ESSA Bancorp, Inc. Announces Fiscal 2019 Fourth Quarter, Full-Year Financial Results
STROUDSBURG, PA / ACCESSWIRE / October 23, 2019 / ESSA Bancorp, Inc. (the "Company") (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 12 months ended September 30, 2019.
Net income was $3.7 million, or $0.35 per diluted share, for the three months ended September 30, 2019, compared with $3.1 million, or $0.28 per diluted share, for the three months ended September 30, 2018. For the 12 months ended September 30, 2019, net income was $12.6 million, or $1.18 per diluted share, compared with $6.5 million or $0.60 per diluted share, for the year ended September 30, 2018. Results for the year ended September 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: "The Company's fiscal 2019 earnings performance reflected our strategy of growing commercial lending while reducing lower yielding investments and indirect auto loans, thereby generating higher interest income. The planned reduction in investments and indirect auto loans was the primary reason that our total assets declined during fiscal 2019. Our strategy also includes growing core deposits, decreasing borrowings and reducing operating expenses. We will continue our commitment to solid asset quality.
"Despite a flattening yield curve, the Company generated net income growth throughout the year, and we believe our earnings of $12.6 million in fiscal 2019 demonstrated the positive results of our strategy and growth initiatives. Even with investments to continue building our banking team to support growth, expanding technology to enhance efficiency and security, and relocating our Nazareth office, we reduced overall noninterest expense compared with fiscal 2018.
"Our team of talented, dedicated professionals were the key to driving the Company's growth and performance, which enabled us to deliver value to shareholders that included expanded stockholders' equity and consistent quarterly cash dividends."
FISCAL FOURTH QUARTER, FULL YEAR 2019 HIGHLIGHTS
Increased year-over-year earnings in both the fiscal fourth quarter and full year of 2019 included growth in total interest income driven by loan growth, lower loan loss provisions, and lower total noninterest expense.
Pretax income in fiscal 2019 was $15.0 million, up from $12.2 million in fiscal 2018. Pre-tax income provides a better year-over-year comparison due to the one-time charge to income tax expense of $3.7 million in the fiscal first quarter of 2018 as described above.
Total interest income in fiscal 2019 increased 5% to $67.8 million from $64.5 million in fiscal 2018, primarily reflecting higher interest income generated by loans.
Total net loans at September 30, 2019 increased $23.6 million from September 30, 2018, primarily reflecting year-over-year 12% growth in commercial loans and 15% growth in commercial real estate (CRE) loans, partially offset by a decline in indirect auto loan balances of $64.2 million during the same period, which reflected the Company's decision to discontinue indirect auto lending in July 2018.
The Company's provision for loan losses decreased to $2.1 million for the year ended September 30, 2019, compared with $4.0 million for the year ended September 30, 2018, reflecting declining loan charge offs and continued stable asset quality. The ratio of nonperforming assets to total assets was 0.57% at September 30, 2019, improving from 0.64% a year earlier.
Core deposits (demand accounts, savings and money market) increased to 67% of total deposits at September 30, 2019 from 61% at September 30, 2018, reflecting year-over-year growth of interest-bearing demand accounts and double-digit growth in noninterest bearing and money market deposits.
Expense management led to a 4.5% decline in total noninterest expense for the year ended September 30, 2019 compared to the same period in 2018.
For the year ended September 30, 2019, the Company's return on average assets and return on average equity improved to 0.69% and 6.80%, compared with 0.36% and 3.61%, respectively, in fiscal 2018.
Total stockholders' equity increased to $189.5 million at September 30, 2019 from $179.2 million at September 30, 2018. Tangible book value per share at September 30, 2019 increased to $15.43 compared with $13.92 at September 30, 2018.
The Company paid a quarterly cash dividend of $0.10 per share on September 28, 2019, its 46th consecutive quarterly cash dividend to shareholders.
"We have meaningful momentum as we enter our new fiscal year, supported by solid, stable retail banking activity, an attractive pipeline of commercial loans, and credit monitoring and management practices focused on maintaining a sound balance sheet," explained Olson. "We look forward to continuing to generate quality revenue and earnings and building value for shareholders."
