SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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: 0-18782
ES&L BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1387158
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 W. Water St., Elmira, New York 14901
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (607) 733-5533
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check X whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for 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. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number
of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 833,733
<PAGE>
ES&L BANCORP, INC. AND SUBSIDIARIES
December 31, 1997
Index Page
Part I - Financial Information
Item 1 - Financial Statements:
Consolidated Statements of Financial 1
Condition as of December 31, 1997
(Unaudited) and June 30, 1997
Consolidated Statements of Income 2
(Unaudited) for the three months and
six months ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows 3
(Unaudited) for the six months ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
Non-Performing Loans at December 31, 1997 and
June 30, 1997 11
Risk-Based Capital Information at December 31,
1997 and June 30, 1997 12
Part II - Other Information
Signatures 13
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 JUNE 30,
1997
(UNAUDITED)
(AUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
CASH AND DUE FROM BANKS $1,986,627
$721,891
FEDERAL FUNDS SOLD $700,000
$0
SHORT TERM INVESTMENTS $0
$1,041
TOTAL CASH AND CASH EQUIVALENTS $2,686,627
$722,932
SECURITIES HELD FOR SALE $79,326
$66,156
MORTGAGE-BACKED HELD FOR SALE $1,354,643
$1,403,848
INVESTMENT SECURITIES $2,022,600
$4,022,932
MORTGAGE-BACKED SECURITIES $147,058
$171,794
MORTGAGE LOANS HELD FOR SALE $5,172,514
$4,460,810
LOANS RECEIVABLE $132,346,694
$131,710,850
FEDERAL HOME LOAN BANK STOCK $1,313,100
$1,313,100
REAL ESTATE OWNED $121,666
$131,000
INSUBSTANCE FORECLOSURES $0
$0
INVEST. IN JOINT VENTURE-BARR. $783,831
$676,001
INVEST. IN JOINT VENTURE-MTG.BK. $171,699
$183,318
PROPERTY AND EQUIPMENT, NET $2,975,175
$3,053,735
ACCR. INT. REC.-LOANS $844,020
$811,247
ACCR. INT. REC.-INVESTMENT $53,710
$89,675
ACCR. INT. REC.-S\T INVEST. $0
$0
OTHER ASSETS $1,078,964
$823,746
SUB TOTAL $148,464,999
$148,918,212
TOTAL ASSETS $151,151,626
$149,641,144
LIABILITIES
DEPOSITS-NON INT. BEARING $5,026,209
$4,851,413
DEPOSITS-INT. BEARING $107,754,385
$106,897,105
ADV. FROM FED. HOME LOAN BANK $21,301,927
$20,606,615
OTHER BORROWED MONEY $0
$0
ACCR. INT. PAYABLE-DEPOSITS $289
$26,777
ACCR. INT. PAYABLE-BORROWINGS $89,212
$69,695
ADV. FM BORROW. FOR TAXES\INS. $2,788,678
$2,565,036
OTHER LIABILITIES $385,526
$469,221
PAYABLE TO SUBSIDIARY $0
$0
TOTAL LIABILITIES $137,346,226
$135,485,862
EQUITIES
COMMON STOCK $8,560
$8,560
ADD'L PAID IN CAPITAL $2,599,654
$2,599,654
RETAINED EARNINGS $11,476,824
$11,595,957
NET UNREALIZED GAINS $62,456
$59,482
TREASURY STOCK ($342,093)
($108,371)
TOTAL EQUITIES $13,805,400
$14,155,282
TOTAL LIABILITIES AND EQUITY $151,151,626
$149,641,144
SHARES OUTSTANDING 833,773
847,034
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDING
SIX MONTHS ENDING
DEC 31,
DEC 31,
1997 1996
1997 1996
(Unaudited) (Unaudited)
(Unaudited) (Unaudited)
<C> <C>
<C> <C>
Interest Income:
Loans $2,999,191 $2,856,434
$6,015,599 $5,657,176
Investment Securities $59,321 $83,643
$149,308 $168,664
Mortgage-Backed Securities $28,901 $31,207
$57,987 $70,322
Interest-Earning Deposits and Other $5,959 $2,833
$9,202 $4,913
- ----------------------------------------------------
Total Interest Income $3,093,372 $2,974,117
$6,232,096 $5,901,075
Interest Expense:
Deposits $1,385,291 $1,284,405
$2,781,783 $2,566,775
Borrowings $344,412 $321,539
$670,890 $585,592
- ----------------------------------------------------
Total Interest Expense $1,729,703 $1,605,944
$3,452,673 $3,152,367
Net Interest Income $1,363,669 $1,368,173
$2,779,423 $2,748,708
Provision For Loan Losses $75,000 $0
$150,000 $0
- ----------------------------------------------------
Net Interest Income After Provision $1,288,669 $1,368,173
$2,629,423 $2,748,708
for Loan Loss
Other Income:
Service Fees And Other Charges $40,783 $34,281
$84,102 $65,745
Gain on the Sale of Investments $530 $89
