SOURCE: ESSA Bancorp

ESSA Bancorp

October 29, 2014 16:30 ET

ESSA Bancorp, Inc. Announces Fiscal Fourth Quarter, Year-End 2014 Financial Results

STROUDSBURG, PA--(Marketwired - Oct 29, 2014) - ESSA Bancorp, Inc. (NASDAQ: ESSA), the holding company for ESSA Bank & Trust, a $1.6 billion asset financial institution providing full service retail and commercial banking, financial and investment services, today announced results for the fiscal three months and year ended September 30, 2014. The fiscal three months and year ended September 30, 2014 reflect the effects of ESSA's acquisition of Franklin Security Bancorp, Inc. on April 4, 2014.

The Company reported net income of $2.4 million, or $0.22 per diluted share, for the three months ended September 30, 2014, compared with net income of $2.0 million, or $0.19 per diluted share, for the three months ended September 30, 2013.

For the year ended September 30, 2014, the Company reported net income of $8.5 million, or $0.79 per diluted share, compared with net income of $8.8 million, or $0.76 per diluted share, for the corresponding 2013 period. 

The Company's year-end 2014 results included $522,000 in merger-related costs. Following the close of the fiscal second quarter, the Company completed its acquisition of Franklin Security Bancorp on April 4, 2014, establishing a presence in the Wilkes-Barre and Scranton, Pennsylvania markets, and adding approximately $217.5 million in total assets, $152.2 million in loans and $162.2 million in deposits.

Gary S. Olson, President and CEO, commented: "Our fiscal 2014 results reflect continued growth in the value of our Company. Tangible book value rose to $13.34 per share at year-end, up from $12.99 a year ago. Our quarterly earnings run rate has increased significantly, reflecting growth in core operating income, primarily attributable to two prudent whole bank acquisitions over the past several years, which were quickly accretive to earnings per share. Significant improvement in asset quality, reduced cost of funds year-over-year and growing core deposits reflecting our expanded market reach through the Franklin acquisition are enhancing the value of ESSA's franchise for shareholders. Operations and performance in Monroe County continue to be stable, despite a difficult economic environment, and we continue to diversify our revenue and asset mix in the Lehigh Valley, Wilkes-Barre and Scranton markets.

"The addition of Franklin's commercial accounts were an important factor in building lower-cost core deposits, which contributed to maintaining relative stability in net interest spread, despite the ongoing low interest rate environment. With Franklin's operations now fully integrated, we intend to expand service offerings in Wilkes-Barre and Scranton, much as we did in the Lehigh Valley following our acquisition of First Star Bancorp, Inc.

"During the year, we acted to build shareholder value through stock repurchases at an average per-share cost below the Company's tangible book value, and increased our quarterly cash dividend on our common shares. Our ongoing focus continues to be to leverage the Company's increased scale to win new business and to build value for our shareholders through prudent capital management."

The Company's pre-tax core earnings, excluding the accretion of the fair market adjustments that resulted from the Company's acquisitions, gains on the sale of securities and loans, and the Franklin merger-related expenses, were $10.4 million in the fiscal year ended September 30, 2014 compared with $7.5 million in the fiscal year ended September 30, 2013.

Total stockholders' equity increased to $167.3 million at September 30, 2014 compared to $166.4 million at the beginning of fiscal 2014. The Company's Board of Directors authorized an increased cash dividend on common shares in the fiscal second quarter of 2014, and the Company utilized a portion of its capital to repurchase shares. During the three months ended September 30, 2014, the Company repurchased 248,100 shares at an average cost of $11.40 per share, and has repurchased 369,225 shares during the fiscal year ended September 30, 2014 at an average cost of $11.24 per share.

Income Statement Review

Net interest income increased $1.2 million, or 13.09%, to $10.6 million for the three months ended September 30, 2014, from $9.4 million for the comparable period in 2013, reflecting increased interest from commercial and indirect auto loans receivable and an increase in interest income from investment securities. These increases were partially offset by a decrease of $401,000 in the net accretion of fair market value adjustments from the Company's acquisitions in the 2014 quarter compared to the 2013 quarter.The Company's net interest rate spread was 2.85% for the three months ended September 30, 2014 compared to 2.83% for the comparable 2013 period.

