<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ----------------------
                                   FORM 10-K

[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]

For the Fiscal Year Ended June 30, 1997


[_]  TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______________ to _______________

                        Commission File Number: 0-18782

                               ES&L BANCORP, INC.
                      -----------------------------------
             (Exact name of registrant as specified in its charter)

     Delaware                                                    16-1387158
-------------------                                           ---------------
(State or other jurisdiction of incorporation                 (I.R.S. Employer
or organization)                                           Identification No.)

300 West Water Street, Elmira, New York                    14901
-----------------------------------------               --------
(Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code:  (607) 733-5533
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes x No__.
                                          ---     

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The registrant's voting stock is not regularly and actively traded in any
established market and there are no regularly quoted bid and asked prices for
the registrant's common stock.  On the basis of the last per share sales price
of which the registrant is aware ($16.50 per share), management estimates that
the aggregate market value of the voting stock held by non-affiliates of the
registrant at September 2, 1997 was  $7,721,109.  Solely for purposes of this
calculation, the shares held by directors and executive officers of the
registrant and by any stockholder beneficially owning more than 5% of the
registrant's outstanding common stock are deemed to be shares held by
affiliates.

As of September 2, 1997, there were 843,717 shares outstanding of the
registrant's common stock, of which directors and executive officers and more
than 5% beneficial owners held 375,771 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

  1.  Portions of Annual Report to Stockholders for the Fiscal Year Ended June
30, 1997.  (Parts I and II)

     2.  Portions of Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III)
<PAGE>
 
                                    PART I

ITEM 1.  BUSINESS
-----------------

GENERAL

     THE CORPORATION.  ES&L Bancorp, Inc. (the "Corporation") was incorporated
under the laws of the State of Delaware in March 1990 for the purpose of
becoming a savings and loan holding company for Elmira Savings & Loan, F.A.
("Elmira Savings & Loan" or the "Bank").  On August 28, 1990, the Corporation
acquired all of the outstanding stock of Elmira Savings & Loan issued in
connection with the Bank's conversion from mutual to stock form.  The
Corporation issued 352,558 shares of common stock in connection with the Bank's
conversion.

     Prior to the acquisition of all of the outstanding stock of the Bank the
Corporation had no assets or liabilities and engaged in no business activities.
Since its acquisition of the Bank, the Corporation has engaged in no significant
activity other than holding the stock of the Bank and operating the business of
a savings association through Elmira Savings & Loan.  Accordingly, the
information set forth in this report, including financial statements and related
data, relates primarily to the Bank and its subsidiaries.

     The Corporation's executive offices are located at 300 West Water Street,
Elmira, New York.  Its telephone number is (607) 733-5533.

     THE BANK.  Elmira Savings & Loan was incorporated in 1888 as a New York
chartered savings association. In 1983, the Bank converted from a state to a
federally chartered association and acquired its current name.  The Bank
operates through one office located in Elmira, New York.

     The Bank is principally engaged in the business of accepting deposits from
the general public and originating loans secured by residential real estate.
The Bank also engages in commercial real estate lending in its primary market
area and, to a lesser extent, consumer lending, and invests in government and
federal agency obligations.  At June 30, 1997, the Bank had total assets of
$149.6 million, deposits of $111.7 million, net loans receivable of $131.7
million and shareholders' equity of $14.2 million.

     The Bank's mortgage banking subsidiary, ES&L Mortgage Corporation, d/b/a
Cayuga Mortgage Company ("Cayuga Mortgage") is partner in a mortgage banking
partnership with Audrey Edelman & Associates Real Estate, the largest real
estate firm in Ithaca, New York.  The company, PACE Funding Company ("PACE
Funding"), operates as a correspondent for a number of large mortgage banking
companies and financial institutions, one of whom is the Bank.

     Elmira Savings & Loan is subject to examination and comprehensive
regulation by the Office of Thrift Supervision ("OTS").  The Bank's deposits are
insured by the Savings Association Insurance Fund ("SAIF") administered by the
Federal Deposit Insurance Corporation ("FDIC").  The Bank is a member of and
owns capital stock in the Federal Home Loan Bank ("FHLB") of New York, which is
one of the twelve regional banks in the FHLB system.  The Bank is further
subject to regulations of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") governing reserves to be maintained against
deposits and certain other matters.  See "Regulation."

RECENT DEVELOPMENTS:

     SPECIAL CASH DIVIDEND.  On July 15, 1997, the Corporation declared a $1.00
per share special cash dividend, payable on July 31, 1997 to stockholders of
record as of July 22, 1997.

                                       1
<PAGE>
 
LENDING ACTIVITIES


     GENERAL.  The Bank originates loans through its home office in Elmira and
its mortgage banking subsidiary in Ithaca, New York.  Historically, the Bank
originated primarily conventional first mortgage loans secured by one-to-four-
family residential property.  In recent years, the Bank has actively originated
loans secured by commercial and multi-family properties located in its primary
market area, and home equity loans.

     The Bank has emphasized the origination of adjustable-rate mortgage loans
for portfolio.  When market conditions require, the Bank originates fixed-rate
loans primarily for sale in the secondary market.

                                       2
<PAGE>
 
     Set forth below is selected data relating to the composition of Elmira
Savings & Loan's loan portfolio by type of loan on the dates indicated.

<TABLE>
<CAPTION>
                                                                          At June 30,
                                                 -------------------------------------------------------------
                                                            1997                1996                1995
                                                 ---------------------  ------------------  ------------------  
                                                    Amount        %      Amount       %      Amount       %
                                                 ------------  -------  ---------  -------  ---------  -------
                                                                    (Dollars in thousands)
<S>                                              <C>           <C>      <C>        <C>      <C>        <C>
First Mortgage Permanent Loans:
  Conventional 1-4 family......................     $ 74,276    56.39%  $ 66,251    54.47%  $ 66,751    56.48%
  FHA/VA 1-4 family............................           --       --         16      .01        810      .69
  Multi-family.................................       11,554     8.77     12,420    10.21     10,048     8.50
  Commercial real estate.......................       28,003    21.26     25,722    21.15     22,496    19.03
  Construction
    Residential................................        2,210     1.68      1,912     1.57      2,788     2.36
    Commercial.................................        2,510     1.91      2,046     1.68      2,511     2.12
                                                    --------   ------   --------   ------   --------   ------
     Total first mortgage......................     $118,553    90.01    108,367    89.09    105,404    89.18
 
Consumer loans:
  Home equity line of  credit..................     $  6,049     4.58      6,699     5.51      7,660     6.48
  Loans on savings  accounts...................          246      .19        214      .18        253      .21
  Education loans..............................          462      .35        471      .39        653      .55
  Automobile loans.............................          627      .48        681      .56        620      .52
  Second mortgage loans........................        4,440     3.37      3,847     3.16      3,147     2.66
  Other consumer loans.........................          136      .11        136      .11        139      .13
  Demand notes.................................        1,188      .90      1,520     1.25      1,078      .91
                                                    --------   ------   --------   ------   --------   ------
     Total consumer loans......................     $ 13,148     9.98     13,568    11.15     13,550    11.46
 
Commercial lines of credit.....................     $  1,353     1.03      1,212     1.00      1,096      .93
Commercial non-mortgage........................        1,807     1.37      1,926     1.58      1,844     1.56
                                                    --------   ------   --------   ------   --------   ------
     Total.....................................     $134,861       --    125,073       --    121,894       --
 
Less:
  Loans in process.............................     $ (1,790)   (1.36)    (1,953)   (1.60)    (2,178)   (1.84)
   Allowance for loan loss.....................       (1,435)   (1.09)    (1,431)   (1.18)    (1,424)   (1.20)
  Deferred loan origination fees and premiums..           75      .06        (53)    (.04)      (105)   (0.09)
                                                    --------   ------   --------   ------   --------   ------
      Total....................................     $131,711   100.00%  $121,636   100.00%  $118,187   100.00%
                                                    ========   ======   ========   ======   ========   ======
</TABLE>

                                       3
<PAGE>
 
     The following table presents at June 30, 1997 the scheduled amounts of loan
principal repayments expected to be received by the Bank during the periods
shown based upon the time remaining before contractual maturity. Demand loans,
loans having no schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less.

     The table below does not include any estimate of prepayments.  Prepayments
significantly shorten the average life of all mortgage loans.  Thus, management
believes that the following table will bear little resemblance to what the
actual repayments of the loan portfolio will be.

<TABLE>
<CAPTION>
                                               Due after
                               Due During      1 through    Due after 5
                             the year ended  5 years after  years after
                                June 30,       June 30,      June 30,
                                  1998           1997          1997
                             --------------  -------------  -----------
                                            (In thousands)
<S>                          <C>            <C>             <C>
Real estate mortgage.......         $ 4,534        $18,955     $ 90,345
Mortgages held for resale..           4,461             --           --
Real estate construction...             298            222        4,199
Installment................           2,860          4,675        5,613
Commercial.................             961          1,319          880
                                    -------        -------     --------
    Total..................         $13,114        $25,171     $101,037
                                    =======        =======     ========
</TABLE>

     The following table apportions the dollar amount of the loans due
subsequent to the year ended June 30, 1997 between those with predetermined
interest rates and those with adjustable interest rates.

<TABLE>
<CAPTION>
                             Predetermined Rates  Adjustable Rates
                             -------------------  ----------------
                                         (In thousands)
<S>                          <C>                  <C>
Real estate mortgage.......         $ 4,531           $109,303     
Mortgages held for resale..           4,461                 --     
Real estate construction...             614              4,105     
Installment................           6,637              6,511     
Commercial.................              --              3,160     
                                    -------           --------     
    Total..................         $16,243           $123,079     
                                    =======           ========     
</TABLE>

     ONE- TO FOUR-FAMILY MORTGAGE LOANS. At June 30, 1997, the Bank held in its
portfolio $74.1 million of first mortgage loans secured by one- to four-family
residential units, representing 56.23% of its total portfolio. Since
approximately 1983 the principal one- to four-family mortgage instruments
offered by the Bank have included several forms of adjustable-rate loans with
interest rates and payment adjustments made at regular intervals (generally on a
12 month cycle). These loans are generally limited to 2% maximum annual
adjustments and a maximum aggregate adjustment over the life of the loan, and
are based upon movements in the United States Treasury Securities Index for
securities of the same length as the applicable adjustment period, with
amortization schedules generally varying from 15 to 30 years. The Bank also
offers adjustable rate mortgage loans which are convertible, at the option of
the borrower, into fixed rate mortgage loans. Upon conversion, these loans are
generally sold by the Bank in the secondary market. The Bank's adjustable rate
mortgage loans do not permit negative amortization of principal and carry no
prepayment penalty. The Bank qualifies the borrower at 200 basis points above
the initial rate or the fully indexed rate, whichever 

                                       4
<PAGE>
 
is higher, on adjustable-rate mortgage loans. At June 30, 1997, approximately
$72.5 million of the Bank's first mortgage one- to four-family residential loan
portfolio consisted of adjustable-rate loans.

     The retention of adjustable-rate mortgage loans in the Bank's loan
portfolio helps reduce the Bank's exposure to increases in interest rates.
However, there are unquantifiable credit risks resulting from potential
increased costs to the borrower as a result of repricing of adjustable-rate
mortgage loans. It is possible therefore that during periods of rising interest
rates, the risk of default on adjustable-rate mortgage loans may increase due to
the upward adjustment of interest cost to the borrower. Further, the adjustable-
rate mortgages offered by the Bank, as well as by many other thrift
institutions, sometimes provide for initial rates of interest below the rates
which would prevail were the index used for pricing applied initially. These
loans are subject to increased risk of delinquency or default as the higher,
fully indexed rate of interest subsequently comes into effect, replacing the
lower initial rate. During fiscal year 1997, the Bank, Cayuga Mortgage and PACE
Funding originated approximately $13.0 million of adjustable-rate mortgage loans
with such below-market rates.

     The Bank also makes 15 through 30 year fixed rate fully amortizing loans.
These loans are originated with a commitment for sale in the secondary market.
Typically, when the rate is established on these loans, a forward commitment is
generated to sell the loan. Loans sold in the secondary market are sold without
recourse. During fiscal year 1997, the Bank and its mortgage banking subsidiary
originated approximately $22.2 million of fixed-rate loans and sold $27.2
million, servicing retained, in the secondary market. At June 30, 1997, the Bank
had forward commitments to sell closed loans totaling approximately $9.1 million
in the secondary mortgage market.

     Cayuga Mortgage and PACE Funding also originate fixed rate mortgage loans
for the Bank, which then sells them, servicing retained, in the secondary
market. At June 30, 1997, the Bank had a residential mortgage servicing
portfolio of $129.5 million.

     The terms of the residential real estate loans originated by the Bank
generally conform to underwriting guidelines of the Federal Home Loan Mortgage
Corporation ("FHLMC"). The Bank also offers 15 to 30 year fixed-rate and 15 to
30 year conforming and non-conforming adjustable-rate loans. Loans with balances
in excess of the amount prescribed by FHLMC may be sold to private investors on
a negotiated basis.

     Conventional residential mortgage loans granted by the Bank generally
contain a "due-on-sale" clause which normally permits the Bank to accelerate the
indebtedness of the loan upon transfer of ownership of the mortgaged property.
Due-on-sale clauses are an important means of increasing the rate on existing
fixed rate mortgage loans during periods of rising interest rates and increasing
the turnover of mortgage loans in the Bank's portfolio. Due-on-sale clauses are
required for loans to be sold to FHLMC and private investors in the secondary
mortgage markets. Additionally, due to prepayments in connection with
refinancings and sales of property, the average length of the Bank's long term
residential loans is shorter than their weighted average contractual maturity.
In periods of rising interest rates, prepayments tend to decline whereas in
periods of declining interest rates, prepayments tend to increase.

     CONSTRUCTION LENDING. The Bank originates construction loans for the
construction of one- to four-family residences and commercial real estate
properties. Such loans are secured by a first lien on the subject property and
are made in conjunction with the Bank's review and approval to provide the
permanent mortgage loan financing for the residential or commercial property.
Upon completion of construction, a portion of these permanent residential loans
are then converted to the fixed rates offered by the Bank at the time of
completion and are subsequently sold. Construction loans generally have a
construction period which ranges from three months to one year, with interest
due monthly. The rate , during construction, is typically tied to the Prime
Interest Rate and either fixed at Prime +2% or adjusted to prime quarterly. As
of June 30, 1997 the Bank had $4.7 million outstanding in construction loans. Of
that amount, $2.2 million represented loans on one- to four-family residences
made directly to the homeowner.

