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 March 31, 1998
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. 831,773
<PAGE>
ES&L BANCORP, INC. AND SUBSIDIARIES
March 31, 1998
Index Page
Part I - Financial Information
Item 1 - Financial Statements:
Consolidated Statements of Financial 1
Condition as of March 31, 1998
(Unaudited) and June 30, 1997
Consolidated Statements of Income 2
(Unaudited) for the three months and
nine months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows 3
(Unaudited) for the nine months ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
Year 2000 Information 12
Non-Performing Loans at March 31, 1998 and
June 30, 1997 13
Risk-Based Capital Information at March 31,
1998 and June 30, 1997 14
Part II - Other Information
Signatures
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MAR. 31, JUNE 30,
1998 1997
(Unaudited) (1)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $1,342,082 $722,932
Investment Securities Held for Sale $84,277 $66,156
Investment Securities, $1,026,870 $4,022,932
Approximate market value of $1,003,130
& $4,036,495 at 03/31/98 & 06/30/97,
respectively
Mortgage-Backed Securities Held for $1,307,629 $1,403,848
Mortgage-Backed Securities, $146,209 $171,794
Approximate market value
at 03/31/98 & $171,794 at 06/30/97,
respectively
Mortgage Loans Held For Sale $10,255,251 $4,460,810
Loans Recievable, Net $128,037,380 $131,710,850
Federal Home Loan Bank Stock, $1,313,100 $1,313,100
at cost
Foreclosed Real Estate-Real Estate $150,000 $131,000
Investment In Joint Venture:
Acquisition, Development & Construc $859,185 $676,001
Mortgage Banking Partnership $171,699 $183,318
Property and Equipment, Net $2,937,004 $3,053,735
Accured Interest Recievable $841,546 $900,922
Other Assets $1,118,491 $823,746
------------------------------
Total Assets $149,590,723 $149,641,144
==============================
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities:
Deposits $113,531,682 $111,748,518
Advances - FHLB of N. Y. $19,549,528 $20,606,615
Other Borrowings $0 $0
Accrued Interest Payable:
Deposits $2,217 $26,777
Borrowings $87,622 $69,695
Advances From Borrowers For
Taxes and Insurance $1,778,160 $2,565,036
Other Liabilities $490,763 $469,221
------------------------------
Total Liabilities $135,439,972 $135,485,862
------------------------------
Stockholders' Equity:
Serial Preferred Stock, 500,000
Shares Authorized; None Issue $0 $0
Common Stock, $.01 Par Value;
3,000,000 Shares Authorized,
855,967 and 855,967 Shares Is $8,560 $8,560
Additional Paid-In-Capital $2,599,654 $2,599,654
Retained Earnings - Substantially
Restricted $11,820,131 $11,595,957
Net Unrealized Gain/(Loss) on
Invsetments Held for Sale $64,499 $59,482
Treasury Stock (22,194 & 8,933 ($342,093) ($108,371)
shares respectively), at cost
------------------------------
Total Stockholders' Equity $14,150,751 $14,155,282
Total Liabilities & Stock $149,590,723 $149,641,144
==============================
Shares Outstanding 833,773 847,034
==============================
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
MAR. 31, MAR. 31,
1998 1997 1998 1997
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans $2,950,791 $2,865,913 $8,966,390 $8,523,089
Investment Sec. $58,875 $80,568 $208,183 $249,232
MBS $27,320 $30,360 $85,307 $100,682
Deposits & Other $5,735 $3,552 $14,937 $8,465
--------------------------------------------
Total Interest Inc $3,042,721 $2,980,393 $9,274,817 $8,881,468
Interest Expense:
Deposits $1,366,487 $1,274,369 $4,148,270 $3,841,144
Borrowings $275,583 $331,437 $946,473 $917,029
--------------------------------------------
Total Interest Exp $1,642,070 $1,605,806 $5,094,743 $4,758,173
Net Interest Income $1,400,651 $1,374,587 $4,180,074 $4,123,295
Loan Loss Provision $75,000 $0 $225,000 $0
--------------------------------------------
Net Interest Income
