ESSA Bancorp, Inc. Announces Fiscal 2019 Third Quarter, Nine Month Financial Results

STROUDSBURG, PA / ACCESSWIRE / July 24, 2019 / ESSA Bancorp, Inc. (the “Company”) (NASDAQ: ESSA), the holding company for ESSA Bank & Trust (the “Bank”), a $1.8 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 months and nine months ended June 30, 2019.

Net income was $3.0 million, or $0.29 per diluted share, for the three months ended June 30, 2019, compared with $2.8 million, or $0.26 per diluted share, for the three months ended June 30, 2018. Net income was $8.9 million, or $0.83 per diluted share, for the nine months ended June 30, 2019, compared with $3.4 million or $0.32 per diluted share, for the nine months ended June 30, 2018. Results for the nine months ended June 30, 2018 reflect a one-time charge to income tax expense of $3.7 million recorded in the Company’s first fiscal quarter of 2018 related to the reduction in the carrying value of the Company’s deferred tax assets, which resulted from the reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017.

Gary S. Olson, President and CEO, commented: “Year-over-year earnings growth, improved return on average assets and average equity, and increased shareholder value reflected the Company’s focus on growing our commercial lending and banking business, maintaining our historical strength in residential mortgage and municipal lending, and maintaining overall asset quality. Generating cost-effective funding for our accelerating loan activity has been a key goal for ESSA, and we were pleased that continued growth in core deposits and use of internal funding sources has led to a significant decrease in short-term borrowings to support lending.

“Operational and systems initiatives to increase productivity have led to consistent year-over-year operating cost reductions as we have progressed through 2019. While focused on efficient operation, we recognize the importance of investing in people and assets that support growth. Our new and expanded Allentown office, relocation to a new, upgraded branch facility in Nazareth, and adding top-performing bankers in our suburban Philadelphia office are examples of our commitment to efficient growth and enhanced productivity.”

FISCAL THIRD QUARTER, NINE MONTHS 2019 HIGHLIGHTS

Increased earnings reflected the Company’s continuing progress in driving revenue from lending activity, with net income in the fiscal third quarter of 2019 of $3.0 million, up 8.0% from $2.8 million in the fiscal third quarter of 2018. In the first nine months of fiscal 2019, pre-tax income of $10.6 million rose 24.1% compared with the first nine months of fiscal 2018. Pre-tax income provides a better comparison due to the one-time charge to income tax expense of $3.7 million in the fiscal first nine months of 2018 as described above.
Total interest income increased to $17.0 million in the third quarter of fiscal 2019 from $16.7 million in the third quarter of fiscal 2018, primarily reflecting higher interest income generated by loans.
Total net loans at June 30, 2019 increased $21.6 million to $1.3 billion from September 30, 2018, primarily reflecting growth in commercial and commercial real estate loans. Year-to-date, net loan growth of $21.6 million includes a decline of $49.8 million in indirect auto loan balances during the same period. Net loans at June 30, 2019 were up 1.9%, or $25.0 million, compared with net loans at June 30, 2018, primarily reflecting commercial loan growth. The year-over-year decline in indirect auto loan balances outstanding was $68.0 million. The Company discontinued indirect auto lending in July 2018.
Core deposits (demand accounts, savings and money market) increased to 62.9% of total deposits at June 30, 2019 from 58.6% at June 30, 2018, reflecting year-over-year growth in noninterest bearing, lower-cost interest bearing and money market deposits.
Nonperforming assets totaled $19.1 million, or 1.06% of total assets, at June 30, 2019, up from $11.7 million, or 0.64% of total assets, at September 30, 2018. The increase in nonperforming assets is due to the addition of one commercial loan relationship totaling $8.3 million. It required no addition to the Company’s loan loss provision, as management believes that the Company is well secured and does not expect to incur any principal loss on this credit, which was part of a complex participation loan with other financial institutions.
Expense management led to a 6.4% decline in total noninterest expense for the quarter ended June 30, 2019 compared to the same period in 2018. Year to date, total noninterest expense declined by 5.1% and the efficiency ratio improved to 69.6% in 2019 from 70.2% in 2018.
For the three months ended June 30, 2019, the Company’s return on average assets and return on average equity were 0.67% and 6.59%, compared with 0.62% and 6.33%, respectively, in the comparable period of fiscal 2018. The Company’s return on average assets for the nine months ended June 30, 2019 was 0.65% and the return on average equity was 6.48% compared to 0.25% and 2.55% for the same period in fiscal 2018. Total stockholders’ equity increased to $188.1 million at June 30, 2019 from $179.2 million at September 30, 2018. Tangible book value per share at June 30, 2019 increased to $15.17, compared with $13.92 at September 30, 2018.
The Company paid a quarterly cash dividend of $0.10 per share on June 28, 2019, its 45th consecutive quarterly cash dividend to shareholders.

