ESSA Bancorp, Inc. Announces Fiscal 2022 Second Quarter, First Half Financial Results

Rhea-AI Summary

ESSA Bancorp reported net income of $4.6 million or $0.47 per diluted share for Q2 2022, up from $4.3 million or $0.43 per share in Q2 2021. For H1 2022, net income reached $9.2 million, translating to $0.94 per diluted share, compared to $8.5 million or $0.84 in H1 2021. Notably, return on average assets increased to 1.00%, reflecting improved asset quality and a decline in nonperforming loans. The net interest margin rose to 3.26%, driven by effective management of interest expenses and a robust commercial loan pipeline.

Positive

• Year-over-year net income growth of 7.0%, Q2 EPS rose 9.3%, H1 EPS rose 11.9%.
• Return on average assets improved to 1.00%, and return on average equity increased to 8.82%.
• No provision for loan losses in Q2 or H1 2022, showcasing strong asset quality.
• Net interest margin increased to 3.26% from 2.95% year-over-year.

Negative

• Noninterest income dropped to $2.0 million in Q2 2022 from $3.5 million in Q2 2021.
• Total net loans remained unchanged at $1.34 billion as growth in commercial and residential loans offset declines in other areas.

STROUDSBURG, PA / ACCESSWIRE / April 27, 2022 / ESSA Bancorp, Inc. (the "Company") (NASDAQ:ESSA), the holding company for ESSA Bank & Trust (the "Bank"), a $1.9 billion asset financial institution providing full service commercial and retail banking, financial, and investment services in eastern Pennsylvania, today announced financial results for the fiscal second quarter and first half ended March 31, 2022.

Net income was $4.6 million, or $0.47 per diluted share, for the three months ended March 31, 2022, up from $4.3 million, or $0.43 per diluted share, for the three months ended March 31, 2021. For the six months of 2022, net income was $9.2 million, or $0.94 per diluted share compared with $8.5 million, or $0.84 per diluted share, for the six months ended March 31, 2021.

Gary S. Olson, President and CEO, commented: "A Companywide focus on productivity, efficiency and asset quality characterized the second quarter and first half of fiscal 2022, leading to steady year-over-year net income growth and increased shareholder value. Earnings per share in the second quarter increased 9.3% from a year earlier and rose 11.9% in in the first half of 2022 compared with the first half of 2021.

"While the second quarter marked a nearly complete transition from the pandemic-influenced operating conditions of the past two years, the finely tuned operation that supported our profitable activity continues. Returns on average assets and equity have improved significantly, while increased net margin and interest spread reflected diligent interest expense management and responsive pricing adjustments of interest earning assets in a rising rate environment.

"Loan quality improved during the quarter, with reduced levels of nonperforming loans and foreclosed real estate. Based on the quality of retained loans, the Company had no provision for loan losses in the second quarter of 2022 or in the first half of 2022 compared with a year earlier.

"Commercial real estate ("CRE") lending remained healthy and reflected growth of owner-occupied and non owner-occupied CRE loans. Our commercial pipeline remains robust providing confidence for growth opportunities in future quarters. Paycheck Protection Program ("PPP") loans and pandemic related commercial loans in forbearance have decreased to minimal levels.

"Residential mortgage originations continued at a good pace, although rate increases during the second quarter did cause a slowing of refinancings. Improved pricing power created by higher interest rates for residential mortgages prompted the Company to retain a significant number of originated residential mortgages that might have otherwise been sold to the secondary market in prior quarters.

"As we enter the second half of our year, we are well positioned to fund growth in commercial and retail lending, and have a robust loan pipeline. The Company's liquidity and cash position provide funding resources and support minimal borrowings, which has been particularly important for expense management as rates have continued to rise.

"Strong financial performance has supported ongoing growth of shareholder value. We remain focused on quality operation that enables us to provide value for our customers, employees and shareholders."

