ESSA Bancorp, Inc. Announces Fiscal 2020 Second Quarter, First Half Financial Results and Operational Update

STROUDSBURG, PA / ACCESSWIRE / April 29, 2020 / ESSA Bancorp, Inc. (the "Company") (NASDAQ:ESSA), the holding company for ESSA Bank & Trust (the "Bank"), a $2.0 billion asset financial institution providing full service retail and commercial banking, financial, and investment services in eastern Pennsylvania, today announced financial results for the three and six months ended March 31, 2020.

Net income was $3.4 million, or $0.33 per diluted share, for the three months ended March 31, 2020, compared with $2.9 million, or $0.26 per diluted share, for the three months ended March 31, 2019. Net income was $6.8 million, or $0.65 per diluted share, for the six months ended March 31, 2020, compared with $5.9 million, or $0.54 per diluted share, for the six months ended March 31, 2019.

Gary S. Olson, President and CEO, commented: "As our nation and communities address the challenges and uncertainties presented by COVID-19, we have first and foremost focused on protecting the health and safety of our employees, customers and the community, positioning operations to respond to the needs of customers and the community, and ensuring ESSA Bank & Trust's financial safety and operational security.

"We implemented our comprehensive pandemic plan in early March that incorporated remote work procedures, staffing adjustments and emphasis on drive-up banking and ATMs to protect customers and employees. Electronic and mobile banking capabilities for individuals and businesses have supported necessary banking activities. Our banking team has maintained a high level of responsiveness, providing personalized attention and financial solutions to customers.

"Furthermore, we focused on three key risks to the balance sheet: liquidity, capital and credit. We took steps to enhance liquidity by building the Company's cash position using low cost funding, suspended our stock repurchasing activity while maintaining our dividend program and have been monitoring daily all customer credit positions. These initiatives are intended to mitigate the potential disruptions stemming from COVID-19.

"We are committed to helping our customers navigate challenging and changing economic and financial circumstances. We dedicated much of our human capital in April to helping our communities' small businesses through the funding of 296 loans for approximately $44.4 million under the Small Business Administration's Paycheck Protection Program (PPP), in the initial round of financing. We will continue to fund loans through this program's second round of financing.

"We are closely monitoring all customer credit positions, particularly loans requesting payment relief, which have amounted to approximately 12.3% of our total loans outstanding thus far, including $115.6 million in commercial real estate, $8.8 million in commercial, $39.2 million in mortgage, $3.5 million in auto and $1.4 million in home equity . As the economic slowdown continues to evolve due to COVID-19 restrictions, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn may require further increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio.

"We expect that our focus on efficient, responsive operations will enable ESSA to effectively respond to economic challenges, provide support for our customers, and preserve value for our shareholders. We are committed to maintaining ESSA's financial strength, while helping businesses continue their operations and providing employment plus providing guidance to those individuals who may be challenged meeting their mortgage obligations. We will also comply with guidelines for social distancing, safe operations, and returning to work in conjunction with Pennsylvania mandates."

SELECTED FINANCIAL HIGHLIGHTS

Net interest income after provision for loan losses was $22.7 million in the fiscal first half of 2020, up from $22.1 million for the same period a year earlier, primarily reflecting increased interest income from loans, lower interest expense, and a lower loss provision.
Total interest expense in the fiscal first half of 2020 declined to $9.3 million from $10.4 million during the same period in fiscal 2019, primarily reflecting less interest-bearing liabilities and lower overall interest rates.
Total net loans at March 31, 2020 were $1.36 billion compared with $1.33 billion at September 30, 2019, primarily reflecting growth in commercial loans, which was partially offset by a decline in indirect auto loan balances.
Core deposits (demand accounts, savings and money market) comprised 65% of total deposits at March 31, 2020.
Assets increased to $1.96 billion at March 31, 2020 from $1.80 billion at September 30, 2019, primarily reflecting increased cash and cash equivalents and total net loans.
Total stockholders' equity increased to $193.7 million at March 31, 2020 compared with $189.5 million at September 30, 2019.
The Company paid a cash dividend of $0.11 per share on March 30, 2020.

