ESSA Bancorp, Inc. Announces Operating Results for the Second Fiscal Quarter of 2011

Wed Apr 27, 2011 5:37pm EDT

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ESSA Bancorp, Inc. Announces Operating Results for the Second Fiscal Quarter of 2011

ESSA Bancorp, Inc. (the “Company”) (NASDAQ Global MarketSM “ESSA”) the holding company for ESSA Bank & Trust (the “Bank”) today announced its operating results for the three and six months ended March 31, 2011. The Company reported net income of $1.2 million, or $0.10 per diluted share, for the three months ended March 31, 2011, as compared to net income of $1.6 million, or $0.12 per diluted share, for the corresponding 2010 period. For the six months ended March 31, 2011, the Company reported net income of $2.2 million, or $0.19 per diluted share as compared to net income of $2.4 million, or $0.18 per diluted share for the corresponding 2010 period.

“Recognizing that our local economy is still under pressure, our second quarter and year-to-date results are in line with our expectations,” noted Gary S. Olson, President and Chief Executive Officer of the Company. “Persistently high unemployment rates and a soft real estate market will continue to impact our results through decreased loan demand. Our total nonperforming assets grew slightly during this quarter compared to last quarter but the rate of growth slowed considerably. Our overall credit quality and capital positions remain strong. We are determined to continue to produce positive results during these difficult times.”

Net Interest Income:

Net interest income increased $138,000, or 1.9%, to $7.3 million for the three months ended March 31, 2011, from $7.2 million for the comparable period in 2010. The increase was primarily attributable to an increase in the Company’s interest rate spread to 2.54% for the three months ended March 31, 2011, from 2.50% for the comparable period in 2010, offset in part by a decrease of $15.7 million in the Company’s average net earning assets.

Net interest income decreased $15,000, or 0.1%, to $14.5 million for the six months ended March 31, 2011. The decrease was primarily attributable to a decrease in the Company’s average net earning assets of $16.1 million, offset in part by a slight increase in the Company’s interest rate spread to 2.49% for the six months ended March 31, 2011 from 2.48% for the comparable period in 2010.

Provision for Loan Losses:

The provision for loan losses was unchanged at $650,000 for the three months ended March 31, 2011, as compared to the three month period ending March 31, 2010. Net charge-offs were unchanged at $259,000 for the three months ended March 31, 2011 compared to the three-month period ended March 31, 2010. The provision for loan losses decreased $20,000, or 1.7%, to $1.1 million for the six months ended March 31, 2011 from $1.2 million for the comparable period in 2010. Net charge-offs increased $79,000 for the six months ended March 31, 2011 to $449,000 compared to $370,000 for the six month period ended March 31, 2010.

Nonperforming assets increased to 1.41% of total assets at March 31, 2011 compared to 1.20% of total assets at September 30, 2010. Nonperforming assets were 1.36% of total assets at December 31, 2010. The allowance for loan losses was $8.1 million, or 1.08% of loans outstanding at March 31, 2011, compared to $7.4 million, or 1.01% of loans outstanding at September 30, 2010.

In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. The provision for loan losses was in response to this evaluation.

Noninterest Income:

Noninterest income decreased $284,000, or 17.7%, to $1.3 million for the three months ended March 31, 2011, from $1.6 million for the comparable period in 2010. The primary reason for the decrease was a decline in gains on the sale of investments of $193,000 during the 2011 period. The Company recorded gains of sales of investment securities of $308,000 for the three months ended March 31, 2010 as compared to $115,000 for the three months ended March 31, 2011.

Noninterest income decreased $405,000, or 13.2%, to $2.7 million for the six months ended March 31, 2011, from $3.1 million for the comparable period in 2010. The primary reasons for the decrease were declines in both the gains on sales of investment securities of $193,000 and the gains on sales of loans of $192,000. The Company recorded gains of sales of investment securities of $308,000 and gains on sales of loans of $195,000 for the six months ended March 31, 2010 as compared to $115,000 and $3,000, respectively, for the six months ended March 31, 2011.

Noninterest Expense:

Noninterest expense increased $410,000, or 6.8%, to $6.5 million for the three months ended March 31, 2011, from $6.0 million for the comparable period in 2010. The primary reasons for the increase were increases in FDIC premiums of $99,000 and compensation and employee benefits of $332,000. The Company opened one new branch office in the second quarter of 2010 and three new branch offices in the third quarter of 2010 which contributed to the comparative increase in compensation and employee benefits.