After Provision $1,325,651 $1,374,587 $3,955,074 $4,123,295
Other Income:
Service Fees/Charges $36,054 $29,601 $120,156 $95,346
Investment Gain $5,118 $0 $6,494 $0
Loan Servicing $60,744 $89,502 $194,406 $266,886
Other Op. Income $52,634 $28,052 $156,183 $173,911
Joint Venture $23,317 ($6,273) $40,817 $15,727
Gain on Sale
of Mortgages $117,069 $102,226 $357,268 $280,969
--------------------------------------------
Total Other Income $294,936 $243,108 $875,324 $832,839
Other Expenses:
Employee Comp. & Ben $483,342 $530,848 $1,426,272 $1,499,693
Office Occ. & Equip $143,724 $126,145 $366,497 $384,972
FDIC Premiums $29,155 $28,401 $85,983 $815,884
Other $189,983 $168,566 $556,978 $511,835
--------------------------------------------
Total Other Expenses $846,204 $853,960 $2,435,730 $3,212,384
--------------------------------------------
Income Before Taxes $774,383 $763,735 $2,394,668 $1,743,750
Income Taxes $289,333 $292,024 $896,026 $376,779
--------------------------------------------
NET INCOME $485,050 $471,711 $1,498,642 $1,366,971
============================================
Earnings Per Share: $0.58 $0.56 $1.79 $1.62
============================================
Dividend
Per Common Share $0.17 $0.17 $1.51 $0.51
============================================
Average Common Shares
Outstanding 833,773 849,138 837,668 845,995
============================================
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31,
<CAPTION>
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATION ACTIVITIES
Net Income $1,498,642 $1,366,971
Adjustments
Cash Provided from Operating Activities:
Depreciation $134,714 $135,489
Provision For Loan Losses $225,000 $0
Net Amortization of Premiums & $142,807 ($2,656)
Deferred Loan Origination Fees ($9,423) ($26,759)
(Income)/Loss from ADC Joint V ($40,817) ($15,727)
Changes in Certain Assets and Liabilities:
Mortgage Loans Held For Sale ($5,794,441) $1,906,654
Foreclosed Real Estate ($19,000) $48,815
Accured Interest Receivable $59,376 ($40,968)
Other Assets ($294,744) $80,397
Accrued Interest Payable ($6,633) ($16,261)
Advances From Borrowers For
Taxes and Insurance ($786,876) ($810,164)
Other Liabilities $21,542 $5,075
------------------------------
Net Cash ($4,869,853) $2,630,866
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net Other Increase In Loans Recvble $3,119,519 ($6,543,465)
Investment In Joint Ventures ($171,565) ($170,261)
Proceeds From Sale of REO $241,400 $55,000
Purchase of FHLB Stock $0 ($209,300)
Proceeds: Maturities of Investment $2,996,062 $1,333,409
Purchase of Investment Securities $0 ($2,324,063)
Change in Mark to Market Adjustment ($8,361) ($15,459)
Principal Reductions On MBS $112,043 $357,319
Purchases Of Property & Equipment ($17,983) ($93,308)
------------------------------
Net Cash Provided From Investing $6,271,115 ($7,610,128)
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest To Dep. Accts., Excl. Esc $4,143,777 $3,839,029
Net Other (Decr.) Incr. in Deposits ($2,360,613) ($3,416,998)
Payments On Advances From FHLB ($67,857,087) ($70,056,656)
Proceeds From Advances From FHLB $66,800,000 $74,700,000
Proceeds: Exercise of Stock Options $0 $16,000
Purchase of Treasury Stock ($233,722) ($54,730)
Dividends Paid on Common Stock ($1,274,467) ($433,367)
------------------------------
Net Cash Provided From Financing ($782,112) $4,593,278
Net Increase (Decrease)
In Cash & Cash Equivalents $619,150 ($385,984)
Cash & Cash Equivalents
Beginning of Period $722,932 $1,373,763
------------------------------
Cash & Cash Equivalents
At End of Period $1,342,082 $987,779
==============================
</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 nine months ending March 31, 1998 and 1997 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 nine months
ending March 31, 1998 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:
