-----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, I3PEAK8Cr4cJFbV8fJZkfNXY0lI8dEsf6HzIs6MCsCahETVAWksMxMIQuv+CpnLj 6yvduU+EjltpeFFtlSh4Tg== 0000914317-02-000097.txt : 20020414 0000914317-02-000097.hdr.sgml : 20020414 ACCESSION NUMBER: 0000914317-02-000097 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAST TEXAS FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000929646 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 752559089 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24848 FILM NUMBER: 02548274 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 10QSB 1 form10qsb-42900_21202.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission file number 0-24848 East Texas Financial Services, Inc. (Exact name of registrant as specified in its charter) Delaware 75-2559089 (State or other jurisdiction of (I.R.S. employer incorporation or organization identification number) 1200 South Beckham, Tyler, Texas 75701 (Address of principal executive offices) (Zip code) (903) 593-1767 (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares of the registrant's common stock ($.01 par value) outstanding as of December 31, 2001, was 1,162,320. EAST TEXAS FINANCIAL SERVICES, INC. AND SUBSIDIARY FORM 10-QSB December 31, 2001 - --------------------------------------------------------------------------------
INDEX Page No. Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition, December 31, 2001 (Unaudited) and September 30, 2001.............................................. 4 Consolidated Statements of Income, (Unaudited) three months ended December 31, 2001, and December 31, 2000........................................ 5 Consolidated Statement of Changes in Stockholders' Equity, (Unaudited) three months ended December 31, 2001............................................ 6 Consolidated Statements of Cash Flows, (Unaudited) three months ended December 31, 2001, and December 31, 2000........................................ 7 Notes to (Unaudited) Consolidated Financial Statements, December 31, 2001....... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 15 Part II - Other Information Item 1. Legal Proceedings.......................................................... 22 Item 2. Changes In Securities...................................................... 22 Item 3. Defaults Upon Senior Securities............................................ 22 Item 4. Submission of Matters To a Vote of Security Holders........................ 22 Item 5. Other Information.......................................................... 22 Item 6. Exhibits and Reports on Form 8-K........................................... 23 Signature................................................................................ 24
Page 2 of 24 EAST TEXAS FINANCIAL SERVICES, INC. AND SUBSIDIARY FORM 10-QSB December 31, 2001 - -------------------------------------------------------------------------------- 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. On June 30, 2000, the Company acquired by merger 100% of the common stock of Gilmer Financial Services, Inc. ("Gilmer" or "the Gilmer transaction") and its wholly owned subsidiary, Gilmer Savings Bank, F.S.B. The acquisition was accounted for as a purchase transaction. Gilmer was merged into the Company's wholly owned subsidiary, First Federal Savings and Loan Association. 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 financial statements presented in this Form 10-QSB reflect the consolidated financial condition and results of operations of the Company and its wholly owned subsidiary, First Federal Savings and Loan Association of Tyler. Page 3 of 24
EAST TEXAS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2001 September 30, 2001 ----------------- ------------------ (Unaudited) ASSETS Cash and due from banks $ 1,761,340 $ 2,013,647 Interest-bearing deposits with banks 2,348,318 2,824,364 Interest-earning time deposits with financial institutions 600,000 600,000 Federal funds sold 2,497,781 86,242 Securities available-for-sale 556,510 6,843,583 Securities held-to-maturity (fair value of $9,986,229 at December 31, 2001 and $8,075,494 at September 30, 2001) 9,755,228 7,765,537 Mortgage-backed securities available-for-sale 21,744,717 27,352,449 Mortgage-backed securities held-to-maturity (fair value of $35,172,139 at December 31, 2001 and $36,585,979 at September 30, 2001) 34,831,990 35,879,076 Loans receivable, net of allowance for credit losses of $721,390 at December 31, 2001 and $769,225 at September 30, 2001 122,680,933 115,847,396 Accrued interest receivable 1,212,026 1,285,582 Federal Home Loan Bank stock, at cost 4,356,500 4,323,900 Premises and equipment 2,628,265 2,656,988 Foreclosed assets, net 333,241 259,498 Goodwill, net 2,170,381 2,170,381 Mortgage servicing rights 143,981 174,128 Other assets 1,173,715 1,698,338 ------------- ------------- Total Assets $ 208,794,926 $ 211,781,109 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Non-interest-bearing $ 2,469,205 $ 3,319,015 Interest-bearing 105,442,481 112,292,026 ------------- ------------- Total deposits 107,911,686 115,611,041 FHLB advances 77,555,312 74,468,248 Advances from borrowers for taxes and insurance 39,171 1,267,900 Federal income taxes Current 312,558 0 Deferred 550,937 670,706 Accrued expenses and other liabilities 4,148,825 1,849,333 ------------- ------------- Total liabilities 190,518,489 193,867,228 ------------- ------------- 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 12,473,302 12,473,302 Unearned employee stock ownership plan shares (255,597) (255,597) Retained earnings (substantially restricted) 14,794,407 14,199,357 Accumulated other comprehensive income 112,762 345,256 Treasury stock, 722,172 shares at cost (8,867,282) (8,867,282) ------------- ------------- Total stockholder's equity 18,276,437 17,913,881 ------------- ------------- Total liabilities and stockholders' equity $ 208,794,926 $ 211,781,109 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 23
