REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees, Plan Administrator, and Plan Participants of the ESSA Bank & Trust
401(k) Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the ESSA Bank & Trust 401(k) Plan (the “Plan”) as of December 31, 2020 and 2019; the
related statement of changes in net assets available for benefits for the year ended December 31, 2020; and the related notes to the financial statements (collectively, the financial statements). In our
opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2020 and 2019, and the changes in net assets available for benefits for the year ended December 31,
2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan, in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
S.R. Snodgrass, P.C. ● 2009 Mackenzie Way, Suite 340 ● Cranberry Township, Pennsylvania 16066 ● Phone: 724-934-0344 ● Fax: 724-934-0345
Supplemental Information
The supplemental information in the accompanying schedule, Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December 31, 2020, has been subjected to
audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but includes
supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan’s
management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and
accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in the accompanying schedule, we evaluated whether the supplemental information, including its form and content, is
presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedule is fairly
stated, in all material respects, in relation to the financial statements as a whole.
We have served as the Plan’s auditor since 2005.
Cranberry Township, Pennsylvania
June 29, 2021
S.R. Snodgrass, P.C. ● 2009 Mackenzie Way, Suite 340 ● Cranberry Township, Pennsylvania 16066 ●
Phone: 724-934-0344 ● Fax: 724-934-0345
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN
The following brief description of the ESSA Bank & Trust 401(k) Plan (the “Plan”) for employees of ESSA Bank & Trust (the “Bank”) is provided for general
information purposes only. Participants should refer to the Plan Document for a more comprehensive description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering the employees of the Bank who have attained the age of 21 and have met the service requirements. The Plan’s initial
service requirements are 166 hours in 60 days. If the service requirements are not met in the first 60 days, the requirement reverts to 1,000 hours from hire date to anniversary date. If the service requirements are still not met after the first
anniversary year, the requirement switches to 1,000 hours in a plan year (1/1 to 12/31). An employee is eligible to participate in the first day of the quarter (January, April, July, October) coincident with or next following the date that the
eligibility requirements are met. The Plan includes a 401(k) before-tax and after-tax savings features, which permits participants to defer compensation under Section 401(k) of the Internal Revenue Code. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. The Benefits Committee is responsible for oversight of the Plan. The Benefits Committee determines the appropriateness of the Plan’s investment offerings, and monitors
investment performance.
Contributions
Employees may elect to contribute any amount up to the maximum percentage allowable, not to exceed the limits of Code Sections 401(k), 402(g), 404, and 415. Participants
who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. The participants may direct their accounts into several different investment options. Contributions are subject to certain limitations. The Bank
will match 100 percent of the participant’s annual elective deferrals that do not exceed 3 percent of the participant’s compensation, plus 50 percent of the amount of the participant’s annual elective deferrals that exceed 3 percent but that do not
exceed 5 percent of the participant’s compensation.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, as well as allocations of Plan earnings based upon participant’s account balances at the
beginning of the valuation period. Participant accounts are charged with an allocation of administrative expenses that are paid by the Plan. Allocations are based on participant earnings, account balances, or specific participant transactions, as
defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are immediately vested in their voluntary contributions and actual earnings thereon. Employer contributions are also immediately vested.
ESSA BANK & TRUST 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN (Continued)
Payment of Benefits
Upon termination of service due to death, disability, or retirement, participants whose accounts do not exceed $1,000 may receive a lump-sum amount equal to the value of
their account. Participants whose accounts are between $1,000 and $5,000 may receive a lump-sum distribution or may have the balance of their account rolled over into an Individual Retirement Account (“IRA”). Participants whose vested account
balance at the time of termination exceeds $5,000 may receive a lump-sum distribution or may defer payments of benefits until April 1 of the calendar year following the calendar year during which the participant reaches age 72. For termination of
service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump sum distribution.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their account balance. The loans are
secured by the balance in the participant’s account and bear interest ranging from 4.25 to 6.25 percent, which is commensurate with local prevailing rates. Principal and interest are paid ratably through monthly payroll deductions. Loans may be
requested for hardship purposes only.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by the Plan and the methods of applying these principles conform to U.S. generally accepted accounting principles. The financial
statements of the Plan are prepared on the accrual basis of accounting.
A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could
differ from those estimates.
Investment Valuation and Income Recognition
The Plan’s investments are reported at fair value (except for the fully-benefit-responsive guaranteed investment contract, which is reported at contract value). The fair
value of pooled separate accounts is determined using the observable net asset value of the underlying investment. The fair value of ESSA Bancorp, Inc. common stock fund is determined based on a quoted market price.
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The net appreciation in fair value of investments includes investments purchased, sold, and held during the year.