March 31, 1998 March 31, 1997
Three Months Ended 833,773 849,138
Nine Months Ended 837,668 845,995
<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:
At March 31, 1998 the Corporation's total assets were
$149,590,723, nearly identical to the July 1, 1997 start of its'
1998 fiscal year. Mortgage loans held for sale totaled
$10,255,251 at March 31, 1998, an increase of $5,794,441 over the
beginning of the fiscal year. Inasmuch as the Corporation sells
substantially all of its fixed rate residential mortgage
originations into the national secondary mortgage market, the
increase is the result of the current interest rate environment
which has spurred a significant amount of fixed rate mortgage
origination activity, including refinancings. As a result, the
Corporation has recognized a $3,673,470 reduction in net loans
receivable. At March 31, 1998 net loans receivable totaled
$128,037,380 compared to $131,710,850 at the beginning of the
1998 fiscal year. Additionally, the Corporation has seen a
$2,996,062 reduction in its' investment security portfolio. The
reduction is a result of the payoff of investments in the
portfolio which contained callable features.
Total liabilities of the Corporation equaled $135,439,972 at
March 31, 1998, compared to $135,485,862 at the beginning of the
1998 fiscal year. Total deposits during the first nine months of
the current fiscal year have grown by $1,783,164 to $113,531,682,
while Advances from the Federal Home Loan Bank (FHLB) have
decreased by $1,057,087 to $19,549,528.
Shareholders' equity at March 31, 1998 was $14,150,751, compared
to $14,155,282 at June 30, 1997. While the Corporation has
recorded earnings totaling $1,498,642 for the nine months ending
March 31, 1998, during the same nine months the Corporation
has paid cash dividends totaling $1,274,467. This includes a one
time, special $1.00 per share cash dividend, totaling $846,979,
paid in July 1997. Additionally,
<PAGE>
since the beginning of the 1998 fiscal year the Corporation has
repurchased 13,261 shares of its common stock, which has further
reduced shareholders' equity by $233,722.
RESULTS OF OPERATIONS: QUARTER ENDING MARCH 31, 1998 AND MARCH
31, 1997
During the three months ending March 31, 1998 the Corporation has
recorded net interest income of $1,400,651, an increase of
$26,064, or 1.90%, compared to net interest income of $1,374,587
recorded during the three months ending March 31, 1997.
Interest income earned by the Corporation during the March 1998
quarter increased by $62,328, or 2.09%, to $3,042,721, compared
to $2,980,393 during the March 1997 quarter. The majority of the
Corporation's interest income is generated from its' loan
portfolio. For the three months ending March 31, 1998,
$2,950,791 in interest income was generated from the loan
portfolio, an increase of $84,878, or 2.96%, from the 1997
comparable period. The increase is attributable to an increase
in the average balance of loans outstanding, which offset a 4
basis point reduction in the average yield earned on the
portfolio. For the three months ending March 31, 1998
the average balance of the loan portfolio was $138.9 million,
yielding 8.50%, compared to $134.2 million, yielding 8.54%, for
the three months ending March 31, 1997. As mentioned earlier,
the balance of the Corporation's investment security portfolio
has decreased as a result of the payoff of investments which
contained callable features. As a result the average balance of
the portfolio has decreased and, despite an increase in the
average yield of the portfolio, this prompted a decrease in
overall earnings of the investment portfolio when compared to the
1997 quarter. For the quarter ending March 31, 1998 interest
income generated from the investment portfolio was $58,875, a
reduction of $21,693, or 26.93%, compared to the quarter ending
March 31, 1997.