     Construction loans originated by the Bank include single- and multi-family
residences, motels and office buildings. The Bank typically will not originate
the construction loan unless it is also making the permanent loan if a 

                                       5
<PAGE>
 
permanent loan is required. These loans typically range in size between $50,000
and $200,000 for residential loans and up to $800,000 for commercial loans.

     Cayuga Mortgage and PACE Funding originated approximately $1.3 million of
the $2.2 million total residential construction loans outstanding at June 30,
1997. All construction loans originated by Cayuga Mortgage and PACE Funding are
underwritten according to the same standards and on the same general terms as
those originated by the Bank. Cayuga Mortgage's residential construction loans
are generally in amounts under $200,000 and are secured by single family
properties located primarily in Tompkins and Cortland Counties.

     Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved occupied real estate
because loan funds are advanced upon the security of the project under
construction, which is of uncertain value prior to the completion of
construction. The Bank's risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development and the estimated cost (including
interest) of construction. If the estimate of construction cost proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project with a value which is insufficient to
assure full repayment.

     The Bank's underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Bank considers the
reputation of the borrower and the contractor, the amount of the borrower's
equity in the project, independent valuations and reviews of cost estimates, 
pre-construction sale and leasing information, and cash flow projections of the
borrower. To reduce the risks inherent in construction lending, the Bank also
requires, where appropriate, personal guarantees of the principals of the
borrower.

     COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. As of June 30, 1997 the
Bank held $28.3 million in commercial real estate loans and $11.4 million in
multi-family loans, which represented approximately 21.52% and 8.68% of loans
held in the Bank's loan portfolio, respectively. These loans are secured by
property located in the Bank's market area and by diverse forms of collateral,
including apartment buildings, single proprietor businesses, motels,
restaurants, and various special purpose properties. The Bank originates a small
number of these loans with Small Business Administration ("SBA") guarantees. SBA
will generally guarantee between 80% and 90% of the loan balance. However, the
SBA imposes some limitations on the interest rate and loan origination fees
charged.

     Commercial real estate lending and multi-family residential lending may
involve a higher degree of credit risk than one- to four-family residential
lending because of the concentration of funds in a limited number of loans
typically involving large loan balances and because such loans depend on cash
flow from the property to service the debt. Cash flow may be significantly
affected by adverse conditions in the real estate market or by general economic
conditions. The Bank has attempted to minimize the risks involved in originating
such loans by considering, among other things, the creditworthiness of the
borrower, the location of the real estate, the condition and occupancy levels of
the security and the quality of the organization managing the property.
Substantially all of the properties securing the loans in the commercial real
estate portfolio are inspected by the Bank's lending personnel. The Bank also
obtains appraisals of each property in accordance with applicable federal
regulations.

     Commercial real estate loans have been originated for varying terms and
interest rates depending on market conditions and on the interest rates
prevailing at the time the loan is originated. In general, commercial real
estate loans are primarily made as adjustable rate loans with interest rates
adjustable at specifically identified intervals up to five years and primarily
based upon movements in the United States Treasury Securities Index. These loans
generally range in size from $50,000 to $200,000 and have been made in amounts
up to approximately $1.8 million. Amortization schedules for this type of loan
generally vary from 15 to 20 years.

     The Bank has become increasingly active in lending on commercial real
estate and multi-family properties in recent years as a result of increased
referrals from existing customers and an expanded presence in the Bank's market

                                       6
<PAGE>
 
area. Management expects continued moderate growth in commercial real estate and
multi-family lending in the future, subject to the continued imposition of the
underwriting and credit review standards discussed above.

     The table below sets forth, by type of security property, the number and
amount of Elmira Savings & Loan's commercial real estate loans at June 30, 1997.

<TABLE>
<CAPTION>
                                                 Outstanding
                                        Number     Principal       Amount
                                      of  Loans    Balance    Non Performing
                                      ---------  -----------  --------------
<S>                                   <C>        <C>          <C>
Medical facilities..................       35    $ 5,622,515        $     --
Retail property.....................       44      5,094,952           3,901
Office buildings....................       34      3,461,260              --
Restaurant/lounge...................       17        973,117              --
Office and warehouse/storage units..       17      2,767,296         171,025
Hotel/motel.........................        8      3,798,532              --
Nonprofit/church/school.............        9        654,996              --
Other...............................       46      5,630,455         145,123
                                          ---    -----------        --------
    Total...........................      210    $28,003,123        $320,049
                                          ===    ===========        ========
</TABLE>

     CONSUMER AND COMMERCIAL BUSINESS LENDING. At June 30, 1997, the Bank's
consumer loan portfolio totalled $13.1 million and its commercial business loans
totalled $3.2 million, representing 9.98% and 2.39% of the Bank's total loan
portfolio, respectively. The majority of the loans in the Bank's consumer loan
portfolio are secured by real estate. The Bank offers a variety of secured
consumer loans, including automobile loans, home equity loans and loans secured
by savings deposits. In addition, the Bank offers home improvement loans and
other unsecured consumer loans. The Bank expects to continue, subject to market
conditions, to expand its consumer lending activities as part of its plan to
provide a wide range of personal financial services to its customers. Management
believes that the shorter terms and normally higher interest rates available on
various types of consumer loans will be helpful in maintaining a profitable
spread between Elmira Savings & Loan's average loan yield and its cost of funds.

     Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans. Such loans may
also give rise to claims and defenses by a consumer loan borrower against an
assignee of such loans such as the Bank, and a borrower may be able to assert
against such assignee claims and defenses which it has against the seller of the
underlying collateral. These risks are somewhat minimized with respect to the
Bank's consumer loan portfolio since the majority of these loans are home equity
loans secured by residential real estate.

     The Bank adds general provisions to its consumer loan loss allowance, based
on general economic conditions and prior loss experience. The Bank's allowance
for consumer loan losses at June 30, 1997 was equal to $83,585, or approximately
0.64% of the total outstanding balance of such loans. In establishing its
allowance for consumer loan losses, management considers that the majority of
the loans in its consumer loan portfolio are home equity loans secured by
residential real estate. Consumer loan delinquencies often increase over time as
the loans age. Accordingly, although the level of delinquencies in the Bank's
consumer loan portfolio has generally been low ($110,063, or approximately 

                                       7
<PAGE>
 
0.84% of the consumer loan portfolio, at June 30, 1997), there can be no
assurance that delinquencies will not increase in the future.

     Since 1986, the Bank has been actively involved in originating home equity
lines of credit. These loans amounted to $6.0 million or 4.59% of the Bank's
loan portfolio at June 30, 1997. Home equity loan rates adjust quarterly with an
open credit line during the initial four to seven year period. Loan to value
ratios on these loans (including the first mortgage) typically do not exceed 80%
of the appraised value of the real estate. The Bank also originates short term,
fixed rate, second mortgage loans. At June 30, 1997 these consumer mortgages
totaled $4.4 million, or 3.37% of the Bank's loan portfolio.

     The Bank originates student loans, most of which are guaranteed by the
federal government and sold to the Student Loan Marketing Association. The Bank
also originates direct automobile loans to its customers (approximately $627,000
outstanding at June 30, 1997), and had approximately $1.2 million of secured and
unsecured time and demand notes outstanding at June 30, 1997.

     The Bank had approximately $1.8 million of commercial business loans
outstanding at June 30, 1997 which were not collateralized by real estate.
Approximately 38.02% of these loans are guaranteed by the SBA. The Bank's
commercial business lending activities encompass loans with a variety of
purposes and forms of security, including loans to finance accounts receivable,
inventory and equipment. The Bank offers a commercial line of credit secured by
real estate. These lines of credit have adjustable rates which adjust monthly or
quarterly and are tied to the prime rate. At June 30, 1997, lines totalling $2.6
million had been approved with loan balances outstanding of approximately $1.4
million.

     Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business.

     The Bank recognizes the generally increased risks associated with
commercial business lending. The Bank's commercial business lending policy
emphasizes complete credit file documentation and analysis of the borrower's
character, capacity to repay the loan, the adequacy of the borrower's capital
and collateral as well as an evaluation of the industry conditions affecting the
borrower. Analysis of the borrower's past, present and future cash flows is also
an important aspect of the Bank's credit analysis. The Bank's commercial
business loans have been to borrowers in its primary market area, and the Bank
intends to continue its commercial business lending in this geographic area.

     LOAN UNDERWRITING POLICIES. The Board of Directors of the Bank has the
responsibility and authority for general supervision over the loan policies of
the Bank. The Board has approved a written lending policy for the Bank and has
established a Board Loan Committee responsible for review and ratification of
all loans up to $500,000 and for monitoring compliance with the written loan
policies of the Bank.

     Generally, the Bank lends up to 95% of the lower of current cost or
appraised value of a residential one-to-four family property, and requires
private mortgage insurance on all such loans when loan to value ratios exceed
80%. Loans on commercial and multi-family (more than four units) property are
required to have a loan to value ratio of 80% or less.

     All of the Bank's lending is subject to its written, nondiscriminatory
standards and to loan origination procedures prescribed by the Board of
Directors. Decisions on loan applications are made on the basis of detailed
applications and property valuations (based upon the Bank's written appraisal
policy) by staff or independent appraisers approved by the Board of Directors.
The loan applications are designed primarily to determine the borrower's ability

                                       8
<PAGE>
 
to repay and the more significant items on the application are verified through
use of credit reports, financial statements and confirmations.

     The Staff Loan Committee, chaired by the Chief Executive Officer, has the
authority to approve loans up to $300,000, whereas the Board Loan Committee may
approve loans up to $500,000. All loans in excess of $500,000 must be approved
by the full Board of Directors. In addition, the Chief Executive Officer and one
other Executive Officer may act on behalf of the Staff Loan Committee.
Individual loan personnel may also approve loans up to specified limits
established for each individual and approved by the Board of Directors. All loan
approvals are ultimately ratified by the full Board of Directors.

     It is the policy of the Bank to obtain a title insurance policy or title
abstract insuring that the Bank has a valid first lien on mortgaged real estate.
The borrower must also obtain fire and casualty insurance policies.

     LOAN ORIGINATIONS, PURCHASES AND SALES. The Bank has general authority to
make real estate loans secured by properties located throughout the United
States. However, at June 30, 1997, greater than 99% of all of the Bank's total
mortgage loans receivable were secured by real estate located in its primary
market area.

     The Bank originates adjustable-rate real estate loans for portfolio and
originates fixed-rate one- to four-family owner-occupied residential mortgage
loans primarily for sale in the secondary market as part of the management of
its asset and liability interest rate sensitivity. The Bank typically obtains a
contract to sell fixed-rate loans at the time of rate commitment and sells those
loans in the secondary market without recourse while retaining the servicing on
the majority of the loans it sells. At June 30, 1997, the Bank was servicing
residential loans for others in the amount of $129.5 million. Due to the strong
loan demand in the Bank's market area, the Bank has not purchased loans during
recent years.

     Historically, loans have been originated by the Bank primarily through
referrals received from real estate brokers, builders, and customers as well as
through refinancing of loans for existing customers. The Bank attempts to
carefully monitor interest rates in its market areas and believes that it is
competitive in such areas. In December 1990, the Bank formed Cayuga Mortgage for
the purpose of engaging in mortgage banking activities through the origination
of mortgage loans for sale to investors, including the Bank. Currently,
substantially all of Cayuga Mortgage loans are originated for sale to the Bank,
which retains the adjustable rate mortgage loans in its portfolio and sells the
fixed rate mortgage loans, servicing retained, in the secondary market. During
fiscal year 1997, Cayuga Mortgage and PACE Funding originated $22.6 million in
loans for sale to the Bank.

     Set forth below is a table showing the Bank's loan origination and sales
activity for the periods indicated. Neither loans originated by Cayuga Mortgage
for sale to investors other than the Bank nor loans closed by Cayuga Mortgage
and sold to investors other than the Bank are included in this table. Loans
originated by Cayuga Mortgage for sale to the Bank are not considered loan sales
because no income is generated for the subsidiary in accordance with the
provisions of Financial Accounting Standards Statement No. 91. See Note A to the
Notes to Consolidated Financial Statements included in the Corporation's Annual
Report to Stockholders for the Fiscal Year Ended June 30, 1997 (the "Annual
Report"). Loans originated, as shown in the following table, include loans from
the Bank, Cayuga Mortgage Company, and its mortgage banking partnership, PACE
Funding, where such loans are currently being serviced by the Bank.

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                                           Year Ended June 30,
                                                  --------------------------------------- 
                                                    1997           1996            1995
                                                  --------       --------        -------- 
                                                              (In thousands)
<S>                                               <C>            <C>             <C>
Loans originated:
  Conventional real estate loans:
    Construction loans........................    $  1,477       $  2,871        $  2,802
    Loans on existing property................      35,787         25,482          26,331
    Loans refinanced..........................       7,726         17,902           4,603
  Insured and guaranteed loans................       3,194          1,852           1,273
  Consumer....................................       2,080          2,277           2,060
  Commercial loans............................         470          1,728             277
  Other loans.................................       3,397          3,556           3,471
                                                  --------       --------        -------- 
    Total loans originated....................    $ 54,131       $ 55,668        $ 40,817
                                                                                
Loans sold:                                                                     
  Whole Loans.................................     (27,682)       (30,216)        (11,833)
  Participation loans.........................        (375)            --              --
                                                  --------       --------        --------
    Total loans sold..........................     (28,057)       (30,216)        (11,833)
                                                                                
Loans held for sale...........................      (4,461)       ( 5,458)         (3,796)
Principal repayments..........................     (13,060)       (12,571)        (10,501)
Loans transferred to  foreclosed real estate..        (173)          (214)            (91)
Increase (decrease) in other  items, net......       1,695         (3,760)         (2,847)
                                                  --------       --------        --------
  Net increase (decrease).....................    $ 10,075       $  3,449        $ 11,749
                                                  ========       ========        ========
</TABLE>

     LOAN SERVICING AND LOAN FEES. Interest rates charged by the Bank on
mortgage loans are primarily determined by competitive loan rates offered in its
market area. Mortgage loan rates reflect factors such as general interest rate
levels, the supply of money available to the savings industry and the demand for
such loans. These factors are in turn affected by general economic conditions,
the monetary policies of the Federal government, including the Federal Reserve
Board, the general supply of money in the economy, tax policies and governmental
budget matters.

