SOURCE: ESSA Bancorp

April 24, 2013 16:30 ET

ESSA Bancorp, Inc. Announces Operating Results for the Second Fiscal Quarter of 2013

STROUDSBURG, PA--(Marketwired - Apr 24, 2013) - ESSA Bancorp, Inc. (NASDAQ: ESSA), the holding company for ESSA Bank & Trust, today announced its operating results for the three and six months ended March 31, 2013. The Company reported net income of $2.0 million, or $0.17 per diluted share, for the three months ended March 31, 2013, compared with net income of $659,000, or $0.06 per diluted share, for the Company's second fiscal quarter 2012. The Company's return on average assets (ROAA), and return on average equity (ROAE), respectively, were 0.59% and 4.71%, compared with 0.24% and 1.62%, in the corresponding period of fiscal 2012.

For the six months ended March 31, 2013, ESSA reported net income of $4.9 million, or $0.41 per diluted share, compared to net income of $1.5 million, or $0.14 per diluted share, for the corresponding 2012 period. The Company's ROAA, and ROAE, respectively, were 0.71% and 5.59% for the 2013 period, compared with 0.28% and 1.90%, in the corresponding period of 2012.

ESSA Bancorp completed its acquisition of First Star Bancorp on July 31, 2012. The results for the periods ended March 31, 2013, reflect the effects of the acquisition in fiscal 2013. Total assets were $1.4 billion and total deposits were $1.0 billion at March 31, 2013.

Gary S. Olson, President and CEO, commented: "ESSA's mid-2012 acquisition of First Star is clearly proving accretive to our earnings, and our expanded presence in the Lehigh Valley is providing ESSA with access to a vibrant market and a larger base of new customers and prospective customers. Additionally, we are realizing an approximate 30% cost savings from First Star's operating expenses, right in line with our previously stated goals pertaining to the acquisition.

"We are encouraged by the increasing loan demand in our Lehigh Valley market. Fiscal year-to-date, ESSA closed $72.2 million of residential mortgages and $22.6 million of commercial loans. A slightly reduced net loan balance at March 31, 2013 compared with September 30, 2012 primarily reflected loan pay-offs, which are expected during this protracted low interest rate environment and the sale of $19.2 million of mortgage loans.

"We are cautiously optimistic that continued economic expansion, combined with our new, larger market will provide significant lending growth opportunities for the Company. ESSA has the capital strength to support both organic and other growth as prudent opportunities arise.

"ESSA's board of directors continues to believe repurchasing the Company's stock is a good use of our capital, and our repurchase program remains ongoing. For the six months ended March 31, 2013, the Company repurchased 640,209 shares at an average cost of $11.07 per share."

Income Statement

Net interest income increased $3.1 million, or 45.98%, to $9.9 million for the three months ended March 31, 2013, from $6.8 million for the comparable period in 2012. The increase was primarily attributable to an increase in the Company's interest rate spread to 2.97% for the three months ended March 31, 2013, from 2.36% for the comparable period in 2012 combined with an increase in the Company's average net earning assets of $3.2 million. A decrease in the yield on the Company's total average interest earning assets to 3.97% for the 2013 period from 4.22% for the 2012 period was more than offset by a decrease in the cost of the Company's total average interest bearing liabilities to 1.00% from 1.86% for the same comparative periods. Net interest margin was 3.08% for the three months ended March 31, 2013 compared to net interest margin of 2.63% for the comparable period in 2012.

Olson stated: "While low interest rates continue to put pressure on our net interest margin, ESSA has demonstrated success in reducing its cost of funds while retaining core deposit customers." 

Interest income for the three months ended March 31, 2013 includes approximately $443,000 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, net income for the quarter includes approximately $210,000 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 six months ended March 31, 2013 includes approximately $866,000 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, net income for the six months included approximately $1.2 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 six months ended March 31, 2013.

Interest expense decreased primarily as a result of a decrease in interest rates and a decrease in higher rate borrowings for the three and six months ended March 31, 2013 compared with the comparable periods in 2012.

The provision for loan losses increased $200,000 to $850,000 for the three months ended March 31, 2013, from $650,000 for the comparable period in 2012. The provision for loan losses increased $700,000 to $1.9 million for the six months ended March 31, 2013, from $1.2 million for the comparable period in 2012. Net loan charge-offs for the three months ended March 31, 2013 were $747,000 compared to $277,000 for the comparable period in 2012. Net loan charge-offs for the six months ended March 31, 2013 were $1.5 million compared to $1.2 million for the comparable period in 2012.

Noninterest income increased $835,000, or 51.45%, to $2.5 million for the three months ended March 31, 2013, compared with the three months ended March 31, 2012, primarily reflecting an increase in the gain on sale of investments of $561,000. The quarter ended March 31, 2013, included gains on the sale of investments of $708,000 before tax compared with $147,000 for the quarter ended March 31, 2012.

