ESSA Bancorp, Inc. Announces Fiscal Third Quarter and Fiscal Nine Months 2024 Financial Results

Rhea-AI Summary

ESSA Bancorp, Inc. (NASDAQ:ESSA) reported its fiscal third quarter and nine months 2024 financial results. Net income for Q3 2024 was $3.9 million ($0.41 per diluted share), compared to $4.4 million ($0.45 per diluted share) in Q3 2023. For the nine months ended June 30, 2024, net income was $12.8 million ($1.34 per diluted share), down from $13.9 million ($1.44 per diluted share) in the same period of 2023.

Total interest income increased 17.9% to $25.7 million in Q3 2024, while total interest expense rose 76.3% to $11.5 million. The net interest margin decreased to 2.77% in Q3 2024 from 3.22% in Q3 2023. Total net loans increased to $1.71 billion, and total deposits were $1.55 billion as of June 30, 2024. The company maintained strong asset quality with a nonperforming assets to total assets ratio of 0.56%.

Positive

• Total interest income increased 17.9% to $25.7 million in Q3 2024
• Total net loans increased to $1.71 billion from $1.68 billion at September 30, 2023
• Commercial real estate loans grew 3.1% to $847.6 million
• Strong asset quality with nonperforming assets to total assets ratio of 0.56%
• Tangible book value per share increased to $20.89 from $19.80 at September 30, 2023

Negative

• Net income decreased to $3.9 million in Q3 2024 from $4.4 million in Q3 2023
• Net interest margin declined to 2.77% in Q3 2024 from 3.22% in Q3 2023
• Total interest expense increased 76.3% to $11.5 million in Q3 2024
• Total deposits decreased to $1.55 billion from $1.66 billion at September 30, 2023
• Core deposits declined to 64% of total deposits from 70% at September 30, 2023

Insights

Financial Analyst

ESSA Bancorp's fiscal Q3 2024 results present a mixed picture. While the company has shown resilience in a challenging interest rate environment, there are some concerning trends to note:

• Net income decreased to $3.9 million ($0.41 per diluted share) in Q3 2024, down from $4.4 million ($0.45 per diluted share) in Q3 2023.
• The net interest margin contracted to 2.77% in Q3 2024 from 3.22% in Q3 2023, reflecting pressure on margins due to higher interest rates.
• Return on average assets and return on average equity both declined year-over-year, indicating reduced profitability.

On the positive side:

• Total interest income increased by 17.9% year-over-year in Q3, driven by loan repricing and higher yields on investment securities.
• Asset quality remains strong, with nonperforming assets to total assets ratio improving to 0.56% from 0.63% at the fiscal year-start.
• Tangible book value per share increased to $20.89 from $19.80 at the fiscal year-start, indicating growth in shareholder value.

The bank's strategy of focusing on operating efficiency and maintaining asset strength appears to be helping mitigate some of the challenges posed by the current interest rate environment. However, the pressure on net interest margin and the decline in core deposits are areas that warrant close monitoring by investors.

Banking Industry Specialist

ESSA Bancorp's Q3 results highlight several industry-wide trends affecting regional banks:

• The impact of rising interest rates is evident in the 76.3% increase in interest expense, which outpaced the 17.9% growth in interest income. This squeeze on net interest margin is a common challenge in the current environment.
• The shift in deposit composition, with core deposits declining from 70% to 64% of total deposits, reflects the industry-wide struggle to retain low-cost deposits in a high-rate environment.
• The increase in certificates of deposit, including a rise in brokered CDs, indicates a trend towards higher-cost funding sources.

ESSA's approach to deposit retention is noteworthy. By selectively adjusting rates and avoiding aggressive pricing, they're prioritizing relationship banking over simply chasing deposits. This strategy may help maintain profitability in the long term but could lead to slower deposit growth in the near term.

The bank's strong capital position (Tier 1 capital ratio of 9.8%) and improving asset quality metrics are positive indicators of financial health. However, the decline in noninterest-bearing demand accounts by 7% is a trend to watch, as it could further pressure margins if it continues.

Overall, ESSA Bancorp's performance reflects the delicate balance regional banks must strike between growth, profitability and risk management in the current banking landscape.