Fiscal Second Quarter, First Half 2020 Income Statement Review

Total interest income was $16.3 million for the three months ended March 31, 2020, down from $17.1 million for the three months ended March 31, 2019. A decline in average interest earning assets was compounded by declines in interest rates. Interest expense was $4.6 million for the quarter ended March 31, 2020 compared to $5.4 million for the same period in 2019. Declines in average interest-bearing liabilities and the cost of those liabilities were the reason for the decrease.

Total interest income was $32.9 million for the six months ended March 31, 2020, down from $34.0 million for the six months ended March 31, 2019. Interest expense was $9.3 million for the six months ended March 31, 2020 compared to $10.4 million for the same period in 2019.

Net interest income was $11.7 million for each of the three months ended March 31, 2020 and March 31, 2019, respectively. The net interest margin for the second quarter of fiscal 2020 was 2.76%, up from 2.71% for the second quarter of fiscal 2019. The net interest rate spread was 2.53% in second quarter of fiscal 2020, compared with 2.50% for the first quarter of fiscal 2019.

Net interest income was $23.6 million for each of the six months ended March 31, 2020 and March 31, 2019, respectively. The net interest margin for the first half of fiscal 2020 was 2.77%, up from 2.72% for the first half of fiscal 2019. The net interest rate spread was 2.54% in first half of fiscal 2020, compared with 2.51% for the first half of fiscal 2019.

The Company's provision for loan losses decreased to $500,000 for the three months ended March 31, 2020, compared with $600,000 for the three months ended March 31, 2019. The Company's provision for loan losses decreased to $875,000 for the six months ended March 31, 2020, compared with $1.5 million for the six months ended March 31, 2019. These decreases reflected provisioning primarily related to declining charge off activity and credit quality trends.

Noninterest income increased $637,000 or 31% to $2.7 million for the three months ended March 31, 2020, compared with $2.1 million for the three months ended March 31, 2019. Service charges and fees on loans were $700,000 in fiscal first quarter 2020, up from $276,000 in fiscal first quarter 2019, reflecting growth in fee income from accelerating production in commercial lending and income from commercial loan interest rate swaps. Gains on the sale of loans and investments contributed to increased noninterest income, and fee income from trust and investments increased year-over-year. Beginning the end of March 2020, the Bank waived various retail deposit fees for 60 days to aid customers who may be experiencing financial challenges related to the pandemic.

Noninterest income was $5.1 million for the six months ended March 31, 2020, compared with $4.2 million for the six months ended March 31, 2019. Service charges and fees on loans were $1.2 million in fiscal first half 2020, up from $606,000 in fiscal first half 2019, reflecting growth in fee income from accelerating production in commercial lending and income from commercial loan interest rate swaps. Gains on the sale of loans and investments contributed to increased noninterest income, and fee income from trust and investments increased year-over-year. Beginning the end of March 2020, the Bank waived various retail deposit fees for 60 days to aid customers who may be experiencing financial challenges related to the pandemic.

Noninterest expense was $9.8 million for the three months ended March 31, 2020 compared with $9.7 million for the comparable period a year earlier. Increases in personnel, data processing expenses and foreclosed real estate were partially offset by a decrease in expenses in most other categories.

Noninterest expense was $19.6 million for the six months ended March 31, 2020 compared with $19.4 million for the comparable period a year earlier.

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets increased $155.7 million to $1.96 billion at March 31, 2020, from $1.80 billion at September 30, 2019, primarily due to increases in cash and cash equivalents and loans receivable, offset in part by a decline in investment securities available for sale.

Cash and cash equivalents increased $121.3 million during the first six months of fiscal 2020 as a result of the previously discussed pandemic-oriented balance sheet adjustments made to mitigate related risks.

