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, 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. 831,872
ES&L BANCORP, INC. AND SUBSIDIARIES
December 31, 1998
Index Page
Part I - Financial Information
Item 1 - Financial Statements:
Consolidated Statements of Financial 1
Condition as of December 31, 1998
(Unaudited) and June 30, 1998
Consolidated Statements of Income 2
(Unaudited) for the three and six months ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows 3
(Unaudited) for the six months ended
December 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
Non-Performing Loans at Dec. 31, 1998 and
June 30, 1998
Risk-Based Capital Information at Dec. 31,
1998 and June 30, 1998
Part II - Other Information
Signatures
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition as of
December 31, 1998(Unaudited) and June 30, 1998
<CAPTION>
DEC. 31, JUNE 30,
1998 1998
(Unaudited) (1)
<S> <C> <C>
ASSETS --------------------------
- ------
Cash and Cash Equivalents $2,200,470 $7,367,355
Investment Securities Held for Sale $68,389 $81,915
Investment Securities, Approximate market value of $21,806 $1,025,244
$21,775 and $1,026,199 at 12/31/98 and
06/30/98 respectively
Mortgage-Backed Securities Held for Sale $935,651 $1,212,122
Mortgage-Backed Securities, Approximate market $134,781 $136,478
value $134,781 at 12/31/98 and $136,478
at 06/30/98, respectively
Mortgage Loans Held For Sale $10,809,221 $8,231,474
Loans Recievable, Net $122,389,276 $126,181,335
Federal Home Loan Bank Stock, at cost $1,313,100 $1,313,100
Foreclosed Real Estate-Real Estate Owned $225,000 $485,226
Investment In Joint Venture:
Acquisition, Development & Construction Project $630,861 $765,952
Mortgage Banking Partnership $191,315 $197,646
Property and Equipment, Net $2,838,766 $2,901,870
Accured Interest Recievable $696,427 $775,316
Other Assets $1,543,839 $1,485,171
--------------------------
Total Assets $143,998,902 $152,160,204
==========================
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities:
Deposits $109,965,111 $112,179,831
Advances - Federal Home Loan Bank of N. Y. $15,592,100 $21,897,091
Other Borrowings $0 $0
Accrued Interest Payable:
Deposits $235 $7,607
Borrowings $82,517 $84,614
Advances From Borrowers For
Taxes and Insurance $2,854,447 $2,982,958
Other Liabilities $449,739 $507,433
--------------------------
Total Liabilities $128,944,149 $137,659,534
--------------------------
Stockholders' Equity:
Serial Preferred Stock, 500,000
Shares Authorized; None Issued $0 $0
Common Stock, $.01 Par Value;
3,000,000 Shares Authorized,
862,766 and 855,967 Shares Issued, $8,628 $8,560
respectively
Additional Paid-In-Capital $2,671,155 $2,599,654
Retained Earnings - Substantially
Restricted $12,887,862 $12,219,481
Net Unrealized Gain/(Loss) on
Invsetments Held for Sale $28,426 $57,069
Treasury Stock (30,894 & 24,194 shares, ($541,318) ($384,093)
respectively --------------------------
Total Stockholders' Equity $15,054,753 $14,500,670
Total Liabilities & Stockholders' Equity $143,998,902 $152,160,204
==========================
Shares Outstanding 831,872 831,773
==========================
(1): Amounts at June 30, 1998 have been extracted from the
audited financial statements at that date and condensed.