Fiscal Third Quarter, Nine Months Income Statement Review

Total interest income was $17.0 million for the three months ended June 30, 2019, up from $16.7 million for the three months ended June 30, 2018. The primary driver was growth in interest income from loans to $14.3 million in fiscal second quarter 2019, up from $14.0 million a year earlier. Interest expense was $5.3 million for the quarter ended June 30, 2019 compared to $4.2 million for the same period in 2018, partially reflecting growth in deposits along with increases in the cost of both borrowings and retail deposits.

Total interest income was $51.0 million for the nine months ended June 30, 2019, up 6.4% from $47.9 million for the nine months ended June 30, 2018. The primary driver was 6.4% growth in interest income from loans to $42.2 million in 2019, up from $39.7 million in the same period a year earlier. Interest expense in the first half of fiscal 2019 was $15.7 million compared to $11.7 million for the same period in 2018.

Net interest income was $11.7 million for the three months ended June 30, 2019, compared with $12.6 million for the comparable period in fiscal 2018. The net interest margin for the third quarter of fiscal 2019 was 2.74%, compared with 2.98% for the third quarter of fiscal 2018. The net interest rate spread was 2.49% in third quarter fiscal 2019, compared with 2.84% for the third quarter of fiscal 2018.

For the nine months ended June 30, 2019, net interest income was $35.3 million compared with $36.3 million for the comparable period in 2018. The net interest margin for the nine months ended June 30, 2019 was 2.72%, compared with 2.87% for the same period in 2018. The net interest rate spread was 2.51% in nine months ended June 30, 2019, compared with 2.75% for 2018.

The Company’s provision for loan losses decreased to $400,000 for the three months ended June 30, 2019, compared with $975,000 for the three months ended June 30, 2018. This decrease reflected provisioning primarily related to declining charge off activity. The Company’s provision for loan losses decreased to $1.9 million for the nine months ended June 30, 2019, compared with $3.1 million for the nine months ended June 30, 2018.

Noninterest income remained at $1.9 million for the three months ended June 30, 2019, compared with the three months ended June 30, 2018.

For the nine months ended June 30, 2019, noninterest income increased 4.2% to $6.1 million compared with $5.8 million for the nine months ended June 30, 2018. An increase in other income was the primary driver of the noninterest income increase, which included the recovery of $226,000 of previously expensed professional fees related to the settlement of a non-performing loan and the settlement of approximately $280,000 from a previously purchased credit impaired loan.

Noninterest expense decreased to $9.5 million for the three months ended June 30, 2019 compared with $10.2 million for the comparable period in fiscal 2018. Noninterest expense decreased $1.6 million or 5.1%, to $28.9 million for the nine months ended June 30, 2019 compared with $30.4 million for the comparable period in fiscal 2018. All noninterest expense categories other than compensation and employee benefits and data processing for the nine months ended June 30, 2019 decreased compared to the same period in 2018 reflecting the Company’s focus on expense management and reducing its efficiency ratio.

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets decreased $33.8 million to $1.80 billion at June 30, 2019, from $1.83 billion at September 30, 2018, primarily due to a decline in investment securities available for sale, offset in part by growth in loans.

