SOURCE: ESSA Bancorp

ESSA Bancorp

October 23, 2013 16:30 ET

ESSA Bancorp, Inc. Announces Fiscal Fourth Quarter Earnings Results and Record Net Income for 2013

STROUDSBURG, PA--(Marketwired - Oct 23, 2013) - ESSA Bancorp, Inc. (NASDAQ: ESSA), the holding Company for ESSA Bank & Trust, a $1.4 billion asset institution providing full service retail and commercial banking, financial and investment services, today announced its operating results for the fiscal three months and year ended September 30, 2013. The record results for the year ended September 30, 2013, reflect the effects of ESSA's acquisition of First Star Bancorp on July 31, 2012.

The Company reported net income of $2.0 million, or $0.19 per diluted share, for the three months ended September 30, 2013, compared with a net loss of $2.1 million, or $(0.18) per diluted share, for the Company's fourth fiscal quarter 2012. The Company's return on average assets (ROAA) and return on average equity (ROAE), respectively, were 0.59% and 4.95%, compared with (0.64)% and (4.90)%, in the corresponding period of fiscal 2012.

For the twelve months ended September 30, 2013, the Company reported record net income of $8.8 million, or $0.76 per diluted share, compared with net income of $215,000, or $0.02 per diluted share, for the corresponding 2012 period. The Company's ROAA, and ROAE, respectively, were 0.64% and 5.12% for the 2013 period, compared with 0.02% and 0.13%, in the corresponding period of 2012.

Gary S. Olson, President and CEO, commented: "Fiscal 2013 was a momentous period in ESSA's history. We concluded our first full year of operations following ESSA's acquisition of First Star Bancorp in the Lehigh Valley, Pennsylvania. ESSA has transformed into a commercial-focused banking organization with the capital resources, scale, talent, and visibility necessary to build substantial value for shareholders over time. Our expansion into the Lehigh Valley was prudent, as Lehigh County continues to demonstrate growth on several fronts and offers a one hour commute to Philadelphia and less than two hours to New York City. We believe this market has very attractive long-term demographic characteristics given its proximity to these two major metropolitan markets, and its healthy and diverse economy."

"Our top and bottom line performance improved markedly, this year over last year. We expect the dilution to tangible book value payback period to be approximately eighteen months for the First Star acquisition, an accomplishment we are particularly proud of, and one that reflects the sound nature of our strategic growth plan."

"We continue to believe our stock is undervalued and have taken action that reflects this belief. In conjunction with our ongoing stock repurchase program, ESSA repurchased 1.26 million shares of ESSA common stock at a weighted average purchase price of $11.07 during the twelve months ended September 30, 2013."

Income Statement

Net interest income increased $540,000, or 6.10%, to $9.4 million for the three months ended September 30, 2013, from $8.9 million for the comparable period in 2012. The change primarily reflected an increase in the Company's interest rate spread to 2.83% for the three months ended September 30, 2013, from 2.62% for the comparable period in 2012, partially offset by a decrease in the Company's average net earning assets of $11.6 million. Net interest margin was 2.92% for the three months ended September 30, 2013 compared to a net interest margin of 2.80% for the comparable period in 2012.

"ESSA's decision to significantly reduce its reliance on Federal Home Loan Bank borrowings contributed to a significant reduction in total funding cost and net interest margin improvement," Olson explained. "Gaining access to the Lehigh Valley deposit market through our acquisition of First Star has provided ESSA with a more robust platform for attracting core deposits. As an example of our improving mix of deposits, commercial checking deposits grew $14.0 million to $49.0 million at September 30, 2013 from the prior year period."

Total cost of funds on all interest bearing liabilities for the 12 months ended September 30, 2013 was 0.99% compared to 1.71% for the same period in 2012.

Net interest income for fiscal 2013 was $39.8 million compared with $29.1 million for fiscal 2012. Net interest income in both periods reflected the Company's larger asset base, and also reduced interest expense driven by interest expense management, and the above referenced reduction in borrowings.

Interest income for the three months ended September 30, 2013 included approximately $82,000 of net accretion of fair market value adjustments for credit and yield applied to First Star loans at the acquisition closing date of July 31, 2012. In addition, interest income for the quarter included approximately $184,000 of the recapture of fair value adjustments to loans acquired as part of the First Star acquisition that were either fully or partially repaid during the quarter.