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans $2,755,299 $2,999,191 $5,597,564 $6,015,599
Investment Securities $24,019 $59,321 $48,814 $149,308
Mortgage-Backed Securities $19,901 $28,901 $43,195 $57,987
Interest-Earning Deposits & Other $14,002 $5,959 $32,021 $9,202
--------------------------------------------
Total Interest $2,813,221 $3,093,372 $5,721,594 $6,232,096
Interest Expense:
Deposits $1,276,439 $1,385,291 $2,611,575 $2,781,783
Borrowings $202,656 $344,412 $406,910 $670,890
--------------------------------------------
Total Interest $1,479,095 $1,729,703 $3,018,485 $3,452,673
Net Interest Income $1,334,126 $1,363,669 $2,703,109 $2,779,423
Provision For Loan Losses $0 $75,000 $0 $150,000
--------------------------------------------
Net Interest Income After
Provision for Losses $1,334,126 $1,288,669 $2,703,109 $2,629,423
Other Income:
Service Fees And Other Charges $41,246 $40,783 $84,065 $84,102
Gain on the Sale of Investments $7,344 $530 $7,344 $1,376
Income From Loan Servicing $42,331 $65,894 $87,385 $133,662
Other Operating Income $67,499 $36,426 $203,912 $103,549
Income from Joint Venture $3,500 $14,000 $14,000 $17,500
Gain on Sale of Mortgages $153,100 $137,219 $291,257 $240,199
--------------------------------------------
Total Other Income $315,020 $294,852 $687,963 $580,388
Other Expenses:
Employee Compensation & Benefits $483,663 $466,029 $988,850 $942,930
Office Occupancy and Equipment $149,393 $103,578 $281,044 $222,773
Federal Deposit Insurance Prem. $27,832 $28,852 $56,518 $56,828
Other $168,886 $183,440 $363,709 $366,995
--------------------------------------------
Total Other Expenses $829,774 $781,899 $1,690,121 $1,589,526
--------------------------------------------
Income Before Taxes $819,372 $801,622 $1,700,951 $1,620,285
Income Taxes $279,544 $306,525 $615,197 $606,693
--------------------------------------------
NET INCOME $539,828 $495,097 $1,085,754 $1,013,592
============================================
Earnings Per Share: $0.65 $0.60 $1.30 $1.21
============================================
Dividend Per Common Share $0.25 $0.17 $0.50 $1.34
============================================
Average Common Shares Outstanding 831,873 834,107 832,868 839,573
============================================
</TABLE>
<PAGE>
<TABLE>
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED DEC. 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATION ACTIVITIES
Net Income $1,085,754 $1,013,592
Adjustments To Reconcile Net Income To Net
Cash Provided from Operating Activities:
Depreciation $94,516 $82,758
Provision For Loan Losses $0 $150,000
Net Amortization of Premiums & Discounts $203,028 $83,608
Deferred Loan Origination Fees ($9,327) ($7,272)
(Income)/Loss from ADC Joint Venture ($14,000) ($17,500)
Changes in Certain Assets and Liabilities:
Mortgage Loans Held For Sale ($2,577,747) ($711,704)
Foreclosed Real Estate $260,226 $9,334
Accured Interest Receivable $78,889 $3,192
Other Assets ($58,668) ($255,218)
Accrued Interest Payable ($9,469) ($6,971)
Advances From Borrowers For
Taxes and Insurance ($128,511) $223,642
Other Liabilities ($57,694) ($83,695)
--------------------------
Net Cash (Used For) Provided From Operating
Activities ($1,133,003) $483,766
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net Other Increase In Loans Receivable $3,623,768 ($703,519)
Investment In Joint Ventures $141,422 ($92,611)
Proceeds from Maturities/Sales of Investments $1,014,903 $2,000,332
Change in Mark to Market Adjustment Items $47,736 ($4,956)
Principal Reductions On Mortgage-Backed Securities $239,835 $73,941
Purchases Of Property & Equipment, Net ($31,412) ($4,198)
--------------------------
Net Cash Provided From (Used For) Investing
Activities $5,036,252 $1,268,989
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest Credited To Dep. Accts., Excl. Escrow
Accounts $2,606,166 $2,778,565
Net Other (Decrease) Increase in Deposits ($4,820,886) ($1,746,489)
Payments On Advances From Federal Home Loan Bank ($8,304,991)($56,904,688)
Proceeds From Advances From Federal Home Loan Bank $2,000,000 $57,600,000
Proceeds From Exercise of Stock Options $24,176 $0
Purchase of Treasury Stock ($157,225) ($233,722)
Dividends Paid on Common Stock ($417,374) ($1,132,726)
--------------------------
Net Cash (Used For) Provided From Financing ($9,070,134) $360,940
Net Increase (Decrease) In Cash Equivalents ($5,166,885) $2,113,695
Cash and Cash Equivalents At Beginning Of Period $7,367,355 $722,932
--------------------------
Cash and Cash Equivalents At End of Period $2,200,470 $2,836,627
==========================
</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 and six
months ending December 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 and six months ending
December 31, 1998 are not necessarily indicative of the results
to be expected for the entire fiscal year ending June 30, 1999.
