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, 1999
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. 831,422
ES&L BANCORP, INC. AND SUBSIDIARIES
March 31, 1999
Index Page
Part I - Financial Information
Item 1 - Financial Statements:
Consolidated Statements of Financial 1
Condition as of March 31, 1999 (Unaudited)
and June 30, 1998
Consolidated Statements of Income 2
(Unaudited) for the three months and
nine months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows 3
(Unaudited) for the nine months ended
March 31, 1999 and 1998
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
Year 2000 Information 11
Non-Performing Loans at March 31, 1999 and 12
June 30, 1998
Risk-Based Capital Information at March 31, 13
1999 and June 30, 1998
Part II - Other Information 16
Signatures 18
E S & L BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition as of
March 31, 1999(Unaudited) and June 30, 1998
MAR. 31, JUNE 30,
1999 1998
(Unaudited) (1)
ASSETS --------------------------
Cash and Cash Equivalents $ 6,350,318 7,367,355
Investment Securities Held for Sale 166,976 81,915
Investment Securities, Approximate market
value of $19,978 and $1,026,199 at 03/31/99
and 06/30/98 respectively. 19,991 1,025,244
Mortgage-Backed Securities Held for Sale 907,337 1,212,122
Mortgage-Backed Securities, Approximate
market value of $127,811 at 03/31/99
and $136,478 at 06/30/98, respectively 127,811 136,478
Mortgage Loans Held For Sale 3,970,481 8,231,474
Loans Recievable, Net 123,652,022 126,181,335
Federal Home Loan Bank Stock, at cost 1,313,100 1,313,100
Foreclosed Real Estate-Real Estate Owned 50,303 485,226
Investment In Joint Venture:
Acquisition, Development & Construction Proj 626,988 765,952
Mortgage Banking Partnership 181,687 197,646
Property and Equipment, Net 2,830,709 2,901,870
Accured Interest Recievable 678,985 775,316
Other Assets 2,187,945 1,485,171
------------------------
Total Assets $ 143,064,653 152,160,204
========================
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities:
Deposits $ 111,955,470 112,179,831
Advances - FHLB of N. Y. 13,439,546 21,897,091
Other Borrowings 0 0
Accrued Interest Payable:
Deposits 2,005 7,607
Borrowings 80,540 84,614
Advances From Borrowers For
Taxes and Insurance 1,720,965 2,982,958
Other Liabilities 503,447 507,433
------------------------
Total Liabilities $ 127,701,973 137,659,534
------------------------
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,
respectively $ 8,628 8,560
Additional Paid-In-Capital 2,671,155 2,599,654
Retained Earnings - Substantially
Restricted 13,216,784 12,219,480
Net Unrealized Gain/(Loss) on
Invsetments Held for Sale 18,456 57,069
Treasury Stock (31,344 & 24,194 shared,
respectively), at cost (552,343) (384,093)
------------------------
Total Stockholders' Equity $ 15,362,680 14,500,670
Total Liabilities & Stockholder $ 143,064,653 152,160,204
========================
Shares Outstanding 831,422 831,773
========================
(1): Amounts at June 30, 1998 have been extracted from the audited
financial statements at that date and condensed.
