ESSA Bancorp, Inc. Announces Fiscal First Quarter 2024 Financial Results
- Net interest income was $14.9 million in the fiscal first quarter of 2024
- Total net loans at December 31, 2023, were $1.70 billion, up 1.4% from September 30, 2023
- Total yield on average interest earning assets increased to 4.89% at December 31, 2023 from 4.16% at December 31, 2022
- The company repurchased 303,609 shares of its common stock during the quarter ended December 31, 2023
- Total stockholders' equity increased to $220.7 million at December 31, 2023, from $219.7 million at September 30, 2022
- Tangible book value per share at December 31, 2023, was $20.42 compared to $19.80 at September 30, 2022
- Net income decreased to $4.3 million from $4.9 million compared to the previous year
- Interest expense increased to $11.2 million for the first quarter of 2024, compared with $3.0 million for the same period in 2022
- The net interest margin for the first quarter of 2024 was 2.79% compared with 3.50% for the comparable period of fiscal 2023
Insights
The reported net income of ESSA Bancorp indicates a decrease from the previous year, with a drop from $4.9 million to $4.3 million. This dip in profitability might raise concerns among investors regarding the bank's ability to sustain its earnings in a volatile interest rate environment. However, it's important to note that the bank has managed to grow its loan portfolio, with residential mortgage loans and commercial real estate loans increasing by 8% and 20%, respectively. This suggests a strategic focus on expanding high-quality credit offerings, which could enhance the bank's financial position in the long run.
ESSA Bancorp's adoption of the CECL accounting standard has led to a decrease in the allowance for credit losses, which may reflect an optimistic outlook on future credit losses. The reduced provision for credit losses, down by $547,000, further corroborates this perspective. However, the increased interest expense, which has tripled compared to the previous year, is a significant factor that investors should monitor as it could impact net interest margins and overall profitability.
The bank's capital adequacy, with a Tier 1 capital ratio of 9.1%, suggests a strong capital position that exceeds regulatory requirements. This is a positive sign for stakeholders, as it indicates the bank's resilience and capacity to absorb potential losses. The increase in tangible book value per share, from $19.80 to $20.42, also provides an indication of the bank's growing intrinsic value, which can be a key metric for long-term investors.
ESSA Bancorp's financial results reflect a broader trend in the banking industry where institutions are grappling with the challenges of a shifting interest rate landscape. The bank's focus on maintaining strong asset quality and managing margins is a strategic response to these market conditions. The slight growth in core deposits, comprising 67.7% of total deposits, is a testament to the bank's stable customer base and could be a buffer against market volatility.
The bank's strategic emphasis on efficient operations and modest loan growth in key categories is a prudent approach in a market where many financial institutions are facing margin pressures. The stable loan quality, as evidenced by low levels of nonperforming loans and negligible charge-offs, positions ESSA Bancorp favorably in terms of risk management compared to peers that may be experiencing higher levels of credit deterioration.
While the bank's net interest margin has compressed from the previous year, it's worth noting that this is a common trend across the sector due to rising interest rates. The bank's ability to maintain a relatively consistent margin quarter-over-quarter in a stabilizing rate environment could be indicative of effective interest rate risk management strategies, which are crucial for long-term profitability.
The implementation of the CECL accounting standard represents a significant change in how financial institutions like ESSA Bancorp account for credit losses. This forward-looking model requires banks to estimate expected credit losses over the life of loans, which can result in more volatile provisions for credit losses. The bank's decrease in the allowance for credit losses suggests a favorable assessment of future credit risk, but stakeholders should be aware that this new accounting method could lead to greater fluctuations in reported earnings due to changes in economic forecasts and loan performance expectations.
Additionally, the bank's stock repurchase during the quarter, reducing the number of shares outstanding, could be viewed as a move to increase shareholder value. It's important for investors to understand that such corporate actions can impact earnings per share and the company's capital structure. The legal and regulatory implications of adopting CECL and conducting share repurchases require careful consideration by the bank's management to ensure compliance and alignment with shareholder interests.
STROUDSBURG, PA / ACCESSWIRE / January 24, 2024 / ESSA Bancorp, Inc. (the "Company") (NASDAQ:ESSA), the holding company for ESSA Bank & Trust (the "Bank"), a
Net income was
Gary S. Olson, President and CEO, commented: "The Company delivered sound earnings and shareholder value in fiscal first quarter 2024, which reflected diligent margin management, superior asset quality and continued emphasis on efficient and productive operations. The Bank demonstrated relative consistency in consecutive quarter margins and interest spread in a stabilizing interest rate environment.
"The dramatic interest rate shift during the past year slowed loan activity, while at the same time it has led to significantly higher interest expense. Although loan growth has slowed, the quality of the commercial real estate, commercial & industrial and mortgage loans in the Bank's portfolio is exceptionally strong, with interest rates that appropriately reflect the prevailing rate environment.