     As of June 30, 1997, Elmira Savings & Loan was servicing approximately
$129.5 million of loans for others. The Bank receives a servicing fee typically
ranging from 1/4% to 3/8% for these loans.

     In addition to interest earned on loans and income from servicing of loans,
the Bank receives fees in connection with loan commitments and originations,
loan modifications, late payments, changes of property ownership and for
miscellaneous services related to its loans. Income from these activities varies
from period to period with the volume and type of loans originated, sold and
purchased, which in turn are dependent on prevailing mortgage interest rates and
their effect on the demand for loans in the markets served by the Bank. See Note
A of the Notes to Consolidated Financial Statements included in the Annual
Report for information regarding the accounting treatment of loan origination
fees.

     LOAN COMMITMENTS. Real estate loan commitments are generally granted for a
period of 35 days from the date of commitment. When the Bank issues a written
loan commitment the borrower pays an origination fee up to 3% at that time in
order to retain the commitment. Historically less than 5% of the Bank's
commitments expire before being funded. At June 30, 1997, the Bank's outstanding
commitments totalled approximately $5.2 million.

     The Bank generally obtains forward commitments on a loan by loan or pooled
mortgage backed security basis to sell Fixed Rate loans to FHLMC. Interest rates
on real estate loans sold are generally locked in at either application,
commitment or closing.

     NON-PERFORMING LOANS AND ASSET CLASSIFICATION. Loans are reviewed on a
monthly basis and are placed on non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful. Residential and

                                       10
<PAGE>
 
commercial mortgage loans are generally placed on non-accrual status when either
principal or interest is more than 90 days past due. Interest accrued and unpaid
at the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan. Consumer loans are generally charged off
when or before the loan becomes 120 days delinquent, although collection efforts
continue.

     Identification of a delinquent mortgage loan is generally made by the 15th
day of delinquency, and a late notice is mailed between the 16th and 18th day of
delinquency. The Bank attempts to contact the borrower by telephone beginning
approximately five days after mailing the notice. If satisfactory arrangements
to bring the account current have not been made by the 45th day of delinquency,
efforts are made to conduct a face-to-face interview with the borrower. If a
satisfactory response is not obtained, the Bank continues to follow up with
notices, telephone contacts and personal interviews until the mortgage loan has
been brought current or until the Bank determines that recommendation for
foreclosure, deed in lieu of foreclosure, or other action is appropriate.

     Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until such time as it is
sold. Real estate properties acquired through loan foreclosure are valued at the
lower of cost or fair value minus estimated costs to sell. Costs relating to the
improvement of property are capitalized to the extent that the carrying value
does not exceed estimated fair value, whereas costs relating to holding property
are expensed. Valuations are periodically performed by management and an
allowance for losses is established, if necessary, by a charge to operations if
the carrying value of a property exceeds its estimated net realizable value.

     As of June 30, 1997, there were no loans excluded from the table below
where known information about the possible credit problems of borrowers caused
management to have serious doubts as to the ability of the borrower to comply
with present loan repayment terms and which may result in disclosure of such
loans in the future except as identified herein. As of June 30, 1997, there were
no concentrations of loans in any types of industry which exceeded 10% of the
Bank's total loans that are not included as a loan category in the table which
follows.

     At June 30, 1997, the Bank had one loan totalling $17,116, which was
classified as a troubled debt restructured loan in accordance with SFAS 118. The
loan, a home equity line of credit, was classified as a result of a Chapter 13
Bankruptcy filing. For the other years presented, the Bank had no restructured
loans as defined by SFAS 118.

                                       11
<PAGE>
 
     The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated.

<TABLE>
<CAPTION> 
                                                              At June 30,
                                                    --------------------------------- 
                                                      1997       1996          1995
                                                    --------   --------      -------- 
<S>                                                 <C>        <C>           <C> 
Loans accounted for on a non-accrual basis: (1)
  Real Estate:
    Residential...................................  $250,078   $176,550      $194,587
    Commercial and Multi-Family...................    61,132         --       442,351
    Consumer/Home Equity..........................    29,193     46,103        81,324
  Consumer........................................        --         --            --
  Other...........................................        --         --            --
                                                    --------   --------      -------- 
Total.............................................  $340,403   $222,653      $718,262
                                                    ========   ========      ========
 
Accruing loans which are contractually past due
  90 days or more:
  Real Estate:
    Residential...................................  $ 62,898   $ 70,368      $ 90,766
    Commercial and Multi-Family...................   316,148         --       185,114
    Consumer/Home Equity..........................        --         --            --
  Education.......................................        --         --            --
  Consumer........................................        --      9,862            --
  Other...........................................        --         --            --
                                                    --------   --------      --------
      Total.......................................  $379,046   $ 80,230      $275,880
                                                    ========   ========      ========
Troubled debt restructurings......................  $ 17,116   $     --      $     --
                                                    ========   ========      ========
 
Total of nonaccrual and 90 days past
  due loans and troubled debt restructurings......  $736,565   $302,883      $994,142
                                                    ========   ========      ========
 
Percentage of total loans.........................       .55%       .24%          .79%
                                                    ========   ========      ========
 
Other non-performing assets (2)...................  $131,000   $ 90,815      $149,961
                                                    ========   ========      ========
</TABLE> 
 
-------------------
(1)  Non-accrual status denotes loans on which, in the opinion of management,
     the collection of additional interest is unlikely, or loans that meet non-
     accrual criteria as established by regulatory authorities.  Payments
     received on a non-accrual loan are either applied to the outstanding
     principal balance or recorded as interest income, depending on an
     assessment of the collectibility of the loan.

(2)  Other non-performing assets represents property acquired or in the process
     of being acquired by the Bank through foreclosure or repossession.  This
     property is carried at the lower of its fair market value or the principal
     balance of the related loan.


     During the year ended June 30, 1997, gross interest income of $65,105 would
have been recorded on loans accounted for on a non-accrual basis if the loans
had been current throughout the period.  Interest on such loans included in
income during the period amounted to $36,498.

                                       12
<PAGE>
 
     The following table sets forth an analysis of the Bank's allowance for loan
loss account for the periods indicated.

<TABLE>
<CAPTION>
                                                                        At June 30,
                                                       ---------------------------------------------
                                                         1997              1996             1995
                                                       ----------       ----------        ----------
<S>                                                    <C>              <C>               <C>

Balance at beginning of period......................   $1,430,781       $1,423,826        $1,268,611
Loans charged-off:
 Real Estate -- mortgage:
   Residential......................................       44,466              260             2,037
   Commercial.......................................           --           48,398               105
 Commercial business................................           --               --                --
 Consumer...........................................           --            5,549                --
                                                       ----------       ----------        ----------
Total charge-offs...................................   $   44,466       $   54,207        $    2,142
                                                       ----------       ----------        ----------

Recoveries:
  Real Estate--Mortgage:
    Residential.....................................   $    8,140       $       --        $    4,608
    Commercial......................................          292              412                --
  Commercial business...............................           --               --             2,149
  Consumer..........................................          752              750               600
                                                       ----------       ----------        ----------
Total recoveries....................................   $    9,184       $    1,162        $    7,357
                                                       ----------       ----------        ----------

Net loans charged-off...............................   $  (35,282)      $   53,045        $   (5,215)
Provision for possible loan losses..................       40,000           60,000           150,000
Allocation to specific reserve......................      (33,000)

General Allowance for Loan Losses...................    1,402,499        1,430,781         1,423,826
Specific Allowance for Loan Losses..................       33,000               --                --
                                                       ----------       ----------        ----------
   Total Allowance..................................   $1,435,499       $1,430,781        $1,423,826
                                                       ==========       ==========        ==========

Ratio of net charge-offs to average
   loans outstanding during the period..............          .03%              --%               --%
                                                       ==========       ==========        ==========
</TABLE>

     For a discussion of the Bank's provision for loan losses in fiscal year
1997, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Years Ended
June 30, 1997 and 1996 -- Provision for Loan Losses" in the Annual Report.

     The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any category.

<TABLE>
<CAPTION> 
                                                                          At June 30,
                                      ---------------------------------------------------------------------------------------
                                                   1997                          1996                       1995
                                      -----------------------------  ----------------------------  --------------------------
                                                      Percent of                    Percent of                Percent of
                                                      Loans in Each                 Loans in Each              Loans in Each
                                                      Category to                   Category to                Category to
                                         Amount       Total Loans       Amount      Total Loans      Amount    Total Loans
                                      -------------  --------------  ------------  --------------  ----------  --------------
<S>                                   <C>            <C>             <C>           <C>             <C>         <C>
Real estate mortgage:
Residential.........................     $  310,754          21.64%    $  273,197          55.80%  $  102,354         64.2%
Commercial..........................        671,293          46.76        515,270          32.80      315,072         24.4
Commercial business.................         34,000           2.36         37,000           1.60        9,000          1.6
Consumer............................        101,585           7.07         81,369           9.80       39,604          9.8
Unallocated.........................        317,867          22.17        523,945            N/A      957,796          N/A
                                         ----------         ------     ----------         ------   ----------       ------
  Total allowance for loan  losses       $1,435,499         100.00%    $1,430,781         100.00%  $1,423,826       100.00%
                                         ==========         ======     ==========         ======   ==========       ======
</TABLE>

                                       13
<PAGE>
 
     Federal regulations require savings associations to review their assets on
a regular basis and to classify them as "substandard," doubtful" or "loss," if
warranted.   Assets classified as substandard or doubtful require the
institution to establish general allowances for loan losses.  If an asset or
portion thereof is classified loss, the insured institution must either
establish specified allowances for loan losses in the amount of 100% of the
portion of the asset classified loss, or charge off such amount.  An asset which
does not currently warrant classification but which possesses weaknesses or
deficiencies deserving close attention is required to be designated as "special
mention."  OTS examiners may disagree with the insured institution's
classifications and amounts reserved.  If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
OTS.  As of June 30, 1997, the Bank had $1,386,112 of assets classified as
substandard and no assets classified as doubtful or as loss.

     While the Bank believes it has established its existing allowances for loan
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing the Bank's loan portfolio in the
future, will not request the Bank to increase its allowance for loan losses,
thereby negatively impacting the Bank's financial condition and earnings.

     The Bank's primary lending area has experienced controlled growth over the
last several years.  There continues to be a softening in the real estate market
in some parts of the Bank's market area, especially in the higher end of the
market and on properties located in rural areas, which has been manifested
primarily in a reduced demand for new homes in these areas.  Management believes
that the market is fairly stable.  There can be no assurance, however, that
economic conditions in the Bank's market area will remain stable or that the
slowdown experienced in some parts of the Bank's market area will continue to be
limited to origination activity.  Any deterioration in the condition of the real
estate market could adversely effect the Bank's earnings or financial condition.

INVESTMENT ACTIVITIES

     Elmira Savings & Loan is required under federal regulations to maintain a
minimum amount of liquid assets which can be invested in specified short-term
securities and is also permitted to make certain other investments.  See
"Regulation -- Liquidity Requirements"  It has generally been Elmira Savings &
Loan's policy to maintain a liquidity portfolio in order to satisfy regulatory
requirements.  All corporate bonds are investment grade.  Liquidity levels may
be increased or decreased depending upon the yields on investment alternatives,
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities, its expectations of the level of yield that
will be available in the future and its projections as to the short-term demand
for funds to be used in the Bank's loan origination and other activities.

                                       14
<PAGE>
 
     The following table sets forth the carrying value of the Bank's investment
securities portfolio, short-term investments and FHLB stock at the dates
indicated.  At June 30, 1997, the market value of the Bank's investment
securities portfolio was approximately $5.4 million.

<TABLE>
<CAPTION> 
                                                        At June 30,
                                                --------------------------
                                                 1997      1996      1995
                                                ------    ------    ------ 
                                                      (In thousands)
<S>                                             <C>       <C>       <C> 
Investment securities:                                  
  U.S. Government and  agency securities....    $3,991    $2,988     $2,902
  Corporate debt securities.................        32        42      1,075
  Corporate Stock...........................        66        49         39
  Bank certificates of deposit..............        --        --        330
                                                ------    ------     ------
    Total investment securities.............    $4,089    $3,079     $4,346
Federal funds sold and  overnight deposits..        --        --         97
                                                ------    ------     ------
    Total investment securities,  federal                            
      funds sold and  overnight deposits....     4,089     3,079      4,443
Federal Home Loan Bank of  New York stock...     1,313     1,104      1,104
                                                ------    ------     ------
    Total investments.......................    $5,402    $4,183     $5,547
                                                ======    ======     ====== 
</TABLE>

     The Bank carries its investment securities in one of the following manners:

     1)   Held  to Maturity - carried at cost as adjusted for discounts and
          unamortized premiums with the intent to hold until maturity.

     2)   Available for Sale - carried at cost and subject to sale at any time.
          However, a valuation allowance is established with an offset entry for
          any unrealized appreciation or depreciation made against capital with
          actual gains or losses being recorded on the income statement at time
          of sale.

     At June 30, 1997, the market value of investment securities "Held to
Maturity" was approximately $13,600 higher than the carrying value while the
"Available for Sale" investment was approximately $29,400 in excess of the cost.

     For further information, see Notes A and B to Notes to Consolidated
Financial Statements included in the Annual Report.

                                       15
<PAGE>
 
     The following table sets forth the scheduled maturities, carrying values,
market values and average yields for certain of the Corporation's investment
securities at June 30, 1997.