Interest paid on the Corporation's liabilities, deposits and FHLB
advances, totaled $1,642,070 for the March 1998 quarter, an
increase of $36,264, or 2.26%, compared to interest expense of
$1,605,806 paid during the March 1997 quarter. An increase in
both the average balance and average cost of the Corporation's
deposits resulted in a $92,118, or 7.23%, increase in interest
paid to depositors. For the quarter ending March 31, 1998 the
average balance of deposits outstanding was $114.5 million
(costing 4.77%), compared to $107.8 million (costing 4.73%).
Total interest expense paid on deposits was $1,366,487 and
$1,274,369, for the quarters ending March 31, 1998 and 1997,
respectively. Interest paid by the Corporation on its'
borrowings, FHLB advances, decreased by $55,854, or 16.85%, to
$275,583 for the quarter ending March 31, 1998, compared to
$331,437 for the March 1997 quarter. The decrease is
the result of a $4.8 million reduction in the average balance of
borrowings outstanding, and despite an 18 basis point increase in
the average cost of the borrowings. For the quarter ending March
31, 1998 average borrowings totaled $19.8 million (costing
5.57%), compared to $24.6 million (costing 5.39%) for the quarter
ending March 31, 1997.
Provisions for loan losses are charged to earnings to bring the
total 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
<PAGE>
collectibility of the Corporation's loan portfolio. During the
quarter ending March 31, 1998 the Corporation's provision for
loan losses totaled $75,000. No provision was charged to
earnings during the comparable period. No significant loans
prompted the increase, rather it reflects a change in the
composition of the Corporation's loan portfolio. At March 31,
1998 the Corporation's total allowance for loan loss was
$1,522,310, compared to $1,313,767 at March 31, 1997.
The Corporation's other income totaled $294,936 for the quarter
ending March 31, 1998, an increase of $51,828, or 21.32%,
compared to the quarter ending March 31, 1997. During the March
1998 quarter the Corporation recorded net income of $23,317
from its' unconsolidated land development joint venture, compared
to a net loss of $6,273 during the March 1997 quarter. Income is
earned as lot sales occur from the real property owned by the
partnership. During the March 1997 quarter there were no lot
sales. Income recorded from the gain on the sale of mortgages
totaled $117,069, an increase of $14,843, or 14.52%, compared to
$102,226 earned during the March 1997 quarter. The Corporation
sells substantially all of its fixed rate mortgage originations
into the national secondary mortgage market. Given the current
low interest rate environment, the Corporation and its mortgage
banking subsidiaries have experienced an increase in loan
originations over the comparable quarter. The Corporation's
other operating income also increased during the 1998 quarter.
For the three months ending March 31, 1998 other operating income
totaled $52,634, an increase of $24,582, or 87.63%, compared to
$28,052, recorded during the March 1997 quarter. The majority of
the increase is attributable to an increase in income from
ES&L Mortgage Corporation's mortgage banking partnership, PACE
Funding, which recorded net income of approximately $9,200 during
the March 1998 period, compared to a loss of approximately $7,000
during the March 1997 period. Additionally, income generated by
Brilie Corporation, d/b/a ES&L Financial Services, rose
approximately $6,000 during the March 1998 quarter. The
Corporation has recorded a reduction in income related to the
servicing of mortgages in the national secondary market.
Servicing fees for the quarter ending March 31, 1998 decreased by
$28,758, or 32.13%, from $89,502 for the three months ending
March 31, 1997 to $60,744 for the three months ending March 31,
1998. The entire decrease is related to the amortization of the
value of mortgage servicing as determined by Financial Accounting
Standards No. 122 (SFAS 122), entitled "Accounting for Mortgage
Servicing Rights." This accounting policy was not in effect for
the Corporation during the March 1997 quarter. Without the
impact of the accounting change, servicing income would have
increased during the March 1998 period.
