STROUDSBURG, PA--(Marketwire - Oct 24, 2012) - ESSA Bancorp, Inc. (
For the year ended September 30, 2012, the Company reported net income of $215,000, or $0.02 per diluted share compared with net income of $5.3 million, or $0.46 per diluted share for fiscal 2011. Quarterly and year-end 2012 earnings results partially reflect merger-related expenses in addition to costs associated with the prepayment of Federal Home Loan Bank (FHLB) borrowings.
The Company closed its acquisition of First Star Bancorp, Inc., the parent company of First Star Bank, on July 31, 2012. Merger-related expenses for the three and twelve months periods ended September 30, 2012 were $835,000 and $1.4 million, respectively. Additionally, on September 26, 2012, the Company reported the prepayment of $37.0 million of longer term borrowings that had a weighted average cost of 4.22% and a weighted average remaining maturity of 45 months. The balance sheet restructuring was executed in response to what the Company views as an extended period of low and/or declining interest rates as a result of the Federal Reserve Bank's QE3 strategy announced in September 2012. The restructuring is anticipated to save the Company approximately $5.8 million in interest expense, at current interest rates, over the next six fiscal years. The Company realized a prepayment cost, related to the restructuring, of $4.6 million before tax, during the three months ended September 30, 2012.
Gary S. Olson, President and CEO, stated: "The acquisition and subsequent integration of First Star continues to proceed smoothly. The transaction has met or exceeded our expectations operationally and financially.
"When we first announced this transaction in December 2011, we estimated the cost of the acquisition to be $24.2 million. The actual cost was $24.6 million, which was within the range of our plan. We estimated tangible capital to tangible assets of 10.74%. Actual tangible capital to tangible assets at closing was 10.83%, which was also in line with expectations. We estimated converted tangible book dilution of 9.5%. Actual dilution was closer to 7.0%, which exceeded our expectations.
"Our goal has been to establish a stronger, larger and unified entity fully capable of taking advantage of customer growth opportunities in our Monroe County, Pennsylvania market and our greatly expanded presence in the Lehigh Valley.
"We have been extremely pleased with the integration of the First Star locations and operations. We immediately upgraded branch facilities internally and externally with new ESSA technology, new ESSA signage, and ESSA marketing materials to enhance our visibility and create a more welcoming environment for customers and employees."
"To facilitate the integration process, we deployed seasoned ESSA managers to each First Star location to facilitate the operational and cultural integration process, answer customers' questions and work with our new employees. We also installed ESSA core processing technology in each branch, provided additional support to key staff, including the small business lending team, and added ESSA capabilities such as wealth management and trust, securities brokerage, and employee benefits insurance."
Olson said the Bank has experienced high levels of First Star customer retention in all consumer and commercial segments, "in part because we already had a presence in the Lehigh Valley, customers were familiar with our name and reputation and many customers have expressed their commitment to ESSA Bank & Trust," he explained.
"Following the close of the acquisition in late July, we implemented planned strategies to take advantage of the full financial synergies and opportunities to reduce First Star expenses. We sold some investment securities, prepaid all of its FHLB debt and retired very high interest junior subordinated debt that we expect will generate meaningful savings for the combined company going forward. We also believe ESSA can generate improving return on assets and return on equity from a larger, more productive organization."
Olson noted the Company assumed some non-performing assets from First Star that resulted in an increase in the non-performing asset ratio. The Company's ratio of non-performing assets to total assets was 1.93% at September 30, 2012 compared to 1.64% at June 30, 2012. The ratio of loan loss reserve to total loans was 0.76% at September 30, 2012.
"We believe our actions, the acquisition of First Star and the prepayment of longer term borrowings have positioned us to move into our new fiscal year with a strong balance sheet, lower expenses, and the opportunity to grow and effectively flow a greater portion of revenue to the bottom line."
Net Interest Income:
Net interest income increased $1.8 million, or 25.3%, to $8.9 million for the three months ended September 30, 2012, from $7.1 million for the comparable period in 2011. The increase was primarily attributable to an increase in the Company's interest rate spread to 2.62% for the three months ended September 30, 2012, from 2.37% for the comparable period in 2011 and an increase in the Company's average net earning assets of $8.2 million.
