[LOGO OF ESB BANK]
[PHOTO OF ESB BANK APPEARS HERE]
ESB FINANCIAL
CORPORATION
2000
A N N U A L
R E P O R T
Table of Contents
Consolidated Financial Highlights................................................................... 1
Letter to Shareholders.............................................................................. 3
Selected Consolidated Financial Data................................................................ 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 7
Consolidated Financial Statements................................................................... 22
Notes to Consolidated Financial Statements.......................................................... 27
Report of Independent Auditors...................................................................... 51
Stock and Dividend Information...................................................................... 52
Corporate Information............................................................................... 54
Board of Directors.................................................................................. 55
Corporate Officers, Advisory Board and Bank Officers................................................ 56
Employees........................................................................................... 58
Office Locations...................................................................... Inside Back Cover
Company Profile
ESB Financial Corporation (Nasdaq: ESBF), a publicly
traded financial services company, provides a wide
[Logo of ESBF] range of retail and commercial financial products and
NASDAQ services to customers in Western Pennsylvania through
LISTED its wholly owned subsidiary bank, ESB Bank, F.S.B.
ESB Bank, F.S.B. is a federally chartered, FDIC-insured
stock savings bank which conducts business through 16
offices in Allegheny, Beaver, Butler and Lawrence
counties, Pennsylvania. To compliment retail operations
conducted through its bank offices, the Company invests
in U.S. Government, municipal and mortgage-backed
securities through its subsidiary savings bank and
through its investment subsidiary, PennFirst Financial
Services, Inc., a Delaware corporation.
Mission Statement
The mission of ESB Financial Corporation and its
subsidiaries is to effectively provide for the
financial needs of our customers and community while
creating value for our shareholders. Our mission will
be accomplished by growing in a profitable and
controlled manner; by identifying and meeting the
financial needs of our customers; by offering quality
products and services that are competitively priced and
serviced by a knowledgeable, attentive and friendly
staff; and by creating a positive work environment that
maximizes the alignment of customer and employee
objectives.
Consolidated Financial Highlights
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(Dollar amounts in thousands, except share data)
As of or for the
year ended December 31,
2000 1999 Change
----------- ----------- -------------
Total assets $1,200,150 $1,032,445 16%
Loans receivable, net 512,228 393,929 30%
Securities available for sale 605,414 561,125 8%
Total deposits 508,913 431,783 18%
Borrowed funds, including subordinated debt 612,204 543,627 13%
Stockholders' equity 68,263 49,882 37%
Treasury stock, at cost (21,915) (19,214) 14%
Net interest income 19,366 16,263 19%
Net income 6,733 5,761 17%
Net income per share (diluted) $ 1.16 $ 1.03 13%
Cash dividends per share $ 0.38 $ 0.33 15%
Return on average assets 0.59% 0.57% 4%
Return on average stockholders' equity 11.71% 9.93% 18%
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ESB Financial Corporation 1 2000 Annual Report
Consolidated Financial Highlights (continued)
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(Dollar amounts in thousands, except share data)
Earnings Per Share Growth (diluted)
(excluding 1996 SAIF Assessment)
[Bar Chart appears here]
$0.80 $0.89 $0.98 $1.03 $1.16
1996 1997 1998 1999 2000
Return on Stockholders' Equity
(excluding 1996 SAIF Assessment)
[Bar chart appears here]
8.08% 8.64% 9.10% 9.93% 11.71%
1996 1997 1998 1999 2000
Cash Dividends Declared Per Share
(excluding 1996 Special Cash Dividend)
[Bar chart appears here]
$0.27 $0.28 $0.32 $0.33 $0.38
1996 1997 1998 1999 2000
Asset & Loan Growth
(in millions)
[Bar Chart appears here]
[_] $217 $337 $360 $394 $512
[X] $699 $911 $972 $1,032 $1,200
1996 1997 1998 1999 2000
[X] Assets [_] Loans
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ESB Financial Corporation 2 2000 Annual Report
Letter to Shareholders
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[PHOTO OF CHARLOTTE A. ZUSCHLAG APPEARS HERE]
Dear Fellow Shareholder:
Each year it is my privilege to report the financial performance and other
accomplishments of ESB Financial Corporation for the past 12 months. Prior to
this review, I would like to offer a brief history and provide insight as to how
this Company with a proud past and, I believe, a dynamic future has developed.
ESB Financial Corporation evolved from Ellwood City Building and Loan
Association, which was a mutually owned financial institution originally
organized in 1915. The Association grew slowly but steadily over the years and
became a savings bank in 1989 with total assets of approximately $200 million.
By 2000, the Company grew into a publicly owned thrift holding company with nine
subsidiaries or jointly owned companies and assets of $1.2 billion. This
metamorphosis was the result of a well defined plan of strategic growth which
began with our conversion to a stock company in 1990, and was followed by the
acquisition of three other community banks (Economy Savings Bank in 1994, Troy
Hill Savings Bank in 1997 and Spring Hill Savings Bank in 2000), and included
the purchase of one branch and the opening of another. In 1998, we changed our
name to ESB Financial Corporation.
The nine companies under the ESB Financial Corporation umbrella provide a
combination of functions that make available both retail products and services
and financial support that is critical to the efficient operation of the holding
company. Of the nine companies, many of us are most familiar with our community
bank, ESB Bank and its sixteen neighborhood locations. Two other companies that
directly enhance our retail banking operation are THF, Inc. and AMSCO, Inc.
THF, Inc. is a title insurance agency that provides the Bank's residential and
commercial lending departments with loan closing and title insurance services
giving us a competitive edge in settlement services. AMSCO, Inc. is a wholly
owned subsidiary of ESB Bank and engages primarily in land acquisition and
development. In the normal course of business, AMSCO participates in joint
ventures with local builders and developers. Current AMSCO activities consist of
ESB Bank Building Associates, McCormick Place Joint Venture and Madison Woods
Joint Venture. Our other companies, ESB Financial Services, Inc., PennFirst
Financial Services, Inc., and PennFirst Capital Trust I, all perform an integral
part in ESB Financial Corporation's success through activities intended to raise
capital, invest funds and reduce operating costs.
The successful integration of the community banks, Ellwood Federal, Economy,
Troy Hill and Spring Hill Savings, occurred primarily as the result of a shared
commitment by the Board of Directors and Management of each of these
organizations to the concept of community banking and to the financial and
social issues common to our shareholders, our employees, our customers and our
communities.
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ESB Financial Corporation 3 2000 Annual Report
Letter to Shareholders (continued)
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I believe the growth and sustained performance of the Company is due in large
part to the participation, involvement and oversight of our constituency who
have a vested interest in the Company in terms of ownership, employment or
reliance on the Company to meet their individual or community needs. These
constituents, who have both distinct and overlapping interests in the Company,
include:
The shareholders who are attentive to our financial performance and the
value enhancement of their investment. In this regard, I offer my
commitment to a comprehensive and successful strategy to increase Bank
earnings and to maximize long-term shareholder value. I appreciate the
trust and confidence that you have expressed in our company and I am
determined to maintain that trust.
The customers who rely on ESB Bank for competitively priced quality
products and services to meet their financial needs. As of December 31,
2000 the Bank provided financial services for approximately 31,000
households in terms of nearly 12,000 loans and 61,000 savings accounts
as well as various corollary products and services.
The employees who rely on the Company for stable employment, a positive
work environment and an opportunity to advance their careers. ESB
Financial Corporation employs 228 regular full time and part time
employees. As a group, the employees participating in the ESOP and
401(k) benefit plan have an additional stake in the company.
The communities in which we partner so that we both may prosper. We
pride ourselves in being a community bank, a bank that remembers and
helps its neighbors. Our community participation ranges from service by
employees to various chambers of commerce, rotary clubs, hospital
boards and meals on wheels, to Job Shadowing at the Bank, and our
"Casual for Charity Days Contributions." Last year alone, employee
donations matched by the Bank amounted to nearly $15,000 and groups
such as the McGuire Home, Toys for Tots, women's shelters and the
Ellwood City Fire Department benefited from this fund.
In December 2000, the Western Pennsylvania League of Financial Institutions
honored ESB Bank with the 2000 "Outstanding Community Development Program"
award. Our Community Reinvestment Department secured Affordable Housing Project
grants totaling $430,000 for two neighborhood projects that positively impacted
the lives of elderly neighbors on the North Side of Pittsburgh and a group of
chronically mentally ill citizens of Beaver Falls.
I am also proud to report that the Federal Home Loan Bank of Pittsburgh will
feature ESB Bank in its 2000 Annual Report and describes the Bank "as a key
corporate citizen in Ellwood City" that is responsive to its communities' needs
with people, money or both.
One of our goals for 2000 was to consummate the acquisition of SHS Bancorp, Inc.
and merge Spring Hill Savings Bank into ESB Bank. As anticipated, the successful
integration of SHS Bancorp during the first quarter of 2000 contributed to our
record performance in 2000. With the Spring Hill merger, the Bank joined the
Freedom ATM Alliance, which provides surcharge free access to over 250 ATM
machines in ten counties. Office expansion was another goal for 2000. In the
fall of 2000, we completed our main office expansion and renovation project,
which increased corporate headquarters in Ellwood City to nearly 66,000 square
feet. In November the Bank completed the renovation and modification of its
Beechview office.
For the year 2000, your Company posted record earnings per diluted share of
$1.16 on net income of $6.7 million, as compared to $1.03 per diluted share on
net income of $5.8 million in 1999. This represents a 12.6% increase over the
previous year. Return on average equity increased in 2000 to 11.71% as compared
to 9.93% in 1999. Company assets grew to a record $1.2 billion in 2000, up from
$1.0 billion in 1999 marking a 16.2% increase for the year. This increase in
assets can be primarily attributed to the merger of SHS Bancorp and the
continued growth in the loan portfolio. Strong residential mortgage demands
along with an aggressive consumer loan campaign resulted in loan originations of
$160.6 million for 2000.
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ESB Financial Corporation 4 2000 Annual Report
Letter to Shareholders (continued)
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Since we converted to a publicly held company in 1990, we have declared and paid
a cash dividend to our shareholders for 42 consecutive quarters. Your Board of
Directors remains committed to returning value to the shareholders. This
commitment was evident in 2000 by the Board's approval to change the Company's
dividend policy by increasing the quarterly cash dividend from $.09 per share to
$.10 per share. Also in 2000, the Company declared and paid a 10% stock
dividend, its ninth such stock dividend or stock split since its initial public
offering in 1990. The stock dividend paid along with the increase to the cash
dividend reflects a 13.89% yield to those original charter shareholders. As in
previous years, the Board of Directors approved a common stock repurchase
program and, for the year, the Company purchased approximately 280,000 shares
with a market value of $3.1 million.
While the Company continued to produce strong financial performance in 2000, the
Board and Management is cognizant that the year 2001 and beyond will present
significant challenges in terms of diversified and intense competition, rapidly
changing technology and uncertain market and economic environments. However, we
also recognize that the ability to successfully confront these challenges will
not only be the key to survival as a viable and competitive business entity but
will also provide new opportunities for increased profit and growth through new
lines of business which will offer more financial choices to our customers.
We intend to capitalize on these opportunities through the implementation of
prudent and responsive operating and technological strategies that will assure
controlled and profitable growth and long-term shareholder value. It is also
important that we retain the fundamental philosophies of safety, soundness and
service that have permitted our financial success over the years and the ability
to earn the trust and confidence of our customers.
I extend my sincere gratitude to you, our investors and our customers, for your
continued loyal support and patronage. I encourage your comments and suggestions
at any time.
In conclusion, I want to acknowledge and thank our Board of Directors and our
228 employees for their dedicated efforts and individual contributions that made
our accomplishments for this year possible.
Respectfully yours,
/s/ Charlotte A. Zuschlag
Charlotte A. Zuschlag
President and Chief Executive Officer
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ESB Financial Corporation 5 2000 Annual Report
Selected Consolidated Financial Data
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(Dollar amounts in thousands, except share data)
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As of December 31,
Financial Condition Data 2000 (1) 1999 1998 1997 1996
- ------------------------ -------------------------------------------------------------------
Total assets $1,200,150 $1,032,445 $ 972,438 $ 910,770 $ 698,735
Securities 605,414 561,125 545,049 518,021 444,329
Loans receivable, net 512,228 393,929 360,280 336,757 216,865
Deposits 508,913 431,783 423,051 399,568 332,889
Borrowed funds, including subordinated debt 612,204 543,627 480,382 435,170 309,195
Stockholders' equity 68,263 49,882 61,083 68,509 51,543
Stockholders' equity per common share (2) $ 11.36 $ 8.89 $ 10.55 $ 10.75 $ 9.93
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For the year ended December 31,
Operations Data 2000 (1) 1999 1998 1997 1996
- --------------- -------------------------------------------------------------------
Interest income $ 78,462 $ 64,792 $ 63,791 $ 55,011 $ 46,891
Interest expense 59,096 48,529 47,140 38,346 32,629
---------- ---------- --------- --------- ---------
Net interest income 19,366 16,263 16,651 16,665 14,262
(Recovery of) provision for loan losses (55) 54 5 799 873
---------- ---------- --------- --------- ---------
Net interest income after (recovery of)
provision for loan losses 19,421 16,209 16,646 15,866 13,389
Noninterest income 2,893 3,056 1,939 1,075 679
Noninterest expense 14,338 12,427 11,067 9,510 10,535
---------- ---------- --------- --------- ---------
Income before income taxes 7,976 6,838 7,518 7,431 3,533
Provision for income taxes 1,243 1,077 1,517 1,984 703
---------- ---------- --------- --------- ---------
Net income $ 6,733 $ 5,761 $ 6,001 $ 5,447 $ 2,830
========== ========== ========= ========= =========
Basic net income per common share (2) $ 1.18 $ 1.05 $ 1.02 $ 0.93 $ 0.55
Diluted net income per common share (2) $ 1.16 $ 1.03 $ 0.98 $ 0.89 $ 0.54
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As of or for the year ended December 31,
Other Data 2000 (1) 1999 1998 1997 1996
- ---------- -------------------------------------------------------------------
Performance Ratios (for the year ended)
Return on average assets 0.59% 0.57% 0.63% 0.68% 0.41%
Return on average equity 11.71% 9.93% 9.10% 8.64% 5.47%
Average equity to average assets 5.03% 5.79% 6.93% 7.92% 7.50%
Interest rate spread (3) 1.86% 1.77% 1.70% 1.95% 1.98%
Net interest margin (3) 2.00% 1.97% 2.06% 2.34% 2.33%
Efficiency ratio (3) 55.36% 54.34% 49.13% 45.56% 47.98%
Noninterest expense to average assets 1.25% 1.24% 1.16% 1.20% 2.71%
Dividend payout ratio (4) 31.38% 31.86% 32.59% 31.80% 120.00%
Asset Quality Ratios (as of year end)
Non-performing loans to total loans 0.49% 1.04% 1.31% 1.08% 1.80%
Non-performing assets to total assets 0.37% 0.43% 0.51% 0.45% 0.59%
Allowance for loan losses to total loans 0.92% 1.16% 1.26% 1.36% 1.46%
Allowance for loan losses to non-performing loans 188.96% 111.29% 96.67% 126.43% 81.02%
Capital Ratios (as of year end)
Stockholders' equity to assets 5.69% 4.83% 6.28% 7.52% 7.38%
Tangible stockholders' equity to tangible assets 5.09% 4.25% 5.61% 6.76% 6.78%
- -------------------------------------------------------------------------------------------------------------------------------
(1) Selected consolidated financial data for 2000 reflects increases due to the
merger with SHS, noted on page 8.
(2) Stockholders' equity, basic net income and diluted net income, per common
share for the years ended December 31, 2000 to December 31, 1996 have been
adjusted for the 10% stock dividend declared and paid in the second quarter
of 2000. Also, the years ended December 31 1997 and December 31, 1996 have
been adjusted for the 10% stock dividend declared and paid in the second
quarter of 1998.
(3) Interest income utilized in calculation is on a fully tax equivalent basis.
(4) Dividend payout ratio calculation utilizes diluted net income per share for
all periods, and includes special cash dividend of $.38 per share in 1996.
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ESB Financial Corporation 6 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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Overview
- --------
ESB Financial Corporation (the Company) is a Pennsylvania corporation and thrift
holding company that provides a wide range of retail and commercial financial
products and services to customers in Western Pennsylvania through its wholly-
owned subsidiary bank, ESB Bank, F.S.B. (ESB or the Bank). The Company is also
the parent company of PennFirst Financial Services, Inc., a Delaware corporation
engaged in the management of certain investment activities on behalf of the
Company, PennFirst Capital Trust I, a Delaware statutory business trust
established during 1997 to facilitate the issuance of trust preferred securities
to the public by the Company and THF, Inc., a Pennsylvania corporation
established to provide loan closing services and issue title insurance.
ESB is a federally chartered, Federal Deposit Insurance Corporation (FDIC)
insured stock savings bank, which conducts business through 16 offices in
Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania. ESB operates two
wholly-owned subsidiaries, AMSCO, Inc., which engages in the management of
certain real estate development partnerships on behalf of the Company and ESB
Financial Services, Inc., a Delaware corporation.
ESB is a financial intermediary whose principal business consists of attracting
deposits from the general public and investing such deposits in real estate
loans secured by liens on residential and commercial properties, consumer loans,
commercial business loans, securities and interest-earning deposits.
The Company and ESB are subject to examination and comprehensive regulation by
the Office of Thrift Supervision (OTS), the chartering authority of ESB, and the
FDIC, the administrator of the Savings Association Insurance Fund (SAIF). ESB is
a member of the Federal Home Loan Bank (FHLB) of Pittsburgh, which is one of the
twelve regional banks comprising the FHLB System. ESB is further subject to
regulations of the Board of Governors of the Federal Reserve System, which
governs the reserves required to be maintained against deposits and certain
other matters.
This Management Discussion and Analysis section of the Annual Report contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
significant risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, actual
results may differ materially from the results in these forward-looking
statements.