Noninterest income increased $1.3 million, or 42.48% to $4.5 million for the six months ended March 31, 2012 from $3.1 million for the comparable period in 2012. The primary reasons for the increase were increases in service fees on deposit accounts of $130,000, services charges and fees on loans of $113,000, gain on sale of investments of $591,000 and gain on sale of loans of $407,000.

Allan Muto, EVP and CFO, commented: "While our fiscal second quarter and six month results reflect the continued positive impact of the recapture of fair value adjustments and net accretion as a result of the acquired performing and non-performing loans from First Star, we expect these accounting related adjustments to become less significant by the end of fiscal 2013. We sold certain mortgage backed securities at a gain and provided some necessary liquidity to our holding company, in order to fund our continued stock repurchase program. We remain diligently focused on improving our financial performance in all areas of our business."

Noninterest expense increased $1.9 million to $8.8 million or 27.87%, for the three months ended March 31, 2013, from $6.9 million for the comparable period in 2012, reflecting increases in compensation and employee benefits of $1.1 million, occupancy and equipment of $254,000, data processing of $298,000 and professional fees of $189,000. These increases were partially offset by decreases in merger related costs of $227,000 and a decrease in the cost to liquidate foreclosed real estate of $212,000.

Noninterest expense increased $2.8 million to $16.3 million or 20.38%, for the six months ended March 31, 2013, from $13.5 million for the comparable period in 2012, reflecting increases in compensation and employee benefits of $1.7 million, occupancy and equipment of $447,000, data processing of $479,000 and amortization of intangible assets of $337,000. These increases were partially offset by decreases in merger related costs of $376,000 and a decrease in the cost to liquidate foreclosed real estate of $505,000.

The increases in noninterest expenses were due primarily to the larger organization in the 2013 periods compared with the 2012 periods.

Balance Sheet, Asset Quality and Capital Adequacy

Total assets decreased $32.9 million, or 2.32%, to $1.39 billion at March 31, 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 $8.4 million, compared with September 30, 2012, were offset by decreases in total investment securities of $14.6 million, loans receivable of $11.2 million, regulatory stock of $5.6 million and other assets of $8.6 million.

Total deposits increased $8.4 million, or 0.84%, to $1.0 billion at March 31, 2013, from $995.6 million at September 30, 2012. Borrowings decreased $43.6 million to $191.1 million from $234.7 million during the same period.

Nonperforming assets totaled $28.6 million, or 2.06%, of total assets at March 31, 2013, compared with $27.2 million, or 1.92%, of total assets at September 30, 2012. The increase in nonperforming assets of $1.4 million at March 31, 2013 compared to September 30, 2012 was due primarily to an increase in non-performing residential mortgage loans of $2.4 million which was offset in part by a decline in foreclosed real estate of $1.3 million. The Company made a provision for loan losses of $850,000 and $1.9 million for the three and six month periods ended March 31, 2013, respectively, compared with provisions of $650,000 and $1.2 million for the comparable three and six month periods in 2012. The allowance for loan losses was $7.7 million, or 0.81%, of loans outstanding at March 31, 2013, compared to $7.3 million, or 0.76%, of loans outstanding at September 30, 2012.

Stockholders' equity decreased $3.7 million, or 2.08%, to $171.8 million at March 31, 2013, from $175.4 million at September 30, 2012. The decrease was due primarily to the stock repurchase program announced during the first fiscal quarter. For the six months ended March 31, 2013, the Company repurchased 640,209 shares at an average cost of $11.07 per share. The Company's tier 1 leverage ratio was 12.10%, and tangible equity to total assets was 11.56%.

Olson concluded: "Our primary focus is on growing shareholder value in a prudent manner, despite a difficult prolonged interest rate and economic environment for all financial institutions. Our strong capital position and newly established positioning as a go-to commercial and residential lender in the Lehigh Valley provides management and the board with great confidence in ESSA's future. We remain nimble as an organization and will continue to look for ways to increase value for shareholders in the coming periods."

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)
             
    March 31,
2013
    September 30,
2012
 
    (dollars in thousands)  
ASSETS                
  Cash and due from banks   $ 11,006     $ 11,034  
  Interest-bearing deposits with other institutions     12,954       4,516  
                   
    Total cash and cash equivalents     23,960       15,550  
  Certificates of deposit     1,766       1,266  
  Investment securities available for sale     314,961       329,585  
  Loans receivable held for sale     -       346  
  Loans receivable (net of allowance for loan losses of $7,671 and $7,302)     938,782       950,009  
  Regulatory stock, at cost     16,262       21,914  
  Premises and equipment, net     16,017       16,170  
  Bank-owned life insurance     28,323       27,848  
  Foreclosed real estate     1,699       2,998  
  Intangible assets, net     2,957       3,457  
  Goodwill     8,541       8,541  
  Deferred income taxes     11,413       11,336  
  Other assets     21,195       29,766  
                   