STROUDSBURG, PA / ACCESSWIRE / July 24, 2024 / ESSA Bancorp, Inc. (the "Company") (NASDAQ:ESSA), the holding company for ESSA Bank & Trust (the "Bank"), a $2.2 billion asset financial institution providing full service commercial and retail banking, asset management and trust, and investment services in eastern Pennsylvania, today announced financial results for the fiscal third quarter and fiscal nine months periods ended June 30, 2024.

Net income was $3.9 million, or $0.41 per diluted share, for the three months ended June 30, 2024, compared with $4.4 million, or $0.45 per diluted share, for the three months ended June 30, 2023. For the nine months ended June 30, 2024, net income was $12.8 million, or $1.34 per diluted share, compared with $13.9 million, or $1.44 per diluted share, for the nine months ended June 30, 2023.

Gary S. Olson, President and CEO, commented: "The Company delivered another quarter of steady earnings and enhanced shareholder value by focusing on operating efficiently, maintaining asset strength, and managing the diversity and risk characteristics of our loan, deposit and investment portfolios.

"Commercial and residential lending activity generated significant year-over-year interest income growth in the third quarter and year to date periods. At the same time, higher interest rates have continued to pressure margins, particularly the higher cost of interest-bearing liabilities including borrowings and retail deposits.

"Generating and retaining retail deposits continues to be one of the Bank's key initiatives. We have selectively adjusted rates on interest bearing accounts and avoided chasing customers by offering the highest rates. We are committed to maintaining a desirable loan-to-deposit ratio.

"Expense management and asset quality are critical to supporting quality earnings. The 0.56% ratio of non-performing assets to total assets at June 30, 2024, reflected the ongoing strength of our credit and risk management practices, as did a reduction in the provision for credit losses based on anticipated risk.

"Noninterest expenses, including salaries and benefits, remained relatively flat year-over-year. We are committed to providing attractive compensation and benefits to retain an outstanding team of banking professionals. They have played a critical role in the Company's performance, and in providing the financial solutions to our valued customers."

THIRD QUARTER, NINE MONTHS OF 2024 HIGHLIGHTS

• Total interest income increased 17.9% to $25.7 million in the third quarter of 2024 compared with the third quarter of 2023, and in the nine months of 2024 rose 28.1% to $77.4 million compared with the nine months of 2023, primarily reflecting ongoing repricing of commercial loans and increased yields from investment securities along with growth in total interest earning assets.

• Total yield on average interest earning assets increased to 5.02% for the quarter ended June 30, 2024, from 4.60% for the quarter ended June 30, 2023.

• Total interest expense increased 76.3% to $11.5 million in the third quarter of 2024 compared with the third quarter of 2023, and in the nine months of 2024 rose 132.4% to $33.5 million compared with the nine months of 2023, primarily reflecting ongoing repricing of deposits and borrowed funds along with growth in total interest-bearing liabilities.

• Total cost of interest-bearing liabilities increased to 2.80% for the quarter ended June 30, 2024, from 1.75% for the quarter ended June 30, 2023.

• Net interest income before the provision for credit losses for the third quarter and nine months of 2024 was $14.2 million and $43.9 million, respectively, compared with $15.2 million and $46.0 million in the 2023 periods, respectively. Both 2024 periods reflected higher interest expenses compared with a year earlier.

• The provision for credit losses for the three months ended June 30, 2024, was a release of $347,000 compared to a provision of $150,000 for the three months ended June 30, 2023. The provision for the nine-month period in 2024 was a release of $1.2 million compared to a provision of $450,000 for the same period in 2023.

• Total net loans at June 30, 2024, increased to $1.71 billion from $1.68 billion at September 30, 2023.

• Lending activity was highlighted by 3.1% growth in commercial real estate loans to $847.6 million at June 30, 2024, from $822.0 million at September 30, 2023. Residential mortgages increased $87,000 from September 30, 2023, net of the sales of $15.2 million of mortgage loans during the same period.

• Asset quality remained strong, with a ratio of nonperforming assets to total assets of 0.56% at June 30, 2024, compared to 0.63% at September 30, 2023. The allowance for credit losses to total loans was 0.89% at June 30, 2024, compared with 1.09% at September 30, 2023. Charge-offs net of recoveries for the nine months ended June 30, 2024, resulted in a net recovery of $137,000.