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, 1998 Dec. 31, 1997
Three Months Ended 831,873 834,107
Six Months Ended 832,868 839,573
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
<PAGE>
FINANCIAL CONDITION:
On December 31, 1998 the Corporation's total assets equaled
$143,998,902, a reduction of $8,161,302, or 5.36%, from the
July 1, 1998 start of the Corporation's 1999 fiscal year,
when total assets equaled $152,160,204. The majority of
the decline is related to cash and cash equivalents, which
have decreased by $5,166,885 to $2,200,470 at December 31,
1998. As stated in previous filings, unlike many financial
institutions, the Corporation sells substantially all of
its fixed rate mortgage originations in the national
secondary mortgage market, while keeping adjustable rate
mortgage originations in its loan portfolio. As a result
of the continuation of a relatively flat interest rate
yield curve, during which long term interest rates have
remained low for an extended period of time, the majority
of the Corporation's mortgage origination activity has
resulted in fixed rate mortgages. This has prompted a
$3,792,059, or 3.01% decrease in the Corporation's net loan
portfolio, while at the same time increasing the
Corporation's mortgage loans held for sale by $2,577,747.
At December 31, 1998, the Corporation's net loan portfolio
totaled $122,389,276, compared to $126,181,335 at June 30,
1998. During the same period, mortgage loans held for sale
have increased from $8,231,474 at June 30, 1998 to
$10,809,221 at December 31, 1998.
The funds generated by the Corporation's reduction in total
assets have been used to reduce borrowings, primarily
Advances from the Federal Home Loan Bank of New York (FHLB
advances), and to fund deposit outflows, as some
depositors search for higher yielding investment products,
outside of traditional federally insured deposit accounts.
Since the beginning of the 1999 fiscal year, FHLB advances
have been reduced by $6,304,991 to $15,592,100, while
deposits have decreased by $2,214,720 to $109,965,111.
Stockholders' equity in the Corporation was $15,054,753 at
December 31, 1998, an increase of $554,083, or 3.82%, since
the July 1, 1998 beginning of the 1999 fiscal year.
<PAGE>
RESULTS OF OPERATIONS: QUARTER ENDING DECEMBER 31, 1998
AND DECEMBER 31, 1997.
Net interest income earned by the Corporation during the
quarter ending December 31, 1998 was $1,334,126, a decrease
of $29,543, or 2.17%, when compared to the quarter ending
December 31, 1997.
During the quarter ending December 31, 1998, interest
income earned by the Corporation decreased by $280,151, or
9.06%, to $2,813,221, compared to interest income of
$3,093,372 earned during the quarter ending December 31,
1997. The majority of the Corporation's interest income is
derived from its loan portfolio. For the quarter ending
December 31, 1998 interest earned from the loan portfolio
totaled $2,755,299, a reduction of $243,892, or 8.13%,
compared to the December 1997 quarter. As was reported
earlier in the filing, the Corporation sells substantially
all of its fixed rate mortgage originations into the
national secondary mortgage market. As a result of the
continuation of a relatively flat yield curve, long term
interest rates have remained low prompting a significant
amount of the new mortgage and refinance origination activity
of the bank and its mortgage banking subsidiary to be comprised
of fixed rate mortgage loans. As a result, the average
balance of the Corporation's loan portfolio has decreased
by $6.4 million, from $140.2 million, for the three months
ending December 31, 1997 to $133.8 million for the three
months ending December 31, 1998. The majority of the loans
comprising the loan portfolio are adjustable rate
mortgages, and given the overall decrease in interest rates
over the past year, the average yield on the portfolio has
declined from 8.56% to 8.24% for the quarters ending
December 31, 1997 and 1998, respectively. Similarly, a
reduction in the average balance and average yield of the
Corporation's investment portfolio has prompted a $35,302
decrease in interest income from $59,321 for the quarter
ending December 31, 1997 to $24,019 for the quarter ending
December 31, 1998. The majority of the decrease in the
average balance, since the comparable 1997 period, is
related to the fact that several investments within the
portfolio contained callable features and were redeemed by
their issuers. For the quarter ending December 31, 1998
the average balance of the Corporation's investment
portfolio was $1.6 million, yielding 5.99%, compared to
$3.9 million, yielding 6.16% during the December 31, 1997
quarter.
