ESSA Bancorp(US:ESSA)2019-05-09 19:23Part I. Financial Information Financial Statements (unaudited) The unaudited consolidated financial statements for ESSA Bancorp, Inc. as of March 31, 2019, show total assets of $1.84 billion and net income of $5.9 million for the six months ended March 31, 2019 Consolidated Balance Sheet Total assets increased slightly to $1.836 billion, driven by a $30.1 million rise in net loans receivable, partially offset by decreased investment securities Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Total Assets | $1,835,814 | $1,833,790 | | Net Loans Receivable | $1,335,197 | $1,305,071 | | Investment Securities Available for Sale | $348,617 | $371,438 | | Total Deposits | $1,293,883 | $1,336,855 | | Total Liabilities | $1,652,177 | $1,654,604 | | Total Stockholders' Equity | $183,637 | $179,186 | Consolidated Statement of Operations Net income increased significantly for both the three and six-month periods, primarily due to a one-time tax expense in the prior year Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | Six Months Ended Mar 31, 2019 | Six Months Ended Mar 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $11,732 | $11,935 | $23,617 | $23,703 | | Provision for Loan Losses | $600 | $1,100 | $1,476 | $2,100 | | Net Income | $2,859 | $2,263 | $5,868 | $625 | | Diluted EPS | $0.26 | $0.21 | $0.54 | $0.06 | | Dividends per share | $0.10 | $0.09 | $0.20 | $0.18 | Consolidated Statement of Cash Flows Net cash provided by operating activities was $7.9 million, while investing and financing activities resulted in a net decrease in cash and cash equivalents Six Months Ended March 31 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,885 | $10,877 | | Net cash used for investing activities | ($1,594) | ($57,553) | | Net cash (used for) provided by financing activities | ($8,671) | $39,797 | | Decrease in cash and cash equivalents | ($2,380) | ($6,879) | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, new standard adoptions, portfolio breakdowns, fair value measurements, and legal contingencies - The company's primary business involves taking deposits and granting loans in several Pennsylvania counties, operating as a bank holding company for ESSA Bank & Trust25 - The company adopted ASU 2014-09 (Revenue from Contracts with Customers) and ASU 2016-01 (Financial Instruments) on October 1, 2018, with ASU 2016-01 resulting in a $4,000 cumulative effect adjustment to retained earnings3233 - Upcoming accounting standards include ASU 2016-13 (Credit Losses), effective for periods beginning after December 15, 2019, which will change the impairment model for financial assets38 Loan Portfolio by Type (in thousands) | Loan Type | March 31, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Residential Real Estate | $595,116 | $580,561 | | Commercial Real Estate | $458,292 | $416,573 | | Auto Loans | $111,899 | $146,220 | | Commercial | $58,720 | $49,479 | | Other | $123,559 | $123,926 | | Total Loans | $1,347,586 | $1,316,759 | - The company is a defendant in a class action lawsuit alleging unearned fees and kickbacks in violation of RESPA by a previously acquired bank, which was remanded back to district court for litigation151 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses stable financial condition, increased net income, and trends in assets, liquidity, and critical accounting policies Comparison of Financial Condition (March 31, 2019 vs. September 30, 2018) Total assets increased to $1.84 billion, driven by loan growth, while deposits decreased and stockholders' equity rose - Net loans increased by $30.1 million (2.3%), primarily due to a $41.7 million increase in commercial real estate loans and a $14.6 million increase in residential loans, partially offset by a $34.4 million decrease in auto loans165 - Deposits decreased by $43.0 million (3.2%), mainly due to a decrease in municipal deposits and a $42.7 million drop in interest-bearing demand accounts168 - Stockholders' equity increased by $4.5 million, reflecting $5.9 million in net income and a $6.6 million positive change in AOCI, offset by a $6.2 million stock repurchase170 Comparison of Operating Results Net income significantly increased for both periods, primarily due to a prior-year one-time tax charge, while net interest income slightly declined Operating Results Comparison (Three Months Ended March 31) | Metric (in thousands) | 2019 | 2018 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,859 | $2,263 | $596 | 26.3% | | Net Interest Income | $11,732 | $11,935 | ($203) | -1.7% | | Provision for Loan Losses | $600 | $1,100 | ($500) | -45.5% | | Non-interest Expense | $9,711 | $9,988 | ($277) | -2.8% | Operating Results Comparison (Six Months Ended March 31) | Metric (in thousands) | 2019 | 2018 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Income | $5,868 | $625 | $5,243 | 838.9% | | Net Interest Income | $23,617 | $23,703 | ($86) | -0.4% | | Provision for Loan Losses | $1,476 | $2,100 | ($624) | -29.7% | | Non-interest Expense | $19,363 | $20,270 | ($907) | -4.5% | - The significant increase in six-month net income was primarily due to a one-time charge of $3.7 million to income tax expense in the prior year period related to the Tax Cuts and Jobs Act of 2017191198 Non-performing Assets Total non-performing assets decreased by $1.4 million to $10.3 million, improving the ratio to total assets to 0.56% Non-Performing Assets (in thousands) | Metric | March 31, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Total non-performing loans | $9,572 | $10,511 | | Foreclosed real estate | $665 | $1,141 | | Total non-performing assets | $10,253 | $11,668 | | Ratio of non-performing assets to total assets | 0.56% | 0.64% | - Troubled debt restructurings (TDRs) decreased to a principal balance of $3.5 million from $4.4 million at September 30, 2018202 Liquidity and Capital Resources The company maintains adequate liquidity through deposits, loan repayments, and FHLB advances, with $41.2 million in cash - Primary sources of liquidity include deposits, loan and security repayments, and FHLB advances206 - At March 31, 2019, the company had access to total FHLB advances of approximately $659.2 million, with $338.0 million outstanding207 - The company had $203.3 million in outstanding loan commitments and $327.3 million in certificates of deposit maturing within one year209 Critical Accounting Policies Critical accounting policies involve significant judgment, including Allowance for Loan Losses, Goodwill, and Fair Value Measurements - The Allowance for Loan Losses is considered a critical policy due to the high degree of judgment in estimating inherent credit losses211 - Goodwill is tested for impairment annually in the fourth quarter using market capitalization and multiples of tangible book value methods, with no impairment recorded in 2019 or 2018215 - Fair value measurements for assets without active markets (Level 3) require significant management judgment and the use of unobservable inputs219221 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, actively monitored by management, with no material changes reported - The company's primary market risk is interest rate risk due to its assets having longer maturities than its liabilities226 - The Asset/Liability Committee meets quarterly to review policies and the interest rate risk position, with no material changes reported since September 30, 2018226227 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of the end of the quarter228 - There were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls during the period229 Part II. Other Information Legal Proceedings The company is defending a class action lawsuit alleging RESPA violations by a previously acquired bank, remanded for continued litigation - The Bank is a defendant in a lawsuit alleging RESPA violations by a previously acquired bank, with an appellate court reversing a prior dismissal, and the case continuing in district court234 Risk Factors No material changes to the risk factors disclosed in the company's Annual Report on Form 10-K were reported - No material changes in risk factors were reported since the last Annual Report on Form 10-K235 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 405,384 shares of common stock at an average price of $16.13 per share during the quarter Company Purchases of Common Stock (Quarter Ended March 31, 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 31, 2019 | — | — | | February 28, 2019 | 405,384 | $16.13 | | March 31, 2019 | — | — | | Total | 405,384 | $16.13 | - The purchases were made under the seventh stock repurchase program, authorized on August 1, 2018, for up to 400,000 shares236 Defaults Upon Senior Securities This section is not applicable to the company's current reporting requirements - Not applicable237 Mine Safety Disclosures This section is not applicable to the company's current reporting requirements - Not applicable238 Other Information This section is not applicable to the company's current reporting requirements - Not applicable239 Exhibits The report includes CEO/CFO certifications and interactive data files, with other corporate documents incorporated by reference - Exhibits filed with the report include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906244 - Interactive data files (XBRL) are included as Exhibit 101243