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