BOOK VALUE 18.48 17.43
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Interest Income:
Loans $2,682,710 2,950,791 $8,280,274 8,966,390
Investment Securities 22,732 58,875 71,546 208,183
Mortgage-Backed Securities 19,173 27,320 62,368 85,307
Interest-Earning Deposits
and Other 24,810 5,735 56,831 14,937
-------------------------------------------
Total Interest Income 2,749,425 3,042,721 8,471,019 9,274,817
Interest Expense:
Deposits 1,237,443 1,366,487 3,849,018 4,148,270
Borrowings 195,968 275,583 602,878 946,473
-------------------------------------------
Total Interest Expense 1,433,411 1,642,070 4,451,896 5,094,743
Net Interest Income 1,316,014 1,400,651 4,019,123 4,180,074
Provision For Loan Losses 0 75,000 0 225,000
-------------------------------------------
Net Interest Inc After Provision
for Losses 1,316,014 1,325,651 4,019,123 3,955,074
Other Income:
Service Fees And Other Charges 37,574 36,054 121,639 120,156
Gain on the Sale of Investment 0 5,118 7,344 6,494
Income From Loan Servicing 29,644 60,744 117,029 194,406
Other Operating Income 101,885 52,634 305,797 156,183
Income from Joint Venture 5,677 23,317 19,677 40,817
Gain on Sale of Mortgages 293,550 117,069 584,807 357,268
-------------------------------------------
Total Other Income 468,330 294,936 1,156,293 875,324
Other Expenses:
Employee Compensation & Benefi 575,241 483,342 1,564,091 1,426,272
Office Occupancy and Equipment 142,507 143,724 423,551 366,497
Federal Deposit Insurance Prem 26,568 29,155 83,086 85,983
Other 176,864 189,983 540,573 556,978
-------------------------------------------
Total Other Expenses 921,180 846,204 2,611,301 2,435,730
-------------------------------------------
Income Before Taxes 863,164 774,383 2,564,115 2,394,668
Income Taxes 326,386 289,333 941,583 896,026
-------------------------------------------
NET INCOME $ 536,778 485,050 $1,622,532 1,498,642
===========================================
Earnings Per Share: $ 0.65 0.58 $ 1.95 1.79
===========================================
Dividend Per Common Share $ 0.25 0.17 $ 0.75 1.51
===========================================
Average Common Shares Outstanding 831,542 833,773 832,433 837,668
===========================================
E S & L BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAR. 31,
1999 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATION ACTIVITIES
Net Income $ 1,622,532 $ 1,498,642
Adjustments To Reconcile Net Income To Net
Cash Provided from Operating Activities:
Depreciation 133,875 134,714
Provision For Loan Losses 0 225,000
Net Amortization of Premiums & Discounts 330,607 142,807
Deferred Loan Origination Fees (9,910) (9,423)
(Income)/Loss from ADC Joint Venture (19,677) (40,817)
Changes in Certain Assets and Liabilities:
Mortgage Loans Held For Sale 4,260,993 (5,794,441)
Foreclosed Real Estate 434,923 (19,000)
Accured Interest Receivable 96,331 59,376
Other Assets (702,774) (294,744)
Accrued Interest Payable (9,676) (6,633)
Advances From Borrowers For
Taxes and Insurance (1,261,993) (786,876)
Other Borrowings 0 0
Other Liabilities (3,986) 21,542
--------------------------
Net Cash (Used For) Provided From Operating
Activities $ 4,871,245 $ (4,869,853)
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net Other Increase In Loans Receivable 2,237,077 3,119,519
Investment In Joint Ventures 154,923 (171,565)
Proceeds From Sale of Foreclosed Real Estate 0 241,400
Purchase of FHLB Stock 0 0
Proceeds from Maturities of Investments 1,005,253 2,996,062
Purchase of Investment Securities (100,778) 0
Change in Mark to Market Adjustment Items 64,352 (8,361)
Principal Reductions On Mortgage-Backed Securitie 264,815 112,043
Purchases Of Property & Equipment, Net (62,714) (17,983)
--------------------------
Net Cash Provided From (Used For) Investing
Activities $ 3,562,928 $ 6,271,115
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest Credited To Dep. Accts., Excl. Escrow Ac 3,841,782 4,143,777
Net Other (Decrease) Increase in Deposits (4,066,143) (2,360,613)
Payments On Advances From Federal Home Loan Bank (10,457,545) (67,857,087)
Proceeds From Advances From Federal Home Loan Ban 2,000,000 66,800,000
Proceeds From Exercise of Stock Options 24,176 0
Purchase of Treasury Stock (168,250) (233,722)
Dividends Paid on Common Stock (625,230) (1,274,467)
--------------------------
Net Cash (Used For) Provided From Financing $ (9,451,210)$ (782,112)
Net Increase (Decrease) In Cash Equivalents (1,017,037) 619,150
Cash and Cash Equivalents At Beginning Of Period 7,367,355 722,932
--------------------------
Cash and Cash Equivalents At End of Period $ 6,350,318 $ 1,342,082
==========================
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 nine months ending
March 31, 1999 and 1998 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, 1999 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:
March 31, 1999 March 31, 1998
Three Months Ended 831,542 833,773
Nine Months Ended 832,433 837,668
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.
