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Section 1: 10-Q (10-Q)

essa-10q_20170331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended  March 31, 2017

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                  to                 

Commission File No. 001-33384

 

ESSA Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

20-8023072

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

200 Palmer Street, Stroudsburg, Pennsylvania

18360

(Address of Principal Executive Offices)

(Zip Code)

(570) 421-0531

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.    YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES      NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

   ☐

Accelerated filer

 

 

 

 

Non-accelerated filer

   ☐ (Do not check if smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  ☒

As of May 8, 2017 there were 11,586,202 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

 

 


 

ESSA Bancorp, Inc.

FORM 10-Q

Table of Contents

 

 

 

Page

 

Part I. Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

2

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

39

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

48

 

 

 

 

Item 4

Controls and Procedures

 

48

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

 

Item 1A.

Risk Factors

 

49

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

49

 

 

 

 

Item 4.

Mine Safety Disclosures

 

49

 

 

 

 

Item 5.

Other Information

 

49

 

 

 

 

Item 6.

Exhibits

 

50

 

 

 

 

Signature Page

 

51

 

 

 


 

Part I. Financial Information

Item 1.

Financial Statements

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

 

 

March 31,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

Cash and due from banks

 

$

26,495

 

 

$

31,815

 

Interest-bearing deposits with other institutions

 

 

9,948

 

 

 

11,843

 

Total cash and cash equivalents

 

 

36,443

 

 

 

43,658

 

Certificates of deposit

 

 

1,000

 

 

 

1,250

 

Investment securities available for sale, at fair value

 

 

395,315

 

 

 

390,410

 

Loans receivable (net of allowance for loan losses of $9,366 and $9,056)

 

 

1,208,497

 

 

 

1,219,213

 

Regulatory stock, at cost

 

 

13,961

 

 

 

15,463

 

Premises and equipment, net

 

 

16,539

 

 

 

16,844

 

Bank-owned life insurance

 

 

37,112

 

 

 

36,593

 

Foreclosed real estate

 

 

3,315

 

 

 

2,659

 

Intangible assets, net

 

 

2,160

 

 

 

2,487

 

Goodwill

 

 

13,801

 

 

 

13,801

 

Deferred income taxes

 

 

12,171

 

 

 

11,885

 

Other assets

 

 

18,415

 

 

 

18,216

 

TOTAL ASSETS

 

$

1,758,729

 

 

$

1,772,479

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

$

1,238,375

 

 

$

1,214,820

 

Short-term borrowings

 

 

120,951

 

 

 

129,460

 

Other borrowings

 

 

199,168

 

 

 

230,601

 

Advances by borrowers for taxes and insurance

 

 

9,115

 

 

 

4,956

 

Other liabilities

 

 

12,351

 

 

 

16,298

 

TOTAL LIABILITIES

 

 

1,579,960

 

 

 

1,596,135

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred Stock ($0.01 par value; 10,000,000 shares authorized, none issued)

 

 

 

 

 

 

 

 

Common stock ($0.01 par value; 40,000,000 shares authorized, 18,133,095 issued;

   11,574,829 and 11,393,558 outstanding at March 31, 2017 and September 30,

   2016)

 

 

181

 

 

 

181

 

Additional paid in capital

 

 

180,729

 

 

 

181,900

 

Unallocated common stock held by the Employee Stock Ownership Plan (ESOP)

 

 

(8,947

)

 

 

(9,174

)

Retained earnings

 

 

89,299

 

 

 

87,638

 

Treasury stock, at cost; 6,558,266 and 6,739,537 shares outstanding at March 31,

   2017 and September 30, 2016, respectively

 

 

(80,129

)

 

 

(82,369

)

Accumulated other comprehensive loss

 

 

(2,364

)

 

 

(1,832

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

178,769

 

 

 

176,344

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,758,729

 

 

$

1,772,479

 

 

See accompanying notes to the unaudited consolidated financial statements.

