ESSA Bancorp, Inc. (the “Company”) (NASDAQ:ESSA) today announced
financial results for fiscal three and twelve months ended
September 30, 2017. The Company is the holding company for ESSA
Bank & Trust (the “Bank”), a $1.78 billion asset institution,
which provides full service retail and commercial banking,
financial, and investment services from 25 locations in eastern
Pennsylvania, including the Poconos, Lehigh Valley,
Scranton/Wilkes-Barre and suburban Philadelphia.
The Company reported net income of $2.0 million,
or $0.19 per diluted share, for the fourth quarter ended September
30, 2017, compared with net income of $1.5 million, or $0.14 per
diluted share, for the same quarter last year. For the year ended
September 30, 2017, the Company reported net income of $7.3 million
or $0.69 per diluted share, compared to $7.7 million or $0.73 per
diluted share for the comparable period in 2016.
“Our focus on growing commercial banking
relationships generated positive results in fiscal 2017, including
$35 million year-over-year growth in the Company’s commercial loan
portfolio, and an increase in noninterest bearing deposits that are
often linked to commercial banking relationships,” said Gary Olson,
President and CEO. “We originated a Company record $160 million of
commercial loans and added $17 million of noninterest bearing
deposits during the year.
“Our fiscal fourth quarter results, in
particular, reflected the initiatives we are implementing to
increase operational productivity and efficiency. Even as we have
invested in building ESSA’s team of experienced producers, we are
becoming more productive. A meaningful reduction of noninterest
expense contributed to the year-over-year growth in fourth quarter
earnings, and we expect these positive trends will continue.”
HIGHLIGHTS
- Total interest income in the fourth quarter of 2017 was $14.9
million, up from $14.7 million for the three months ended September
30, 2016. Total interest income for the year ended September 30,
2017 was $58.3 million compared to $58.4 million for the fiscal
year ended September 30, 2016.
- Low interest rates and a flattening yield curve continued to
put pressure on the Bank’s net interest margin and contributed to
net interest income of $11.4 million in the fourth quarter of 2017
down from $11.7 million for the comparable period in 2016. Net
interest income for the 2017 year was $45.5 million compared to
$46.9 million for the comparable period in 2016.
- Core deposits (noninterest bearing demand accounts, savings and
money market accounts) rose to 60% of total deposits at September
30, 2017, compared with 58% of total deposits at September 30,
2016.
- Total net loans at September 30, 2017 were $1.24 billion, up
1.4% from September 30, 2016.
- Total commercial loans (commercial & industrial, commercial
real estate, and government), increased 9% to $420.53 million at
fiscal year-end 2017, compared to $385.35 million a year
earlier.
- With total assets increasing to $1.79 billion at September 30,
2017 from $1.77 billion at September 30, 2016, asset quality
remained strong. Non-performing assets declined to 0.88% of total
assets at September 30, 2017 from 1.24% at September 30, 2016.
- Average interest-earning assets increased to $1.64 billion for
the year ended September 30, 2017 from $1.62 billion for the year
ended September 30, 2016. Retained earnings increased to $91.1
million at year-end 2017, from $87.6 million at year-end 2016.
Total stockholders’ equity grew to $182.7 million at September 30,
2017 from $176.3 million at September 30, 2016.
Olson commented: “Our financial metrics have given us confidence
that our plan to build our business and be increasingly efficient
is taking hold. We have announced the closing of our final three
Weis Market locations, as grocery store banking doesn’t fit with
our strategic plan. We closed several grocery market locations in
2016 and 2017. This represents a continuing focus on productivity.
Most of the customer activity has been consolidated into nearby
ESSA locations.
“We will continue to emphasize efficient performance and asset
quality. We have a robust pipeline of commercial business as we
move into 2018. We’re excited about the prospects.”
Fourth Quarter and Full-Year 2017 Income Statement
Review
Total interest income rose to $14.9 million for the three months
ended September 30, 2017 from $14.7 million for the three months
ended September 30, 2016. Total interest income for the year of
2017 declined $48,000 to $58.3 million compared with 2016.