The Corporation's total other expense equaled $846,204, a
reduction of $7,756, or nearly 1%, compared to total other
expenses of $853,960 recorded during the March 1997 period.
Employee compensation and benefits, which accounts for the
majority of the Corporation's other expenses, decreased by
$47,506, or 8.95%, to $483,342 for the three months ending March
31, 1998, compared to $530,848 for the three month 1997
comparable period. The majority of the decrease is related to an
overall reduction in employees, and is attributable to the
Corporation's decision to restructure the organization of ES&L
Mortgage Corporation d/b/a Cayuga Mortgage Company, its' Ithaca,
NY mortgage banking subsidiary. Existing main office employees
have absorbed the responsiblity at Cayuga Mortgage Company and
the Bank's "cashless" deposit office, located within the Cayuga
Mortgage office, without requiring additional staff in the
Elmira office. The Corporation's office occupancy and equipment
expense was $143,724 for the quarter ending March 31, 1998, an
increase of $17,579, or 13.94%, compared to $126,145 during the
March 1997 quarter. Nearly half of the increase resulted from
equipment purchases, totaling $8,100, which were expensed under
IRS regulation, section 179. The Corporation's other
<PAGE>
expenses totaled $189,983 for the quarter ending March 31, 1998,
an increase of $21,417, or 12.71%, compared to $168,566 during
the quarter ending March 31, 1997. The majority of the increase
is related to loan origination expenses which have risen as a
result of increased origination levels.
The Corporation's income tax expense for the March 1998 quarter
was $289,333, nearly identical to the income tax expense recorded
for the quarter ending March 31, 1997.
RESULTS OF OPERATIONS: NINE MONTHS ENDING MARCH 31, 1998 AND
MARCH 31, 1997
The Corporation recorded net interest income of $4,180,074 for
the nine months ending March 31, 1998, an increase of $56,779, or
1.38%, compared to net interest income of $4,123,295 recorded
during the comparable period ending March 31, 1997.
During the nine months ending March 31, 1998 interest income
earned by the Corporation rose $393,349, or 4.43%, to $9,274,817,
compared to $8,881,468 during the comparable period. Interest
derived from the Corporation's loan portfolio totaled $8,966,390
for the nine month 1998 period, an increase of $443,301, or
5.20%, over the prior year's nine month period. The increase is
the result of growth in the average balance of the loan
portfolio, while the average yield on the portfolio remained
nearly identical. For the three quarters ending March 31, 1998,
the average balance of the Corporation's loan portfolio totaled
$139.5 million, yielding 8.57%, compared to $132.4 million,
yielding 8.58%, for the three quarters ending March 31, 1997.
The Corporation has reported a decrease in interest earnings
from its' investment portfolio. As has been previous mentioned,
since the second quarter of the 1998 fiscal year, the average
balance of the portfolio has declined as a result of the payoff
of investments within the portfolio. Despite an increase
in the average yield of the portfolio, interest earned from
investment securities has decreased by $41,049, or 16.47%, to
$208,183 for the first nine months of the current fiscal period.
For the nine months ending March 31, 1998 the average
balance of the portfolio totaled $4.2 million, yielding 6.60%,
compared to $5.2 million, yielding 6.40% for the nine months
ending March 31, 1997.
Interest expense of the Corporation rose to $5,094,743 for the
nine months ending March 31, 1998, compared to $4,758,173 for the
1997 period. The majority of interest expense is paid by the
Corporation to its' depositors. During the nine month 1998
period interest paid on deposits totaled $4,148,270, an increase
of $307,126, or 8.00%, compared to interest expense of $3,841,144
paid during the nine month period ending March 31, 1997. The
majority of the increase is related to growth in the balance of
average deposits outstanding, in addition, however, the
average cost of deposits has also increased. During the 1998
nine month period average deposits outstanding totaled $114.5
million, costing 4.83%, compared to $108.4 million, costing
4.72%, for the nine months ending March 31, 1997. An
increase in the average cost of the Corporation's borrowings,
FHLB advances, outpaced a decline in the amount of average
borrowings outstanding and prompted a $29,444, or 3.21%,
increase in interest expense paid on borrowings. For the nine
months ending March 31, 1998 and 1997 interest paid on borrowings
totaled $946,473 and $917,029, respectively.
