ESSA Bancorp, Inc. Announces Fiscal 2016 First Quarter

STROUDSBURG, PA--(Marketwired - Jan 27, 2016) - ESSA Bancorp, Inc. (the "Company") (NASDAQ: ESSA) today reported net income of $2.0 million, or $0.19 per diluted share, for the quarter ended December 31, 2015, compared with net income of $2.6 million, or $0.25 per diluted share, for the same quarter last year. Results for the quarter ended December 31, 2015, include the acquisition of Eagle National Bank ("ENB"), which was completed on December 4, 2015. Non-recurring merger related charges were $245,000, or $0.01 per share (after-tax), for the recently-completed quarter. 

The Company is the holding company for ESSA Bank & Trust, a $1.8 billion asset institution, which provides full service retail and commercial banking, financial, and investment services from 30 locations in eastern Pennsylvania. 

FIRST QUARTER HIGHLIGHTS

• Strong loan growth. Total loans at December 31, 2015 increased $126.2 million, or 11.4% (not annualized), on a sequential quarter basis from September 30, 2015. Loan growth was driven primarily by the acquisition of ENB. 
• Stable net interest income. Net interest income was $11.1 million and the net interest margin was 2.84% for the quarter ended December 31, 2015, which were steady compared with both the quarter ended September 30, 2015 and the prior year quarter.
• Asset quality remained strong. Net charge-offs as a percent of total average loans were 0.02% for the three months ending December 31, 2015. Non-performing assets were $25.4 million, or 1.44% of total assets, as of December 31, 2015. Non-performing assets were $22.7 million, or 1.41% of total assets at September 30, 2015.
• Capital management. The Company remains well-capitalized. ESSA paid a quarterly cash dividend of $0.09 per share on December 31, 2015 and repurchased 22,700 shares at an average price of $13.24 during its first fiscal quarter. Tangible book value per share decreased to $13.52 at December 31, 2015, from $13.72 at December 31, 2014 as expected due to merger related adjustments.

Gary S. Olson, President and CEO, stated: "Much of our focus during the first quarter was toward our goals of closing the Eagle National Bank acquisition and converting their banking systems to ours. We are very pleased to have successfully accomplished both these goals as of December 4, 2015. The successful addition of Eagle was another step in our continuing transition to a more commercially-oriented bank, serving customers throughout eastern Pennsylvania. In addition, we also achieved progress on our goals of maintaining strong asset quality metrics, controlling operating costs and prudently managing capital."

Income Statement Review

For the fiscal first quarter of 2016, the Company's return on average assets and return on average equity were 0.47% and 4.50%, compared with 0.66% and 6.06%, respectively, in the corresponding period of fiscal 2015.

Net interest income increased $42,000, or 0.4%, to $11.1 million for the three months ended December 31, 2015, from $11.1 million for the comparable period in 2014. 

Interest expense increased $65,000 for the quarter ended December 31, 2015 compared to the comparable period in 2014, while interest income increased $107,000.

The net interest margin for the first quarter of 2016 was 2.84%, compared with 2.85% for the previous quarter, and 2.99% for the first quarter of fiscal 2015. Growth in net interest-earning assets and stability in the cost of interest bearing liabilities for the 2015 fiscal first quarter compared to the 2014 first quarter were more than offset by declines in the yields on interest earning assets. 

The Company's provision for loan losses increased to $600,000 for the three months ended December 31, 2015, compared with $450,000 for the three months ended December 31, 2014. Net loan charge-offs in fiscal first quarter 2016 were $262,000 compared to $568,000 in fiscal first quarter 2015. Nonperforming assets totaled $25.4 million at December 31, 2015 compared to $25.2 million at December 31, 2014.

Noninterest income increased $3,000 or 0.2%, to $1.8 million for the three months ended December 31, 2015, compared with $1.8 million for the three months ended December 31, 2014.

Noninterest expense increased $820,000 or 9.2%, to $9.8 million for the three months ended December 31, 2015 compared with $9.0 million for the comparable period in 2014. The primary reasons for the increase in the 2015 period compared to the 2014 period include increases in compensation and employee benefits of $464,000, occupancy and equipment of $128.000 and data processing of $109,000. Also, as previously mentioned, noninterest expense for the first quarter of 2016, includes merger-related expenses of $245,000 and the costs of the larger, combined bank for December, 2015.

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets grew $156.9 million to $1.76 billion at December 31, 2015, from $1.61 billion at September 30, 2015. This increase was primarily due to the merger with ENB. Total net loans were $1.23 billion at December 31, 2015 compared with $1.10 billion at September 30, 2015. 

Total deposits increased $143.4 million, or 13.1%, to $1.24 billion at December 31, 2015, from $1.10 billion at September 30, 2015. The merger with ENB was the primary reason for the increase in deposit accounts. During the same period, borrowings increased $12.7 million, reflecting the Company's ability to obtain borrowed funds at what management believes represent attractive rates. 

Nonperforming assets increased $2.7 million to $25.4 million, or 1.44%, of total assets at December 31, 2015, from $22.7 million, or 1.41%, of total assets at September 30, 2015 due primarily to the addition of ENB's nonperforming assets.