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ESB Financial Corporation 7 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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Significant Financial Events in 2000
- ------------------------------------
Merger of SHS Bancorp, Inc.
On February 10, 2000, the Company completed its acquisition of SHS Bancorp, Inc.
(SHS) and its subsidiary, Spring Hill Savings Bank, F.S.B. (Spring Hill), based
in Pittsburgh, Pennsylvania. Spring Hill was merged with and into ESB at the
close of business on May 5, 2000.
The acquisition was accounted for under the purchase method of accounting. Each
shareholder of SHS had the right to elect to receive either $17.80 in cash or
1.3 shares of Company common stock for each share of SHS common stock owned. The
total merger consideration was payable 60% in Company common stock and 40% in
cash. As a result of these elections, the consideration paid by the Company in
connection with the acquisition consisted of $6.4 million in cash and 599,000
shares of the Company's common stock. In addition, options to purchase shares of
SHS by SHS officers and directors were converted into options to acquire 43,000
shares of the Company's common stock.
At the acquisition date, the fair value of SHS' total consolidated assets was
$92.7 million, including loans receivable of $60.8 million. The fair value of
total consolidated liabilities was $79.1 million, including deposits of $67.1
million. Goodwill arising from this transaction was $2.1 million.
Dividends
On April 18, 2000, the Board of Directors declared a 10% stock dividend to
stockholders of record on May 17, 2000 and payable on May 31, 2000. All share
and related price and dividend amounts discussed herein have been adjusted to
reflect this stock dividend where applicable. Also in 2000, the Board of
Directors approved a change to the Company's dividend policy by increasing the
quarterly cash dividend from $.09 per share to $.10 per share.
Significant Financial Events in 1999
- ------------------------------------
Data Processing Conversion
On February 13, 1999, the Company completed a conversion of its third-party
provided legacy computer system to another third-party provided relational
database system. The decision to change third-party providers centered on
technology issues. The capitalized costs of $1.4 million associated with the
conversion are being depreciated over seven years.
Opening of the Wexford and Springdale Branches
On January 19, 1999, the Company opened its newly constructed full service
branch office located in Wexford, Allegheny County, a quarter mile north of the
former branch location. The office space is leased from ESB Bank Building
Associates, a joint venture of AMSCO, Inc., ESB's wholly owned subsidiary.
On December 6, 1999, the Company opened a full service branch office located in
Springdale, Allegheny County. The building, a former branch office of another
financial institution, was purchased on January 15, 1999.
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ESB Financial Corporation 8 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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Changes in Financial Condition
- ------------------------------
General. The Company's total assets increased a net $167.7 million or 16.2% to
$1.2 billion at December 31, 2000 from $1.0 billion at December 31, 1999. This
increase was primarily due to a net increase in securities of $44.3 million and
loans receivable of $118.3 million, resulting from the acquisition of SHS'
consolidated assets of $92.7 million and internal loan growth of $57.5 million.
The increase in the Company's total assets reflects a corresponding increase in
total liabilities of $149.3 million or 15.2% to $1.1 billion at December 31,
2000 from $982.6 million at December 31, 1999 and an increase in total
stockholders' equity of $18.4 million or 36.8% to $68.3 million at December 31,
2000 from $49.9 million at December 31, 1999. The increase in total liabilities
was primarily due to increases in deposits of $77.1 million and borrowed funds
of $68.5 million. The net increase in total stockholders' equity can be
attributed primarily to the $7.2 million issuance of shares of the Company's
common stock to partially fund the SHS acquisition and an increase in
accumulated other comprehensive income of $21.4 million, resulting from the
change in net unrealized gain or loss on securities, offset by increases in
treasury stock of $2.7 million and $2.2 million in cash dividends.
Cash on hand, Interest-earning deposits and Federal funds sold. Cash on hand,
interest-earning deposits and federal funds sold represent cash equivalents
which increased a combined $565,000 to $13.3 million at December 31, 2000 from
$12.8 million at December 31, 1999. Deposits from customers into savings and
checking accounts, loan and security repayments and proceeds from borrowed funds
typically increase these accounts. Decreases result from customer withdrawals,
new loan originations, security purchases and repayments of borrowed funds. The
net increase between December 31, 2000 and December 31, 1999 can be attributed
principally to increases in deposits and borrowed funds.
Securities. The Company's securities portfolio increased a net $44.3 million or
7.9% to $605.4 million at December 31, 2000 from $561.1 million at December 31,
1999. This net increase was the result of $128.0 million of purchases consisting
primarily of $86.7 million of mortgage-backed securities, $25.3 million of
corporate bonds and $15.4 million of municipal bonds, partially offset by $72.0
million of maturities and repayments of principal, and $49.4 million of
securities sold consisting primarily of $36.1 million of mortgage-backed
securities, $5.8 million of municipal securities, $4.6 million of agency bonds
and $2.1 million of corporate bonds and a decrease in the unrealized loss on
securities available for sale of $13.7 million (before taxes) during the year.
On June 30, 1999, the Company reclassified its held to maturity (HTM) portfolio
to the available for sale (AFS) portfolio. The transfer of securities from the
HTM portfolio has provided the Company with greater flexibility to restructure
the portfolio as needed, in order to attain the maximum overall yield on the
investment portfolio while maintaining acceptable levels of interest rate risk.
Loans receivable. Net loans receivable increased a net $118.3 million or 30.0%
to $512.2 million at December 31, 2000 from $393.9 million at December 31, 1999.
The increase in loans receivable can be attributed to the addition of Spring
Hill's loans receivable as a result of the merger and to internal growth within
the Company's mortgage loan portfolio. Mortgage loans increased $114.2 million
or 32.9% while other loans increased $10.6 million or 15.5%. Partially
offsetting the net increase in loans receivable was an increase in the Company's
allowance for loan losses, loans in process and deferred loan fees of $158,000,
$5.8 million and $522,000, respectively.
Non-performing assets. Non-performing assets include non-accrual loans and real
estate acquired through foreclosure (REO). Non-performing assets increased
$48,000 to $4.4 million or 0.37% of total assets at December 31, 2000 from $4.4
million or 0.43% of total assets at December 31, 1999. Non-performing assets
consisted of non-performing loans and REO of $2.6 million and $1.8 million,
respectively, at December 31, 2000 and non-performing loans and REO of $4.3
million and $71,000, respectively, at December 31, 1999.
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ESB Financial Corporation 9 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Accrued interest receivable. Accrued interest receivable increased $1.3 million
or 19.6% to $8.2 million at December 31, 2000 from $6.9 million at December 31,
1999, due primarily to the increase in average interest-earning assets between
years.
FHLB stock. FHLB stock increased $1.5 million or 7.9% to $19.9 million at
December 31, 2000 from $18.4 million at December 31, 1999, primarily as a result
of the increase in FHLB advances.
Premises and equipment. Premises and equipment increased $2.1 million or 30.5%
to $8.9 million at December 31, 2000 from $6.9 million at December 31, 1999,
primarily as a result of the construction costs at the main office and the
acquisition of SHS.
Prepaid expenses and other assets. Prepaid expenses and other assets decreased
$3.0 million or 17.9% to $13.6 million at December 31, 2000 from $16.6 million
at December 31, 1999. This net decrease can primarily be attributed to a
decrease in deferred tax assets of $4.7 million associated with the Company's
Statement of Financial Accounting Standards (SFAS) No. 115 mark to market
adjustments on the available for sale securities portfolio, offset primarily by
an increase in goodwill related to the SHS acquisition.
Bank owned life insurance. Bank owned life insurance is universal life
insurance, purchased by the Bank, on the lives of thirty-five employees. The
beneficial aspects of these universal life insurance policies are tax-free
earnings and a tax-free death benefit, which are realized by ESB as the owner of
the policies. The Company purchased the $15.0 million universal life insurance
policies on December 29, 1998. The cash surrender value as of December 31, 2000
is $16.6 million.
Deposits. Total deposits increased $77.1 million or 17.9% to $508.9 million at
December 31, 2000 from $431.8 million at December 31, 1999. Included in this
increase was the assumption of SHS' deposits associated with the merger and
internal deposit growth by the Company. For the year, the Company's,
interest-bearing demand deposits increased $12.8 million or 7.7%, time deposits
increased $62.8 million or 24.4% and noninterest-bearing deposits increased $1.5
million or 18.9%.
Advance payments by borrowers for taxes and insurance. Advance payments by
borrowers for taxes and insurance increased $1.3 million or 39.0% to $4.6
million at December 31, 2000 from $3.3 million at December 31, 1999. The
increase is primarily attributable to the acquisition of SHS.
Borrowed funds. Borrowed funds primarily include FHLB advances and reverse
repurchase agreement borrowings. Borrowed funds increased $68.5 million or 13.2%
to $588.1 million at December 31, 2000 from $519.6 million at December 31, 1999.
This increase was primarily the result of the addition of the borrowings related
to the SHS acquisition and the Company utilizing FHLB advances to fund the
increase in loans receivable and securities. FHLB advances increased $79.2
million or 24.9% and reverse repurchase agreement decreased $10.7 million or
5.3%.
Accrued expenses and other liabilities. Accrued expenses and other liabilities
increased $2.3 million or 60.7% to $6.1 million at December 31, 2000 from $3.8
million at December 31, 1999. This increase can primarily be attributed to the
acquisition of SHS.
Stockholders' equity. Stockholders' equity increased by $18.4 million or 36.8%
to $68.3 million at December 31, 2000 from $49.9 million at December 31, 1999.
This increase was the result of the $7.2 million issuance of the Company's
common stock to partially fund the acquisition of SHS and an increase in
accumulated other comprehensive income of $21.4 million, resulting from the
change in net unrealized gain or loss on securities, offset by increases in
treasury stock of $2.7 million and $2.2 million in cash dividends.
Changes in Results of Operations
- --------------------------------
General. The Company reported net income of $6.7 million, $5.8 million and $6.0
million in 2000, 1999 and 1998, respectively.
================================================================================
ESB Financial Corporation 10 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for the periods indicated, information concerning the total dollar amounts of
interest income from interest-earning assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resultant average costs, net interest income, interest rate spread and the
net interest margin earned on average interest-earning assets. For purposes of
this table, average balances are calculated using monthly averages and the
average loan balances include non-accrual loans and exclude the allowance for
loan losses, and interest income includes accretion of net deferred loan fees.
Interest and yields on tax-exempt securities (tax-exempt for federal income tax
purposes) are shown on a fully tax equivalent basis utilizing a federal tax rate
of 34%.
- ------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Year ended December 31,
2000 1999
--------------------------------- -------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
- ------------------------
Taxable securities available for sale $ 498,098 $34,783 6.98% $ 440,546 $28,339 6.43%
Tax-exempt securities available for sale 87,392 7,422 8.49% 92,860 7,633 8.22%
Taxable securities held to maturity - - - 23,348 1,211 5.19%
Tax-exempt securities held to maturity - - - 3,664 266 7.26%
------------------------------ ---------------------------
585,490 42,205 7.21% 560,418 37,449 6.68%
------------------------------ ---------------------------
Mortgage loans 402,599 31,220 7.75% 307,077 23,257 7.57%
Other loans 75,881 5,837 7.69% 69,171 5,299 7.66%
------------------------------ ---------------------------
478,480 37,057 7.74% 376,248 28,556 7.59%
------------------------------ ---------------------------
Cash equivalents 9,554 364 3.81% 8,000 252 3.15%
FHLB stock 19,224 1,359 7.07% 18,435 1,222 6.63%
------------------------------ ---------------------------
28,778 1,723 5.99% 26,435 1,474 5.58%
------------------------------ ---------------------------
Total interest-earning assets 1,092,748 80,985 7.41% 963,101 67,479 7.01%
Other noninterest-earning assets 50,383 - - 39,991 - -
------------------------------ ---------------------------
Total assets $1,143,131 $80,985 7.08% $1,003,092 $67,479 6.73%
============================== ===========================
Interest-bearing liabilities:
- -----------------------------
Interest-bearing demand deposits $ 181,709 $ 4,472 2.46% $ 162,501 $ 3,877 2.39%
Time deposits 302,660 17,357 5.73% 254,869 13,540 5.31%
------------------------------ ---------------------------
484,369 21,829 4.51% 417,370 17,417 4.17%
FHLB advances 334,987 21,468 6.41% 319,011 19,516 6.12%
Reverse repurchase agreements 220,762 13,573 6.15% 166,012 9,370 5.64%
Preferred securities 24,093 2,226 9.24% 24,049 2,226 9.26%
------------------------------ ---------------------------
Total interest-bearing liabilities 1,064,211 59,096 5.55% 926,442 48,529 5.24%
Noninterest-bearing demand deposits 13,319 - - 11,339 - -
Other noninterest-bearing liabilities 8,114 - - 7,276 - -
------------------------------ ---------------------------
Total liabilities 1,085,644 59,096 5.44% 945,057 48,529 5.14%
Stockholders' equity 57,487 - - 58,035 - -
------------------------------ ---------------------------
Total liabilities and equity $1,143,131 $59,096 5.17% $1,003,092 $48,529 4.84%
============================== ===========================
Net interest income $21,889 $18,950
======= =======
Interest rate spread (difference between
weighted average rate on interest-earning
assets and interest-bearing 1.86% 1.77%
liabilities) ==== ====
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 2.00% 1.97%
==== ====
(Dollar amounts in thousands)
Year ended December 31,
------------------------------------------
1998
------------------------------------------
Average Yield /
Balance Interest Rate
------------------------------------------
Interest-earning assets:
- -----------------------
Taxable securities available for sale $388,208 $ 25,379 6.54%
Tax-exempt securities available for sale 84,077 6,855 8.15%
Taxable securities held to maturity 70,311 4,101 5.83%
Tax-exempt securities held to maturity 8,156 673 8.25%
--------------------------------------
550,752 37,008 6.72%
--------------------------------------
Mortgage loans 288,279 22,452 7.79%
Other loans 66,821 5,400 8.08%
--------------------------------------
355,100 27,852 7.84%
--------------------------------------
Cash equivalents 8,341 298 3.57%
FHLB stock 18,329 1,191 6.50%
--------------------------------------
26,670 1,489 5.58%
--------------------------------------
Total interest-earning assets 932,522 66,349 7.12%
Other noninterest-earning assets 19,494 - -
--------------------------------------
Total assets $952,016 $ 66,349 6.97%
======================================
Interest-bearing liabilities:
- ----------------------------
Interest-bearing demand deposits$ $152,175 $ 3,905 2.57%
Time deposits 251,111 13,735 5.47%
--------------------------------------
403,286 17,640 4.37%
FHLB advances 328,935 20,771 6.31%
Reverse repurchase agreements 113,696 6,508 5.72%
Preferred securities 24,030 2,221 9.24%
--------------------------------------
Total interest-bearing liabilities 869,947 47,140 5.42%
Noninterest-bearing demand deposits 8,988 - -
Other noninterest-bearing liabilities 7,103 - -
--------------------------------------
Total liabilities 886,038 47,140 5.32%
Stockholders' equity 65,978 - -
--------------------------------------
Total liabilities and equity $952,016 $ 47,140 4.95%
======================================
Net interest income $ 19,209
========
Interest rate spread (difference between
weighted average rate on interest-earning
assets and interest-bearing 1.70%
liabilities) =====
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 2.06%
=====
- ------------------------------------------------------------------------------------------------
================================================================================
ESB Finnancial Corporation 11 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Analysis of Changes in Net Interest Income. The following table analyzes the
changes in interest income and interest expense in terms of: (i) changes in
volume of interest-earning assets and interest-bearing liabilities and (ii)
changes in yield and rates. The table reflects the extent to which changes in
the Company's interest income and interest expense are attributable to changes
in rate (change in rate multiplied by prior year volume), changes in volume
(changes in volume multiplied by prior year rate) and changes attributable to
the combined impact of volume/rate (change in rate multiplied by change in
volume). The changes attributable to the combined impact of volume/rate are
allocated on a consistent basis between the volume and rate variances. Changes
in interest income on securities reflects the changes in interest income on a
fully tax equivalent basis.
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 vs. 1999 1999 vs. 1998
Increase (decrease) due to Increase (decrease) due to
--------------------------------- ------------------------------------
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------
Interest income:
Securities $ 1,723 $ 3,033 $ 4,756 $ 647 $ (206) $ 441
Loans 7,907 594 8,501 1,624 (920) 704
Cash equivalents 54 58 112 (12) (34) (46)
FHLB stock 54 83 137 7 24 31
------- ------- ------- -------- ------- --------
Total interest-earning assets 9,738 3,768 13,506 2,266 (1,136) 1,130
------- ------- ------- -------- ------- --------
Interest expense:
Deposits 2,945 1,467 4,412 604 (827) (223)
FHLB advances 1,001 951 1,952 (617) (638) (1,255)
Reverse repurchase agreements 3,307 896 4,203 2,954 (92) 2,862
Subordinated debt 4 (4) - 2 3 5
------- ------- ------- -------- ------- --------
Total interest-bearing liabilities 7,257 3,310 10,567 2,943 (1,554) 1,389
------- ------- ------- -------- ------- --------
Net interest income $ 2,481 $ 458 $ 2,939 $ (677) $ 418 $ (259)
======= ======= ======= ======== ======= =========
- ---------------------------------------------------------------------------------------------------------------------------
2000 Results Compared to 1999 Results
General. The Company reported net income of $6.7 million and $5.8 million for
2000 and 1999, respectively. The $972,000 increase in net income between 2000
and 1999 can primarily be attributed to an increase in interest income of $13.7
million, offset by increases in interest expense and noninterest expense of
$10.6 million and $1.9 million, respectively.
Net interest income. Tax equivalent net interest income increased $2.9 million
or 15.5% to $21.9 million for 2000, compared to $19.0 million for 1999. This
increase in net interest income can be attributed to an increase in interest
income of $13.5 million, offset by an increase in interest expense of $10.6
million.
Interest income. On a tax equivalent basis, interest income increased $13.5
million or 20.0% to $81.0 million for 2000, compared to $67.5 million for 1999.