FINANCIAL CONDITION:
The Corporation's total assets at March 31, 1999 were $143,064,653,
a decrease of $9,095,551, or 5.98%, when compared to the July 1, 1998
start of the Corporation's 1999 fiscal year. The majority of the
decrease, $6,790,306, is related to a decrease in the combined total of
the Corporation's net loans receivable and mortgage loans held for sale.
The Corporation originates substantially all of its fixed rate residential
mortgages for sale in the national secondary mortgage market, while keeping
adjustable rate loan originations in its portfolio. The interest rate
environment, which has persisted during the first three quarters of the
Corporation's 1999 fiscal year, has prompted the majority of borrowers for
whom the Corporation has originated residential mortgage loans to choose
fixed rate mortgages. These have been subsequently sold, servicing retained,
by the Corporation. During the period ending March 31, 1999, the
Corporation's cash and cash equivalents and investment securities portfolio
have also decreased by approximately $1 million each.
The funds generated by the decrease in total assets have been used primarily
to reduce the Corporation's borrowings, Advances from the Federal Home Loan
Bank of New York (FHLB Advances), which have decreased by $8,457,545, or
38.62%, to $13,439,546 at March 31, 1999. The Corporation's advances from
borrowers for taxes and insurance has decreased by $1,261,993, or 42.31%,
to $1,720,965.
The Corporation's stockholders' equity totaled $15,362,680 at March 31,
1999, an increase of $862,010, or 5.94%, since the start of the 1999
fiscal year.
RESULTS OF OPERATIONS: QUARTER ENDING MARCH 31, 1999 AND
MARCH 31, 1998
Net interest income was $1,316,014, for the quarter ending March 31, 1999, a
decrease of $84,637, or 6.04% when compared to the same quarter of the
previous fiscal year.
For the three months ending March 31, 1999 the Corporation's interest income
decreased by $293,296, or 9.64%, and totaled $2,749,425. The majority of
the decrease in attributable to a decline in the average balance and average
yield of the Corporation's loan portfolio. The Corporation's average loan
portfolio totaled $132.0 million, yielding 8.13%, for the quarter ending
March 31, 1999, compared to $138.9 million, yielding 8.50%, for the quarter
ending March 31, 1998. This reduction prompted a $268,081, or 9.09%,
decrease in interest earned on the loan portfolio. Interest derived from
the loan portfolio totaled $2,682,710 and $2,950,791, for the quarters
ending March 31, 1999 and 1998, respectively. As was previously mentioned,
the Corporation originates substantially all of its fixed rate mortgage
origination for sale in the national secondary mortgage market. The
continuation of a relatively flat yield curve has prompted borrowers,
more often than not, to choose fixed rate mortgage products when purchasing
new homes or opting to refinance. Interest earned on the Corporation's
investment security portfolio has also decreased, by $36,143, to $22,732 for
the March 1999 quarter. The Corporation's investment portfolio contained
several investments that featured callable provisions, which were exercised
by the issuer during the current fiscal year. As a result the average
balance and yield of the investment portfolio has decreased from $3.4
million, yielding 7.02%, for the three months ending March 31, 1998 to
$1.6 million, yielding 5.67%, at March 31, 1999. The decrease in net loans
receivable and mortgage loans held for sale, mentioned earlier, resulted
in an increase in the average balance of interest earning deposits (cash
and cash equivalents) held by the Corporation during the March 1999 quarter,
compared to the same quarter a year ago. The average balance was $2.4
million, yielding 4.10%, during the three months ending March 31, 1999,
compared to $663,000, yielding 3.46%, during the three months ending
March 31, 1998. The effect is that interest earned on these deposits
totaled $24,810 for the March 1999 quarter, an increase of $19,075 over
the comparable period.
