ESSA ESSA Bancorp Inc

ESSA Bancorp, Inc. (the “Company”) (NASDAQ:ESSA) today reported net income of $1.8 million, or $0.16 per diluted share, for the quarter ended June 30, 2017, compared with net income of $2.1 million, or $0.20 per diluted share, for the same quarter last year. For the nine months ended June 30, 2017, the Company reported net income of $5.3 million or $0.50 per diluted share compared with $6.2 million or $0.59 per diluted share for the nine months ended June 30, 2016.

The Company is the holding company for ESSA Bank & Trust (the “Bank”), a $1.8 billion asset institution, which provides full service retail and commercial banking, financial, and investment services from 26 locations in eastern Pennsylvania, including the Poconos, Lehigh Valley, Scranton/Wilkes-Barre and suburban Philadelphia markets.

“Our third quarter and year-to-date financial results were highlighted by increased lending activity and contributions from our commercial banking operation, where we have invested in people and infrastructure to drive growth,” said Gary S. Olson, President and CEO. “During the past year, we have more than doubled the size of our commercial banking team, established new regional offices in the Lehigh Valley and Philadelphia markets to facilitate relationships with customers and the community, and integrated systems to support our activities.

“Year-over-year earnings comparisons in both periods reflected some revenue declines in sectors such as residential mortgages and indirect auto lending, as well as moderately higher personnel costs resulting from our expanded team. We believe we have directed resources to the best opportunities for growth and profitability. We are nearing completion of a companywide initiative, detailed later in this release, to enhance productivity, drive operating efficiency, and identify our best growth opportunities. Our senior management team, which is directing this initiative, is excited about the potential these system and process enhancements offer to generate accelerating profitability.”

THIRD QUARTER, NINE MONTHS OF 2017 HIGHLIGHTS

• For the nine months of 2017, total interest income was $43.4 million compared with $43.7 million for the nine months of 2016, reflecting increased contributions from commercial lending and investment income, offset by lower interest income from mortgage and indirect auto lending.
• Loans receivable, net, increased to $1.224 billion at June 30, 2017 from $1.219 billion at September 30, 2016.
• The commercial real estate portfolio increased 7% to $308.7 million at June 30, 2017 from $288.5 million at September 30, 2016, and the commercial & industrial loan portfolio increased to $40.7 million from $40.0 million during the same period.
• Asset quality remained strong, with non-performing assets of $20.8 million, or 1.18% of total assets, at June 30, 2017 compared to $22.0 million, or 1.24% of total assets at September 30, 2016.
• Noninterest bearing demand deposits, primarily reflecting expanded commercial banking activity, increased to $155.0 million at June 30, 2017 from $142.9 million at September 30, 2016. Lower-cost core deposits (non-interest and interest bearing demand accounts, money market and savings) as a percentage of total deposits were 58% of total deposits at June 30, 2017 compared with 51% a year earlier.
• Total stockholders’ equity increased to $180.6 million at June 30, 2017 from $176.3 million at September 30, 2016 and $177.5 million at June 30, 2016. Tangible book value per share at June 30, 2017 increased to $14.21, compared with $14.05 at September 30, 2016.
• Retained earnings demonstrated continued growth, increasing to $90.1 million at June 30, 2017, compared to $87.6 million at September 30, 2016 and $87.0 million at June 30, 2016.
• The Company paid a quarterly cash dividend of $0.09 per share on June 30, 2017, its 37th consecutive quarterly cash dividend to shareholders.

“We were pleased that even as we made investments to drive long-term growth and grow our commercial banking business, overall expenses were lower year-over-year in both quarterly and year-to-date comparisons,” Olson explained. “Expenses in a number of categories declined, reflecting a focus on improving efficiency and reducing cost. We believe our action plans will enable us to build on this trend.”