EAST TEXAS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, (Unaudited) 2001 2000 ----------- ----------- INTEREST INCOME Loans receivable: First Mortgage $ 1,560,174 $ 1,656,335 Consumer and other loans 782,940 438,518 Securities available-for-sale: Investment securities 83,827 198,352 Mortgage-backed securities 268,562 814,520 Securities held-to-maturity: Investment securities 155,079 394,790 Mortgage-backed securities 526,963 83,920 Deposits with banks 16,811 33,259 ----------- ----------- Total interest income 3,394,356 3,619,694 ----------- ----------- INTEREST EXPENSE Deposits 1,214,415 1,441,400 FHLB advances 683,010 1,268,842 Interest expense other bank borrowings 0 0 ----------- ----------- Total interest expense 1,897,425 2,710,242 ----------- ----------- Net interest income before provision for loan losses 1,496,931 909,452 Provision for loan losses 9,759 16,234 ----------- ----------- Net interest income after provision for loan losses 1,487,172 893,218 ----------- ----------- NONINTEREST INCOME Gain (loss) on sale of interest-earning assets 408,534 10,469 Loan origination and commitment fees 49,489 19,899 Loan servicing fees (36,121) 10,194 Other 116,468 88,883 ----------- ----------- Total noninterest income 538,370 129,445 ----------- ----------- NONINTEREST EXPENSE Compensation and benefits 636,771 563,474 Occupancy and equipment 107,239 115,339 SAIF deposit insurance premium 5,194 5,324 Foreclosed assets, net 14,996 2,986 Goodwill 0 39,212 Other 257,107 217,721 ----------- ----------- Total noninterest expense 1,021,307 944,056 ----------- ----------- Income (loss) before provision for income taxes 1,004,235 78,607 Income tax expense (benefit) 351,069 29,555 ----------- ----------- NET INCOME (LOSS) $ 653,166 $ 49,052 =========== =========== Earnings per common share and earnings per common share - assuming dilution $ .58 $ . 04
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 24
EAST TEXAS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED December 31, 2001 Common Stock and Unrealized Additional Paid in Unallocated Gain(loss) on Treasury Capital ESOP Shares AFS Securities Retained Earnings Stock ------------------ ------------- -------------- ----------------- -------------- Balance September 30, 2001 $ 12,492,147 $ (255,597) $ 345,256 $ 14,199,357 $ (8,867,282) Comprehensive income: Net Income 653,166 Unrealized holding gains (232,494) Comprehensive income Deferred compensation amortization Payment of cash dividends (58,116) Balance December 31, 2001 $ 12,492,147 $ (255,597) $ 112,762 $ 14,794,407 $ (8,867,282) ============= ========== ========= ============ ============ THREE MONTHS ENDED December 31, 2001 Comprehensive Total Stockholders' Income Equity ------------- ------------------- Balance September 30, 2001 $ $ 17,913,881 Comprehensive income: Net Income 653,166 Unrealized holding gains (232,494) --------- Comprehensive income $ 420,672 420,672 ========= Deferred compensation amortization Payment of cash dividends (58,116) Balance December 31, 2001 $ 18,276,437 ============
The accompanying notes are an integral part of the consolidated financial statements. Page 6 of 24
EAST TEXAS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the Three Months Ended December 31, 2001 2000 ------------ ----------- Cash flows from operating activities: Net income $ 653,164 $ 49,052 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred loan origination fees (681) (1,486) Amortization of premiums and discounts on investment securities, mortgage-backed securities, and loans (13,216) 277 Amortization of goodwill 0 39,212 Compensation charge related to release of ESOP shares 0 4,975 Depreciation 37,207 47,707 Provision for loan losses 9,759 16,234 Stock dividends on FHLB stock (32,600) (67,500) Amortization of mortgage servicing rights 72,967 27,913 Net (gain) loss on sale of: Loans held for sale (40,209) (326) Foreclosed real estate (309) 188 Other repossessed property (6,218) (2,300) Interest earning assets (325,503) 0 Proceeds from loan sales 4,264,310 716,826 Originations of loans held for sale (4,224,101) (716,500) (Increase) decrease in Accrued interest receivable 73,556 (74,813) Other assets 524,624 (370,666) Increase (decrease) in: Federal income tax payable 312,558 29,555 Accrued expenses and other liabilities 2,295,948 1,368,253 ------------ ----------- Net cash provided (used) by operating activities 3,601,256 1,066,601 ------------ -----------
The accompanying notes are an integral part of the financial statements. Page 7 of 24
EAST TEXAS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the Three Months End December 31, 2001 2000 ------------- ------------- Cash flows from investing activities Net (increase) decrease in interest-earning time deposits 0 98,000 Net (increase) decrease in fed funds sold (2,411,539) (2,031,392) Proceeds from sale of corporate debt available-for-sale 6,308,899 0 Purchase of mortgage-backed securities held-to-maturity (3,291,949) 0 Proceeds from maturities of securities held-to-maturity (2,000,000) 1,000,000 Purchases of mortgage-backed securities available-for-sale (1,000,000) 0 Principal payments on mortgage-backed securities available-for-sale 6,562,852 1,119,535 Principal payments on mortgage-backed securities held-to-maturity 4,358,852 356,143 Proceeds from redemption of FHLB stock 0 1,900 Net increase in loans (7,009,138) (1,487,295) Proceeds from sale of foreclosed assets 103,133 42,254 Acquisition costs related to foreclosed assets (2,974) 0 Expenditures for premises and equipment (8,484) (15,861) Origination of mortgage servicing rights (42,821) (8,843) ------------- ------------- Net cash provided (used) by investing activities 1,566,831 (925,559) ------------- ------------- Cash flows from financing activities: Net increase (decrease) in: Deposits (7,699,355) 5,987,567 Advances from borrowers (1,226,033) (1,250,548) Proceeds from advances from Federal Home Loan Bank 242,000,000 237,558,000 Payment of advances from Federal Home Loan Bank (238,912,936) (242,376,900) Dividends paid to stockholders (58,116) (58,116) ------------- ------------- Net cash provided (used) by financing activities (5,896,440) (139,997) ------------- ------------- Net increase (decrease) in cash and cash equivalents (728,353) 1,045 Cash and cash equivalents at beginning of the period 4,838,011 2,204,723 ------------- ------------- Cash and cash equivalents at end of the period $ 4,109,658 $ 2,205,768 ============= ============= Supplemental disclosure: Cash paid for: Interest on deposits $ 1,037,841 $ 776,207 Interest on FHLB advances and other borrowed funds 683,010 1,268,841 Income taxes 0 0 Transfers from loans to real estate and other assets acquired through foreclosures 234,999 58,433 Loans made to facilitate the sale of foreclosed assets 61,613 54,600
