[Empire State Bank, N.A. Letterhead]
May 11, 2006
VIA EDGAR AND FACSIMILE (202) 362-2902
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Mr. Kevin Vaughn
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
RE: ES Bancshares, Inc. Registration Statement on Form S-4
File No. 333-133029
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Dear Mr. Vaughn:
On behalf of ES Bancshares, Inc. (the "Registrant") and in accordance with
Rule 101 of Regulation S-T, set forth below is supplemental information
regarding the proposed accounting for the assumption of Empire State Bank's
organizer warrants by the Registrant.
SFAS 141, Business Combinations
The authoritative literature for the proposed transaction for the formation of a
Holding company by the Bank is SFAS 141, Business Combinations. Paragraph 11 of
this statement indicates that transfers of net assets or exchanges of equity
interests between entities under common control, such as Empire State Bank and
ES Bancshares, are controlled by paragraphs D11-D18 of Appendix D. Paragraph D12
states that when accounting for the exchange of shares between entities under
common control, the entity that receives the equity interests shall initially
recognize the assets and liabilities transferred at their carrying amounts in
the accounts of the transferring entity at the date of transfer. We believe that
this guidance will be the basis for accounting for this proposed transaction and
that no gains or losses will be recognized as a result of this proposed
transaction.
SFAS 123, Share-Based Payment
The Bank granted stock warrants to the organizers of the Bank in June 2004. At
that time, the Bank adopted and applied the fair value based method of
accounting under SFAS 123. This resulted in an expense of $323,000 at the date
of grant due to the immediate vesting of such warrants. The fair value was
calculated utilizing the Black Scholes Model.
In response to the Securities and Exchange Commission's inquiry regarding the
accounting rules as it relates to the stock warrants issued to the Bank's
organizers and the exchange of such warrants for holding company warrants, we
have summarized our interpretation of the application of SFAS 123(R) (As
Amended) "Share-Based Payment".
<page>
Mr. Kevin Vaughn
May 11, 2006
Page 2
Under the heading Key Provisions of This Statement of the Summary it is stated
that if an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the original award
immediately before the modification. Paragraph 51 provides further discussion as
it relates to modifications of awards of equity instruments. This paragraph
states that a modification of the terms or conditions of an equity award shall
be treated as an exchange of the original award for a new award. Paragraph 51a
again discusses the incremental compensation cost and the fact that this cost is
based on the excess, if any, of the fair value of the modified award over the
fair value of the original award immediately before its terms are modified.
Paragraph 53 indicates that exchanges of share options or other equity
instruments or changes to their terms in conjunction with an equity
restructuring or a business combination are modifications for purposes of this
statement and refers back to paragraph 51 for guidance. Paragraph 56 states that
the cancellation of an award accompanied by the concurrent grant of a
replacement award shall be accounted for as a modification of the terms of the
cancelled award thus resulting in the measurement of incremental compensation
cost as described in paragraph 51.
o Based on the proposed transaction, we will be exchanging the organizer
stock warrants issued by the Bank for stock warrants issued by the
holding company which results in a modification of terms of the
original award. If we calculate the fair value of the original award
immediately before the modification and of the new award immediately
after the modification, the result will be the same fair value since
there will be no changes to the strike price, expiration dates,
vesting, or other factors used in calculating the fair value utilizing
the Black Scholes model. In this regard, we note that the organizer
warrants will not be registered under the 1934 Act following the
completion of the transaction. As a result, no incremental
compensation cost will be recorded.
Sincerely,
/s/ Arthur W. Budich
Arthur W. Buditch,
Chief Financial Officer, ES Bancshares, Inc.
cc: Angel Connell