Quarterly, Year to Date 2017 Income Statement Review

Total interest income was $14.4 million for the three months ended June 30, 2017, down from $14.7 million for the three months ended June 30, 2016. Interest income from loans declined to $11.8 million in fiscal third quarter 2017, compared to $12.4 million a year earlier. Interest expense increased $384,000 for the quarter ended June 30, 2017 compared to the same period in 2016, partially reflecting a larger base of deposits and rising short-term interest rates. Total interest income for the nine months ended June 30, 2017 decreased $260,000 to $43.4 million compared to the same period in 2016.  Total interest expense increased $879,000 to $9.3 million for the nine months ended June 30, 2017 compared to the same period in 2016.

Primarily reflecting modestly lower interest income from loans receivable and increased interest expense, net interest income was $11.2 million for the three months ended June 30, 2017, compared to $11.9 million for the same period in 2016.  Net interest income for the nine months ended June 30, 2017 was $34.1 million compared with $35.2 million for the nine months ended June 30, 2016. The provision for loan losses in both periods of 2017 increased compared to comparable 2016 periods, reflecting additional provisioning related to increased loan charge-offs.

The net interest margin for the third quarter of 2017 was 2.74%, a decrease from the previous quarter’s margin of 2.80%, and compares to 2.88% for the third quarter of fiscal 2016. The net interest margin for the nine months ended June 30, 2017 was 2.78% compared to 2.91% for the nine months ended June 30, 2016.

Noninterest income was $2.1 million for the three months ended June 30, 2017, compared with $2.3 million for the three months ended June 30, 2016. The decrease in fiscal third quarter 2017 primarily reflected a decreased gain on sale of investments and lower service fees and insurance commissions. Noninterest income was $5.8 million for the nine months ended June 30, 2017, compared to $6.4 million for the nine months ended June 30, 2016, primarily reflecting a decrease in gain on sale of investments and a decline in service fees on deposit accounts.

Noninterest expense decreased $331,000 or 3.1%, to $10.3 million for the three months ended June 30, 2017 compared with $10.7 million for the comparable period in 2016. Period over period decreases in several expense categories are due primarily to management’s ongoing efforts to increase efficiencies and reduce costs. Noninterest expense decreased $317,000 to $31.2 million for the nine months ended June 30, 2017 from the comparable period in 2016.

The Company’s effective tax rates declined for both the three and nine month periods ended June 30, 2017 compared to the same periods in 2016.  The declines were due primarily to the previously disclosed adoption, by the Company, of ASU 2016-09 during the first fiscal quarter of 2017. The adoption resulted in the recognition of all excess tax benefits for share-based payment awards being 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 were $1.76 billion at June 30, 2017, compared with $1.77 billion at September 30, 2016, primarily reflecting declines in total cash and cash equivalents and investment securities for sale, which were partially offset by increased loans receivable.

Total net loans increased $5.0 million at June 30, 2017, to $1.224 billion, compared to September 30, 2016. Commercial real estate, commercial & industrial, construction and municipal loans increased during the period. Residential mortgage loans and indirect auto loans declined, primarily reflecting slowing demand throughout 2017.

Total deposits increased $1.6 million, or 0.1%, to $1.22 billion at June 30, 2017, from $1.21 billion at September 30, 2016. During the same period, borrowings decreased $16.2 million. Core deposits were $703.0 million, or 58% of total deposits at June 30, 2017, compared with $600.9 million or 51% of total deposits at June 30, 2016.

Asset quality remained strong. Nonperforming assets totaled $20.8 million, or 1.18% of total assets, at June 30, 2017, compared to $23.5 million, or 1.33% of total assets, at June 30, 2016 and $22.0 million, or 1.24% of total assets at September 30, 2016. The allowance for loan losses was $9.2 million, or 0.75% of loans outstanding, at June 30, 2017, compared to $9.1 million, or 0.74% of loans outstanding at September 30, 2016.

