SOURCE: ESSA Bancorp

ESSA Bancorp

July 29, 2015 17:11 ET

ESSA Bancorp, Inc. Announces Fiscal Third Quarter Financial Results

STROUDSBURG, PA--(Marketwired - Jul 29, 2015) -  ESSA Bancorp, Inc. (the "Company") (NASDAQ: ESSA) today reported net income of $2.5 million, or $0.23 per diluted share, for the quarter ended June 30, 2015, compared with net income of $2.6 million, or $0.24 per diluted share, for the same quarter, last year. Net income for the first nine months of fiscal 2015 increased to $7.5 million, or $0.71 per diluted share, compared with net income of $6.1 million, or $0.56 per diluted share, for the nine months of fiscal 2014. Year-over-year comparisons reflect the acquisition of Franklin Security Bancorp in April 2014.

The Company is the holding company for ESSA Bank & Trust, a $1.6 billion asset institution, which provides full service retail and commercial banking, financial, and investment services from 26 locations in eastern Pennsylvania. 

THIRD QUARTER HIGHLIGHTS

  • Disciplined loan growth. Total loans increased 1.3% (not annualized) on a sequential quarter basis, and 3.2% (not annualized) during the nine months ended June 30, 2015. Loan growth was driven primarily by increases in commercial and indirect auto loans.
  • Net interest income remained steady. Net interest income was approximately $11.0 million for the second consecutive quarter despite continued net interest margin compression. The net interest margin was 2.96% for the quarter ending June 30, 2015, compared with 3.03% for the quarter ended March 31, 2015 and 3.09% for the quarter ending June 30, 2014.
  • Asset quality improved. Non-performing assets declined to $23.4 million, or 1.46% of total assets, as of June 30, 2015 from $24.7 million, or 1.56% of total assets as of March 31, 2015.
  • Capital management. A quarterly cash dividend of $0.09 per share was paid on June 30, 2015. During the June 2015 quarter, the Company repurchased 36,900 shares at an average price of $12.85. Tangible book value per share increased to $13.94 at June 30, 2015, from $13.34 at September 30, 2014.
  • Previously announced acquisition. Subsequent to the third fiscal quarter, the Company announced a definitive agreement on July 29, 2015 to purchase Eagle National Bancorp ("ENB") in an all-cash transaction. ENB had total assets of $175.7 million, total loans of $125.1 million, and total deposits of $148.7 million as of June 30, 2015.

Gary S. Olson, President and CEO, commented: "Our third quarter results reflect our ability to deliver consistent results despite the earnings challenges presented by continued low interest rates. As we expand into faster-growing markets, we remain focused on loan growth, asset quality, and controlled operating expenses while our efforts to build commercial relationships continue to gain traction."

As noted when our merger with Eagle National Bancorp was first announced, "We are excited to have this opportunity to expand our market share and establish a commercial presence in an attractive suburban Philadelphia market."

Income Statement Review

Net interest income decreased $86,000, or 0.8%, to $11.0 million for the three months ended June 30, 2015, from $11.1 million for the comparable period in 2014. Net interest income increased $3.5 million, or 12.0%, to $33.1 million for the nine months ended June 30, 2015, from $29.5 million for the comparable period in 2014, reflecting increases in the Company's loan portfolio.

Interest expense decreased $171,000 for the nine months ended June 30, 2015 compared to the comparable period in 2014, while interest income increased $3.4 million on growing loan volume. Increases in interest income from indirect auto loans, commercial loans and investment securities helped offset a decrease in interest income from mortgage loans. 

The Company's net interest rate spread was 2.90% for the three months ended June 30, 2015, down from 3.02% for the comparable 2014 period. The Company's net interest rate spread rose to 2.93% for the nine months ended June 30, 2015 compared to 2.91% for the nine months ended June 30, 2014. Net interest margin was unchanged at 2.99% for the nine months ended June 30, 2015 and 2014.

The Company's provision for loan losses increased to $525,000 for the three months ended June 30, 2015, compared with $500,000 for the three months ended June 30, 2014. The Company's provision for loan losses decreased to $1.5 million for the nine months ended June 30, 2015, compared with $2.0 million for the nine months ended June 30, 2014. Net loan charge-offs in fiscal third quarter 2015 were $425,000 compared to $326,000 in fiscal third quarter 2014. Net loan charge-offs for the nine months ended June 30, 2015 were $1.4 million compared to $1.2 million in the 2014 period.