Total net loans increased to $1.33 billion at June 30, 2019 from $1.31 billion at September 30, 2018. Residential real estate loans were $595.8 million at June 30, 2019, up $15.2 million from September 30, 2018. The Company purchased $22.3 million of 1 to 4 family, adjustable-rate residential loans during the quarter ended December 31, 2018. Indirect auto loans declined $49.8 million to $96.4 million at June 30, 2019 from $146.2 million at September 30, 2018, reflecting expected runoff of the portfolio following our previously announced discontinuation of indirect auto lending in July 2018.

Commercial real estate (“CRE”) loans were $462.8 million at June 30, 2019, up from $416.6 million at September 30, 2018 and reflected strong year-over-year growth from $396.8 million at June 30, 2018. Residential multi-family lending has been a particularly strong component of CRE activity. Commercial (primarily commercial and industrial) loans increased to $58.7 million at June 30, 2019 from $49.5 million at September 30, 2018 and were up from $49.6 million at June 30, 2018, reflecting balanced activity in a number of business sectors.

Total deposits decreased $5.3 million, or 0.4%, to $1.33 billion at June 30, 2019 from September 30, 2018. Core deposits (demand accounts, savings and money market) were $837.1 million, or 62.9% of total deposits, at June 30, 2019 compared to $743.5 million, or 58.6% of total deposits, at June 30, 2018. Noninterest bearing demand accounts exhibited strong year-over-year growth, increasing 7.0% to $176.4 million, while interest bearing demand accounts grew 7.6% to $182.3 million. Total borrowings decreased $44.5 million to $254.0 million at June 30, 2019 from $298.5 million at September 30, 2018.

Nonperforming assets totaled $19.1 million, or 1.06% of total assets, at June 30, 2019, up from $11.7 million, or 0.64% of total assets, at September 30, 2018. As previously stated, the increase in nonperforming assets is due to the addition of one commercial loan relationship totaling $8.3 million. The allowance for loan losses was $12.6 million, or 0.94% of loans outstanding, at June 30, 2019, up from $11.7 million, or 0.89% of loans outstanding at September 30, 2018, primarily reflecting prudent reserving to match commercial loan growth.

For the three months ended June 30, 2019, the Company’s return on average assets and return on average equity were 0.67% and 6.59%, compared with 0.62% and 6.33%, respectively, in the comparable period of fiscal 2018. For the nine months ended June 30, 2019, the Company’s return on average assets and return on average equity were 0.65% and 6.48%, compared with 0.25% and 2.55%, respectively for the comparable fiscal 2018 period.

The Bank continued to demonstrate financial strength with a Tier 1 leverage ratio of 9.33% at June 30, 2019, exceeding regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to tangible assets ratio of 9.27% at June 30, 2019.

Total stockholders’ equity increased $8.9 million to $188.1 million at June 30, 2019, from $179.2 million at September 30, 2018, primarily reflecting increases from net income and the change in other comprehensive loss, offset in part by dividends paid to shareholders and a $6.5 million stock buyback. Tangible book value per share at June 30, 2019 was $15.17, compared with $13.92 at September 30, 2018.

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 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, 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 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.

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

June 30,

2019

September 30,

2018

(dollars in thousands)

ASSETS

Cash and due from banks

$
34,925

$
39,197

Interest-bearing deposits with other institutions

5,773

4,342

Total cash and cash equivalents

40,698

43,539

Certificates of deposit

250

500

Investment securities available for sale, at fair value

325,327

371,438

Loans receivable (net of allowance for loan losses of $12,606 and $11,688)

1,326,623

1,305,071

Regulatory stock, at cost

12,488

12,973

Premises and equipment, net

14,321

14,601

Bank-owned life insurance

39,356

38,630

Foreclosed real estate

505

1,141

Intangible assets, net

1,140

1,375

Goodwill

13,801

Deferred income taxes

5,194

8,441

Other assets

20,321

22,280

TOTAL ASSETS

$
1,800,024

$
1,833,790

LIABILITIES

Deposits

$
1,331,583

$
1,336,855

Short-term borrowings

121,297

179,773

Other borrowings

132,673

118,723

Advances by borrowers for taxes and insurance

13,928

6,826

Other liabilities

12,466

12,427

TOTAL LIABILITIES

1,611,947

1,654,604

STOCKHOLDERS’ EQUITY

Common stock

181

Additional paid in capital

180,990

180,765

Unallocated common stock held by the Employee Stock Ownership Plan

(7,916
)

