ESSA Bancorp(US:ESSA)2022-02-13 16:00Part I. Financial Information Item 1. Financial Statements This section presents ESSA Bancorp, Inc.'s unaudited consolidated financial statements for December 31, 2021, showing a net income increase to $4.6 million driven by higher net interest income and reduced loan loss provisions Consolidated Balance Sheet Total assets slightly increased to $1.87 billion, driven by cash and cash equivalents, while stockholders' equity grew to $207.6 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Dec 31, 2021 | Sep 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $1,868,346 | $1,861,436 | +0.4% | | Total Cash and Cash Equivalents | $198,421 | $158,946 | +24.8% | | Loans Receivable, Net | $1,339,301 | $1,340,853 | -0.1% | | Total Deposits | $1,634,734 | $1,636,115 | -0.1% | | Total Liabilities | $1,660,727 | $1,659,614 | +0.1% | | Total Stockholders' Equity | $207,619 | $201,822 | +2.9% | Consolidated Statement of Operations Net income for the quarter increased 11.6% to $4.6 million, driven by a 5.0% rise in net interest income and the absence of loan loss provisions Quarterly Operating Results (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $13,562 | $12,912 | +5.0% | | Provision for Loan Losses | $0 | $900 | -100.0% | | Noninterest Income | $2,328 | $3,135 | -25.7% | | Noninterest Expense | $10,304 | $10,178 | +1.2% | | Net Income | $4,613 | $4,135 | +11.6% | | Diluted EPS | $0.47 | $0.41 | +14.6% | Consolidated Statement of Cash Flows Net cash increased by $39.5 million for the quarter, primarily from investing activities and positive contributions from operating and financing activities Cash Flow Summary (in thousands) | Activity | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,634 | $3,928 | | Net Cash from Investing Activities | $34,561 | $83,497 | | Net Cash from Financing Activities | $1,280 | $(26,128) | | Net Increase in Cash | $39,475 | $61,297 | Notes to Consolidated Financial Statements Detailed notes disclose accounting policies, loan portfolio composition, allowance for loan losses, investment securities, derivatives, and contingent litigation liabilities - The company is evaluating the impact of ASU 2016-13 (CECL) on financial asset impairment, effective for fiscal years beginning after December 15, 202237 - As of December 31, 2021, eight commercial clients had loan payment deferrals or interest-only payments totaling $19.2 million due to the COVID-19 pandemic82 - The company is a defendant in two class-action lawsuits alleging unearned fees and kickbacks in violation of the Real Estate Settlement Procedures Act, with potential exposure currently not estimable124125 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results, highlighting a 0.4% asset increase and an 11.6% net income rise, alongside changes in loans, deposits, and non-performing assets Comparison of Financial Condition Total assets increased by $6.9 million to $1.87 billion, driven by cash and cash equivalents, while net loans decreased and stockholders' equity rose by $5.8 million - Total assets increased by $6.9 million (0.4%) to $1.87 billion at December 31, 2021146 - Net loans decreased by $1.6 million, with $9.4 million in PPP loan repayment and forgiveness impacting the commercial loan portfolio149 - Deposits slightly decreased by $1.4 million, as a $15.0 million decline in brokered CDs was offset by growth in money market and non-interest-bearing demand accounts152 Comparison of Operating Results Net income increased by $478,000 (11.6%) to $4.6 million, driven by higher net interest income and no loan loss provision, despite a 25.7% decrease in non-interest income - Net interest income increased by 5.0% to $13.6 million, benefiting from a significant drop in interest expense from $2.0 million to $846,000159161 - No provision for loan losses was recorded for the quarter, compared to a $900,000 provision in the prior-year quarter162 - Noninterest income decreased by 25.7% to $2.3 million, primarily due to a $599,000 reduction in gains on sales of residential mortgages163 Non-performing Assets Total non-performing assets increased to $19.1 million, raising the non-performing loan ratio to 1.39%, primarily due to a new $3.9 million commercial loan relationship Non-performing Assets (in thousands) | Metric | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | | Total non-performing loans | $18,924 | $15,867 | | Foreclosed real estate | $193 | $461 | | Total non-performing assets | $19,117 | $16,328 | | Ratio of non-performing loans to total loans | 1.39% | 1.17% | - The increase in non-performing assets was mainly driven by one non-performing commercial loan relationship of $3.9 million168 Critical Accounting Policies Management identifies critical accounting policies requiring significant judgment and estimation, including Allowance for Loan Losses, Goodwill, Derivatives, Fair Value, Investment Impairment, and Deferred Income Taxes - The Allowance for Loan Losses methodology is a critical policy due to its high judgment, subjective assumptions, and sensitivity to economic changes178 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by its asset/liability committee, with no material changes reported since September 30, 2021 - The company's primary market risk is interest rate risk due to the nature of its assets and liabilities194 - No material changes in the company's interest rate risk profile occurred since September 30, 2021195 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of the end of the reporting period196 Part II. Other Information Item 1. Legal Proceedings The company is defending two class-action lawsuits alleging unearned fees and kickbacks from a previously acquired bank, with potential financial exposure currently not estimable - The Bank is a defendant in a class action lawsuit commenced in December 2016 alleging violations of the Real Estate Settlement Procedures Act200 - A second, similar class action lawsuit commenced in May 2020 alleges unearned fees and kickbacks from a different title company201 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended September 30, 2021, were reported - No material changes in risk factors were reported for the quarter201 Other Part II Items Items 2, 3, 4, and 5 of Part II were reported as not applicable for this period - Items 2, 3, 4, and 5 are not applicable202203204205 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and interactive data files - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act207