Interest expense increased $489,000 for the fourth quarter of
2017 compared to the fourth quarter of 2016, primarily reflecting a
larger base of deposits and increased borrowing costs. Increased
costs of money market accounts and certificates of deposit also
contributed to the increase. The growth of lower-interest demand
deposits, which comprised 29% of total deposits at September 30,
2017, compared with 26% of total deposits at September 30, 2016,
contributed to interest expense management. Total interest expense
for the year of 2017 also increased compared with 2016 for the same
primary reasons.
Net interest income was $11.4 million for the three months ended
September 30, 2017 compared with $11.7 million for the comparable
period in 2016. Net interest income was down $1.4 million or 3.0%
to $45.5 million for the fiscal year ended September 30, 2017 from
$46.9 million for the comparable period in 2016.
The net interest margin for the fourth quarter
of 2017 was 2.75%, compared with 2.74% for the previous quarter,
and 2.82% for the fourth quarter of fiscal 2016. Declines in net
interest spreads more than offset increases in net interest earning
assets for the 2017 fiscal fourth quarter compared to the fourth
quarter of 2016. Net interest margin was 2.77% for the 12 months
ended September 30, 2017 compared with 2.89% for the 12 months
ended September 30, 2016.
Based on increased lending and charge-off
activity, the Company’s provision for loan losses increased to $1.1
million for the three months ended September 30, 2017, compared
with $750,000 for the three months ended September 30, 2016. The
Company’s provision for loan losses increased to $3.4 million for
the fiscal year ended September 30, 2017, compared with $2.6
million for the fiscal year ended September 30, 2016.
Noninterest income rose 1.9% or $45,000 to $2.4
million for the three months ended September 30, 2017, compared
with the three months ended September 30, 2016. Other income of
$493,000 for the three months ended September 30, 2017 included a
recovery of approximately $400,000 from the redemption by the
servicer of purchased loans that had previously been written down
by the bank. Noninterest income decreased $584,000 or 6.7%, to $8.2
million for the fiscal year ended September 30, 2017, compared with
$8.8 million for the fiscal year ended September 30, 2016. The
decrease in the year-end 2017 comparison was primarily attributable
to decreased gain on sale of investments in fiscal 2017.
Noninterest expense decreased 9.8% to $10.2 million for the
three months ended September 30, 2017 compared with $11.3 million
for the comparable period in 2016. The primary reasons for the
decrease included decreases in occupancy and equipment of $173,000,
advertising of $187,000 and other expenses of $312,000 along with
an increase in the gain of foreclosed real estate of $203,000.
These improvements primarily reflected the Company’s cost
management initiatives. Noninterest expense decreased $1.4
million or 3.3% to $41.4 million for the year ended September 30,
2017 compared with $42.9 million for the comparable period in 2016.
The primary reasons for the decrease included decreases in all
operating expense categories except compensation and employee
benefits, professional fees and advertising. The decreases are the
result of the Company’s strategic goal to become more cost
efficient.
Income taxes for the year ended September 30, 2017 decreased
$992,000 to $1.6 million from $2.6 million for the year ended
September 30, 2016. The decrease was primarily the result of lower
income before taxes and the adoption of ASU 2016-09, which resulted
in recognition of all excess tax benefits for share-based payment
awards to be recognized in income taxes. Previously such tax
benefits were recognized in additional paid in capital.
Balance Sheet, Asset Quality and Capital Adequacy
Review
Total assets grew $12.7 million to $1.79 billion at September
30, 2017, from $1.77 billion at September 30, 2016. This
increase was primarily due to increases in loans receivable.
Total deposits increased $60.0 million, or 4.9%, to $1.27
billion at September 30, 2017, from $1.21 billion at September 30,
2016. During the same period, borrowings decreased $48.4
million, as the Company focused on funding growing lending activity
from internal deposits.