This increase in interest income can be attributed to increases in interest
earned on securities, loans receivable, cash equivalents and FHLB stock of $4.8
million, $8.5 million $112,000 and $137,000, respectively.
Interest earned on securities increased $4.8 million to $42.2 million for 2000,
compared to $37.4 million for 1999. This increase was primarily attributable to
an increase in the yield on securities to 7.21% for 2000, compared to 6.68% for
1999, and also to an increase in the average balances of $25.1 million for 2000
as compared to 1999.
================================================================================
ESB Financial Corporation 12 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Interest earned on loans receivable increased $8.5 million or 29.8% to $37.1
million for 2000, compared to $28.6 million for 1999. This increase was
primarily attributable to an increase in the average balance of loans
outstanding of $102.2 million or 27.2% to $478.5 million for 2000 compared to
$376.2 million for 1999. In addition to this volume increase was an increase in
the yield on loans to 7.74% for 2000, compared to 7.59% for 1999.
Interest earned on cash equivalents increased $112,000 to $364,000 for 2000,
compared to $252,000 for 1999 as the yield increased to 3.81% for 2000, compared
to 3.15% for 1999. In addition to the increase in yields, the average balance
increased by $1.6 million or 19.4%
Income from FHLB stock increased $137,000 to $1.4 million for 2000, compared to
$1.2 million for 1999 as the yield increased to 7.07% for 2000, compared to
6.63% for 1999. In addition to the increase in yields, the average balance
increased by $789,000.
Interest expense. Interest expense increased $10.6 million or 21.8% to $59.1
million for 2000, compared to $48.5 million for 1999. This increase in interest
expense can be attributed to increases in interest incurred on deposits, FHLB
advances and reverse repurchases and other borrowings of $4.4 million, $2.0
million and $4.2 million, respectively.
Interest incurred on deposits increased $4.4 million or 25.3% to $21.8 million
for 2000, compared to $17.4 million for 1999. This increase was primarily
attributable to an increase in the average balance of interest-bearing deposits
of $67.0 million or 16.1% to $484.4 million for 2000 compared to $417.4 million
for 1999, and to a lesser extent an increase in the cost of deposits to 4.51% in
2000 from 4.17% in 1999.
Interest incurred on FHLB advances increased $2.0 million or 10.0% to $21.5
million for 2000, compared to $19.5 million for 1999. This increase was
primarily attributable to an increase in the average balance of FHLB advances of
$16.0 million or 5.0% to $335.0 million for 2000, compared to $319.0 million for
1999. Also contributing to the increase was an increase in the cost of these
funds to 6.41% for 2000, compared to 6.12% for 1999.
Interest incurred on reverse repurchase agreements increased $4.2 million to
$13.6 million for 2000, compared to $9.4 million for 1999. The increase was
primarily attributable to an increase in the average balance of reverse
repurchase agreements of $54.8 million or 33.0% to $220.8 million for 2000,
compared to $166.0 million for 1999. The increase in the average balance was a
result of the Company's decision to enter into reverse repurchase agreements
during the period due to their lower cost of funds. Also contributing to this
increase in the interest incurred on reverse repurchase agreements was an
increase in the cost of these funds to 6.15% in 2000, compared to 5.64% for
1999.
Interest expense on subordinated debt remained stable at $2.2 million for 2000.
The average balance of the subordinated debt increased $44,000 to $24.1 million
for 2000, compared to $24.0 million for 1999.
(Recovery of) provision for loan losses. The Company records provisions for loan
losses to bring the total allowance for loan losses to a level deemed adequate
to cover embedded losses in the loan portfolio. In determining the appropriate
level of allowance for loan losses, management considers historical loss
experience, the financial condition of borrowers, economic conditions
(particularly as they relate to markets where the Company originates loans), the
status of non-performing assets, the estimated underlying value of the
collateral and other factors related to the collectibility of the loan
portfolio.
================================================================================
ESB Financial Corporation 13 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
The provision for loan losses decreased $109,000 reflecting a recovery of loan
losses of $55,000 for 2000, compared to a $54,000 provision for loan losses for
1999. The decrease in the provision for loan losses can be attributed to a
$605,000 recovery recorded in January associated with the Company's Bennett
Lease pools which was received from the Bankruptcy Trustee, offset by provisions
for loan losses of $550,000 recorded during the year.
As a result of the recovery of and provision for loan losses during 2000 and
1999, the Company's allowance for loan losses amounted to $5.0 million or .92%
of the Company's total loan portfolio at December 31, 2000, compared to $4.8
million or 1.16% at December 31, 1999. The Company's allowance for loan losses
as a percentage of non-performing loans at December 31, 2000 and December 31,
1999 was 188.96% and 111.29%, respectively.
At December 31, 2000, the Company had $876,000 in outstanding Bennett Funding
Group leases, compared to $1.6 million at December 31, 1999. The total loan loss
reserves associated with these leases were $876,000 at December 31, 2000.
Noninterest income. Noninterest income decreased $163,000 or 5.3% to $2.9
million for 2000, compared to $3.1 million for 1999. This decrease can be
attributed to increases in net realized losses on sales of securities available
for sale of $572,000, offset by increases in fees and service charges of
$162,000, the cash surrender value of the bank owned life insurance of $80,000
and other noninterest income of $167,000.
Noninterest expense. Noninterest expense increased $1.9 million or 15.4% to
$14.3 million for 2000, compared to $12.4 million for 1999. This increase can be
attributed to increases in compensation and employee benefits, premises and
equipment, data processing expense and other expenses of $1.3 million, $430,000,
$17,000 and $346,000, respectively, partially offset by a decrease in federal
insurance premiums of $151,000.
Compensation and employee benefits expense increased $1.3 million or 18.8% to
$8.0 million for 2000, compared to $6.8 million for 1999. This increase can be
attributed to the addition of SHS' employees in connection with the acquisition
and normal salary increases between the years.
Premises and equipment expense increased $430,000 or 28.4% to $1.9 million for
2000, compared to $1.5 million for 1999. This increase can be attributed to the
acquisition of SHS, and the depreciation expense relating to the main office
expansion.
Federal insurance premiums expense decreased $151,000 or 60.4% to $99,000 for
2000, compared to $250,000 for 1999. The decrease can be attributed to a
decrease in the assessment rate charged by the FDIC.
Data processing expense increased $17,000 or 3.0% to $580,000 for 2000, compared
to $563,000 for 1999. This increase can be attributed to the acquisition of SHS.
Other expenses increased $346,000 or 10.3% to $3.7 million for 2000, compared to
$3.3 million for 1999. This increase can be attributed to the acquisition of SHS
including an increase in goodwill amortization expense of $127,000.
Provision for income taxes. The provision for income taxes increased $166,000 or
15.4% to $1.2 million for 2000, compared to $1.1 million for 1999. This increase
was primarily the result of an increase in income before income taxes of $1.1
million or 16.6% to $8.0 million for 2000, compared to $6.8 million for 1999.
1999 Results Compared to 1998 Results
General. The Company reported net income of $5.8 million and $6.0 million for
1999 and 1998, respectively. The $240,000 decrease in net income between 1999
and 1998 can primarily be attributed to an increase in interest
================================================================================
ESB Financial Corporation 14 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
expense of $1.4 million and noninterest expense of $1.4 million, offset by
increases in interest income of $1.0 million and noninterest income of $1.1
million and a decrease in the provision for income taxes of $440,000.
Net interest income. Tax equivalent net interest income decreased $259,000 or
1.3% to $19.0 million for 1999, compared to $19.2 million for 1998. This
decrease in net interest income can be attributed to an increase in interest
expense of $1.4 million, offset by an increase in interest income of $1.1
million.
Interest income. On a tax equivalent basis, interest income increased $1.1
million or 1.7% to $67.5 million for 1999, compared to $66.3 million for 1998.
This increase in interest income can be attributed to increases in interest
earned on securities, loans receivable and FHLB stock of $441,000, $704,000 and
$31,000, respectively, partially offset by a decrease in interest earned on cash
equivalents of $46,000.
Interest earned on securities increased $441,000 to $37.4 million for 1999,
compared to $37.0 million for 1998 as average balances increased $9.7 million.
Partially offsetting this volume increase was a slight decline in the yield on
securities to 6.68% for 1999 compared to 6.72% for 1998.
Interest earned on loans receivable increased $704,000 or 2.5% to $28.6 million
for 1999, compared to $27.9 million for 1998. This increase was primarily
attributable to an increase in the average balance of loans outstanding of $21.1
million or 6.0% to $376.2 million for 1999 compared to $355.1 million for 1998.
Partially offsetting this volume increase was a decline in the yield on loans to
7.59% for 1999, compared to 7.84% for 1998.
Interest earned on cash equivalents decreased $46,000 to $252,000 for 1999,
compared to $298,000 for 1998 as the average balance decreased $341,000 or 4.1%
and the yield decreased to 3.15% for 1999, compared to 3.57% for 1998.
Income from FHLB stock increased $31,000 to $1.2 million for 1999, compared to
1998 as the yield increased to 6.63% for 1999, compared to 6.50% for 1998.
Interest expense. Interest expense increased $1.4 million or 2.9% to $48.5
million for 1999, compared to $47.1 million for 1998. This increase in interest
expense can be attributed to increases in interest incurred on reverse
repurchases and other borrowings of $2.9 million, partially offset by decreases
in interest incurred on deposits and FHLB advances of $223,000 and $1.3 million,
respectively.
Interest incurred on deposits decreased $223,000 or 1.3% to $17.4 million for
1999, compared to $17.6 million for 1998. This decrease was primarily
attributable to a decrease in the cost of deposits to 4.17% for 1999, compared
to 4.37% for 1998, partially offset by an increase in the average balance of
interest-bearing deposits of $14.1 million or 3.5% to $417.4 million for 1999,
compared to $403.3 million for 1998.
Interest incurred on FHLB advances decreased $1.3 million or 6.0% to $19.5
million for 1999, compared to $20.8 million for 1998. This decrease was
primarily attributable to a decrease in the average balance of FHLB advances of
$9.9 million or 3.0% to $319.0 million for 1999, compared to $328.9 million for
1998. Also contributing to the decrease in interest incurred on FHLB advances
was a decrease in the cost of these funds to 6.12% for 1999, compared to 6.31%
for 1998.
Interest incurred on reverse repurchase agreements increased $2.9 million to
$9.4 million for 1999, compared to $6.5 million for 1998. The increase was
primarily attributable to an increase in the average balance of reverse
repurchase agreements of $52.3 million or 46.0% to $166.0 million for 1999,
compared to $113.7 million for
================================================================================
ESB Financial Corporation 15 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
1998. The increase in the average balance was a result of the Company's decision
to enter into reverse repurchase agreements during the period due to their lower
cost of funds. Partially offsetting this increase in the average balance was a
decrease in the cost of these funds to 5.64% for 1999, compared to 5.72% for
1998.
Interest expense on subordinated debt increased $5,000 to $2.2 million for 1999,
compared to 1998. The average balance of the subordinated debt increased $19,000
to $24.0 million for 1999, compared to 1998. Also contributing to the increase
in interest incurred on subordinated debt was an increase due to amortization of
the deferred debt issuance cost in 1999, compared to 1998.
Provision for loan losses. The Company records provisions for loan losses to
bring the total allowance for loan losses to a level deemed adequate to cover
embedded losses in the loan portfolio. In determining the appropriate level of
allowance for loan losses, management considers historical loss experience, the
financial condition of borrowers, economic conditions (particularly as they
relate to markets where the Company originates loans), the status of
non-performing assets, the estimated underlying value of the collateral and
other factors related to the collectibility of the loan portfolio.
The provision for loan losses increased $49,000 to $54,000 for 1999, compared to
$5,000 for 1998. The increase in the provision for loan losses can be attributed
to a slight increase in the reserve percentage that the Company uses for loans
classified as substandard.
As a result of the provision for loan losses recorded during 1999 and 1998, the
Company's allowance for loan losses amounted to $4.8 million or 1.16% of the
Company's total loan portfolio at December 31, 1999, compared to $4.8 million or
1.26% at December 31, 1998. The Company's allowance for loan losses as a
percentage of non-performing loans at December 31, 1999 and 1998 was 111.3% and
96.7%, respectively.
At December 31, 1999, the Company had $1.6 million in outstanding Bennett
Funding Group leases, compared to $1.9 million at December 31, 1998. The total
loan loss reserves associated with these leases were $1.6 million at December
31, 1999.
Noninterest income. Noninterest income increased $1.1 million or 57.6% to $3.1
million for 1999, compared to $1.9 million for 1998. This increase can be
attributed to increases in net realized gains on sales of securities available
for sale of $167,000, the cash surrender value of the bank owned life insurance
of $771,000 and other noninterest income of $307,000, offset by a decrease in
fees and service charges of $128,000. The decrease in fees and service charges
of $128,000 can primarily be attributable to decreases in late charges and
service fees on loans and servicing fees on NOW accounts of $85,000 and $46,000,
respectively.
Noninterest expense. Noninterest expense increased $1.4 million or 12.3% to
$12.4 million for 1999, compared to $11.1 million for 1998. This increase can be
attributed to increases in compensation and employee benefits, premises and
equipment, federal insurance premiums, data processing expense and other
expenses of $592,000, $427,000, $5,000, $78,000 and $258,000, respectively.
Compensation and employee benefits expense increased $592,000 or 9.6% to $6.8
million for 1999, compared to $6.2 million for 1998. This increase can be
attributed to additional staffing needs of the Company and normal salary
increases between the years.
Premises and occupancy expense increased $427,000 or 39.2% to $1.5 million for
1999, compared to $1.1 million for 1998. This increase can be attributed to the
depreciation expense related to the new Wexford building opened in January of
1999 and a full twelve months of depreciation expense related to the new
Franklin Township branch office which was opened in September of 1998, offset by
a reduction in depreciation expense related to certain assets becoming fully
depreciated near the end of 1998 and the beginning of 1999.
================================================================================
ESB Financial Corporation 16 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
===============================================================================
Federal insurance premiums expense increased $5,000 or 2.0% to $250,000 for
1999, compared to $245,000 for 1998. The increase can be attributed to the
increase in deposits of $8.7 million or 2.1% to $431.8 million for 1999,
compared to $423.1 million for 1998.
Data processing expense increased $78,000 or 16.1% to $563,000 for 1999,
compared to $485,000 for 1998. This increase can be attributed to the costs
associated with the Company's new third party provided relational database
system.
Other expenses increased $258,000 or 8.4% to $3.3 million for 1999, compared to
$3.1 million for 1998. This increase can primarily be attributed to a write-down
of real estate held for future development of $205,000 and an increase in
organizational dues and subscriptions of $45,000.
Provision for income taxes. The provision for income taxes decreased $440,000 or
29.0% to $1.1 million for 1999, compared to $1.5 million for 1998. This decrease
was primarily the result of a decrease in income before income taxes of $680,000
or 9.0% to $6.8 million for 1999, compared to $7.5 million for 1998.
Asset and Liability Management
- ------------------------------
The primary objective of the Company's asset and liability management function
is to maximize the Company's net interest income while simultaneously
maintaining an acceptable level of interest rate risk given the Company's
operating environment, capital and liquidity requirements, performance
objectives and overall business focus. The principal determinant of the exposure
of the Company's earnings to interest rate risk is the timing difference between
the repricing or maturity of interest-earning assets and the repricing or
maturity of its interest-bearing liabilities. The Company's asset and liability
management policies are designed to decrease interest rate sensitivity primarily
by shortening the maturities of interest-earning assets while at the same time
extending the maturities of interest-bearing liabilities. The Board of Directors
of the Company continues to believe in strong asset/liability management in
order to insulate the Company from material and prolonged increases in interest
rates. As a result of this policy, the Company emphasizes a larger, more
diversified portfolio of residential mortgage loans in the form of
mortgage-backed securities. Mortgage-backed securities generally increase the
quality of the Company's assets by virtue of the insurance or guarantees that
back them, are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Company.
The Company's Board of Directors has established an Asset and Liability
Management Committee consisting of four outside directors, the President and
Chief Executive Officer, Group Senior Vice President/Chief Financial Officer,
Group Senior Vice President/Operations, Group Senior Vice President/Lending and
Group Senior Vice President/Administration. This committee, which meets at least
quarterly, generally monitors various asset and liability management policies
and strategies, which were implemented by the Company over the past few years.
These strategies have included: (i) an emphasis on the investment in
adjustable-rate and shorter duration mortgage-backed securities, (ii) an
emphasis on the origination of single-family residential adjustable-rate
mortgages (ARMs), residential construction loans and commercial real estate
loans, which generally have adjustable or floating interest rates and/or shorter
maturities than traditional single-family residential loans, and consumer loans,
which generally have shorter terms and higher interest rates than mortgage
loans, (iii) the purchase of off-balance sheet interest rate caps which help to
insulate the Bank's interest rate risk position from increases in interest rates
and (iv) increase the duration of the liability base of the Company by extending
the maturities of savings deposits, borrowed funds and reverse repurchase
agreements.
As of December 31, 2000, the implementation of these asset and liability
initiatives resulted in the following: (i) $216.3 million or 40.0% of the
Company's total loan portfolio had adjustable interest rates or maturities of 12
================================================================================
ESB Financial Corporation 17 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
months or less; (ii) $147.2 million or 39.6% of the Company's portfolio of
single-family residential mortgage loans (including residential construction
loans) consisted of ARMs; (iii) $151.1 million or 36.6% of the Company's
portfolio of mortgage-backed securities were secured by ARMs; and (iv) the
Company had $10.0 million in notional amount of interest rate caps.