<TABLE>
<CAPTION>
 
 
                                       One Year or Less       One to Five Years       Five to Ten Years       More than Ten Years 
                                       ------------------     ------------------     --------------------     -------------------
                                       Carrying  Average      Carrying  Average       Carrying   Average      Carrying  Average   
                                        Value     Yield        Value     Yield         Value      Yield        Value     Yield    
                                       --------  --------     --------  --------     ----------  --------     --------  --------  
                                                                                           (Dollars in  thousands)                 
<S>                                    <C>       <C>         <C>        <C>          <C>         <C>          <C>       <C> 
U.S. Government and                                                                                                               
  agency obligations...............    $     --       -- %   $   3,991     6.89%     $       --       -- %    $     --       -- %
Corporate debt securities..........          --       --            --       --              --       --            32     7.20
Corporate Stock....................          --       --            --       --              --       --            66     2.60
                                       --------               --------               ----------               --------
 Total.............................    $     --       --        $3,991       --      $       --       --      $     98     4.09
                                       ========               ========               ==========               ========            
                                                                                                        
<CAPTION>                                                                                               
                                                                                                        
                                             Total Investment Portfolio                                    
                                          --------------------------------- 
                                          Carrying      Market     Average 
                                           Value        Value       Yield  
                                          --------      ------     --------
<S>                                       <C>           <C>        <C>      
U.S. Government and                                                     
  agency obligations...............        $3,991      $4,004        6.89%                                   
Corporate debt  securities.........            32          32        7.20                                    
Corporate Stock....................            66          66        2.60                                     
                                           ------      ------                                                  
 Total.............................        $4,089      $4,102        6.82                                   
                                           ======      ======                
</TABLE> 
                                        

                                       16
<PAGE>
 
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     GENERAL.  Deposits are a significant source of the Bank's funds for lending
and other investment purposes. In addition to deposits, Elmira Savings & Loan
derives funds from loan principal repayments, interest payments, advances from
the FHLB of New York and reverse repurchase agreements. Loan repayments and
interest payments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and money
market conditions. Borrowing may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes.

     In November 1996, the Bank opened a "cashless" deposit office in Ithaca,
New York. The office is located within a suite of offices which also houses its
mortgage banking subsidiary, ES&L Mortgage Corporation, d/b/a Cayuga Mortgage
Company. The primary goal of the office is to open transaction and certificate
of deposit accounts. All transactions must be in the form of a check, although
the Bank installed an ATM machine in the main lobby of the office building
complex.

     DEPOSITS.  Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a variety of
deposit instruments, including passbook and statement accounts and certificates
of deposit ranging in term from 30 days to 5 years. Deposit account terms vary,
with the principal differences being the minimum balance required, the time
periods the funds must remain on deposit and the interest rate. The Bank also
offers individual retirement accounts ("IRAs").

     The Bank's policies are designed primarily to attract deposits from local
residents rather than to actively solicit deposits from areas outside its
primary market. The Bank does not accept deposits from brokers due to the
volatility and rate sensitivity of such deposits, nor does the Bank pay above
market rates for deposits received from outside its primary market area.

     Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by the Bank on a periodic basis. Determination of rates and
terms are predicated upon funds acquisition and liquidity requirements, rates
paid by competitors, growth goals and federal regulations.

     As part of the Bank's  strategy of managing its assets and liabilities, it
has attracted, by rate, certificates of deposit with terms of fourteen months or
less. Since the Bank has only two offices, it has been unable to attract a large
number of transaction accounts.

     Certificates of deposit with balances in excess of $100,000 amounted to
14.01% of deposits at June 30, 1997. Under New York law, the Bank is not
permitted as a savings association to accept public funds. The jumbo deposits in
the portfolio have come from local union funds, businesses and individuals, the
majority of which have been longstanding customers of the Bank; these funds do
not represent brokered deposits.

                                       17
<PAGE>
 
     The following table sets forth the change in dollar amount of deposits in
 the various types of accounts offered by the Bank between the dates indicated.

<TABLE>
<CAPTION>
                                                                                         Increase                             
                                                                                         (Decrease)                            
                                        Balance                  Balance               from June 30,   Balance           %    
                                      at June 30,    %         at June 30,     %        1996 to June  at June 30,    Deposits  
                                         1997      Deposits       1996      Deposits      30, 1997      1995                   
                                      ------------ --------   ------------  --------    -----------   ------------  --------  
<S>                                   <C>           <C>        <C>           <C>        <C>            <C>           <C>      
Non-interest bearing                                                                                                          
 savings account...................   $    407,841       .36%  $  1,224,899      1.15%      (817,058)  $  1,139,158      1.13%
NOW checking account...............      4,443,572      3.98      4,010,094      3.76        433,478      2,906,433      2.88
Jumbo certificates.................     15,651,466     14.01     13,940,224     13.07      1,711,242     12,691,834     12.56
Super NOW checking accounts........      2,900,320      2.60      1,507,242      1.41      1,393,078      1,278,279      1.26
Passbook and statement
 savings...........................     14,183,722     12.69     15,552,151     14.58     (1,368,429)    16,179,373     16.02
Money market deposit
 accounts..........................      5,232,229      4.68      5,727,747      5.37       (495,518)     5,417,514      5.36
Six month money market
  certificates.....................      5,195,663      4.65      4,811,089      4.51        384,574      4,928,016      4.88
30 and 48 month
 certificates......................      4,126,996      3.69      4,281,412      4.02       (154,416)     5,158,721      5.11
IRA certificates, excluding
  jumbo certificates...............      4,515,806      4.04      4,211,301      3.95        304,505      4,158,551      4.12
Other certificates.................     55,090,903     49.30     51,386,670     48.18      3,704,233     47,156,643     46.68
                                      ------------    ------   ------------    ------    -----------   ------------    ------
    Total..........................   $111,748,518    100.00%  $106,652,829    100.00%   $ 5,095,689   $101,014,522    100.00%
                                      ============    ======   ============    ======    ===========   ============    ====== 

<CAPTION> 
                                           Increase               
                                          (Decrease)             
                                          from June  30,           
                                           1995 to June            
                                            30,  1996             
                                          ------------            
<S>                                       <C>                     
Non-interest bearing                                                                          
 savings account...................         $   85,741            
NOW checking account...............          1,103,661            
Jumbo certificates.................          1,248,390            
Super NOW checking accounts........            228,963            
Passbook and statement                                            
 savings...........................           (627,222)           
Money market deposit                                              
 accounts..........................            310,233            
Six month money market                                            
  certificates.....................           (116,927)           
30 and 48 month                                                   
 certificates......................           (877,309)           
IRA certificates, excluding                                       
  jumbo certificates...............             52,750            
Other certificates.................          4,230,027            
                                            ----------            
    Total..........................         $5,638,307            
                                            ==========             
</TABLE> 
<PAGE>
 
     Deposits in the Bank as of June 30, 1997 were represented by the various
 types of savings programs described below.

<TABLE>
<CAPTION>
Weighted
Average                                                                                                 Percentage 
Interest                                                                 Minimum        Balance in       of Total
Rate            Term                 Category                            Amount         Thousands        Savings
--------      --------               --------                            --------       ----------       -------
<S>          <C>             <C>                                         <C>            <C>             <C> 
                                 Demand Deposits
                                 ---------------
-- %         On Demand       Non-Interest Bearing Savings Accounts       $      1       $      408             .36%  
                             %
--           On Demand       NOW Accounts                                      10            4,444            3.98
2.96         On Demand       Passbook and Statement Savings Accounts            5           13,953           12.48
3.11         On Demand       Money Market Accounts                          2,500            5,232            4.68
1.74         On Demand       Super NOW Accounts                             2,500            2,900            2.60            
2.96         On Demand       Holiday Club Accounts                              1              231             .21
          
                                 Certificates of Deposit
                                 -----------------------

3.68         30 Days         30 Day Certificate, Fixed-Rate                20,000              299             .27
5.01         91 Days         91 Day Certificate, Fixed-Rate                 2,500            3,248            2.91
5.10         182 Days        6 Month Certificate, Fixed-Rate                2,500            5,247            4.69
5.21         8 Months        8 Month Certificate, Fixed-Rate                  500            3,109            2.78
5.16         9 Months        9 Month Certificate, Fixed-Rate                5,000              534             .48
5.82         10 Months       10 Month Certificate, Fixed-Rate                 500            1,768            1.58
5.95         11 Months       11 Month Certificate, Fixed Rate                2500            6,096            5.45
5.35         12 Months       1 Year Certificate, Fixed-Rate                   500            3,329            2.98
5.65         14 Months       14 Month Certificate, Fixed-Rate               2,500           28,113           25.16
5.24         18 Months       18 Month Certificate, Fixed-Rate                 500              869             .78
5.70         24 Months       24 Month Certificate, Fixed-Rate                 500            8,102            7.25
5.42         100 Weeks       100 Week Certificate, Fixed-Rate               5,000              312             .28
5.92         30 Months       30 Month Certificate, Fixed-Rate                 500            1,250            1.12
6.04         36 Months       36 Month Certificate, Fixed-Rate               2,500            3,755            3.36
5.80         48 Months       4 Year Certificate, Fixed-Rate                   500            3,211            2.87
6.07         60 Months       5 Year Certificate, Fixed-Rate                   500           13,585           12.16
5.35         12 Months       1 Year Mini Jumbo Certificate, Fixed-Rate     20,000            1,747            1.56
5.37         18 Months       18 Month Certificate, Variable-Rate               10                7             .01
                                                                                        ----------      ----------
                                                                                        $  111,749          100.00%
                                                                                        ==========      ==========
</TABLE>

                                      19
<PAGE>
 
        The following table indicates the amount of the Bank's certificates of
 deposit of $100,000 or more by time remaining until maturity as of June 30,
 1997.

<TABLE>
<CAPTION>
     Maturity Period                                          Amount
     ---------------                                      --------------
                                                          (In thousands)
<S>                                                       <C>
     Three months or less..............................        $   5,709
     Three through six months..........................            1,423
     Six through twelve months.........................            3,532
     Over twelve months................................            4,987
                                                               ---------
          Total........................................        $  15,651
                                                               =========
</TABLE>

   The following table sets forth the average balances and interest rates based
 on month end balances for demand deposits and time deposits as of the dates
 indicated.

<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                   ---------------------------------------------------------------------------------
                                            1997                          1996                       1995
                                   ------------------------      -----------------------     -----------------------
                                   Demand           Time         Demand           Time       Demand           Time
                                   Deposits        Deposits      Deposits       Deposits     Deposits       Deposits
                                   --------        --------      --------       --------     --------       --------
                                                                 (Dollars in thousands)
<S>                                <C>             <C>           <C>            <C>          <C>            <C>
 
 Average Balance..............     $ 27,273        $ 82,040      $ 27,854       $ 78,963     $ 29,358       $ 70,315
 
 Average Rate.................         2.63%           5.42%         2.59%          5.62%        2.79%          5.21%
</TABLE>

     The following table sets forth the Bank's deposit activities for the
 periods indicated.

<TABLE>
<CAPTION>
                                                                                  Year Ended June 30,  
                                                                   ----------------------------------------------
                                                                    1997               1996                1995
                                                                   ------             ------              -------
                                                                                    (In thousands)
<S>                                                                <C>                <C>             <C>
Deposits......................................................     $  140,913         $   137,013     $   142,340
Withdrawals...................................................        140,920             136,505         132,618
                                                                   ----------         -----------     -----------
Net increase (decrease) before interest credited..............             (7)                508           9,722
Interest credited.............................................          5,103               5,130           4,436
                                                                   ----------         -----------     -----------
Net increase (decrease) in deposits...........................     $    5,096         $     5,638     $    14,158
                                                                   ==========         ===========     ===========
</TABLE>

     BORROWINGS. Savings deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business activities. The
Bank does, however, rely upon advances from the FHLB of New York to supplement
its supply of lendable funds and to meet deposit withdrawal requirements.
Advances from the FHLB are typically secured by the Bank's stock in the FHLB and
a portion of the Bank's mortgage loans. The Bank has utilized borrowings from
the FHLB of New York as a source of funds to duration match against loan
originations. The FHLB has served as the Bank's primary borrowing source. At
June 30, 1997, Elmira Savings & Loan had advances totaling $20.6 million from
the FHLB of New York.

     The FHLB of New York functions as a central bank providing credit for
savings institutions and certain other member financial institutions. As a
member, Elmira Savings & Loan is required to own capital stock in the FHLB and
is authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets

                                      20
<PAGE>
 
(principally, securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have been met.

     From time to time the Bank borrows funds under reverse repurchase
agreements. Under a reverse repurchase agreement, the Bank sells securities
(generally government securities, mortgage-backed securities and FHLMC
participation certificates) and agrees to repurchase them at a specified price
at a later date. Reverse repurchase agreements are generally for terms of up to
90 days, are subject to renewal, and are deemed to be borrowings collateralized
by the securities sold. At June 30, 1997, the Bank had no reverse repurchase
agreements outstanding. Reverse repurchase agreements are contracted with
primary registered broker-dealers or Shay Government Securities Company,
formerly the U.S. League Securities, Inc.

     The following tables set forth certain information regarding the Bank's
FHLB advances (which represent the Bank's only short term borrowings during the
periods covered) at the end of and during the periods indicated.


<TABLE> 
<CAPTION> 
                                                     AT June 30,
                                               ----------------------
                                                 1997           1996
                                               -------        -------
<S>                                            <C>            <C>    
Weighted average rate.......................      6.47%         5.65%
</TABLE> 

<TABLE> 
<CAPTION> 
                                                     During the
                                                Year Ended June 30,
                                               ---------------------
                                                 1997         1996
                                               --------     --------
                                                  (In thousands)
<S>                                            <C>          <C>  
Maximum amount outstanding  at any
 month end..................................   $ 22,000      $ 15,400
Approximate average amount..................   $ 18,208      $ 13,208
Approximate weighted average rate paid (1)..       6.01%         5.79%
</TABLE> 
 
____________________
(1)  The weighted average rate is determined by use of the weighted average
rate for each month-end in the period.

