ESSA Bancorp, Inc. (NASDAQ Global MarketSM: ESSA), the holding
Company for ESSA Bank & Trust, a $1.4 billion asset institution
providing full service retail and commercial banking, financial and
investment services, today announced results for fiscal first
quarter, 2014. The Company reported net income of $2.0 million, or
$0.18 per diluted share, for the three months ended December 31,
2013, compared with net income of $2.9 million, or $0.24 per
diluted share, for the three months ended December 31, 2012.
Results for the quarter ended December 31, 2013 reflect a
decline in the accretion of the fair market adjustments that
resulted from the Company’s acquisition of First Star Bancorp to
$630,000 from $1.5 million for the comparable 2012 period. In
addition, the Company did not sell any loans during the 2013 period
compared to a $334,000 gain from loan sales during the comparable
2012 period. The quarter ended December 31, 2013 also included
$258,000 in merger related costs associated with the previously
announced proposed merger between the Company and Franklin Security
Bancorp.
Gary S. Olson, President and CEO, commented: “Core results
continued to reflect the traction we are building in commercial
lending and deposits, expanded banking relationships with retail
and business customers, and meaningful efficiencies from the
infrastructure we put in place. We have continued to grow the ESSA
franchise through leveraging the capabilities and efficiencies of
our existing banking network, and through strategic acquisitions to
provide access to new markets and expand ESSA’s presence in our
served markets.
“During the quarter, we announced the planned acquisition of
Franklin Security Bancorp, which would open new markets for us in
the Scranton and Wilkes-Barre metropolitan areas and would be
immediately accretive to earnings. We recently completed a branch
facility, loan and deposit acquisition in Monroe County, adding an
attractive facility and enabling us to consolidate two existing
locations into this new branch. We are very pleased with the
results from expanded operations in the Lehigh Valley, and we
anticipate ESSA’s long-term performance will demonstrate positive
results from our numerous initiatives.”
Income Statement Review
As noted, net income in first quarter 2014 reflected the impact
of fair value adjustments to acquired First Star loans. Net
interest income decreased $1.2 million, or 11.5%, to $9.5 million
for the three months ended December 31, 2013, from $10.7 million
for the comparable period in 2012. The change primarily reflected a
decrease in the Company’s interest rate spread to 2.88% for the
three months ended December 31, 2013, from 3.14% for the comparable
period in 2012 and a decrease in the Company’s average net earning
assets of $2.7 million.
Net interest margin was 2.98% for the three months ended
December 31, 2013 compared to a net interest margin of 3.26% for
the comparable period in 2012. For purposes of consecutive quarter
comparison, net interest income for the quarter ended September 30,
2013 was $9.4 million. The Company’s net interest rate spread was
2.83% and the net interest margin was 2.92% for the September, 2013
quarter.
Interest income for the three months ended December 31, 2013
included approximately $89,000 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 compared to
$424,000 for the comparable 2012 period. In addition, interest
income in the fiscal first quarter, 2014 included approximately
$541,000 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, compared to $973,000
of similar repayments for the comparable 2012 period.
The Company lowered interest expense 16.7% to $2.7 million in
fiscal first quarter 2014, compared with $3.2 million in fiscal
first quarter 2013. Total cost of funds on all interest bearing
liabilities for the three months ended December 31, 2013 was 0.95%
compared with 1.11% for the same period in 2012. Total cost of
funds on all interest bearing liabilities for the three months
ended September 30, 2013 was 0.99%.
The provision for loan losses decreased to $750,000 for the
three months ended December 31, 2013, compared with $1.0 million
for the three months ended December 31, 2012. Net loan charge-offs
in fiscal first quarter 2014 were $445,000 compared to $746,000 in
fiscal first quarter 2013.
Noninterest income decreased 19.7% to $1.6 million for the three
months ended December 31, 2013, compared with the three months
ended December 31, 2012, primarily reflecting a decrease in the
gains on sale of loans of $334,000 and decreased gain on sale of
investments of $30,000.