FISCAL SECOND QUARTER AND FIRST HALF 2022 HIGHLIGHTS

• For the three months ended March 31, 2022, the Company's return on average assets and return on average equity were 1.00% and 8.82%, compared with 0.93% and 8.89%, respectively, in the comparable period of fiscal 2021. For the six months ended March 31, 2022, the Company's return on average assets and return on average equity were 0.99% and 8.86%, compared with 0.89% and 8.67%, respectively, in the comparable period of fiscal 2021.
• Net interest income after provision for loan losses increased to $14.2 million in the quarter ended March 31, 2022, compared with $12.1 million in the comparable period of fiscal 2021, primarily reflecting the positive impact of sharply reduced interest expense and no provision for loan losses. Net interest income after provision for loan losses in the first half of 2022 increased to $27.8 million from $24.1 million a year earlier.
• Quarterly interest expense declined to $693,000 from $1.6 million a year earlier, reflecting repriced deposits, reduced higher-cost borrowings, and active balance sheet management. The Company's cost of interest-bearing liabilities declined to 0.21% in the second quarter of 2022 from 0.47% a year earlier.
• Prompt response to a rising rate environment contributed to net interest margin increasing to 3.26% in the second quarter of 2022 compared with 2.95% for the comparable period of fiscal 2021. The net interest rate spread improved to 3.21% in the second quarter of 2022, compared with 2.85% in the second quarter of 2021.
• Lending activity was highlighted by 5.2% growth in commercial real estate loans to $623.2 million at March 31, 2022 from $591.2 million at September 30, 2021. During the same period, residential construction loans increased to $18.3 million from $14.0 million and the residential mortgage portfolio increased to $588.0 million from $580.3 million.
• Total net loans at March 31, 2022 of $1.34 billion were unchanged from September 30, 2021. Growth in commercial and residential real estate loans was offset by sales of $13.6 million of lower-rate residential mortgage loans, $17.2 million in forgiveness of PPP loans reflecting a wind down of the program, $6.4 million of continuing run-off of indirect auto loans as they are phased out and a reduction in the tax-exempt government loan portfolio.
• Asset quality remained strong, with a ratio of nonperforming assets to total assets of 0.44% at March 31, 2022 compared to 1.02% at December 31, 2021 and 0.88% at September 31, 2021. The allowance for loan losses to total loans was 1.34% at March 31, 2022 and December 31, 2021, respectively, and 1.33% at September 31, 2021.
• Total deposits were $1.62 billion at March 31, 2022, with lower-cost core deposits (demand, savings and money market accounts) comprising 89.6% of total deposits at March 31, 2022.
• The Bank continued to demonstrate financial strength, with a Tier 1 leverage ratio of 10.40% at March 31, 2022, exceeding regulatory standards for a well-capitalized institution.
• Total stockholders' equity increased to $212.7 million at March 31, 2022 compared with $201.8 million at September 30, 2021 and tangible book value per share at March 31, 2022 increased to $18.93, or 5.6% compared to $17.92 at September 30, 2021 and $17.16 at March 31, 2021.

Fiscal Second Quarter Income Statement Review

Total interest income was $14.9 million in the second quarter of fiscal 2022 compared with $14.7 million a year earlier, reflecting an increase in the total yield on average interest earning assets to 3.42% from 3.32%, offset in part, by a decline in average interest earning assets of $23.2 million. Interest income attributable to PPP loans amounted to $267,000 for the fiscal 2022 quarter compared with $846,000 for the 2021 quarter.

Total interest income was $29.3 million in the first half of 2022 compared with $29.6 million a year earlier, reflecting an increase in the total yield on average interest earning assets to 3.32% from 3.30% which was offset by a decline in average interest earning assets of $27.6 million. Interest income attributable to PPP loans amounted to $700,000 for the first half of fiscal 2022 compared with $1.4 million for the comparable 2021 period.