                                      21
<PAGE>
 
     RATE/VOLUME ANALYSIS. The table below sets forth certain information
regarding changes in interest income and interest expense of the Bank for the
periods indicated. For each category of interest-earning asset and interest-
bearing liability, information is provided on changes attributable to (i)
changes in volume (changes in volume multiplied by old rate); (ii) changes in
rate (changes in rate multiplied by old volume); and (iii) the net change. The
change attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                             -----------------------------------------------------------------------------------
                                                1997        vs.        1996                     1996        vs.        1995 
                                             -----------------------------------------------------------------------------------
                                                   Increase (Decrease)                               Increase (Decrease)     
                                                         Due to                                            Due to      
                                             -------------------------------------              --------------------------------
                                             Volume         Rate            Net                 Volume     Rate           Net
                                             ------        -----           -------              ------     -----          ------
<S>                                          <C>           <C>          <C>                     <C>        <C>         <C>
                                                                                                   (In thousands)   
Interest income:                                                                                    
 Loan portfolio...........................   $  644,680    $ (38,481)   $  606,199              $ 632,378  $ 706,768   $ 1,339,146
 Investment securities....................       10,642       10,141        20,783                    957      2,074         3,031
 Mortgage-backed                                                                                    
   securities.............................      (37,940)     (19,458)      (57,398)               (38,852)    29,147        (9,705)
 Interest-earning deposits                                                                          
   with other banks.......................       (7,344)       3,746        (3,598)                  (412)    (5,211)       (5,623)
                                             ----------    ---------    ----------              ---------  ---------   -----------
    Total interest earning assets.........      610,038      (44,052)      565,986                594,071    732,778     1,326,849
                                             ----------    ---------    ----------              ---------  ---------   -----------
                                                                                                    
Interest expense:                                                                                   
 Demand deposits..........................      (15,190)      12,307        (2,883)               (40,656)   (55,808)      (96,464)
 Time deposits............................      169,681     (155,964)       13,717                472,128    300,043       772,171
 Borrowings and advances..................      210,150      (11,719)      198,431                (36,156)    81,318        45,162 
                                             ----------    ---------    ----------              ---------  ---------   -----------
   Total interest-bearing             
     liabilities..........................      364,641     (155,376)      209,265                395,316    325,553       720,869 
                                             ----------    ---------    ----------              ---------  ---------   -----------
Increase (decrease) in  net                                                                         
 interest income..........................   $  245,398    $ 111,323    $  356,721              $ 198,755  $ 407,225   $   605,980 
                                             ==========    =========    ==========              =========  =========   ===========

<CAPTION> 
                                                       Year Ended June 30,
                                             -------------------------------------
                                                1995         vs.           1994  
                                             -------------------------------------
                                                     Increase (Decrease)              
                                                           Due to 
                                             -------------------------------------
                                             Volume         Rate             Net
                                             ------         ----            ------
<S>                                          <C>           <C>          <C>    
Interest income:                                                                          
 Loan portfolio...........................   $  716,901    $ 790,365    $1,507,266                                         
 Investment securities....................       81,940      (23,654)       58,286
 Mortgage-backed                                   
   securities.............................      (46,661)      39,263        (7,398)                                   
 Interest-earning deposits                      
   with other banks.......................      (50,725)       9,605       (41,120)                                  
                                             ----------    ---------    ----------  
    Total interest earning assets.........      701,455      815,579     1,517,034 
                                             ----------    ---------    ----------     
                                                       
Interest expense:                                                                  
 Demand deposits..........................      (34,902)      80,298        45,396    
 Time deposits............................      623,757      243,637       867,394                                      
 Borrowings and advances..................      (97,232)     218,041       120,809    
                                             ----------    ---------    ----------  
   Total interest-bearing                                                         
     liabilities..........................      491,623      541,795     1,033,599   
                                             ----------    ---------    ----------  
Increase (decrease) in  net      
 interest income..........................   $  209,832    $ 273,604    $  483,435  
                                             ==========    =========    ==========  
</TABLE> 

                                     22   
                                                          
                                                
<PAGE>
 
          AVERAGE BALANCE SHEET. The following table sets forth certain
information relating to the Bank's average balance sheet and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of
average daily balances has caused any material difference in the information
presented.

<TABLE>
<CAPTION>
                                                                          Year Ended June 30,
                                                    ------------------------------------------------------------------------  
                                                                   1997                                 1996                  
                                                    -----------------------------------  -----------------------------------  
                                                                               Average                               Average   
                                                      Average                   Yield/       Average                    Yield/   
                                                      Balance      Interest      Cost        Balance      Interest       Cost    
                                                     --------      --------    --------      -------      --------      ------  
<S>                                                 <C>            <C>         <C>         <C>           <C>           <C>       
Interest-earning assets:                                                                                           
   Total loan portfolio (1).....................    $133,325,929  $11,461,628     8.60%    $125,828,250  $10,855,429      8.63%   
 Investment securities, including                                                                                                 
   FHLB stock...................................       5,289,207      339,475     6.42        5,120,897      318,692      6.22   
 Mortgage-backed securities.....................       1,894,287      132,019     6.97        2,416,603      189,417      7.84   
 Interest-Earning Deposits......................         284,727       11,867     4.17          479,325       15,465      3.23   
                                                    ------------  -----------   ------      ------------  -----------   ------   
  Total interest-earning assets.................     140,794,150   11,944,989     8.48      133,845,075   11,379,003      8.50   
 Non-interest earning  assets...................       4,716,671                              4,226,208                           
                                                    ------------                           ------------                           
  Total assets..................................    $145,510,821                           $138,071,283                           
                                                    ============                           ============                           
                                                                                                                                  
Interest-bearing liabilities:                                                                                                     
 Demand deposits................................    $ 27,272,996  $   718,619     2.63     $ 27,853,918      721,502      2.59   
 Time deposits..................................      82,039,648    4,449,665     5.42       78,962,880    4,435,948      5.62   
                                                    ------------  -----------   ------     ------------  -----------    ------   
   Total deposits, including escrows............     109,312,644    5,168,284     4.73      106,816,798    5,157,450      4.83   
 Borrowings.....................................      22,034,197    1,236,462     5.61       18,291,440    1,038,030      5.67   
                                                    ------------  -----------   ------     ------------  -----------    ------   
   Total interest-bearing liabilities...........     131,346,841    6,404,745     4.88      125,108,238    6,195,480      4.95   
Non-interest-bearing liabilities................       1,261,612                              1,223,028                           
                                                    ------------                           ------------                           
   Total liabilities............................     132,608,453                            126,331,266                           
Retained earnings...............................      12,902,368                             11,740,017                           
                                                    ------------                           ------------                           
   Total liabilities and retained                                                                                                 
    earnings...................................     $145,510,821                           $138,071,283                           
                                                    ============                           ============                           
                                                                                                                                  
Net interest income.............................                  $ 5,540,244                              $ 5,183,523            
                                                                  ===========                              ===========            
                                                                                                                                  
Interest rate spread............................                                  3.61%                                   3.55%
                                                                                ======                                  ======
Net yield on interest-earning assets............                                  3.93%                                   3.88%
                                                                                ======                                  ======
Ratio of average interest-earning assets to                                                                                        
    average interest-bearing liabilities........                                107.19%                                 106.98%
                                                                                ======                                  ====== 
            (1)  Average balances include non-accrual loans.                                                                      
                                                                                                                      
<CAPTION>                                                                                              
                                                 -------------------------------------------           
                                                                 1995                                  
                                                 -------------------------------------------           
                                                                                     Average           
                                                    Average                          Yield/            
                                                    Balance        Interest          Cost              
                                                    -------        --------         ------             
<S>                                                 <C>            <C>              <C>                
Interest-earning assets:                                                                               
   Total loan portfolio (1)...................      $118,229,410    $ 9,516,283        8.05%                               
 Investment securities, including                                                                      
   FHLB stock.................................         5,105,455        315,661        6.18            
  Mortgage-backed securities..................         2,946,677        199,122        6.76            
  Interest-Earning Deposits...................           489,068         21,088        4.31            
                                                    ------------    -----------     -------            
   Total interest-earning assets..............       126,770,610     10,052,154        7.93            
 Non-interest earning assets..................         3,108,593                                       
                                                    ------------                                       
   Total assets...............................      $129,879,203                                       
                                                    ============                                       
                                                                                                       
Interest-bearing liabilities:                                                                                    
 Demand deposits..............................      $ 29,357,665        817,966        2.79            
 Time deposits................................        70,315,088      3,663,777        5.21            
                                                    ------------    -----------     -------            
   Total deposits, including escrows..........        99,672,753      4,481,743        4.50   
 Borrowings...................................        18,965,258        992,868        5.24   
                                                    ------------    -----------     -------   
   Total interest-bearing liabilities.........       118,638,011      5,474,611        4.61   
Non-interest-bearing liabilities..............           818,800                              
                                                    ------------                              
   Total liabilities..........................       119,456,811                              
Retained earnings.............................        10,422,392                              
                                                    ------------                              
   Total liabilities and retained                                                                                 
    earnings..................................      $129,879,203                              
                                                    ============                              
                                                                                              
Net interest income...........................                      $ 4,577,543               
                                                                    ===========               
                                                                                              
Interest rate spread..........................                                         3.31%  
                                                                                    =======              
Net yield on interest-earning assets..........                                         3.61%  
                                                                                    =======
Ratio of average interest-earning assets to                                                      
    average interest-bearing liabilities......                                       106.85% 
                                                                                    =======
</TABLE> 
            (1)  Average balances include non-accrual loans.     

                                       23
<PAGE>
 
SUBSIDIARY ACTIVITIES

          As a federally chartered savings association, Elmira Savings & Loan is
permitted to invest an amount equal to 2% of its assets in subsidiaries with an
additional investment of 1% of assets where such investment serves primarily
community, inner-city, and community development purposes. Under such
limitations, as of June 30, 1997, Elmira Savings & Loan was authorized to invest
up to approximately $2.8 million in the stock of or loans to subsidiaries.
Institutions meeting regulatory capital requirements, which Elmira Savings &
Loan currently does, may invest up to 50% of their regulatory capital in
conforming first mortgage loans to subsidiaries. As of June 30, 1997, Elmira
Savings & Loan had $265,100 of equity invested in its subsidiaries.

          In July 1987, the Bank activated its wholly owned subsidiary, Brilie
Corporation (d/b/a ES&L Financial Services), for the purpose of selling life
insurance and annuity products, health insurance and mutual funds under an
agency relationship with major insurance companies and third party mutual fund
providers to the Bank's customers. This company has two employees. This division
of Brilie Corporation had net pretax revenues of approximately $62,800 during
fiscal year 1997. In 1993, Brilie Corporation formed a new subsidiary, d/b/a
ES&L Appraisal Services. This company performs real estate appraisals for
residential and commercial properties, primarily for the Bank and Cayuga
Mortgage. During the 1997 fiscal year, this company recorded a loss of
approximately $2,000 and was no longer active at June 30, 1997.

          In May 1989, Brilie Corporation entered into a 50% joint venture
partnership agreement with a family group who resides in the Elmira area and who
is affiliated with a real estate brokerage company. The partnership was formed
for the purpose of developing a planned unit development located in Horseheads,
New York. Pursuant to the partnership agreement, the family group receives sales
commissions on the purchase price of building lots which they sell on behalf of
the partnership and the family group agrees to use its best efforts to encourage
building lot purchasers to place their construction and permanent mortgages with
the Bank. The Bank has a 50% interest in the partnership and has committed up to
$750,000 in financing. At June 30, 1997, the Bank had loaned approximately
$561,000 to the partnership. Brilie Corporation earned $29,700 from this
partnership during the fiscal year ended June 30, 1997.

          In December 1990, the Bank formed Cayuga Mortgage as a wholly owned
subsidiary of the Bank for purposes of engaging in mortgage banking activities.
Cayuga Mortgage's primary function is to originate mortgages for sale to
investors, one of whom is the Bank. With respect to mortgages sold by Cayuga
Mortgage to the Bank, no income is generated for the subsidiary in accordance
with the provisions of Financial Accounting Standards Statement No. 91. (See
Note A to the Notes to Consolidated Financial Statements included in the Annual
Report for a discussion of loan fees). With respect to mortgages sold to third
parties, income generated is not recognized until after the closing of the sale
of the mortgage. PACE Funding was formed during September 1995 through a
mortgage banking partnership between Cayuga Mortgage and Audrey Edelman &
Associates Real Estate. During the fiscal year ended June 30, 1997, Cayuga
Mortgage and PACE Funding originated approximately $23.5 million of mortgages,
the majority of which were originated for the Bank for sale in the secondary
market. The Bank's aggregate investment in Cayuga Mortgage was $265,000 at June
30, 1997.

          The Bank is required to give the FDIC and the Director of the OTS 30
days' prior notice before establishing or acquiring a new subsidiary, or
commencing any new activity through an existing subsidiary. Both the FDIC and
the Director of the OTS have authority to order termination of subsidiary
activities determined to pose a risk to the safety or soundness of the
institution. In addition, federal regulations require savings associations to
deduct the amount of their investments in and extensions of credit to
subsidiaries engaged in activities not permissible to national banks from
capital in determining regulatory capital compliance. See "Regulation --
Regulatory Capital Requirements."

                                       24
<PAGE>
 
COMPETITION

          Elmira Savings & Loan is one of two thrift institutions headquartered
in Chemung County. The Bank experiences substantial competition both in
attracting and retaining savings deposits and in the making of mortgage and
other loans. Direct competition for savings deposits comes from other savings
institutions, credit unions and commercial banks located in its primary market
area. Additional significant competition for savings deposits comes from money
market mutual funds and corporate and government debt securities.

          The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by various financial
institutions. Competition for origination of real estate loans normally comes
from other thrift institutions, commercial banks, mortgage bankers, mortgage
brokers and insurance companies. There are six commercial banks, four savings
associations and eight credit unions with branches located in Chemung County.
Elmira Savings & Loan is able to compete effectively in its primary market area
by offering competitive interest rates and loan fees, and a wide variety of
deposit products, and by emphasizing personal customer service and cultivating
relationships with local businesses.

EMPLOYEES

          As of June 30, 1997, Elmira Savings & Loan and its subsidiaries had 39
full-time and 4 part-time employees, none of whom were represented by a
collective bargaining agreement. Elmira Savings & Loan believes that it enjoys
good relations with its personnel.

EXECUTIVE OFFICERS

          The following table sets forth certain information with respect to the
executive officers of the Corporation.

<TABLE>
<CAPTION>
                             Age at
                            June 30,
      Name                   1997        Position
      ----                   ----        --------
<S>                         <C>          <C>
                                          
William A. McKenzie           46         President and Chief Executive Officer
                                         
J. Michael Ervin              48         Senior Vice President and Treasurer
                                         
Michael J. Wayne              36         Vice President
                                         
Lynn M. Morris                45         Vice President
                                         
James D. Stanton              50         Vice President
                                         
Judy A. Peters                39         Vice President
                                         
Michael J. Crimmins           45         Vice President
</TABLE>

     WILLIAM A. MCKENZIE has served as President and Chief Executive Officer of
Elmira Savings & Loan since June 1983.  In this capacity, Mr. McKenzie is
responsible for the overall operations of the Bank pursuant to the policies and
procedures established by the Board of Directors.  Mr. McKenzie is  a Board
member of Elmira Downtown Development Corporation, America's Community Bankers
and Community Bankers Association of New York State.  He has also served as
Chairman of the  following organizations:  Chemung County Chamber of Commerce,
Southern 

                                       25
<PAGE>
 
Tier Economic Growth and the Chemung County United Way Fund Drive. Mr. McKenzie
has been employed at the Bank since 1983.

