STROUDSBURG, PA--(Marketwire - Jan 23, 2013) - ESSA Bancorp, Inc. (
The Company completed its acquisition of First Star Bancorp, Inc. on July 31, 2012. The results for the quarter ended December 31, 2012, reflect the effects of a larger company in fiscal first quarter 2013 compared to the company in fiscal first quarter 2012. Additionally, the quarter ended December 31, 2012, includes the recapture of approximately $973,000, before tax, of previous fair value adjustments on loans acquired as part of the First Star acquisition, as well as increased gains on the sale of fixed-rate long-term loans of $334,000 before tax.
Gary S. Olson, President and CEO, commented: "In our first full quarter as a combined entity, we operated with an increased base of earning assets and an enhanced presence throughout Pennsylvania's Lehigh Valley. Our earnings were consistent with anticipated results, with the positive addition of the recapture of interest income from the loans we acquired from First Star in 2012. We have made a good start in leveraging the strengths of a significantly larger institution."
As examples of the Bank's increased scale, Mr. Olson noted that assets in fiscal first quarter 2013 were $1.4 billion, compared with $1.1 billion in first quarter 2012. Loans receivable after loss allowance in fiscal first quarter 2013 were $940.3 million, compared with $742.1 million in fiscal first quarter 2012. Total deposits increased to $967.9 million in fiscal first quarter 2013, compared with $640.3 million in fiscal first quarter 2012.
"We continue to see evidence that the acquired assets are of strong quality," said Olson. "We feel asset and customer retention rates are high, and we have had excellent interaction with First Star customers on both the retail and commercial sides of our business.
"Developing a positive corporate culture following an acquisition is critical to our success. Employees have shown excitement about new opportunities, and have been instrumental in facilitating the transition. I think this spirit and attitude is evidenced by very high customer retention levels in the months following the acquisition's closing. I have had many informal meetings with employees and managers, and have been impressed with the quality and sincerity of their ideas and contributions. ESSA Bank & Trust is the largest locally based community bank in the region. I believe our employees are committed to making ESSA the clear banking choice for individuals and businesses in the region.
"For several years, our theme has been 'The Right Way to Bank.' We believe the best way for a community bank to retain and win banking business is with an enthusiastic, experienced team providing financial solutions and a great experience for customers and the community.
"We are beginning to see the financial benefits of eliminating First Star's high-rate debt instruments, reducing First Star expenses, consolidating back-office operations, as well as ESSA's prepayment of $37 million of its own higher rate borrowings in fiscal 2012. With more efficient operations and lower debt obligations, ESSA is well positioned to focus on growth opportunities."
Income Statement Demonstrates Stability, Growth Opportunities
Net interest income increased $4.0 million, or 59.8%, to $10.7 million for the three months ended December 31, 2012, from $6.7 million for the comparable period in the prior year fiscal quarter, primarily reflecting $2.9 million growth in interest income, and a decrease in interest expense from other borrowings of $1.2 million. Interest income increased primarily as a result of the growth of the company's loan portfolio in fiscal first quarter 2013 compared with fiscal first quarter 2012.
Interest income for the fiscal first quarter 2013 also includes the recapture of approximately $500,000, before tax, of a previously recorded fair value adjustment to a loan acquired as part of the First Star acquisition. This loan was fully repaid in the first quarter. An additional $473,000, before tax, was recaptured during the quarter related to similar loans that were partially repaid.
Interest expense decreased primarily as a result of a decrease in interest rates and a decrease in higher rate borrowings for the three months ended December 31, 2012 compared with the three months ended December 31, 2011. The company's interest rate spread was 3.14% for the three months ended December 31, 2012 and 2.30% for the prior year's first quarter. Net interest margin was 3.26% in fiscal first quarter 2013, compared with 2.57% in fiscal first quarter 2012.
Olson stated: "Acquiring First Star bolstered interest income, and we believe we have an excellent platform for building our commercial and lending businesses that should contribute to our future growth. A key initiative is to grow both business and retail checking in our served markets throughout the coming year. A critical component of this will be to expand relationships with both retail customers and businesses.
"We have maintained our banking leadership role in Monroe County, as a major lending source, and have the most deposits of any bank serving the county. However, this area was hard-hit by the recession and has struggled to recover. Our loan and deposit base in this market remains reasonably stable, but does not offer immediate opportunities for market growth as mortgage lending and business lending have been scarce. We have a solid and stable customer base in a market that has supported ESSA for 97 years, and we'll continue to seek out every opportunity to serve Monroe County and support its recovery and growth."
The provision for loan losses increased $500,000, or 100.0%, to $1,000,000 for the three months ended December 31, 2012, from $500,000 for the comparable period in 2011. 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 increased $502,000, or 32.9%, to $2.0 million for the three months ended December 31, 2012, compared with the three months ended December 31, 2011, primarily reflecting an increase in the gain on sale of loans of $334,000. As part of its interest rate risk management strategy, the Company sold $11.5 million of long-term, fixed-rate mortgage loans during the quarter ended December 31, 2012. There were no loans sold during the comparable 2011 period.
