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Section 1: 10-Q (10-Q)

essa-10q_20170630.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  June 30, 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 August 7, 2017 there were 11,595,744 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)

 

 

 

June 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

Cash and due from banks

 

$

27,023

 

 

$

31,815

 

Interest-bearing deposits with other institutions

 

 

6,536

 

 

 

11,843

 

Total cash and cash equivalents

 

 

33,559

 

 

 

43,658

 

Certificates of deposit

 

 

1,000

 

 

 

1,250

 

Investment securities available for sale, at fair value

 

 

387,608

 

 

 

390,410

 

Loans receivable (net of allowance for loan losses of $9,221 and $9,056)

 

 

1,224,206

 

 

 

1,219,213

 

Regulatory stock, at cost

 

 

15,120

 

 

 

15,463

 

Premises and equipment, net

 

 

16,353

 

 

 

16,844

 

Bank-owned life insurance

 

 

37,368

 

 

 

36,593

 

Foreclosed real estate

 

 

2,859

 

 

 

2,659

 

Intangible assets, net

 

 

2,002

 

 

 

2,487

 

Goodwill

 

 

13,801

 

 

 

13,801

 

Deferred income taxes

 

 

11,231

 

 

 

11,885

 

Other assets

 

 

18,690

 

 

 

18,216

 

TOTAL ASSETS

 

$

1,763,797

 

 

$

1,772,479

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

$

1,216,462

 

 

$

1,214,820

 

Short-term borrowings

 

 

145,665

 

 

 

129,460

 

Other borrowings

 

 

198,168

 

 

 

230,601

 

Advances by borrowers for taxes and insurance

 

 

12,213

 

 

 

4,956

 

Other liabilities

 

 

10,738

 

 

 

16,298

 

TOTAL LIABILITIES

 

 

1,583,246

 

 

 

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;

   11,592,699 and 11,393,558 outstanding at June 30, 2017 and September 30,

   2016)

 

 

181

 

 

 

181

 

Additional paid in capital

 

 

180,772

 

 

 

181,900

 

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

 

 

(8,834

)

 

 

(9,174

)

Retained earnings

 

 

90,100

 

 

 

87,638

 

Treasury stock, at cost; 6,540,396 and 6,739,537 shares outstanding at June 30,

   2017 and September 30, 2016, respectively

 

 

(79,910

)

 

 

(82,369

)

Accumulated other comprehensive loss

 

 

(1,758

)

 

 

(1,832

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

180,551

 

 

 

176,344

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,763,797

 

 

$

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 Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(dollars in thousands, except per

share data)

 

 

(dollars in thousands, except per

share data)

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

11,819

 

 

$

12,377

 

 

$

35,869

 

 

$

36,756

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,073

 

 

 

1,863

 

 

 

5,990

 

 

 

5,584

 

Exempt from federal income tax

 

 

295

 

 

 

277

 

 

 

907

 

 

 

776

 

Other investment income

 

 

221

 

 

 

206

 

 

 

671

 

 

 

581

 

Total interest income

 

 

14,408

 

 

 

14,723

 

 

 

43,437

 

 

 

43,697

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,186

 

 

 

1,903

 

 

 

6,267

 

 

 

5,692

 

Short-term borrowings

 

 

376

 

 

 

175

 

 

 

923

 

 

 

384

 

Other borrowings

 

 

686

 

 

 

786

 

 

 

2,151

 

 

 

2,386

 

Total interest expense

 

 

3,248

 

 

 

2,864

 

 

 

9,341

 

 

 

8,462

 

NET INTEREST INCOME

 

 

11,160

 

 

 

11,859

 

 

 

34,096

 

 

 

35,235

 

Provision for loan losses

 

 

750

 

 

 

600

 

 

 

2,250

 

 

 

1,800

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN

   LOSSES

 

 

10,410

 

 

 

11,259

 

 

 

31,846

 

 

 

33,435

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service fees on deposit accounts

 

 

876

 

 

 

919

 

 

 

2,553

 

 

 

2,657

 

Services charges and fees on loans

 

 

285

 

 

 

272

 

 

 

912

 

 

 

849

 

Trust and investment fees

 

 

183

 

 

 

196

 

 

 

547

 

 

 

603

 

Gain on sale of investments

 

 

295

 

 

 

413

 

 

 

295

 

 

 

781

 

Earnings on Bank-owned life insurance

 

 