     J. MICHAEL ERVIN has served as Senior Vice President/Treasurer  of the Bank
since 1984.  In this capacity, Mr. Ervin oversees all of the Bank's financial,
accounting and operating activities.  Prior to 1984, Mr. Ervin served as First
Vice President of the Bank.  Mr. Ervin  serves as a Board member, past President
and current Treasurer of the Arctic League of Chemung County; Board member,
current Treasurer and incoming President of Woodbrook, Inc. and Board member,
Assistant Treasurer and Chairman of the Audit Committee of Southern Tier
Economic Growth.  He also is a past Director of the Chemung/Schuyler Chapter of
the American Red Cross.  Mr. Ervin has been employed by the Bank since 1973.

     MICHAEL J. WAYNE has served as Vice President of Marketing, Stockholder and
Public Relations since 1993. Since 1990, Mr. Wayne has supervised the
Corporation's compliance with the periodic reporting requirements of the
Securities and Exchange Commission. Prior to 1993, Mr. Wayne was in charge of
the Corporation's secondary market activities and its Loan Servicing Department.
From 1987 to August 1989, Mr. Wayne served as Vice President in charge of
Mortgage Originations. He is a member of the Executive, Finance and Ticket
Committees for the LPGA Corning Classic , and is on the Executive Committee and
Board of Directors of Elmira Downtown Development Corporation. Mr. Wayne is a
Board member of Glove House and Capabilities. He is a Past President of the
Elmira Kiwanis Club and a member of the Chemung County Historical Society and
the Near Westside Neighborhood's Columbia Street Task Force. Mr. Wayne has been
employed by the Bank since 1982.

     LYNN M. MORRIS has served as Vice President of Residential Loan
Originations since September 1990. Prior to 1990, Ms. Morris was the Bank's
Marketing Director. She is a 1990 graduate of the Chemung County Chamber of
Commerce Leadership Chemung program and served as Team Leader in the Chamber of
Commerce 1997 Membership Drive. Ms. Morris is a member of the Association of
Professional Mortgage Women. She has been employed at the Bank since 1989.

     JAMES D. STANTON has served as Vice President of Compliance and Loan Review
for the Bank since 1991.  Mr. Stanton is a Board Member and Treasurer of the
Near Westside Neighborhood Association and has worked on the Chemung County
Chamber of Commerce Membership Drive.  He has been employed by the Bank since
1988.

     JUDY A. PETERS has served as Vice President of Commercial Loan Originations
since 1992.  She has been an instrumental employee in the department since its
inception in 1984.  In 1993 Mrs. Peters was named Small Business Advocate of the
Year by the U.S. Small Business Administration.  She is a member of the Audit
Committee of the St. Mathew's Church and has worked on the Chemung County
Chamber of Commerce Membership Drive and the 1997 National Kidney Foundation
Fund Drive.  Mrs. Peters has been employed by the Bank since 1984.

     MICHAEL J. CRIMMINS has served as Vice President of Operations, Accounting
and Loan Servicing since 1994. Prior to that Mr. Crimmins was a systems and
operations analyst for the Bank and was responsible for the development of the
Bank's disaster recovery plan.  He is the Treasurer of the Hendy Avenue School
Parent Teachers Organization and a Board member of United Cerebral Palsey.  He
is a member of the AT&T/NCR New York Users Group.  Mr. Crimmins worked part-time
for the Bank from January 1993 until May 1993, at which time he became a full
time employee of the Bank.

REGULATION
 
     GENERAL.  As a savings association, Elmira Savings & Loan is subject to
extensive regulation by the OTS.  The Bank's lending activities and other
investments must comply with various federal regulatory requirements.  The OTS
periodically examines the Bank for compliance with various regulatory
requirements and the FDIC has the authority to conduct special examinations of
the Bank.  The Bank must file reports with OTS describing its activities and
financial condition, and is subject to certain reserve requirements promulgated
by the Federal Reserve Board.  This supervision 

                                       26
<PAGE>
 
and regulation is intended primarily for the protection of depositors. As a
savings and loan holding company, the Corporation is subject to OTS regulation,
examination, supervision and reporting requirements. Certain of these regulatory
requirements are referred to in the following paragraphs or appear elsewhere
herein.

     FEDERAL HOME LOAN BANK SYSTEM.   The Bank is a member of the FHLB System,
which consists of 12 regional Federal Home Loan Banks ("FHLB's") subject to
supervision and regulation by the Federal Housing Finance Board ("FHFB").  The
FHLB's provide a central credit facility primarily for member institutions.  As
a member of the FHLB of New York, the Bank is required to acquire and hold
shares of capital stock in the FHLB of New York in an amount at least equal to
1% of the aggregate unpaid principal of its home mortgage loans, home purchase
contracts, and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the FHLB of New York, whichever is greater.  Elmira
Savings & Loan was in compliance with this requirement with an investment in
FHLB of New York stock at June 30, 1997, of $1,313,100.  The FHLB of New York
serves as a reserve or central bank for its member institutions within its
assigned region.  It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It offers advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB of New York.  Long-term advances may only be made for the
purpose of providing funds for residential housing finance.  As of June 30,
1997, Elmira Savings & Loan had advances of $20.6 million outstanding from the
FHLB of New York.  See "Business of the Bank -- Sources of Funds --Borrowings."

     LIQUIDITY REQUIREMENTS. As a member of the FHLB System, the Bank is
required to maintain average daily balances of liquid assets (cash, deposits
maintained pursuant to Federal Reserve Board requirements, time and savings
deposits in certain institutions, obligations of states and political
subdivisions thereof, shares in mutual funds with certain restricted investment
policies, highly rated corporate debt, and mortgage loans and mortgage-related
securities with less than one year to maturity or subject to purchase within one
year) equal to the monthly average of not less than a specified percentage
(currently 5%) of its net withdrawable savings deposits plus short-term
borrowings. Member institutions have also been required to maintain average
daily balances of short-term liquid assets at a specified percentage (currently
1%) of the total of their net withdrawable savings accounts and borrowings
payable in one year or less. Monetary penalties may be imposed for failure to
meet liquidity requirements. The average liquidity and short term liquidity
ratios of the Bank for June 1997 were 5.37% and 2.20%, respectively.

     QUALIFIED THRIFT LENDER TEST.  The Bank is currently subject to OTS
regulations which use the concept of a qualified thrift lender ("QTL") to
determine eligibility for Federal Home Loan Bank advances and for certain other
purposes.  A savings institution that does not meet the QTL Test must either
convert to a bank charter or comply with the following restrictions on its
operations: (i) the institution may not engage in any new activity or make any
new investment, directly or indirectly, unless such activity or investment is
permissible for both a national bank and a savings institution; (ii) the
branching powers of the institution are restricted to those of a national bank
located in the institution's home state; (iii) the institution shall not be
eligible to obtain any advances from its Federal Home Loan Bank; and (iv)
payment of dividends by the institution shall be subject to the rules regarding
payment of dividends by a national bank. In addition, any company that controls
a savings institution that fails to qualify as a QTL will be required to
register as and be deemed a bank holding company subject to all of the
provisions of the Bank Holding Company Act of 1956 and other statutes applicable
to bank holding companies.  Upon the expiration of three years from the date the
institution ceases to be a QTL, it must cease any activity, and not retain any
investment not permissible for both a national bank and a savings institution
and immediately repay any outstanding Federal Home Loan Bank advances (subject
to safety and soundness considerations).

   To qualify as a QTL, a savings institution must either qualify as a "domestic
building and loan association" under the Internal Revenue Code or maintain at
least 65% of its "portfolio" assets in Qualified Thrift Investments.  Portfolio
assets are defined as total assets less intangibles, property used by a savings
institution in its business and liquidity investments in an amount not exceeding
20% of assets.  All of the following may be included as Qualified Thrift
Investments: investments in residential mortgages, home equity loans, loans made
for educational purposes, small business loans, credit card loans and shares of
stock issued by a Federal Home Loan Bank.  Subject to a 20% of portfolio 

                                       27
<PAGE>
 
assets limit, savings institutions are also able to treat the following as
Qualified Thrift Investments: (i) 50% of the dollar amount of residential
mortgage loans subject to sale under certain conditions, (ii) investments, both
debt and equity, in the capital stock or obligations of and any other security
issued by a service corporation or operating subsidiary, provided that such
subsidiary derives at least 80% of its annual gross revenues from activities
directly related to purchasing, refinancing, constructing, improving or
repairing domestic residential housing or manufactured housing, (iii) 200% of
their investments in loans to finance "starter homes" and loans for
construction, development or improvement of housing and community service
facilities or for financing small businesses in "credit-needy" areas, (iv) loans
for the purchase, construction, development or improvement of community service
facilities, and (v) loans for personal, family, household or educational
purposes, provided that the dollar amount treated as Qualified Thrift
Investments may not exceed 10% of the savings institution's portfolio assets.

     A savings institution must maintain its status as a QTL on a monthly basis
in nine out of every 12 months. A savings institution that fails to maintain QTL
status will be permitted to requalify once, and if it fails the QTL Test a
second time, it will become immediately subject to all penalties as if all time
limits on such penalties had expired. At June 30, 1997, approximately 82.7% of
the Bank's "portfolio" assets were invested in Qualified Thrift Investments.

     LENDING LIMITS.  The aggregate amount of loans which a federally chartered
savings association may make on the security of liens on non-residential real
property may not exceed 400% of the association's capital.  The Director of the
OTS may, however, permit savings associations to exceed the 400% of capital
limit in certain circumstances.

     Under regulations of the OTS, loans and extensions of credit to a person
outstanding at one time generally may not exceed 15% of the unimpaired capital,
surplus, including the loan loss allowance of the Bank.  As of June 30, 1997,
the Bank was permitted to lend approximately  $2.0 million to one borrower under
this standard.  Loans and extensions of credit fully secured by readily
marketable collateral (as defined) may comprise an additional 10% of unimpaired
capital and surplus.   As of June 30, 1997, the largest amount outstanding to
any one borrower of the Bank was $1.8 million, which was below the current
limit.

     REGULATORY CAPITAL REQUIREMENTS.   Under the OTS's regulatory capital
requirements, savings associations must maintain "tangible" capital equal to
1.5% of adjusted total assets, "core" capital equal to 3% of adjusted total
assets and "total" capital (a combination of core and "supplementary" capital)
equal to 8% of risk-weighted assets.  In addition, the OTS has recently adopted
regulations which impose certain restrictions on savings associations that have
a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1
capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital
to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated
composite 1 CAMELS under the OTS examination rating system).  For purposes of
these regulations, Tier 1 capital has the same definitions as core capital.  See
"--Prompt Corrective Regulatory Action."

     Core capital is defined as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill."  Core capital is generally reduced by the amount of the savings
association's intangible assets for which no market exists.  Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights and qualifying supervisory goodwill.  Tangible capital is given
the same definition as core capital but does not include an exception for
qualifying supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets with only a limited exception for purchased
mortgage servicing rights.  Both core and tangible capital are further reduced
by an amount equal to a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national banks (other than
subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or their
holding companies).  Investments in and extensions of credit to such
subsidiaries are required to be fully netted against tangible and core capital.
At June 30, 1997, the Bank had $676,001 of investments in or extensions of
credit to a subsidiary engaged in activities not permitted to national banks.

                                       28
<PAGE>
 
     Adjusted total assets are a savings association's total assets as
determined under generally accepted accounting principles increased by certain
goodwill amounts and by a pro rated portion of the assets of unconsolidated
includable subsidiaries in which the savings association holds a minority
interest. Adjusted total assets are reduced by the amount of assets that have
been deducted from capital, the portion of savings association's investments in
unconsolidated includable subsidiaries, and, for purpose of the core capital
requirement, qualifying supervisory goodwill. At June 30, 1997, the Bank's
adjusted total assets for the purposes of the core and tangible capital
requirements were approximately $149.0 million.

     In determining compliance with the risk-based capital requirement, a
savings association is allowed to include both core capital and supplementary
capital in its total capital provided the amount of supplementary capital
included does not exceed the savings association's core capital. Supplementary
capital is defined to include certain preferred stock issues, nonwithdrawable
accounts and pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments and a portion of
the savings association's general loss allowances. Total core and supplementary
capital are reduced by the amount of capital instruments held by other
depository institutions pursuant to reciprocal arrangements and by an increasing
percentage of the savings association's high loan-to-value ratio land loans and
non-residential construction loans and equity investments other than those
deducted from core and tangible capital. As of June 30, 1997, the Bank had no
high ratio land or non-residential construction loans and no equity investments
for which OTS regulations require a deduction from total capital.

     The risk-based capital requirement is measured against risk-weighted assets
which equals the sum of each asset and the credit-equivalent amount of each off-
balance sheet item after being multiplied by an assigned risk weight.  Under the
OTS risk-weighting system, one- to four-family first mortgages not more than 90
days past due with loan-to-value ratios under 80% are assigned a risk weight of
50%.  Consumer and construction loans are assigned a risk weight of 100%.
Mortgage-backed securities issued, or fully guaranteed as to principal and
interest, by the FNMA or FHLMC are assigned a 20% risk weight.  Cash and U.S.
Government securities backed by the full faith and credit of the U.S. Government
are given a 0% risk weight.

     The table below presents the Bank's capital position relative to its
various minimum statutory and regulatory capital requirements at June 30, 1997.

<TABLE>
<CAPTION>                             
                                        At June 30, 1997
                                  ---------------------------
                                                      Percent
                                                       of
                                    Amount            Assets (1)
                                    ------            ----------
                                     (Dollars in thousands)
<S>                                 <C>               <C>
Tangible Capital.................   $13,140              8.78%
Tangible Capital Requirement.....     2,245              1.50
                                    -------             -----
Excess...........................   $10,895              7.28%
                                    =======             =====
 
Tier 1/Core Capital..............    13,140              8.78%
Tier 1/Core Capital Requirement..     4,489              3.00
                                    -------             -----
Excess...........................   $ 8,651              5.78%
                                    =======             =====
 
Risk-Based Capital...............    14,377             14.55%
Risk-Based Capital Requirement...     7,907              8.00
                                    -------             -----
Excess...........................   $ 6,470              6.55%
                                    =======             =====
</TABLE> 
 
____________________
(1)  Based upon tangible assets for purposes of the tangible capital and core
     capital requirements, and risk-weighted assets for purposes of the risk-
     based capital requirement.