$1,376 $89
Income From Loan Servicing $65,894 $92,014
$133,662 $177,384
Other Operating Income $36,426 $49,254
$103,549 $145,770
Income from Joint Venture $14,000 $10,000
$17,500 $22,000
Gain on Sale of Mortgages $137,219 $83,345
$240,199 $178,743
- ----------------------------------------------------
Total Other Income $294,852 $268,983
$580,388 $589,731
Other Expenses:
Employee Compensation & Benefits $466,029 $488,091
$942,930 $968,845
Office Occupancy and Equipment $103,578 $142,745
$222,773 $258,827
Federal Deposit Insurance Premiums $28,852 $58,272
$56,828 $787,483
Other $183,440 $186,081
$366,995 $343,269
- ----------------------------------------------------
Total Other Expense $781,899 $875,189
$1,589,526 $2,358,424
- ----------------------------------------------------
Income Before Taxes $801,622 $761,967
$1,620,285 $980,015
Income Taxes $306,525 $291,273
$606,693 $84,755
- ----------------------------------------------------
NET INCOME $495,097 $470,694
$1,013,592 $895,260
============ ============
============ ============
Earnings Per Share: $0.60 $0.56
$1.21 $1.06
============ ============
============ ============
Dividend Per Common Share $0.17 $0.17
$1.34 $0.34
============ ============
============ ============
Average Common Shares Outstanding 834,107 847,191
839,573 846,672
============ ============
============ ============
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
<CAPTION>
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,013,592 $ 895,260
Adjustments To
Reconcile Net Income To Net
Cash Provided From
Operating Activities:
Depreciation 82,758 96,848
Provision for Loan Losses 75,000 0
Net Amortization Of
Premiums & Discounts 83,608 (1,760)
Deferred Loan Origination Fees (7,272) (21,830)
(Income)/Loss From Joint Ventures (17,500) (22,000)
Changes in Certain Assets
and Liabilities:
Mortgage Loans Held For Sale (711,704) 38,429
Foreclosed Real Estate 9,334 31,815
Accrued Interest Receivable 3,192 (43,007)
Other Assets (255,218) 98,042
Accrued Interest Payable (6,971) (28,622)
Advances From Borrowers For
Taxes and Insurance 223,642 155,842
Other Borrowings 0 0
Other Liabilities (83,695) (396,357)
-------------- --------------
Net Cash (Used For) Provided
From Operating Activities $ 408,766 $ 802,660
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net Other Increase In
Loans Receivable ( 947,419) (5,381,948)
Investment In Joint Ventures (92,611) (116,951)
Proceeds From Sale of
Foreclosed Real Estat 168,900 0
Purchase of FHLB Stock 0 (209,300)
Proceeds From Maturities
of Investments 2,000,332 1,005,762
Purchase of Investment Securities 0 (1,325,000)
Proceeds From Sale of
Securities Available For Sale 0 0
Change in Mark to
Market Adjustment Items (4,956) (17,423)
Principal Reductions On
Mortgage-Backed Securities 73,941 269,460
Purchases Of Property &
Equipment, Net ( 4,198) (68,091)
-------------- --------------
Net Cash Provided From
(Used For) Investing Activities $ 1,193,989 $ (5,843,491)
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest Credited To
Dep. Accts., Excl. Escrow Accts. 2,778,565 2,565,294
Net Other (Decrease)
Increase in Deposits (1,746,489) (4,040,182)
Payments On Advances
From Federal Home Loan Bank (56,904,688) (45,504,403)
Proceeds From Advances
From Federal Home Loan Bank 57,600,000 52,900,000
Proceeds From Exercise
of Stock Options 0 16,000
Purchase of Treasury Stock (233,722) (54,730)
Dividends Paid on Common Stock (1,132,726) (289,603)
-------------- --------------
Net Cash (Used For)
Provided From Financing $ 360,940 5,592,376
Net Increase (Decrease)
In Cash Equivalents 1,963,695 551,545
Cash and Cash Equivalents
At Beginning Of Period 722,932 1,373,763
--------------
- --------------
Cash and Cash Equivalents
At End of Period $ 2,686,627 $ 1,925,308
==============
==============
</TABLE>
<PAGE>
ES&L BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated financial statements include the accounts
of the Corporation and its wholly-owned subsidiary, Elmira
Savings and Loan, F.A.(the Bank), as well as the Bank's wholly
owned subsidiaries, Brilie Corporation (d/b/a ES&L Financial
Services) and ES&L Mortgage Corporation (d/b/a Cayuga Mortgage
Company). All significant inter-company accounts have been
eliminated.