2


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(dollars in thousands, except per

share data)

 

 

(dollars in thousands, except per

share data)

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

11,799

 

 

$

12,805

 

 

$

24,050

 

 

$

24,379

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,043

 

 

 

1,903

 

 

 

3,917

 

 

 

3,721

 

Exempt from federal income tax

 

 

303

 

 

 

255

 

 

 

612

 

 

 

499

 

Other investment income

 

 

234

 

 

 

196

 

 

 

450

 

 

 

375

 

Total interest income

 

 

14,379

 

 

 

15,159

 

 

 

29,029

 

 

 

28,974

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,069

 

 

 

1,944

 

 

 

4,081

 

 

 

3,789

 

Short-term borrowings

 

 

296

 

 

 

115

 

 

 

547

 

 

 

209

 

Other borrowings

 

 

710

 

 

 

816

 

 

 

1,465

 

 

 

1,600

 

Total interest expense

 

 

3,075

 

 

 

2,875

 

 

 

6,093

 

 

 

5,598

 

NET INTEREST INCOME

 

 

11,304

 

 

 

12,284

 

 

 

22,936

 

 

 

23,376

 

Provision for loan losses

 

 

750

 

 

 

600

 

 

 

1,500

 

 

 

1,200

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN

   LOSSES

 

 

10,554

 

 

 

11,684

 

 

 

21,436

 

 

 

22,176

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service fees on deposit accounts

 

 

813

 

 

 

875

 

 

 

1,677

 

 

 

1,738

 

Services charges and fees on loans

 

 

273

 

 

 

297

 

 

 

627

 

 

 

577

 

Trust and investment fees

 

 

214

 

 

 

194

 

 

 

364

 

 

 

407

 

Gain on sale of investments

 

 

 

 

 

365

 

 

 

 

 

 

368

 

Earnings on Bank-owned life insurance

 

 

256

 

 

 

234

 

 

 

519

 

 

 

464

 

Insurance commissions

 

 

203

 

 

 

217

 

 

 

396

 

 

 

416

 

Other

 

 

25

 

 

 

95

 

 

 

58

 

 

 

124

 

Total noninterest income

 

 

1,784

 

 

 

2,277

 

 

 

3,641

 

 

 

4,094

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

6,056

 

 

 

6,003

 

 

 

12,233

 

 

 

11,581

 

Occupancy and equipment

 

 

1,190

 

 

 

1,422

 

 

 

2,281

 

 

 

2,531

 

Professional fees

 

 

835

 

 

 

672

 

 

 

1,580

 

 

 

1,125

 

Data processing

 

 

931

 

 

 

1,079

 

 

 

1,865

 

 

 

1,998

 

Advertising

 

 

241

 

 

 

153

 

 

 

546

 

 

 

240

 

Federal Deposit Insurance Corporation (FDIC) premiums

 

 

213

 

 

 

322

 

 

 

400

 

 

 

600

 

(Gain) loss on foreclosed real estate

 

 

(5

)

 

 

161

 

 

 

(101

)

 

 

151

 

Merger related costs

 

 

 

 

 

 

 

 

 

 

 

245

 

Amortization of intangible assets

 

 

164

 

 

 

223

 

 

 

327

 

 

 

397

 

Other

 

 

879

 

 

 

1,071

 

 

 

1,775

 

 

 

2,024

 

Total noninterest expense

 

 

10,504

 

 

 

11,106

 

 

 

20,906

 

 

 

20,892

 

Income before income taxes

 

 

1,834

 

 

 

2,855

 

 

 

4,171

 

 

 

5,378

 

Income taxes

 

 

203

 

 

 

726

 

 

 

603

 

 

 

1,292

 

NET INCOME

 

$

1,631

 

 

$

2,129

 

 

$

3,568

 

 

$

4,086

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.20

 

 

$

0.34

 

 

$

0.39

 

Diluted

 

$

0.15

 

 

$

0.20

 

 

$

0.34

 

 