For the fiscal year ended September 30, 2014, net interest income increased $304,000 to $40.1 million from $39.8 million for the comparable period in 2013. The increase was primarily attributable to increases in interest income from commercial and indirect auto loans and investment securities offset, in part, by a decrease in interest income from residential loans, combined with a decrease in interest expense from borrowed funds. In addition, the net accretion of fair market value adjustments from the Company's acquisition was $1.8 million less in 2014 compared to 2013. The Company's net interest rate spread was 2.89% in 2014 compared to 2.97% in 2013.

The net interest margin was 2.90% for the three months ended September 30, 2014 compared to a net interest margin of 2.92% for the comparable period in 2013. The net interest margin was 2.97% for the year ended September 30, 2014 compared to a net interest margin of 3.08% for the comparable period in 2013.

The Company's provision for loan losses declined to $350,000 for the three months ended September 30, 2014, compared to $800,000 for the three months ended September 30, 2013. Net loan charge-offs in fiscal fourth quarter 2014 were $552,000 compared with $920,000 in fiscal fourth quarter 2013. The provision for loan losses decreased to $2.4 million for the year ended September 30, 2014, compared with $3.8 million for the year ended September 30, 2013. Net loan chargeoffs for the year ended 2014 were $1.8 million compared to chargeoffs of $3.0 million for the comparable 2013 period, a 40.46% decrease.

Noninterest income increased 10.86% to $1.9 million for the three months ended September 30, 2014, compared with the three months ended September 30, 2013, reflecting increased gains on sales of investments. For the year ended September 30, 2014, noninterest income declined to $7.4 million compared with $8.0 million for the year ended September 30, 2013. The year-over-year change reflected moderate growth in deposit account service fees and income from the Company's trust and investment segment, a $416,000 decline in gain on sale of investments, lower service fees on loan accounts, and no gain on loan sales during the year ended September 30, 2014, compared with a $426,000 gain on loan sales in the year ended September 30, 2013. 

Noninterest expense increased 13.38% to $9.1 million for the three months ended September 30, 2014 compared to $8.0 million for the comparable period in 2013, primarily reflecting increases in compensation and employee benefits, professional fees and other non-interest expenses, offset, in part, by an increase in the net gain on foreclosed real estate.

Noninterest expense increased 4.16% to $33.8 million for the year ended September 30, 2014 compared to $32.5 million for the comparable period in 2013.The merger with Franklin resulted in increases in merger related expenses of $522,000 and contributed to the increases in data processing expense of $363,000, occupancy and equipment expense of $155,000 and other non-interest expense of $292,000. 

Balance Sheet, Asset Quality and Capital Adequacy

Total assets increased $202.5 million, or 14.76%, to $1.6 billion at September 30, 2014, compared to $1.4 billion at September 30, 2013 due primarily to the April 4, 2014 merger with Franklin.

Loans receivable, net of an $8.6 million allowance for loan losses, were $1.1 billion at September 30, 2014 compared to loans receivable, net of an $8.1 million allowance for loan losses, of $928.2 million at September 30, 2013. Residential mortgage lending declined year-over-year, reflecting continuing sluggishness in the housing market in northeastern Pennsylvania. The Company added $100.5 million of indirect auto loans and $62.5 million of commercial loans to its portfolio at September 30, 2014 compared with September 30, 2013, primarily reflecting loans added in the Franklin acquisition.

Total deposits increased $92.8 million, or 8.92%, to $1.1 billion at September 30, 2014, from $1.0 billion at September 30, 2013. Deposit growth included a 19.1% increase in non-interest bearing checking accounts, primarily reflecting new accounts added as a result of the Franklin acquisition. During the same period, FHLB borrowings increased $117.1 million. In fiscal 2014, FHLB borrowings were attractively priced compared to brokered certificates.

Nonperforming assets totaled $25.0 million, or 1.59%, of total assets at September 30, 2014, compared with $26.0 million, or 1.89%, of total assets at September 30, 2013. The allowance for loan losses was $8.6 million, or 0.81%, of loans outstanding at September 30, 2014, compared to $8.1 million, or 0.86%, of loans outstanding at September 30, 2013. The loans acquired from Franklin Security Bancorp were acquired at their fair market value, with no corresponding allowance.