For the fiscal third quarter of 2017, the Company’s return on average assets and return on average equity were 0.40% and 3.90%, compared with 0.48% and 4.82%, respectively, in the corresponding period of fiscal 2016.  For the nine months ended June 30, 2017, the Company’s return on average assets and return on average equity were 0.40% and 4.02%, compared with 0.48% and 4.69%, respectively, in the corresponding period of fiscal 2016.

The Bank continued to demonstrate financial strength, with a Tier 1 leverage ratio of 9.17%, exceeding regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to tangible assets ratio of 8.98%.

Total stockholders’ equity increased $4.2 million to $180.6 million at June 30, 2017, from $176.3 million at September 30, 2016. Total stockholders’ equity was also up year-over-year. Tangible book value per share at June 30, 2017 increased to $14.21, compared with $14.05 at September 30, 2016, and $14.14 at June 30, 2016.

Outlook: Focus on Productivity, Building Value

The Company plans to shortly complete and implement a series of actions focused on supporting employee performance, enhancing customer and market analysis, right-sizing Company resources, and identifying opportunities to enhance efficiency and productivity. Peter Gray, Director of Strategic Initiatives, commented: “A talented, productive team is the cornerstone of a community bank’s success, so the action plans lead with a formalized structure for hiring, expectations, performance analysis and setting compensation tied to performance. We plan to give our team greater support to help ensure success.”

The Company is implementing systems to support new business and customer retention, including a Marketing Customer Information File (MCIF) system to provide more robust customer information, which Gray noted will enable the ESSA team to more effectively identify product and service opportunities to expand customer relationships.

“Going hand-in-hand with our MCIF system is a business development strategy to target opportunities in retail and commercial banking, ESSA Investment Services and our trust and advisory operation, as well as an expanded cost accounting system,” Gray explained. “These integrated programs will provide the information necessary to identify, measure and capitalize on our best and most profitable business opportunities.”

With a focus on enhancing profitability and driving earnings, the Company is implementing cost analysis, expense management and financial projection systems, with key goals being to achieve a meaningful reduction in the Company’s efficiency ratio and optimize the asset and liability mix of ESSA’s balance sheet.

Olson concluded: “In the past several years, the Company has grown substantially, becoming an organization with larger scope and scale, a wide range of business lines, and broad regional market coverage. Improved customer, market and internal analysis capabilities, linked with focused goals for productivity and performance, should provide meaningful advantages. Our ultimate goal is to enhance the Company’s profitability and continue delivering long term shareholder value.”

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 26 community offices throughout the Greater Pocono, Lehigh Valley, Scranton/Wilkes-Barre, and suburban Philadelphia markets.  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.

FINANCIAL TABLES FOLLOW

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
		June 30, 2017				September 30, 2016
		(dollars in thousands)
ASSETS
Cash and due from banks		$	27,023			$	31,815
Interest-bearing deposits with other institutions			6,536				11,843
Total cash and cash equivalents			33,559				43,658
Certificates of deposit			1,000				1,250
Investment securities available for sale			387,608				390,410
Loans receivable (net of allowance for loan losses of $9,221 and $9,056)			1,224,206				1,219,213
Regulatory stock, at cost			15,120				15,463
Premises and equipment, net			16,353				16,844
Bank-owned life insurance			37,368				36,593
Foreclosed real estate			2,859				2,659
Intangible assets, net			2,002				2,487
Goodwill			13,801				13,801
Deferred income taxes			11,231				11,885
Other assets			18,690				18,216
TOTAL ASSETS		$	1,763,797			$	1,772,479
LIABILITIES
Deposits		$	1,216,462			$	1,214,820
Short-term borrowings			145,665				129,460
Other borrowings			198,168				230,601
Advances by borrowers for taxes and insurance			12,213				4,956
Other liabilities			10,738				16,298
TOTAL LIABILITIES			1,583,246				1,596,135
STOCKHOLDERS’ EQUITY
Common stock			181				181
Additional paid in capital			180,772				181,900
Unallocated common stock held by the Employee Stock Ownership Plan			(8,834	)			(9,174	)
Retained earnings			90,100				87,638
Treasury stock, at cost			(79,910	)			(82,369	)
Accumulated other comprehensive loss			(1,758	)			(1,832	)
TOTAL STOCKHOLDERS’ EQUITY			180,551				176,344
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,763,797			$	1,772,479