The consolidated financial statements for the three months
and six months ending December 31, 1997 and 1996 are unaudited
and do not include information or footnotes necessary for a
complete presentation of financial condition and results
of operations and changes in cash flows in conformity with
generally accepted accounting principles, but reflect, in the
opinion of management, all adjustments, consisting of normal
recurring accruals, necessary to present fairly these
consolidated financial statements. The results for the three
months and six months ending December 31, 1997 are not
necessarily indicative of the results to be expected for the
entire fiscal year ending June 30, 1998.
2. Net Income Per Common Share:
Net income per common share is based on the weighted average
total shares outstanding during the respective periods. Weighted
average total shares outstanding for the periods included herein
are as follows:
Dec. 31, 1997 Dec. 31, 1996
Three Months Ended 834,107 847,191
Six Months Ended 839,573 846,672
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL:
ES&L Bancorp, Inc., (the "Corporation") is a Delaware
Corporation whose primary asset is the stock of Elmira Savings &
Loan, F.A. (the "Bank"). The Bank, a federally chartered savings
association, founded in 1888, operates through one
office located in Elmira, New York.
The Corporation, through the Bank, is primarily engaged in
the business of accepting deposits from the general public and
originating loans secured by residential real estate. The Bank
also engages in commercial real estate lending in its primary
market area and, to a lesser extent, consumer lending and invests
in government, federal agency obligations, and high grade
corporate debt securities.
The Bank's operations include two wholly-owned subsidiaries,
Brilie Corporation (d/b/a ES&L Financial Services) and ES&L
Mortgage Corporation (d/b/a Cayuga Mortgage Company). Brilie
Corporation is a provider of nontraditional investment and
insurance products to the Bank's customers and the general
public. The investment products, which include life insurance and
annuity contracts, health insurance and mutual funds, are offered
under an agency relationship with major insurance companies and
third party mutual funds providers. ES&L Mortgage Corporation is
engaged in mortgage banking activities through the origination of
mortgage loans for sale to investors, one of whom is the Bank.
FINANCIAL CONDITION:
On December 31, 1997 the Corporation's total assets equaled
$151,151,626, an increase of $1,510,482, or 1.01%, from the July
1, 1997 beginning of its 1998 fiscal year. The majority of the
increase results from a combination of an increase in the
Corporation's net loans receivable and mortgage loans held for
sale, which have increased $635,844 and $711,704, respectively
over the first six months of the 1998 fiscal year. The
Corporation has also experienced a $2,000,332 reduction in
investment securities, as a result of the maturity of certain
callable investment instruments. The receipt of the proceeds
from the maturity of these investments has resulted in a nearly
identical increase in the Corporation's cash and cash
equivalents.
The growth in assets was funded by an increase of $1,032,076 in
deposits held by the Corporation, along with a $695,312 increase
in advances from the Federal Home Loan Bank of New York. At
December 31, 1997 total deposits outstanding equaled
$112,780,594, compared to $111,748,518 at June 30, 1997. During
the same six month period, total advances from the Federal Home
Loan Bank increased from $20,606,615 to $21,301,927.