• Total deposits were $1.55 billion at June 30, 2024, with lower-cost core deposits (demand, savings and money market accounts) comprising 64% of total deposits. Total deposits were $1.66 billion at September 30, 2023, with core deposits comprising 70% of total deposits. Uninsured deposits were 26% of total deposits at June 30, 2024, including approximately $149.1 million of fully collateralized municipal deposits.

• The Bank continued to demonstrate financial strength, with a Tier 1 capital ratio of 9.8% at June 30, 2024.

• Measures of shareholder value demonstrated growth. Tangible book value per share at June 30, 2024, increased to $20.89 from $19.80 at September 30, 2023. Total stockholders' equity increased to $225.5 million at June 30, 2024, from $219.7 million at September 30, 2023. The Company further enhanced shareholder value by repurchasing 303,609 ESSA shares in the first fiscal quarter of 2024.

Fiscal Third quarter and Year-to-date 2024 Income Statement Review

Total interest income increased to $25.7 million for the third quarter of fiscal 2024 compared with $21.8 million a year earlier, reflecting interest earning asset growth and an increase in the total yield on average interest earning assets to 5.02% from 4.60%.

Total interest income increased to $77.4 million for the nine months ended June 30, 2024, compared with $60.4 million a year earlier, reflecting interest-earning asset growth and an increase in the total yield on average interest earning assets to 4.96% from 4.38%.

Interest expense was $11.5 million for the third quarter of 2024, compared with $6.5 million for the same period in 2023, reflecting growth in interest-bearing liabilities and increased interest rates on deposits and short-term borrowings. The Company's cost of interest-bearing liabilities was 2.80% in the 2024 third quarter compared with 1.75% for the same quarter in 2023.

Interest expense was $33.5 million for the nine months ended June 30, 2024, compared with $14.4 million for the same period in 2023, reflecting growth in interest-bearing liabilities and increased interest rates on deposits and short-term borrowings. The Company's cost of interest-bearing liabilities was 2.66% for the nine-month period in fiscal 2024 compared with 1.34% for the same period in fiscal 2023.

Net interest income before (release of) provision for credit losses was $14.2 million in the third quarter of 2024 compared with net interest income before provision for credit losses of $15.2 million in the third quarter of 2023. In the nine months of 2024, net interest income before (release of) provision for credit losses was $43.9 million compared with net interest income before provision for credit losses in the nine months of 2023 of $46.0 million.

The net interest margin for the third quarter of 2024 was 2.77% compared with 3.22% for the comparable period of fiscal 2023. For the three months ended June 30, 2024, the Company's return on average assets and return on average equity were 0.72% and 6.96%, compared with 0.88% and 7.97%, respectively, for the comparable period of fiscal 2023.

The net interest margin for the nine months ended June 30, 2024, was 2.81% compared with 3.34% for the comparable period of fiscal 2023. For the nine months ended June 30, 2024, the Company's return on average assets and return on average equity were 0.78% and 7.68%, compared with 0.96% and 8.52%, respectively, for the comparable period of fiscal 2023.

The provision for credit losses decreased $497,000 for the third quarter of fiscal 2024 compared to the same fiscal quarter of 2023. The decrease was primarily driven by a decrease in expected losses in the loan portfolio, including unfunded commitments.

The provision for credit losses decreased $1.7 million for the nine months ended June 30, 2024, compared to the same period in 2023. The decrease was primarily driven by a decrease in expected losses in the loan portfolio, including unfunded commitments.

Noninterest income was $2.1 million for the third quarter of 2024, compared with $1.9 million a year earlier. The three-month year-over-year comparison reflected increases in other noninterest income, loan swap fees, gain on loan sales and service fees on loans, offset by decreases in service fees on deposits in addition to a decrease in trust and investment fees.

Noninterest income was $6.1 million for the nine months ended June 30, 2024, compared with $5.9 million a year earlier. The nine-month year-over-year comparison reflected increases in gain on loan sales and in other noninterest income offset by decreases in service fees on deposits and loans along with a decrease in insurance commissions.

Noninterest expense for the third quarter of 2024 was $11.8 million compared to $11.5 million for the comparable quarter in 2023. Noninterest expense for the nine months ended June 30, 2024, was $35.4 million compared to $34.2 million for the comparable period in 2023.