"The quality of assets was evident in continued low levels of nonperforming loans to total loans, negligible loan charge-offs, and low levels of classified loans.
"Modest and manageable long-term growth occurred in key loan categories. Residential mortgage loans grew
"We will continue our focus on efficient, productive operations, earning and retaining new deposits, maintaining liquidity and capital strength, and managing margins. Solid earnings are supporting growth in value measures, including stockholders' equity, tangible book value, and consistent quarterly cash dividends to shareholders. Moving forward, we remain on course to produce stable, high quality results."
FISCAL FIRST QUARTER 2024 HIGHLIGHTS
- Net interest income was
$14.9 million in the fiscal first quarter of 2024 compared with$15.7 million in the fiscal first quarter of 2023 and$15.5 million in the fourth quarter of 2023. - Total net loans at December 31, 2023, were
$1.70 billion , up1.4% from$1.68 billion at September 30, 2023. - Lending activity was highlighted by
4% growth in commercial real estate loans to$851.1 million at December 31, 2023, from$822.0 million at September 30, 2023. Commercial real estate and residential mortgages increased20% and8% , respectively, from the prior year. - Total yield on average interest earning assets increased to
4.89% at December 31, 2023 from4.16% at December 31, 2022. - Variable rate loan repricing and loan growth in a rising rate environment, offset by an increased cost of funds, resulted in a net interest margin of
2.79% for the first fiscal quarter of 2024 compared with3.50% for the comparable period of fiscal 2023. The margin in the fourth quarter fiscal 2023 was2.97% . - Asset quality remained strong, with a ratio of nonperforming assets to total assets of
0.64% at December 31, 2023, compared to0.63% at September 30, 2023. The allowance for credit losses to total loans was0.90% at December 31, 2023, compared with1.09% at September 30, 2023. - Total deposits were
$1.59 billion at December 31, 2023, with lower-cost core deposits comprising67.7% of total deposits. Uninsured deposits were30.9% of total deposits at December 31, 2023, including approximately$181.2 million of fully collateralized municipal deposits. - The Bank maintained strong levels of on-balance sheet liquidity and has access to significant sources of additional borrowing capacity.
- The Bank continued to demonstrate financial strength, with a Tier 1 capital ratio of
9.1% at December 31, 2023. - Tangible book value per share at December 31, 2023, rose significantly to
$20.42 from$19.80 at September 30, 2023. Total stockholders' equity increased to$220.7 million at December 31, 2023, from$219.7 million at September 30, 2022. The company repurchased 303,609 shares of it's common stock during the quarter ended December 31, 2023.
Effective October 1, 2023, the Company adopted Accounting Standards Update 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", referred to as the current expected credit loss model ("CECL"). This accounting standard requires that credit losses for financial assets and off-balance sheet credit exposures be measured based on expected credit losses, rather than on incurred credit losses as in prior periods. As a result the allowance for credit losses was decreased by
Fiscal First Quarter 2024 Income Statement Review
Total interest income increased to
Interest expense was
The provision for credit losses decreased
Company adopted Accounting Standards Update 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", referred to as the current expected credit loss model ("CECL").
Net interest income in the first quarter of 2024 was
The net interest margin for the first quarter of 2024 was
Noninterest income was
Noninterest expense for the first quarter of 2024 was
Balance Sheet, Asset Quality and Capital Adequacy Review
Total assets were
Total net loans were
Nonperforming assets were
Total deposits were
Noninterest bearing demand accounts at December 31, 2023, were
The Bank maintained a strong capital position with a Tier 1 capital ratio of
About the Company: ESSA Bancorp, Inc. is the holding company for its wholly owned subsidiary, ESSA Bank & Trust, which was formed in 1916. The Company has total assets of
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, the recent turmoil in the banking industry , 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.
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.