<PAGE>
Interest expense paid by the Corporation during the three
months ending December 31, 1998 decreased by $250,608, or
14.49%, to $1,479,095, compared to interest expense of
$1,729,703 during the December 1997 quarter. The
previously identified decrease in the Corporation's assets
has also resulted in a decrease in liabilities, most
notably deposits and Advances from the Federal Home Loan
Bank (FHLB advances). During the 1998 period the average
balance of the Corporation's deposits totaled $111.9
million, costing 4.56%, compared to average deposits of
$113.9 million, costing 4.87%, for the 1997 three month
period. This combination prompted a $108,852, or 7.86%,
decrease in deposit interest expense paid during the 1998
quarter. Total deposit interest was $1,276,439 and
$1,385,291 for the quarters ending December 31, 1998 and
1997, respectively. Interest expensed paid by the
Corporation for FHLB advances decreased by $141,756, to
$202,656 for the quarter ending December 31, 1998, compared
to $344,412 for the quarter ending December 31, 1997.
During the 1998 period the average balance of FHLB advances
outstanding was $14.6 million, costing 5.56%, compared to
$23.7 million, costing 5.80%, during the 1997 quarter.
Provisions for loan loss 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 loss totaled $75,000. No
provision was charged against earnings during the quarter
ending December 31, 1998. At December 31, 1998 the
Corporation's total allowance for loan losses was
$1,397,232, compared to $1,495,592 at December 31, 1997.
Total other income earned by the Corporation during the
quarter ending December 31, 1998 equaled $315,020, an
increase of $20,168, or 6.84%, over the same quarter one
year ago. The majority of other income earned by the
Corporation resulted from gains on the sale of mortgages.
As has been previously identified, the Corporation sells
substantially all of its fixed rate mortgage originations
in the national secondary mortgage market. During the
three months ending December 31, 1998 gains on the sale of
mortgages totaled $153,100, $15,881 more than the
comparable quarter. Other operating income of the
Corporation totaled $67,499 for the December 1998 quarter,
an increase of $31,073, compared to $36,426 during the
1997 period. The majority of the increase is related to
increased profits from the Corporation's subsidiaries.
ES&L Mortgage Corporation's earnings from its mortgage
banking partnership, PACE Funding, increased by
approximately $19,000 during the December 1998 quarter,
while ES&L Financial Services, recorded an increase in
<PAGE>
sales and commission income of approximately $5,600. Despite
a record outstanding balance of loans serviced for others, the
Corporation reported a $23,563 decrease in income from loan
servicing. For the quarter ending December 31, 1998 loan
servicing income totaled $42,331, compared to $65,894 for
the 1997 quarter. The reduction results from an
increase in expense 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." Without this
adjustment, mortgage servicing income would have increased
by more than $38,000 during the 1998 period.
The Corporation's total other expenses increased by
$47,875, or 6.12%, to $829,774 for the quarter ending
December 31, 1998. Employee compensation and benefits
expense totaled $483,663, an increase of $17,634, or 3.78%,
for the quarter ending December 31, 1998. The increase is
directly related to annual salary adjustments for employee
wages and directors' fees, as well as an increase in the
cost of some employee benefits. Office occupancy and
equipment expense rose $45,815, to $149,393 for the quarter
ending December 31, 1998. During the 1997 period expenses
from service providers were lower as a result of certain
offsets which did not occur during the 1998 period.
Additionally, in accordance with IRS Section 179, the
Corporation fully expensed the cost of certain equipment
purchases during the December 1998 quarter. Other expenses
of the Corporation decreased by $14,554, or 7.93%, to
$168,886 during the 1998 three month period. The majority
of the decrease is attributable to expenses related to
mortgage originations, as well as a reduction in the
carrying costs of real estate acquired by the Bank through
foreclosure.
The Corporation's income tax provision totaled $279,544 for
the quarter ending December 31, 1998, compared to $306,525
for the quarter ending December 31, 1997.
<PAGE>
RESULTS OF OPERATION: SIX MONTHS ENDING DECEMBER 31, 1998
AND DECEMBER 31, 1997.
The Corporation's net interest income for the six months
ending December 31, 1998 was $2,703,109, a decrease of
$76,314, compared to net interest income of $2,779,423 for
the six months ending December 31, 1997.
Interest earned from the Corporation's loan portfolio
decreased by 6.95%, or $418,035, to $5,597,564.
Combinations of a reduction in the average balance of the
portfolio and a decrease in the average yield have prompted
this decline in earnings. For the semi-annual period
ending December 31, 1998 the average balance of the loan
portfolio totaled $134.4 million, yielding 8.33%, compared
to $139.9 million, yielding 8.60%. The reduced average
balance results from the Corporation's ongoing decision to
sell substantially all of its fixed rate mortgage
originations in the national secondary mortgage market, while
the current low long term interest rate market has prompted
borrowers to primarily choose fixed rate loan products.