Total net loans increased to $1.36 billion at March 31, 2020 from $1.33 billion at September 30, 2019, reflecting growth in residential mortgages, construction loans and both commercial real estate and commercial and industrial loans. Residential real estate loans were $600.5 million at March 31, 2020, up $3.0 million from September 30, 2019. The Company also sold $4.0 million in residential mortgage loans to the Federal Home Loan Bank of Pittsburgh during the fiscal year which would have further enhanced loan growth. Indirect auto loans declined $23.5 million to $58.5 million at March 31, 2020 from $82.0 million at September 30, 2019, reflecting expected runoff of the portfolio following the Company's previously announced discontinuation of indirect auto lending in July 2018

Commercial real estate loans were $508.7 million at March 31, 2020, up from $480.6 million at September 30, 2019. Commercial loans (primarily commercial and industrial) increased to $70.6 million at March 31, 2020 from $55.6 million at September 30, 2019. Compared with a year earlier, commercial real estate loans grew 11% and commercial loans increased 20.3% at March 31, 2020.

Total deposits were $1.33 billion at March 31, 2020 compared with $1.34 billion at September 30, 2019 and were up 2.6% from $1.29 billion at March 31, 2019. Core deposits (demand accounts, savings and money market) were $865.2 million, or 65.0% of total deposits, at March 31, 2020 compared to $811.3 million, or 63.0% of total deposits, at March 31, 2019. Noninterest bearing demand accounts exhibited strong year-over-year growth, increasing 7.8% to $181.1 million, interest bearing demand accounts grew 9.3% to $195.2 million and money market accounts grew 5.8% to $347.0 million. Total borrowings increased $152.4 million to $400.7 million at March 31, 2020 from $248.3 million at September 30, 2019 as the Company borrowed additional funds from the FHLB Pittsburgh to increase cash reserves.

Nonperforming assets totaled $11.0 million, or 0.56% of total assets, at March 31, 2020, up from $10.3 million, or 0.57% of total assets, at September 30, 2019 and $10.3 million or 0.56% of total assets, at March 31, 2019. The allowance for loan losses was $13.2 million, or 0.96% of loans outstanding, at March 31, 2020, $12.6 million, or 0.94% of loans outstanding at September 30, 2019 and $12.4 million, or 0.92% of loans outstanding at March 31, 2019 primarily reflecting prudent reserving to match commercial loan growth, overall loan credit quality and decreasing charge-off trends.

For the three months ended March 31, 2020, the Company's return on average assets and return on average equity were 0.76% and 7.09%, compared with 0.63% and 6.26%, respectively, in the comparable period of fiscal 2019. For the six months ended March 31, 2020, the Company's return on average assets and return on average equity were 0.76% and 7.09%, compared with 0.64% and 6.42%, respectively, in the comparable period of fiscal 2019.

The Bank continued to demonstrate financial strength with a Tier 1 leverage ratio of 9.44% at March 31, 2020, exceeding regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to tangible assets ratio of 9.83% at March 31, 2020.

Total stockholders' equity increased $4.2 million to $193.74 million at March 31, 2020, from $189.5 million at September 30, 2019, primarily reflecting increases from net income and comprehensive income which were offset in part by dividends paid to shareholders and changes in treasury stock. Tangible book value per share at March 31, 2020 was $16.11, compared with $15.43 at September 30, 2019.

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 $2.0 billion and has 22 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, asset management and trust services, investment services through Ameriprise Financial Institutions Group and insurance benefit services through ESSA Advisory Services, LLC. 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. In addition, the COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. The adverse effect of the COVID-19 pandemic on the Company, its customers and the communities where it operates will continue to adversely affect the Company's business, results of operations and financial condition for an indefinite period of time.

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,
 
 
September 30,
 

 
2020
 
 
2019
 

 
(dollars in thousands)
 

ASSETS

Cash and due from banks

 
$ 
117,122
 
 
$ 
48,426
 

Interest-bearing deposits with other institutions

 
 
56,397
 
 
 
3,816
 

     Total cash and cash equivalents

 
 
173,519
 
 
 
52,242
 

Investment securities available for sale, at fair value

 
 
306,407
 
 
 
313,393
 

Loans receivable (net of allowance for loan losses

  of $13,179 and $12,630)

 
 
1,358,167
 
 
 
1,328,653
 

Regulatory stock, at cost

 
 
17,284
 
 
 
11,579
 

Premises and equipment, net

 
 
14,397
 
 
 
14,335
 

Bank-owned life insurance

 
 
40,077
 
 
 