Net charge-offs as a percent of total average loans were only 0.02% for the three months ending December 31, 2015 and 0.05% for the three months ended December 31, 2014, which reflects the Company's disciplined credit and underwriting standards. The allowance for loan losses was $9.3 million, or 0.75% of loans outstanding, at December 31, 2015, compared to $8.9 million, or 0.80% of loans outstanding at September 30, 2015 reflecting the purchase of loans from ENB. Purchased loans are initially recorded at fair market value at acquisition and therefore do not require an allowance when first recorded.

The Bank continued to demonstrate financial strength, with a Tier 1 leverage ratio of 9.44%, exceeding accepted regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to total assets ratio of 8.68%.

Stockholders' equity decreased $1.3 million to $170.0 million at December 31, 2015, from $171.3 million at September 30, 2015. During the three months ended December 31, 2015, the Company repurchased 22,700 shares at an average cost of $13.24 per share. Tangible book value per share at December 31, 2015 decreased to $13.52, compared with $14.03 at September 30, 2015 as expected due to the acquisition of ENB.

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 30 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.

FINANCIAL TABLES FOLLOW

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
			December 31, 2015				September 30, 2015
			(dollars in thousands)
ASSETS
	Cash and due from banks		$	21,448			$	15,905
	Interest-bearing deposits with other institutions			4,280				2,853
		Total cash and cash equivalents		25,728				18,758
	Certificates of deposit			1,500				1,750
	Investment securities available for sale			393,572				379,407
	Loans receivable (net of allowance for loan losses of $9,257 and $8,919)			1,228,007				1,102,118
	Regulatory stock, at cost			14,679				13,831
	Premises and equipment, net			17,524				16,553
	Bank-owned life insurance			30,885				30,655
	Foreclosed real estate			2,704				2,480
	Intangible assets, net			3,076				1,759
	Goodwill			13,801				10,259
	Deferred income taxes			13,095				11,149
	Other assets			18,842				17,825
		TOTAL ASSETS	$	1,763,413			$	1,606,544
LIABILITIES
	Deposits		$	1,240,170			$	1,096,754
	Short-term borrowings			84,052				91,339
	Other borrowings			249,101				229,101
	Advances by borrowers for taxes and insurance			6,992				4,273
	Other liabilities			13,070				13,797
		TOTAL LIABILITIES		1,593,385				1,435,264
STOCKHOLDERS' EQUITY
	Common stock			181				181
	Additional paid in capital			182,371				182,295
	Unallocated common stock held by the Employee Stock Ownership Plan			(9,513	)			(9,627	)
	Retained earnings			84,684				83,658
	Treasury stock, at cost			(83,133	)			(82,832	)
	Accumulated other comprehensive loss			(4,562	)			(2,395	)
		TOTAL STOCKHOLDERS' EQUITY		170,028				171,280
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,763,413			$	1,606,544

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
			For the Three Months Ended December 31,
			2015				2014
			(dollars in thousands)
INTEREST INCOME
	Loans receivable		$	11,574			$	11,449
	Investment securities:
		Taxable		1,818				1,889
		Exempt from federal income tax		244				234
	Other investment income			179				136
		Total interest income		13,815				13,708
INTEREST EXPENSE
	Deposits			1,845				1,965
	Short-term borrowings			94				103
	Other borrowings			784				590
		Total interest expense		2,723				2,658
NET INTEREST INCOME				11,092				11,050
	Provision for loan losses			600				450
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES				10,492				10,600
NONINTEREST INCOME
	Service fees on deposit accounts			863				827
	Services charges and fees on loans			280				315
	Trust and investment fees			213				238
	Gain on sale of investments, net			3				-
	Earnings on Bank-owned life insurance			230				239
	Insurance commissions			199				182
	Other			29				13
		Total noninterest income		1,817				1,814
NONINTEREST EXPENSE
	Compensation and employee benefits			5,578				5,114
	Occupancy and equipment			1,109				981
	Professional fees			453				514
	Data processing			919				813
	Advertising			87				128
	Federal Deposit Insurance Corporation Premiums			278				292
	Gain on foreclosed real estate			(10	)			(38	)
	Merger related costs			245				-
	Amortization of intangible assets			174				166
	Other			953				996
		Total noninterest expense		9,786				8,966
Income before income taxes				2,523				3,448
	Income taxes			566				852
Net Income			$	1,957			$	2,596
Earnings per share:
	Basic		$	0.19			$	0.25
	Diluted		$	0.19			$	0.25

			For the Three Months Ended December 31,
			2015				2014
			(dollars in thousands)
	CONSOLIDATED AVERAGE BALANCES:
		Total assets	$	1,650,206			$	1,570,393
		Total interest-earning assets		1,547,741				1,466,915
		Total interest-bearing liabilities		1,347,925				1,317,154
		Total stockholders' equity		172,642				169,926
	PER COMMON SHARE DATA:
		Average shares outstanding - basic		10,364,425				10,516,097
		Average shares outstanding - diluted		10,535.574				10,516,097
		Book value shares		11,330,544				11,444,378
	Net interest rate spread			2.77	%			2.94	%
	Net interest margin			2.84	%			2.99	%