The Corporation's shareholders' equity has decreased by $349,882
to $13,805,400 since the start of the 1998 fiscal period. The
decrease is primarily the result of a $1.00 per share special
cash dividend paid to shareholders in the first quarter of
this fiscal year. This dividend was paid in addition to the
regular quarterly dividends during the semiannual period. For
the six months ending December 31, 1997 the Corporation has paid
$1,132,726 in dividends to shareholders.
<PAGE>
RESULTS OF OPERATIONS: QUARTER ENDING DECEMBER 31, 1997 AND
DECEMBER 31, 1996.
The Corporation recorded interest income of $3,093,372 for the
quarter ending December 31, 1997, an increase of $119,255, or
4.01%, compared to interest income of $2,974,117 for the quarter
ending December 31, 1996. The majority of the interest income
earned by the Corporation is derived from its loan portfolio.
For the quarter ending December 31, 1997 interest income
generated from loans totaled $2,999,191, an increase of $142,757,
or 5.00%, compared to $2,856,434 in loan interest income recorded
during the comparable quarter. The increase in earnings is a
direct result of an increase in the average balance of
loans outstanding, while the average yield earned on the
portfolio was nearly identical during both periods. For the 1997
quarter the average balance of the loan portfolio was $140.2
million, yielding 8.56%, compared to $133.2 million, yielding
8.58%, for the December 1996 quarter. During the current
quarter, as was previously mentioned, the Corporation recorded a
reduction in its investment security portfolio. As a result, the
average balance of the investment security portfolio, and the
average yield earned on the portfolio, decreased. For the three
months ending December 31, 1997 the average balance of the
Corporation's investment security portfolio totaled $3.9 million,
yielding 6.16%, compared to $5.3 million, yielding 6.29%, for the
December 1996 period. As a result, interest earned on
investments decreased by $24,322, from $83,643 for the December
1996 period to $59,321 for the December 1997 quarter.
Interest expense paid by the Corporation was $1,729,703 for the
quarter ending December 31, 1997, an increase of $123,759, or
7.71%, compared to $1,605,944, for the quarter ending December
31, 1996.
Interest paid to depositors totaled $1,385,291 for the December
1997 quarter, an increase of $100,886, or 7.85%, compared to
$1,284,405 during the December 1996 quarter. The majority of
the increase in deposit interest expense is largely related to an
increase in the average balance of deposits outstanding, however
the average cost of deposits also increased during the 1997
period. For the three months ending December 31, 1997 the average
balance of deposits outstanding was $113.9 million (costing
4.87%), compared to $108.0 million (costing 4.76%) during
the same quarter one year ago. An increase in both the average
balance and average cost of the Corporation's borrowings,
advances from the Federal Home Loan Bank (FHLB), resulted in a
$22,873, or 7.11%, increase in the cost of borrowings.
Average borrowings outstanding were $23.7 million (costing 5.80%)
and $23.0 million (costing 5.59%) for the quarters ending
December 31, 1997 and 1996, respectively. As was previously
mentioned, the Corporation has funded asset growth by utilizing
both retail deposits and FHLB advances. Over the past few years
the Corporation has utilized low rate, short term advances to
fund asset grow. However, because of the relatively flat yield
curve and the current low interest rate environment, the
Corporation somewhat adjusted its strategy. During December 1997
the Corporation modified the maturity schedule of its borrowings
by reducing its overnight line of credit by $10 million in favor
of a 10 year FHLB borrowing, which features a 5 year fixed rate
and is callable after 5 years. The Corporation believes the new
advance helps manage its interest rate sensitivity in addition to
taking advantage of current low rates.
<PAGE>
Provisions for loan losses are charged to earnings to bring the
allowance to a level considered appropriate based on historical
experience, the volume and type of lending conducted by the
Corporation, industry standards, the status of past due
principal and interest payments, general economic conditions -
particularly as they relate to the Corporation's market area -
and other factors related to the collectibility of the
Corporation's loan portfolio. During the quarter ending December
31, 1997 the Corporation's provision for loan losses totaled
$75,000. No provision was charged to earnings during the
comparable period. No significant individual loans prompted the
Corporation's increase, rather it reflects the growth
in the Corporation's loan portfolio. At December 31, 1997 the
Corporation's allowance for loan loss equaled $1,495,592,
compared to $1,334,292 at December 31, 1996.
