services, Inc. ("East Texas") and Gilmer Financial Services, Inc., dated as of November 15, 1999, as the same may be amended from time to time (the "Merger Agreement"), Cooper waives his individual rights, if any, pursuant to the Merger Agreement, and acknowledges and agrees that he shall have no right to, and shall not, receive an employment agreement or stock options from, or have any right to be employed by, First Federal Savings and Loan Association of Tyler or any other entity affiliated with the parties to the Merger Agreement. 4. Cooper hereby RELEASES, ACQUITS and DISCHARGES the Bank, the Other Entities, and East Texas and its affiliates (together with their officers, directors, agents, servants, employees, attorneys and all persons, natural or corporate, in privity with any of them, from all obligations and liabilities relating to Cooper's employment by, and service as an officer and director on behalf of, the Bank, the Other Entities, East Texas and its affiliates, and all matters, causes of action, accountings, suits, controversies, agreements, termination payments, insurance benefits, change in control payments, damages, claims and demands, whether heretofore or hereafter accruing, whether now known or not known to the parties prior to and including the date hereof, in any way directly or indirectly arising out of or in connection with such Cooper's employment by, and service by and on behalf of, the Bank, the Other Entities, East Texas and its affiliates, and any documents, transactions or dealings between the parties relating whereto, it being the intent of Cooper to fully and completely discharge the Bank, the Other Entities, East Texas and its affiliates (together with their officers, directors, agents, servants, employees, attorneys and all persons, natural or corporate, in privity with any of them) from any and all liabilities and obligations related to or arising from all prior relationships, instruments and courses of dealing (except as expressly set forth above in Section 3 with regard to the Merger Agreement) between Cooper and the Bank, or the Other Entities, or East Texas or its affiliates, respectively, except that such parties shall continue to be bound by the obligations described in this Agreement. 5. The undersigned represent and warrant that they are fully authorized and empowered to execute this Agreement and that neither they, nor the entities they represent, if any, are subject to any limitation or disability created by law or otherwise which would in any manner or to any extent prevent or restrict the undersigned (as a representative or as a principal) from entering into and fully performing their obligations under this Agreement. 6. Cooper and the Bank each represent and warrant to each other that they have not transferred to any person or entity any claim or cause of action or any part thereof relating to Cooper's employment and service by or on behalf of the Bank and the Other Entities or any other matters covered by this Agreement, and that each is the 100% owner of all claims and causes of action it may have or has ever had against the other (including, in the Bank's case, the Other Entities). 7. All materials related directly or indirectly to Cooper's employment with the Bank shall be returned by Cooper to the Bank on the Effective Date. 8. Cooper hereby agrees not to disclose or otherwise communicate to any third party (including any employee of the Bank) the existence or provisions of this Agreement, and Cooper agrees not to publish or otherwise communicate any deleterious remarks concerning the Bank, the Other Entities, East Texas or their respective officers, employees, directors or agents or to do anything which would directly or indirectly damage the business, business prospects, Merger or reputation of the Bank or the Other Entities, except as otherwise required by statute or regulation. The Bank agrees to use its best efforts to see that the directors of the Bank do not publish or otherwise communicate any deleterious remarks concerning Cooper's service at the Bank or do anything directly or indirectly which would damage his professional reputation, except as otherwise required by statute or regulation. 9. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. 10. The construction and validity of this Agreement shall be governed by the laws of the State of Texas. All obligations hereunder are performable in Upshur County, Texas. 