ESSA Bancorp, Inc. Announces Fiscal Second Quarter, First Half 2015 Financial Results Highlighted by Strong Year-Over-Year Earnings Growth
STROUDSBURG, PA -- (Marketwired) -- 04/29/15 -- ESSA Bancorp, Inc. (NASDAQ: ESSA), the holding Company for ESSA Bank & Trust, a $1.6 billion asset institution providing full service retail and commercial banking, financial and investment services, today announced results for fiscal second quarter and first half 2015.
The Company reported net income of $2.4 million, or $0.23 per diluted share, for the three months ended March 31, 2015, up 62% compared with net income of $1.5 million, or $0.14 per diluted share, for the three months ended March 31, 2014.
For the six months of fiscal 2015, net income rose 43% to $5.0 million, or $0.48 per diluted share, compared with net income of $3.5 million, or $0.32 per diluted share, for the six months of fiscal 2014. Year-over-year net income comparisons reflect increased loans and other contributions from the acquisition of Franklin Security Bancorp, expanded interest income from higher loan volume, continued balance sheet quality, an increased interest spread and net interest margin, and a lower provision for loan losses. The fiscal 2015 period also benefited from a special dividend received during the second quarter from the Federal Home Loan Bank of approximately $311,000.
Gary S. Olson, President and CEO, commented: "The organic growth of our loan portfolio, and the increased loan diversity generated by indirect auto loans, municipal lending and additional commercial loans from our acquisition of Franklin, have translated to solid growth and earnings expansion. We have been particularly pleased with the performance and growth of indirect auto lending, which has complemented our overall lending activities with market rates and attractive five to six year loan maturities. We continue to examine opportunities to expand this business model throughout the ESSA franchise.
"While competition for commercial loans remains intense, we believe ESSA is winning a competitive share of quality business throughout our served markets. We anticipate leveraging the greatly expanded size and scale of our franchise, driven by acquisitive and organic growth, to build new client relationships and distribute our full line of services to all our served markets.
"Our growth has generated increased shareholder value, reflected by measures such as increased stockholders' equity, tangible book value per share, and growth in return on average equity from 3.56% a year ago to 5.73% in the current quarter. We have continued to judiciously repurchase shares, and recently increased our quarterly cash dividend, which now generates a 2.8% dividend yield to our shareholders. We are very pleased that investors have acknowledged our efforts to build value, as the Company's share price to tangible book value has increased substantially during the past year. We expect to continue on the path of growth and value creation that we have established."
Income Statement Review
Net interest income increased $2.1 million, or 23.1%, to $11.0 million for the three months ended March 31, 2015, from $8.9 million for the comparable period in 2014. Net interest income increased $3.6 million, or 19.7%, to $22.1 million for the six months ended March 31, 2015, from $18.4 million for the comparable period in 2014, reflecting the Company's increased loan portfolio. In second quarter 2015, the Company recorded a $311,000 special dividend from the Federal Home Loan Bank.
While interest expense remained relatively flat for the six months ended March 31, 2015 compared to the comparable period in 2014, interest income increased $3.6 million on growing loan volume. Increases in interest income from indirect auto loans, commercial loans and investment securities helped offset a decrease in interest income from mortgage loans. Olson noted the residential mortgage market, impacted by soft demand and flat housing values throughout northeastern Pennsylvania, continues to negatively impact mortgage lending opportunities.
"We continue to close residential mortgages, but it is far from a robust market," Olson noted. "We remain committed to providing mortgage financing, while keeping our commitment to appropriate credit and underwriting standards front and center."
The Company's net interest rate spread was 2.96% for the three months ended March 31, 2015, up from 2.79% for the comparable 2014 period. The Company's net interest rate spread rose to 2.96% for the six months ended March 31, 2015 compared to 2.83% for the six months of 2014. Net interest margin increased to 3.01% for the six months ended March 31, 2015 compared to 2.93% for the 2014 period, primarily reflecting diligent interest expense management and strong growth in the Company's core deposits (noninterest and interest bearing demand checking, savings and money market accounts).
The Company's provision for loan losses decreased to $525,000 for the three months ended March 31, 2015, compared with $750,000 for the three months ended March 31, 2014. The Company's provision for loan losses decreased to $975,000 for the six months ended March 31, 2015, compared with $1.5 million for the six months ended March 31, 2014. Net loan charge-offs in fiscal second quarter 2015 were $373,000 compared to $457,000 in fiscal second quarter 2014. Net loan charge-offs for the six months ended March 31, 2015 were $942,000 compared to $902,000 in the 2014 period.