Loans receivable, net of allowance for loan losses, was $1.24
billion at September 30, 2017 compared with $1.22 billion at
September 30, 2016. Declines in residential, consumer, and indirect
auto lending were more than offset by increased commercial
lending.
Commercial real estate loans increased to $318.3 million at
September 30, 2017 from $288.4 million at September 30, 2016, while
commercial & industrial loans totals were $44.1 million at
September 30, 2017 compared with $40.0 million at September 30,
2016. Residential mortgage lending declined $9.9 million in 2017,
reflecting continued soft housing demand in most of the Bank’s
market areas.
Indirect auto and consumer lending decreased slightly at
September 30, 2017 compared to September 30, 2016.
“We continue to address the continuing slow economic recovery
impacting much of our markets,” explained Olson. “Housing has been
particularly challenging. However, we continue to make quality
residential mortgage loans. We are supporting our communities
whenever possible to stay on the path of generating business
activity.”
The Company reported continuing sound asset quality
measurements. Nonperforming assets were $15.7 million, or
0.88%, of total assets at September 30, 2017, $22.0 million, or
1.24%, of total assets at September 30, 2016 and $20.8 million, or
1.18%, at June 30, 2017. Net loan charge-offs in fiscal fourth
quarter 2017 were $956,000 compared to $1.1 million in fiscal
fourth quarter 2016. Net loan charge-offs were $3.0 million for the
year ended September 30, 2017 compared to $2.4 million for the same
period in 2016. The allowance for loan losses was $9.4 million, or
0.75% of loans outstanding, at September 30, 2017 compared to $9.1
million, or 0.74% at September 30, 2016.
The Bank continued to demonstrate financial strength, with a
Tier 1 leverage ratio of approximately 9.14%, exceeding accepted
regulatory standards for a well-capitalized institution. The
Company maintained a tangible equity to tangible assets ratio of
9.44%.
Stockholders’ equity increased $6.4 million to $182.7 million at
September 30, 2017, from $176.3 million at September 30, 2016.
Tangible book value per share at September 30, 2017 increased to
$14.40, compared with $14.05 at September 30, 2016. The Company
paid a quarterly cash dividend of $0.09 per share on September 30,
2017.
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 $1.78 billion and has 25 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, as well as risk factors disclosed in our
Annual Report on Form 10-K (as supplemented by our quarterly
reports on Form 10-Q) 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 SUBSIDIARYCONSOLIDATED BALANCE
SHEET (UNAUDITED) |
|
|
|
|
September 30,
2017 |
|
September 30,
2016 |
|
(dollars in thousands) |
ASSETS |
|
|
Cash and
due from banks |
$ |
|
36,008 |
|
$ |
31,815 |
|
Interest-bearing deposits with other institutions |
|
|
5,675 |
|
|
11,843 |
|
|
|
|
Total
cash and cash equivalents |
|
|
41,683 |
|
|
43,658 |
|
Certificates of deposit |
|
|