39,601
 

Foreclosed real estate

 
 
408
 
 
 
240
 

Intangible assets, net

 
 
926
 
 
 
1,066
 

Goodwill

 
 
13,801
 
 
 
13,801
 

Deferred income taxes

 
 
4,190
 
 
 
5,122
 

Other assets

 
 
26,000
 
 
 
19,395
 

TOTAL ASSETS

 
$ 
1,955,176
 
 
$ 
1,799,427
 

LIABILITIES

Deposits

 
$ 
1,327,613
 
 
$ 
1,342,830
 

Short-term borrowings

 
 
238,898
 
 
 
107,701
 

Other borrowings

 
 
161,762
 
 
 
140,581
 

Advances by borrowers for taxes and insurance

 
 
11,721
 
 
 
6,700
 

Other liabilities

 
 
21,516
 
 
 
12,107
 

TOTAL LIABILITIES

 
 
1,761,510
 
 
 
1,609,919
 

STOCKHOLDERS' EQUITY

Common stock

 
 
181
 
 
 
181
 

Additional paid-in capital

 
 
181,218
 
 
 
181,161
 

Unallocated common stock held by the

Employee Stock Ownership Plan ("ESOP")

 
 
(7,576
)
 
 
(7,803
)

Retained earnings

 
 
107,265
 
 
 
102,465
 

Treasury stock, at cost

 
 
(88,418
)
 
 
(85,216
)

Accumulated other comprehensive income (loss)

 
 
996
 
 
 
(1,280
)

TOTAL STOCKHOLDERS' EQUITY

 
 
193,666
 
 
 
189,508
 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 
$ 
1,955,176
 
 
$ 
1,799,427
 

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

 
Three months Ended March 31,
 
 
Six Months Ended March 31,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

 
(dollars in thousands, except per share date)
 

INTEREST INCOME

Loans receivable, including fees

 
$ 
14,005
 
 
$ 
14,042
 
 
$ 
28,195
 
 
$ 
27,949
 

Investment securities:

Taxable

 
 
1,945
 
 
 
2,530
 
 
 
3,902
 
 
 
5,012
 

Exempt from federal income tax

 
 
48
 
 
 
94
 
 
 
96
 
 
 
230
 

Other investment income

 
 
346
 
 
 
462
 
 
 
664
 
 
 
806
 

    Total interest income

 
 
16,344
 
 
 
17,128
 
 
 
32,857
 
 
 
33,997
 

INTEREST EXPENSE

Deposits

 
 
3,228
 
 
 
3,555
 
 
 
6,561
 
 
 
6,943
 

Short-term borrowings

 
 
489
 
 
 
1,172
 
 
 
994
 
 
 
2,249
 

Other borrowings

 
 
895
 
 
 
669
 
 
 
1,744
 
 
 
1,188
 

   Total interest expense

 
 
4,612
 
 
 
5,396
 
 
 
9,299
 
 
 
10,380
 

NET INTEREST INCOME

 
 
11,732
 
 
 
11,732
 
 
 
23,558
 
 
 
23,617
 

Provision for loan losses

 
 
500
 
 
 
600
 
 
 
875
 
 
 
1,476
 

NET INTEREST INCOME AFTER PROVISION

FOR LOAN LOSSES

 
 
11,232
 
 
 
11,132
 
 
 
22,683
 
 
 
22,141
 

NONINTEREST INCOME

Service fees on deposit accounts

 
 
778
 
 
 
784
 
 
 
1,605
 
 
 
1,647
 

Services charges and fees on loans

 
 
700
 
 
 
276
 
 
 
1,233
 
 
 
606
 

Unrealized gains (losses) on equity securities

 
 
(6
)
 
 
3
 
 
 
(5
)
 
 
1
 

Trust and investment fees

 
 
429
 
 
 
235
 
 
 
747
 
 
 
474
 

Gain on sale of investments, net

 
 
160
 
 
 
39
 
 
 
381
 
 
 
43
 

Gain on sale of loans, net

 
 
115
 
 
 
–
 
 
 
144
 
 
 
–
 

Earnings on bank-owned life insurance

 
 
235
 
 
 