Noninterest income increased 8.5% to $1.9 million for the three months ended March 31, 2015, compared with the three months ended March 31, 2014. Noninterest income increased 9.9% to $3.7 million for the six months ended March 31, 2015, compared with the six months ended March 31, 2014. Both increases were due primarily to increases in service fees and charges related to loans.
Noninterest expense was $9.1 million for the three months ended March 31, 2015 compared with $7.9 million for the comparable period in 2014. Noninterest expense was $18.1 million for the six months ended March 31, 2015 compared with $15.6 million for the comparable period in 2014. Increases in expenses primarily reflect additional facilities and costs related to the Franklin Security Bank acquisition.
Balance Sheet, Asset Quality and Capital Adequacy
Total assets were $1.58 billion at March 31, 2015 compared with $1.57 billion at September 30, 2014. Total loans receivable, net of allowance for loan losses, were $1.08 billion at March 31, 2015 compared to $1.06 billion at September 30, 2014.
Total deposits decreased $30.1 million, or 2.65%, to $1.10 billion at March 31, 2015, from $1.13 billion at September 30, 2014. Decreases in demand deposits and certificate of deposit accounts were partially offset by an increase in money market accounts. During the same period, borrowings increased $30.6 million, reflecting the Company's ability to obtain borrowed funds at what management believes represent attractive rates. As previously noted, the Company's net interest margin and net interest spread increased year-over-year.
Nonperforming assets totaled $24.7 million, or 1.56%, of total assets at March 31, 2015, compared with $25.0 million, or 1.59%, of total assets at September 30, 2014, and $24.9 million, or 1.83% of total assets a year earlier. The decrease in nonperforming assets of $473,000 at March 31, 2015 compared to September 30, 2014 was due primarily to decreases in non-performing commercial mortgages and foreclosed real estate.
The Company's provision for loan losses was $525,000 for the three-month period ended March 31, 2015, compared with a provision of $750,000 for the comparable period in 2014, primarily reflecting disciplined credit and underwriting standards. The allowance for loan losses was $8.7 million, or 0.80%, of loans outstanding at March 31, 2015, compared to $8.6 million, or 0.81%, of loans outstanding at September 30, 2014.
The Bank continued to demonstrate financial strength, with a tier 1 leverage ratio of 10.04%, exceeding accepted regulatory standards for a well-capitalized institution. The Company maintained a tangible equity to total assets ratio of 9.94%.
Stockholders' equity increased $5.2 million to $172.5 million at March 31, 2015, from $167.3 million at September 30, 2014. During the three months ended March 31, 2015, the Company repurchased 10,000 shares at an average cost of $11.79 per share. Tangible book value per share at March 31, 2015 increased to $14.01 compared with $13.34 at September 30, 2014.
In fiscal second quarter 2015, the Company's return on average assets and return on average equity, respectively, were 0.62% and 5.73%, compared with 0.44% and 3.56%, in the corresponding period of fiscal 2014.
Olson concluded, "As we enter the second half of our fiscal year, we are enthusiastic about the prospects for organic growth. We believe there is the opportunity to replicate our capabilities throughout the organization, from building retail lending operations in Wilkes-Barre and Scranton to introducing indirect auto lending to our Lehigh Valley and Monroe County markets. We have established an efficient and operationally unified banking franchise. We look forward to leveraging our capabilities to expand the range of services available to clients, and in the process to generate growth and increased value."
ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.6 billion and is the leading service-oriented financial institution headquartered in Stroudsburg, Pennsylvania. The Bank maintains its corporate headquarters in downtown Stroudsburg, Pennsylvania and has 26 community offices throughout the Greater Pocono, Lehigh Valley, Scranton and Wilkes Barre areas in Pennsylvania. In addition to being one of the region's largest mortgage lenders, ESSA Bank & Trust offers a full range of retail, commercial financial services, and 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)
March 31, September 30,
2015 2014
---------- -------------
(dollars in thousands)
ASSETS
Cash and due from banks $ 13,392 $ 20,884
Interest-bearing deposits with other
institutions 3,218 1,417
---------- -------------
Total cash and cash equivalents 16,610 22,301
Certificates of deposit 1,752 1,767
Investment securities available for sale 383,350 383,078
Loans receivable (net of allowance for loan
losses of $8,668 and $8,634) 1,078,495 1,058,267
Regulatory stock, at cost 13,644 14,284
Premises and equipment, net 16,838 16,957
Bank-owned life insurance 30,190 29,720
Foreclosed real estate 2,479 2,759
Intangible assets, net 2,067 2,396
Goodwill 10,259 10,259
Deferred income taxes 9,978 12,027
Other assets 18,909 21,000
---------- -------------
TOTAL ASSETS $1,584,571 $ 1,574,815
========== =============
LIABILITIES
Deposits $1,103,797 $ 1,133,889
Short-term borrowings 110,001 108,020
Other borrowings 179,960 151,300
Advances by borrowers for taxes and insurance 8,565 4,093
Other liabilities 9,743 10,204
---------- -------------
TOTAL LIABILITIES 1,412,066 1,407,506
---------- -------------
STOCKHOLDERS' EQUITY
Common stock 181 181
Additional paid in capital 182,580 182,486
Unallocated common stock held by the Employee
Stock Ownership Plan (9,853) (10,079)
Retained earnings 80,772 77,413
Treasury stock, at cost (81,916) (80,113)
Accumulated other comprehensive income (loss) 741 (2,579)
---------- -------------
TOTAL STOCKHOLDERS' EQUITY 172,505 167,309
---------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,584,571 $ 1,574,815
========== =============
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three Months For the Six Months
Ended March 31 Ended March 31
-------------------- ------------------
2015 2014 2015 2014
--------- --------- -------- --------
(dollars in thousands)
INTEREST INCOME
Loans receivable $ 11,100 $ 9,843 $ 22,549 $ 20,366
Investment securities:
Taxable 1,799 1,523 3,688 3,050
Exempt from federal income tax 239 72 473 145
Other investment income 442 85 578 144
--------- --------- -------- --------
Total interest income 13,580 11,523 27,288 23,705
--------- --------- -------- --------
INTEREST EXPENSE
Deposits 1,878 1,906 3,843 3,894
Short-term borrowings 103 27 206 50
Other borrowings 597 652 1,187 1,332
--------- --------- -------- --------
Total interest expense 2,578 2,585 5,236 5,276
--------- --------- -------- --------
NET INTEREST INCOME 11,002 8,938 22,052 18,429
Provision for loan losses 525 750 975 1,500
--------- --------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,477 8,188 21,077 16,929
--------- --------- -------- --------
NONINTEREST INCOME
Service fees on deposit accounts 757 722 1,584 1,514
Services charges and fees on
loans 274 104 589 289
Trust and investment fees 204 230 442 441
Gain on sale of investments, net 204 236 204 236
Earnings on Bank-owned life
insurance 231 225 470 453
Insurance commissions 217 227 399 420
Other 14 8 27 26
--------- --------- -------- --------
Total noninterest income 1,901 1,752 3,715 3,379
--------- --------- -------- --------
NONINTEREST EXPENSE
Compensation and employee
benefits 5,232 4,357 10,346 8,665
Occupancy and equipment 1,134 1,065 2,115 1,983
Professional fees 407 498 921 907
Data processing 892 769 1,705 1,449
Advertising 224 114 352 220
Federal Deposit Insurance
Corporation Premiums 289 235 581 464
Loss (Gain) on foreclosed real
estate (137) (93) (175) (51)
Merger related costs - 88 - 346
Amortization of intangible
assets 163 237 329 474
Other 894 614 1,890 1,175
--------- --------- -------- --------
Total noninterest expense 9,098 7,884 18,064 15,632
--------- --------- -------- --------
Income before income taxes 3,280 2,056 6,728 4,676
Income taxes 848 554 1,700 1,170
--------- --------- -------- --------
Net Income $ 2,432 $ 1,502 $ 5,028 $ 3,506
========= ========= ======== ========
Earnings per share:
Basic $ 0.23 $ 0.14 $ 0.48 $ 0.32
Diluted $ 0.23 $ 0.14 $ 0.48 $ 0.32
For the Three Months For the Six Months
Ended March 31, Ended March 31,
------------------------ ------------------------
2015 2014 2015 2014
----------- ----------- ----------- -----------
(dollars in thousands) (dollars in thousands)
CONSOLIDATED AVERAGE
BALANCES:
Total assets $ 1,571,898 $ 1,355,618 $ 1,571,145 $ 1,358,326
Total interest-earning
assets 1,473,510 1,256,273 1,470,212 1,260,595
Total interest-bearing
liabilities 1,297,563 1,110,095 1,307,357 1,115,335
Total stockholders'
equity 172,112 168,610 171,019 168,334
PER COMMON SHARE DATA:
Average shares
outstanding - basic 10,442,310 10,859,519 10,479,869 10,875,857
Average shares
outstanding - diluted 10,521,147 10,859,703 10,522,596 10,884,071
Book value shares 11,434,378 11,885,778 11,434,378 11,885,778
Net interest rate spread 2.96% 2.79% 2.96% 2.83%
Net interest margin 3.03% 2.89% 3.01% 2.93%
Source: ESSA Bancorp