Noninterest income decreased 7.2% to $1.9 million for the three months ended June 30, 2015, compared with $2.1 million for the three months ended June 30, 2014 due principally to declines in trust and investment fees, gain on acquisition, and other income which were partially offset by an increase in gain on sale of investments, net. Noninterest income increased 3.4% to $5.7 million for the nine months ended June 30, 2015, compared with the nine months ended June 30, 2014. The increase was due primarily to increases in service fees and charges related to loans and gain on sale of investments offset in part by a decline in gain on acquisition.

Noninterest expense was $9.4 million for the three months ended June 30, 2015 compared with $9.1 million for the comparable period in 2014. Noninterest expense was $27.4 million for the nine months ended June 30, 2015 compared with $24.7 million for the comparable period in 2014. Increases in expenses primarily reflect additional facilities and costs related to the Franklin Security Bank acquisition. 

Balance Sheet, Asset Quality and Capital Adequacy

Total assets were $1.60 billion at June 30, 2015 compared with $1.57 billion at September 30, 2014. Total loans receivable, net of allowance for loan losses, were $1.09 billion at June 30, 2015 compared to $1.06 billion at September 30, 2014.

Total deposits decreased $58.3 million, or 5.1%, to $1.08 billion at June 30, 2015, from $1.13 billion at September 30, 2014. Decreases in interest bearing demand deposits, money market and certificate of deposit accounts were partially offset by increases in non-interest bearing demand and savings and club accounts. During the same period, borrowings increased $70.3 million, reflecting the Company's ability to obtain borrowed funds at what management believes represent attractive rates.

Nonperforming assets totaled $23.4 million, or 1.46%, of total assets at June 30, 2015, compared with $25.0 million, or 1.59%, of total assets at September 30, 2014, and $26.2 million, or 1.68% of total assets a year earlier. The decrease in nonperforming assets of $1.6 million at June 30, 2015 compared to September 30, 2014 was due primarily to decreases in non-performing commercial mortgages and foreclosed real estate.

The Company's provision for loan losses was $525,000 for the three-month period ended June 30, 2015, compared with a provision of $500,000 for the comparable period in 2014, primarily reflecting continued disciplined credit and underwriting standards. The allowance for loan losses was $8.8 million, or 0.80%, of loans outstanding at June 30, 2015, compared to $8.6 million, or 0.81%, of loans outstanding at September 30, 2014.

The Bank continued to demonstrate financial strength, with a tier 1 leverage ratio of 10.02%, exceeding accepted regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to total assets ratio of 9.85%.

Stockholders' equity increased $4.0 million to $171.3 million at June 30, 2015, from $167.3 million at September 30, 2014. During the three months ended June 30, 2015, the Company repurchased 36,900 shares at an average cost of $12.85 per share. Tangible book value per share at June 30, 2015 increased to $13.94 compared with $13.34 at September 30, 2014.

For the fiscal third quarter of 2015, the Company's return on average assets and return on average equity were 0.62% and 5.67%, compared with 0.68% and 6.17%,respectively, in the corresponding period of fiscal 2014.

ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of $1.60 billion and is the leading service-oriented financial institution headquartered in Stroudsburg, Pennsylvania. ESSA Bank & Trust maintains its corporate headquarters in Stroudsburg, Pennsylvania and has 26 community offices throughout the Greater Pocono, Lehigh Valley, and Scranton/Wilkes-Barre areas in Pennsylvania. In addition to being one of the region's largest mortgage lenders, ESSA Bank & Trust offers a full range of consumer and commercial banking products and services, employee benefit solutions, Trust & Asset management, and brokerage services. 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, 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 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)  
             
    June 30,
2015
    September 30,
2014
 
    (dollars in thousands)  
ASSETS                
  Cash and due from banks   $ 16,017     $ 20,884  
  Interest-bearing deposits with other institutions     1,675       1,417  
                 
    Total cash and cash equivalents     17,692       22,301  
  Certificates of deposit     1,750       1,767  
  Investment securities available for sale     381,375       383,078  
  Loans receivable (net of allowance for loan losses of $8,767 and $8,634)     1,092,527       1,058,267  
  Regulatory stock, at cost     14,537       14,284  
  Premises and equipment, net     16,655       16,957  
  Bank-owned life insurance     30,421       29,720  
  Foreclosed real estate     2,595       2,759  
  Intangible assets, net     1,910       2,396  
  Goodwill     10,259       10,259  
  Deferred income taxes     11,045       12,027  
  Other assets     18,058       21,000  
                 
    TOTAL ASSETS   $ 1,598,824     $ 1,574,815  
                 
                 
LIABILITIES                
  Deposits   $ 1,075,553     $ 1,133,889  
  Short-term borrowings     120,856       108,020  
  Other borrowings     208,805       151,300  
  Advances by borrowers for taxes and insurance     11,617       4,093  
  Other liabilities     10,666       10,204  
                 