Fiscal Fourth Quarter, Year Income Statement Review
Total interest income was $16.8 million for the three months ended September 30, 2019, up from $16.6 million for the three months ended September 30, 2018. The primary driver was growth in interest income from loans to $14.3 million in fiscal fourth quarter 2019, up from $13.7 million a year earlier. Interest expense was $5.1 million for the quarter ended September 30, 2019 compared to $4.6 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 $67.8 million for the year ended September 30, 2019, up 5.1% from $64.5 million for the year ended September 30, 2018. The primary driver was 5.9% growth in interest income from loans to $56.5 million in 2019, up from $53.4 million in the same period a year earlier. Interest expense in the year ended fiscal 2019 was $20.7 million compared to $16.3 million for the same period in 2018.
Net interest income was $11.7 million for the three months ended September 30, 2019, compared with $12.0 million for the comparable period in fiscal 2018. The net interest margin for the fourth quarter of fiscal 2019 was 2.73%, compared with 2.79% for the fourth quarter of fiscal 2018. The net interest rate spread was 2.48% in fourth quarter of fiscal 2019, compared with 2.62% for the fourth quarter of fiscal 2018.
For the year ended September 30, 2019, net interest income was $47.0 million compared with $48.2 million for the comparable period in 2018. The net interest margin for the year ended September 30, 2019 was 2.73%, compared with 2.85% for the same period in 2018. The net interest rate spread was 2.50% in year ended September 30, 2019, compared with 2.71% for 2018.
The Company's provision for loan losses decreased to $200,000 for the three months ended September 30, 2019, compared with $925,000 for the three months ended September 30, 2018. This decrease reflected provisioning primarily related to declining charge off activity. The Company's provision for loan losses decreased to $2.1 million for the year ended September 30, 2019, compared with $4.0 million for the year ended September 30, 2018.
Noninterest income increased $99,000 or 5.0% to $2.1 million for the three months ended September 30, 2019, compared with $2.0 million for the three months ended September 30, 2018.
For the year ended September 30, 2019, noninterest income increased 4.4% to $8.2 million compared with $7.8 million for the year ended September 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 $9.2 million for the three months ended September 30, 2019 compared with $9.4 million for the comparable period in fiscal 2018. Noninterest expense decreased $1.8 million or 4.5%, to $38.1 million for the year ended September 30, 2019 compared with $39.9 million for the comparable period in fiscal 2018. All noninterest expense categories other than compensation and employee benefits and data processing for the year ended September 30, 2019 decreased compared to the same period in 2018 reflecting the Company's focus on expense management and reducing its efficiency ratio. Total noninterest expense for the 2018 period included approximately $700,000 of expenses related to branch closures and relocations.
Balance Sheet, Asset Quality and Capital Adequacy Review
Total assets decreased $34.4 million to $1.80 billion at September 30, 2019, from $1.83 billion at September 30, 2018, primarily due to declines in investment securities available for sale and indirect auto loans, offset in part by growth in total loans.
Total net loans increased to $1.33 billion at September 30, 2019 from $1.31 billion at September 30, 2018. Residential real estate loans were $597.5 million at September 30, 2019, up $17.0 million from September 30, 2018. Indirect auto loans declined $64.2 million to $82.0 million at September 30, 2019 from $146.2 million at September 30, 2018, reflecting expected runoff of the portfolio following the Company's previously announced discontinuation of indirect auto lending in July 2018.
Commercial real estate loans were $480.6 million at September 30, 2019, up from $416.6 million at September 30, 2018. Multi-family lending has been a particularly strong component of CRE activity. Commercial (primarily commercial and industrial) loans increased to $55.6 million at September 30, 2019 from $49.5 million at September 30, 2018.
Total deposits increased $6.0 million, or 0.5%, to $1.343 billion at September 30, 2019 from $1.337 billion at September 30, 2018. Core deposits (demand accounts, savings and money market) were $900.3 million, or 67.0% of total deposits, at September 30, 2019 compared to $811.6 million, or 60.7% of total deposits, at September 30, 2018. Noninterest bearing demand accounts exhibited strong year-over-year growth, increasing 11.1% to $175.9 million, while interest bearing demand accounts grew 1.5% to $224.7 million and money market accounts grew 23.2% to $364.6 million. Total borrowings decreased $50.2 million to $248.3 million at September 30, 2019 from $298.5 million at September 30, 2018.
