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 | 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 | 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 | 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 | 57 | 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 | 2 | - | 3 | - | ||||||||||||
| Trust and investment fees | 260 | 255 | 734 | 732 | ||||||||||||
| Gain on sale of investment securities available for sale | 1 | - | 44 | 75 | ||||||||||||
| Earnings on Bank-owned life insurance | 242 | 250 | 726 | 754 | ||||||||||||
| Insurance commissions | 217 | 200 | 612 | 575 | ||||||||||||
| Other | 18 | 18 | 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 | 35 | 4 | (69 | ) | - | |||||||||||
| Amortization of intangible assets | 74 | 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 monthsEnded 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.
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