During the March 1999 quarter the Corporation recorded a $208,659 decrease
in interest expense, which totaled $1,433,411, compared to $1,642,070 for
the three months ending March 31, 1998. Interest paid on deposits totaled
$1,237,443 for the March 1999 period, a decrease of $129,044, or 9.44%, and
was the result of a combination $2.0 million decrease in the average balance
and a 37 basis point reduction in the average cost of deposits. For the
three months ending March 31, 1999 average deposits totaled $112.5 million,
costing 4.40%, compared to $114.5 million, costing 4.77% for the three
months ending March 31, 1998. A decrease in the average balance of FHLB
Advances, from $19.8 million, during the March 1998 quarter, to $14.1
million,during the March 1999 quarter, prompted a $79,615 reduction in
interest expense paid on borrowings. The average cost of the borrowings
remained relatively unchanged during the two periods and the remaining
balance of outstanding FHLB Advances represents fixed maturity borrowings
which the Corporation is unable to prepay, without incurring substantial
penalties.
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 March 31, 1998 the Corporation's
provision for loss totaled $75,000. No provision was charged against
earnings during the quarter ending March 31, 1999. At March 31, 1999 the
Corporation's total allowance for loan losses was $1,395,606, compared to
$1,522,310 at March 31, 1998.
The Corporation's total other income during the quarter ending March 31,
1999 equaled $468,330, an increase of $173,394, or 58.79%, compared to
$294,936 for the comparable period. The majority of the increase is related
to gains from the sale of mortgages. As previously reported the Corporation
sells substantially all of its fixed rate residential mortgage originations
into the national secondary mortgage market. During the 1999 fiscal year
the Bank, and its mortgage banking affiliates, have experienced a tremendous
increase in mortgage origination activity. The result of which is an
increase in gains from the sale of the mortgages. For the quarter ending
March 31, 1999 these gains totaled $293,550, compared to $117,069 the year
earlier. The Corporation also reported a $49,251 increase in other
operating income, which totaled $101,885 for the March 1999 period.
The majority of the increase, $38,500, is the result of the collection of
two Court awarded judgments the Corporation had received upon completion of
foreclosure deficiency actions. For the quarter ending March 31, 1999 the
Corporation recognized a $31,100 reduction in loan servicing income, which
totaled $29,644 for the current period and $60,744 for the comparative
period. 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 accounting adjustment, mortgage servicing
income would have increased by more than $45,000. Income generated from
the Corporation's unconsolidated land development joint venture totaled
$5,677 for the March 1999 quarter, compared to $23,317 during the March
1998 quarter. Income is recognized as a result of lot sales. There were
fewer lot sales during the March 1999 period.
Total other expenses of the Corporation equaled $921,180 for the quarter
ending March 31, 1999, an increase of $74,976, or 8.86%, compared to
$846,204 during the March 1998 quarter. Employee compensation and benefit
expense totaled $575,241 for the current period, an increase of $91,899,
or 19.01%. The increase is attributable to annual salary adjustments for
employee wages and directors' fees, as well as the increased cost of certain
benefits. In addition, a portion of the increase is to the Corporation's
officer and manager incentive payment plan. Other operating expense
decreased $13,119, or 6.91%, to $176,864 for the quarter ending March 31,
1999. The majority of the reduction is related to a decline in mortgage
origination expenses.
The Corporation's income tax provision was $326,386 for the quarter ending
March 31, 1999, compared to $289,333 during the March 1998 quarter. The
increase is directly related to the increase in the Corporation's pre-tax
income.
RESULTS OF OPERATIONS: NINE MONTHS ENDING MARCH 31, 1999 AND
MARCH 31, 1998
During the nine months ending March 31, 1999 the Corporation's net interest
income totaled $4,019,123, a decrease of $160,951, or 3.85%, when compared to
net interest income of $4,180,074 recorded during the nine month period ending
March 31, 1998.