240
 
 
 
476
 
 
 
484
 

Insurance commissions

 
 
238
 
 
 
194
 
 
 
446
 
 
 
395
 

Other

 
 
56
 
 
 
297
 
 
 
104
 
 
 
544
 

   Total noninterest income

 
 
2,705
 
 
 
2,068
 
 
 
5,131
 
 
 
4,194
 

NONINTEREST EXPENSE

Compensation and employee benefits

 
 
6,077
 
 
 
6,035
 
 
 
12,315
 
 
 
12,159
 

Occupancy and equipment

 
 
1,069
 
 
 
1,112
 
 
 
2,136
 
 
 
2,138
 

Professional fees

 
 
533
 
 
 
646
 
 
 
992
 
 
 
1,170
 

Data processing

 
 
1,085
 
 
 
930
 
 
 
2,102
 
 
 
1,833
 

Advertising

 
 
118
 
 
 
204
 
 
 
234
 
 
 
359
 

Federal Deposit Insurance Corporation ("FDIC")

  premiums

 
 
205
 
 
 
182
 
 
 
338
 
 
 
369
 

Loss (gain) on foreclosed real estate

 
 
86
 
 
 
11
 
 
 
66
 
 
 
(104
)

Amortization of intangible assets

 
 
68
 
 
 
77
 
 
 
140
 
 
 
161
 

Other

 
 
583
 
 
 
514
 
 
 
1,264
 
 
 
1,278
 

   Total noninterest expense

 
 
9,824
 
 
 
9,711
 
 
 
19,587
 
 
 
19,363
 

Income before income taxes

 
 
4,113
 
 
 
3,489
 
 
 
8,227
 
 
 
6,972
 

Income taxes

 
 
706
 
 
 
630
 
 
 
1,410
 
 
 
1,104
 

NET INCOME

 
$ 
3,407
 
 
$ 
2,859
 
 
$ 
6,817
 
 
$ 
5,868
 

Earnings per share:

Basic

 
$ 
0.33
 
 
$ 
0.26
 
 
$ 
0.65
 
 
$ 
0.54
 

Diluted

 
$ 
0.33
 
 
$ 
0.26
 
 
$ 
0.65
 
 
$ 
0.54
 

Dividends per share

 
$ 
0.11
 
 
$ 
0.10
 
 
$ 
0.22
 
 
$ 
0.20
 

 
For the Three Months
 
 
For the Six Months
 

 
Ended March 31,
 
 
Ended March 31,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

 
(dollars in thousands, except per share data)
 

CONSOLIDATED AVERAGE BALANCES:

Total assets

 
 
1,826,470
 
 
$ 
1,850,123
 
 
$ 
1,807,336
 
 
$ 
1,841,372
 

Total interest-earning assets

 
 
1,721,272
 
 
 
1,752,867
 
 
 
1,708,262
 
 
 
1,741,373
 

Total interest-bearing liabilities

 
 
1,420,734
 
 
 
1,484,379
 
 
 
1,409,772
 
 
 
1,479,834
 

Total stockholders' equity

 
 
194,135
 
 
 
185,360
 
 
 
192,696
 
 
 
183,264
 

PER COMMON SHARE DATA:

Average shares outstanding – basic

 
 
10,462,013
 
 
 
10,825,626
 
 
 
10,473,466
 
 
 
10,891,187
 

Average shares outstanding – diluted

 
 
10,462,013
 
 
 
10,825,626
 
 
 
10,473,466
 
 
 
10,891,187
 

Book value shares

 
 
11,105,887
 
 
 
11,408,935
 
 
 
11,105,887
 
 
 
11,408,935
 

Net interest rate spread:

 
 
2.53
%
 
 
2.50
%
 
 
2.54
%
 
 
2.51
%

Net interest margin:

 
 
2.76
%
 
 
2.71
%
 
 
2.77
%
 
 
2.72
%

Contact: Gary S. Olson, President & CEO
Corporate Office: 200 Palmer Street
Stroudsburg, Pennsylvania 18360
Telephone: (570) 421-0531

SOURCE: ESSA Bancorp, Inc.

ReleaseID: 587631