Interest expense declined to $693,000 in the second quarter of 2022, compared with $1.6 million for the same period in 2021. The Company reduced its cost of interest-bearing liabilities to 0.21% from 0.47% a year earlier. In the first half of 2022, interest expense declined to $1.5 million from $3.6 million in the first half of 2021. The cost of interest-bearing liabilities declined, as did average interest-bearing liabilities, primarily reflecting significantly reduced borrowings.

Net interest income after provision for loan losses for the three months ended March 31, 2022 was $14.2 million compared with $12.1 million for the three months ended March 31, 2021.There was no loan loss provision in the 2022 period, reflecting strong credit quality. The net interest margin for three months ended March 31, 2022 was 3.26% compared with 2.95% for the comparable period of fiscal 2021. The net interest rate spread improved to 3.21% in the second quarter of 2022, compared with 2.85% in the second quarter of 2021.

Net interest income after provision for loan losses for the six months ended March 31, 2022 was $27.8 million compared with $24.1 million for the period in ended March 31, 2021. There was no loan loss provision in the first half of 2022. The net interest margin for the six months ended March 31, 2022 was 3.15% compared with 2.89% for the comparable period of fiscal 2021. The net interest rate spread improved to 3.09% in the six months ended March 31, 2022, compared with 2.79% in the same period of 2021.

Noninterest income was $2.0 million for the three months ended March 31, 2022, compared with $3.5 million for the three months ended March 31, 2021. For the six months of 2022, noninterest income was $4.3 million compared with $6.7 million for the same period a year earlier. The decline in both 2022 periods primarily reflected lower gain on sale of originated residential mortgage loans as the Company retained a great number of mortgages, no gain on sale of investments, and lower commercial loan swap fees.

Noninterest expense in the second quarter of 2022 was $10.4 million and $20.7 million in the first half of 2022, essentially unchanged year-over year in both periods.

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets were $1.87 billion at March 31, 2022 compared with $1.86 billion at September 30, 2021. Increases in cash and due from banks and investment securities held to maturity were partially offset by declines in investment securities available for sale. At March 31, 2022, cash and cash equivalents were $190.2 million.

Total net loans were $1.34 billion at March 31, 2022 and September 30, 2021, respectively. Residential real estate loans were $588.0 million at March 31, 2022, compared to $580.3 million at September 30, 2021. The Company sold $13.6 million in residential mortgage loans to the Federal Home Loan Bank of Pittsburgh during the six months ended March 31, 2022, recording $239,000 in gains on the sale of these loans in noninterest income. Indirect auto loans declined by $6.4 million during the six months ended March 31, 2022, reflecting expected runoff of the portfolio as the Company exits the indirect auto lending business.

Commercial real estate loans were $623.2 million at March 31, 2022 compared with $591.1 million at September 30, 2021. Commercial loans were $46.7 million, compared with $63.5 million at September 30, 2021.The decline included a net decrease of $17.2 million in PPP loans during fiscal 2022. Loans to states and political subdivisions were $35.2 million at March 31, 2022 compared to $56.2 million at September 30, 2021.

Loans remaining in forbearance due to the pandemic at March 31, 2022 included $8.6 million in commercial real estate and $368,000 in commercial & industrial. In total, these loans represent 0.7% of total outstanding loans at March 31, 2022 compared to 2.3% at September 30, 2021.

Total deposits were $1.62 billion at March 31, 2022 compared with $1.64 billion at September 30, 2021. Core deposits (demand accounts, savings and money market) were $1.45 billion, or 89.6% of total deposits, at March 31, 2022. Noninterest bearing demand accounts were $291.7 million, up 12.4% from September 30, 2021, interest bearing demand accounts declined 1.3% to $545.2 million from September 30, 2021 levels, and money market accounts were $417.8 million, down $10.5 million or 2.6% from September 30, 2021. Total borrowings remained at zero at March 31, 2022.

Asset quality improved due to repayment of two commercial real estate credits. Nonperforming assets were $8.3 million, or 0.44% of total assets at March 31, 2022 compared to $15.9 million or 0.88% of total assets at September 30, 2021. The allowance for loan losses to total loans was 1.34% at March 31, 2022.