Several investments in the Corporation's investment
portfolio featured callable provisions and since the 1997
comparable period the issuers of these investments have
redeemed the securities. As a result both the average
balance and the average yield of the Corporation's
investment portfolio has decreased and prompted a reduction
in interest income of $100,494. For the six months ending
December 31, 1998 investment interest income totaled
$48,814, compared to $149,308 for the December 1997 six
month period. The average balance of the portfolio was
$4.6 million, yielding 6.48%, and $1.7 million, yielding
5.58%, for the six months ending December 31, 1997 and
1998, respectively. As a result of a decrease in loans
receivable during the 1998 six month period,
the Corporation has recognized additional
interest income from cash and cash equivalents. For the
six months ending December 31, 1998 interest from these
short term investments, typically federal funds sold,
equaled $32,021, compared to $9,202 for the same period one
year ago.
As previously described, the reduction in the Corporation's
assets has funded a reduction in deposits and borrowings.
Interest paid to depositors for the six months ending
December 31, 1998 totaled $2,611,575, compared to
$2,781,783 during the 1997 six month period. The decrease
is directly related to a decline in the average balance and
cost of deposits. For the 1998 six month period the
average balance of deposits totaled $113.0 million, costing
4.62%, while the average balance was $114.6 million,
costing 4.85% during the six month period in 1997. The
same correlation is true relative to the Corporation's FHLB
advances. The average balance of FHLB advances was $15.5
million, costing 5.26%, and $22.9 million, costing 5.86%,
for the six month periods ending December 31, 1998 and
1997, respectively. As a result, interest expense on the
Corporation's borrowing were $406,910 for the six months
ending December 31, 1998, a decrease of $263,980 compared
to the six months ending December 31, 1997.
<PAGE>
Provisions for loan loss 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 loss totaled $150,000. No
provision was charged against earnings during the six
months ending December 31, 1998. At December 31, 1998 the
Corporation's total allowance for loan losses was
$1,397,232, compared to $1,495,592 at December 31, 1997.
Other income earned by the Corporation has increased by
$107,575, or 18.54%, to $687,963 for the six months ending
December 31, 1998, compared to $580,388 for the comparable
period. The majority of the increase is attributable to
other operating income, which has risen $100,363 to
$203,912, and is a direct result of $55,000 in gains
recorded from the sale of real estate acquired through
foreclosure during the 1998 period, as well as from
increased earnings from the Bank's subsidiaries, ES&L
Financial Services and ES&L Mortgage Corporation, which
have recorded notable increases in income during the
current period when compared to six month 1997 period.
Gains recorded from the sale of mortgages contributed
$291,257 in income during the first six months of the 1999
fiscal year, an increase of $51,058 over the same period
one year ago, and results from the increase in sales of
fixed rate mortgage originations in the national secondary
mortgage market. Income from loan servicing decreased by
$46,277 to $87,385 during the six months ending 12/31/98.
As previously stated, the decrease results from an increase in
the amortization of the value of mortgage servicing, in
accordance with Financial Accounting Standards No. 122
(SFAS 122) entitled "Accounting for Mortgage Servicing
Rights."
During the six months ending December 31, 1998 total other
expenses equaled $1,690,121, an increase of $100,595, or
6.33%, compared to the December 1997 six month period.
Employee compensation and benefits increased $45,920 to
$988,850 for the six month 1998 period, as a result of
annual salary adjustments for employee wages and directors'
fees, as well as increases in the cost of some employee
benefits. Office occupancy and equipment expense totaled
$281,044 for the current period, an increase of $58,271,
compared to the same period a year ago. This is
attributable to increased expenses from third party service
providers, some off which had been offset by account
credits in the comparable period. Additionally, under
Section 179 of the IRS Code, the Corporation has elected to
fully expense approximately $14,000 more of the total cost
of certain equipment purchases during the December 1998 period,
than the December 1997 quarter.
The Corporation's net income tax provision was $615,197 and
$606,693 for the six months ending December 31, 1998 and
1997, respectively.
<PAGE>
YEAR 2000 CONSIDERATIONS:
"Year 2000 Readiness Disclosure"
A great deal of information has been disseminated
about the possible computer problems that may occur in the
year 2000. Many computer programs that can only
distinguish the final two digits of the year (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 function all together.