Interest Rate Sensitivity Gap Analysis
The implementation of the foregoing asset and liability initiatives and
strategies, combined with other external factors such as demand for the
Company's products and economic and interest rate environments in general, has
resulted in the Company being able to maintain a one-year interest rate
sensitivity gap ranging between a positive 5.0% of total assets to a negative
15.0% of total assets. The one-year interest rate sensitivity gap is defined as
the difference between the Company's interest-earning assets, which are
scheduled to mature or reprice within one year and its interest-bearing
liabilities, which are scheduled to mature or reprice within one year. At
December 31, 2000, the Company's interest-earning assets maturing or repricing
within one year totaled $433.6 million while the Company's interest-bearing
liabilities maturing or repricing within one-year totaled $462.4 million,
providing a deficiency of interest-earning assets over interest-bearing
liabilities of $28.8 million or a negative 2.4% of total assets. At December 31,
2000, the percentage of the Company's assets to liabilities maturing or
repricing within one year was 93.8%. The Company does not presently anticipate
that its one-year interest rate sensitivity gap will fluctuate beyond a range of
a positive 5.0% of total assets to a negative 15.0% of total assets.
The following table presents the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 2000 which are
expected to mature, prepay or reprice in each of the future time periods
presented:
- --------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Due in Due within Due within Due within Due in
six months six months one to three to over
or less to one year three years five years five years Total
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 298,540 $ 135,054 $ 204,839 $ 156,971 $ 360,091 $ 1,155,495
Total interest-bearing liabilities 314,179 148,221 455,791 86,908 116,353 1,121,452
--------- --------- ---------- --------- --------- -----------
Maturity or repricing gap during the period $ (15,639) $ (13,167) $ (250,952) $ 70,063 $ 243,738 $ 34,043
========= ========= ========== ========= ========= ===========
Cumulative gap $ (15,639) $ (28,806) $ (279,758) $(209,695) $ 34,043
========= ========= ========== ========= =========
Ratio of gap during the period to total assets (1.30%) (1.10%) (20.91%) 5.84% 20.31%
========= ========= ========== ========= =========
Ratio of cumulative gap to total assets (1.30%) (2.40%) (23.31%) (17.47%) 2.84%
========= ========= ========== ========= =========
Total assets $ 1,200,150
===========
- --------------------------------------------------------------------------------------------------------------------------------
The one-year interest rate sensitivity gap has been the most common industry
standard used to measure an institution's interest rate risk position. In recent
years, in addition to utilizing interest rate sensitivity gap analysis, the
Company has increased its emphasis on the utilization of interest rate
sensitivity simulation analysis to evaluate and manage interest rate risk.
================================================================================
ESB Financial Corporation 18 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Interest Rate Sensitivity Simulation Analysis
The Company also utilizes income simulation modeling in measuring its interest
rate risk and managing its interest rate sensitivity. The Asset and Liability
Management Committee of the Company believes that simulation modeling enables
the Company to more accurately evaluate and manage the possible effects on net
interest income due to the exposure to changing market interest rates, the slope
of the yield curve and different loan and mortgage-backed security prepayment
and deposit decay assumptions under various interest rate scenarios.
As with gap analysis and earnings simulation modeling, assumptions about the
timing and variability of cash flows are critical in net portfolio equity
valuation analysis. Particularly important are the assumptions driving mortgage
prepayments and the assumptions about expected attrition of the core deposit
portfolios. These assumptions are based on the Company's historical experience
and industry standards and are applied consistently across the different rate
risk measures.
The Company has established the following guidelines for assessing interest rate
risk:
Net interest income simulation. Given a 200 basis point parallel and
gradual increase or decrease in market interest rates, net interest
income may not change by more than 10% for a one-year period.
Portfolio equity simulation. Portfolio equity is the net present value of
the Company's existing assets and liabilities. Given a 200 basis point
immediate and permanent increase or decrease in market interest rates,
portfolio equity may not correspondingly decrease or increase by more
than 50% of stockholders' equity.
The following table presents the simulated impact of a 100 basis point or 200
basis point upward or downward shift of market interest rates on net interest
income, return on average equity, diluted earnings per share and the change in
portfolio equity. This analysis was done assuming that the interest-earning
asset and interest-bearing liability levels at December 31, 2000 remained
constant. The impact of the market rate movements was developed by simulating
the effects of rates changing gradually over a one-year period from the December
31, 2000 levels for net interest income, return on average equity and diluted
earnings per share. The impact of market rate movements was developed by
simulating the effects of an immediate and permanent change in rates at December
31, 2000 for portfolio equity:
- -------------------------------------------------------------------------------------------------------------------------
Increase Decrease
------------------------------- ----------------------------
+100 +200 -100 -200
BP BP BP BP
- -------------------------------------------------------------------------------------------------------------------------
Net interest income - increase (decrease) 1.18% 1.40% (0.20%) (1.57%)
Return on average equity - increase (decrease) 2.18% 2.63% (0.54%) (3.08%)
Diluted earnings per share - increase (decrease) 2.34% 2.82% (0.40%) (3.06%)
Portfolio equity - increase (decrease) (18.05%) (36.39%) 8.46% 8.74%
- -------------------------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 19 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
The following table presents the simulated impact of a 100 basis point or 200
basis point upward or downward shift of market interest rates on net interest
income, return on average equity, diluted earnings per share and the change in
portfolio equity. This analysis was done assuming that the interest-earning
asset and interest-bearing liability levels at December 31, 1999 remained
constant. The impact of the market rate movements was developed by simulating
the effects of rates changing gradually over a one-year period from the December
31, 1999 levels for net interest income, return on average equity and diluted
earnings per share. The impact of market rate movements was developed by
simulating the effects of an immediate and permanent change in rates at December
31, 1999 for portfolio equity:
- ------------------------------------------------------------------------------------------------------------------------
Increase Decrease
------------------------------- -----------------------------
+100 +200 -100 -200
BP BP BP BP
- ------------------------------------------------------------------------------------------------------------------------
Net interest income - increase (decrease) (1.85%) (2.52%) 0.66% 1.09%
Return on average equity - increase (decrease) (3.21%) (4.40%) 1.10% 1.83%
Diluted earnings per share - increase (decrease) (3.34%) (4.61%) 1.11% 1.83%
Portfolio equity - increase (decrease) (18.75%) (38.13%) 16.63% 29.63%
- ------------------------------------------------------------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are deposits, advances from the FHLB,
loan and security repayments and funds provided by operations. While payments of
principal and interest on loans and other investments are relatively predictable
sources of funds, deposit flows are much less predictable since they are greatly
influenced by the level of interest rates, the state of the economy, competition
and industry conditions.
The Bank's liquidity ratio fluctuates depending primarily upon deposit flow. At
December 31, 2000 the Bank's liquidity ratio was 15.0%. The sources of liquidity
and capital resources discussed above are believed by management to be
sufficient to fund outstanding loan commitments and meet other obligations.
Current regulatory requirements specify that ESB and similar institutions must
maintain tangible capital equal to 1.5% of adjusted total assets, core capital
equal to 4.0% of adjusted total assets and risk-based capital equal to 8.0% of
risk-weighted assets. The Office of the Comptroller of the Currency and the FDIC
have adopted more stringent core capital requirements which require that the
most highly rated banks have a minimum core capital ratio of 5.0%, with an
additional 100 to 200 basis point cushion required for all other banks as
established by the regulator on a case-by-case basis. Both the FDIC and the OTS
reserve the right to apply this higher standard to any insured financial
institution when considering an institution's capital adequacy. At December 31,
2000, ESB was in compliance with all regulatory capital requirements with
tangible, core and risk-based capital ratios of 6.8%, 6.8% and 15.3%,
respectively.
================================================================================
ESB Financial Corporation 20 2000 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
================================================================================
Impact of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial condition and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services since such prices are affected by inflation to a
larger degree than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels.
Recent Accounting and Regulatory Pronouncements
- -----------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure the
instruments at their fair value. A derivative may be designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment, a hedge of the exposure to variable cash flows
of a forecasted transaction, or a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. This statement was to be effective for fiscal years beginning June
15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133", which delays the
effective date of SFAS No. 133 to the first quarter of fiscal years beginning
after June 15, 2000. This statement will be in effect in 2001 for the Company.
Management has evaluated the impact of SFAS 133 and determined that it will not
materially affect the Company's financial position or results of operations.
================================================================================
ESB Financial Corporation 21 2000 Annual Report
Consolidated Statements of Financial Condition
================================================================================
(Dollar amounts in thousands, except share data)
December 31,
--------------------------------
2000 1999
------------ ------------
Assets
------
Cash on hand and in banks $ 4,428 $ 6,712
Interest-earning deposits 8,262 5,780
Federal funds sold 636 269
Securities available for sale; cost of $609,552 and $579,046 605,414 561,125
Loans receivable, net of allowance for loan losses of $4,981 and $4,823 512,228 393,929
Accrued interest receivable 8,220 6,871
Federal Home Loan Bank (FHLB) stock 19,899 18,435
Premises and equipment, net 8,978 6,880
Real estate acquired through foreclosure, net 1,817 71
Prepaid expenses and other assets 13,627 16,589
Bank owned life insurance 16,641 15,784
---------- ----------
Total assets $1,200,150 $1,032,445
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 508,913 $ 431,783
Borrowed funds 396,817 317,636
Reverse repurchase agreements 191,272 201,920
Guaranteed preferred beneficial interest in subordinated debt, net 24,115 24,071
Advance payments by borrowers for taxes and insurance 4,640 3,339
Accrued expenses and other liabilities 6,130 3,814
---------- ----------
Total liabilities 1,131,887 982,563
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value, 10,000,000 shares authorized;
7,490,803 and 6,337,755 shares issued;
6,009,291 and 5,102,655 shares outstanding 75 63
Additional paid-in capital 73,669 59,686
Treasury stock, at cost; 1,481,512 and 1,235,100 shares (21,915) (19,214)
Unearned Employee Stock Ownership Plan (ESOP) shares (3,456) (3,076)
Unvested shares held by Management Recognition Plan (MRP) (237) (237)
Retained earnings 22,858 24,488
Accumulated other comprehensive loss, net (2,731) (11,828)
---------- ----------
Total stockholders' equity 68,263 49,882
---------- ----------
Total liabilities and stockholders' equity $1,200,150 $1,032,445
========== ==========
See accompanying notes to consolidated financial statements.
================================================================================
ESB Financial Corporation 22 2000 Annual Report
Consolidated Statements of Operations
================================================================================
(Dollar amounts in thousands, except share data)
Year ended December 31,
-----------------------------------------
2000 1999 1998
-------- -------- --------
Interest income:
Loans receivable $ 37,057 $ 28,556 $ 27,852
Securities available for sale 39,682 33,376 29,903
Securities held to maturity - 1,386 4,547
FHLB stock 1,359 1,222 1,191
Deposits with banks and federal funds sold 364 252 298
-------- -------- --------
Total interest income 78,462 64,792 63,791
-------- -------- --------
Interest expense:
Deposits 21,829 17,417 17,640
Borrowed funds and reverse repurchase agreements 35,041 28,886 27,279
Guaranteed preferred beneficial interest in subordinated debt 2,226 2,226 2,221
-------- -------- --------
Total interest expense 59,096 48,529 47,140
-------- -------- --------
Net interest income 19,366 16,263 16,651
(Recovery of) provision for loan losses (55) 54 5
-------- -------- --------
Net interest income after (recovery of) provision for loan losses 19,421 16,209 16,646
-------- -------- --------
Noninterest income:
Fees and service charges 1,499 1,337 1,465
Net realized (loss) gain on sale of securities available for sale (28) 544 377
Increase of cash surrender value of bank owned life insurance 857 777 6
Other 565 398 91
-------- -------- --------
Total noninterest income 2,893 3,056 1,939
-------- -------- --------
Noninterest expense:
Compensation and employee benefits 8,022 6,753 6,161
Premises and equipment 1,945 1,515 1,088
Federal deposit insurance premiums 99 250 245
Data processing 580 563 485
Other 3,692 3,346 3,088
-------- -------- --------
Total noninterest expense 14,338 12,427 11,067
-------- -------- --------
Income before provision for income taxes 7,976 6,838 7,518
Provision for income taxes 1,243 1,077 1,517
-------- -------- --------
Net income $ 6,733 $ 5,761 $ 6,001
======== ======== ========
Net income per share:
Basic $ 1.18 $ 1.05 $ 1.02
======== ======== ========
Diluted $ 1.16 $ 1.03 $ 0.98
======== ======== ========
See accompanying notes to consolidated financial statements.
================================================================================
ESB Financial Corporation 23 2000 Annual Report
Consolidated Statements of Changes in Stockholders' Equity
================================================================================
(Dollar amounts in thousands, except share data)
Accumulated
other
Additional Unearned Unvested comprehensive Total
Common paid-in Treasury ESOP MRP Retained income (loss) stockholders'
stock capital stock shares shares earnings net of tax equity
------ --------- -------- ------- ------- -------- ----------- ------------
Balance at December 31, 1997 $ 58 $ 48,646 $ (7,363) $(2,551) $ (237) $ 27,747 $ 2,209 $ 68,509
Comprehensive results:
Net income for 1998 - - - - - 6,001 - 6,001
Other comprehensive
results, net - - - - - - (1,616) (1,616)
Reclassification
adjustment - - - - - - (132) (132)
------ --------- -------- ------- ------- -------- ----------- ------------
Total comprehensive
results 6,001 (1,748) 4,253
Cash dividends at $0.32
per share - - - - - (1,861) - (1,861)
Common stock dividend of 10% 5 10,224 - - - (10,229) - -
Payment of cash in lieu
of fractional shares for
10% stock dividend - (15) - - - - - (15)
Purchase of treasury stock, at
cost (639,565 shares) - - (10,971) - - - - (10,971)
Reissuance of treasury stock
for stock option exercises - 367 1,493 - - (788) - 1,072
Principal payments on
ESOP debt - 226 - 459 - - - 685
Additional ESOP shares
purchased - - - (589) - - - (589)
------ --------- -------- ------- ------- -------- ----------- ------------
Balance at December 31, 1998 63 59,448 (16,841) (2,681) (237) 20,870 461 61,083
Comprehensive results:
Net income for 1999 - - - - - 5,761 - 5,761
Transfer of securities
from held to maturity
to available for sale, net - - - - - - (138) (138)
Other comprehensive
results, net - - - - - - (11,718) (11,718)
Reclassification
adjustment - - - - - - (433) (433)
------ --------- -------- ------- ------- -------- ----------- ------------
Total comprehensive results 5,761 (12,289) (6,528)
Cash dividends at $0.33
per share - - - - - (1,801) - (1,801)
Purchase of treasury stock,
at cost (199,162 shares) - - (2,839) - - - - (2,839)
Reissuance of treasury
stock for stock option
exercises - 145 466 - - (342) - 269
Principal payments on
ESOP debt - 93 - 469 - - - 562
Additional ESOP shares
purchased - - - (864) - - - (864)
------ --------- -------- ------- ------- -------- ----------- ------------
Balance at December 31, 1999 63 59,686 (19,214) (3,076) (237) 24,488 (11,828) 49,882
Comprehensive results:
Net income for 2000 - - - - - 6,733 - 6,733
Other comprehensive
results, net - - - - - - 9,060 9,060
Reclassification
adjustment - - - - - - 37 37
------ --------- -------- ------- ------- -------- ----------- ------------
Total comprehensive results - 6,733 9,097 15,830
Common stock issued as a
result of the acquisition
of SHS 6 8,065 - (888) - - - 7,183
Cash dividends at $0.38 - - - - - (2,164) - (2,164)
per share
Common stock dividend of 10% 6 5,921 - - - (5,927) - -
Payment of cash in lieu of
fractional shares for 10%
stock dividend - (5) - - - - - (5)
Purchase of treasury
stock, at cost (280,320
shares) - - (3,134) - - - - (3,134)
Reissuance of treasury
stock for stock option
exercises - 54 433 - - (272) - 215
Principal payments on ESOP
debt - (52) - 606 - - - 554
Additional ESOP shares
purchased - - - (98) - - - (98)
------ --------- -------- ------- ------- -------- ----------- ------------
Balance at December 31, 2000 $ 75 $ 73,669 $ (21,915) $(3,456) $ (237) $ 22,858 $ (2,731) $ 68,263
====== ========= ========= ======= ======= ======== =========== ============
See accompanying notes to consolidated financial statements.
================================================================================
ESB Financial Corporation 24 2000 Annual Report
Consolidated Statements of Cash Flows (continued)
================================================================================
(Dollar amounts in thousands, except share data)
Year ended December 31,
----------------------------------------
2000 1999 1998
------------- ---------- -----------
Operating activities:
Net income $ 6,733 $ 5,761 $ 6,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization for premises and equipment 758 607 364
Provision for losses 94 63 6
Amortization of premiums and accretion of discounts (545) 1,331 2,106
Origination of loans available for sale (2,802) (9,562) (13,409)
Proceeds from sale of loans available for sale 2,820 9,642 11,266
Net loss (gain) on sale of securities available for sale 28 (544) (377)
Amortization of intangible assets 732 603 603
Compensation expense on ESOP 554 562 685
Increase in accrued interest receivable (785) (79) (717)
Decrease (increase) in prepaid expenses and other assets 648 (502) (493)
Increase (decrease) in accrued expenses and other liabilities 1,180 (937) 526
Other (1,104) (581) (261)
----------- --------- ---------
Net cash provided by operating activities 8,311 6,364 6,300
----------- --------- ---------
Investing activities:
Loan originations and purchases (160,593) (146,981) (140,377)
Purchases of securities available for sale (127,961) (203,735) (285,965)
Purchases of securities held to maturity - - (993)
Purchases of FHLB stock (837) - (609)
Additions to premises and equipment (1,922) (1,305) (3,238)
Purchase of bank owned life insurance - - (15,006)
Principal repayments of loans receivable 100,886 112,754 118,792
Principal repayments of securities available for sale 72,034 86,319 118,356
Principal repayments of securities held to maturity - 8,324 28,172
Proceeds from the sale of securities available for sale 49,374 73,791 109,221
Proceeds from sale of REO 434 306 318
Payment for purchase of SHS, net of cash acquired (3,082) - -
----------- --------- ---------
Net cash used in investing activities (71,667) (70,527) (71,329)
----------- --------- ---------
Financing activities:
Net increase in deposits 9,698 8,732 23,483
Proceeds from long-term borrowings 228,474 148,485 172,107
Repayments of long-term borrowings (210,649) (94,575) (129,439)
Net increase in short-term borrowings 41,594 9,291 2,663
Proceeds received from exercise of stock options 215 269 1,072
Dividends paid (2,179) (1,878) (1,941)
Payments to acquire treasury stock (3,134) (2,839) (10,971)
Stock purchased by ESOP (98) (864) (589)
----------- --------- ---------
Net cash provided by financing activities 63,921 66,621 56,385
----------- --------- ---------
Net increase (decrease) in cash equivalents 565 2,458 (8,644)
Cash equivalents at beginning of period 12,761 10,303 18,947
----------- --------- ---------
Cash equivalents at end of period $ 13,326 $ 12,761 $ 10,303
=========== ========= =========
Continued
================================================================================
ESB Financial Corporation 25 2000 Annual Report
Consolidated Statements of Cash Flows (continued)
================================================================================
(Dollar amounts in thousands, except share data)
Year ended December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
Supplemental information:
Interest paid $ 60,530 $ 48,505 $ 45,133
Income taxes paid 2,461 1,544 1,733
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans receivable to real estate acquired
through foreclosure 2,050 333 53
Transfers of securities from held to maturity to available for sale - 54,464 -
Dividends declared but not paid 601 461 474
Stock dividend paid 5,927 - 10,229
The Company purchased all of the common stock of SHS for $14.5 million. In
conjunction with the acquisition, the assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired 91,550 - -
Stock and stock options issued for the purchase of SHS
common stock (8,071) - -
Cash paid for SHS common stock (6,448) - -
Liabilities assumed (79,116) - -
---------- --------- ---------
Excess liabilities assumed over assets acquired $ (2,085) $ - -
---------- --------- ---------
See accompanying notes to consolidated financial statements.