Net interest income increased $172,000, or 0.6%, to $29.1 million for the year ended September 30, 2012, from $28.9 million for the comparable period in 2011. The Company's average net earnings assets decreased $2.4 million for the twelve months ended September 30, 2012 compared to the same period in 2011. The Company's interest rate spread was 2.42% at September 30, 2012 compared to 2.47% at September 30, 2011.
Provision for Loan Losses:
The provision for loan losses increased $350,000, or 77.8%, to $800,000 for the three months ended September 30, 2012, from $450,000 for the comparable period in 2011. The provision for loan losses increased $495,000, or 24.1%, to $2.6 million for the year ended September 30, 2012 from $2.1 million for the comparable period in 2011.
The allowance for loan losses was $7.3 million or 0.76% of loans outstanding at September 30, 2012, compared to $8.2 million, or 1.11% of loans outstanding at September 30, 2011. The primary reason for the decline in the loan loss allowance as a percentage of loans was the addition of loans acquired as a result of the First Star merger. These loans were adjusted to fair value at closing and did not require additional reserves at September 30, 2012, however, they were included as outstanding loans when calculating this ratio.
In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. The provision for loan losses was in response to this evaluation.
Noninterest Income:
Noninterest income decreased $115,000, or 5.2%, to $2.1 million for the three months ended September 30, 2012 compared to the comparable period in 2011. The primary reason for the decline was a decrease in gain on sale of investments, net of $411,000 which was offset in part by an increase in gain on sale of loans of $255,000.
Noninterest income increased $410,000, or 6.5%, to $6.7 million for the year ended September 30, 2012, from $6.3 million for the comparable period in 2011. The primary reasons for the increase were increases in insurance commissions of $387,000, gain on sale of loans of $279,000 and bank-owned life insurance of $168,000. The Company acquired its insurance subsidiary during the third quarter of 2011. These increases were offset, in part, by decreases in gain on sale of investments, net of $435,000 and service fees on deposit accounts of $148,000. The primary reason for the decrease in service fees on deposit accounts was a decrease in overdraft fees of $245,000.
Noninterest Expense:
Noninterest expense increased $6.6 million, or 102.7%, to $12.9 million for the three months ended September 30, 2012, from $6.4 million for the comparable period in 2011. The primary reasons for the increase were increases in prepayment penalties on borrowings of $4.6 million and merger related costs of $835,000 for the three months ended September 30, 2012 as compared to the comparable period in 2011.
Noninterest expense increased $7.0 million, or 26.7%, to $33.0 million for the year ended September 30, 2012, from $26.0 million for the comparable period in 2011. The primary reasons for the increase were increases in prepayment penalties on borrowings of $4.6 million and merger related costs of $1.4 million for the year ended September 30, 2012 as compared to the comparable period in 2011.
Balance Sheet:
Total assets increased $321.3 million, or 29.3%, to $1,418.8 million at September 30, 2012, compared to $1,097.5 million at September 30, 2011. The primary reason for the increase in assets was the Company's merger with First Star Bank which was completed on July 31, 2012.
Investment securities increased $84.2 million, or 34.3%, to $329.6 million and loans receivable increased $211.7 million, or 28.7% to $950.4 million at September 30, 2012 compared to $245.4 million and $738.6 million, respectively, at September 30, 2011. The primary reason for the increases was the merger with First Star.
Total deposits increased $357.7 million, or 56.1%, to $995.6 million at September 30, 2012, from $637.9 million at September 30, 2011. The primary reason for the increase was the previously mentioned merger with First Star Bank.
Stockholders' equity increased $13.7 million, or 8.5%, to $175.4 million at September 30, 2012, from $161.7 million at September 30, 2011, primarily as a result of the First Star merger.
Asset Quality:
Nonperforming assets totaled $27.4 million, or 1.93%, of total assets at September 30, 2012, compared to $13.9 million, or 1.26%, of total assets at September 30, 2011 and $18.2 million, or 1.64% of total assets at June 30, 2012. The increase in nonperforming assets of $9.2 million at September 30, 2012 compared to June 30, 2012 is due primarily to additional nonperforming assets acquired as a result of the Company's acquisition of First Star. At September 30, 2012, these newly acquired nonperforming loans amounted to $8.9 million, including $8.3 million in commercial loans, $524,000 in residential loans and $84,000 in consumer loans. The balances of these acquired nonperforming loans are net of estimated markdowns to fair market value that were recorded at the merger closing. The Company made a provision for loan losses of $800,000 for the three months ended September 30, 2012, compared to a provision of $450,000 for the comparable three-month period in 2011. The allowance for loan losses was $7.3 million, or 0.76%, of loans outstanding at September 30, 2012, compared to $8.2 million, or 1.11%, of loans outstanding at September 30, 2011.
ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.4 billion and is the leading service-oriented financial institution headquartered in the Greater Pocono, Pennsylvania region. 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 MarketSM 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 regulatory fees 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, which 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, | ||||||||||
| 2012 | 2011 | |||||||||
| (dollars in thousands) | ||||||||||
| ASSETS | ||||||||||
| Cash and due from banks | $ | 11,034 | $ | 9,801 | ||||||
| Interest-bearing deposits with other institutions | 4,516 | 31,893 | ||||||||
| Total cash and cash equivalents | 15,550 | 41,694 | ||||||||
| Certificates of deposit | 1,266 | - | ||||||||
| Investment securities available for sale | 329,585 | 245,393 | ||||||||
| Loans receivable (net of allowance for loan losses of $7,302 and $8,170) | 950,355 | 738,619 | ||||||||
| Regulatory stock | 21,914 | 16,882 | ||||||||
| Premises and equipment | 16,170 | 11,494 | ||||||||
| Bank-owned life insurance | 27,848 | 23,256 | ||||||||
| Foreclosed real estate | 2,998 | 2,356 | ||||||||
| Intangible assets, net | 3,457 | 1,825 | ||||||||
| Goodwill | 8,541 | 40 | ||||||||
| Other assets | 41,102 | 15,921 | ||||||||
| TOTAL ASSETS | $ | 1,418,786 | $ | 1,097,480 | ||||||
| LIABILITIES | ||||||||||
| Deposits | $ | 995,634 | $ | 637,924 | ||||||
| Short-term borrowings | 43,281 | 4,000 | ||||||||
| Other borrowings | 191,460 | 284,410 | ||||||||
| Advances by borrowers for taxes and insurance | 3,432 | 1,381 | ||||||||
| Other liabilities | 9,568 | 8,086 | ||||||||
| TOTAL LIABILITIES | 1,243,375 | 935,801 | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||||
| Preferred stock | - | - | ||||||||
| Common stock | 181 | 170 | ||||||||
| Additional paid in capital | 181,220 | 166,758 | ||||||||
| Unallocated common stock held by the Employee Stock Ownership Plan | (10,985 | ) | (11,438 | ) | ||||||
| Retained earnings | 65,181 | 67,215 | ||||||||
| Treasury stock, at cost | (61,944 | ) | (61,612 | ) | ||||||
| Accumulated other comprehensive income | 1,758 | 586 | ||||||||
| TOTAL STOCKHOLDERS' EQUITY | 175,411 | 161,679 | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,418,786 | $ | 1,097,480 | ||||||
| ESSA BANCORP, INC. AND SUBSIDIARY | ||||||||||||||||
| CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| For the Three Months Ended September 30 |
For the Year Ended September 30 |
|||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| INTEREST INCOME | ||||||||||||||||
| Loans receivable | $ | 11,018 | $ | 9,627 | $ | 38,384 | $ | 38,949 | ||||||||
| Investment securities: | ||||||||||||||||
| Taxable | 1,681 | 1,934 | 6,583 | 7,964 | ||||||||||||
| Exempt from federal income tax | 51 | 39 | 209 | 258 | ||||||||||||
| Other investment income | 11 | 3 | 24 | 5 | ||||||||||||
| Total interest income | 12,761 | 11,603 | 45,200 | 47,176 | ||||||||||||
| INTEREST EXPENSE | ||||||||||||||||
| Deposits | 1,959 | 2,063 | 7,486 | 7,486 | ||||||||||||
| Short-term borrowings | 14 | - | 32 | 46 | ||||||||||||
| Other borrowings | 1,935 | 2,476 | 8,614 | 10,748 | ||||||||||||
| Total interest expense | 3,908 | 4,539 | 16,132 | 18,280 | ||||||||||||