The accompanying notes are an integral part of the consolidated financial statements Page 8 of 24 EAST TEXAS FINANCIAL SERVICES, INC. AND SUBSIDIARY NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 - -------------------------------------------------------------------------------- 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, 2001. 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 ended December 31, 2001 and 2000, has been computed based on net income divided by the weighted average number of common shares outstanding during the period. For the three months ended December 31, 2001 and 2000, the weighted average number of shares outstanding totaled 1,123,979 and 1,110,416 shares respectively. Earnings per common share - assuming dilution, for the three months ended December 31, 2001 and 2000, has been computed based on net income divided by the weighted average number of common shares outstanding. In addition, it includes the effects of all dilutive potential common shares that were outstanding during the period. For the three months ended December 31, 2001 and 2000, the weighted average number of shares outstanding for earnings per share - assuming dilution totaled 1,124,142 and 1,110,497, 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 period ended December 31, 2001 and 2000. Page 9 of 24 NOTE 3 - SECURITIES The carrying values and estimated market values of investment securities available-for-sale as of December 31, 2001, by type of security are as follows:
Principal Unamortized Unearned Unrealized Carrying Balance Premiums Discounts Gain/(Loss) Value -------- -------- -------- -------- -------- Municipal bonds 535,000 0 3,804 25,314 556,510 -------- -------- -------- -------- -------- Total securities $535,000 $ 0 $ 3,804 $ 25,314 $556,510 ======== ======== ======== ======== ========
The amortized cost and estimated market values of investment securities held-to-maturity as of December 31, 2001, are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ---------- ---------- ---------- Corporate Debt 6,274,670 150,081 6,882 6,417,869 ---------- ---------- ---------- ---------- U. S. government agency 3,480,558 87,802 0 3,568,360 ---------- ---------- ---------- ---------- Total securities $9,755,228 $ 237,883 $ 6,882 $9,986,229 ========== ========== ========== ==========
The amortized cost and estimated market values of investment securities held-to-maturity as of December 31, 2001, by contractual maturity are shown below:
Estimated Amortized Market Cost Value ---------- ---------- Due in one year or less $ 0 $ 0 Due after one year through two 1,000,000 1,045,780 years Due after two years through three years 996,590 1,055,855 Due after three years through six years 5,758,638 5,884,594 Due after six years through ten years 2,000,000 2,000,000 ---------- ---------- Total securities $9,755,228 $9,986,229 ========== ==========
Page 10 of 24 The carrying values and estimated market values of mortgage-backed and related securities available-for-sale as of December 31, 2001, by type of security are as follows:
Principal Unamortized Unearned Unrealized Carrying Balance Premiums Discounts Gain/(Loss) Value ----------- ----------- --------- ----------- ----------- Fixed Rate $ 2,220,029 $ 0 $20,427 $ 76,534 $ 2,276,136 Adjustable Rate 19,219,470 122,208 2,102 69,005 19,468,581 ----------- ----------- ------- ---------- ----------- $21,499,499 $ 122,208 $22,529 $ 145,539 $21,744,717 =========== =========== ======= ========== ===========
The carrying values and estimated market values of mortgage-backed and related securities held-to-maturity as of December 31, 2001, by type of security are as follows:
Estimated Principal Unamortized Unearned Carrying Market Balance Premiums Discounts Value Value ----------- ----------- ----------- ----------- ----------- Fixed Rate 25,152,405 0 17,232 25,135,173 25,440,662 Adjustable Rate 9,702,349 16,039 21,571 9,696,817 9,731,477 ----------- ----------- ----------- ----------- ----------- $34,854,754 $ 16,039 $ 38,803 $34,831,990 $35,172,139 =========== =========== =========== =========== ===========
NOTE 4 - CURRENT ACCOUNTING ISSUES In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. This statement addresses financial accounting and reporting for business combinations and superseded APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. This Statement does not change many of the provisions of Opinion 16 and Statement 38 related to the application of the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The Company adopted this Statement as of October 1, 2001, the beginning of its current fiscal year. In June 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets. This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and superceded APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Intangible assets acquired in a business combination shall be recognized as an asset apart from goodwill (goodwill is measured as the excess of the cost of an acquired entity over the net amounts assigned to assets acquired and liabilities assumed) if the asset does not arise from contractual or legal rights. If an asset does not arise from contractual or other legal rights, it shall be recognized as an asset apart from goodwill only if it is separable, that is, capable of being separated or divided from the acquired enterprise and sold, transferred, licensed, rented, or exchanged (regardless of whether there is an intent to do so). Page 11 of 24 Goodwill will not be amortized but must be tested for impairment at least annually at the reporting unit level. Any impairment of the amount of goodwill reported must be expensed through the income statement in the period that the impairment is discovered. This Statement is required to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of this Statement (resulting from a transitional impairment test) are reported as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001, are subject immediately to the nonamortization and amortization provisions of this Statement. The Company adopted this statement as of October 1, 2001, the beginning of its fiscal year. Under the guidelines of this Statement, the Company has until March 31, 2002 to complete its initial test for impairment of the goodwill recorded in the statement of financial position. 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 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. The Company plans to use treasury stock for the exercise of options. The following is a summary of changes in options outstanding:
Balance, September 30, 1999 147,276 Granted 4,500 Exercised at $9.42 per share -0- Forfeited and expired -0- ------- Balance, September 30, 2000 151,776 === ==== ======= Granted -0- Exercised at $9.42 per share -0- Forfeited and expired -0- Balance, September 30, 2001 151,776 ======= Options exercisable at December 31, 2001 under stock option plan 148,779 ======= Shares available for future grants 22,662 ======
During the three months ended December 31, 2001, no options were exercised, issued, or forfeited. Page 12 of 24 NOTE 6 - PROFORMA EFFECTS OF SFAS NO. 142 SFAS No. 142 requires that all periods presented in the statement of income must be adjusted to exclude amortization expense (including any related tax effects) recognized in the periods presented related to goodwill. The following is a condensed income statement showing restatement of income for the three months ended December 31,2000.
Three Months Ended December 31, 2000 (Unaudited) ----------- Reported net income $ 49,052 Add back: goodwill amortization 39,212 ---------- Adjusted net income $ 88,264 ========== Earnings per common share and earnings per common share - assuming dilution Reported net income $ 0.04 Goodwill amortization 0.04 ---------- Adjust net income $ 0.08 ==========
NOTE 7 - SUBSEQUENT EVENT Subsequent to December 31, 2001, the Company entered into a contract to add two additional drive-up lanes and improve and expand its parking lot at its Gilmer location. The Company expects that the project will commence sometime in the first quarter of 2002 and will take approximately 70 days to complete. The total cost of the contract was approximately $220,000. The company anticipates additional costs of approximately $50,000 to purchase new drive-up teller equipment and an automatic teller machine. Page 13 of 24 NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK The outstanding advances from the FHLB consisted of the following at December 31, 2001:
Maturity Balance Rate ------------------ ---------------------- -------------- 01/10/02 $ 33,000,000.00 1.85% 12/05/02 $ 5,000,000.00 2.41% 02/15/02 $ 25,000.00 5.98% 03/08/02 $ 2,000,000.00 4.88% 12/05/03 $ 5,000,000.00 3.55% 02/15/03 $ 100,000.00 6.00% 03/10/03 $ 2,000,000.00 5.00% 09/01/03 $ 931,763.38 6.25% 12/31/04 $ 235,181.04 6.09% 02/15/04 $ 100,000.00 6.01% 01/03/05 $ 68,964.53 6.03% 02/15/05 $ 100,000.00 6.04% 02/15/06 $ 150,000.00 6.05% 04/11/11 $ 5,000,000.00 3.73% 04/11/11 $ 5,000,000.00 3.91% 04/11/11 $ 5,000,000.00 4.25% 06/07/11 $ 5,000,000.00 4.38% 01/01/13 $ 409,697.64 6.09% 01/01/13 $ 389,437.44 6.13% 02/01/13 $ 386,152.10 5.91% 03/03/14 $ 734,963.02 5.45% 04/01/14 $ 711,495.87 5.97% 05/01/14 $ 967,937.53 5.66% 06/01/14 $ 738,950.66 5.90% 07/01/14 $ 685,547.23 6.38% 08/01/14 $ 498,131.40 6.37% 09/01/14 $ 629,926.00 6.59% 10/01/14 $ 553,519.14 6.86% 11/03/14 $ 1,366,314.21 6.77% 12/01/14 $ 466,638.77 6.57% 01/01/15 $ 305,692.09 6.73% ----------------- Total Advances 77,555,312.05 =================
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. Page 14 of 24 EAST TEXAS FINANCIAL SERVICES, INC. AND SUBSIDIARY FORM 10-QSB December 31, 2001 - -------------------------------------------------------------------------------- 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. On June 30, 2000, the Company completed the acquisition of Gilmer and its wholly owned subsidiary, Gilmer Savings Bank, F.S.B. The Company acquired 100% of the outstanding stock of Gilmer. The transaction 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 was recorded as goodwill. FINANCIAL CONDITION Total assets were $208.8 million at December 31, 2001, a $2.9 million decrease from the $211.8 million reported at September 30, 2001, the Company's most recent fiscal year end. The decrease in total assets was the result of a $6.3 decrease in investment securities available-for-sale, a $5.6 million decline in mortgage-backed securities available-for-sale, a $1.0 million decline in mortgage-backed securities held-to-maturity, a $476,000 decrease in interest earning deposits with banks, and a $252,000 decrease in cash and due from banks. The decreases were partially offset by $2.4 million increase in federal funds sold, and a $2.0 million increase in investment securities held-to-maturity. At December 31, 2001, loans-receivable totaled $122.7 million, an increase of $6.8 million compared to $115.8 million at September 30, 2001. The increase in loans-receivable was primarily the result of the Company's continued efforts to expand its origination of consumer, commercial, and commercial real estate loans. For the quarter ended December 31, 2001, the Company originated a total of $15.8 million in consumer, commercial, and commercial real-estate loans. Page 15 of 24 The origination of consumer, commercial, and commercial real estate loans is primarily conducted through the Company's full service banking location in Gilmer, Texas and the S. Broadway office in Tyler, Texas. The predominant method for originating these loans is through direct contacts with existing or potential new customers. However, the Company has increased its origination of indirect automobile loans through a network of dealers in the Tyler and Gilmer markets. Prior to purchasing a loan contract from a dealer, the Company underwrites each indirect loan in the same manner as its direct loans. For the quarter ended December 31, 2001, the Company originated approximately $4.6 million in loans through its indirect program. Consumer and commercial loans (excluding commercial real estate loans) increased to approximately $25.7 million at December 31, 2001. The Company continued its policy of selling the majority of its one-to-four family loans into the secondary market during the quarter. Federal funds sold totaled $2.5 million at December 31, 2001, an increase of $2.4 million from the $86,000 at September 30, 2001. The additional balances, which are held in a "sweep" account