500 |
|
|
1,250 |
|
Investment securities available for sale |
|
|
390,452 |
|
|
390,410 |
|
Loans
receivable (net of allowance for loan losses of $9,365 and
$9,056)
|
|
|
1,236,681 |
|
|
1,219,213 |
|
Regulatory stock, at cost |
|
|
13,832 |
|
|
15,463 |
|
Premises
and equipment, net |
|
|
16,234 |
|
|
16,844 |
|
Bank-owned life insurance |
|
|
37,626 |
|
|
36,593 |
|
Foreclosed real estate |
|
|
1,424 |
|
|
2,659 |
|
Intangible assets, net |
|
|
1,844 |
|
|
2,487 |
|
Goodwill |
|
|
13,801 |
|
|
13,801 |
|
Deferred
income taxes |
|
|
10,422 |
|
|
11,885 |
|
Other
assets |
|
|
20,719 |
|
|
18,216 |
|
|
|
|
TOTAL
ASSETS |
$ |
|
1,785,218 |
|
$ |
1,772,479 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
Deposits |
$ |
|
1,274,861 |
|
$ |
1,214,820 |
|
Short-term borrowings |
|
|
137,446 |
|
|
129,460 |
|
Other
borrowings |
|
|
174,168 |
|
|
230,601 |
|
Advances
by borrowers for taxes and insurance |
|
|
5,163 |
|
|
4,956 |
|
Other
liabilities |
|
|
10,853 |
|
|
16,298 |
|
|
|
|
TOTAL
LIABILITIES |
|
|
1,602,491 |
|
|
1,596,135 |
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY |
|
|
Common
stock |
|
|
181 |
|
|
181 |
|
Additional paid in capital |
|
|
180,764 |
|
|
181,900 |
|
Unallocated common stock held by the Employee Stock Ownership
Plan |
|
|
(8,720 |
) |
|
(9,174 |
) |
Retained
earnings |
|
|
91,147 |
|
|
87,638 |
|
Treasury
stock, at cost |
|
|
(79,891 |
) |
|
(82,369 |
) |
Accumulated other comprehensive loss |
|
|
(754 |
) |
|
(1,832 |
) |
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY |
|
|
182,727 |
|
|
176,344 |
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
|
1,785,218 |
|
$ |
1,772,479 |
|
ESSA BANCORP, INC. AND SUBSIDIARY CONSOLIDATED
STATEMENT OF INCOME (UNAUDITED) |
|
|
|
|
For the Three Months Ended
September 30, |
For the Year Ended September
30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
(dollars in thousands) |
INTEREST INCOME |
|
|
|
|
Loans
receivable |
$ |
12,293 |
|
$ |
12,328 |
|
$ |
48,162 |
|
$ |
49,084 |
Investment securities: |
|
|
|
|
Taxable |
|
2,052 |
|
|
1,818 |
|
|
8,042 |
|
|
7,402 |
Exempt
from federal income tax |
|
287 |
|
|
298 |
|
|
1,194 |
|
|
1,074 |
Other
investment income |
|
249 |
|
|
225 |
|
|
920 |
|
|
806 |
Total
interest income |
|
14,881 |
|
|
14,669 |
|
|
58,318 |
|
|
58,366 |
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
Deposits |
|
2,204 |
|
|
1,903 |
|
|
8,471 |
|
|
7,595 |
Short-term borrowings |
|
526 |
|
|
274 |
|
|
1,449 |
|
|
658 |
Other
borrowings |
|
728 |
|
|
792 |
|
|
2,879 |
|
|
3,178 |
Total
interest expense |
|
3,458 |
|
|
2,969 |
|
|
12,799 |
|
|
11,431 |
|
|
|
|
|
|
|
|
|
|
NET INTEREST
INCOME |
|
11,423 |
|
|
11,700 |
|
|
45,519 |
|
|
46,935 |
Provision
for loan losses |
|
1,100 |
|
|
750 |
|
|
3,350 |
|
|
2,550 |
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES
|
|
10,323 |
|
|
10,950 |
|
|
42,169 |
|
|
44,385 |
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
Service
fees on deposit accounts |
|
887 |
|
|
895 |
|
|
3,440 |
|
|
3,552 |
Services
charges and fees on loans |
