SOURCE: ESSA Bancorp

ESSA Bancorp

April 27, 2016 16:45 ET

ESSA Bancorp, Inc. Announces Fiscal Second Quarter, First Half 2016 Financial Results

STROUDSBURG, PA--(Marketwired - Apr 27, 2016) - ESSA Bancorp, Inc. (the "Company") (NASDAQ: ESSA) today announced financial results for the three months and six months ended March 31, 2016. The Company is the holding company for ESSA Bank & Trust, a $1.8 billion asset institution, which provides full service retail and commercial banking, financial, and investment services from 29 locations in eastern Pennsylvania, including the Poconos, Lehigh Valley, Scranton/Wilkes-Barre and suburban Philadelphia.

The Company reported net income of $2.1 million, or $0.20 per diluted share, for the quarter ended March 31, 2016, compared with net income of $2.4 million, or $0.23 per diluted share, for the same quarter last year. For the six months ended March 31, 2016, the Company reported net income of $4.1 million or $0.39 per diluted share compared to $5.0 million or $0.48 per diluted share for the comparable period in 2015.

Results for the six months ended March 31, 2016, include the acquisition of Eagle National Bank ("ENB"), which was completed on December 4, 2015. Non-recurring merger related charges were $245,000, or $0.02 per diluted share (after-tax), for the six months ended March 31, 2016.

FISCAL SECOND QUARTER, FIRST HALF HIGHLIGHTS

  • Total interest income for the three months ended March 31, 2016, primarily reflecting year-over-year loan growth, increased to $15.2 million compared to $13.6 million for the three months ended March 31, 2015. Interest income for the six months ended March 31, 2016 increased to $29.0 million compared to $27.3 million for the six months ended September 30, 2015.
  • Interest expense management and earning asset growth contributed to net interest income of $12.3 million for the quarter ended March 31, 2016, up from $11.0 million for the comparable period in 2015. Net interest income for the first half of 2016 increased 6% to $23.4 million from $22.1 million for the first half of 2015.
  • Total loans at March 31, 2016 increased $133.5 million, or 12.1% (not annualized), from September 30, 2015. Loan growth was driven primarily by the acquisition of ENB, and continued expansion of the Company's indirect auto lending business in Scranton, Wilkes-Barre and other served markets.
  • Ongoing initiatives to manage noninterest expense and enhance productivity included the completed closure of a branch acquired in the ENB transaction, closure of another branch in the first quarter, and three scheduled branch closings and consolidations scheduled in May and June 2016.
  • With total assets increasing to $1.8 billion at March 31, 2016 from $1.6 billion at September 31, 2015, asset quality remained strong. Net charge-offs as a percent of total average loans were 0.04% for the three months ending March 31, 2016. Non-performing assets were $25.0 million, or 1.42% of total assets, as of March 31, 2016. Non-performing assets were $22.7 million, or 1.41% of total assets at September 30, 2015.
  • Total interest-earning assets increased to $1.65 billion at March 31, 2016 from $1.50 billion at September 30, 2015, while total stockholders' equity grew to $174.6 million at March 31, 2016 from $171.3 million at September 30, 2015.
  • The Company paid a quarterly cash dividend of $0.09 per share on March 31, 2016. Tangible book value per share decreased slightly to $13.89 at March 31, 2016, from $14.01 at March 31, 2015 due to merger related adjustments.

Gary S. Olson, President and CEO, stated: "As we continue our transformation to a more diversified and commercially focused bank, we have been particularly pleased with the loan and deposit portfolio diversification provided by acquisitions in recent years. The results are evident in the Company's expanded interest income in the second quarter and first half of 2016. With a full suite of banking products and services in place, and the technology to efficiently support these services, we are aggressively pursuing initiatives to deliver these products to a greatly expanded market area.

"We believe building full-service, long-term banking relationships with commercial clients is the most effective path to retaining customers in today's competitive, rate-sensitive environment. We have been successful earning new lending business, and an important goal in coming quarters is to maximize client retention without compromising margins or disciplined risk management practices.

"We are pleased that as we have increased the size and scope of our franchise, we have continued to deliver increased value to shareholders through growth and a commitment to expense management. We look forward to the coming year and the opportunity to reach a broader audience than ever before."