arrangement with the Company's major correspondent bank, were funds held at the correspondent bank in anticipation of funding year end tax payments of the Company's mortgage loan portfolio. The Company issues checks to various taxing entities on the last day of the calendar year, when most property tax accounts are due. These funds remain in the account for approximately two to three days after the end of the quarter. Investment securities available-for-sale decreased by $6.3 million to a total of $557,000 at December 31, 2001. The decrease was due to the sale of approximately 50% of the Company's corporate debt securities portfolio subsequent to September 30, 2001. The Company elected to sell the corporate bonds in order to provide liquidity to fund commercial real estate loans and to reduce the Company's exposure to possible downgrades of ratings on corporate debt in the portfolio. This portfolio now consists of municipal bonds, primarily issued by Upshur County, where the Company's Gilmer office is located. Investment securities held-to-maturity was reported as $9.8 million at December 31, 2001, an increase of $2.0 million from the $7.8 reported at September 30, 2001. The increase was the result of additional purchases of bonds during the quarter ended December 31, 2001. This portfolio consists of approximately $3.5 million of debt issued by governmental agencies such as Federal National Mortgage Corporation, Federal Home Loan Mortgage Corporation, or the Federal Home Loan Bank System and approximately $6.3 million of corporate debt securities. All securities in the portfolio are fixed rate and term. Mortgage-backed securities available-for-sale totaled $21.7 million at December 31, 2001, a decrease of $5.6 from the $27.3 million at September 30, 2001. The decrease was the result of principal repayments on the bonds in the portfolio during the quarter. Mortgage-backed securities held-to-maturity portfolio totaled $34.9 million at December 31, 2001, a decrease of $1.0 million from the $35.9 million reported at September 30, 2001. The decrease was primarily due to principal payments received on the portfolio during the period, which were partially offset by additional purchases of securities during the quarter ended December 31, 2001. Total deposits were $107.9 million at December 31, 2001, a $7.7 million decrease from the $115.6 million reported at September 30, 2001. The decrease was primarily the result of declines in certificate of deposit balances as the Company elected not to pay higher interest rates on renewing certificates of deposits during the quarter. The Company reported $77.6 million in borrowed funds at December 31, 2001, an increase of $3.1 million from the $74.5 million reported at September 30, 2001. The increase was primarily due to the Company's decision to utilize short-term advances from the FHLB to fund loans and investments. Page 16 of 24 Stockholder's equity totaled $18.3 million at December 31, 2001, an increase of $363,000 from the $17.9 million reported at September 30, 2001. The increase was primarily attributable to a net increase in retained earnings of $595,000 during the quarter. The increase in retained earnings was due to the $653,000 in net income less $58,000 in cash dividends paid during the quarter ended December 31, 2001 At December 31, 2001, the Company reported a book value per share of $15.72 based on 1,162,320 net outstanding shares. RESULTS OF OPERATIONS The Company's net income is dependent primarily upon net interest income, the difference or spread between the average yield earned on loans and investments and the average rate paid on deposits, as well as the relative amounts of such assets and liabilities. The Company, like other financial intermediaries, is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different times, or on a different basis, than its interest earning assets. COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 General. Net income for the three months ended December 31, 2001 was $653,000 or $.58 per share, an increase of $604,000 from the $49,000, or $.04 per share, reported for the three months ended December 31, 2000. The increase in net income was attributable to a $594,000 increase in net interest income after provision for loan losses and a $409,000 increase in non-interest income, which were partially offset by a $322,000 increase in income tax expense, and a $77,000 increase in non-interest expense. Net Interest Income. For the quarter ended December 31, 2001, net interest income before provision for loan losses totaled $1.5 million and increase of $587,000 over the $909,000 reported for the quarter ended December 31, 2000. On an annualized basis, the $1.5 million in net interest income for the current quarter was approximately 3.00% of average interest-earning assets and 2.85% of average total assets. For the quarter ended December 31, 2000, the $909,000 in net interest income before provisions for loan losses was approximately 1.91% of average interest-earning assets and 1.81% of average total assets. Average interest-earning assets were approximately $200 million for the quarter ended December 31, 2001, compared to $190.1 million for the quarter ended December 31, 2000. Total interest income was $3.4 million for the quarter ended December 31, 2001, a decrease of $225,000 from the $3.6 million reported for the quarter ended December 31, 2000. The decrease was primarily due to a decline in combined interest on investment securities available-for-sale and investment securities held-to-maturity of approximately $354,000, a decline in interest on mortgage-backed securities available-for-sale of $546,000 and a decline in interest on mortgage loans of $96,000. The declines in interest income were partially offset by a $344,000 increase in interest income on consumer and other loans and a $443,000 increase in mortgage-backed securities held-to-maturity. Interest income on loans-receivable was $2.3 million for the quarter ended December 31, 2001, an increase of $248,000 over the $2.1 million reported for the quarter ended December 31, 2000. On an annualized basis, the $2.3 million was approximately 7.86% of average loans-receivable balances outstanding for the quarter ended December 31, 2001, compared to approximately 8.15% for the quarter ended