Nonperforming assets totaled $10.3 million, or 0.57% of total assets, at September 30, 2019, down from $11.7 million, or 0.64% of total assets, at September 30, 2018 and $19.1 million or 1.06% of total assets, at June 30, 2019. The decrease in nonperforming assets for the three months ended September 30, 2019 is due to the reclassification of one commercial loan relationship totaling $8.3 million. Management believes that the Company is well secured and does not expect to incur any principal loss on this credit, which is part of a complex participation loan with other financial institutions. The allowance for loan losses was $12.6 million, or 0.94% of loans outstanding, at September 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 September 30, 2019, the Company's return on average assets and return on average equity were 0.82% and 7.72%, compared with 0.68% and 6.84%, respectively, in the comparable period of fiscal 2018. For the year ended September 30, 2019, the Company's return on average assets and return on average equity were 0.69% and 6.80%, compared with 0.36% and 3.61%, respectively for the comparable fiscal 2018 period.
The Bank continued to demonstrate financial strength with a Tier 1 leverage ratio of 9.67% at September 30, 2019, exceeding regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to tangible assets ratio of 9.59% at September 30, 2019.
Total stockholders' equity increased $10.3 million to $189.5 million at September 30, 2019, from $179.2 million at September 30, 2018, primarily reflecting increases from net income and the change in accumulated other comprehensive loss, offset in part by dividends paid to shareholders and $7.8 million in stock repurchases. Tangible book value per share at September 30, 2019 was $15.43, 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.
FINANCIAL TABLES FOLLOW
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2019 | September 30, 2018 | |||||||
(dollars in thousands) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 48,426 | $ | 39,197 | ||||
Interest-bearing deposits with other institutions | 3,816 | 4,342 | ||||||
Total cash and cash equivalents | 52,242 | 43,539 | ||||||
Certificates of deposit | - | 500 | ||||||
Investment securities available for sale, at fair value | 313,393 | 371,438 | ||||||
Loans receivable (net of allowance for loan losses of $12,630 and $11,688) | 1,328,653 | 1,305,071 | ||||||
Regulatory stock, at cost | 11,579 | 12,973 | ||||||
Premises and equipment, net | 14,335 | 14,601 | ||||||
Bank-owned life insurance | 39,601 | 38,630 | ||||||
Foreclosed real estate | 240 | 1,141 | ||||||
Intangible assets, net | 1,066 | 1,375 | ||||||
Goodwill | 13,801 | 13,801 | ||||||
Deferred income taxes | 5,122 | 8,441 | ||||||
Other assets | 19,395 | 22,280 | ||||||
TOTAL ASSETS | $ | 1,799,427 | $ | 1,833,790 | ||||
LIABILITIES | ||||||||
Deposits | $ | 1,342,830 | $ | 1,336,855 | ||||
Short-term borrowings | 107,701 | 179,773 | ||||||
Other borrowings | 140,581 | 118,723 | ||||||
Advances by borrowers for taxes and insurance | 6,700 | 6,826 | ||||||
Other liabilities | 12,107 | 12,427 | ||||||
TOTAL LIABILITIES | 1,609,919 | 1,654,604 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock | 181 | 181 | ||||||
Additional paid in capital | 181,161 | 180,765 | ||||||
Unallocated common stock held by the Employee Stock Ownership Plan | (7,803 | ) | (8,255 | ) | ||||
Retained earnings | 102,465 | 94,112 | ||||||
Treasury stock, at cost | (85,216 | ) | (77,707 | ) | ||||
Accumulated other comprehensive loss | (1,280 | ) | (9,910 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY | 189,508 | 179,186 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,799,427 | $ | 1,833,790 | ||||
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months | Twelve Months | |||||||||||||||