    TOTAL LIABILITIES     1,427,497       1,407,506  
                 
                 
STOCKHOLDERS' EQUITY                
  Common stock     181       181  
  Additional paid in capital     182,358       182,486  
  Unallocated common stock held by the Employee Stock Ownership Plan     (9,740 )     (10,079 )
  Retained earnings     82,289       77,413  
  Treasury stock, at cost     (82,105 )     (80,113 )
  Accumulated other comprehensive loss     (1,656 )     (2,579 )
                 
    TOTAL STOCKHOLDERS' EQUITY     171,327       167,309  
                 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,598,824     $ 1,574,815  
                 
   
   
ESSA BANCORP, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENT OF INCOME  
(UNAUDITED)  
             
    For the Three Months
Ended June 30
    For the Nine Months
Ended June 30
 
    2015   2014     2015     2014  
    (dollars in thousands)  
INTEREST INCOME                              
  Loans receivable   $ 11,398   $ 11,807     $ 33,947     $ 32,173  
  Investment securities:                              
    Taxable     1,741     1,632       5,429       4,682  
    Exempt from federal income tax     248     173       721       318  
  Other investment income     181     173       759       317  
    Total interest income     13,568     13,785       40,856       37,490  
                               
                               
INTEREST EXPENSE                              
  Deposits     1,800     2,015       5,643       5,909  
  Short-term borrowings     118     54       324       104  
  Other borrowings     639     619       1,826       1,951  
    Total interest expense     2,557     2,688       7,793       7,964  
                               
                               
NET INTEREST INCOME     11,011     11,097       33,063       29,526  
  Provision for loan losses     525     500       1,500       2,000  
                               
                               
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     10,486     10,597       31,563       27,526  
                               
NONINTEREST INCOME                              
  Service fees on deposit accounts     842     828       2,426       2,342  
  Services charges and fees on loans     274     283       863       572  
  Trust and investment fees     218     260       660       701  
  Gain (loss) on sale of investments, net     194     (10 )     398       226  
  Earnings on Bank-owned life insurance     231     234       701       687  
  Insurance commissions     183     205       582       625  
  Gain on acquisition     -     241       -       241  
  Other     6     59       33       85  
    Total noninterest income     1,948     2,100       5,663       5,479  
                               
NONINTEREST EXPENSE                              
  Compensation and employee benefits     5,213     4,912       15,559       13,577  
  Occupancy and equipment     996     1,051       3,111       3,034  
  Professional fees     517     441       1,438       1,348  
  Data processing     861     977       2,566       2,426  
  Advertising     373     243       725       463  
  Federal Deposit Insurance Corporation Premiums     269     266       850       730  
  Loss (Gain) on foreclosed real estate     8     (65 )     (167 )     (116 )
  Merger related costs     -     176       -       522  
  Amortization of intangible assets     156     282       485       756  
  Other     966     812       2,856       1,987  
    Total noninterest expense     9,359     9,095       27,423       24,727  
                               
Income before income taxes     3,075     3,602       9,803       8,278  
  Income taxes     618     976       2,318       2,146  
                               
                               
Net Income   $ 2,457   $ 2,626     $ 7,485     $ 6,132  
                               
                               
                               
    For the Three Months     For the Nine Months  
    Ended June 30     Ended June 30   
      2015     2014       2015       2014  
                               
Earnings per share:                              
  Basic   $ 0.24   $ 0.24     $ 0.72     $ 0.56  
  Diluted   $ 0.23   $ 0.24     $ 0.71     $ 0.56  
                               
                         
                         
    For the Three Months
Ended June 30,
    For the Nine Months
Ended June 30,
 
    2015     2014     2015     2014  
    (dollars in thousands)     (dollars in thousands)  
CONSOLIDATED AVERAGE BALANCES:                                
  Total assets   $ 1,587,965     $ 1,546,622     $ 1,576,752     $ 1,421,091  
  Total interest-earning assets     1,489,831       1,442,235       1,476,752       1,321,142  
  Total interest-bearing liabilities     1,292,034       1,290,266       1,302,249       1,173,645  
  Total stockholders' equity     173,678       170,265       171,905       168,977  
                                 
PER COMMON SHARE DATA:                                
  Average shares outstanding - basic     10,431,461       10,837,592       10,464,084       10,864,362  
  Average shares outstanding - diluted     10,565,123       10,837,592       10,533,704       10,864,362  
  Book value shares     11,419,321       11,823,878       11,419,321       11,823,878  
                                 
Net interest rate spread     2.90 %     3.02 %     2.93 %     2.91 %
Net interest margin     2.96 %     3.09 %     2.99 %     2.99 %