================================================================================
ESB Financial Corporation 26 2000 Annual Report
Notes to Consolidated Financial Statements
================================================================================
1. Summary of Significant Accounting Policies
Principles of Consolidation
ESB Financial Corporation (the Company) is a publicly traded Pennsylvania
thrift holding company. The consolidated financial statements include the
accounts of the Company and its direct and indirect wholly owned
subsidiaries, ESB Bank, F.S.B. (ESB or the Bank), PennFirst Financial
Services, Inc., PennFirst Capital Trust I (the Trust), THF, Inc. (THF),
AMSCO, Inc. and ESB Financial Services, Inc. ESB is a federally chartered
Federal Deposit Insurance Corporation (FDIC) insured stock savings bank.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Basis of Presentation
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make some estimates and assumptions that affect the reported amounts in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. Certain amounts previously reported for
1999 and 1998 have been reclassified to conform with the financial
statement presentation for 2000. All share and related price and dividend
amounts presented herein have been restated to reflect prior period stock
dividends and stock splits.
Operating Segments
An operating segment is defined as a component of an enterprise that
engages in business activities that generate revenue and incur expense, and
the operating results of which are reviewed by management. ESB's business
activities are currently confined to one operating segment which is
community banking.
Cash Equivalents
Cash equivalents include cash on hand and in banks, interest-earning
deposits and federal funds sold. The Board of Governors of the Federal
Reserve System imposes certain reserve requirements on all depository
institutions. These reserves are maintained in the form of vault cash or as
a noninterest-bearing balance with the Federal Reserve Bank. Required
reserves averaged $1.1 million during the year 2000.
Securities Available for Sale and Held to Maturity
Securities include investments primarily in bonds and notes and are
classified as either available for sale or held to maturity at the time of
purchase based on management's intent. Such intent includes consideration
of the interest rate environment, prepayment risk, credit risk, maturity
and repricing characteristics, liquidity considerations, investment and
asset/liability management policies and other pertinent factors. The
appropriateness of the classification is reassessed at each reporting date.
Unrealized holding gains and losses, net of applicable income taxes, on
available for sale securities are reported as accumulated other
comprehensive income until realized. Gains and losses on the sale of
securities are determined using the specific identification method and are
included in operations in the period sold.
Declines in the fair value of securities below their cost that are other
than temporary result in the security being written down to fair value on
an individual basis. Any related write-downs are included in operations as
realized losses. Yields and carrying values for certain mortgage-backed
securities are subject to normal interest rate and prepayment risks.
================================================================================
ESB Financial Corporation 27 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
1. Summary of Significant Accounting Policies (continued)
Securities Available for Sale and Held to Maturity (continued)
Premiums and discounts on securities are recognized in interest income
using the interest method over the period to maturity.
On June 30, 1999, the Company reclassified its held to maturity (HTM)
portfolio to the available for sale (AFS) portfolio. As of the
reclassification, the Company had $54.5 million of amortized cost in
securities classified as HTM of which $42.5 million were fixed rate
mortgage-backed securities (MBS), $8.0 million were municipal bonds and
$4.0 million were U.S. Government and agency bond securities. When the
securities were transferred to the AFS portfolio the following unrealized
gains/losses were recorded: the fixed rate MBS had a related unrealized
loss of $534,000, the municipal bonds had a related unrealized gain of
$327,000 and the U.S. Government and agency bond securities had a related
unrealized loss of $2,000 for a net unrealized loss of $209,000. The tax
benefit associated with the unrealized loss was $71,000.
The transfer of securities from the HTM portfolio has provided the Company
with greater flexibility to restructure the portfolio as needed, in order
to attain the maximum overall yield on the investment portfolio while
maintaining acceptable levels of interest rate risk.
Loans Receivable
Loans receivable, for which management has the intent and the Company has
the ability to hold for the foreseeable future or until maturity or payoff,
are reported at their outstanding unpaid principal balances reduced by any
charge-offs and net of any deferred fees or costs on loans originated,
unamortized premiums or discounts on loans purchased and the allowance for
loan losses.
Interest income on loans is accrued and credited to operations as earned.
Interest income is not accrued for loans delinquent 90 days or greater.
Interest on impaired loans is discontinued when, in management's opinion,
the borrower may be unable to meet contractual payments. When interest
accrual is discontinued, all unpaid accrued interest is reversed. Interest
receipts on nonaccrual and impaired loans are recognized as interest
revenue or applied to principal when management believes the ultimate
collectibility of principal is in doubt.
Discounts and premiums on purchased loans are recognized in interest income
using the interest method over the remaining period to contractual
maturity, adjusted for prepayments. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment to
the yield of the related loan over the loan's period to maturity. Loans
originated and intended for sale are carried at the lower of cost or
estimated market value in the aggregate.
Impaired loans are identified and measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. If the recorded investment
in the loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Impaired loans
consist of non-homogeneous loans, which based on the evaluation of current
information and events, management has determined that it is probable the
Corporation will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The Corporation evaluates all
commercial and commercial real estate loans which have been classified for
regulatory reporting purposes, including non-accrual and restructured
loans, in determining impaired loans.
================================================================================
ESB Financial Corporation 28 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
1. Summary of Significant Accounting Policies (continued)
Loans Receivable (continued)
The allowance for loan losses is increased by charges to operations through
the provision for loan losses and decreased by charge-offs, net of
recoveries. Management's periodic evaluation of the appropriateness of the
allowance is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, current economic conditions and other factors as deemed
appropriate.
The allowance for loan losses is subjective and may be adjusted in the
future depending on economic conditions and other factors. The regulatory
examiners may require the Company to recognize adjustments to the allowance
based upon their judgments about information available to them at the time
of their examinations. Loans are charged off upon reaching various stages
of delinquency depending upon the loan type.
Real Estate Acquired Through Foreclosure
Real estate properties acquired through foreclosure are initially recorded
at the lower of cost or fair value at the date of foreclosure, establishing
a new cost basis. After foreclosure, management periodically performs
valuations and the real estate is carried at the lower of cost or fair
value less estimated costs to sell. Revenue and expenses from operations of
the properties, gains and losses on sales and additions to the valuation
allowance are included in operating results.
Premises and Equipment
Land is carried at cost. Premises, furniture and equipment, and leasehold
improvements are carried at cost less accumulated depreciation or
amortization. Depreciation is calculated on a straight-line basis over the
estimated useful lives of the related assets, which are twenty-five to
fifty years for buildings and three to ten years for furniture and
equipment. Amortization of leasehold improvements is computed using the
straight-line method over the term of the related lease.
Intangible Assets
Goodwill and core deposit intangible assets combined were $7.6 million and
$6.3 million as of December 31, 2000 and 1999, respectively, and are
amortized on a straight-line basis over the estimated benefit period,
generally up to fifteen years. Intangible assets are reviewed for possible
impairment when events or changed circumstances may affect the underlying
basis of the asset.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Financial Instruments
The Company purchases interest rate cap and floor contracts to manage its
sensitivity to interest rate risk. These contracts may be designated as a
hedge against certain on-balance sheet financial instruments if a high
correlation exists between the contracts and the hedged instrument. High
correlation is achieved based on the results of a mathematical correlation
analysis or if the characteristics of the hedging instrument are
================================================================================
ESB Financial Corporation 29 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
1. Summary of Significant Accounting Policies (continued)
Financial Instruments (continued)
structurally similar to the instrument being hedged. Hedge correlation of
cap or floor contracts to a hedged instrument is reviewed periodically. The
Company has adopted FASB SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
the instruments at their fair value. A derivative may be designated as a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, a hedge of the exposure to
variable cash flows of a forecasted transaction, or a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign-
currency-denominated forecasted transaction. This statement will be in
effect starting in 2001 for the Company. Management has evaluated the
impact of SFAS 133 and determined that it will not materially affect the
Company's financial position or results of operations.
The cost of these contracts are included in prepaid expenses and other
assets and are amortized on a straight line basis over the shorter of the
contractual life of the contract or the hedged instrument. Amortization is
recorded as an adjustment to the yield or the cost of the hedged
instrument. Realized gains and losses on the sale of a cap or floor
contract designated as a hedge are deferred and amortized over the life of
the hedged instrument as interest income or interest expense or, recognized
in operating results at the time of disposition of the hedged instrument.
Unrealized gains or losses of cap and floor contracts that meet the
criteria for hedge accounting are not recognized in operating results but
are included in the other comprehensive income calculation to the extent
that the hedged instrument is a security classified as available for sale.
Interest rate cap and floor contracts that do not meet the criteria for
hedge accounting are recorded at estimated fair value with unrealized gains
or losses included in operating results.
In the ordinary course of business, the Company has entered into off-
balance sheet financial instruments, consisting of commitments to extend
credit, commitments under line of credit lending arrangements and letters
of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are received.
Fair Value of Financial Instruments
The following methods and assumptions were used in estimating fair values
of financial instruments.
Cash equivalents - The carrying amounts of cash equivalents
----------------
approximate their fair values.
Securities - Fair values for securities are based on quoted market
----------
prices.
Accrued interest receivable and payable - The carrying amounts of
---------------------------------------
accrued interest approximate their fair values.
Loans receivable - For variable-rate loans that reprice frequently and
----------------
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain residential mortgage and
consumer loans are based on quoted market prices of similar loans sold
in conjunction with securitization transactions, adjusted for
differences in loan characteristics. Fair values of commercial real
estate and commercial business loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair
values of impaired loans are estimated using discounted cash flow
analyses or underlying collateral values, where applicable.
================================================================================
ESB Financial Corporation 30 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
FHLB stock - FHLB stock is restricted for trading purposes, and thus,
----------
the carrying value approximates fair value.
Deposits - The fair values disclosed for demand deposits are, by
--------
definition, equal to the amount payable on demand at the reporting
date. Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies current market interest
rates to a schedule of aggregated expected monthly maturities.
Borrowed funds and subordinated debt - For variable rate borrowings,
------------------------------------
fair values are based on carrying values. For fixed rate borrowings,
fair values are based on the discounted value of contractual cash
flows and on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
Loan commitments - The fair value of loan commitments at December 31,
----------------
2000 and 1999 approximated the carrying value of those commitments at
those dates.
Interest rate contracts - Estimated fair values of interest rate
-----------------------
contracts are based on quoted market prices, dealer quotes and prices
obtained from independent pricing services.
Bank owned life insurance (BOLI) - The fair value of BOLI at December
--------------------------------
31, 2000 and 1999 approximated the cash surrender value of the
policies at those dates.
Net Income Per Share
The following table summarizes the Company's net income per share for the
years ended December 31:
-------------------------------------------------------------------------------------------------------
(amounts, except earnings per share, in thousands)
-------------------------------------------------------------------------------------------------------
2000 1999 1998
-------- -------- --------
Net income $ 6,733 $ 5,761 $ 6,001
Weighted-average common shares outstanding 5,719 5,470 5,872
-------- -------- --------
Basic earnings per share $ 1.18 $ 1.05 $ 1.02
======== ======== ========
Weighted-average common shares outstanding 5,719 5,470 5,872
Common stock equivalents due to effect of stock options 74 133 254
-------- -------- --------
Total weighted-average common shares and equivalents 5,793 5,603 6,126
-------- -------- --------
Diluted earnings per share $ 1.16 $ 1.03 $ 0.98
======== ======== ========
-------------------------------------------------------------------------------------------------------
Options to purchase 73,729 shares of common stock at $10.61 per share,
66,856 shares of common stock at $16.36 per share, 84,868 shares of common
stock at $12.73 per share and 121,954 shares of common stock at $10.38 per
share were outstanding as of December 31, 2000 but were not included in the
computation of diluted earnings per share because the option's exercise
price was greater than the average market price of the common shares. The
options expire on June 30, 2007, June 30, 2008, June 30, 2009 and June 30,
2010, respectively. Options to purchase 68,294 shares of common stock at
$16.36 per share and 86,466 shares of common stock at $12.73per share were
outstanding as of December 31, 1999 but were not included in the
computation of diluted earnings per share because the option's exercise
price was greater than the average market price of the common shares. The
options expire on June 30, 2008, June 30, 2009, respectively.
================================================================================
ESB Financial Corporation 31 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
2. Securities
The following table summarizes the Company's securities as of December 31:
===================================================================================================
(In thousands) Amortized Unrealized Unrealized Fair
cost gains losses value
---------------------------------------------------------------------------------------------------
Available for sale:
------------------
December 31, 2000:
Trust Preferred securities $ 2,000 $ - $ (287) $ 1,713
U.S. Government securities 19,983 175 (28) 20,130
Municipal securities 93,577 1,132 (844) 93,865
Equity securities 2,878 236 (580) 2,534
Corporate Bonds 77,931 771 (4,144) 74,558
Mortgage-backed securities 413,183 2,272 (2,841) 412,614
--------- --------- --------- ---------
$ 609,552 $ 4,586 $ (8,724) $ 605,414
========= ========= ========= =========
December 31, 1999:
Trust Preferred securities $ 3,274 $ - $ (443) $ 2,831
U.S. Government securities 22,980 - (641) 22,339
Municipal securities 89,597 741 (4,871) 85,467
Equity securities 2,682 75 (450) 2,307
Corporate Bonds 52,664 - (1,351) 51,313
Mortgage-backed securities 407,849 666 (11,647) 396,868
--------- --------- --------- ---------
$ 579,046 $ 1,482 $ (19,403) $ 561,125
========= ========= ========= =========
---------------------------------------------------------------------------------------------------
The proceeds from the sale of securities as of December 31, 2000, 1999 and 1998
were $49.4 million, $73.8 million and $109.2 million, respectively. Gross
realized gains and gross realized losses on sales of securities available for
sale were $428,000 and $456,000, respectively, in 2000, $820,000 and $276,000,
respectively, in 1999 and $923,000 and $546,000, respectively, in 1998.
At December 31, 2000 the book value of the Company's PNC Capital Trust Corp.
Corporate Bond exceeded 10% of stockholders' equity. The book value and market
values were $7.4 million and $6.9 million, respectively. The issue is classified
as investment grade debt by a national rating service.
The following table summarizes scheduled maturities of the Company's securities
as of December 31, 2000, excluding equity securities which have no maturity
dates:
---------------------------------------------------------------------------
(In thousands) Available for sale
--------------------------
Amortized Fair
cost value
---------------------------------------------------------------------------
Due in one year or less $ 2,203 $ 2,231
Due from one year to five years 24,745 25,020
Due from five to ten years 41,337 41,739
Due after ten years 538,389 533,890
--------- ---------
$ 606,674 $ 602,880
========= =========
---------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 32 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
2. Securities (continued)
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on weighted-average contractual maturities of underlying
collateral. The mortgage-backed securities may mature earlier than their
weighted-average contractual maturities because of principal prepayments.
Securities, with carrying values of $20.7 million and $18.6 million as of
December 31, 2000 and 1999, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.
3. Loans Receivable
The following table summarizes the Company's loans receivable as of
December 31:
-------------------------------------------------------------------------------------------
(In thousands) 2000 1999
-------------------------------------------------------------------------------------------
Mortgage loans:
Residential - single family $ 334,201 $ 249,966
Residential - multi family 26,998 15,035
Commercial real estate 48,633 39,171
Construction 51,523 42,935
--------- ---------
461,355 347,107
Other loans:
Consumer loans 68,099 59,351
Commercial business 10,692 8,884
--------- ---------
540,146 415,342
Less:
Allowance for loan losses 4,981 4,823
Deferred loan fees and net discounts 1,380 858
Loans in process 21,557 15,732
--------- ---------
$ 512,228 $ 393,929
========= =========
-------------------------------------------------------------------------------------------
Non-performing loans, which include only non-accrual loans, were $2.6 million
and $4.3 million at December 31, 2000 and 1999, respectively.
For non-performing loans, the interest income that would have been recorded
under the original terms of such loans and the interest income actually
recognized for the years ended December 31 are summarized below:
------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Interest income that would have been recorded $ 272 $ 244 $ 1,028
Interest income recognized 82 90 688
------- ------- -------
Interest income foregone $ 190 $ 154 $ 340
======= ======= =======
The Company is not committed to lend additional funds to debtors whose
loans are on non-accrual status.