For the three months ended March 31, 2022, the Company's return on average assets and return on average equity were 1.00% and 8.82%, compared with 0.93% and 8.89%, respectively, in the comparable period of fiscal 2021. For the six months ended March 31, 2022, the Company's return on average assets and return on average equity were 0.99% and 8.86%, compared with 0.89% and 8.67%, respectively, in the comparable period of fiscal 2021.

The Bank continued to demonstrate financial strength with a Tier 1 leverage ratio of 10.40% at March 31, 2022, exceeding regulatory standards for a well-capitalized institution.

Total stockholders' equity increased $10.9 million to $212.7 million at March 31, 2022, from $201.8 million at September 30, 2021, primarily reflecting net income growth and an increase in comprehensive income, offset in part by dividends paid to shareholders. Unrealized losses due to rising interest rates in the Company's available for sale investment portfolio were more than offset by unrealized gains in the Company's derivative balance sheet hedges. Tangible book value per share at March 31, 2022 was $18.93 compared to $17.92 at September 30, 2021.

About the Company: ESSA Bancorp, Inc. is the holding company for its wholly owned subsidiary, ESSA Bank & Trust, which was formed in 1916. Headquartered in Stroudsburg, Pennsylvania, the Company has total assets of $1.9 billion and has 21 community offices throughout the Greater Pocono, Lehigh Valley, Scranton/Wilkes-Barre, and suburban Philadelphia areas. ESSA Bank & Trust offers a full range of commercial and retail financial services, asset management and trust services, investment services through Ameriprise Financial Institutions Group and insurance benefit services through ESSA Advisory Services, LLC. 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, and the Risk Factors disclosed in our annual, quarterly and current reports. In addition, the COVID-19 pandemic continues to have an adverse impact on the Company, its customers and the communities it serves. The adverse effect of the COVID-19 pandemic on the Company, its customers and the communities where it operates will continue to adversely affect the Company's business, results of operations and financial condition for an indefinite period of time.

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)

		March 31,				September 30,
		2022				2021
		(dollars in thousands)
ASSETS
Cash and due from banks		$	181,991			$	146,841
Interest-bearing deposits with other institutions			8,206				12,105
Total cash and cash equivalents			190,197				158,946
Investment securities available for sale, at fair value			163,367				240,581
Investment securities held to maturity, at amortized cost			60,374				21,483
Loans receivable (net of allowance for loan losses
of $18,208 and $18,113)			1,340,317				1,340,853
Loans, held for sale			-				381
Regulatory stock, at cost			4,995				4,651
Premises and equipment, net			13,419				13,605
Bank-owned life insurance			37,861				37,481
Foreclosed real estate			85				461
Intangible assets, net			388				520
Goodwill			13,801				13,801
Deferred income taxes			3,288				4,613
Other assets			37,475				24,060
TOTAL ASSETS		$	1,865,567			$	1,861,436
LIABILITIES
Deposits		$	1,620,906			$	1,636,115
Advances by borrowers for taxes and insurance			12,516				4,949
Other liabilities			19,432				18,550
TOTAL LIABILITIES			1,652,854				1,659,614
SHAREHOLDERS' EQUITY
Common stock			181				181
Additional paid-in capital			181,816				181,659
Unallocated common stock held by the
Employee Stock Ownership Plan ("ESOP")			(6,689	)			(6,915	)
Retained earnings			131,201				124,342
Treasury stock, at cost			(97,767	)			(98,127	)
Accumulated other comprehensive income			3,971				682
TOTAL STOCKHOLDERS' EQUITY			212,713				201,822
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,865,567			$	1,861,436