Rapid and accurate data processing is essential to the
operation of the Corporation and, as a result, during 1997
the Corporation developed a Year 2000 preparedness plan.
This plan was submitted and approved by the Corporation's
Board of Directors in July 1997, and was subsequently
submitted to the Office of Thrift Supervision (OTS). We
have established an internal committee that meets monthly
to continually review the plan and monitor its' ongoing
testing.
The Corporation has tested all of our internal systems
for Year 2000 readiness. We found that the vast majority
of our equipment was ready for the Year 2000, and plans
have beed made to replace the small amount of equipment
that was not.
Our plan also established procedures to contact and
monitor the Year 2000 preparedness of third part 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 continues the ongoing
process of testing their plan.
All other major service providers have been contacted
and have provided us with information regarding their Year
2000 plans. 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 our year 2000 preparedness.
<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 December 31, 1998 and
June 30, 1998, respectively:
<TABLE>
<CAPTION>
12-31-98 06-30-98
<S> <C> <C>
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential $ 51,614.91 $ 183,402.11
Commercial 403,997.93 29,393.54
Commercial/Line of Credit 115,827.09 50,824.75
Consumer/Home Equity 33,900.18 32,306.68
Commercial(Non-Mortgage) 87,157.30 0.00
Education 0.00 0.00
Consumer 17,059.74 17,059.74
Other 0.00 0.00
Total $ 709,557.15 $ 312,986.82
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential $ 59,194.25 $ 0.00
Commercial 0.00 0.00
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 2,487.83 0.00
Other 0.00 0.00
Total $ 61,682.08 $ 0.00
Total of non-accrual &
90 days past due loans $ 771,239.23 $ 312,986.82
Percentage of total loans 0.58% .23%
Other non-performing
assets $ 225,000.00 $ 485,226.45
</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 December 31, 1998 and June 30, 1998 respectively:
<CAPTION>
12-31-98 06-30-98
PERCENT PERCENT
OF OF
AMOUNT ASSETS (1) AMOUNT ASSETS (1)
<S> <C> <C> <C> <C>
Tangible Capital 14,444,860.06 9.95% 13,539,631.76 8.94%
Tangible Capital
Requirement 2,105,657.00 1.50% 2,272,853.87 1.50%
Excess 12,339,203.06 8.45% 11,266,777.89 7.44%
Core Capital 14,444,860.06 9.95% 13,539,631.76 8.94%
Core Capital
Requirement 4,211,314.01 3.00% 4,545,707.74 3.00%
Excess 10,233,546.05 6.95% 8,993,924.02 5.94%
Core and
Supplementary
Capital 15,672,874.25 15.63% 14,805,014.30 14.65%
Current
Risk-Based Capital
Requirement. 7,851,158.44 8.00% 8,087,251.21 8.00%
Excess 7,821,715.80 7.63% 6,717,763.09 6.65%
<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>
12-31-98 06-30-98
<S> <C> <C>
Tangible Assets - 140,377,133.64 151,523,591.12
Risk Weighted Assets - 98,139,480.56 101,090,640.15
</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 1998 annual meeting of stockholders
on Monday, October 26, 1998.
(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 were 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, 1999.
1. Election of Directors: For Against
L. Edward Considine 711,010 775
Jack H. Mikkelsen 711,010 775
Frederick J. Molter 711,010 775
2. Ratification of Appointment of Auditors:
For Against Abstain
709,660 270 1,855
(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 19, 1999, the Board of Directors of ES&L Bancorp,
Inc. declared a cash dividend of $0.25 per share. The total of
dividends to be paid will be $207,968. The dividend will be paid
on February 26, 1999 to stockholders of record on February 12,
1999.
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 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2200476
<SECURITIES> 2473727
<RECEIVABLES> 135292156
<ALLOWANCES> (1397232)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2838766
<DEPRECIATION> 0
<TOTAL-ASSETS> 143998902
<CURRENT-LIABILITIES> 128944149
<BONDS> 0
0
0
<COMMON> 8628
<OTHER-SE> 15046125
<TOTAL-LIABILITY-AND-EQUITY> 128944149
<SALES> 0
<TOTAL-REVENUES> 6409557
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1690121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2703109
<INCOME-PRETAX> 1700951
<INCOME-TAX> 615197
<INCOME-CONTINUING> 1085754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1085754
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