256

 

 

 

229

 

 

 

775

 

 

 

693

 

Insurance commissions

 

 

181

 

 

 

221

 

 

 

577

 

 

 

637

 

Other

 

 

44

 

 

 

46

 

 

 

102

 

 

 

170

 

Total noninterest income

 

 

2,120

 

 

 

2,296

 

 

 

5,761

 

 

 

6,390

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

6,096

 

 

 

5,930

 

 

 

18,329

 

 

 

17,511

 

Occupancy and equipment

 

 

1,106

 

 

 

1,340

 

 

 

3,387

 

 

 

3,871

 

Professional fees

 

 

570

 

 

 

588

 

 

 

2,150

 

 

 

1,713

 

Data processing

 

 

908

 

 

 

998

 

 

 

2,773

 

 

 

2,996

 

Advertising

 

 

254

 

 

 

297

 

 

 

800

 

 

 

537

 

Federal Deposit Insurance Corporation (FDIC) premiums

 

 

245

 

 

 

312

 

 

 

645

 

 

 

912

 

(Gain) loss on foreclosed real estate

 

 

(19

)

 

 

(77

)

 

 

(120

)

 

 

74

 

Merger related costs

 

 

 

 

 

 

 

 

 

 

 

245

 

Amortization of intangible assets

 

 

158

 

 

 

191

 

 

 

485

 

 

 

588

 

Other

 

 

1,002

 

 

 

1,072

 

 

 

2,777

 

 

 

3,096

 

Total noninterest expense

 

 

10,320

 

 

 

10,651

 

 

 

31,226

 

 

 

31,543

 

Income before income taxes

 

 

2,210

 

 

 

2,904

 

 

 

6,381

 

 

 

8,282

 

Income taxes

 

 

448

 

 

 

792

 

 

 

1,051

 

 

 

2,084

 

NET INCOME

 

$

1,762

 

 

$

2,112

 

 

$

5,330

 

 

$

6,198

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.20

 

 

$

0.50

 

 

$

0.60

 

Diluted

 

$

0.16

 

 

$

0.20

 

 

$

0.50

 

 

$

0.59

 

Dividends per share

 

$

0.09

 

 

$

0.09

 

 

$

0.27

 

 

$

0.27

 

 

 

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 Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

Net income

 

$

1,762

 

 

$

2,112

 

 

$

5,330

 

 

$

6,198

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss)

 

 

1,423

 

 

 

2,360

 

 

 

(7,625

)

 

 

3,942

 

Tax effect

 

 

(483

)

 

 

(802

)

 

 

2,593

 

 

 

(1,341

)

Reclassification of gains recognized in net income

 

 

(295

)

 

 

(413

)

 

 

(295

)

 

 

(781

)

Tax effect

 

 

100

 

 

 

141

 

 

 

100

 

 

 

266

 

Net of tax amount

 

 

745

 

 

 

1,286

 

 

 

(5,227

)

 

 

2,086

 

Pension plan adjustment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan curtailment

 

 

 

 

 

 

 

 

7,143

 

 

 

 

Tax effect

 

 

 

 

 

 

 

 

(2,429

)

 

 

 

Reclassification adjustment related to actuarial losses

 

 

23

 

 

 

119

 

 

 

182

 

 

 

358

 

Tax effect

 

 

(11

)

 

 

(41

)

 

 

(67

)

 

 

(122

)

Net of tax amount

 

 

12

 

 

 

78

 

 

 

4,829

 

 

 

236

 

Derivative and hedging activities adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized holding gain (loss) on derivative

   included in net income

 

 

(231

)

 

 

 

 

 

873

 

 

 

 

Tax effect

 

 

78

 

 

 

 

 

 

(399

)

 

 

 

Reclassification adjustment for gains on derivatives included

   in net income

 

 

3

 

 

 

 

 

 

(3

)

 

 

 

Tax effect

 

 

(1

)

 

 

 

 

 

1

 

 

 

 

Net of tax amount

 

 

(151

)

 

 

 

 

 

472

 

 

 

 

Total other comprehensive income

 

 

606

 

 

 

1,364

 

 

 

74

 

 

 

2,322

 

Comprehensive income

 

$

2,368

 

 

$

3,476

 

 

$

5,404

 

 

$

8,520

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,330

 

 

 

 

 

 

 

 

 

 

 

5,330

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

 

 

74

 