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

		Three Months Ended March 31,								Six Months Ended March 31,
		2022				2021				2022				2021
		(dollars in thousands, except per share data)
INTEREST INCOME
Loans receivable, including fees		$	13,590			$	13,670			$	26,849			$	27,430
Investment securities:
Taxable			1,169				882				2,180				1,879
Exempt from federal income tax			19				41				38				81
Other investment income			130				70				249				185
Total interest income			14,908				14,663				29,316				29,575
INTEREST EXPENSE
Deposits			693				1,589				1,539				3,361
Short-term borrowings			-				20				-				209
Other borrowings			-				23				-				62
Total interest expense			693				1,632				1,539				3,632
NET INTEREST INCOME			14,215				13,031				27,777				25,943
Provision for loan losses			-				900				-				1,800
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES			14,215				12,131				27,777				24,143
NONINTEREST INCOME
Service fees on deposit accounts			735				735				1,518				1,524
Services charges and fees on loans			411				492				828				917
Loan swap fees			2				410				149				621
Unrealized gains on equity securities			-				4				1				11
Trust and investment fees			420				345				846				676
Gain on sale of loans, net			20				669				239				1,487
Earnings on bank-owned life insurance			187				191				380				534
Insurance commissions			141				166				288				334
Other			36				86				31				129
Total noninterest income			1,952				3,515				4,280				6,650
NONINTEREST EXPENSE
Compensation and employee benefits			6,305				6,372				12,639				12,768
Occupancy and equipment			1,174				1,130				2,268				2,197
Professional fees			745				524				1,440				1,057
Data processing			1,151				1,139				2,331				2,221
Advertising			280				152				373				253
Federal Deposit Insurance Corporation ("FDIC")
premiums			120				281				284				554
(Gain) loss on foreclosed real estate			(89	)			(86	)			(120	)			(105	)
Amortization of intangible assets			65				67				132				135
Other			647				856				1,355				1,533
Total noninterest expense			10,398				10,435				20,702				20,613
Income before income taxes			5,769				5,211				11,355				10,180
Income taxes			1,177				871				2,150				1,705
NET INCOME		$	4,592			$	4,340			$	9,205			$	8,475
Earnings per share:
Basic		$	0.47			$	0.43			$	0.94			$	0.84
Diluted		$	0.47			$	0.43			$	0.94			$	0.84
Dividends per share		$	0.12			$	0.12			$	0.24			$	0.23

		For the Three Months								For the Six Months
		Ended March 31,								Ended March 31,
		2022				2021				2022				2021
		(dollars in thousands, except per share data)
CONSOLIDATED AVERAGE BALANCES:
Total assets		$	1,860,473				1,894,759			$	1,865,845			$	1,902,081
Total interest-earning assets			1,766,796				1,790,029				1,770,424				1,797,986
Total interest-bearing liabilities			1,344,463				1,405,253				1,357,395				1,421,478
Total stockholders' equity			211,157				198,011				208,342				196,058
PER COMMON SHARE DATA:
Average shares outstanding - basic			9,766,229				10,033,012				9,768,060				10,053,089
Average shares outstanding - diluted			9,768,832				10,035,027				9,770,893				10,055,551
Book value shares			10,489,391				10,731,235				10,489,391				10,731,235
Net interest rate spread:			3.21	%			2.85	%			3.09	%			2.79	%
Net interest margin:			3.26	%			2.95	%			3.15	%			2.89	%

Contact:

Gary S. Olson, President & CEO
Corporate Office: 200 Palmer Street
Stroudsburg, Pennsylvania 18360
Telephone: (570) 421-0531

SOURCE: ESSA Bancorp Inc.

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FAQ

What were the earnings results for ESSA Bancorp for Q2 2022?

ESSA Bancorp reported net income of $4.6 million, or $0.47 per diluted share for Q2 2022.

How did ESSA Bancorp perform in the first half of 2022?

For the first half of 2022, ESSA Bancorp's net income was $9.2 million, or $0.94 per diluted share.

What is the net interest margin for ESSA Bancorp in Q2 2022?

The net interest margin for Q2 2022 was 3.26%, up from 2.95% in the same period last year.

What is the current asset quality status of ESSA Bancorp?

ESSA Bancorp experienced improved asset quality, with the nonperforming assets ratio at 0.44%.