Interest income for the twelve months ended September 30, 2013 included approximately $1.4 million of net accretion of fair market value adjustments for credit and yield applied to First Star loans at the acquisition closing date of July 31, 2012. In addition, interest income for the twelve months included approximately $1.6 million of the recapture of fair value adjustments to loans acquired as part of the First Star acquisition that were either fully or partially repaid during the twelve months ended September 30, 2013.

The Company's provision for loan losses was $800,000 for the three months ended September 30, 2013 and the comparable period in 2012. The provision for loan losses increased to $3.8 million for the twelve months ended September 30, 2013, compared with $2.6 million for the twelve months ended September 30, 2012. Net loan charge-offs for the three months ended September 30, 2013 were $920,000 compared to $598,000 for the comparable period in 2012. Net loan charge-offs for the twelve months ended September 30, 2013 were $3.0 million compared to $3.4 million in fiscal 2012.

Noninterest income decreased 16.9% to $1.7 million for the three months ended September 30, 2013, compared with the three months ended September 30, 2012, primarily reflecting decreases in the gains on sale of investments and gains on sale of loans of $196,000 and $255,000, respectively. Noninterest income increased 19.1% to $8.0 million for the twelve months ended September 30, 2013 from $6.7 million for the comparable period in 2012. The primary reasons for the growth were increases in service fees on deposit accounts of $262,000, services charges and fees on loans of $280,000, gain on sale of investments of $406,000 and gain on sale of loans of $144,000.

"Given the uncertain interest rate environment, ESSA remains cautious with respect to its mortgage origination business," noted Olson. "Earlier in 2013 the Company made a strategic decision to retain all originated mortgages and will continue to closely monitor interest rates in order to make prudent risk decisions related to this business line."

Noninterest expense was $8.0 million for the three months ended September 30, 2013 compared with $12.9 million for the comparable period in 2012, reflecting decreases in prepayment penalties on borrowings of $4.6 million and merger related costs of $835,000.

For the twelve months ended September 30, 2013, noninterest expense was $32.5 million compared with $33.0 million for the comparable period in 2012, primarily reflecting decreases in prepayment penalties on borrowings of $4.6 million, merger related costs of $1.4 million and loss/(gain) on foreclosed real estate of $580,000. These decreases were partially offset by increases in compensation and employee benefits of $2.7 million, data processing fees of $849,000, occupancy and equipment of $717,000, professional fees of $500,000 and amortization of intangible assets of $554,000.

Balance Sheet, Asset Quality and Capital Adequacy

Total assets decreased $46.5 million, or 3.28%, to $1.37 billion at September 30, 2013, compared to $1.42 billion at September 30, 2012, although up significantly compared with pre-merger total assets. Increases in cash and cash equivalents of $11.1 million, compared with September 30, 2012, were offset by decreases in total investment securities of $14.0 million, loans receivable of $21.8 million, regulatory stock of $12.5 million and other assets of $8.3 million.

Total deposits increased $45.4 million, or 4.56%, to $1.0 billion at September 30, 2013, from $995.6 million at September 30, 2012. Total deposits were up significantly compared with pre-acquisition totals. Borrowings decreased $82.5 million to $152.3 million from $234.7 million during the same period in 2012.

Olson noted that, as a result of the Company's focus on commercial banking, ESSA expects to become less reliant on consumer and mortgage lending as drivers of financial performance. He added that, this steady and strategic transition is reflected in modest year-over-year declines in mortgage and consumer loan balances, and increases in business-oriented customer deposits.

Nonperforming assets totaled $26.0 million, or 1.90%, of total assets at September 30, 2013, compared with $27.2 million, or 1.92%, of total assets at September 30, 2012. The decrease in nonperforming assets of $1.2 million at September 30, 2013 compared to September 30, 2012 was due primarily to a decline in foreclosed real estate of $887,000 and commercial loans of $784,000 offset, in part, by an increase in non-performing residential mortgage loans of $409,000. Nonperforming assets totaled $27.0 million, or 1.96% of assets at June 30, 2013.