                                       29
<PAGE>
 
     The OTS's risk-based capital requirements require savings institutions with
more than a "normal" level of interest rate risk to maintain additional total
capital.  A savings institution's interest rate risk is measured in terms of the
sensitivity of its "net portfolio value" to changes in interest rates.  Net
portfolio value is defined, generally, as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities.  A savings
institution is considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets.  A savings institution with a greater than normal interest
rate risk is required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.  Management does not believe the
implementation of the interest rate risk requirement will have a material effect
on the Bank.

     The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS.  The amount of the interest rate risk component, if any,
that is deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier.  Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports.  However, the OTS requires any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis.  The Bank has
determined that, on the basis of current financial data, it will not be deemed
to have more than normal level of interest rate risk under the rule and believes
that it will not be required to increase its total capital as a result of the
rule.

     In addition to requiring generally applicable capital standards for savings
associations, the Director of OTS is authorized to establish the minimum level
of capital for a savings association at such amount or at such ratio of capital-
to-assets as the Director determines to be necessary or appropriate for such
association in light of the particular circumstances of the association.  Such
circumstances would include a high degree of exposure of interest rate risk,
prepayment risk, credit risk and concentration of credit risk and certain risks
arising from non-traditional activities.   The Director may treat the failure of
any savings association to maintain capital at or above such level as an unsafe
or unsound practice and may issue a directive requiring any savings association
which fails to maintain capital at or above the minimum level required by the
Director to submit and adhere to a plan for increasing capital.  Such an order
may be enforced in the same manner as an order issued by the FDIC.

     PROMPT CORRECTIVE REGULATORY ACTION.  Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators,
including the OTS, are required to take prompt corrective action if an insured
depository institution fails to satisfy certain minimum capital requirements.
All institutions, regardless of their capital levels, are restricted from making
any capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements.  An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution into capital compliance as of
the date it failed to comply with its capital restoration plan.  A
"significantly undercapitalized" institution, as well as any undercapitalized
institution that did not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution.  Any company controlling the
institution could also be required to divest the institution or the institution
could be required to divest subsidiaries.  The senior executive officers of a
significantly 

                                       30
<PAGE>
 
undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below a "critical capital level," the institution will be subject to
conservatorship or receivership within 90 days unless periodic determinations
are made that forbearance from such action would better protect the deposit
insurance fund. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.

     Under regulations jointly adopted by the federal banking regulators,
including the OTS, a depository institution's capital adequacy for purposes of
the prompt corrective action rules is determined on the basis of the
institution's total risk-based capital ratio (the ratio of its total capital to
risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core
capital to risk-weighted assets) and leverage ratio (the ratio of its core
capital to adjusted total assets).  Under the regulations, a savings association
that is not subject to an order or written directive to meet or maintain a
specific capital level is deemed "well capitalized" if it also has: (i) a total
risk-based capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital
ratio of 6% or greater; and (iii) a leverage ratio of 5% or greater.  An
"adequately capitalized" savings association is a savings association that does
not meet the definition of well capitalized and has: (i) a total risk-based
capital ratio of 8% or greater; (ii) a Tier 1 capital risk-based ratio of 4% or
greater; and (iii) a leverage ratio of 4% or greater (or 3% or greater if the
savings association has a composite 1 CAMELS rating).  An "undercapitalized
institution" is a savings association that has (i) a total risk-based capital
ratio less than 8%; or (ii) a Tier 1 risk-based capital ratio of less than 4%;
or (iii) a leverage ratio of less than 4% (or 3% if the association has a
composite 1 CAMELS rating).  A "significantly undercapitalized" institution is
defined as a savings association that has: (i) a total risk-based capital ratio
of less than 6%; or (ii) a Tier 1 risk-based capital ratio of less than 3%; or
(iii) a leverage ratio of less than 3%.  A "critically undercapitalized" savings
association  is defined as a savings association that has a ratio of "tangible
equity" to total assets of less than 2%.  Tangible equity is defined as core
capital plus cumulative perpetual preferred stock (and related surplus) less all
intangibles other than qualifying supervisory goodwill  and certain purchased
mortgage servicing rights.  The OTS may reclassify a well capitalized savings
association as adequately capitalized and may require an adequately capitalized
or undercapitalized association to comply with the supervisory actions
applicable to associations in the next lower capital category (but may not
reclassify a significantly undercapitalized association as critically
undercapitalized) if the OTS determines, after notice and an opportunity for a
hearing, that the savings association is in an unsafe or unsound condition or
that the association has received and not corrected a less-than-satisfactory
rating for any CAMEL rating category.  The Bank is classified as "well
capitalized" under these regulations.

     DEPOSIT INSURANCE.  The Bank is required to pay assessments based on a
percent of its insured deposits to the FDIC for insurance of its deposits by the
FDIC through the SAIF.  Under the Federal Deposit Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured institutions at a level
necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the SAIF.

     Under the FDIC's risk-based assessment system, the assessment rate for an
insured depository institution depends on the assessment risk classification
assigned to the institution by the FDIC, which is determined by the
institution's capital level and supervisory evaluations.  Based on the data
reported to regulators for the date closest to the last day of the seventh month
preceding the semi-annual assessment period, institutions are assigned to one of
three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as under the prompt
corrective action regulations.  See " -- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's 

                                       31
<PAGE>
 
financial condition and the risk posed to the deposit insurance fund. Subgroup A
will consist of financially sound institutions with only a few minor weaknesses.
Subgroup B consists of institutions that demonstrate weaknesses which, if not
corrected, could result in significant deterioration of the institution and
increased risk of loss to the deposit insurance fund. Subgroup C consists of
institutions that pose a substantial probability of loss to the deposit
insurance fund unless effective corrective action is taken.

     Over the past years, institutions with SAIF-assessable deposits, like the
Bank, were required to pay higher deposit insurance premiums than institutions
with deposits insured by the Bank Insurance Fund ("BIF") administered by the
FDIC.  In order to recapitalize the SAIF and address the premium disparity, in
November 1996 the FDIC imposed a one-time special assessment on institutions
with SAIF-assessable deposits based on the amount determined by the FDIC to be
necessary to increase the reserve levels of the SAIF to the designated reserve
ratio of 1.25% of insured deposits. Institutions were assessed at the rate of
65.7 basis points based on the amount of their SAIF-assessable deposits as of
March 31, 1995.  As a result of the special assessment the Bank incurred a pre-
tax expense of $657,000 during the quarter ended September 30, 1996.

     The special assessment recapitalized the SAIF, and as a result, the FDIC
lowered the SAIF deposit insurance assessment rates through the end of 1997 to
zero for well capitalized institutions with the highest supervisory ratings and
0.31% of insured deposits for institutions in the highest risk-based premium
category.   Since the BIF is above its designated reserve ratio of 1.25% of
insured deposits, "well-capitalized" institutions in Subgroup A, numbering 95%
of BIF-insured institutions, pay no federal deposit insurance premiums, with the
remaining 5% of institutions paying a graduated range of rates up to 0.27% of
insured deposits for the highest risk-based premium category.  Until December
31, 1999, SAIF-insured institutions will be required to pay assessments to the
FDIC at the rate of 6.5 basis points to help fund interest payments on certain
bonds issued by the Financing Corporation ("FICO") an agency of the federal
government established to finance takeovers of insolvent thrifts.  During this
period, BIF members will be assessed for these obligations at the rate of 1.3
basis points.  After December 31, 1999, both BIF and SAIF members will be
assessed at the same rate for FICO payments, or sooner if the two funds are
merged.

     Since the SAIF now meets its designated reserve ratio as a result of the
special assessment, SAIF members are now permitted to convert to the status of
members of the BIF and may merge with or transfer assets to a BIF member.
Although the Bank would qualify for insurance of deposits of the BIF,
substantial entrance and exit fees apply to conversions from SAIF to BIF
insurance and such fees may make a SAIF to BIF conversion prohibitively
expensive. In the past, the substantial disparity existing between deposit
insurance premiums paid by BIF and SAIF members gave BIF-insured institutions a
competitive advantage over SAIF-insured institutions like the Bank.  The
reduction of the SAIF deposit insurance premiums effectively eliminated this
disparity and could have the effect of increasing the net income of the Bank and
restoring the competitive equality between BIF-insured and SAIF-insured
institutions.

     FEDERAL RESERVE SYSTEM.  Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $49.3 million of transaction accounts, plus 10% on the remainder.
This percentage is subject to adjustment by the Federal Reserve Board.  Because
required reserves must be maintained in the form of vault cash or in a non-
interest bearing account at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce the amount of the institution's interest-earning
assets.  As of June 30, 1997, the Bank met its reserve requirements.

SAVINGS AND LOAN HOLDING COMPANY REGULATION

     GENERAL.  The Corporation is a savings and loan holding company within the
meaning of the Home Owners' Loan Act.  As such, the Corporation is registered
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements.  As a subsidiary of a savings and loan holding company,
the Bank is subject to certain restrictions in its dealings with the Corporation
and affiliates thereof.

     

                                       32
<PAGE>
 
     RESTRICTIONS ON ACQUISITIONS.  The Home Owners' Loan Act generally
prohibits a savings and loan holding company, without prior approval of the
Director of OTS, from (i) acquiring control of any other savings institution or
savings and loan holding company or controlling the assets thereof or (ii)
acquiring more than 5% of the voting shares of a savings institution or holding
company thereof which is not a subsidiary.  Under certain circumstances a
registered savings and loan holding company is permitted to acquire, with the
approval of the Director of OTS, up to 15% of the voting shares of an under-
capitalized savings association pursuant to a "qualified stock issuance" without
that savings association being deemed controlled by the holding company.  In
order for the shares acquired to constitute a "qualified stock issuance," the
shares must consist of previously unissued stock or treasury shares, the shares
must be acquired for cash, the savings institution holding company's other
subsidiaries must have tangible capital of at least 6 1/2% of total assets,
there must not be more than one common director or officer between the savings
institution holding company and the issuing savings institution and transactions
between the savings institution and the savings institution holding company and
any of its affiliates must conform to Sections 23A and 23B of the Federal
Reserve Act.  Except with the prior approval of the Director of OTS, no director
or officer of a savings institution holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
also acquire control of any savings institution, other than a subsidiary savings
institution, or of any other savings and loan holding company.

     OTS regulations permit federal savings institutions to branch in any state
or states of the United States and its territories.  Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal savings institution may not establish an out-of-
state branch unless (i) the federal institution qualifies as a QTL or as a
"domestic building and loan association" under (S)7701(a)(19) of the Internal
Revenue Code and the total assets attributable to all branches of the
institution in the state would qualify such branches taken as a whole for
treatment as a QTL or as a domestic building and loan association and (ii) such
branch would not result in (a) formation of a prohibited multi-state multiple
savings and loan holding company or (b) a violation of certain statutory
restrictions on branching by savings institution subsidiaries of banking holding
companies. Federal savings institutions generally may not establish new branches
unless the institution meets or exceeds minimum regulatory capital requirements.
The OTS will also consider the institution's record of compliance with the
Community Reinvestment Act of 1977 in connection with any branch application.

     TRANSACTIONS WITH RELATED PARTIES.  Transactions between savings
associations and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act.  An affiliate of a savings association is any company or
entity which controls, is controlled by or is under common control with the
savings association.  In a holding company context, the parent holding company
of a savings association (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
association.  Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus, and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
nonaffiliate.  The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions.  In addition to the restrictions imposed by Sections 23A and 23B,
no savings association may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings association.  Section 106 of the Bank
Holding Company Act which also applies to the Bank, prohibits the Bank from
extending credit to or offering any other services, or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some additional service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution, subject to
certain exceptions.

     Savings associations are also subject to the restrictions contained in
Section 22(h) and Section 22(g) of the Federal Reserve Act on loans to executive
officers, directors and principal stockholders.  Under Section 22(h), loans to a
director, executive officer or greater than 10% stockholder of a savings
association and certain affiliated interests of the foregoing, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the 

                                       33
<PAGE>
 
association's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus and an additional 10% of such
capital and surplus for loans fully secured by certain readily marketable
collateral) and all loans to such persons may not exceed the institution's
unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans,
above amounts prescribed by the appropriate federal banking agency, to
directors, executive officers and greater than 10% stockholders of a savings
association, and their respective affiliates, unless such loan is approved in
advance by a majority of the board of directors of the association with any
"interested" director not participating in the voting. The Federal Reserve Board
has prescribed the loan amount (which includes all other outstanding loans to
such person), as to which such prior board of director approval is required, as
being the greater of $25,000 or 5% of capital and surplus (up to $500,000).
Further, the Federal Reserve Board pursuant to Section 22(h) requires that loans
to directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(h) also prohibits a depository institution from paying the overdrafts
of any of its executive officers or directors.

     Section 22(g) of the Federal Reserve Act requires that loans to executive
officers of depository institutions not be made on terms more favorable than
those afforded to other borrowers, requires approval for such extensions of
credit by the board of directors of the institution, and imposes reporting
requirements for and additional restrictions on the type, amount and terms of
credits to such officers.  In addition, Section 106 of the Bank Holding Company
Act prohibits extensions of credit to executive officers, directors, and greater
than 10% stockholders of a depository institution by any other institution which
has a correspondent banking relationship with the institution, unless such
extension of credit is on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and does not involve
more than the normal risk of repayment or present other unfavorable features.

     ACTIVITIES RESTRICTIONS.  The Board of Directors of the Corporation
presently intends to operate the Corporation as a unitary savings and loan
holding company.  There are generally no restrictions on the activities of a
unitary savings and loan holding company.  However, if the director of OTS
determines that there is reasonable cause to believe that the continuation by a
savings and loan holding company of an activity constitutes a serious risk to
the financial safety, soundness, or stability of its subsidiary savings
institution, the Director of OTS may impose such restrictions as deemed
necessary to address such risk and limiting (i) payment of dividends by the
savings institution, (ii) transactions between the savings institution and its
affiliates, and (iii) any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution.

     Notwithstanding the above rules as to permissible business activities of
unitary savings and loan holding companies, if the savings institution
subsidiary of such a holding company fails to meet the QTL Test, then within one
year after the institution ceased to be a QTL, such unitary savings and loan
holding company shall register as and be deemed to be a bank holding company and
will become subject to the activities restrictions applicable to bank holding
companies.  See "Regulation -- Qualified Thrift Lender Test."