================================================================================
ESB Financial Corporation 33 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
3. Loans Receivable (continued)
The following is a summary of the changes in the allowance for loan losses:
____________________________________________________________________
(In thousands)
Totals
--------------------------------------------------------------------
Balance, December 31, 1997 $ 4,807
Provision for loan losses 5
Charge offs (18)
Recoveries 21
-------
Balance, December 31, 1998 4,815
Provision for loan losses 54
Charge offs (55)
Recoveries 9
-------
Balance, December 31, 1999 4,823
Allowance for loan losses of SHS 544
Recovery of loan losses (55)
Charge offs (409)
Recoveries 78
-------
Balance, December 31, 2000 $ 4,981
=======
____________________________________________________________________
The following table is a summary of the loans considered to be impaired as
of December 31:
---------------------------------------------------------------------------
(in thousands) 2000 1999 1998
---------------------------------------------------------------------------------------------------------
Impaired loans with an allocated allowance $ 1,044 $ 3,294 $ 3,718
Impaired loans without an allocated allowance - - -
----------- -------- --------
Total impaired loans 1,044 3,294 3,718
Allocated allowance on impaired loans 1,012 1,828 2,040
Portion of impaired loans on non-accrual 1,044 3,294 3,718
Average impaired loans 1,582 3,442 3,701
Income recognized on impaired loans 3 48 81
---------------------------------------------------------------------------------------------------------
SFAS No. 114 does not apply to large groups of smaller balance homogenous
loans that are collectively evaluated for impairment. The Company
collectively reviews all residential real estate and consumer loans for
impairment.
The Company conducts its business through 16 offices in Allegheny, Beaver,
Butler and Lawrence counties, Pennsylvania and primarily lends in this
geographical area. Management does not believe it has significant
concentrations of credit risk to any one group of borrowers given its
underwriting and collateral requirements.
4. Investment Required by Regulation
The Company's subsidiary bank is a member of the Federal Home Loan Bank
(FHLB) System. As a member, the Bank maintains an investment in the
capital stock of the FHLB of Pittsburgh, at cost, in an amount not less
than 1.0% of the unpaid principal balances of residential mortgage loans,
0.3% of total
================================================================================
ESB Financial Corporation 34 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
4. Investment Required by Regulation (continued)
assets or 5.0% of outstanding advances, if any, due to the FHLB, whichever
is greater, as calculated periodically by the FHLB. Purchases and sales of
FHLB stock are made directly with the FHLB at par.
5. Premises and Equipment
Premises and equipment at December 31 are summarized by major
classification as follows:
--------------------------------------------------------------------------
(In thousands) 2000 1999
--------------------------------------------------------------------------
Land $ 954 $ 1,124
Buildings and improvements 8,767 6,338
Leasehold improvements 523 629
Furniture, fixtures and equipment 6,991 5,465
-------- --------
17,235 13,556
Less accumulated depreciation and amortization 8,257 6,676
-------- --------
$ 8,978 $ 6,880
======== ========
-------------------------------------------------------------------------
Depreciation and amortization expense for the years December 31, 2000, 1999
and 1998 were $758,000, $605,000 and $364,000, respectively.
The Company is obligated under non-cancelable long term operating lease
agreements for certain branch offices. These lease agreements, each having
renewal options and none expiring later than 2010, have approximate
aggregate rentals of $137,382, $137,582, $147,076, $153,020, $155,660 and
$572,947 for the years ended December 31, 2001, 2002, 2003, 2004, 2005 and
thereafter, respectively. Rent expense for the years ended December 31,
2000, 1999 and 1998 was $130,000, $61,000 and $98,000, respectively.
6. Deposits
The following table summarizes the Company's deposits as of December 31:
-------------------------------------------------------------------------
(Dollar amounts in thousands) 2000 1999
------------------ ----------------
Type of accounts Amount % Amount %
-------------------------------------------------------------------------
Noninterest-bearing deposits $ 9,620 1.9% $ 8,094 1.9%
NOW account deposits 41,549 8.2% 32,139 7.4%
Money Market deposits 65,467 12.8% 69,946 16.2%
Passbook account deposits 72,248 14.2% 64,363 14.9%
Time deposits 320,029 62.9% 257,241 59.6%
---------- ----- --------- -----
$ 508,913 100.0% $ 431,783 100.0%
========== ===== ========= =====
Time deposits mature as follows:
Within one year $ 177,471 34.9% $ 178,944 41.4%
After one year through two years 80,647 15.8% 40,709 9.4%
After two years through three years 48,210 9.5% 15,213 3.5%
Thereafter 13,701 2.7% 22,375 5.2%
---------- ----- --------- -----
$ 320,029 62.9% $ 257,241 59.6%
========== ===== ========= =====
- --------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 35 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
6. Deposits (continued)
The Company had a total of $74.3 million and $62.0 million in deposits of
$100,000 or more at December 31, 2000 and 1999, respectively.
Interest expense by type of deposit account for the year ended December
31 is as follows:
----------------------------------------------------------------------
(In thousands) 2000 1999 1998
----------------------------------------------------------------------
NOW account deposits $ 270 $ 151 $ 128
Money Market deposits 2,571 2,342 2,070
Passbook account deposits 1,633 1,384 1,707
Time deposits 17,343 13,540 13,735
-------- -------- --------
$ 21,817 $ 17,417 $ 17,640
======== ======== ========
----------------------------------------------------------------------
Interest expense on advance payments by borrowers for taxes and insurance,
not included above, for the year ended December 31, 2000 was $12,000.
7. Borrowed Funds
Borrowed funds, which include FHLB advances, reverse repurchase agreements
and treasury tax and loan notes payable, as of December 31 are summarized
as follows:
------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 2000 1999
------------------- -----------------
Weighted Weighted
average average
rate Amount rate Amount
------------------------------------------------------------------------------------------------------
FHLB advances:
Due within 12 months 6.00% 105,207 6.17% $ 179,044
Due beyond 12 months but within 2 years 6.65% 93,883 5.46% 48,707
Due beyond 2 years but within 3 years 6.62% 152,699 6.09% 53,435
Due beyond 3 years but within 4 years 6.48% 27,055 5.89% 35,655
Due beyond 4 years but within 5 years 6.42% 13,885 8.31% 55
Due beyond 5 years 6.66% 3,917 7.05% 571
--------- ---------
396,646 317,467
Treasury tax and loan note payable 6.25% 171 5.20% 169
--------- ---------
$ 396,817 $ 317,636
========= =========
Reverse repurchase agreements:
Due within 12 months 6.02% 95,632 5.55% $ 65,880
Due beyond 12 months but within 2 years 6.17% 74,040 5.82% 72,000
Due beyond 2 years but within 3 years 6.96% 10,600 6.05% 64,040
Due beyond 3 years but within 4 years 7.30% 11,000 - -
--------- ---------
$ 191,272 $ 201,920
========= =========
------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 36 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
7. Borrowed Funds (continued)
FHLB advances are secured by FHLB stock, qualifying residential mortgage
loans and mortgage-backed securities to the extent that the fair value of
such pledged collateral must be at least equal to the advances outstanding.
The fair value of qualifying mortgage loans pledged as collateral against
FHLB advances was $341.1 million at December 31, 2000.
The Company enters into sales of securities under agreements to repurchase.
Such reverse repurchase agreements are treated as borrowed funds. The
dollar amount of the securities underlying the agreements remain in their
respective asset accounts.
Reverse repurchase agreements are collateralized by various securities that
are either held in safekeeping at the FHLB or delivered to the dealer who
arranged the transaction, and the Company maintains control of these
securities.
The market value of such securities exceeded the amortized cost of the
securities sold under agreements to repurchase. The market value of the
securities as of December 31, 2000 was $210.4 million with an amortized
cost of $210.3 million. The market value of the securities as of December
31, 1999 was $216.8 million with an amortized cost of $223.7 million.
As of December 31, 2000, the Company had reverse repurchase agreements with
Morgan Stanley Dean Witter with $11.7 million at risk with a weighted
average maturity of 10 months and with Salomon Smith Barney with $7.4
million at risk with a weighted average maturity of 23 months.
Borrowings under reverse repurchase agreements averaged $220.8 million,
$166.0 million and $113.7 million during 2000, 1999 and 1998, respectively.
The maximum amount outstanding at any month-end was $235.5 million, $211.8
million and $150.4 million during 2000, 1999 and 1998, respectively.
The following table sets forth the securities collateralizing the reverse
repurchase agreements and their respective maturities:
---------------------------------------------------------------------------
(amounts in thousands) Mortgage-backed
Securities
---------------------------------------------------------------------------
Maturing:
Overnight $ -
Up to 30 days 203
30 to 90 days -
Over 90 days 210,184
Demand -
---------
$ 210,387
=========
---------------------------------------------------------------------------
The Company, through ESB, has an agreement with the Federal Reserve Bank of
Cleveland whereby ESB is an authorized treasury tax loan depository. Under
the terms of the note agreement, funds deposited to the Company's treasury
tax and loan account (limited to $150,000 per deposit) accrue interest at a
rate of 0.25% below the overnight federal funds rate.
8. Guaranteed Preferred Beneficial Interest in Subordinated Debt
On December 9, 1997, the Trust, a statutory business trust established
under Delaware law that is a subsidiary of the Company, issued $25.3
million, 8.625% Trust Preferred Securities (Preferred Securities) with a
stated value and liquidation preference of $10 per share. The Trust's
obligations under the Preferred Securities issued are fully and
unconditionally guaranteed by the Company.
================================================================================
ESB Financial Corporation 37 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
8. Guaranteed Preferred Beneficial Interest in Subordinated Debt (continued)
The proceeds from the sale of the Preferred Securities were utilized by the
Trust to invest in $25.3 million of 8.625% Junior Subordinated Debentures
(the Subordinated Debt) of the Company. The Subordinated Debt is unsecured
and ranks subordinate and junior in right of payment to all indebtedness,
liabilities and obligations of the Company. The Subordinated Debt primarily
represents the sole assets of the Trust. Interest on the Preferred
Securities is cumulative and payable quarterly in arrears. The Company has
the right to optionally redeem the Subordinated Debt prior to the maturity
date of December 31, 2027, on or after December 31, 2002, at 100% of the
stated liquidation amount, plus accrued and unpaid distributions, if any,
at the redemption date.
Under the occurrence of certain events, specifically, a tax event,
investment company event or capital treatment event as more fully defined
in the Indenture dated December 7, 1997, the Company may redeem in whole,
but not in part, the Subordinated Debt prior to December 31, 2027.
Proceeds from any redemption of the Subordinated Debt would cause a
mandatory redemption of the Preferred Securities and the common securities
having an aggregate liquidation amount equal to the principal amount of the
Subordinated Debt redeemed.
Unamortized deferred debt issuance costs associated with the Preferred
Securities amounted to $1.2 million and $1.2 million as of December 31,
2000 and 1999, respectively, and are amortized on a level-yield basis over
the term of the Preferred Securities.
9. Income Taxes
The provision for income taxes for the years ended December 31, is
comprised of the following:
--------------------------------------------------------------------
(In thousands) 2000 1999 1998
--------------------------------------------------------------------
Current expense:
Federal $ 1,317 $ 1,326 $ 1,363
State 185 522 446
-------- -------- --------
1,502 1,848 1,809
Deferred benefit:
Federal (259) (771) (292)
-------- -------- --------
(259) (771) (292)
-------- -------- --------
$ 1,243 $ 1,077 $ 1,517
======== ======== ========
--------------------------------------------------------------------
In addition to income taxes applicable to income before taxes in the
consolidated statements of operations, the following income tax amounts
were recorded to stockholders' equity during the years ended December 31:
---------------------------------------------------------------------------
(In thousands) 2000 1999 1998
---------------------------------------------------------------------------
Net (gain) loss on securities
available for sale $ (4,686) $ 6,330 $ 901
Compensation expense for tax purposes
in excess of amounts recognized for
financial statement purposes 54 145 367
-------- --------- --------
$ (4,632) $ 6,475 $ 1,268
======== ========= ========
---------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 38 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
9. Income Taxes (continued)
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities that are included in
the net deferred tax asset as of December 31 relate to the following:
---------------------------------------------------------------------------
(In thousands) 2000 1999
---------------------------------------------------------------------------
Deferred tax assets:
Allowances for losses on loans and real estate owned $ 1,330 $ 1,117
Interest and fees on loans 43 53
General business credit 287 97
Minimum tax credit carry forward 975 647
Investment securities available for sale 1,407 6,093
Other 132 179
------- -------
Gross deferred tax assets 4,174 8,186
Deferred tax liabilities:
Gross deferred tax liabilities 331 211
------- -------
Net deferred tax asset $ 3,843 $ 7,975
======= =======
---------------------------------------------------------------------------
The Company determined that it was not required to establish a valuation
allowance for deferred tax assets in accordance with SFAS No. 109 since it
is more likely than not that the deferred tax asset will be realized
through carry-back to taxable income in prior years, future reversals of
existing taxable temporary differences, and, to a lesser extent, future
taxable income.
The general business credit of $287,000 will be available to reduce future
federal income tax through the year 2020. The alternative minimum tax
credit of $975,000 is available to reduce future regular income taxes over
an indefinite period.
A reconciliation between the provision for income taxes and the amount
computed by multiplying operating results before income taxes by the
statutory federal income tax rate of 34% for the years ended December 31 is
as follows:
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
Tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Tax free income, net of interest
disallowance (20.2%) (25.0%) (17.8%)
State income taxes, net of Federal income
tax benefit 1.5% 5.0% 4.0%
Goodwill 3.1% 3.0% 2.7%
Other, net (2.8%) (1.2%) (2.7%)
----- ----- -----
Reported rate 15.6% 15.8% 20.2%
===== ===== =====
---------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 39 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
9. Income Taxes (continued)
The Company and its subsidiaries file a consolidated federal income tax
return. Prior to 1996, the Bank was permitted under the Internal Revenue
Code to deduct an annual addition to a reserve for bad debts in determining
taxable income, subject to certain limitations. Subsequent to 1995, the
Bank's bad debt deduction is based on actual net charge-offs. Bad debt
deductions for income tax purposes are included in taxable income of later
years only if the Bank's base year bad debt reserve is used subsequently
for purposes other than to absorb bad debt losses. Because the Bank does
not intend to use the reserve for purposes other than to absorb losses, no
deferred income taxes have been provided prior to 1987. Retained earnings
at December 31, 1999 (the most recent date for which a tax return has been
filed) include approximately $15.2 million representing such bad debt
deductions for which no deferred income taxes have been provided.
10. Employee Benefit Plans
Retirement Savings Plan
The Company has a defined contribution employee retirement plan for the
benefit of substantially all employees. The plan provides for regular
employer payments that match each participating employee's contribution to
their individual tax-deferred retirement account. Employees can contribute
up to 15% of their compensation to the plan, and the Company matches 100%
of the first 1% and 50% of the remaining 2% through 6% of employee
contributions in stock of the Company. The Company contributed $184,000,
$146,000 and $126,000 to the plan during 2000, 1999 and 1998, respectively.
Employee Stock Ownership Plan
The Company has a tax qualified Employee Stock Ownership Plan (ESOP) for
the benefit of its employees. All employees who complete one year of
service are eligible to participate in the ESOP.
Participants become 100% vested in their accounts in the ESOP after five
years of service or, if earlier, upon death, disability or attainment of
normal retirement age.
The purchase of shares of the Company's stock by the ESOP is funded by
loans from the Company. Unreleased ESOP shares collateralize the loans
payable to the Company, and the cost of these shares is recorded as a
contra-equity account in stockholders' equity of the Company. The ESOP's
loans payable to the Company bear a weighted-average interest rate of 8.0%
and mature within the next 15 years. Shares released as debt payments are
made by the ESOP to the Company. The ESOP's sources of repayment of the
loans can include dividends, if any, on the unallocated stock held by the
ESOP and discretionary contributions from the Company to the ESOP and
earnings thereon. Dividends received on unallocated ESOP shares during
2000, 1999 and 1998 amounted to $130,000, $86,000 and $93,000,
respectively.
In November 1993, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans", which prescribes comprehensive accounting
guidance for ESOPs. The major requirements of SOP No. 93-6 provide, among
other provisions, that compensation is recognized under the shares released
method and compensation expense is equal to the fair value of the shares
committed to be released and unallocated ESOP shares are excluded from
outstanding shares for purposes of computing EPS. The Company adopted SOP
No. 93-6 on January 1, 1994 for shares acquired by the ESOP after that
date.
================================================================================
ESB Financial Corporation 40 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
10. Employee Benefit Plans (continued)
Employee Stock Ownership Plan (continued)
As of December 31, 2000 there was a total of 87,428 shares in the ESOP
accounted for under accounting guidance provided prior to the issuance of
SOP No. 93-6. Compensation expense on the release of these pre-SOP No.
93-6 shares is recognized upon release based on the original cost of
these shares when they were purchased by the ESOP. During 2000, 1999 and
1998, the Company recognized compensation expense related to the ESOP of
$554,000, $561,000 and $685,000, respectively.
As of December 31, 2000 and 1999 the ESOP held a total of 775,476 and
607,510 shares, respectively, of the Company's stock, and there were
302,087 and 245,928 unallocated shares, respectively, with a value of
$3.0 million and $2.9 million, respectively.
Stock Option Plans
The Company maintains Stock Option Plans (Option Plans), which provide
for the grant of stock options to directors, officers and other key
employees. The Option Plans provide for the grant of both incentive stock
options and compensatory stock options. Granted stock options are granted
at an exercise price equal to the market price at the date of grant,
typically vest within six months of the date of grant and have a maximum
term of ten years.
The Company has elected to follow the Accounting Principles Board (APB)
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its employee stock options. Under APB
No. 25, because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Pro forma information regarding net
income and net income per share is required by SFAS No. 123, and has been
determined as if the Company had accounted for stock options under the
fair value method of that statement. The fair value of these options was
estimated at the date of grant using the Black-Scholes Option Pricing
Model with the following weighted-average assumptions for 2000, 1999 and
1998: risk-free interest rates of 6.8%; dividend yields of 2.8%;
volatility factors of the expected market price of the Company's stock of
19.2%; and a weighted average life of the option of seven years.