Total interest income recorded by the Corporation for the nine month period
ending March 31, 1999 equaled $8,471,019, a decrease of $803,798, or 8.67%
from the comparable period. The majority of the interest income recorded by
the Corporation is earned from its loan portfolio, which decreased by
$686,116, or 7.65%, to $8,280,274 for the nine months ending March 31, 1999.
The reduction in loan interest is attributable to a $6.1 million decrease
in the average balance and a 29 basis point decrease in the average yield
of the loan portfolio. As has been previously reported, the Corporation
originates substantially all of its new fixed rate residential mortgage
originations for sale in the national secondary mortgage market. And while,
during the nine month 1999 period, a record volume of new mortgages have
been originated by the Bank and its mortgage banking affiliates, the
current interest rate environment has prompted borrowers to choose fixed
rate mortgage products, rather than the adjustable rate loans which are
retained in the Corporation's loan portfolio. The Corporation's average
loan portfolio totaled $139.5 million, yielding 8.57%, and $133.4 million,
yielding 8.28%, for the nine month periods ending March 31, 1998 and 1999,
respectively. Similarly, a reduction in the average balance and average
yield of the Corporation's investment portfolio has resulted in a $136,637
decrease in interest earned from these assets. At the beginning of the
1999 fiscal year the investment portfolio included several investments
which featured callable provisions, and the issuers have exercised these
provisions during the current fiscal year. As a result, the average
balance of the portfolio has decreased from $4.2 million, yielding 6.60%,
for the nine months ending March 31, 1998, to $1.7 million, yielding 5.60%,
for the nine months ending March 31, 1999. Total earnings on the investment
portfolio equaled $208,183 and $71,546, for the nine months periods ending
March 31, 1998 and 1999, respectively. The average balance of the
Corporation's interest earning deposits (cash and cash equivalents) have
increased as a result of the funds generated from the reduction in the
Corporation's loan portfolio. As a result, interest income from interest
earning deposits has increased by $41,894, to $56,831 for the nine months
ending March 31, 1999.
The Corporation's interest expense has decreased $642,847, or 12.62%, to
$4,451,896 for the 1999 nine month period, compared to $5,094,743 for the
1998 nine month period. Interest paid to depositors totaled $3,849,018
during nine months ending March 31, 1999, a reduction of $299,252, or 7.21%,
from the comparable period. A decrease in both the average balance and cost
of deposits contributed to the reduction, although the majority of the
decrease(approximately $222,000) was a direct result of the decrease in
average cost. Average deposits totaled $114.5 million, costing 4.83%, and
$112.8 million, costing 4.55%, for the nine months ending March 31, 1998
and 1999, respectively. It was earlier reported that the Corporation has
funded the reduction in its FHLB Advances by utilizing the funds generated
from its reduction in total assets. As a result the average balance of
FHLB Advances has decreased from $21.8 million, for the nine months ending
March 31, 1998 to $14.9 million, for the 1999 nine month period. At the
same time the average cost of these borrowing has decreased from 5.79% to
5.39% for the 1998 and 1999 nine months, respectively. Overall, total
interest on borrowings has decreased by $343,595, to $602,878 for the
current period.
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 nine months ending March 31, 1998 the Corporation's
provision for loss totaled $225,000. No provision was charged against
earnings during the nine months ending March 31, 1999. At March 31, 1999
the Corporation's total allowance for loan losses was $1,395,606, compared
to $1,522,310 at March 31, 1998.