| NET INTEREST INCOME | 8,853 | 7,064 | 29,068 | 28,896 | ||||||||||||
| Provision for loan losses | 800 | 450 | 2,550 | 2,055 | ||||||||||||
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 8,053 | 6,614 | 26,518 | 26,841 | ||||||||||||
| NONINTEREST INCOME | ||||||||||||||||
| Service fees on deposit accounts | 813 | 760 | 2,871 | 3,019 | ||||||||||||
| Services charges and fees on loans | 197 | 142 | 747 | 639 | ||||||||||||
| Trust and investment fees | 221 | 255 | 905 | 851 | ||||||||||||
| Gain on sale of investments, net | 196 | 607 | 343 | 778 | ||||||||||||
| Gain on sale of loans, net | 255 | - | 282 | 3 | ||||||||||||
| Earnings on Bank-owned life insurance | 218 | 200 | 806 | 638 | ||||||||||||
| Insurance commissions | 185 | 236 | 748 | 361 | ||||||||||||
| Other | 8 | 8 | 33 | 36 | ||||||||||||
| Total noninterest income | 2,093 | 2,208 | 6,735 | 6,325 | ||||||||||||
| NONINTEREST EXPENSE | ||||||||||||||||
| Compensation and employee benefits | 4,480 | 4,153 | 16,284 | 15,865 | ||||||||||||
| Occupancy and equipment | 890 | 740 | 3,178 | 3,071 | ||||||||||||
| Professional fees | 285 | 228 | 1,368 | 1,488 | ||||||||||||
| Data processing | 546 | 469 | 2,058 | 1,876 | ||||||||||||
| Advertising | 152 | 124 | 415 | 658 | ||||||||||||
| Federal Deposit Insurance Corporation (FDIC) Premiums | 286 | 161 | 783 | 763 | ||||||||||||
| Loss(Gain) on foreclosed real estate | 22 | (58 | ) | 112 | 35 | |||||||||||
| Merger related costs | 835 | - | 1,379 | - | ||||||||||||
| Prepayment penalties on borrowings | 4,644 | - | 4,644 | - | ||||||||||||
| Amortization of intangible assets | 193 | 81 | 436 | 135 | ||||||||||||
| Other | 610 | 487 | 2,348 | 2,154 | ||||||||||||
| Total noninterest expense | 12.943 | 6,385 | 33,005 | 26,045 | ||||||||||||
| Income before income taxes | (2,797 | ) | 2,437 | 248 | 7,121 | |||||||||||
| Income taxes | (673 | ) | 647 | 33 | 1,863 | |||||||||||
| NET INCOME | $ | (2,124 | ) | $ | 1,790 | $ | 215 | $ | 5,258 | |||||||
| Earnings per share | ||||||||||||||||
| Basic | $ | (0.18 | ) | $ | 0.16 | $ | 0.02 | $ | 0.46 | |||||||
| Diluted | (0.18 | ) | 0.16 | 0.02 | 0.46 | |||||||||||
| For the Three Months Ended September 30, |
For the Year Ended September 30, |
||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| CONSOLIDATED AVERAGE BALANCES: | |||||||||||||||||
| Total assets | $ | 1,337,843 | $ | 1,109,390 | $ | 1,157,976 | $ | 1,091,297 | |||||||||
| Total interest-earning assets | 1,255,908 | 1,054,780 | 1,096,417 | 1,041,233 | |||||||||||||
| Total interest-bearing liabilities | 1,095,511 | 902,619 | 940,706 | 883,165 | |||||||||||||
| Total stockholders' equity | 173,511 | 163,711 | 165,588 | 166,616 | |||||||||||||
| PER COMMON SHARE DATA: | |||||||||||||||||
| Average shares outstanding - basic | 11,632,918 | 11,009,812 | 11,050,683 | 11,487,915 | |||||||||||||
| Average shares outstanding - diluted | 11,632,918 | 11,009,812 | 11,050,683 | 11,487,915 | |||||||||||||
| Book value shares | 13,229,908 | 12,109,622 | 13,229,908 | 12,109,622 | |||||||||||||
| Net interest rate spread | 2.62 | % | 2.37 | % | 2.42 | % | 2.47 | % | |||||||||
| Net interest margin | 2.80 | % | 2.66 | % | 2.65 | % | 2.78 | % | |||||||||