Income Statement Review

Driven by loan growth, total interest income rose to $15.2 million for the three months ended March 31, 2016 from $13.6 million for the three months ended March 31, 2015. Total interest income for the six months of 2016 also increased compared with the six months of 2015.

Interest expense increased $297,000 for the quarter ended March 31, 2016 compared to the comparable period in 2015, primarily reflecting a larger base of deposits. The growth of lower-interest core demand deposits, which comprised 50% of total deposits at March 31, 2016, compared with 46% of total deposits at September 30, 2015, contributed to interest expense management.

Net interest income increased $1.3 million or 11.7%, to $12.3 million for the three months ended March 31, 2016, from $11.0 million for the comparable period in 2015. Net interest income increased $1.3 million or 6.0% to $23.4 million for the six months ended March 31, 2016, from $22.1 million for the comparable period in 2015.

The net interest margin for the second quarter of 2016 was 3.00%, compared with 2.84% for the previous quarter, and 3.03% for the second quarter of fiscal 2015. Growth in net interest-earning assets and stability in the cost of interest bearing liabilities for the 2016 fiscal second quarter compared to the second quarter of 2015 were more than offset by declines in the yields on interest earning assets.

The Company's provision for loan losses increased to $600,000 for the three months ended March 31, 2016, compared with $525,000 for the three months ended March 31, 2015. The Company's provision for loan losses increased to $1.2 million for the six months ended March 31, 2016, compared with $975,000 for the six months ended March 31, 2015, primarily reflecting appropriate reserving for increased lending activity and growth.

Noninterest income increased $376,000 or 19.8%, to $2.3 million for the three months ended March 31, 2016, compared with $1.9 million for the three months ended March 31, 2015. Noninterest income increased $379,000 or 10.2%, to $4.1 million for the six months ended March 31, 2016, compared with $3.7 million for the six months ended March 31, 2015. The increases in the second quarter and first half of 2016 were primarily attributable to fees generated by deposit accounts and increased gain on sale of investments.

Noninterest expense increased $2.0 million or 22.0%, to $11.1 million for the three months ended March 31, 2016 compared with $9.1 million for the comparable period in 2015. The primary reasons for the increase in the 2016 period compared to the 2015 period include increases in compensation and employee benefits of $771,000, occupancy and equipment of $288,000, professional fees of $265,000, loss/gain on foreclosed real estate of $298,000, and data processing of $187,000.

Data processing cost increases included systems expense related to the ENB facility integration. Compensation and benefits primarily reflected new personnel from Eagle and selective hiring of production-focused individuals in the Company's other markets. Noninterest expense increased $2.8 million or 15.7% to $20.9 million for the six months ended March 31, 2016 compared with $18.1 million for the comparable period in 2015.

"While growth has generated higher expenses, we regularly monitor the productivity and performance of all resources, identifying opportunities to be as efficient as possible," explained Olson. "For example, analyzing customer behavior and facility use has supported the previously noted decisions to close and consolidate branches, trimming costs while maintaining appropriate levels of client service."

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets grew $156.7 million to $1.76 billion at March 31, 2016, from $1.61 billion at September 30, 2015. This increase was primarily due to the merger with ENB which added approximately $153.2 million in total assets including $123.4 million in loans and $150.3 million in deposits. Total net loans were $1.24 billion at March 31, 2016 compared with $1.10 billion at September 30, 2015.

Total deposits increased $113.4 million, or 10.3%, to $1.21 billion at March 31, 2016, from $1.10 billion at September 30, 2015. The merger with ENB was the primary reason for the increase in deposit accounts. During the same period, borrowings increased $36.4 million, reflecting the Company's ability to obtain borrowed funds at what management believes are attractive rates. As noted, the amount of core demand deposits increased in proportion to total deposits.

Loans receivable, net of allowance for loan losses, were $1.24 billion at March 31, 2016 compared with $1.10 billion at September 30, 2015. The ENB acquisition contributed significantly to the increase of commercial loans. Commercial real estate loans rose to $286.7 million at March 31, 2016 from $200.0 million at September 30, 2015, while commercial & industrial loans totals were $55.2 million at March 31, 2016 compared with $34.3 million at September 30, 2015. Construction loans increased substantially from September 30, 2015. Strong performance and market expansion in indirect auto lending generated 16% growth from year-end 2015 to the close of the first half of 2016, as auto loans increased to $188.3 million from $162.2 million.