Noninterest expense decreased $183,000, or 1.4%, to $13.1 million for the six months ended March 31, 2011, from $13.3 million for the comparable period in 2010. The primary reason for the decrease was the write-down of foreclosed real estate of $1.2 million in the 2010 period. This decrease was offset, in part, by increases in compensation and employee benefits expense of $476,000 and occupancy and equipment expense of $251,000 primarily related to the new branches opened during the second and third quarters of 2010.

Balance Sheet:

Total assets increased $21.9 million, or 2.04%, to $1,093.9 million at March 31, 2011, compared to $1,072.0 million at September 30, 2010. The primary reason for the increase in assets was an increase in net loans receivable of $13.3 million. The increase in net loans receivable included increases in commercial real estate loans of $18.9 million which were partially offset by declines in commercial loans, home equity loans and lines of credit, residential loans, construction loans, and other loans of $1.4 million, $1.8 million, $1.1 million, $398,000 and $419,000 respectively.

Total deposits increased $91.8 million, or 17.0%, to $632.2 million at March 31, 2011, from $540.4 million at September 30, 2010. The primary reason for the increase was an increase in certificate of deposit accounts of $92.2 million including an increase of $54.0 million in brokered certificates. This increase was partially offset by decreases in noninterest bearing demand accounts of $1.7 million, NOW accounts of $2.8 million and money market accounts of $546,000. Borrowed funds decreased during the same time period by $63.4 million.

Stockholders’ equity decreased $9.1 million, or 5.3%, to $162.6 million at March 31, 2011, from $171.6 million at September 30, 2010, primarily as a result of a previously announced stock repurchase program, and an increase in the Company’s accumulated other comprehensive loss. The accumulated other comprehensive loss increased by $3.0 million at March 31, 2011 compared to September 30, 2010 primarily due to a decrease in the unrealized gain, net of taxes on the Company’s investment securities available for sale. The unrealized gain decreased due to changes in interest rates. In June 2009, the Company announced that it had completed its first stock repurchase program having purchased 2,547,135 shares at a weighted average cost of $13.14. On October 6, 2010 the Company announced that it had completed its second stock repurchase program having purchased 1,499,100 shares at a weighted average cost of $12.36. It was also announced that the Company’s Board of Directors authorized a third repurchase program to purchase up to an additional 5% of its outstanding shares. During the quarter ended March 31, 2011, the Company purchased an additional 361,619 shares at a weighted average cost of $12.81 per share under its third stock repurchase program. In April 2011, the Company announced that it completed the third repurchase program having purchased 679,900 shares at a weighted average cost of $12.82.

Asset Quality:

Nonperforming assets totaled $15.5 million, or 1.41%, of total assets at March 31, 2011, compared to $12.9 million, or 1.20%, of total assets at September 30, 2010. The increase was due to increases of $820,000 in nonperforming residential loans, $813,000 in nonperforming commercial loans and $1.1 million in foreclosed real estate offset, in part, by a decrease of $177,000 in nonperforming consumer loans. Commercial nonperforming loans increased primarily as a result of the addition of two commercial real estate relationships. Nonperforming residential loans increased due to an increase in the average per loan balance of nonperforming residential loans to $180,000 at March 31, 2011 compared to $167,000 at September 30, 2010. The number of non-performing residential loans at March 31, 2011 increased by one loan to 51 compared to 50 at September 30, 2010. The Company, in response to these and other trends, made a provision for loan losses of $1.1 million for the six months ended March 31, 2011, compared to a provision of $1.2 million for the comparable six-month period in 2010. The allowance for loan losses was $8.1 million, or 1.08%, of loans outstanding at March 31, 2011, compared to $7.4 million, or 1.01%, of loans outstanding at September 30, 2010.

ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.0 billion and is the leading service-oriented financial institution headquartered in the Greater Pocono, Pennsylvania region. The Bank maintains its corporate headquarters in downtown Stroudsburg, Pennsylvania and has 17 community offices throughout the Greater Pocono and Lehigh Valley areas in Pennsylvania. In addition to being one of the region’s largest mortgage lenders, ESSA Bank & Trust offers a full range of retail and commercial financial services. ESSA Bancorp, Inc. stock trades on The NASDAQ Global MarketSM 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 regulatory fees 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.

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, which 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.