December 31, 2000. The increase in interest income on the loan portfolio was primarily the result of an increase in consumer, commercial, and commercial real estate loan balances and the higher yields on such loans recorded over the past 12 months. The overall decline in interest rates over the past 12 months and the number of mortgage loans refinanced by the Company contributed to the decline in overall yield on the loan portfolio. Interest income from mortgage-backed securities available-for-sale totaled $269,000 for the quarter ended December 31, 2001, compared to $815,000 for the quarter ended December 31, 2000. The decrease in interest income from mortgage-backed securities available-for-sale was primarily due to a decrease in the balance in the portfolio, from $43.1 million at December 31, 2000 to $21.7 million at December 31, 2001. The decrease in the balance in the Page 17 of 24 portfolio was the result of principal payments on the existing securities and approximately $8.9 million in securities that were sold during 2001. Prepayments increased throughout 2001 as interest rates decreased and borrowers elected to refinance mortgage loans. The Company elected to re-direct cash flow from this portfolio into its loan and other investment portfolio. In addition, interest rates on the adjustable rate securities in the portfolio decreased during 2001 as interest rates declined and accounted for a portion of the decrease in interest income on the portfolio. Interest income from the investment securities held-to-maturity portfolio was $155,000 for the quarter ended December 31, 2001, compared to $395,000 for the quarter ended December 31, 2000. The decline in the income from the portfolio was the result of a decline in the balance in the portfolio from $25.0 million at December 31, 2000 to $9.8 million at December 31, 2001. A portion of the securities in the portfolio had call options at the discretion of the issuer, primarily the FHLB system. As interest rates declined in 2001, the securities were called and the Company redirected cash flow into its lending operations. Interest income from investment securities available-for-sale was $84,000 for the quarter ended December 31, 2001 compared to $198,000 for the quarter ended December 31, 2000. The decrease was due primarily to a decline in the balance in the portfolio from $8.0 million at December 31, 2000 to $2.5 million at December 31, 2001. The decline in balances in the portfolio was due to the Company's decision to sell a portion of its corporate debt holdings. Interest income on mortgage-backed securities held-to-maturity totaled $527,000 for the quarter ended December 31, 2001, compared to the $84,000 for the quarter ended December 31, 2000. The increase in interest income was due to an increase in the balance in the portfolio as the Company directed cash flow from its mortgage-backed securities available-for-sale portfolio and investment securities held-to-maturity portfolio into this portfolio. Interest paid to depositors totaled $1.2 million for the quarter ended December 31, 2001, a decrease of $227,000 from the $1.4 million reported for the quarter ended December 31, 2000. The decrease in interest expense on deposit accounts was primarily attributable to the overall decline in interest rates during 2001 and the decrease in rates on certificate of deposit accounts that matured during the year. Interest on FHLB advances was $683,000 for the quarter ended December 31, 2001, compared to $1.3 million for the quarter ended December 31, 2000. The decrease in interest expense was a direct result of declining interest rates during 2001. During 2001, the Company held a large portion of its FHLB advance portfolio in short-term advances. As interest rates declined during 2001, the Company's interest expense on advances decreased. At December 31, 2001, the Company had approximately $33 million in a short-term FHLB advance that re-priced every 28 days. The advance had an interest rate of 1.85%. Interest expense on FHLB advances for the year ending September 30, 2002 will be influenced by the Company's ability to manage this funding source. If interest rates remain unchanged, the Company will continue to benefit from this low cost-funding source. If interest rates increase, especially short-term rates, the Company's interest expense on FHLB advances will increase unless the Company is able to extend the term on all or a portion of this advance. Provision for Loan Losses. The Company made $10,000 in provision for loan losses for the quarter ended December 31, 2001, compared to $16,000 for the quarter ended December 31, 2000. The provision for loan losses for both periods was the result of the Company's decision to establish additional reserves for losses in its checking with overdraft privilege program. In 2000, the Company instigated a program designed to attract additional checking accounts and to increase fee income from new and current checking accounts. The program allows approved checking account customers to overdraft their account up to $500. The Company agrees to not return the insufficient checks but charges the customer the usual insufficient check charge fee. The Company reviews overdraft checking account balances on a monthly basis to determine if, additional reserves for potential losses in the program or any of its other checking accounts, is warranted. Noninterest Income. Noninterest income totaled $538,000 for the quarter ended December 31, 2001 compared to $129,000 for the quarter ended December 31, 2000, a $409,000 increase. The increase in noninterest income was primarily the result of a $398,000 increase in gains on sales of interest-earning assets. During the quarter ended December 31, 2001, the Company elected to sell approximately $6 million of its investment securities available-for-sale portfolio. The Company recorded gain on the sale of the securities of Page 18 of 24 approximately $325,000. The remainder of the increase in gains on sales of interest-earning assets was due to additional gains on sales of one-to-four family mortgage loans into the secondary market. As interest rates declined during 2001, the Company elected to sell more of its one-to-four family loan production than in 2000. Loan origination and commitment fees increased by $30,000 for the