$

0.39

 

Dividends per share

 

$

0.09

 

 

$

0.09

 

 

$

0.18

 

 

$

0.18

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

Net income

 

$

1,631

 

 

$

2,129

 

 

$

3,568

 

 

$

4,086

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss)

 

 

1,184

 

 

 

4,981

 

 

 

(9,048

)

 

 

1,581

 

Tax effect

 

 

(403

)

 

 

(1,694

)

 

 

3,076

 

 

 

(538

)

Reclassification of gains recognized in net income

 

 

 

 

 

(365

)

 

 

 

 

 

(368

)

Tax effect

 

 

 

 

 

124

 

 

 

 

 

 

125

 

Net of tax amount

 

 

781

 

 

 

3,046

 

 

 

(5,972

)

 

 

800

 

Pension plan adjustment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan curtailment

 

 

7,143

 

 

 

 

 

 

7,143

 

 

 

 

Tax effect

 

 

(2,429

)

 

 

 

 

 

(2,429

)

 

 

 

Reclassification adjustment related to actuarial losses

 

 

23

 

 

 

119

 

 

 

159

 

 

 

239

 

Tax effect

 

 

(10

)

 

 

(40

)

 

 

(56

)

 

 

(81

)

Net of tax amount

 

 

4,727

 

 

 

79

 

 

 

4,817

 

 

 

158

 

Derivative and hedging activities adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized holding gains on derivative included

   in net income

 

 

40

 

 

 

 

 

 

1,092

 

 

 

 

Tax effect

 

 

(15

)

 

 

 

 

 

(473

)

 

 

 

Reclassification adjustment for gains on derivatives included

   in net income

 

 

(5

)

 

 

 

 

 

6

 

 

 

 

Tax effect

 

 

3

 

 

 

 

 

 

(2

)

 

 

 

Net of tax amount

 

 

23

 

 

 

 

 

 

623

 

 

 

 

Total other comprehensive income (loss)

 

 

5,531

 

 

 

3,125

 

 

 

(532

)

 

 

958

 

Comprehensive income

 

$

7,162

 

 

$

5,254

 

 

$

3,036

 

 

$

5,044

 

 

See accompanying notes to the unaudited consolidated financial statements.

4


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Common

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid In

 

 

Stock Held by

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

the ESOP

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Equity

 

 

 

(dollars in thousands except per share data)

 

Balance, September 30, 2016

 

 

11,393,558

 

 

$

181

 

 

$

181,900

 

 

$

(9,174

)

 

$

87,638

 

 

$

(82,369

)

 

$

(1,832

)

 

$

176,344

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,568

 

 

 

 

 

 

 

 

 

 

 

3,568

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(532

)

 

 

(532

)

Cash dividends declared ($0.18

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,907

)

 

 

 

 

 

 

 

 

 

 

(1,907

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

 

 

117

 

 

 

227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

344

 

Allocation of treasury shares to

   incentive plan

 

 

23,971

 

 

 

 

 

 

 

(293

)

 

 

 

 

 

 

 

 

 

 

293

 

 

 

 

 

 

 

 

Stock options exercised

 

 

157,300

 

 

 

 

 

 

 

(1,140

)

 

 

 

 

 

 

 

 

 

 

1,947

 

 

 

 

 

 

 

807

 

Balance, March 31, 2017

 

 

11,574,829

 

 

$

181

 

 

$

180,729

 

 

$

(8,947

)

 

$

89,299

 

 

$

(80,129

)

 

$

(2,364

)

 

$

178,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

5


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

 

 

For the six months ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

3,568

 

 

$

4,086

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,500

 

 

 

1,200

 

Provision for depreciation and amortization

 

 

685

 

 

 

876

 

Amortization and accretion of discounts and premiums, net

 

 

2,216

 

 

 

1,750

 

Gain on sale of investment securities

 

 

 

 

 

(368

)

Compensation expense on ESOP

 

 

344

 

 

 

303

 