The Black-Scholes Valuation Model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
For the purpose of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma results including consideration of this amortized
expense are as follows for the years ended December 31:
---------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data) 2000 1999 1998
---------------------------------------------------------------------------------------
Pro forma net income $ 6,434 $ 5,526 $ 5,760
Pro forma diluted net
income per share $ 1.08 $ 0.97 $ 0.98
---------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 41 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
10. Employee Benefit Plans (continued)
Stock Option Plans (continued)
Stock option activities under the Option Plans for the years ended
December 31 are as follows:
---------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options (1) Price/Share (1) Options (1) Price/Share (1) Options (1) Price/Share (1)
---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 508,046 $ 10.03 462,919 $ 8.95 522,796 $ 7.09
Granted 121,954 10.38 86,466 12.73 70,109 16.36
Converted 47,331 7.01 - - - -
Exercised (36,710) 4.40 (39,524) 3.14 (129,986) 5.44
Expired (6,628) 10.61 (1,815) 16.36 - -
----------- ----------- -----------
Outstanding at end of year 633,993 10.19 508,046 10.03 462,919 8.95
=========== =========== ===========
Exercisable at end of year 569,493 $ 10.17 508,046 $ 10.03 462,919 $ 8.95
=========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Options and price/share data for the years ended December 31, 2000,
1999 and 1998 have been adjusted to reflect stock dividend paid on May
31, 2000. The options and price/share data for the year ended 1998 have
been adjusted to reflect stock dividend paid on May 29, 1998.
The weighted-average fair values of options granted during 2000, 1999
and 1998 utilizing the Black-Scholes Valuation Model were $2.76 , $4.12,
and $5.21, respectively.
The following table summarizes certain characteristics of issued stock
options as of December 31, 2000:
---------------------------------------------------------------------------------------------------------------------------
Average
Remaining
Options Exercise Contractual
Year Issued Outstanding Price Life (in years)
---------------------------------------------------------------------------------------------------------------------------
1992 11,660 $ 5.73 1.0
1994 39,698 8.60 3.5
1994 75,272 5.50 4.0
1995 49,106 9.82 4.5
1995 5,676 6.05 5.0
1996 58,556 9.77 5.5
1997 73,729 10.61 6.5
1997 46,618 7.00 7.0
1998 66,856 16.36 7.5
1999 84,868 12.73 8.5
2000 121,954 10.38 9.5
--------
633,993 $ 10.19 6.5
======== ========= ========
---------------------------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 42 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
10. Employee Benefit Plans (continued)
Management Recognition Plan
In connection with the acquisition of Troy Hill Federal Savings Bank, the
Company acquired shares of stock held in trust for potential future
distribution to management and key employees for compensation purposes.
As of December 31, 2000, there were 25,534 shares held in the Management
Recognition Plan trust, and no shares have been distributed or identified
for distribution.
11. Other Comprehensive Income (Loss)
In complying with FAS No. 130, "Reporting Comprehensive Income", the
Company has developed the following table which includes the tax effects
of the components of other comprehensive income (loss). Other
comprehensive income (loss) consists of net unrealized gain (loss) on
securities available for sale. Other comprehensive income and related tax
effects for the years ended December 31 consists of:
---------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
Unrealized Reclassification Unrealized Reclassification Unrealized Reclassification
Gain Adjustment Loss (1) Adjustment Loss Adjustment
------------ ---------------- ------------ ---------------- ------------ ----------------
Before tax amount $ 13,727 $ 56 $ (18,092) $ (527) $ (2,466) $ (183)
Tax (expense) benefit (4,667) (19) 6,236 94 850 51
------------ ---------------- ------------ ---------------- ------------ ----------------
After tax amount $ 9,060 $ 37 $ (11,856) $ (433) $ (1,616) $ (132)
============ ================ ============ ================ ============ ================
---------------------------------------------------------------------------------------------------------------------------
(1) Includes transfer of securities from held to maturity to available
for sale. See Note 1.
12. Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company
is involved in certain claims and legal actions arising in the ordinary
course of business. The outcome of these claims and actions are not
presently determinable; however, in the opinion of the Company's
management, after consulting legal counsel, the ultimate disposition of
these matters will not have a material adverse effect on the consolidated
financial statements.
================================================================================
ESB Financial Corporation 43 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
13. Financial Instruments
The following table sets forth the carrying amount and fair value of the
Company's financial instruments included in the consolidated statement of
financial condition as of December 31:
------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
----------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
------------------------------------------------------------------------------------------------------
Financial assets:
Cash equivalents $ 13,326 $ 13,326 $ 12,761 $ 12,761
Securities available for sale 605,414 605,414 561,125 561,125
Loans receivable 512,228 517,153 393,929 393,152
Accrued interest receivable 8,220 8,220 6,871 6,871
FHLB stock 19,899 19,899 18,435 18,435
Interest rate contracts 1 2 139 69
Bank owned life insurance 16,641 16,641 15,784 15,784
Financial liabilities:
Deposits 508,913 512,130 431,783 433,137
Borrowed funds 588,089 593,738 519,556 514,808
Guaranteed preferred beneficial interest
in subordinated debt, net 24,115 20,948 24,071 21,971
Accrued interest payable 4,198 4,198 2,678 2,678
------------------------------------------------------------------------------------------------------
The following table presents the notional amount of the Company's
interest rate cap contracts and the contractual amount of the Company's
other off-balance sheet financial instruments as of December 31:
------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------
Interest rate cap contracts $ 10,000 $ 100,000
Loans in process and commitments:
Fixed interest rate 14,502 10,775
Variable interest rate 16,779 21,235
Lines of credit:
Commercial 21,139 10,886
Consumer 13,865 11,975
Letters of credit:
Commercial - -
Standby 1,229 185
------------------------------------------------------------------------------------------------------
Commitments to extend credit involve, to a varying degree, elements of
credit and interest rate risk in excess of amounts recognized in the
consolidated statement of financial condition. The Company's exposure to
credit loss in the event of non-performance by the other party for
commitments to extend credit is represented by the contractual amount of
these commitments, less any collateral value obtained. The Company uses
the same credit policies in making commitments as for on-balance sheet
instruments. The Company's distribution of commitments to extend credit
approximates the distribution of loans receivable outstanding.
================================================================================
ESB Financial Corporation 44 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
14. Regulatory Matters and Insurance of Accounts
The Company's subsidiary bank, ESB, is subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements could result in certain
mandatory - and possibly additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and their related
classification for the Bank is also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios (set
forth in the table below) of tangible capital (as defined in the
regulations), core (Tier I) capital (as defined) and risk-based capital
(as defined). As of December 31, 2000 the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 2000, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum tangible, core, and risk-based capital ratios
as set forth in the following table. There are no conditions or events
since that notification that have changed the categorization.
Tangible and core capital levels in the following table are presented as
a percentage of total adjusted assets (as defined in the regulations);
risk based capital levels are shown as a percentage of risk-weighted
assets (as defined).
The minimum required regulatory capital percentages to be well
capitalized under prompt corrective action provisions is 5%, 6% and 10%
for core, tier I and risk-based capital ratios, respectively.
The FDIC through the Savings Association Insurance Fund insures deposits
of account holders up to $100,000 per insured depositor. To provide for
this insurance, the Bank must pay an annual premium.
OTS regulations govern capital distributions by savings institutions,
which include cash dividends, stock redemptions or repurchases, cash-out
mergers, interest payments on certain convertible debt and other
transactions charged to the capital account of a savings institution to
make capital distributions. A savings institution must file an
application for OTS approval of the capital distribution if either (1)
the total capital distributions for the applicable calendar year exceed
the sum of the institution's net income for that year to date plus the
institution's retained net income (which takes into account capital
distributions declared) for the preceding two years, (2) the institution
would not be at least adequately capitalized following the distribution,
(3) the distribution would violate any applicable statute, regulation,
agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions which are a subsidiary of a
holding company (as well as certain other institutions) must still file a
notice with the OTS at least 30 days before the board of directors
declares a dividend or approves a capital distribution. The Bank can
declare dividends (subject only to the aforementioned notice requirement)
subsequent to December 31, 2000, of up to approximately $12.6 million of
retained earnings of $27.3 million at December 31, 2000, less any
dividends declared subsequent to December 31, 2000 plus net income
between January 1, 2001, and the date of any such dividend declaration.
The Bank declared
================================================================================
ESB Financial Corporation 45 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
14. Regulatory Matters and Insurance of Accounts (continued)
The following table sets forth certain information concerning regulatory
capital:
----------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------------
As of December 31, 2000:
Total Capital
(to Risk Weighted Assets) $ 84,100 16.20% $ 41,531 8.00% $ 51,914 10.00%
Core Capital
(to Adjusted Tangible Assets) $ 79,480 6.83% $ 46,572 4.00% $ 58,215 5.00%
Tangible Capital
(to Tangible Assets) $ 79,480 6.83% $ 17,465 1.50% N/A N/A
Tier I Capital
(to Risk Weighted Assets) $ 79,480 15.31% N/A N/A $ 31,148 6.00%
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets) $ 69,500 16.92% $ 32,865 8.00% $ 41,081 10.00%
Core Capital
(to Adjusted Tangible Assets) $ 64,695 6.47% $ 40,015 4.00% $ 50,019 5.00%
Tangible Capital
(to Tangible Assets) $ 64,695 6.47% $ 15,006 1.50% N/A N/A
Tier I Capital
(to Risk Weighted Assets) $ 64,695 15.75% N/A N/A $ 24,649 6.00%
----------------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 46 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
15. Quarterly Financial Data (unaudited)
-----------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------
2000:
----
Interest income $ 18,388 $ 19,524 $ 19,945 $ 20,605
Interest expense 13,654 14,560 15,143 15,739
--------- --------- --------- ---------
Net interest income 4,734 4,964 4,802 4,866
(Recovery of) provision for loan losses (452) 126 11 260
--------- --------- --------- ---------
Net interest income after (recovery of) provision for loan losses 5,186 4,838 4,791 4,606
Net realized gain (loss) on sale of securities available for sale 4 - (37) 5
Other noninterest income 661 799 747 714
Noninterest expense 3,349 3,633 3,680 3,676
--------- --------- --------- ---------
Net income before income taxes 2,502 2,004 1,821 1,649
Provision for income taxes 578 374 187 104
--------- --------- --------- ---------
Net income $ 1,924 $ 1,630 $ 1,634 $ 1,545
========= ========= ========= =========
Diluted net income per share $ 0.33 $ 0.28 $ 0.28 $ 0.27
========= ========= ========= =========
1999:
----
Interest income $ 15,431 $ 15,914 $ 16,444 $ 17,003
Interest expense 11,616 11,861 12,267 12,785
--------- --------- --------- ---------
Net interest income 3,815 4,053 4,177 4,218
Provision for loan losses 3 3 3 45
--------- --------- --------- ---------
Net interest income after provision for loan losses 3,812 4,050 4,174 4,173
Net realized gain (loss) on sale of securities available for sale 215 205 (19) 143
Other noninterest income 522 652 644 694
Noninterest expense 2,972 2,978 3,090 3,387
--------- --------- --------- ---------
Net income before income taxes 1,577 1,929 1,709 1,623
Provision for income taxes 222 375 288 192
--------- --------- --------- ---------
Net income $ 1,355 $ 1,554 $ 1,421 $ 1,431
========= ========= ========= =========
Diluted net income per share $ 0.24 $ 0.27 $ 0.26 $ 0.26
========= ========= ========= =========
-----------------------------------------------------------------------------------------------------------------------
Quarterly earnings per share data may vary from annual earnings due to
rounding.
================================================================================
ESB Financial Corporation 47 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
16. ESB Financial Corporation - Condensed Financial Statements (Parent
Company Only)
Following are condensed financial statements for the parent company as of
and for the years ended December 31:
----------------------------------------------------------------------------------------------------------
Condensed Statements of Financial Condition
(In thousands) 2000 1999
----------------------------------------------------------------------------------------------------------
Assets:
Interest-earning deposits $ 831 $ 1,763
Equity in net assets of subsidiaries 122,434 97,226
Other assets 3,000 2,172
---------- ----------
Total assets $ 126,265 $ 101,161
========== ==========
Liabilities and stockholders' equity:
Subordinated debt, net $ 24,115 $ 24,071
Payable to subsidiaries 33,500 27,035
Accrued expenses and other liabilities 387 173
Stockholders' equity 68,263 49,882
---------- ----------
Total liabilities and stockholders' equity $ 126,265 $ 101,161
========== ==========
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Condensed Statements of Operations
(In thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------------
Income:
Equity in undistributed net income of subsidiaries $ 8,242 $ 1,894 $ 6,367
Dividend income from subsidiaries - 5,000 -
Management fee income, from subsidiaries 3,486 2,612 2,792
Interest and other income 319 742 1,491
---------- ---------- ----------
Total income 12,047 10,248 10,650
Expense:
Interest expense, to subsidiary 4,609 3,957 3,615
Compensation and employee benefits 1,476 1,244 1,212
Other 238 115 101
---------- ---------- ----------
Total expense 6,323 5,316 4,928
---------- ---------- ----------
Income before benefit from income taxes 5,724 4,932 5,722
Benefit from income taxes (1,009) (829) (279)
---------- ---------- ----------
Net income $ 6,733 $ 5,761 $ 6,001
========== ========== ==========
----------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 48 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
16. ESB Financial Corporation - Condensed Financial Statements (Parent
Company Only) (continued)
-------------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows
(In thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 6,733 $ 5,761 $ 6,001
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Equity in undistributed net income of subsidiaries (8,242) (1,894) (6,367)
Loss (gain) on sale of securities available for sale 37 (377) (56)
Other, net 629 (783) (1,373)
---------- ---------- ----------
Net cash (used in) provided by operating activities (843) 2,707 (1,795)
---------- ---------- ----------
Investing activities:
Purchases of securities (596) (1,437) (15,484)
Principal repayments of securities - 2,090 2,865
Proceeds from the sale of securities available for sale 1,670 1,022 2,647
Payment for purchase of SHS, net of cash acquired (3,082) - -
---------- ---------- ----------
Net cash (used in) provided by investing activities (2,008) 1,675 (9,972)
---------- ---------- ----------
Financing activities:
Increase in payable to subsidiaries 6,465 895 24,690
Increase (decrease) in subordinated debt, net 44 44 (119)
Proceeds received from exercise of stock options 215 269 1,072
Dividends paid (2,179) (1,878) (1,941)
Payments to acquire treasury stock (3,134) (2,839) (10,971)
Stock purchased by ESOP (98) (864) (589)
Principal repayment of ESOP loan 606 469 459
---------- ---------- ----------
Net cash provided by (used in) financing activities 1,919 (3,904) 12,601
---------- ---------- ----------
(Decrease) increase in cash equivalents (932) 478 834
Cash equivalents at beginning of period 1,763 1,285 451
---------- ---------- ----------
Cash equivalents at end of period $ 831 $ 1,763 $ 1,285
========== ========== ==========
-------------------------------------------------------------------------------------------------------------------
17. Acquisition
SHS Bancorp, Inc.
On February 10, 2000, the Company completed its acquisition of SHS and
its subsidiary, Spring Hill, based in Pittsburgh, Pennsylvania. Spring
Hill was merged with and into ESB at the close of business on May 5,
2000.
Under the terms of the merger agreement, SHS merged with and into the
Company. The consideration paid by the Company in connection with the
acquisition consisted of $6.4 million in cash and 599,000 shares of the
Company's common stock. In addition options to purchase shares of SHS
were converted into options to acquire 43,000 shares of the Company's
common stock. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the results of operations of Spring Hill
have been included in the Company's consolidated financial statements
from February 10, 2000. Goodwill arising from this transaction was $2.1
million.
================================================================================
ESB Financial Corporation 49 2000 Annual Report
Notes to Consolidated Financial Statements (continued)
================================================================================
17. Acquisition (continued)
SHS Bancorp, Inc.(continued)
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Spring Hill as if the
acquisition had occurred as of the beginning of 2000 and 1999, after
giving effect for certain adjustments, including primarily amortization
of goodwill and certain conversion costs and the related income tax
effects.
The unaudited condensed pro forma combined statement of operations
information is intended for informational purposes only and is not
necessarily indicative of the future results of operations of the
Company, or results of operations that would have actually occurred had
the acquisition been in effect for the periods presented. The unaudited
condensed pro forma combined statements of operations for the years ended
December 31 are as follows:
------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data) Pro Forma Pro Forma
combined for the combined for the
twelve months ended twelve months ended
December 31, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------
Interest income $ 79,007 $ 71,371
Interest expense 59,403 52,206
---------- ---------
Net interest income before (recovery of) provision for loan losses 19,604 19,165
(Recovery of) provision for loan losses (5) 154
---------- ---------
Net interest income after (recovery of) provision for loan losses 19,609 19,011
Other operating income 2,899 3,135
Other operating expenses 14,501 14,826
---------- ---------
Income before provision for income taxes 8,007 7,320
Provision for income taxes 1,268 1,328
---------- ---------
Net income $ 6,739 $ 5,992
========== =========
Earnings per share:
Basic $ 1.18 $ 0.98
Diluted $ 1.16 $ 0.96
------------------------------------------------------------------------------------------------------------------------
================================================================================
ESB Financial Corporation 50 2000 Annual Report
Report of Independent Auditors
================================================================================
To the Board of Directors and Stockholders
ESB Financial Corporation
We have audited the accompanying consolidated statement of financial condition
of ESB Financial Corporation and subsidiaries, as of December 31, 2000 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
financial statements of ESB Financial Corporation and subsidiaries as of
December 31, 1999 and 1998 were audited by other auditors whose report dated
January 20, 2000, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2000 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ESB Financial
Corporation and subsidiaries as of December 31, 2000, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 26, 2001
================================================================================
ESB Financial Corporation 51 2000 Annual Report
Stock and Dividend Information
================================================================================
Listings and Markets
ESB Financial Corporation common stock is traded on the Nasdaq National Stock
Market under the symbol "ESBF". The listed market makers for the Company's
common stock include:
Legg Mason Wood Walker, Inc. Sandler O'Neill & Partners, LP [LOGO OF ESBF]
2 Oliver Plaza Two World Trade Center NASDAQ
Pittsburgh, PA 15222 New York, NY 10048 LISTED
Telephone: (412) 261-7300 Telephone: (800) 635-6851
Ryan Beck & Co., Inc. Tucker Anthony, Inc.