"Although these loans are currently generating attractive returns in a low-interest rate environment, and they are good quality credits, we determined that since the Federal Reserve continues to keep long-term rates low, loans at these rates could have a negative impact on the Bank's margins once rates begin to rise," said Olson. "We anticipate selling more of these long-term loans during the next several quarters to further reduce our interest rate risk."
Noninterest expense increased to $7.5 million or 12.7%, for the three months ended December 31, 2012, from $6.7 million for the comparable period in 2011, reflecting increases in compensation and employee benefits of $620,000, occupancy and equipment of $193,000, data processing of $181,000 and amortization of intangible assets of $169,000. These increases were partially offset by decreases in professional fees of $178,000 and a decrease in the cost to liquidate foreclosed real estate of $293,000.
The increases in noninterest expenses were due primarily to the larger organization in fiscal first quarter 2013 compared with fiscal first quarter 2012. Management notes the Company is on-track to achieve a 30% cost savings in First Star's operations. The decrease in professional fees was due primarily to merger-related legal fees. There was a gain on the sales of foreclosed real estate of $226,000 for the quarter ended December 31, 2012, compared with a loss of $67,000 for the comparable period in 2011.
Balance Sheet, Asset Quality and Capital Adequacy
Total assets decreased $13.1 million, or 0.9%, to $1.41 billion at December 31, 2012, compared to $1.42 billion at September 30, 2012, although up significantly compared with pre-merger total assets. Increases in cash and cash equivalents of $4.4 million and investment securities of $1.9 million at December 31, 2012, compared with September 30, 2012, were offset by decreases in total loans receivable of $8.0 million, regulatory stock of $2.9 million and other assets of $8.5 million.
Total deposits decreased $27.7 million, or 2.8%, to $967.9 million at December 31, 2012, from $995.6 million at September 30, 2012. The primary reason for the decrease in deposits was a decrease in higher-rate certificates of deposit of $22.1 million, which the Company did not renew. Borrowings increased $9.2 million to $244.0 million from $234.7 million during the same period.
Stockholders' equity increased $1.9 million, or 1.1%, to $177.3 million at December 31, 2012, from $175.4 million at September 30, 2012. The increase was due primarily to an increase in retained earnings of $2.3 million. The Company's tier 1 leverage ratio was 12.38% at December 31, 2012.
Nonperforming assets totaled $28.5 million, or 2.03%, of total assets at December 31, 2012, compared with $27.2 million, or 1.92%, of total assets at September 30, 2012. The increase in nonperforming assets of $1.3 million at December 31, 2012 compared to September 30, 2012 was due primarily to an increase in non-performing residential mortgage loans of $1.3 million. The Company made a provision for loan losses of $1,000,000 for the three months ended December 31, 2012, compared with a provision of $500,000 for the comparable three-month period in 2011. The allowance for loan losses was $7.6 million, or 0.80%, of loans outstanding at December 31, 2012, compared to $7.3 million, or 0.76%, of loans outstanding at September 30, 2012.
"We continue to be satisfied with the quality of our loan portfolio," explained Olson. "We maintain very strict credit quality policies, and are comfortable with our current loan loss allowance and asset quality ratios. Due to a slowly recovering economy, we will continue to carefully monitor asset quality metrics and will continue to work diligently to reduce non-performing loans."
Olson concluded: "We believe economic conditions in the Lehigh Valley, particularly Bethlehem and Allentown, have not only stabilized, but are showing encouraging signs of strength and revitalization that we believe can generate lending and banking relationship opportunities. We also provide a full range of asset management, business services and employee benefits consulting capabilities, which we believe gives us a competitive advantage in winning customers' financial services business."
ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.4 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 26 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, 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.