Stock based compensation

 

 

145

 

 

 

79

 

Increase in accrued interest receivable

 

 

(160

)

 

 

(477

)

(Decrease) increase in accrued interest payable

 

 

(183

)

 

 

146

 

Earnings on bank-owned life insurance

 

 

(519

)

 

 

(464

)

Deferred federal income taxes

 

 

170

 

 

 

166

 

Increase in accrued pension liability

 

 

297

 

 

 

590

 

(Loss) gain on foreclosed real estate, net

 

 

(101

)

 

 

151

 

Amortization of identifiable intangible assets

 

 

327

 

 

 

397

 

Other, net

 

 

3,963

 

 

 

(222

)

Net cash provided by operating activities

 

 

12,252

 

 

 

8,213

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Certificates of deposit maturities

 

 

250

 

 

 

250

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

Proceeds from sale of investment securities

 

 

 

 

 

29,022

 

Proceeds from principal repayments and maturities

 

 

33,192

 

 

 

47,903

 

Purchases

 

 

(48,049

)

 

 

(50,016

)

Decrease (increase)  in loans receivable, net

 

 

5,792

 

 

 

(13,040

)

Redemption of regulatory stock

 

 

11,413

 

 

 

6,940

 

Purchase of regulatory stock

 

 

(9,911

)

 

 

(7,712

)

Proceeds from sale of foreclosed real estate

 

 

1,557

 

 

 

739

 

Acquisition, net of cash acquired

 

 

 

 

 

(16,174

)

Purchase of premises, equipment and software

 

 

(383

)

 

 

(579

)

Net cash used for investing activities

 

 

(6,139

)

 

 

(2,667

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Increase (decrease) in deposits, net

 

 

23,555

 

 

 

(38,921

)

Net (decrease) increase in short-term borrowings

 

 

(8,509

)

 

 

34,904

 

Proceeds from other borrowings

 

 

17,597

 

 

 

52,300

 

Repayment of other borrowings

 

 

(49,030

)

 

 

(50,800

)

Increase in advances by borrowers for taxes and insurance

 

 

4,159

 

 

 

4,241

 

Purchase of treasury stock shares

 

 

 

 

 

(276

)

Exercising of stock options

 

 

807

 

 

 

 

Dividends on common stock

 

 

(1,907

)

 

 

(1,869

)

Net cash used for financing activities

 

 

(13,328

)

 

 

(421

)

(Decrease) increase in cash and cash equivalents

 

 

(7,215

)

 

 

5,125

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

43,658

 

 

 

18,758

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

36,443

 

 

$

23,883

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

 

 

 

 

 

Cash Paid:

 

 

 

 

 

 

 

 

Interest

 

$

6,276

 

 

$

5,388

 

Income taxes

 

 

(389

)

 

 

500

 

6


 

Noncash items:

 

 

 

 

 

 

 

 

Transfers from loans to foreclosed real estate

 

 

2,112

 

 

 

726

 

Pension plan curtailment

 

 

7,143

 

 

 

 

Unrealized holding (loss) gain

 

 

(9,048

)

 

 

1,581

 

Acquisition of Eagle National Bank assets and liabilities

 

 

 

 

 

 

 

 

Noncash assets acquired:

 

 

 

 

 

 

 

 

Investment securities, available for sale

 

 

 

 

 

36,275

 

Loans receivable

 

 

 

 

 

123,380

 

Federal Home Loan Bank stock

 

 

 

 

 

889

 

Premises and equipment

 

 

 

 

 

945

 

Accrued interest receivable

 

 

 

 

 

185

 

Intangible assets

 

 

 

 

 

1,491

 

Goodwill

 

 

 

 

 

3,542

 

Deferred tax assets

 

 

 

 

 

715

 

Other assets

 

 

 

 

 

1,989

 

Liabilities assumed:

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

32,408

 

Deposits other than certificates of deposit

 

 

 

 

 

119,865

 

Accrued interest payable