The Bank continued to demonstrate financial strength, with a Tier 1 leverage ratio of 9.89%, exceeding accepted regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to total assets ratio of 9.82%.

The Company's return on average assets and return on average equity, respectively, were 0.61% and 5.54% for the three months ended September 30, 2014 compared with 0.59% and 4.95% for the corresponding period of fiscal 2013. The Company's return on average assets and return on average equity, respectively, were 0.59% and 5.01% for the year ended September 30, 2014 compared to 0.64% and 5.12% for the comparable period in fiscal 2013.

Olson concluded: "As we enter our new fiscal year, we believe ESSA is well positioned as a major community banking presence in Northeastern Pennsylvania. We have been able to achieve balanced growth by taking advantage of the opportunity to execute two attractively priced acquisitions during the past several years. The Company is also utilizing its capital in a prudent manner to enhance shareholder value through continued stock repurchase and dividend payout programs. We are focused on delivering a balanced mix of growth from operations and through complementary actions that deliver ongoing enhancement in the value of the Company for shareholders."

About The Company

ESSA Bancorp (NASDAQ: ESSA), headquartered in Stroudsburg, PA, is the holding company for ESSA Bank & Trust, a $1.6 billion asset institution with 27 banking offices serving markets in Northeastern Pennsylvania, including Monroe County and Lehigh and Northampton Counties in the Lehigh Valley and Lackawanna and Luzerne Counties in the Scranton and Wilkes-Barre areas. ESSA Bank & Trust maintains its corporate headquarters in downtown Stroudsburg, Pennsylvania and has 27 community offices throughout the Greater Pocono, Lehigh Valley, Scranton and Wilkes-Barre markets 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, financial advisory and asset management capabilities and insurance and employee benefits consulting. ESSA Bancorp, Inc. stock trades on The NASDAQ Global Select 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 and in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2013, 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.

NON-GAAP Disclosures

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding the Company's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

FINANCIAL TABLES FOLLOW
 
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
 
    September 30,
2014
    September 30,
2013
 
    (dollars in thousands)  
ASSETS                
  Cash and due from banks   $ 20,884     $ 22,393  
  Interest-bearing deposits with other institutions     1,417       4,255  
                   
    Total cash and cash equivalents     22,301       26,648  
  Certificates of deposit     1,767       1,767  
  Investment securities available for sale     383,078       315,622  
  Loans receivable (net of allowance for loan losses of $8,634 and $8,064)     1,058,267       928,230  
  Regulatory stock, at cost     14,284       9,415  
  Premises and equipment, net     16,957       15,747  
  Bank-owned life insurance     29,720       28,797  
  Foreclosed real estate     2,759       2,111  
  Intangible assets, net     2,396       2,466  
  Goodwill     10,259       8,817  
  Deferred income taxes     12,027       11,183  
  Other assets     21,000       21,512  
                   
    TOTAL ASSETS   $ 1,574,815     $ 1,372,315  
                 
                 
LIABILITIES                
  Deposits   $ 1,133,889     $ 1,041,059  
  Short-term borrowings     108,020       23,000  
  Other borrowings     151,300       129,260  
  Advances by borrowers for taxes and insurance     4,093       4,962  
  Other liabilities     10,204       7,588  
                   
    TOTAL LIABILITIES     1,407,506       1,205,869  
                 
                 
STOCKHOLDERS' EQUITY                
  Common stock     181       181  
  Additional paid in capital     182,486       182,440  
  Unallocated common stock held by the Employee Stock Ownership Plan     (10,079 )     (10,532 )
  Retained earnings     77,413       71,709  
  Treasury stock, at cost     (80,113 )     (76,117 )
  Accumulated other comprehensive loss     (2,579 )     (1,235 )
                   
    TOTAL STOCKHOLDERS' EQUITY     167,309       166,446  
                     
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,574,815     $ 1,372,315  
                 
                 
 