|
425 |
|
|
327 |
|
|
1,337 |
|
|
1,176 |
Trust and
investment fees |
|
205 |
|
|
177 |
|
|
752 |
|
|
780 |
Gain on
sale of investments, net |
|
- |
|
|
477 |
|
|
295 |
|
|
1,258 |
Earnings
on Bank-owned life insurance |
|
258 |
|
|
245 |
|
|
1,033 |
|
|
938 |
Insurance
commissions |
|
170 |
|
|
206 |
|
|
747 |
|
|
843 |
Other |
|
493 |
|
|
66 |
|
|
595 |
|
|
236 |
Total
noninterest income |
|
2,438 |
|
|
2,393 |
|
|
8,199 |
|
|
8,783 |
|
|
|
|
|
NONINTEREST
EXPENSE |
|
|
|
|
Compensation and employee benefits |
|
6,091 |
|
|
6,119 |
|
|
24,420 |
|
|
23,630 |
Occupancy
and equipment |
|
1,085 |
|
|
1,258 |
|
|
4,472 |
|
|
5,129 |
Professional fees |
|
736 |
|
|
816 |
|
|
2,886 |
|
|
2,529 |
Data
processing |
|
884 |
|
|
964 |
|
|
3,657 |
|
|
3,960 |
Advertising |
|
337 |
|
|
524 |
|
|
1,137 |
|
|
1,061 |
Federal
Deposit Insurance Corporation Premiums |
|
225 |
|
|
248 |
|
|
870 |
|
|
1,160 |
(Gain)loss on foreclosed real estate |
|
(250 |
) |
|
(47 |
) |
|
(370 |
) |
|
27 |
Merger
related costs |
|
- |
|
|
- |
|
|
- |
|
|
245 |
Amortization of intangible assets |
|
158 |
|
|
175 |
|
|
643 |
|
|
763 |
Other |
|
946 |
|
|
1,258 |
|
|
3,723 |
|
|
4,354 |
Total
noninterest expense |
|
10,212 |
|
|
11,315 |
|
|
41,438 |
|
|
42,858 |
|
|
|
|
|
Income before income
taxes |
|
2,549 |
|
|
2,028 |
|
|
8,930 |
|
|
10,310 |
Income
taxes |
|
540 |
|
|
499 |
|
|
1,591 |
|
|
2,583 |
|
|
|
|
|
|
|
|
|
|
Net Income |
$ |
2,009 |
|
$ |
1,529 |
|
$ |
7,339 |
|
$ |
7,727 |
|
|
|
|
|
|
For the Three Months
Ended September 30, |
For the Year Ended
September 30, |
|
2017 |
2016 |
2017 |
2016 |
Earnings per
share: |
|
|
|
|
Basic |
$ |
0.19 |
|
$ |
0.15 |
|
$ |
0.69 |
|
$ |
0.74 |
Diluted |
$ |
0.19 |
|
$ |
0.14 |
|
$ |
0.69 |
|
$ |
0.73 |
|
|
|
|
|
|
For the Three Months
Ended September 30, |
For the Year Ended
September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
(dollars in thousands) |
(dollars in thousands) |
CONSOLIDATED AVERAGE
BALANCES:
|
|
|
|
|
Total
assets |
$ |
1,771,002 |
|
$ |
1,763,741 |
|
$ |
1,763,409 |
|
$ |
1,732,496 |
|
Total
interest-earning assets |
|
1,649,279 |
|
|
1,648,479 |
|
|
1,641,915 |
|
|
1,623,130 |
|
Total
interest-bearing liabilities |
|
1,413,030 |
|
|
1,421,228 |
|
|
1,415,626 |
|
|
1,397,068 |
|
Total
stockholders’ equity |
|
183,288 |
|
|
179,067 |
|
|
178,629 |
|
|
175,487 |
|
|
|
|
|
|
PER COMMON SHARE
DATA: |
|
|
|
|
Average
shares outstanding - basic |
|
10,704,554 |
|
|
10,456,404 |
|
|
10,601,733 |
|
|
10,398,488 |
|
Average
shares outstanding - diluted |
|
10,766,159 |
|
|
10,579,315 |
|
|
10,663,457 |
|
|
10,519,068 |
|
Book
value shares |
|
11,596,263 |
|
|
11,393,558 |
|
|
11,596,263 |
|
|
11,393,558 |
|
|
|
|
|
|
Net interest rate
spread |
|
2.65 |
% |
|
2.75 |
% |
|
2.69 |
% |
|
2.81 |
% |
Net interest
margin |
|
2.75 |
% |
|
2.82 |
% |
|
2.77 |
% |
|
2.89 |
% |
Contact: Gary S. Olson, President & CEO Corporate
Office: 200 Palmer StreetStroudsburg, Pennsylvania 18360Telephone:
(570) 421-0531
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