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) | ||||||||||
| December 31, 2012 |
September 30, 2012 |
|||||||||
| (dollars in thousands) | ||||||||||
| ASSETS | ||||||||||
| Cash and due from banks | $ | 12,443 | $ | 11,034 | ||||||
| Interest-bearing deposits with other institutions | 7,474 | 4,516 | ||||||||
| Total cash and cash equivalents | 19,917 | 15,550 | ||||||||
| Certificates of deposit | 1,766 | 1,266 | ||||||||
| Investment securities available for sale | 331,525 | 329,585 | ||||||||
| Loans receivable held for sale | 2,096 | 346 | ||||||||
| Loans receivable (net of allowance for loan losses of $7,555 and $7,302) | 940,275 | 950,009 | ||||||||
| Regulatory stock, at cost | 19,054 | 21,914 | ||||||||
| Premises and equipment, net | 16,100 | 16,170 | ||||||||
| Bank-owned life insurance | 28,075 | 27,848 | ||||||||
| Foreclosed real estate | 2,503 | 2,998 | ||||||||
| Intangible assets, net | 3,207 | 3,457 | ||||||||
| Goodwill | 8,541 | 8,541 | ||||||||
| Deferred income taxes | 11,359 | 11,336 | ||||||||
| Other assets | 21,224 | 29,766 | ||||||||
| TOTAL ASSETS | $ | 1,405,642 | $ | 1,418,786 | ||||||
| LIABILITIES | ||||||||||
| Deposits | $ | 967,892 | $ | 995,634 | ||||||
| Short-term borrowings | 84,500 | 43,281 | ||||||||
| Other borrowings | 159,460 | 191,460 | ||||||||
| Advances by borrowers for taxes and insurance | 6,943 | 3,432 | ||||||||
| Other liabilities | 9,500 | 9,568 | ||||||||
| TOTAL LIABILITIES | 1,228,295 | 1,243,375 | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||||
| Common stock | 181 | 181 | ||||||||
| Additional paid in capital | 181,748 | 181,220 | ||||||||
| Unallocated common stock held by the Employee Stock Ownership Plan | (10,872 | ) | (10,985 | ) | ||||||
| Retained earnings | 67,455 | 65,181 | ||||||||
| Treasury stock, at cost | (62,353 | ) | (61,944 | ) | ||||||
| Accumulated other comprehensive income | 1,188 | 1,758 | ||||||||
| TOTAL STOCKHOLDERS' EQUITY | 177,347 | 175,411 | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,405,642 | $ | 1,418,786 | ||||||
| ESSA BANCORP, INC. AND SUBSIDIARY | |||||||||
| CONSOLIDATED STATEMENT OF INCOME | |||||||||
| (UNAUDITED) | |||||||||
| For the Three Months Ended December 31 |
|||||||||
| (dollars in thousands) | |||||||||
| 2012 | 2011 | ||||||||
| INTEREST INCOME | |||||||||
| Loans receivable | $ | 12,237 | $ | 9,341 | |||||
| Investment securities: | |||||||||
| Taxable | 1,630 | 1,638 | |||||||
| Exempt from federal income tax | 54 | 48 | |||||||
| Other investment income | 29 | 2 | |||||||
| Total interest income | 13,950 | 11,029 | |||||||
| INTEREST EXPENSE | |||||||||
| Deposits | 1,971 | 1,911 | |||||||
| Short-term borrowings | 36 | 5 | |||||||
| Other borrowings | 1,224 | 2,405 | |||||||
| Total interest expense | 3,231 | 4,321 | |||||||
| NET INTEREST INCOME | 10,719 | 6,708 | |||||||
| Provision for loan losses | 1,000 | 500 | |||||||
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 9,719 | 6,208 | |||||||
| NONINTEREST INCOME | |||||||||
| Service fees on deposit accounts | 807 | 727 | |||||||
| Services charges and fees on loans | 229 | 184 | |||||||
| Trust and investment fees | 215 | 215 | |||||||
| Gain on sale of investments, net | 30 | - | |||||||
| Gain on sale of loans, net | 334 | - | |||||||
| Earnings on Bank-owned life insurance | 226 | 198 | |||||||
| Insurance commissions | 175 | 191 | |||||||
| Other | 10 | 9 | |||||||
| Total noninterest income | 2,026 | 1,524 | |||||||
| NONINTEREST EXPENSE | |||||||||
| Compensation and employee benefits | 4,556 | 3,936 | |||||||
| Occupancy and equipment | 949 | 756 | |||||||
| Professional fees | 312 | 490 | |||||||
| Data processing | 663 | 482 | |||||||
| Advertising | 110 | 86 | |||||||
| Federal Deposit Insurance Corporation (FDIC) Premiums | 185 | 162 | |||||||
| Loss (Gain) on foreclosed real estate | (226 | ) | 67 | ||||||
| Amortization of intangible assets | 250 | 81 | |||||||
| Other | 706 | 602 | |||||||
| Total noninterest expense | 7,505 | 6,662 | |||||||
| Income before income taxes | 4,240 | 1,070 | |||||||
| Income taxes | 1,361 | 184 | |||||||
| NET INCOME | $ | 2,879 | $ | 886 | |||||
| Earnings per share | |||||||||
| Basic | $ | 0.24 | $ | 0.08 | |||||
| Diluted | 0.24 | 0.08 | |||||||
| At and for the Three Months Ended December 31, |
|||||||||
| 2012 | 2011 | ||||||||
| (dollars in thousands) | |||||||||
| CONSOLIDATED AVERAGE BALANCES: | |||||||||
| Total assets | $ | 1,398,734 | $ | 1,091,756 | |||||
| Total interest-earning assets | 1,304,096 | 1,037,175 | |||||||
| Total interest-bearing liabilities | 1,157,020 | 887,040 | |||||||
| Total stockholders' equity | 177,337 | 161,880 | |||||||
| PER COMMON SHARE DATA: | |||||||||
| Average shares outstanding - basic | 12,088,125 | 10,807,598 | |||||||
| Average shares outstanding - diluted | 12,088,125 | 10,807,598 | |||||||
| Book value shares | 13,191,008 | 12,109,622 | |||||||
| Net interest rate spread | 3.14 | % | 2.30 | % | |||||
| Net interest margin | 3.26 | % | 2.57 | % | |||||