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (dollars in thousands) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 32,682 | $ | 39,008 | ||||
Interest-bearing deposits with other institutions | 14,498 | 46,394 | ||||||
Total cash and cash equivalents | 47,180 | 85,402 | ||||||
Investment securities available for sale, at fair value | 288,768 | 334,056 | ||||||
Investment securities held to maturity, at amortized cost | ||||||||
(net of allowance for credit losses of | 51,012 | 52,242 | ||||||
Loans, held for sale | - | 250 | ||||||
Loans receivable (net of allowance for credit losses | ||||||||
of | 1,704,728 | 1,680,525 | ||||||
Regulatory stock, at cost | 18,759 | 17,890 | ||||||
Premises and equipment, net | 11,936 | 12,913 | ||||||
Bank-owned life insurance | 39,238 | 39,026 | ||||||
Foreclosed real estate | 3,195 | 3,311 | ||||||
Intangible assets, net | 44 | 91 | ||||||
Goodwill | 13,801 | 13,801 | ||||||
Deferred income taxes | 5,857 | 6,877 | ||||||
Derivative and hedging assets | 13,401 | 19,662 | ||||||
Other assets | 27,519 | 27,200 | ||||||
TOTAL ASSETS | $ | 2,225,438 | $ | 2,293,246 | ||||
LIABILITIES | ||||||||
Deposits | $ | 1,590,218 | $ | 1,661,016 | ||||
Short-term borrowings | 361,500 | 374,652 | ||||||
Other borrowings | 10,000 | - | ||||||
Advances by borrowers for taxes and insurance | 10,077 | 6,550 | ||||||
Derivative and hedging liabilities | 8,413 | 9,579 | ||||||
Other liabilities | 24,506 | 21,741 | ||||||
TOTAL LIABILITIES | 2,004,714 | 2,073,538 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock | 181 | 181 | ||||||
Additional paid-in capital | 182,528 | 182,681 | ||||||
Unallocated common stock held by the | ||||||||
Employee Stock Ownership Plan ("ESOP") | (5,896 | ) | (6,009 | ) | ||||
Retained earnings | 155,247 | 151,856 | ||||||
Treasury stock, at cost | (104,050 | ) | (99,508 | ) | ||||
Accumulated other comprehensive loss | (7,286 | ) | (9,493 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY | 220,724 | 219,708 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,225,438 | $ | 2,293,246 | ||||
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (dollars in thousands, except per share data) | ||||||||
INTEREST INCOME | ||||||||
Loans receivable, including fees | $ | 21,414 | $ | 16,085 | ||||
Investment securities: | ||||||||
Taxable | 3,887 | 2,091 | ||||||
Exempt from federal income tax | 11 | 11 | ||||||
Other investment income | 778 | 432 | ||||||
Total interest income | 26,090 | 18,619 | ||||||
INTEREST EXPENSE | ||||||||
Deposits | 8,462 | 2,001 | ||||||
Short-term borrowings | 2,656 | 958 | ||||||
Other borrowings | 108 | - | ||||||
Total interest expense | 11,226 | 2,959 | ||||||
NET INTEREST INCOME | 14,864 | 15,660 | ||||||
Provision for credit losses | (397 | ) | 150 | |||||
NET INTEREST INCOME AFTER PROVISION | ||||||||
FOR CREDIT LOSSES | 15,261 | 15,510 | ||||||
NONINTEREST INCOME | ||||||||
Service fees on deposit accounts | 696 | 799 | ||||||
Services charges and fees on loans | 330 | 367 | ||||||
Loan swap fees | - | 2 | ||||||
Unrealized (loss) gains on equity securities | (3 | ) | 2 | |||||
Trust and investment fees | 393 | 402 | ||||||
Gain on sale of loans, net | 118 | - | ||||||
Earnings on bank-owned life insurance | 212 | 191 | ||||||
Insurance commissions | 128 | 146 | ||||||
Other | 87 | 6 | ||||||
Total noninterest income | 1,961 | 1,915 | ||||||
NONINTEREST EXPENSE | ||||||||
Compensation and employee benefits | 6,746 | 6,740 | ||||||
Occupancy and equipment | 1,229 | 1,046 | ||||||
Professional fees | 1,025 | 1,243 | ||||||
Data processing | 1,342 | 1,179 | ||||||
Advertising | 136 | 186 | ||||||
Federal Deposit Insurance Corporation ("FDIC") | ||||||||
premiums | 380 | 188 | ||||||
Foreclosed real estate | 101 | - | ||||||
Amortization of intangible assets | 47 | 47 | ||||||
Other | 851 | 805 | ||||||
Total noninterest expense | 11,857 | 11,434 | ||||||
Income before income taxes | 5,365 | 5,991 | ||||||
Income taxes | 1,028 | 1,125 | ||||||
NET INCOME | $ | 4,337 | $ | 4,866 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.45 | $ | 0.50 | ||||
Diluted | $ | 0.45 | $ | 0.50 | ||||
Dividends per share | $ | 0.15 | $ | 0.15 | ||||
| For the Three Months | ||||||||
| Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (dollars in thousands, except per share data) | ||||||||
CONSOLIDATED AVERAGE BALANCES: | ||||||||
Total assets | $ | 2,236,612 | $ | 1,892,146 | ||||
Total interest-earning assets | 2,121,498 | 1,776,582 | ||||||
Total interest-bearing liabilities | 1,721,309 | 1,368,672 | ||||||
Total stockholders' equity | 219,624 | 215,146 | ||||||
PER COMMON SHARE DATA: | ||||||||
Average shares outstanding - basic | 9,614,550 | 9,696,856 | ||||||
Average shares outstanding - diluted | 9,616,316 | 9,705,673 | ||||||
Book value shares | 10,131,521 | 10,401,870 | ||||||
Net interest rate spread: | 2.30 | % | 3.30 | % | ||||
Net interest margin: | 2.79 | % | 3.50 | % | ||||
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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