Olson commented, "While we continue efforts to improve asset quality, we are pleased by the stability of our asset quality. Nonaccrual and delinquency trends are positive and we expect continued economic improvements will lead to further reductions in our nonperforming assets, and the costs associated with managing these assets."

The Company recorded a provision for loan losses of $800,000 and $3.8 million for the three and twelve month periods ended September 30, 2013, respectively, compared with provisions of $800,000 and $2.6 million for the comparable three and twelve month periods in 2012. The allowance for loan losses was $8.1 million, or 0.86%, of loans outstanding at September 30, 2013, compared to $7.3 million, or 0.76%, of loans outstanding at September 30, 2012.

The Bank continued to demonstrate financial strength, with a tier 1 leverage ratio of 11.20%, exceeding accepted regulatory standards for a well-capitalized institution. The Company also maintains a tangible equity to total assets ratio of 11.13%.

Stockholders' equity decreased $9.0 million, or 5.1%, to $166.4 million at September 30, 2013, from $175.4 million at September 30, 2012. The decrease was due primarily to stock repurchases and a decrease in other comprehensive income. For the twelve months ended September 30, 2013, the Company repurchased 1,263,765 shares at an average cost of $11.07 per share. Accumulated other comprehensive income declined due primarily to a decrease in unrealized gain on available for sale securities of $6.1 million to $70,000 at September 30, 2013 from $6.2 million at September 30, 2012 due primarily to an increase in longer term rates during the quarter.

Olson concluded: "As previously announced during the quarter, ESSA is acquiring the loans and deposits of two bank branches, along with one branch facility from First National Community Bancorp, Inc. The facility we are acquiring is in Monroe County, Pennsylvania, where ESSA already possesses dominant deposit market share. We will be consolidating several locations and expect cost savings and improved operational efficiencies as a result of this transaction. We feel our disciplined approach to growth and prudent decision making is building shareholder value."

ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.3 billion and is the leading service-oriented financial institution headquartered in Stroudsburg, Pennsylvania. The Bank maintains its corporate headquarters in downtown Stroudsburg, Pennsylvania and has 26 community offices throughout the Greater Pocono and Lehigh Valley areas in Pennsylvania. In addition to being one of the region's largest mortgage lenders, ESSA Bank & Trust offers a full range of retail, commercial financial services, and financial advisory and asset management capabilities. ESSA Bancorp, Inc. stock trades on The NASDAQ Global Market(SM) under the symbol "ESSA."

Forward-Looking Statements

Certain statements contained herein are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including compliance costs and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

FINANCIAL TABLES FOLLOW

   
   
ESSA BANCORP, INC. AND SUBSIDIARY  
CONSOLIDATED BALANCE SHEET  
(UNAUDITED)  
   
    September 30,
2013
    September 30,
2012
 
    (dollars in thousands)  
ASSETS                
  Cash and due from banks   $ 22,393     $ 11,034  
  Interest-bearing deposits with other institutions     4,255       4,516  
                   
    Total cash and cash equivalents     26,648       15,550  
  Certificates of deposit     1,767       1,266  
  Investment securities available for sale     315,622       329,585  
  Loans receivable (net of allowance for loan losses of $8,064 and $7,302)     928,230       950,009  
  Loans receivable (held for sale)     -       346  
  Regulatory stock, at cost     9,415       21,914  
  Premises and equipment, net     15,747       16,170  
  Bank-owned life insurance     28,797       27,848  
  Foreclosed real estate     2,111       2,998  
  Intangible assets, net     2,466       3,457  
  Goodwill     8,817       8,541  
  Deferred income taxes     11,183       11,336  
  Other assets     21,512       29,766  
                   
    TOTAL ASSETS   $ 1,372,315     $ 1,418,786  
                 
                 
LIABILITIES                
  Deposits   $ 1,041,059     $ 995,634  
  Short-term borrowings     23,000       43,281  
  Other borrowings     129,260       191,460  
  Advances by borrowers for taxes and insurance     4,962       3,432  
  Other liabilities     7,588       9,568  
                   