(8,255
)

Retained earnings

99,806

94,112

Treasury stock, at cost

(83,864
)

(77,707
)

Accumulated other comprehensive loss

(1,120
)

(9,910
)

TOTAL STOCKHOLDERS’ EQUITY

188,077

179,186

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
1,800,024

$
1,833,790

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

Three Months

Nine months

Ended June 30

2019

2018

2019

2018

INTEREST INCOME

Loans receivable

$
14,297

$
13,698

$
42,246

$
39,704

Investment securities:

Taxable

2,258

2,226

7,270

6,470

Exempt from federal income tax

183

287

756

Other investment income

388

341

1,194

1,011

Total interest income

17,000

16,718

50,997

47,941

INTEREST EXPENSE

Deposits

3,770

2,561

10,713

7,297

Short-term borrowings

673

992

2,922

2,527

Other borrowings

842

603

2,030

1,852

Total interest expense

5,285

4,156

15,665

11,676

NET INTEREST INCOME

11,715

12,562

35,332

36,265

Provision for loan losses

400

975

1,876

3,075

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

11,315

11,587

33,456

33,190

NONINTEREST INCOME

Service fees on deposit accounts

834

832

2,481

2,536

Services charges and fees on loans

288

342

894

1,010

Realized and Unrealized gains on equity securities

–

Trust and investment fees

260

255

734

732

Gain on sale of investment securities available for sale

–

Earnings on Bank-owned life insurance

242

250

726

754

Insurance commissions

217

200

612

575

Other

562

129

Total noninterest income

1,862

1,897

6,056

5,811

NONINTEREST EXPENSE

Compensation and employee benefits

5,878

5,820

18,037

17,728

Occupancy and equipment

1,024

1,049

3,162

3,420

Professional fees

434

564

1,604

1,756

Data processing

925

880

2,758

2,697

Advertising

140

331

499

690

Federal Deposit Insurance Corporation Premiums

238

234

607

679

Loss(Gain) on foreclosed real estate

(69
)

–

Amortization of intangible assets

102

235

381

Other

770

1,179

2,048

3,082

Total noninterest expense

9,518

10,163

28,881

30,433

Income before income taxes

3,659

3,321

10,631

8,568

Income taxes

612

500

1,716

5,122

Net Income

$
3,047

$
2,821

$
8,915

$
3,446

Earnings per share:

Basic

0.29

0.26

0.83

0.32

Diluted

0.29

0.26

0.83

0.32

Dividends per share

0.1

0.09

0.3

0.27

For the Three Months
Ended June 30,

For the Nine months

Ended June 30,

2019

2018

2019

2018

(dollars in thousands)

(UNAUDITED)

(dollars in thousands)

(UNAUDITED)

CONSOLIDATED AVERAGE BALANCES:

Total assets

$
1,815,033

$
1,810,976

$
1,832,592

$
1,811,903

Total interest-earning assets

1,718,326

1,691,175

1,733,686

1,690,295

Total interest-bearing liabilities

1,436,027

1,450,458

1,465,231

1,454,957

Total stockholders??? equity

185,414

178,665

183,981

180,701

PER COMMON SHARE DATA:

Average shares outstanding – basic

10,574,407

10,911,468

10,787,761

10,799,228

Average shares outstanding – diluted

10,574,407

10,922,859

10,787,761

10,808,623

Book value shares

11,408,935

11,790,596

11,408,935

11,790,596

Net interest rate spread

2.49
%

2.84
%

2.51
%

2.75
%

Net interest margin

2.74
%

2.98
%

2.72
%

2.87
%

Contact: Gary S. Olson, President & CEO

Corporate Office: 200 Palmer Street

Stroudsburg, Pennsylvania 18360

Telephone: (570) 421-0531

SOURCE: ESSA Bancorp Inc.

ReleaseID: 553267

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