“ESSA remains cautious with respect to its mortgage origination
business,” noted Olson. “However, with the slowing of mortgage
refinancing activity and an uptick in rates, we decided last year
to return to our historical practice of retaining originated
mortgages and building our loan portfolio.”
Noninterest expense was $7.7 million for the three months ended
December 31, 2013 compared with $7.5 million for the comparable
period in 2012. Noninterest expense for the 2013 period included
$258,000 of merger related costs related to the Company’s
previously announced proposed merger with Franklin Security
Bancorp. The Company also had a gain on foreclosed real estate of
$226,000 in the comparable 2012 period compared to a loss of
$42,000 for the quarter ended December 31, 2013. Olson noted that
the consolidation of two ESSA branches into the newly acquired
Monroe County location is expected to have a positive impact on
noninterest expense in future periods.
Balance Sheet, Asset Quality and Capital Adequacy
Total assets decreased $17.1 million, or 1.25%, to $1.36 billion
at December 31, 2013, compared to $1.37 billion at September 30,
2013. Decreases in cash and cash equivalents of $11.8 million and
loans receivable of $5.9 million, compared to September 30, 2013,
accounted for the majority of the decrease.
Total deposits decreased $44.7 million, or 4.29%, to $996.4
million at December 31, 2013, from $1.04 billion at September 30,
2013. Included in the deposit decrease was a decrease of $32.5
million in brokered certificates of deposit. During the same
period, borrowings increased $26.5 million. Olson explained that in
fiscal first quarter 2014, FHLB borrowings were attractively priced
compared to brokered certificates.
Nonperforming assets totaled $26.8 million, or 1.98%, of total
assets at December 31, 2013, compared with $26.0 million, or 1.89%,
of total assets at September 30, 2013. The increase in
nonperforming assets of $900,000 at December 31, 2013 compared to
September 30, 2013 was due primarily to the addition of a $1.7
million commercial real estate loan.
Olson commented, “Overall asset quality continues to trend
positively, and while we continue our work to reduce non-performing
assets, we have been pleased with the stability and quality of
ESSA’s loan portfolio.”
The Company recorded a provision for loan losses of $750,000 for
the three-month period ended December 31, 2013, compared with a
provision of $1.0 million for the comparable period in 2012. The
allowance for loan losses was $8.4 million, or 0.90%, of loans
outstanding at December 31, 2013, compared to $8.1 million, or
0.86%, of loans outstanding at September 30, 2013.
The Bank continued to demonstrate financial strength, with a
tier 1 leverage ratio of 11.46%, exceeding accepted regulatory
standards for a well-capitalized institution. The Company also
maintains a tangible equity to total assets ratio of 11.24%.
Stockholders’ equity increased $103,000 to $166.5 million at
December 31, 2013, from $166.4 million at September 30, 2013. For
the three months ended December 31, 2013, the Company repurchased
17,600 shares at an average cost of $11.14 per share. Tangible book
value per share at December 31, 2013 increased to $13.04 compared
with $12.99 at December 31, 2012.
The Company’s return on average assets and return on average
equity , respectively, were 0.59% and 4.77%, compared with 0.82%
and 6.49%, in the corresponding period of fiscal 2012, the
year-over-year comparisons partially reflecting the previously
referenced changes in fair valuation adjustments. Return on average
assets and return on average equity, respectively, were 0.59% and
4.95% for the quarter ended September 30, 2013.
Olson concluded, “We are building a franchise with the size and
scale to leverage our strengths and comfortably manage regulatory
expenses, capital requirements, while fully serving the financial
needs of a larger market area. We are maintaining the tradition of
providing customers with the highest level of personal service,
attention and professionalism. And we remain committed to our
tradition of growing shareholder value.”