quarter ended December 31, 2001, compared to the quarter ended December 31, 2000. As interest rates on mortgage loans declined during 2001, the Company offered certain qualified existing mortgage loan customers the opportunity to modify the terms of their loan. The offer was made to existing customers that were considering refinancing their loan with another lender. The Company charged a fee of approximately one percent of the loan balance with a maximum fee of approximately $1,500. The program allowed the loan customer to lower the interest rate on their loan to a current market rate at a cost which was much less than a total refinance of the loan. The majority of the customers also shortened their loan terms to 180 months or less which allowed the Company to retain the loans in portfolio. Loan servicing fees decreased by $46,000 from the quarter ended December 31, 2000 to the quarter ended December 31, 2001. As interest rates on mortgage loans declined during 2001 and customers refinanced or modified their loans, the Company was required to amortize any remaining balance in originated mortgage servicing rights on the loans which is an offset to the monthly servicing fees on the loans sold. The result was a net decline in loan serving fees for the current quarter. Other non-interest income totaled $116,000 for the three months ended December 31, 2001, compared to $89,000 for the three months ended December 31, 2000. The increase was due to additional fee income from the Company's free checking and checking with overdraft privilege program. Noninterest Expense. Noninterest expense was $1.0 million for the quarter ended December 31, 2001, an increase of $77,000 from the $944,000 for the quarter ended December 31, 2000. The increase was primarily attributable to a $73,000 increase in compensation and benefits expense due to additional employees and normal compensation increases. In addition, an increase in other operating expenses accounted for the increase in total non-interest expenses. A $39,000 decrease in amortization of the goodwill created in the Gilmer merger offset a portion of the decrease in noninterest expenses for the quarter ended December 31, 2001, compared to the quarter ended December 31, 2000. Under revised accounting requirements, the Company will no longer amortize goodwill in a periodic basis but will be required to test the amount of goodwill for possible impairment on an annual basis. See Note 4 Current Accounting Issues. Provision for Income Taxes. The Company incurred federal income tax expense of $351,000 or 35.0% or pre-tax income for the quarter ended December 31, 2001, compared to $30,000 or 37.6% or pre-tax income for the quarter ended December 31, 2000. ASSET QUALITY At December 31, 2001, the Company's non-performing assets totaled $1.1 million or .52% of total assets, compared to $1.6 million or .74% of total assets at September 30, 2001. At December 31, 2001, non-performing assets were comprised of non-accruing one- to four family loans, consumer and other loans delinquent more than 90 days and still accruing, foreclosed one- to four family, and foreclosed consumer and other loans. Non-performing loans at December 31, 2001 equaled $756,000 or .62% of loans receivable, compared to $1.3 million or 1.14% of loans receivable at September 30, 2001. Classified assets totaled $2.6 million or 1.23% of total assets at December 31, 2001, compared to $2.7 million or 1.27% of total assets at September 30, 2001. Page 19 of 24 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. On the basis of management's review of its assets, at December 31, 2001, the Company had classified $2.3 million assets as substandard, $281,000 as doubtful, and $148,000 as loss. The Company has established a specific reserve account for 100% of the balance of the assets classified as loss. The Company's allowance for loan losses totaled $721,390 at December 31, 2001, compared to $769,000 at September 30, 2001. The allowance for loan losses as a percentage of loans receivable equaled .58% at December 31, 2001 and .66% at September 30, 2001. 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 December 31, 2001, the Association had outstanding commitments to extend credit on $8.2 million in 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 $18.3 million at December 31, 2001, an increase of $363,000 from the $17.9 million reported at September 30, 2001. The increase was primarily the result of a $595,000 increase in retained earnings due to the $653,000 in net income reported for the three-month period ended December 31, 2001 less $58,000 in cash dividends. A decline, due to decreases in the value of investments held in an available-for-sale accounting classification, in accumulated other comprehensive income of $232,000 offset a portion of the increase in retained earnings. As of December 31, 2001, the Company's reported book value per share, using total stockholders' equity of $18.3 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 $15.72 per share. Subsequent to the quarter ended December 31, 2001, the Company announced its intention to pay a cash dividend of $.05 per share on February 20, 2002, to stockholders of record at February 6, 2002. Federally insured savings associations, such as First Federal, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as defined by regulation). Tangible capital generally includes common stockholders' equity and retained income, and certain non-cumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage-servicing rights, must be deducted from total capital for calculating compliance with this requirement. At December 31, 2001, the Association had approximately $2.2 million of intangible assets and other required regulatory adjustments that were required to be deducted from total capital. At December 31, 2001, the Association had tangible capital of $15.6 million, or 7.53% of adjusted total assets, which is approximately $12.5 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date. Page 20 of 24 The capital standards also require Tier 1 capital equal to at least four percent of adjusted total assets. Tier 1 capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card receivables. At December 31, 2001, the Association had Tier 1 capital equal to $15.6 million, or 7.53% of adjusted total assets, which is $7.3 million above the minimum requirement for capital adequacy purposes of 4.0% as in effect on that date. The OTS risk-based requirement requires savings associations to have total capital of at least eight percent of risk-weighted assets. Total risk-based capital consists of core capital, as defined above and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At December 31, 2001, the Association had no capital instruments that qualify as supplementary capital and $574,000 of general loss reserves, which was less than 1.25% of risk-weighted assets. Certain exclusions from capital and assets are required to be made for the purpose of calculating total risk-based capital. First Federal had no such exclusions from capital and assets at December 31, 2001. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the OTS has assigned a risk of 50% for prudently underwritten permanent one-to-four-family first lien mortgage loans not more than 90 days delinquent and having a loan to value ratio of not more than 80% at origination unless insured to such ratio by a insurer approved by Fannie Mae or Freddie Mac. On December 31, 2001, First Federal had total capital of $16.1 million (including $15.6 million in Tier 1 capital and $574,000 in loan loss reserves) and risk-weighted assets of $105.4 million, or total risk-based capital of 15.22% of risk-weighted assets. This amount was $7.7 million above the 8.0% requirement in effect on that date. At December 31, 2001, the Association was also 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. Page 21 of 24 EAST TEXAS FINANCIAL SERVICES, INC. AND SUBSIDIARY FORM 10-QSB DECEMBER 31, 2001 - -------------------------------------------------------------------------------- PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- There are no material legal proceedings to which the Company or the Association is a party or of which any of their property is subject. From time-to-time, the Association is a party to various legal proceedings incident to the conduct of its business. Item 2. Changes In Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submissions Of Matters To A Vote Of Security Holders ---------------------------------------------------- On January 23, 2002, the Company's Annual Stockholders' Meeting was held to elect directors and ratify the appointment of independent auditors for the current fiscal year. The following are the voting results of each of these matters submitted to stockholders. The election of M. Earl Davis For 809,664 as director for a three year term Withheld 125,024 ending January 2005. Abstain 0 Broker Non-Votes 0 The election of James W. Fair For 810,438 and L. Lee Kidd Withheld 124,250 as directors for a three year term Abstain 0 ending January 2005 Broker Non-Votes 0 Ratification of the appointment of For 930,188 Bryant & Welborn, L.L.P. as Against 3,500 independent auditors for the Abstain 1,000 fiscal year ending September 30, 2002. The text of the matters referred to in this Item 4 is set forth in the Proxy Statement dated December 28, 2001, previously filed with the Securities and Exchange Commission. Page 22 of 24 Item 5. Other Information. ------------------ None Item 6. Exhibits and Reports on Form 8-K -------------------------------- The following exhibits are filed herewith: Exhibit 11.0 - Computation of Earnings Per Share (b) Reports on Form 8-K During the quarter ended December 31, 2001, the Company filed a report on Form 8-K on October 22, 2001, to report the issuance of a press release dated October 22, 2001, announcing a cash dividend for the quarter ending September 31, 2001 and the annual stockholders' meeting. Page 23 of 24 SIGNATURES Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. East Texas Financial Services, Inc. Date: February 14, 2002 /s/ Gerald W. Free -------------------------------- Gerald W. Free Vice Chairman, President and CEO (Principal Executive Officer) Date: February 14, 2002 /s/ Derrell W. Chapman ----------------------- Derrell W. Chapman Vice President/COO/CFO (Principal Financial and Accounting Officer) Page 24 of 24 EX-11 3 exhibit11.txt EXHIBIT 11.0 COMPUTATIONS OF EARNINGS PER SHARE Three Months Ended December 31, 2001 - -------------------------------------------------------------------------------- Less Total Shares Unallocated Shares Used For Outstanding ESOP Shares EPS Calculation ----------- ----------- --------------- September 30,2001 1,162,320 38,341 1,123,979 October 31, 2001 1,162,320 38,341 1,123,979 November 30, 2001 1,162,320 38,341 1,123,979 December 31, 2001 1,162,320 38,341 1,123,979 Weighted average number of shares outstanding for the quarter ended December 31, 2001, for earnings per share calculation 1,123,979 --------- Stock options outstanding at December 31, 2001: 151,776 ------- Exercise price of stock options: $9.39 per share --------------- Average stock price for three-month period: ended December 31, 2001 $8.82 ----- Three Months Ended ------------------ December 31, ------------ Basic Earnings Per Share 2001 2000 - ------------------------ ---- ---- Income available to common stockholders $ 653,166 $ 49,052 =========== =========== Weighted average number of common shares outstanding for basic EPS calculation 1,123,979 1,110,416 =========== =========== Basic Earnings Per Share $ .58 $ .04 =========== =========== Diluted Earnings Per Share - -------------------------- Income available to common stockholders $ 653,166 $ 49,052 =========== =========== Weighted average number of common shares outstanding for basic EPS calculation 1,123,979 1,110,416 Weighted average common shares issued under stock option plans 4,500 4,500 Less weighted average shares assumed repurchased with proceeds (4,337) (4,419) ----------- ----------- Weighted average number of common shares outstanding for diluted EPS calculation 1,124,142 1,110,497 =========== =========== Diluted Earnings Per Share $ .58 $ .04 =========== =========== SIGNATURES Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. East Texas Financial Services, Inc. Date: February 14, 2002 ----------------------------------------- Vice Chairman, President and CEO (Principal Executive Officer) Date: February 14, 2002 ----------------------------------------- Vice President/COO/CFO (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----