     If the Company were to acquire control of another savings institution,
other than through merger or other business combination with Elmira Savings &
Loan, the Company would thereupon become a multiple savings and loan holding
company.  Except where such acquisition is pursuant to the authority to approve
emergency acquisitions and where each subsidiary savings institution meets the
QTL Test, the activities of the Company and any of its subsidiaries (other than
Elmira Savings & Loan or other subsidiary savings institutions) would thereafter
be subject to further restrictions.  The Home Owners' Loan Act provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings institution shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity, upon prior notice to, and
no objection by the OTS, other than (i) furnishing or performing management
services for a subsidiary savings institution, (ii) conducting an insurance
agency or escrow business, (iii) holding, managing, or liquidating assets owned
by or acquired from a subsidiary savings institution, or (iv) holding or
managing properties used or occupied by a subsidiary savings institution, (v)
acting as trustee under deeds of trust, (vi) those activities previously
authorized by regulation on March 5, 1987 to be directly engaged in by multiple
savings and loan holding companies; or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the
Director of 

                                       34
<PAGE>
 
OTS by regulation prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above must also be
approved by the Director of OTS prior to being engaged in by a multiple savings
and loan holding company.

     The Director of OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state, if (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987;  (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the laws of the state in which the institution
to be acquired is located specifically permit institutions to be acquired by
state-chartered institutions or savings and loan holding companies located in
the state where the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).

TAXATION

     FEDERAL INCOME TAXATION.  The Corporation and its subsidiaries file a
consolidated federal income tax return based on a fiscal year ending June 30.
Consolidated returns have the effect of eliminating intercompany distributions,
including dividends, from the computation of consolidated taxable income for the
taxable year in which the distributions occur.

     Savings institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code") in the same general manner as other
corporations.  However, institutions such as Elmira Savings & Loan which meet
certain definitional tests and other conditions prescribed by the Code may
benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve.  The amount of
the bad debt reserve deduction is based upon actual loss experience (the
"experience method").

     In years prior to fiscal 1997, the Bank used the percentage of taxable
income method.  Under the percentage of taxable income method, the bad debt
reserve deduction for qualifying real property loans is computed as a
percentage, which Congress has reduced from as much as 60% in prior years to 8%
of taxable income, with certain adjustments, effective for taxable years
beginning after 1986.  The allowable deduction under the percentage of taxable
income method (the "percentage bad debt deduction") for taxable years beginning
before 1987 was scaled downward in the event that less than 82% of the total
dollar amount of the assets of an association qualified within certain
designated categories. When the percentage method bad debt deduction was lowered
to 8%, the 82% qualifying assets requirement was lowered to 60%.  For all
taxable years, there is no deduction in the event that less than 60% of the
total dollar amount of the assets of an association falls within such
categories.

     Effective for the Bank's fiscal year ending June 30, 1997, legislation
repealed the percentage of taxable income method of calculating the bad debt
reserve.  Savings associations, like the Bank, which have previously used that
method are required to recapture into taxable income post-1987 reserves in
excess of the reserves calculated under the experience method over a six-year
period beginning with the first taxable year beginning after December 31, 1995.
The start of such recapture may be delayed until the third taxable year
beginning after December 31, 1995 if the dollar amount of the institution's
residential loan originations in each year is not less than the average dollar
amount of residential loan originated in each of the six most recent years
disregarding the years with the highest and lowest originations during such
period.  For purposes of this test, residential loan originations would not
include refinancings and home equity loans. The Bank has provided deferred taxes
on its post-1987 additions to its bad debt reserves and, as a result, the
recapture provisions will have no effect on the Bank's results of operations.

     For the first taxable year beginning after December 31, 1995, savings
institutions, such as the Bank, are treated the same as commercial banks.
Institutions with $500 million or more in assets are only able to take a tax
deduction when a loan is actually charged off.  Institutions with less than $500
million in assets are still permitted to make deductible bad debt additions to
reserves, but only using the experience method.

                                       35
<PAGE>
 
     Earnings appropriated to an institution's bad debt reserve and claimed as a
tax deduction were not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.

     The Code imposes an alternative minimum tax at a rate of 20%.  The
alternative minimum tax generally applies to a base of regular taxable income
plus certain tax preferences ("alternative minimum taxable income" or "AMTI")
and is payable to the extent such AMTI exceeds an exemption amount.  The Code
provides that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount allowable under the experience method.  The other items of tax
preference that constitute AMTI include (a) tax-exempt interest on newly-issued
private activity bonds other than certain qualified bonds and (b) 75% of the
excess (if any) of (i) adjusted current earnings as defined in the Code, over
(ii) AMTI (determined without regard to this preference and prior to reduction
by net operating losses).  Net operating losses can offset no more than 90% of
AMTI. Certain payments of alternative minimum taxes may be used as credits
against regular tax liabilities in future years.

     The Bank's federal income tax returns were last audited in 1975.

     The Bank is subject to the New York State franchise tax on banking
corporations.  The New York State tax on banking corporations is imposed in an
annual amount of the greater (i) 9% of the Bank's "Entire Net Income" allocable
to New York State during the taxable year, or (ii) the applicable alternative
minimum tax.  In addition, the Corporation is subject to a 2.5% surtax on the
greater of (i) or (ii).   The applicable alternative minimum tax is generally
the greater of (i) a percentage (0.01%, 0.004% or 0.002%, depending upon the
nature and mix of the Bank's assets and on the ratio of its net worth to the
value of its assets) of the value of the Bank's assets allocable to New York
State with certain modifications, (ii) 3 1/2% of the Bank's "Alternative Entire
Net Income" allocable to New York State or (iii) $325.00.

     For purposes of the New York State tax on banking corporations, "Entire Net
Income" is similar to federal taxable income, subject to certain modifications
(including the fact that net operating losses cannot be carried back or carried
forward), and "Alternative Entire Net Income" is similar to "Entire Net Income,"
subject to certain further modifications.

     The Bank and its subsidiaries file separate New York State franchise tax
returns.  The Bank's state tax returns were last audited in February 1994.

ITEM 2.  PROPERTIES
-------------------

     The Bank opened its office at 300 West Water Street in Elmira in 1955.
During the 1995 fiscal year, the Bank completed an expansion and complete
renovation of the office facility.  As a result, an additional 7,600 square feet
was added, bringing the total size of the facility to 13,500 square feet.  At
June 30, 1997, the Bank's total investment in this property was $2.9 million and
the net book value was $2.6 million.  The Bank's Ithaca office, which houses its
mortgage banking subsidiary and "cashless" deposit office, totaled approximately
1,000 square feet and had a net book value of furniture, fixtures and equipment
(including leasehold improvements) of approximately $53,400 at June 30, 1997.

     At June 30, 1997, the net book value of the Bank's furniture, fixtures and
equipment (including leasehold improvements) was approximately $350,000.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     Although the Bank is, from time to time, involved in various legal
proceedings in the normal course of business, there are no material pending
legal proceedings to which the Corporation, the Bank or its subsidiary is a
party, or to which any of their property is subject.

                                       36
<PAGE>
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1997.


                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
--------------------------------------------------------------------------
MATTERS
-------

     The information contained under the section "Market Price and Dividend
Information"  in the Annual Report is incorporated herein by reference.

     Since the Corporation has no significant source of income other than
dividends from the Bank, the payment of dividends by the Corporation is
dependent upon receipt of dividends from the Bank.  Payment of cash dividends by
the Bank is limited by certain federal regulations under which the Bank may not
declare or pay a cash dividend on or repurchase any of its common stock if the
effect thereof would cause its regulatory capital to be reduced below (1) the
amount required for the liquidation account established in connection with the
Bank's conversion to stock form or (2) the regulatory capital requirements
imposed by the OTS.  In certain circumstances earnings appropriated to bad debt
reserves and deducted for federal income tax purposes may not be available to
pay cash dividends without the payment of federal income taxes by the Bank on
the amount of such earnings removed from the reserves for such purposes at the
then current income tax rate.

     Federal regulations impose certain additional limitations on the payment of
dividends and other capital distributions (including stock repurchases and cash
mergers) by Elmira Savings & Loan.  Under such regulations, a savings
association that, immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully phased-in
capital requirements (a "Tier 1 Association") is generally permitted, after
notice, to make capital distributions during a calendar year in the amount equal
to the greater of (i) 75% of its net income for the previous four quarters; or
(ii) 100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its total capital to assets ratio
exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year.  A savings association with total capital in
excess of the fully phased-in current minimum capital requirements but not in
excess of the fully phased-in requirements (a "Tier 2 Association") is
permitted, after notice, to make capital distributions without OTS approval of
between 25% and 75% of its net income for the previous four quarters, less
dividends already paid for such period depending on the savings association's
level of risk-based capital.] A savings association that fails to meet current
minimum capital requirements (a "Tier 3 Association") is prohibited from making
any capital distributions without the prior approval of the OTS.  Tier 1
Associations that have been notified by the OTS that they are in need of more
than normal supervision will be treated as either a Tier 2 or Tier 3
Association. At June 30, 1997, the Bank was a Tier 1 Association.

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

     The information contained in the table captioned "Selected Consolidated
Financial Data" in the Annual Report is incorporated herein by reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------

     The information contained in the section captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

                                       37
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

     The financial statements contained in the Annual Report which are listed
under Item 14 herein are incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

     None.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

     The information contained under the section captioned "Proposal I --
Election of Directors" and "Beneficial Ownership Reports" in the Corporation's
definitive proxy statement for the Corporation's 1997 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.

     For certain information regarding the executive officers of the
Corporation, see "Item 1.  Business --Executive Officers."

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT
-------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          The information required by this item is incorporated herein by
          reference to the section captioned "Voting Securities and Principal
          Holders Thereof" of the Proxy Statement.

     (b)  Security Ownership of Management

          Information required by this item is incorporated herein by reference
          to the sections captioned "Proposal I -- Election of Directors" and
          "Voting Securities and Principal Holders Thereof" of the Proxy
          Statement.

     (c)  Changes in Control

          Management of the Corporation knows of no arrangements, including any
          pledge by any person of securities of the Corporation, the operation
          of which may at a subsequent date result in a change of control of the
          registrant.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors" of the Proxy
Statement.

                                       38
<PAGE>
 
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

     (a)(1)  The Consolidated Financial Statements and Independent Auditors'
Report included in the Annual Report, listed below, are incorporated herein by
reference.

     1.   Report of Independent Certified Public Accountants
     2.   Consolidated  Balance Sheets as of June 30, 1997 and 1996
     3.   Consolidated Statements of Income for the Years Ended June 30, 1997,
          1996 and 1995
     4.   Consolidated Statements of Changes in Shareholders' Equity for the
          Years Ended June 30, 1997, 1996 and 1995
     5.   Consolidated Statements of Cash Flows for the Years Ended June 30,
          1997, 1996 and 1995
     6.   Notes to Consolidated Financial Statements

     (a)(2)  All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated Financial
Statements.

     (a)(3)  The following exhibits are either filed or attached as part of this
report or are incorporated herein by reference.

     Exhibit No. 3(i)    Certificate of Incorporation of ES&L Bancorp, Inc. *
     Exhibit No. 3(ii)   Bylaws of ES&L Bancorp, Inc. * 
     Exhibit No. 10(i)   Employment Agreements between the Bank and William A.
                         McKenzie and J. Michael Ervin, as amended ** 
     Exhibit No. 10(ii)  Stock Option Plan *
     Exhibit No. 13      1997 Annual Report to Stockholders

     The 1997 Annual Report to Stockholders is included as an exhibit to this
Report.  Except for those portions of the 1997 Annual Report to Stockholders
which have been expressly incorporated by reference into this Annual Report Form
10-K, such Annual Report to Stockholders is furnished solely for the information
of the Securities and Exchange Commission and is not to be deemed "filed" as
part of this Form 10-K.

     Exhibit No. 21  Subsidiaries of the Registrant

     Exhibit No. 23  Consent of Independent Accountants

     Exhibit No. 27  Financial Data Schedule

     (b)  A Current Report on Form 8-K was filed during the last quarter of the
fiscal year covered by this report to report the Corporation's adoption of a
shareholder rights plan.

     (c)  Exhibits to this Form 10-K are attached or incorporated by reference
as stated above.

     (d)  None.


/*/  Incorporated by reference to registrant's Form S-1 Registration Statement
     (File No. 33-33998) declared effective by the Securities and Exchange
     Commission on July 13, 1990.

/**/ Incorporated by reference to the Registrant's Annual Report on Form 10-K
     for the fiscal year ended June 30, 1990.

                                       39
<PAGE>
 
                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                 ES&L BANCORP, INC.



Date:  September 18, 1997        By: /s/ William A. McKenzie
                                    -------------------------------
                                     William A. McKenzie
                                     President and Chief Executive
                                     Officer
                                     (Duly Authorized Representative)


   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


By:/s/ William A. McKenzie                     Date:  September 18, 1997
   ----------------------------
   William A. McKenzie
   Principal Executive Officer and
   Director


By:/s/ J. Michael Ervin                        Date:  September 18, 1997 
   ------------------------------------                                  
   J. Michael Ervin                                                      
   Principal Financial and Accounting                                    
   Officer                                                               
                                                                         
                                                                         
By:/s/ Robert E. Butler                        Date:  September 18, 1997 
   ------------------------------------                                  
   Robert E. Butler                                                      
   Director                                                              
                                                                         
                                                                         
By:/s/ John F. Cadwallader                     Date:  September 18, 1997 
   ------------------------------------                                  
   John F. Cadwallader                                                   
   Director                                                              
                                                                         
                                                                         
By:/s/ L. Edward Considine                     Date:  September 18, 1997 
   ------------------------------------                                  
   L. Edward Considine                                                   
   Director                                                              
                                                                         
                                                                         
By:/s/ Dr. Adrian P. Hulsebosch                Date:  September 18, 1997  
   ------------------------------------
   Dr. Adrian P. Hulsebosch
   Director
<PAGE>
 
By:/s/ Jack H. Mikkelsen                       Date:  September 18, 1997 
   ------------------------------------
   Jack H. Mikkelsen
   Director


By:/s/ Frederick J. Molter                     Date: September 18, 1997 
   ------------------------------------
   Frederick J. Molter
   Director


By:/s/ Paul Morss                              Date: September 18, 1997 
   ------------------------------------
   Paul Morss
   Director


By:/s/ Gerald F. Schichtel                     Date: September 18, 1997 
   ------------------------------------
   Gerald F. Schichtel
   Director