Provisions for loan losses are charged to earnings to bring the
total 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
<PAGE>
relate to the Corporation's market area - and other factors
related to the collectibility of the Corporation's loan
portfolio. During the 1998 nine month period the Corporation's
provision for loan loss totaled $225,000. No provision was
charged to earnings during the 1997 nine month period. No
significant loans prompted the increase, rather it reflects a
change in the composition of the Corporation's loan portfolio.
At March 31, 1998 the Corporation's total allowance for loan loss
was $1,522,310, compared to $1,313,767 at March 31, 1997.
The Corporation's other income was $875,324 for the nine months
ending March 31, 1998, an increase of $42,485, or 5.10%, over the
comparable nine month period. Income resulting from the gain on
the sale of mortgages has increased by $76,299, or 27.16%, to
$357,268, compared to gains of $280,969 for the nine months
ending March 31, 1997. The increase is directly related to
increased loan sales, which have resulted from the low interest
rate environment which has been prevalent during most
of the 1998 fiscal year. Income from loan servicing has
decreased, however, as a result of an accounting change. During
the nine months ending March 31, 1998 the Corporation's income
from loan servicing totaled $194,406, a decrease of $72,480, or
27.16%, compared to $266,886 for the nine months ending March 31,
1997. The entire decrease is related to the amortization of the
value of mortgage servicing as required by Financial Accounting
Standards No. 122 (SFAS 122) entitled "Accounting for Mortgage
Servicing Rights." This accounting policy was not in effect
during the nine months ending March 31, 1997.
Other expenses incurred by the Corporation during the nine months
ending March 31, 1998 totaled $2,435,730, a decrease of $776,654,
over the nine months ending March 31, 1997. The majority of the
decrease is the reduction of federal deposit insurance premium
expense which totaled $85,983 during the 1998 nine month period,
compared to $815,884 during the 1997 nine month period. During
the first quarter of the 1997 fiscal year 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 (BIF). Employee compensation and benefit expense
has decreased by $73,421, or 4.90%, to $1,426,272 for the nine
months ending March 31, 1998 compared to $1,499,693 for the
nine months ending March 31, 1997. As was previously identified,
the total number of employees of the Corporation was less during
the nine month 1998 period, when compared to the comparable nine
months during the 1997 fiscal year which more than offset any
wage and benefit cost increases. The Corporation has recorded a
$45,143, or 8.82%, increase in other expenses, which totaled
$556,978 and $511,835 for the nine months ending March 31, 1998
and 1997, respectively. The increase is largely attributable to
increased loan origination and advertising/marketing expenses.
For the nine months ending March 31, 1998 the Corporation has
recorded an income tax provision of $896,026, which is an
increase of $519,247 over the nine months ending March 31, 1997.
The income tax provision during the 1997 period was substantially
reduced after an extensive review of all tax liabilities during
the first quarter of that fiscal year. The provision for the
first nine months of the 1998 fiscal year approximates the
statutory rate on the Corporation's pre-tax earnings for the
period, less any applicable tax credits.
<PAGE>
YEAR 2000 CONSIDERATIONS:
A great deal of information has been disseminated about the
global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits
of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as 1900 and
compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or
delinquency. Rapid and accurate data processing is essential to
the operations of the Corporation.
During 1997, the Corporation developed a Year 2000 preparedness
plan which was submitted and approved by the Corporation's Board
of Directors on July 10, 1997. The plan was subsequently
submitted to the Office of Thrift Supervision (OTS),
who found it an acceptable strategy to assure a smooth transition
into the year 2000.