The Corporation's total other income rose $25,869, or 9.62%, to
$294,852 for the quarter ending December 31, 1997, compared to
$268,983 during the comparable quarter. The increase results
primarily from an increase in gains recorded on the
sale of mortgages, which totaled $137,219, for the December 1997
quarter, an increase of $53,874, over the same quarter one year
ago. The increase is related to both an increase in mortgage
sales, as well as an accounting change required by the
Financial Accounting Standards Board. The accounting change,
Financial Accounting Standards No. 122 (SFAS 122) entitled
"Accounting for Mortgage Servicing Rights," was not in effect
during the comparable 1996 quarter. The Corporation sells
substantially all of its fixed rate residential mortgage
originations into the secondary mortgage market. Given the
attractive long term fixed rates currently available in the
secondary mortgage market the Corporation, and its mortgage
banking subsidiaries, experienced an increase in salable
originations compared to the comparable quarter. Income from
loan servicing decreased by $26,120, or 28.39%, to $65,894 for
the quarter ending December 31, 1997. The entire decrease is
related to the amortization of the value of mortgage servicing
related to SFAS 122, identified above. This accounting policy
was not in effect for the Corporation during the December 1996
quarter. Without the impact of the accounting change, servicing
income would have increased during the current quarter by
approximately $9,000. Other operating income totaled $36,426 for
the quarter ending December 31, 1997, a decrease of $12,828, or
26.04%, compared to $49,254 for the comparable quarter. The
decrease is largely the result of decreased commission revenue
from the sale of non-insured investment products by ES&L
Financial Services, one of the Corporation's subsidiaries.
Other operating expenses of the Corporation decreased by
$93,290, or 10.66%, to $781,899 for the quarter ending December
31, 1997, compared to $875,189 during the quarter ending December
31, 1996. Employee compensation and benefit expense decreased by
$22,062, or 4.52%, to $466,029, primarily as a result of a
reduction in employees at the Corporation's mortgage banking and
"cashless" deposit office in Ithaca, NY. Management of the
Corporation decided to replace Ithaca staff with existing
employees from the Corporation's main office. Salary and benefit
costs have risen as a result of wage adjustments and increases in
benefit expense, but have been more than offset by the reduced
number of employees. Office occupancy, equipment and service fee
expenses totaled $103,578 for the 1997 quarter, a decrease
of $39,167, or 27.44% compared to the same quarter one year ago.
The majority of the decrease is related to a reduction in
depreciation expenses of the Corporation and its subsidiaries, as
well as a credit against service fee expenses from one of the
Corporation's service providers. Federal deposit insurance
premiums have also decreased as a result of the passage of
federal legislation to recapitalize the Bank's federal deposit
insurance fund. Included in the legislation was a reduction
<PAGE>
in on-going premiums paid to the fund. As a result, during the
December 1997 quarter the Corporation's deposit insurance expense
totaled $28,852, a reduction of $29,420, or 50.49%, compared to
the December 1996 quarter.
The Corporation's income tax expense for the December 1997
quarter was $306,525, an increase of $15,252 over the same
quarter one year ago. The increase is directly related to an
increase in the Corporation's net income before taxes.
RESULTS OF OPERATIONS: SIX MONTHS ENDING DECEMBER 31, 1997 AND
DECEMBER 31, 1996.
During the six months ending December 31, 1997 the Corporation
recorded interest income of $6,232,096, an increase of $331,021,
or 5.61%, compared to $5,901,075 earned during the six months
ended December 31, 1996.
Interest generated from the Corporation's loan portfolio
increased by $358,423, or 6.34%, to $6,015,599 during the 1997
six month period, compared to $5,657,176 for the comparable six
month period. The majority of the increase in loan interest is
the result of an increase in the average balance of loans
outstanding. During the six month period ending December 31,
1997 the average balance of loans outstanding totaled $139.9
million, yielding 8.60%, compared to $131.7 million, yielding
8.59%, for the comparable 1996 period. As was mentioned
previously, a decrease in the average balance of the
Corporation's investment security portfolio occurred as a
result of the maturity of investments held by the Corporation.