During the nine months ending March 31, 1999, the Corporation's total other
income increased by $280,969, or 32.10%, to $1,156,293 compared to $875,324
for the nine months ending March 31, 1998. Gains on the sale of mortgages
totaled $584,807 for the March 1999 nine month period, an increase of
$227,539, or 63.69% over the comparable period a year ago. The increase is
attributable to significant increase in mortgage sales, resulting from the
record level of fixed rate residential mortgages originated for sale by the
Bank and its mortgage banking affiliates, during the first nine months of
the 1999 fiscal year. Other operating income from the Corporation rose
$149,614 to $305,797 for the nine months ending March 31, 1999. The
increase is largely the result of an approximately $69,400 increase in
gains on the sale of foreclosed property and the collection of $38,500 in
judgments awarded to the Bank as the result of two deficiency action
lawsuits. Additionally, earnings from the Bank's subsidiaries, ES&L
Financial Services and ES&L Mortgage Company, have increased in the current
period when compared to the nine months ending March 31, 1998. Income from
loan servicing has decreased by $77,377 to $117,029 for the period ending
March 31, 1999. As was stated earlier, the reduction is the result of
the amortization of the value of mortgage servicing, in accordance with
Financial Accounting Standards No. 122 (SFAS 122), entitled "Accounting for
Mortgage Servicing Rights. Without the impact of this accounting adjustment,
income from loan servicing would have increased by more than $111,000.
Other expenses of the Corporation total $2,611,301 for the nine months ended
March 31, 1999, an increase of $175,571, or 7.21%. Employee compensation and
benefits expense totaled $1,564,091 for the 1999 period, an increase of
$137,819, or 9.66%, compared to the 1998 nine month period. The increase is
the result of cost increases for employee wages, directors' fees and certain
benefit expenses. The Corporation has also incurred an increase in expense
related to its officer and manager incentive payment plan, which is directly
related to the Corporation's net income. Office occupancy and equipment
expense increased by $57,054, or 15.57%, to $423,551 for the nine months
ending March 31, 1999. This is attributable to expenses from third party
service providers, some of which had been offset by account credits in the
comparable period.
The Corporation's income tax provision totaled $941,583 for the nine months
ending March 31, 1999 and $896,026 for the comparable 1998 period. The
increase is directly related to the increase in the Corporation's pre-tax
income.
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.
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 March 31, 1999 and
June 30, 1998, respectively:
03-31-99 06-30-98
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential $ 0.00 $ 183,402.11
Commercial 352,292.08 29,393.54
Commercial/Line of Credit 80,873.35 50,824.75
Consumer/Home Equity 34,622.59 32,306.68
Commercial(Non-Mortgage) 35,433.66 0.00
Education 0.00 0.00
Consumer 17,059.74 17,059.74
Other 0.00 0.00
Total $ 520,281.42 $ 312,986.82
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential $ 0.00 $ 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 0.00 0.00
Other 0.00 0.00
Total $ 0.00 $ 0.00
Total of non-accrual &
90 days past due loans $ 520,281.42 $ 312,986.82
Percentage of total loans 0.41% .23%
Other non-performing
assets $ 50,303.26 $ 485,226.45
ELMIRA SAVINGS & LOAN, F.A.
RISK BASED CAPITAL CALCULATION
The table below presents the Association's capital position elative to
its various minimum statutory and regulatory equirements at March 31, 1999
and June 30, 1998 respectively:
03-31-99 06-30-98
PERCENT PERCENT
OF OF
AMOUNT ASSETS (1) AMOUNT ASSETS (1)
Tangible Capital 14,577,466.51 10.23% 13,539,631.76 8.94%
Tangible Capital
Requirement 2,137,518.50 1.50% 2,272,853.87 1.50%
Excess 12,439,948.01 8.73% 11,266,777.89 7.44%
Core Capital 14,577,466.51 10.23% 13,539,631.76 8.94%
Core Capital
Requirement 4,275,037.00 3.00% 4,545,707.74 3.00%
Excess 10,302,429.51 7.23% 8,993,924.02 5.94%
Core and
Supplementary
Capital 15,767,366.73 16.59% 14,805,014.30 14.65%
Current
Risk-Based Capital
Requirement. 7,604,344.96 8.00% 8,087,251.21 8.00%
Excess 8,163,021.77 8.59% 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.
03-31-99 06-30-98
Tangible Assets - 143,501,233.21 151,523,591.12
Risk Weighted Assets - 95,054,312.01 101,090,640.15
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 20, 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 $207,861. The dividend will be paid on May 28, 1999 to
stockholders of record on May 14, 1999.
Item 6 - Exhibits and Reports on Form 8-K
Not Applicable
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 17, 1999