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
           
    For the Three Months
Ended September 30
  For the
Year Ended September 30
 
    2014     2013   2014     2013  
    (dollars in thousands)  
INTEREST INCOME                              
  Loans receivable   $ 11,209     $ 10,434   $ 43,382     $ 44,744  
  Investment securities:                              
    Taxable     1,703       1,400     6,385       5,958  
    Exempt from federal income tax     232       72     550       272  
  Other investment income     142       65     459       128  
    Total interest income     13,286       11,971     50,776       51,102  
                               
                               
INTEREST EXPENSE                              
  Deposits     1,998       1,832     7,907       7,408  
  Short-term borrowings     76       20     180       129  
  Other borrowings     589       726     2,540       3,720  
    Total interest expense     2,663       2,578     10,627       11,257  
                               
                               
NET INTEREST INCOME     10,623       9,393     40,149       39,845  
  Provision for loan losses     350       800     2,350       3,750  
                               
                               
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     10,273       8,593     37,799       36,095  
                               
NONINTEREST INCOME                              
  Service fees on deposit accounts     843       818     3,185       3,133  
  Services charges and fees on loans     293       253     865       1,027  
  Trust and investment fees     205       212     906       853  
  Gain on sale of investments, net     107       -     333       749  
  Gain on sale of loans, net     -       -     -       426  
  Earnings on Bank-owned life insurance     237       240     924       949  
  Gain on acquisition     -       -     241       -  
  Insurance commissions     216       200     841       838  
  Other     28       17     113       49  
    Total noninterest income     1,929       1,740     7,408       8,024  
                               
NONINTEREST EXPENSE                              
  Compensation and employee benefits     5,343       4,688     18,920       19,002  
  Occupancy and equipment     1,016       960     4,050       3,895  
  Professional fees     535       415     1,883       1,868  
  Data processing     844       752     3,270       2,907  
  Advertising     170       149     633       574  
  Federal Deposit Insurance Corporation Premiums     272       208     1,002       947  
  Loss (Gain) on foreclosed real estate     (350 )     30     (466 )     (468 )
  Merger related costs     -       -     522       -  
  Amortization of intangible assets     204       242     960       991  
  Other     1,051       569     3,038       2,746  
    Total noninterest expense     9,085       8,013     33,812       32,462  
                               
Income before income taxes     3,117       2,320     11,395       11,657  
  Income taxes     745       292     2,891       2,834  
                               
                               
Net Income   $ 2,372     $ 2,028   $ 8,504     $ 8,823  
                               
                               
Earnings per share:                              
  Basic   $ 0.22     $ 0.19   $ 0.79     $ 0.76  
  Diluted   $ 0.22     $ 0.19   $ 0.79     $ 0.76  
Dividends per share:   $ 0.07     $ 0.05   $ 0.26     $ 0.20  
                               
                         
             
    For the Three Months
Ended September 30,
    For the 
Year Ended September 30,
 
    2014     2013     2014     2013  
    (dollars in thousands)     (dollars in thousands)  
CONSOLIDATED AVERAGE BALANCES:                                
    Total assets   $ 1,555,617     $ 1,370,568     $ 1,454,280     $ 1,386,810  
    Total interest-earning assets     1,451,002       1,274,450       1,353,074       1,292,462  
    Total interest-bearing liabilities     1,296,114       1,125,696       1,204,262       1,138,780  
    Total stockholders' equity     171,378       164,009       169,668       172,286  
                                 
PER COMMON SHARE DATA:                                
    Average shares outstanding - basic     10,672,848       10,954,982       10,817,428       11,559,553  
    Average shares outstanding - diluted     10,705,175       10,954,982       10,822,673       11,559,553  
    Book value shares     11,590,378       11,945,564       11,590,378       11,945,564  
                                 
Net interest rate spread     2.85 %     2.83 %     2.89 %     2.97 %
Net interest margin     2.90 %     2.92 %     2.97 %     3.08 %
                                 
         
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES:   For the Year
Ended September 30,
    2014   2013
    (dollars in thousands)
             
Income before income taxes   $ 11,395   $ 11,657
Deduct: accretion of fair market value adjustments from acquisitions     1,178     2,970
Deduct gains/add losses from sales of loans and investments     333     1,175
Add: Merger related costs     522     -
             
    Pre-tax core earnings:   $ 10,406   $ 7,512