Correspondingly, the average balance of the investment portfolio
decreased from $5.2 million, yielding 6.47%, for the period
ending December 31, 1996 to $4.6 million, yielding 6.48%, for
the December 1997 six month period. As a result interest earned
on the investment securities portfolio decreased by $19,356, or
11.48%, to $149,308 during the six month 1997 period. Interest
earned on the Corporation's mortgage-backed security (MBS)
portfolio was $57,987 for the six months ending December 31,
1997, a reduction of $12,335, compared to the six months ending
December 31, 1996. The decrease was prompted by a reduction in
the average balance of the portfolio that more than offset an
increase in the average yield earned on the securities.
The average balance of the Corporation's MBS portfolio was $2.1
million, yielding 6.84%, and $1.5 million, yielding 7.86%, for
the six months ending December 31, 1996 and 1997, respectively.
During the six months ending December 31, 1997 the Corporation
recorded total interest expense of $3,452,673, an increase of
$300,306, or 9.53% over the comparable 1996 period.
The majority of the Corporation's interest expense is paid to
depositors. For the six months ending December 31, 1997 interest
expense paid to depositors totaled $2,781,783, an increase of
$215,008, or 8.38%, compared to deposit interest expense
of $2,566,775 paid during the six months ending December 31,
1996. The increase in expense is a result of an increase in the
average balance and average cost of average deposits outstanding.
The Corporation's average deposits outstanding were $114.6
million (costing 4.85%) and $108.7 million (costing 4.72%)
for the semiannual periods ending December 31, 1997 and 1996,
respectively. Interest paid on the Corporation's borrowings,
advances from the Federal Home Loan Bank (FHLB), also
increased during the 1997 quarter from $585,592 for the six
months ending December 31, 1996 to $670,890 for the 1997 six
month period. The $85,298, or 14.57%, increase was the result of
increases in the average balance and average cost of the
borrowings. For the six months ending December 31, 1997 average
borrowings totaled
<PAGE>
22.9 million (costing 5.86%), compared to $21.1 million (costing
5.55%) for the comparable six month period.
Provisions for loan losses are charged to earnings to bring the
allowance to a level considered appropriate based on historical
experience, the volume and type of lending conducted by the
Corporation, industry standards, the status of past due
principal and interest payments, general economic conditions -
particularly as they relate to the Corporation's market area -
and other factors related to the collectibility of the
Corporation's loan portfolio. During the six months ending
December 31, 1997 the Corporation's provision for loan losses
totaled $150,000. No provision was charged to earnings during
the comparable period. No significant individual loans prompted
the Corporation's increase, rather it reflects the growth
in the Corporation's loan portfolio. At December 31, 1997 the
Corporation's allowance for loan loss totaled $1,495,592,
compared to $1,334,292 at December 31, 1996.
The Corporation's total other income decreased by $9,343, or
1.58%, to $580,388 for the six months ending December 31, 1997,
compared to $589,731 for the 1996 six month period. Gains on the
sale of mortgages increased by $61,456 to $240,199 during the
December 1997 period as a result of both increased mortgage sales
and a change in accounting policy, as required by the Financial
Accounting Standards Board. The accounting change, Statement of
Accounting Standards No. 122 (SFAS 122), entitled "Accounting for
Mortgage Servicing Rights," was not in effect for the
Corporation during the comparable period. Of the $61,456
increase in income during the 1997 six month period approximately
$37,000 is related to increased income from sales, while
the balance is the result of the accounting change. Service fees
and other charges earned by the Corporation increased by $18,357
to $84,102 for the six months ending December 31, 1997. The
increase was attributable to small increases in several
types of fee income remitted by customers. Income from loan
servicing was $133,662 for the six months ending December 31,
1997, a decrease of $43,722, compared to $177,384 for the
comparable 1996 period. The decrease is directly attributable to
the amortization of the value of mortgage servicing related to
SFAS 122, which was identified above. The accounting standard
was not in effect for the Corporation during the 1996 comparable
period. Excluding the impact of SFAS 122 would have shown an
increase in loan servicing income. Other operating income earned
by the Corporation during the six months ending December 31, 1997
was $103,549, a decrease of $42,221, when compared to the same
period in 1996. Included in income during the 1996 six month
period was a $35,000 settlement of a deficiency judgment against
a former commercial loan customer. No income of this type is
included during the current period.