    TOTAL ASSETS   $ 1,385,876     $ 1,418,786  
                 
                 
LIABILITIES                
  Deposits   $ 1,004,032     $ 995,634  
  Short-term borrowings     33,038       43,281  
  Other borrowings     158,060       191,460  
  Advances by borrowers for taxes and insurance     9,425       3,432  
  Other liabilities     9,564       9,568  
                   
    TOTAL LIABILITIES     1,214,119       1,243,375  
                 
                 
STOCKHOLDERS' EQUITY                
  Common stock     181       181  
  Additional paid in capital     182,288       181,220  
  Unallocated common stock held by the Employee Stock Ownership Plan     (10,759 )     (10,985 )
  Retained earnings     68,918       65,181  
  Treasury stock, at cost     (69,034 )     (61,944 )
  Accumulated other comprehensive income     163       1,758  
                   
    TOTAL STOCKHOLDERS' EQUITY     171,757       175,411  
                   
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,385,876     $ 1,418,786  
                 
                 
 
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
         
    For the Three Months
Ended March 31
  For the Six Months
Ended March 31
    2013     2012   2013     2012
    (dollars in thousands)
INTEREST INCOME                            
  Loans receivable   $ 11,041     $ 9,145   $ 23,278     $ 18,486
  Investment securities:                            
      Taxable     1,558       1,628     3,188       3,266
      Exempt from federal income tax     73       55     127       103
    Other investment income     18       6     47       8
                               
        Total interest income     12,690       10,834     26,640       21,863
                             
                             
INTEREST EXPENSE                            
  Deposits     1,848       1,836     3,819       3,747
  Short-term borrowings     46       6     82       11
    Other borrowings     912       2,221     2,136       4,626
                               
        Total interest expense     2,806       4,063     6,037       8,384
                             
                             
NET INTEREST INCOME     9,884       6,771     20,603       13,479
    Provision for loan losses     850       650     1,850       1,150
                             
                             
  NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     9,034       6,121     18,753       12,329
                             
NONINTEREST INCOME                            
  Service fees on deposit accounts     711       661     1,518       1,388
  Services charges and fees on loans     268       200     497       384
  Trust and investment fees     196       207     411       422
  Gain on sale of investments, net     708       147     738       147
  Gain on sale of loans, net     81       8     415       8
  Earnings on Bank-owned life insurance     248       196     474       394
  Insurance commissions     232       195     407       386
    Other     14       9     24       18
                               
        Total noninterest income     2,458       1,623     4,484       3,147
                             
NONINTEREST EXPENSE                            
  Compensation and employee benefits     5,068       3,980     9,624       7,916
  Occupancy and equipment     1,030       776     1,979       1,532
  Professional fees     592       403     904       744
  Data processing     805       507     1,468       989
  Advertising     145       67     255       153
  Federal Deposit Insurance Corporation (FDIC) Premiums     293       167     478       329
  Loss (Gain) on foreclosed real estate     (172 )     40     (398 )     107
  Merger related costs     -       227     -       376
  Amortization of intangible assets     249       81     499       162
    Other     780       626     1,486       1,228
                               
      Total noninterest expense     8,790       6,874     16,295       13,536
                             
Income before income taxes     2,702       870     6,942       1,940
  Income taxes     662       211     2,023       395
                             
                             
Net Income   $ 2,040     $ 659   $ 4,919     $ 1,545
                             
Earnings per share:                            
  Basic   $ 0.17     $ 0.06   $ 0.41     $ 0.14
  Diluted   $ 0.17     $ 0.06   $ 0.41     $ 0.14
                             
                   
    For the Three Months
Ended March 31,
  For the Six Months
Ended March 31,
 
    2013   2012   2013   2012  
    (dollars in thousands)   (dollars in thousands)  
CONSOLIDATED AVERAGE BALANCES:                          
  Total assets   $ 1,393,004   $ 1,096,608   $ 1,395,870   $ 1,094,182  
  Total interest-earning assets     1,300,283     1,042,812     1,302,189     1,039,992  
  Total interest-bearing liabilities     1,142,032     887,760     1,149,526     887,399  
  Total stockholders' equity     175,697     162,948     176,517     162,414  
                           
PER COMMON SHARE DATA:                          
  Average shares outstanding - basic     11,763,581     10,840,604     11,932,539     10,829,027  
  Average shares outstanding - diluted     11,763,581     10,840,604     11,932,539     10,829,027  
  Book value shares     12,589,699     12,109,622     12,589,699     12,109,622  
                           
Net interest rate spread     2.97 %   2.36 %   3.06 %   2.34 %
Net interest margin     3.08 %   2.63 %   3.17 %   2.63 %