Residential mortgage lending was essentially flat in the first half of 2016, reflecting stabilized but continued soft housing demand in most of the Bank's served markets. After several years of a severe housing market downturn, the Bank's Poconos market has shown early signs of improvement, noted Olson. The residential home market in the Lehigh Valley and Scranton/Wilkes-Barre has been stable. Olson commented that the Company's entry into the suburban Philadelphia market, which has one of Pennsylvania's most robust housing markets, should provide opportunities to expand the Company's residential lending business.

Nonperforming assets increased slightly to $25.0 million, or 1.42%, of total assets at March 31, 2016, from $22.7 million, or 1.41%, of total assets at September 30, 2015 and $24.7 million at March 31, 2015 due primarily to the addition of ENB's nonperforming assets. Net loan charge-offs in fiscal second quarter 2016 were $442,000 compared to $373,000 in fiscal second quarter 2015.

Net charge-offs as a percent of total average loans were only 0.04% for the three months ending March 31, 2016 and 0.03% for the three months ended March 31, 2015. Net charge-offs as a percent of total average loans were only 0.06% for the six months ending March 31, 2016 and 0.09% for the six months ended March 31, 2015, which reflects the Company's disciplined credit and underwriting standards. The allowance for loan losses was $9.4 million, or 0.76% of loans outstanding, at March 31, 2016, compared to $8.9 million, or 0.80% of loans outstanding at September 30, 2015 reflecting the purchase of loans from ENB. Purchased loans are initially recorded at fair market value at acquisition and therefore do not require an allowance when first recorded.

The Bank continued to demonstrate financial strength, with a Tier 1 leverage ratio of approximately 9.29%, exceeding accepted regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to tangible assets ratio of 8.96%.

For the fiscal second quarter of 2016, the Company's return on average assets and return on average equity were 0.49% and 4.91%, compared with 0.63% and 5.73%, respectively, in the corresponding period of fiscal 2015.

Stockholders' equity increased $3.3 million to $174.6 million at March 31, 2016, from $171.3 million at September 30, 2015. During the six months ended March 31, 2016, the Company repurchased 22,700 shares at an average cost of $13.24 per share. Tangible book value per share at March 31, 2016 decreased to $13.89, compared with $14.03 at September 30, 2015 as expected due to the acquisition of ENB.

About the Company: ESSA Bancorp, Inc. is the holding company for its wholly-owned subsidiary, ESSA Bank & Trust, which was formed in 1916. Headquartered in Stroudsburg, Pennsylvania, the Company has total assets of $1.8 billion and has 29 community offices throughout the Greater Pocono, Lehigh Valley, Scranton/Wilkes-Barre, and suburban Philadelphia areas. ESSA Bank & Trust offers a full range of commercial and retail financial services, 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, and the Risk Factors disclosed in our annual and quarterly reports.

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, as well as risk factors disclosed in our Annual Report on Form 10-K (as supplemented by our quarterly reports on Form 10-Q) 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)  
   
    March 31,
2016
    September 30,
2015
 
    (dollars in thousands)  
ASSETS                
  Cash and due from banks   $ 20,917     $ 15,905  
  Interest-bearing deposits with other institutions     2,966       2,853  
                 
    Total cash and cash equivalents     23,883       18,758  
  Certificates of deposit     1,500       1,750  
  Investment securities available for sale     389,603       379,407  
  Loans receivable (net of allowance for loan losses of $9,415 and $8,919)     1,235,613       1,102,118  
  Regulatory stock, at cost     15,492       13,831  
  Premises and equipment, net     17,185       16,553  
  Bank-owned life insurance     31,119       30,655  
  Foreclosed real estate     2,316       2,480  
  Intangible assets, net     2,852       1,759  
  Goodwill     13,801       10,259  
  Deferred income taxes     11,537       11,149  
  Other assets     18,388       17,825  
                 
    TOTAL ASSETS   $ 1,763,289     $ 1,606,544  
                 
                 
LIABILITIES                
  Deposits   $ 1,210,106     $ 1,096,754  
  Short-term borrowings     126,243       91,339  
  Other borrowings     230,601       229,101  
  Advances by borrowers for taxes and insurance     8,514       4,273  
  Other liabilities     13,264       13,797  
                 