Total other expenses of the Corporation decreased by $768,898 to
$1,589,526 during the six months ending December 31, 1997,
compared to $2,358,424 for the six month period ending December
31, 1996. The majority of the decrease is attributable to a
reduction in expenses related to federal deposit insurance.
During the first quarter of the 1996 period the Corporation, in
response to the passage of federal legislation to recapitalize
its insurance fund, paid a one time, pre-tax, special
assessment of $657,000. The assessment was charged to all
institutions insured by the Savings Association Insurance Fund
(SAIF). Included in the legislation was also a provision which
reduced the Corporation's ongoing insurance premiums to a level
nearly equal to its competitors, who are insured by the Bank
Insurance Fund. Deposit insurance expense for the six months
ending December 31, 1997 was $56,828, compared to $787,483 for
the six months ending December 31, 1996. Employee compensation
<PAGE>
and benefits decreased by $25,915, or 2.67%, to $942,930 for the
1997 six month period, compared to $968,845 for the comparable
period. As has been stated earlier, the decrease is largely
attributable to the fact that the number of employees of the
Corporation was less during the 1997 six month period, than
during the same six month period of 1996, and more than offset
any wage and benefit cost increases. Office occupancy, equipment
and service fee expense was $222,773 for the 1997 semiannual
period, a reduction of $36,054, or 13.93%, compared to the six
months ending December 1996. The majority of the decrease is
related to a reduction of depreciation expense for the
Corporation and its subsidiaries, as well as a credit
against service fee expenses from one of the Corporation's
service providers. Other expenses of the Corporation have
increased $23,726, or 6.91%, to $366,995 for the six months
ending December 31, 1997, compared to $343,269 for the same
period one year ago. No single expense prompted the majority of
the increase, although the Corporation has recorded increases in
advertising and loan origination expenses
during the 1997 period.
For the six months ending December 31, 1997 the Corporation has
recorded an income tax provision of $606,693, which is an
increase of $521,938 over the six months ending December 31,
1996. The income tax provision during the 1996 period was
substantially reduced after an extensive study of all tax
liabilities during the first quarter of the that fiscal year.
The provision during the first six months of the 1998 fiscal year
approximates the statutory tax rate on the Corporation's pre-tax
earnings for the period, less any applicable tax credits.
<PAGE>
ELMIRA SAVINGS & LOAN, F.A.
NON-PERFORMING LOANS
Loans are reviewed on a monthly basis and are placed on
non-accrual status when the opinion of management, the collection
of additional interest is doubtful. Residential and commercial
mortgage loans are generally placed on non-accrual when
either principal or interest is more than 90 days past due.
Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged again interest income. Subsequent
payments are either applied to the outstanding principal balance
or recorded as interest income, depending on the assessment
ultimate collectibility of the loan. Consumer loans are
generally charged off or before the loan becomes 120 days
delinquent, although collection efforts continue.
The following table sets forth information with respect to
the Association's non-performing assets at June 30, 1997 and
December 31, 1997, respectively:
<TABLE>
<CAPTION>
12-31-97 06-30-97
<S> <C> <C>
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential $ 279,755.72 $ 250,077.90
Commercial 718,225.04 61,131.53
Commercial/Line of Credit 47,799.80 0.00
Consumer/Home Equity 51,795.81 29,193.56
Commercial(Non-Mortgage) 10,505.87 0.00
Education 0.00 0.00
Consumer 8,155.30 0.00
Other 0.00 0.00
Total $1,116,237.54 $ 340,402.99
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential $ 2,848.86 $ 62,897.62
Commercial 0.00 316,148.25
Commercial/Line of Credit 0.00 0.00
Consumer/Home Equity 0.00 0.00
Commercial(Non-Mortgage) 0.00 0.00
Education 0.00 0.00
Consumer 0.00 0.00
Other 0.00 0.00
Total $ 2,848.86 $ 379,448.86
Total of non-accrual &
90 days past due loans $1,119,086.40 $ 719,448.86
Percentage of total loans 0.81% .53%
Other non-performing
assets $ 121,665.64 $ 131,000.00
</TABLE>
<PAGE>
ELMIRA SAVINGS & LOAN, F.A.