    TOTAL LIABILITIES     1,205,869       1,243,375  
                 
                 
STOCKHOLDERS' EQUITY                
  Common stock     181       181  
  Additional paid in capital     182,440       181,220  
  Unallocated common stock held by the Employee Stock Ownership Plan     (10,532 )     (10,985 )
  Retained earnings     71,709       65,181  
  Treasury stock, at cost     (76,117 )     (61,944 )
  Accumulated other comprehensive (loss) income     (1,235 )     1,758  
                   
    TOTAL STOCKHOLDERS' EQUITY     166,446       175,411  
                   
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,372,315     $ 1,418,786  
                 
                 
                 
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
 
    For the Three Months
Ended September 30
    For the Year
Ended September 30
    2013   2012     2013   2012
    (dollars in thousands)
INTEREST INCOME                          
  Loans receivable   $ 10,434   $ 11,018     $ 44,744   $ 38,384
  Investment securities:                          
    Taxable     1,400     1,681       5,958     6,583
    Exempt from federal income tax     72     51       272     209
  Other investment income     65     11       128     24
      Total interest income     11,971     12,761       51,102     45,200
                           
                           
INTEREST EXPENSE                          
  Deposits     1,832     1,959       7,408     7,486
  Short-term borrowings     20     14       129     32
  Other borrowings     726     1,935       3,720     8,614
      Total interest expense     2,578     3,908       11,257     16,132
                           
                           
NET INTEREST INCOME     9,393     8,853       39,845     29,068
  Provision for loan losses     800     800       3,750     2,550
                           
                           
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     8,593     8,053       36,095     26,518
                           
NONINTEREST INCOME                          
  Service fees on deposit accounts     818     813       3,133     2,871
  Services charges and fees on loans     253     197       1,027     747
  Trust and investment fees     212     221       853     905
  Gain on sale of investments, net     -     196       749     343
  Gain on sale of loans, net     -     255       426     282
  Earnings on Bank-owned life insurance     239     218       948     806
  Insurance commissions     200     185       838     748
  Other     18     8       50     33
      Total noninterest income     1,740     2,093       8,024     6,735
                           
NONINTEREST EXPENSE                          
  Compensation and employee benefits     4,688     4,480       19,002     16,284
  Occupancy and equipment     960     890       3,895     3,178
  Professional fees     415     285       1,868     1,368
  Data processing     752     546       2,907     2,058
  Advertising     149     152       574     415
  Federal Deposit Insurance Corporation (FDIC) Premiums     208     286       947     783
  Loss (Gain) on foreclosed real estate     30     22       (468 )   112
  Merger related costs     -     835       -     1,379
  Prepayment penalties on borrowings     -     4,644       -     4,644
  Amortization of intangible assets     241     193       990     436
  Other     570     610       2,747     2,348
                             
      Total noninterest expense     8,013     12,943       32,462     33,005
                           
Income before income taxes     2,320     (2,797 )     11,657     248
Income taxes     292     (673 )     2,834     33
                           
                           
Net Income   $ 2,028   $ (2,124 )   $ 8,823   $ 215
                           
Earnings per share:                          
  Basic   $ 0.19   $ (0.18 )   $ 0.76   $ 0.02
  Diluted   $ 0.19   $ (0.18 )   $ 0.76   $ 0.02
                           
   
   
    For the Three Months
Ended September 30,
    For the Year
Ended September 30,
 
    2013     2012     2013     2012  
    (dollars in thousands)     (dollars in thousands)  
CONSOLIDATED AVERAGE BALANCES:                                
    Total assets   $ 1,370,568     $ 1,337,843     $ 1,386,810     $ 1,157,976  
    Total interest-earning assets     1,274,450       1,255,908       1,292,462       1,096,417  
    Total interest-bearing liabilities     1,125,696       1,095,511       1,138,780       940,706  
    Total stockholders' equity     164,009       173,511       172,286       165,588  
                                 
PER COMMON SHARE DATA:                                
    Average shares outstanding - basic     10,954,982       11,632,918       11,559,553       11,050,683  
    Average shares outstanding - diluted     10,954,982       11,632,918       11,559,553       11,050,683  
    Book value shares     11,945,564       13,229,908       11,945,564       13,229,908  
                                 
Net interest rate spread     2.83 %     2.62 %     2.97 %     2.42 %
Net interest margin     2.92 %     2.80 %     3.08 %     2.65 %