    TOTAL LIABILITIES     1,588,728       1,435,264  
                 
                 
STOCKHOLDERS' EQUITY                
  Common stock     181       181  
  Additional paid in capital     182,021       182,295  
  Unallocated common stock held by the Employee Stock Ownership Plan     (9,400 )     (9,627 )
  Retained earnings     85,875       83,658  
  Treasury stock, at cost     (82,679 )     (82,832 )
  Accumulated other comprehensive loss     (1,437 )     (2,395 )
                 
    TOTAL STOCKHOLDERS' EQUITY     174,561       171,280  
                 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,763,289     $ 1,606,544  
                 
   
ESSA BANCORP, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENT OF INCOME  
(UNAUDITED)  
             
    For the Three Months
Ended March 31,
    For the Six Months
Ended March 31,
 
    2016   2015     2016   2015  
    (dollars in thousands)     (dollars in thousands)  
INTEREST INCOME                            
  Loans receivable   $ 12,805   $ 11,100     $ 24,379   $ 22,549  
  Investment securities:                            
    Taxable     1,903     1,799       3,721     3,688  
    Exempt from federal income tax     255     239       499     473  
  Other investment income     196     442       375     578  
    Total interest income     15,159     13,580       28,974     27,288  
                             
                             
INTEREST EXPENSE                            
  Deposits     1,944     1,878       3,789     3,843  
  Short-term borrowings     115     103       209     206  
  Other borrowings     816     597       1,600     1,187  
    Total interest expense     2,875     2,578       5,598     5,236  
                             
                             
NET INTEREST INCOME     12,284     11,002       23,376     22,052  
  Provision for loan losses     600     525       1,200     975  
                             
                             
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     11,684     10,477       22,176     21,077  
                             
NONINTEREST INCOME                            
  Service fees on deposit accounts     875     757       1,738     1,584  
  Services charges and fees on loans     297     274       577     589  
  Trust and investment fees     194     204       407     442  
  Gain on sale of investments, net     365     204       368     204  
  Earnings on Bank-owned life insurance     234     231       464     470  
  Insurance commissions     217     217       416     399  
  Other     95     14       124     27  
    Total noninterest income     2,277     1,901       4,094     3,715  
                             
NONINTEREST EXPENSE                            
  Compensation and employee benefits     6,003     5,232       11,581     10,346  
  Occupancy and equipment     1,422     1,134       2,531     2,115  
  Professional fees     672     407       1,125     921  
  Data processing     1,079     892       1,998     1,705  
  Advertising     153     224       240     352  
  Federal Deposit Insurance Corporation Premiums     322     289       600     581  
  Gain(loss) on foreclosed real estate     161     (137 )     151     (175 )
  Merger related costs     -     -       245     -  
  Amortization of intangible assets     223     163       397     329  
  Other     1,071     894       2,024     1,890  
    Total noninterest expense     11,106     9,098       20,892     18,064  
                             
Income before income taxes     2,855     3,280       5,378     6,728  
  Income taxes     726     848       1,292     1,700  
                             
                             
Net Income   $ 2,129   $ 2,432     $ 4,086   $ 5,028  
                             
Earnings per share:                            
  Basic   $ 0.20   $ 0.23     $ 0.39   $ 0.48  
  Diluted   $ 0.20   $ 0.23     $ 0.39   $ 0.48  
                             
                         
    For the Three Months
Ended March 31,
    For the Six Months
Ended March 31,
 
    2016     2015     2016     2015  
    (dollars in thousands)     (dollars in thousands)  
CONSOLIDATED AVERAGE BALANCES:                                
  Total assets   $ 1,757,983     $ 1,571,898     $ 1,704,095     $ 1,571,145  
  Total interest-earning assets     1,647,423       1,473,510       1,597,582       1,470,212  
  Total interest-bearing liabilities     1,411,758       1,297,563       1,379,842       1,307,357  
  Total stockholders' equity     173,918       172,112       173,280       171,019  
                                 
PER COMMON SHARE DATA:                                
  Average shares outstanding - basic     10,385,154       10,442,310       10,375,614       10,479,869  
  Average shares outstanding - diluted     10,524,698       10,521,147       10,515,770       10,522,596  
  Book value shares     11,367,654       11,434,378       11,367,654       11,434,378  
                                 
Net interest rate spread     2.91 %     2.96 %     2.85 %     2.96 %
Net interest margin     3.00 %     3.03 %     2.93 %     3.01 %