RISK BASED CAPITAL CALCULATION
<TABLE>
The table below presents the Association's capital position
elative to its various minimum statutory and regulatory
equirements at December 31, 1997 and June 30, 1997 respectively:
<CAPTION>
12-31-97 06-30-97
PERCENT PERCENT
OF OF
AMOUNT ASSETS (1) AMOUNT ASSETS (1)
<S> <C> <C> <C> <C>
Tangible Capital 12,884,054.44 8.56% 13,139,533.36 8.78%
Tangible Capital
Requirement 2,256,655.81 1.50% 2,244,520.13 1.50%
Excess 10,627,398.63 7.06% 10,895,013.23 7.28%
Core Capital 12,884,054.44 8.56% 13,139,533.36 8.78%
Core Capital
Requirement 4,513,311.62 3.00% 4,489,040.27 3.00%
Excess 8,370,742.82 5.56% 8,650,493.09 5.78%
Core and
Supplementary
Capital 14,146,928.78 14.03% 14,377,130.95 14.55%
Current
Risk-Based Capital
Requirement. 8,065,218.31 8.00% 7,907,432.38 8.00%
Excess 6,081,710.47 6.03% 6,469,698.57 6.55%
<FN>
(1) Based upon tangible assets for purposes of the tangible
capital and core capital requirements and risk-weighted assets
for purpose of the risk-based capital requirement.
</TABLE>
<TABLE>
<CAPTION>
09-30-97 06-30-97
<S> <C> <C>
Tangible Assets - 151,111,347.45 149,634,675.66
Risk Weighted Assets - 100,924,354.03 98,842,904.78
</TABLE>
<PAGE>
ES&L BANCORP, INC.
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security-Holders.
(a) The registrant held its 1997 annual meeting of stockholders
on Monday, October
27, 1997.
(b) This item is inapplicable since (i) proxies for the
registrant's annual meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934,
(ii) there was no solicitation in opposition to management's
nominees as listed in the proxy statement and (iii) all of
such nominees were elected.
(c) The matters voted upon at the annual meeting were: (i) the
election of directors; and (ii) the ratification of the
appointment of Mengel, Metzger, Barr & Co., LLP as
independent auditors for the Corporation for the fiscal
year ending June 30, 1998.
1. Election of Directors:
For Against
John F. Cadwallader 718,045 450
Adrian P. Hulsebosch 718,270 225
Paul Morss 718,495 0
2. Ratification of Appointment of Auditors:
For Against Abstain
718,215 0 280
(d) This item is inapplicable since the registrant's
stockholders did not receive
any solicitation subject to Rule 14a-11 in connection with the
annual meeting.
Item 5 - Other Information
On January 20, 1998, the Board of Directors of ES&L Bancorp,
Inc. declared a
cash dividend of $0.17 per share. The total of dividends to be
paid will be
$141,741. The dividend will be paid on February 27, 1998 to
stockholders of record
on February 13, 1998.
Item 6 - Exhibits and Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned
thereunto duly authorized.
ES&L BANCORP, INC.
WILLIAM A. McKENZIE
President and Chief Executive Officer
(Duly Authorized Officer)
J. MICHAEL ERVIN
Sr. Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: February 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2686627
<SECURITIES> 3603627
<RECEIVABLES> 139912530
<ALLOWANCES> (1495592)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2975175
<DEPRECIATION> 0
<TOTAL-ASSETS> 151151626
<CURRENT-LIABILITIES> 137346226
<BONDS> 0
0
0
<COMMON> 8560
<OTHER-SE> 13796840
<TOTAL-LIABILITY-AND-EQUITY> 151151626
<SALES> 0
<TOTAL-REVENUES> 6812484
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1589526
<LOSS-PROVISION> 150000
<INTEREST-EXPENSE> 3452673
<INCOME-PRETAX> 1620285
<INCOME-TAX> 606693
<INCOME-CONTINUING> 1013592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1013592
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