220 Livingston Orange Avenue 1 Beacon Street
Livingston, NJ 07039 Boston, MA 02108
Telephone: (800) 223-8969 Telephone: (888) 655-4135
PennFirst Capital Trust I, 8.625% cumulative trust preferred securities are
traded on the Nasdaq National Stock Market under the symbol "ESBFP".
Stock Price Information
The bid and ask price of the Company's common stock were $10.25 and $10.63,
respectively, as of January 31, 2001.
The following table sets forth the high and low sale market prices of the
Company's common stock as of and during the quarterly periods presented:
- -------------------------------------------------------------------------------
Market Price
High Low Close
- -------------------------------------------------------------------------------
2000 Quarter Ended
December 31 $10.50 $ 9.13 $ 9.81
September 30 10.44 9.50 9.75
June 30 10.88 8.41 10.00
March 31 11.25 10.11 10.11
1999 Quarter Ended
December 31 $12.16 $10.06 $10.80
September 30 13.11 11.82 11.93
June 30 14.09 11.93 11.93
March 31 15.45 13.86 13.86
- -------------------------------------------------------------------------------
Stock Dividends
The Company has declared the following stock dividends since its inception:
Stock Dividend
Record Date Payment Date Percentage
- ----------- ------------ ----------
May 17, 2000 May 31, 2000 10%
May 15, 1998 May 29, 1998 10%
July 31, 1997 August 25, 1997 10%
===============================================================================
ESB Financial Corporation 52 2000 Annual Report
Stock and Dividend Information (continued)
===============================================================================
Cash Dividends
The Company has paid regular quarterly cash dividends since its inception in
June 1990. During the past two years ended December 31, 2000, the Company
declared cash dividends with the following record and payment dates:
Cash Dividends
Record Date Payment Date per Share
- ----------- ------------ ---------
December 29, 2000 January 25, 2001 $ 0.100
September 29, 2000 October 25, 2000 $ 0.100
June 30, 2000 July 25, 2000 $ 0.100
March 31, 2000 April 25, 2000 $ 0.082
December 31, 1999 January 25, 2000 $ 0.082
September 30, 1999 October 25, 1999 $ 0.082
June 30, 1999 July 23, 1999 $ 0.082
March 31, 1999 April 23, 1999 $ 0.082
Stock Splits
The Company has declared the following stock splits since its inception:
Stock Split
Record Date Payment Date Percentage
- ----------- ------------ ----------
December 31, 1994 January 25, 1995 20%
December 31, 1993 January 24, 1994 20%
May 12, 1993 June 7, 1993 20%
December 31, 1992 January 25, 1993 20%
June 30, 1992 July 25, 1992 20%
December 31, 1991 January 25, 1992 20%
Number of Stockholders and Shares Outstanding
As of December 31, 2000, there were 2,001 registered stockholders of record and
6,009,291 shares of common stock entitled to vote, receive dividends and
considered outstanding for financial reporting purposes. The number of
stockholders of record does not include the number of persons or entities who
hold their stock in nominee or "street" name.
Dividend Reinvestment Plan
Common stockholders may have Company dividends reinvested to purchase additional
shares. Participants may also make optional cash purchases of common stock
through the reinvestment plan and pay no brokerage commissions or fees. To
obtain a plan prospectus and authorization card call (800) 368-5948.
================================================================================
ESB Financial Corporation 53 2000 Annual Report
Corporate Information
================================================================================
Annual Meeting
The annual meeting of the Company's stockholders will be held at 4:00
p.m., on Wednesday, April 18, 2001, at the Connoquenessing Country Club,
Route 65, Ellwood City, PA 16117.
Stockholder and Investor Information
Copies of annual reports, quarterly reports and related stockholder
literature are available upon written request without charge to
stockholders. Requests should be addressed to Frank D. Martz, Group
Senior Vice President of Operations and Corporate Secretary, ESB
Financial Corporation, 600 Lawrence Avenue, Ellwood City, PA 16117.
Corporate Headquarters
ESB Financial Corporation
600 Lawrence Avenue
Ellwood City, PA
16117 Phone: (724) 758-5584
Subsidiary Companies
ESB Bank, F.S.B.
ESB Financial Services, Inc.
AMSCO, Inc.
ESB Bank Building Associates
McCormick Place Joint Venture
Madison Woods Joint Venture
PennFirst Financial Services, Inc.
PennFirst Capital Trust I
THF, Inc. d/b/a Elite Settlement Services
Independent Accountants
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219
Special Counsel
Elias, Matz, Tiernan & Herrick LLP
734 15/th/ Street, NW
Washington, DC 20005
Registrar and Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
================================================================================
ESB Financial Corporation 54 2000 Annual Report
Board of Directors
================================================================================
ESB FINANCIAL CORPORATION
-------------------------
William B. Salsgiver Charles Delman
Chairman of the Board Retired Chairman, President & CEO - ESB Bancorp, Inc.
A Principal - Perry Homes
Herbert S. Skuba Lloyd L. Kildoo
Vice Chairman of the Board Owner & Funeral Director - Glenn-Kildoo Funeral Homes
Director, President & CEO - Ellwood City Hospital
Charlotte A. Zuschlag Edmund C. Smith
President & Chief Executive Officer Retired Works Manager - ARMCO, Ambridge
George William Blank, Jr. Edwin A. Thaner, P.E.
President - George W. Blank Supply Company President & Principal Engineer - E.A. Thaner & Associates
ESB BANK, F.S.B.
----------------
William B. Salsgiver Lloyd L. Kildoo
Chairman of the Board Owner & Funeral Director - Glenn-Kildoo Funeral Homes
A Principal - Perry Homes
Herbert S. Skuba Mario J. Manna
Vice Chairman of the Board Retired Tax Collector - Borough of Coraopolis
Director, President & CEO - Ellwood City Hospital
Charlotte A. Zuschlag Edward W. Preskar
President & Chief Executive Officer Retired Director of Facilities- School District of Pittsburgh
Raymond K. Aiken Edmund C. Smith
President & COO - Lockhart Chemical Co Retired Works Manager - ARMCO, Ambridge
George William Blank, Jr. Joseph W. Snyder
President - George W. Blank Supply Company Senior Buyer - Equitable Resources, Inc.
Charles Delman Edwin A. Thaner, P.E.
Retired Chairman, President & CEO - ESB Bancorp, Inc. President & Principal Engineer - E.A. Thaner & Associates
Guy Dille Jefrey F. Wall
Retired Financial Officer - Williams & Company, Inc. Vice President/Operations - R.J. Rhodes Transit, Inc.
================================================================================
ESB Financial Corporation 55 2000 Annual Report
Corporate Officers, Advisory Board and Bank Officers
================================================================================
ESB FINANCIAL CORPORATION ESB BANK, F.S.B.
------------------------- ----------------
William B. Salsgiver William B. Salsgiver
Chairman of the Board Chairman of the Board
Charlotte A. Zuschlag Charlotte A. Zuschlag
President & Chief Executive Officer President & Chief Executive Officer
Thomas F. Angotti
Group Senior Vice President/Administration
Charles P. Evanoski Group Senior Vice Presidents
Group Senior Vice President, Chief Financial Officer & Treasurer ----------------------------
Robert C. Hilliard, CPA Thomas F. Angotti
Group Senior Vice President/Audit, Compliance & Loan Review Charles P. Evanoski
Frank D. Martz Robert C. Hilliard, CPA
Group Senior Vice President/Operations & Corporate Secretary Frank D. Martz
Todd F. Palkovich Todd F. Palkovich
Group Senior Vice President/Lending
Senior Vice Presidents
----------------------
Robert J. Colalella Robert J. Colalella
Senior Vice President/Community Relations & Marketing John W. Donaldson II
John W. Donaldson II Peter J. Greco
Senior Vice President/Lending Teresa Krukenberg
Peter J. Greco Ronald E. Pompeani
Senior Vice President/Lending Marilyn Scripko
Teresa Krukenberg John T. Stunda
Senior Vice President/Operation
Ronald E. Pompeani Vice Presidents
---------------
Senior Vice President/Lending Deborah A. Allen
Marilyn Scripko Nancy A. Glitsch
Senior Vice President/Lending Paul F. Hoyson
John T. Stunda Lawrence C. Kerr
Senior Vice President/Human Resources Mary Ann Leonardo
Ronald J. Mannarino
Sally A. Mannarino
ESB BANK, F.S.B. ADVISORY BOARD Larry Mastrean
------------------------------- Mark A. Platz
Charles Delman Bonita L. Wadding
Retired Chairman, President & CEO - ESB Bancorp, Inc. Joanne C. Wienand
Wayne G. Zerishnek
Gibson E. Brock Pamela K. Zikeli
Retired Manager of Engineering - J & L Steel Corporation
George C. Dorsch Assistant Vice Presidents
Retired Engineer - -------------------------
Dept. of Transportation, Commonwealth of Pennsylvania Nicole N. Arnold
Patricia M. Aumiller
Dr. Allen Gastfriend Janet S. Barletta
Retired Dentist Kathleen A. Bender
Charlotte M. Bolinger
Charles W. Hergenroeder, III Frank Brzozowski
Attorney, Hergenroeder, Rega, Sommer, L.L.C. Thomas E. Campbell
Amy E. Dicks
Watson F. McGaughey, Jr. Katina J. Eliou
President - McGaughey Buses, Inc. Deborah S. Goehring
Margaret A. Haefele
Donald R. Miller Brian Hulme
Retired President - Miller & Sons Chevrolet Michelle L. Lesutis
Louise P. Massung
John J. Syka Beth A. McClymonds
Owner - John J. Syka Funeral Home, Inc. Marianne L. Mills
Ann R. Nelson
Harry B. Thaner Laurie R. Nerone
Retired Chairman of the Board - Troy Hill Bancorp, Inc. Deborah F. Pagley
Timothy S. Robinson
Joyce A. Stellitano
THF, Inc. Judy E. Sucola
-------- Volynda Teets
Karen F. Myers - President
Sara F. Vattimo
Assistant Treasurer
-------------------
Nancy J. Newton
Assistant Secretaries
---------------------
Linda A. MacMurdo
Dana M. Martz
Robin Scheffler
================================================================================
ESB Financial Corporation 56 2000 Annual Report
Board of Directors and Executive and Senior Management
================================================================================
[PHOTO OF THE BOARD OF DIRECTORS APPEARS HERE]
Board of Directors of ESB Bank, F.S.B. are, seated from left, William B.
Salsgiver, Charlotte A. Zuschlag, Charles Delman, Edmund C. Smith, Lloyd L.
Kildoo, and Herbert S. Skuba. Standing from the left are, Edwin A. Thaner,
Joseph W. Snyder, Jefrey F. Wall, Guy Dille, Mario J. Manna, Raymond K. Aiken,
George W. Blank, Jr. and Edward W. Preskar.
[PHOTO OF EXECUTIVE AND SENIOR MANAGEMENT OF ESB BANK, F.S.B. APPEARS HERE]
Executive and Senior Management of ESB Bank, F.S.B. are, seated from left,
Charlotte A. Zuschlag, Frank D. Martz, Charles P. Evanoski, Thomas F. Angotti,
Robert C. Hilliard and Todd F. Palkovich. Standing from the left are, Ronald E.
Pompeani, Teresa Krukenberg, John W. Donaldson II, John T. Stunda, Robert J.
Colalella, Marilyn Scripko and Peter J. Greco.
================================================================================
ESB Financial Corporation 57 2000 Annual Report
Our most valuable assets
Robert Ackerman* Michele Dambach Charlene Jensen Sandra Miranda Patricia Sloan
Deborah Allen Kenda Daubenspeck* Chad Julkowski Karen Myers Jackie Smith
Sandra Alvarez JoAnne Daufen Jennifer Juracko Nancy Neghiu Karen Smith
Thomas Angotti Jacquelyn Davis Victoria Kaiser Ann Nelson Lorena Smith
Susan Antolic Kathy DeLuca Francene Kammerdeiner Laurie Nerone Kathy Smyth**
Nicole Arnold Connie Dengel Madeline Kelley Christopher Neve Sharon Speicher
Cynthia Assid Amy Dicks Kara Kelly Nancy Newton Charlotte Stark
Patricia Aumiller Julie Dinning Larry Kerr Kathleen Niederst Jodi Stebler
Kelley Avena John Donaldson Mary Ann Klepal Cynthia Noel Joyce Stellitano
Adrienne Babinsack Lisa Dorwarth Lori Koch James Notarianni Charlotte Stephany
Jenna Bair Heidi Doyle Lorraine Koziar Stella Oresconin Suzanne Stetzer
Lynn Baker* Catherine Druschel David Kramer Veronica Pacella Kelly Stiles
Frances Balla Margaret Dvorsky Teresa Krukenberg Danielle Pagley Nancy Straley*
Jason Balla Joan Elias Kyle Krupa* Deborah Pagley John Stunda
David Barletta Katina Eliou Margaret Lawther Todd Palkovich Judith Sucola
Janet Barletta Sherry Ernst Jacquelyn Lemus Melanie Palmer Anna Szukics
Matthew Bartley Charles Evanoski Mary Ann Leonardo Mary Ann Patrizio Matthew Talbot
Robert Benaman Joan Fedora Michelle Lesutis Cheryl Pfennigwerth Mary Kay Tavitas
Kathleen Bender Jason Fogg Jacqueline Lockhart Brian Pickel Volynda Teets
Kimberly Bertoni John Fotx* Deborah Lovgren Melissa Planavsky Amy Tomayko
Marie Bettoni Sherry Freson Karen Lynn Mark Platz Patricia Tritt
James Bish Diane Gable* Debra Mace Megan Platz Carole Valasek
Jamie Bish* William Garroway Linda MacMurdo Carol Poleno Sara Vattimo
Anthony Boffo Jennifer Gill Mary Magestro Ronald Pompeani Carole Viccari*
Charlotte Bolinger Linda Gill Ronald Mannarino Nancijo Pruce Terri Vidra
Janet Bozza Nancy Glitsch Sally Mannarino Timothy Robinson Bonita Wadding
Barbara Brenneman Norma Glockner* Dana Martz Gale Rubeis Elaine Warfield
Renee Brenneman Karen Goebel Frank Martz Rose Russo Cindy Warner
Francis Brzozowski Deborah Goehring Louise Massung Christine Sabatino Wanda Waters
Diane Bufalini Linda Gottuso Larry Mastrean Brenda Sadler Ronda Watkins
Steven Burnworth Angela Greco Tiffany Maxwell Cynthia Scaramazza Barbara Weller
Thomas Campbell Peter Greco Deborah Mayer Martha Scheall Judith Welsh
Kristy Carofino Norene Greer Nicole Mazzanti Robin Scheffler Barbara Wetzel
Kelly Chasser Margaret Haefele Stephanie Mazzocco Lisa Scheuring Joanna White
Traci Chewning Catherine Hilliard Stacie McAllister Courtney Schilling Joanne Wienand
Rachelle Clem Robert Hilliard Carol McCartney Dorothy Schilling Christine Woods
Susan Clements Darlene Hinkle Lorraine McCloe Matthew Schilling Rachel Wright
Tracey Coblentz Rochelle Hinzman Beth McClymonds Joanne Schmidt Emma Yoursh
Robert Colalella Carol Hogue Melissa McElhaney Kerri Scripko Joanna Zagorski
Melissa Concannon Robert Hollein Lori McGregor Marilyn Scripko Svetlana Zaremba
Nadia Conte Shelley Horton Courtnie McWithey Charlene Shaffer Tracy Zassick
Kevin Coulter Paul Hoyson Roberta Mike Holly Sheridan Wayne Zerishnek
Carol Courson Brian Hulme Angela Miller Marie Shinsky Pamela Zikeli
Carla Crisman Brenda Hunt Julia Miller Kristin Shoaf Charlotte Zuschlag
Melissa Cullum Amie Hunter Roberta Miller Patricia Shoaf
Sherri Cummings Cheryl Jacoby* Marianne Mills Carmie Simeoni
* 2000 Employees of the Month
** 2000 Employee of the Year
dedicated to the financial success of the company.
Office Locations
================================================================================
ESB BANK, F.S.B. [MAP OF ESB BANK BRANCHES APPEARS HERE]
----------------
Ellwood City
600 Lawrence Avenue
Ellwood City, PA 16117
(724) 758-5584
Aliquippa
2301 Sheffield Road
Aliquippa, PA 15001
(724) 378-4436
Ambridge
506 Merchant Street
Ambridge, PA 15003
(724) 266-5002
Beechview
1609 Broadway Avenue
Pittsburgh, PA 15216
(412) 344-7211
Brighton Heights
3619 California Avenue
Pittsburgh, PA 15212
(412) 761-4994
Center Township
3531 Brodhead Road
Monaca, PA 15061 (724)
774-0332
Coraopolis
900 Fifth Avenue
Coraopolis, PA 15108
(412) 264-8862
Fox Chapel
1060 Freeport Road
Pittsburgh, PA 15238
(412) 782-6500
Franklin Township
1793 Mercer Road
Ellwood City, PA 16117
(724) 752-2500
New Castle
Route 65
Lawrence Village Plaza
New Castle, PA 16101
(724) 654-7781
North Shore
One North Shore Center, Suite 120
Pittsburgh, PA 15212
(412) 231-0809
Spring Hill
Itin and Rhine Streets
Pittsburgh, PA 15212
(412) 231-0819
Springdale
849 Pittsburgh Street
Springdale, PA 15144
(724) 275-5879
Troy Hill
1706 Lowrie Street
Pittsburgh, PA 15212
(412) (412) 231-8238
Wexford
101 Wexford Bayne Road
Wexford, PA 15090
(724) 934-8989
Zelienople
Route 19, North Gate Plaza
Zelienople, PA 16063
(724) 452-6500
ESB FINANCIAL CORPORATION
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Phone: (724) 758-5584