ESSA BANK & TRUST 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Guaranteed Investment Contract
Guaranteed investment contracts held by a defined-contribution plan are required to be reported at contract value which is the relevant measurement for that portion of the
net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the
terms of the Plan.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participants’ loans are reclassified as
distributions based upon the terms of the Plan Document. No allowance for credit losses has been recorded as of December 31, 2020 and 2019.
Payment of Benefits
Benefit payments to participants are recorded upon distribution.
Administrative Expenses
Administrative expenses of the Plan relating to investment management and recordkeeping fees are paid by the Plan. Fees relating to accounting and miscellaneous
administrative expenses are paid by the Plan’s sponsor.
CARES Act
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act”). The CARES
Act, among other things, includes several relief provisions available to tax-qualified retirement plans and their participants. Plan management has evaluated the relief provisions available to plan participants under the CARES Act and has
implemented the following provisions as a way of providing additional access to retirement funds should a financial need arise due to the current pandemic:
NOTE 3 - GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
The Plan has a benefit-responsive guaranteed investment contract with Massachusetts Mutual Life Insurance Company. Massachusetts Mutual Life Insurance Company maintains the
contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The guaranteed investment contract issuer is contractually obligated to
repay the
ESSA BANK & TRUST 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 3 – GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY (Continued)
principal and a specified interest rate that is guaranteed to the Plan. The investment contract is considered a “traditional” contract, meaning that the Plan owns the
contract itself and not the underlying assets for the investment contract. Because the guaranteed investment contract is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for
benefits attributable to the guaranteed investment contract. The guaranteed investment contract is presented on the face of the Statement of Net Assets Available for Benefits at contract value in arriving at net assets available for benefits.
Contract value, as reported to the Plan by Massachusetts Mutual Life Insurance Company, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct
the withdrawal or transfer of all or a portion of their investment at contract value.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the
issuer, but it may not be less than 3 percent. Such interest rates are reviewed on a quarterly basis for resetting.
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (1) amendments to the Plan documents
(including complete or partial Plan termination or merger with another plan); (2) changes to the Plan's prohibition on competing investment options or deletion of equity wash provisions; (3) bankruptcy of the Plan Sponsor or other Plan Sponsor
events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan; or (4) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption
under ERISA. The Plan Administrator does not believe that any events which would limit the Plan's ability to transact at contract value with participants are probable of occurring.
NOTE 4 - PLAN TERMINATION
Although it has not expressed any intent to do so, the Bank has the right under the Plan to terminate the Plan subject to the provisions of ERISA.
NOTE 5 - TAX STATUS
The Plan obtained its latest determination letter on March 31, 2014, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with
the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan Administrator believes that the Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code.
Plan management is required to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that
more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2020, there are no uncertain positions
taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in
progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2017.
ESSA BANK & TRUST 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 6 -RELATED-PARTY TRANSACTIONS AND PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments, such as pooled separate accounts and the guaranteed investment contract are managed by Massachusetts Mutual Life Insurance Company, the defined
trustee of the Plan. Therefore, related transactions qualify as party-in-interest transactions.
The Plan’s sponsor absorbs fees related to accounting and miscellaneous administrative expenses. Such costs amounted to $14,862 and $14,550 for the years ended December
31, 2020 and 2019, respectively.
At December 31, 2020 and 2019, the Plan held 182,972 and 221,963 shares, respectively of ESSA Bancorp, Inc. common stock. Dividends received on these shares in 2020
totaled $89,857.
NOTE 7 - FAIR VALUE MEASUREMENTS
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair
value. The three broad levels of pricing observations are as follows:
This hierarchy requires the use of observable market data, when available.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2020
and 2019.
Valued at the closing price of ESSA Bancorp, Inc.’s common stock reported on the active market on which the individual securities are traded plus the carrying value of the
cash component of the fund, which approximates fair value.
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of
risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and
the amounts reported in the Statement of Net Assets Available for Benefits.
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on
the Plan Sponsor's financial position and results of its operations, and to the investments in the Plan, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Effective on December 31, 2020, Empower Retirement (Empower) acquired the Plan’s trustee Massachusetts Mutual Life Insurance Company’s (MassMutual) retirement business.
Through this transaction, business written by MassMutual is reinsured by Great-West Life & Annuity Insurance Company (GWLA) and in New York by Great-West Life & Annuity Insurance Company of New York. Concurrently, MassMutual retroceded
business it reinsures from a cedent, which MassMutual assumed in a previous transaction. Empower administers the business on MassMutual’s behalf, with certain administrative services being performed by MassMutual and its affiliates during a
temporary transition period.