               

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 
March 31,
2011
September 30,
2010
(dollars in thousands)
ASSETS
Cash and due from banks $ 8,054 $ 7,454
Interest-bearing deposits with other institutions   12,155     3,436  
Total cash and cash equivalents

20.209

10,890
Investment securities available for sale 251,862 252,341
Investment securities held to maturity (fair value of $10,179 and $13,254) 9,971 12,795
Loans receivable (net of allowance for loan losses of $8,129 and $7,448) 744,108 730,842
Federal Home Loan Bank stock 18,706 20,727
Premises and equipment 11,858 12,189
Bank-owned life insurance 17,886 15,618

Foreclosed real estate

3,160 2,034
Other assets   16,112     14,561  
TOTAL ASSETS $ 1,093,872   $ 1,071,997  
 
LIABILITIES
Deposits $ 632,213 $ 540,410
Short-term borrowings - 14,719
Other borrowings 286,657 335,357
Advances by borrowers for taxes and insurance 4,416 1,465
Other liabilities   8,018     8,423  
TOTAL LIABILITIES   931,304     900,374  
Commitment and contingencies
 
STOCKHOLDERS’ EQUITY
Preferred Stock
Common Stock 170 170
Additional paid in capital 165,652 164,494
Unallocated common stock held by the Employee Stock Ownership Plan (11,664 ) (11,891 )
Retained earnings 65,309 64,272
Treasury Stock, at cost (53,346 ) (44,870 )
Accumulated other comprehensive loss   (3,553 )   (552 )
TOTAL STOCKHOLDERS’ EQUITY   162,568     171,623  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,093,872   $ 1,071,997  
                             

ESSA BANCORP, INC, AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

 
For the Three Months
Ended March 31,
For the Six Months
Ended March 31,
2011 2010 2011 2010
(dollars in thousands)
INTEREST INCOME
Loans receivable $ 9,795 $ 10,166 $ 19,639 $ 20,507
Investment securities:
Taxable 2,016 2,164 3,938 4,401
Exempt from federal income tax 75 77 153 160
Other investment income   1     1   1   2
Total interest income   11,887     12,408   23,731   25,070
 
INTEREST EXPENSE
Deposits 1,795 1,458 3,491 2,864
Short-term borrowings 23 35 45 84
Other borrowings   2,727     3,711   5,723   7,635
Total interest expense   4,545     5,204   9,259   10,583
 
NET INTEREST INCOME 7,342 7,204 14,472 14,487
Provision for loan losses   650     650   1,130   1,150
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,692     6,554   13,342   13,337
 
NONINTEREST INCOME
Service fees on deposit accounts 729 777 1,491 1,604
Services charges and fees on loans 145 124 355 225
Trust and investment fees 195 212 406 432
Gain on sale of investments, net 115 308 115 308
Gain on sale of loans, net - 40 3 195
Earnings on Bank-owned life insurance 131 135 268 275
Other   8     11   20   24
 
Total noninterest income   1,323     1,607   2,658   3,063
 
NONINTEREST EXPENSE
Compensation and employee benefits 3,933 3,601 7,813 7,337
Occupancy and equipment 796 763 1,573 1,322
Professional fees 420 386 849 763
Data processing 481 467 930 917
Advertising 183 166 369 264
Federal Deposit Insurance Corporation (FDIC) premiums 222 123 406 481
(Gain)/loss on foreclosed real estate (94 ) - 12 1,200
Other   514     539   1,141   992
Total noninterest expense   6,455     6,045   13,093   13,276
Income before income taxes 1,560 2,116 2,907 3,124
Income taxes   345     513   680   727
 
NET INCOME $ 1,215   $ 1,603 $ 2,227 $ 2,397
 
EARNINGS PER SHARE
Basic $ 0.10 $ 0.12 $ 0.19 $ 0.18
Diluted 0.10 0.12 0.19 0.18
                             

ESSA BANCORP, INC, AND SUBSIDIARY

OTHER FINANCIAL DATA

(UNAUDITED)

 
For the Three Months
Ended March 31,
        For the Six Months
Ended March 31,
  2011         2010           2011         2010
(dollars in thousands)
CONSOLIDATED AVERAGE BALANCES:
Total assets $ 1,090,493 $ 1,037,882 $ 1,079,374 $ 1,034,474
Total interest-earning assets 1,043,835 994,175 1,032,583 991,822
Total interest-earning liabilities 882,815 817,484 870,236 813,345
Total stockholders’ equity 167,227 183,219 169,217 184,514
 
PER COMMON SHARE DATA:
Average shares outstanding - basic 11,688,690 12,880,729 11,778,932 12,984,905
Average shares outstanding - diluted 11,698,380 12,880,729 11,785,205 12,984,905
Book value shares 12,819,971 14,234,491 12,819,971 14,234,491

ESSA Bancorp, Inc.
Gary S. Olson, 570-421-0531
President & CEO