Ended September 30 | Ended September 30 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
INTEREST INCOME | (dollars in thousands, except per share data) | |||||||||||||||
Loans receivable | $ | 14,276 | $ | 13,695 | $ | 56,522 | $ | 53,399 | ||||||||
Investment securities: | ||||||||||||||||
Taxable | 2,068 | 2,356 | 9,338 | 8,826 | ||||||||||||
Exempt from federal income tax | 48 | 147 | 335 | 903 | ||||||||||||
Other investment income | 370 | 364 | 1,564 | 1,375 | ||||||||||||
Total interest income | 16,762 | 16,562 | 67,759 | 64,503 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Deposits | 3,709 | 3,011 | 14,422 | 10,308 | ||||||||||||
Short-term borrowings | 549 | 989 | 3,471 | 3,516 | ||||||||||||
Other borrowings | 826 | 592 | 2,856 | 2,444 | ||||||||||||
Total interest expense | 5,084 | 4,592 | 20,749 | 16,268 | ||||||||||||
NET INTEREST INCOME | 11,678 | 11,970 | 47,010 | 48,235 | ||||||||||||
Provision for loan losses | 200 | 925 | 2,076 | 4,000 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 11,478 | 11,045 | 44,934 | 44,235 | ||||||||||||
NONINTEREST INCOME | ||||||||||||||||
Service fees on deposit accounts | 838 | 837 | 3,319 | 3,373 | ||||||||||||
Services charges and fees on loans | 331 | 309 | 1,225 | 1,319 | ||||||||||||
Realized and Unrealized gains on equity securities | 2 | - | 5 | - | ||||||||||||
Trust and investment fees | 365 | 288 | 1,099 | 1,020 | ||||||||||||
Gain on sale of investment securities available for sale | - | 87 | 44 162 | |||||||||||||
Earnings on Bank-owned life insurance | 245 | 250 | 971 | 1,004 | ||||||||||||
Insurance commissions | 206 | 189 | 818 | 764 | ||||||||||||
Other | 114 | 42 | 676 | 171 | ||||||||||||
Total noninterest income | 2,101 | 2,002 | 8,157 | 7,813 | ||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||
Compensation and employee benefits | 5,992 | 6,074 | 24,029 | 23,802 | ||||||||||||
Occupancy and equipment | 1,027 | 1,041 | 4,189 | 4,461 | ||||||||||||
Professional fees | 450 | 612 | 2,054 | 2,368 | ||||||||||||
Data processing | 890 | 864 | 3,648 | 3,561 | ||||||||||||
Advertising | 200 | 213 | 699 | 903 | ||||||||||||
Federal Deposit Insurance Corporation Premiums | (190 | ) | 192 | 417 | 871 | |||||||||||
Gain on foreclosed real estate | (12 | ) | (24 | ) | (81 | ) | (24 | ) | ||||||||
Amortization of intangible assets | 74 | 88 | 309 | 469 | ||||||||||||
Other | 741 | 360 | 2,789 | 3,442 | ||||||||||||
Total noninterest expense | 9,172 | 9,420 | 38,053 | 39,853 | ||||||||||||
Income before income taxes | 4,407 | 3,627 | 15,038 | 12,195 | ||||||||||||
Income taxes | 699 | 542 | 2,415 | 5,664 | ||||||||||||
Net Income | $ | 3,708 | $ | 3,085 | $ | 12,623 | $ | 6,531 | ||||||||
For the Three Months | For the Year Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(dollars in thousands) (UNAUDITED) | (dollars in thousands) (UNAUDITED) | |||||||||||||||
CONSOLIDATED AVERAGE BALANCES: | ||||||||||||||||
Total assets | $ | 1,794,904 | $ | 1,823,002 | $ | 1,823,170 | $ | 1,814,678 | ||||||||
Total interest-earning assets | 1,698,873 | 1,702,891 | 1,724,979 | 1,693,445 | ||||||||||||
Total interest-bearing liabilities | 1,400,211 | 1,459,537 | 1,448,975 | 1,456,103 | ||||||||||||
Total stockholders??? equity | 190,637 | 180,932 | 185,645 | 180,759 | ||||||||||||
PER COMMON SHARE DATA: | ||||||||||||||||
Average shares outstanding - basic | 10,562,770 | 10,945,880 | 10,733,166 | 10,833,844 | ||||||||||||
Average shares outstanding - diluted | 10,562,771 | 10,945,885 | 10,733,166 | 10,833,844 | ||||||||||||
Book value shares | 11,321,417 | 11,782,718 | 11,321,417 | 11,782,718 | ||||||||||||
Net interest rate spread | 2.48 | % | 2.62 | % | 2.50 | % | 2.71 | % | ||||||||
Net interest margin | 2.73 | % | 2.79 | % | 2.73 | % | 2.85 | % | ||||||||
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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