The plan established procedures to contact and monitor the Year
2000 preparedness of all third party servicers, including NCR
Corporation - the company responsible for the Bank's customer
account processing. NCR has a plan in place which has been
reviewed by external audit organizations, as well as Federal Bank
examiners. NCR is currently in the process of testing their
plan.
All other service providers have been contacted and have
responded identifying the plan they have developed and have
provided testing dates to verify the resolution of any potential
problems.
The Corporation has tested all of our internal systems and have
found them to be year 2000 compliant. Additionally, the
Corporation has surveyed its commercial loan customer base asking
for information on how those companies are addressing any
potential problems.
At the present time, the Corporation anticipates no significant
financial expenditure will be necessary with regard to year 2000
compliance.
<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>
3-31-98 06-30-97
<S> <C> <C>
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential $ 336,329.77 $ 250,077.90
Commercial 451,438.14 61,131.53
Commercial/Line of Credit 48,948.52 0.00
Consumer/Home Equity 0.00 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 $ 855,377.60 $ 340,402.99
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential $ 0.00 $ 62,897.62
Commercial 8,286.82 316,148.25
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 $ 8,286.82 $ 379,448.86
Total of non-accrual &
90 days past due loans $ 863,664.42 $ 719,448.86
Percentage of total loans 0.62% .53%
Other non-performing
assets $ 150,000.00 $ 131,000.00
</TABLE>
<PAGE>
ELMIRA SAVINGS & LOAN, F.A.
RISK BASED CAPITAL CALCULATION
<TABLE>
The table below presents the Association's capital position
relative to its various minimum statutory and regulatory
requirements at March 31, 1998 and June 30, 1997 respectively:
<CAPTION>
03-31-98 06-30-97
PERCENT PERCENT
OF OF
AMOUNT ASSETS (1) AMOUNT ASSETS (1)
<S> <C> <C> <C> <C>
Tangible Capital 12,913,205.35 8.68% 13,139,533.36 8.78%
Tangible Capital
Requirement 2,232,137.55 1.50% 2,244,520.13 1.50%
Excess 10,681,067.80 7.18% 10,895,013.23 7.28%
Core Capital 12,913,205.35 8.68% 13,139,533.36 8.78%
Core Capital
Requirement 4,464,275.10 3.00% 4,489,040.27 3.00%
Excess 8,448,930.25 5.68% 8,650,493.09 5.78%
Core and
Supplementary
Capital 14,180,775.79 14.01% 14,377,130.95 14.55%
Current
Risk-Based Capital
Requirement. 8,097,511.61 8.00% 7,907,432.38 8.00%
Excess 6,083,264.18 6.01% 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>
03-31-98 06-30-97
<S> <C> <C>
Tangible Assets - 148,809,169.68 149,634,675.66
Risk Weighted Assets - 101,218,895.14 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.
Not Applicable
Item 5 - Other Information
On April 21, 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 $141,401.
The dividend will be paid on May 29, 1998 to stockholders of
record on May 15, 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: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1342082
<SECURITIES> 3878085
<RECEIVABLES> 140656487
<ALLOWANCES> (1522310)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2937004
<DEPRECIATION> 0
<TOTAL-ASSETS> 149590723
<CURRENT-LIABILITIES> 135439972
<BONDS> 0
0
0
<COMMON> 8560
<OTHER-SE> 14142191
<TOTAL-LIABILITY-AND-EQUITY> 149590723
<SALES> 0
<TOTAL-REVENUES> 10150141
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2435730
<LOSS-PROVISION> 225000
<INTEREST-EXPENSE> 5094743
<INCOME-PRETAX> 2394668
<INCOME-TAX> 896026
<INCOME-CONTINUING> 1498642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1498642
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
</TABLE>