11. Any controversy or claim arising out of this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof. The arbitration agreement set forth herein shall not limit a court from granting a temporary restraining order or preliminary injunction in order to preserve the status quo of the parties pending arbitration. Further, the arbitrator(s) shall have power to enter such orders by way of interim award, and they shall be enforceable in court. The place of such arbitration shall be in Upshur County, Texas. 12. In any case in which one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. This Agreement and the documents referenced herein contains the entire agreement of the parties hereto. There are no other agreements, oral or written, among the parties concerning Cooper's employment by, or service as an officer or director on behalf of, the Bank or the Other Entities, and this Agreement can be amended only by written agreement signed by the parties hereto and by reference made a part hereof. 14. The Other Entities, East Texas and its affiliates are each intended to be third party beneficiaries of this Agreement and shall have the right to enforce the provisions hereof in any court of competent jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, each of which shall be deemed an original. - ----------------------------------------- Gary Cooper, Individually GILMER SAVINGS BANK, FSB By:______________________________________ Name: ___________________________________ Title:_____________________________________ EXHIBIT A Copy of Resignation Letter GARY P. COOPER 1902 Greenway Gilmer, Texas 75644 ____________________ VIA HAND DELIVERY _________________, 2000 Board of Directors Gilmer Savings Bank, FSB 218 West Cass Street Gilmer, Texas 75644 Board of Directors Gilmer Financial Services, Inc. 218 West Cass Street Gilmer, Texas 75644 Gentlemen: Please be advised that I resign all of my positions with Gilmer Savings Bank, FSB, and Gilmer Financial Services, Inc., including my positions, if any, as a director, officer and employee of such entities. I additionally resign all of my positions, if any, with all subsidiaries, Employee Stock Ownership Plans and affiliates of Gilmer Savings Bank, FSB, and Gilmer Financial Services, Inc. The foregoing resignations are effective as of the above date. Very truly yours, EX-23 3 0003.txt CONSENT OF ACCOUNTANT EXHIBIT 23 Board of Directors East Texas Financial Services, Inc. 1200 S. Beckham Tyler, Texas 75701 Members of the Board: We consent to the incorporation by reference in the Registration Statement on Form S-8 of East Texas Financial Services, Inc. (the "Company") of our report on the financial statements included in the Company's Current Report on Form 8-K/A for the report dated June 30, 2000, filed pursuant to the Securities Exchange Act of 1934, as amended. /s/ Henry and Peters, P.C. -------------------------- Henry and Peters, P.C. Tyler, Texas September 12, 2000 EX-99 4 0004.txt PRESS RELEASE Exhibit 99 EAST TEXAS FINANCIAL SERVICES, INC. 1200 South Beckham P. O. Box 6910 Tyler, TX 75711-6910 903-593-1767 Fax 903-593-1094 NEWS RELEASE For verification, contact: Gerald W. Free, Vice Chairman/President/CEO Derrell W. Chapman, Vice President/COO/CFO Telephone: (903) 593-1767 Fax: (903) 593-1094 For immediate release: July 3, 2000 - -------------------------------------------------------------------------------- EAST TEXAS FINANCIAL SERVICES, INC. AND GILMER FINANCIAL SERVICES, INC. COMPLETE MERGER Tyler, Texas, June 30, 2000, - - - East Texas Financial Services, Inc. ("East Texas") (OTC Bulletin Board: ETFS.OB), the holding company for First Federal Savings and Loan Association of Tyler ("First Federal") today announced the completion of the merger of Gilmer Financial Services, Inc. ("Gilmer") into East Texas and of the subsequent merger of Gilmer Savings Bank, FSB into First Federal. The transaction is valued at approximately $5.3 million. Gilmer shareholders will receive $26.10 in cash for each share of Gilmer common stock. "This acquisition enables First Federal to expand in the Gilmer market and it compliments our existing presence," noted Gerald Free, President and CEO of East Texas. "We are committed to providing the highest quality service to our new Gilmer customers." East Texas also announced that Jerry Richardson will be named a Vice President of First Federal and the manager of its Gilmer division. Mr. Richardson is a native of Gilmer and brings to his position 22 years of banking experience in the Gilmer area. In addition to its new Gilmer office, First Federal provides banking services from three full service offices and two loan origination offices in Smith County, Texas. -----END PRIVACY-ENHANCED MESSAGE-----