Cash dividends declared ($0.27

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,868

)

 

 

 

 

 

 

 

 

 

 

(2,868

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

231

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

 

 

176

 

 

 

340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

516

 

Allocation of treasury shares to

   incentive plan

 

 

23,971

 

 

 

 

 

 

 

(279

)

 

 

 

 

 

 

 

 

 

 

293

 

 

 

 

 

 

 

14

 

Stock options exercised

 

 

175,170

 

 

 

 

 

 

 

(1,256

)

 

 

 

 

 

 

 

 

 

 

2,166

 

 

 

 

 

 

 

910

 

Balance, June 30, 2017

 

 

11,592,699

 

 

$

181

 

 

$

180,772

 

 

$

(8,834

)

 

$

90,100

 

 

$

(79,910

)

 

$

(1,758

)

 

$

180,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

5


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

 

 

For the nine months ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

 

(dollars in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

5,330

 

 

$

6,198

 

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

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

2,250

 

 

 

1,800

 

Provision for depreciation and amortization

 

 

997

 

 

 

1,314

 

Amortization and accretion of discounts and premiums, net

 

 

3,387

 

 

 

2,851

 

Gain on sale of investment securities

 

 

(295

)

 

 

(781

)

Compensation expense on ESOP

 

 

516

 

 

 

455

 

Stock based compensation

 

 

245

 

 

 

141

 

Increase in accrued interest receivable

 

 

(70

)

 

 

(518

)

Increase in accrued interest payable

 

 

143

 

 

 

218

 

Earnings on bank-owned life insurance

 

 

(775

)

 

 

(693

)

Deferred federal income taxes

 

 

(454

)

 

 

(687

)

Increase (decrease) in accrued pension liability

 

 

259

 

 

 

(105

)

(Loss) gain on foreclosed real estate, net

 

 

(120

)

 

 

74

 

Amortization of identifiable intangible assets

 

 

485

 

 

 

588

 

Other, net

 

 

2,682

 

 

 

2,945

 

Net cash provided by operating activities

 

 

14,580

 

 

 

13,800

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Certificates of deposit maturities

 

 

250

 

 

 

250

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

Proceeds from sale of investment securities

 

 

17,378

 

 

 

45,739

 

Proceeds from principal repayments and maturities

 

 

44,356

 

 

 

61,662

 

Purchases

 

 

(67,932

)

 

 

(82,454

)

Increase in loans receivable, net

 

 

(11,555

)

 

 

(12,692

)

Redemption of regulatory stock

 

 

16,409

 

 

 

11,867

 

Purchase of regulatory stock

 

 

(16,066

)

 

 

(13,958

)

Proceeds from sale of foreclosed real estate

 

 

2,221

 

 

 

1,375

 

Acquisition, net of cash acquired

 

 

 

 

 

(16,174

)

Purchase of premises, equipment and software

 

 

(453

)

 

 

(766

)

Net cash used for investing activities

 

 

(15,392

)

 

 

(5,151

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Increase (decrease) in deposits, net

 

 

1,642

 

 

 

(79,687

)

Net increase in short-term borrowings

 

 

16,205

 

 

 

61,823

 

Proceeds from other borrowings

 

 

43,057

 

 

 

92,300

 

Repayment of other borrowings

 

 

(75,490

)

 

 

(80,800

)

Increase in advances by borrowers for taxes and insurance

 

 

7,257

 

 

 

7,881

 

Purchase of treasury stock shares

 

 

 

 

 

(138

)

Exercising of stock options

 

 

910

 

 

 

 

Dividends on common stock

 

 

(2,868

)

 

 

(2,808

)

Net cash used for financing activities

 

 

(9,287

)

 

 

(1,429

)

(Decrease) increase in cash and cash equivalents

 

 

(10,099

)

 

 

7,220

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

43,658

 

 

 

18,758

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

33,559

 

 

$

25,978

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

 

 

 

 

 

Cash Paid:

 

 

 

 

 

 

 

 

Interest

 

$

9,198

 

 

$

8,180

 

Income taxes

 

 

(389

)

 

 

600

 

6


 

Noncash items:

 

 

 

 

 

 

 

 

Transfers from loans to foreclosed real estate

 

 

2,301

 

 

 

1,213

 

Pension plan curtailment

 

 

7,143

 

 

 

 

Unrealized holding (loss) gain

 

 

(7,920

)

 

 

3,161

 

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