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 25
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 MarketSM 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)
December 31,
2013
September 30,
2013
(dollars in thousands) ASSETS Cash and due from banks $
11,293 $ 22,393 Interest-bearing deposits with other institutions
3,524 4,255 Total cash and cash
equivalents 14,817 26,648 Certificates of deposit 1,767 1,767
Investment securities available for sale 315,829 315,622 Loans
receivable (net of allowance for loan losses of $8,369 and $8,064)
922,286 928,230 Regulatory stock, at cost 10,024 9,415 Premises and
equipment, net 15,542 15,747 Bank-owned life insurance 29,025
28,797 Foreclosed real estate 2,618 2,111 Intangible assets, net
2,229 2,466 Goodwill 8,817 8,817 Deferred income taxes 12,024
11,183 Other assets 20,218 21,512
TOTAL ASSETS $ 1,355,196 $ 1,372,315
LIABILITIES Deposits $ 996,391 $ 1,041,059 Short-term
borrowings 33,000 23,000 Other borrowings 145,760 129,260 Advances
by borrowers for taxes and insurance 7,360 4,962 Other liabilities
6,136 7,588 TOTAL LIABILITIES
1,188,647 1,205,869
STOCKHOLDERS’ EQUITY Common stock 181 181 Additional paid in
capital 182,506 182,440 Unallocated common stock held by the
Employee Stock Ownership Plan (10,419 ) (10,532 ) Retained earnings
73,169 71,709 Treasury stock, at cost (76,313 ) (76,117 )
Accumulated other comprehensive loss (2,575 ) (1,235
) TOTAL STOCKHOLDERS’ EQUITY 166,549
166,446 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $
1,355,196 $ 1,372,315
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three
MonthsEnded December 31 2013
2012 (dollars in thousands) INTEREST INCOME Loans
receivable $ 10,523 $ 12,237 Investment securities: Taxable 1,527
1,630 Exempt from federal income tax 73 54 Other investment income
59 29 Total interest
income 12,182 13,950
INTEREST EXPENSE Deposits 1,988 1,971 Short-term
borrowings 23 36 Other borrowings 680
1,224 Total interest expense 2,691
3,231 NET INTEREST INCOME
9,491 10,719 Provision for loan losses 750
1,000 NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,741 9,719
NONINTEREST INCOME Service fees on deposit accounts 792 807
Services charges and fees on loans 185 229 Trust and investment
fees 211 215 Gain on sale of investments, net - 30 Gain on sale of
loans, net - 334 Earnings on Bank-owned life insurance 229 226
Insurance commissions 193 175 Other 17
10 Total noninterest income 1,627 2,026
NONINTEREST EXPENSE Compensation and employee
benefits 4,308 4,556 Occupancy and equipment 918 949 Professional
fees 409 312 Data processing 680 663 Advertising 106 110 Federal
Deposit Insurance Corporation Premiums 229 185 Loss (Gain) on
foreclosed real estate 42 (226 ) Merger related costs 258 -
Amortization of intangible assets 237 250 Other 561
706 Total noninterest expense 7,748
7,505 Income before income taxes 2,620
4,240 Income taxes 616 1,361 Net
Income $ 2,004 $ 2,879 Earnings
per share: Basic $ 0.18 $ 0.24 Diluted $ 0.18 $ 0.24
For the Three MonthsEnded December 31, 2013
2012
(dollars in thousands) CONSOLIDATED AVERAGE BALANCES: Total
assets $
1,361,034
$
1,398,734
Total interest-earning assets
1,264,918
1,304,096
Total interest-bearing liabilities
1,120,576
1,157,020
Total stockholders’ equity
168,058
177,337
PER COMMON SHARE DATA: Average shares outstanding - basic
10,890,156
12,088,125
Average shares outstanding - diluted
10,906,229
12,088,125
Book value shares
11,927,964
13,191,008
Net interest rate spread 2.88 %
3.14
%
Net interest margin 2.98 %
3.26
%
ESSA Bancorp, Inc.Gary S. Olson, 570-421-0531President &
CEO
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