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
		For the Three Months Ended June 30,							For the Nine Months Ended June 30,
		2017			2016				2017		2016
		(dollars in thousands)
INTEREST INCOME
Loans receivable		$	11,819		$	12,377			$	35,869		$	36,756
Investment securities:
Taxable			2,073			1,863				5,990			5,584
Exempt from federal income tax			295			277				907			776
Other investment income			221			206				671			581
Total interest income			14,408			14,723				43,437			43,697
INTEREST EXPENSE
Deposits			2,186			1,903				6,267			5,692
Short-term borrowings			376			175				923			384
Other borrowings			686			786				2,151			2,386
Total interest expense			3,248			2,864				9,341			8,462
NET INTEREST INCOME			11,160			11,859				34,096			35,235
Provision for loan losses			750			600				2,250			1,800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			10,410			11,259				31,846			33,435
NONINTEREST INCOME
Service fees on deposit accounts			876			919				2,553			2,657
Services charges and fees on loans			285			272				912			849
Trust and investment fees			183			196				547			603
Gain on sale of investments, net			295			413				295			781
Earnings on Bank-owned life insurance			256			229				775			693
Insurance commissions			181			221				577			637
Other			44			46				102			170
Total noninterest income			2,120			2,296				5,761			6,390
NONINTEREST EXPENSE
Compensation and employee benefits			6,096			5,930				18,329			17,511
Occupancy and equipment			1,106			1,340				3,387			3,871
Professional fees			570			588				2,150			1,713
Data processing			908			998				2,773			2,996
Advertising			254			297				800			537
Federal Deposit Insurance Corporation Premiums			245			312				645			912
(Gain)loss on foreclosed real estate			(19	)		(77	)			(120	)		74
Merger related costs			-			-				-			245
Amortization of intangible assets			158			191				485			588
Other			1,002			1,072				2,777			3,096
Total noninterest expense			10,320			10,651				31,226			31,543
Income before income taxes			2,210			2,904				6,381			8,282
Income taxes			448			792				1,051			2,084
Net Income		$	1,762		$	2,112			$	5,330		$	6,198
		For the Three Months Ended June 30,							For the Nine Months Ended June 30,
		2017			2016				2017			2016
Earnings per share:
Basic		$	0.16		$	0.20			$	0.50		$	0.60
Diluted		$	0.16		$	0.20			$	0.50		$	0.59

                                                                                                                                             

		For the Three Months Ended June 30,						For the Nine Months Ended June 30,
		2017			2016			2017			2016
		(dollars in thousands)
CONSOLIDATED AVERAGE BALANCES:
Total assets		$	1,753,590		$	1,758,054		$	1,761,148		$	1,722,081
Total interest-earning assets			1,634,862			1,648,870			1,639,459			1,614,679
Total interest-bearing liabilities			1,401,527			1,407,360			1,416,491			1,389,014
Total stockholders’ equity			181,441			176,321			177,075			174,294
PER COMMON SHARE DATA:
Average shares outstanding - basic			10,678,856			10,426,304			10,571,700			10,383,179
Average shares outstanding - diluted			10,743,008			10,553,138			10,640,224			10,508,476
Book value shares			11,592,699			11,384,720			11,592,699			11,384,720
Net interest rate spread			2.64	%		2.80	%		2.70	%		2.83	%
Net interest margin			2.74	%		2.88	%		2.78	%		2.91	%

Contact: Gary S. Olson, President & CEO
Corporate Office: 200 Palmer Street
Stroudsburg, Pennsylvania 18360
Telephone: (570) 421-0531