Balance Sheet, Asset Quality and Capital Adequacy Review

Total assets were $2.2 billion at June 30, 2024, compared with $2.3 billion at September 30, 2023. The decrease of $59.6 million, or 2.6%, reflects the growth in cash and cash equivalents and total net loans outstanding, which were more than offset by decreases in investment securities available for sale.

Total net loans were $1.71 billion at June 30, 2024, up from $1.68 billion at September 30, 2023. Residential real estate loans were $713.4 million at June 30, 2024, compared with $713.3 million at September 30, 2023. Commercial real estate loans increased to $847.6 million at June 30, 2024, compared with $822.0 million at September 30, 2023. Commercial loans (primarily commercial and industrial) were $47.7 million compared with $48.1 million at September 30, 2023. Loans to states and political subdivisions were $48.1 million at June 30, 2024, and September 30, 2023. Consumer loans were $50.0 million at June 30, 2024, compared to $48.2 million at September 30, 2023.

Nonperforming assets were $12.4 million, or 0.56% of total assets at June 30, 2024, compared to $14.4 million or 0.63% at September 30, 2023. The allowance for credit losses to total loans was 0.89% at June 30, 2024, compared to 1.09% at September 30, 2023. Foreclosed real estate was $3.2 million at June 30, 2024, compared to $3.3 million at September 30, 2023, reflecting one commercial property the Company is actively marketing.

Total deposits were $1.55 billion at June 30, 2024, compared with $1.66 billion at September 30, 2023. Core deposits were $989.8 million, or 64% of total deposits, at June 30, 2024, compared to $1.16 billion, or 70% of total deposits at September 30, 2023.

Noninterest bearing demand accounts at June 30, 2024, were $261.3 million, down 7% from September 30, 2023. Interest bearing demand accounts declined 16% to $290.6 million and money market accounts declined 22% to $287.3 million at June 30, 2024, from September 30, 2023. The decreases reflect the continuing highly competitive interest rate environment. Certificates of deposit increased $60.6 million or 12% to $564.5 million at June 30, 2024, compared to September 30, 2023. Included in the certificates of deposit increase is an increase of $29.1 million in brokered certificates of deposit. Total borrowings increased to $406.5 million at June 30, 2024, from $374.7 million at September 30, 2023.

The Bank maintained a strong capital position with a Tier 1 capital ratio of 9.8% at June 30, 2024, exceeding regulatory standards for a well-capitalized institution. Total stockholders' equity increased $5.8 million to $225.5 million at June 30, 2024, from $219.7 million at September 30, 2023, primarily reflecting net income growth and a decrease in other comprehensive loss, offset in part by dividends paid to shareholders and the repurchase of 303,609 shares during the fiscal first quarter of 2024. Tangible book value per share at June 30, 2024, was $20.89 compared to $19.80 at September 30, 2023.

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 $2.2 billion and has 21 community offices throughout the Lehigh Valley, Greater Pocono, 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, 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.

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

ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

		June 30,				September 30,
		2024				2023
		(dollars in thousands)
ASSETS
Cash and due from banks		$	55,300			$	39,008
Interest-bearing deposits with other institutions			72,699				46,394
Total cash and cash equivalents			127,999				85,402
Investment securities available for sale, at fair value			215,201				334,056
Investment securities held to maturity, at amortized cost
(net of allowance for credit losses of $0)			48,632				52,242
Loans, held for sale			140				250
Loans receivable (net of allowance for credit losses
of $15,298 and $18,525)			1,708,572				1,680,525
Regulatory stock, at cost			18,758				17,890
Premises and equipment, net			11,368				12,913
Bank-owned life insurance			39,678				39,026
Foreclosed real estate			3,195				3,311
Intangible assets, net			-				91
Goodwill			13,801				13,801
Deferred income taxes			5,797				6,877
Derivative and hedging assets			12,289				19,662
Other assets			28,204				27,200
TOTAL ASSETS		$	2,233,634			$	2,293,246
LIABILITIES
Deposits		$	1,554,300			$	1,661,016
Short-term borrowings			396,458				374,652
Other borrowings			10,000				-
Advances by borrowers for taxes and insurance			15,242				6,550
Derivative and hedging liabilities			7,565				9,579
Other liabilities			24,574				21,741
TOTAL LIABILITIES			2,008,139				2,073,538
STOCKHOLDERS' EQUITY
Common stock			181				181
Additional paid-in capital			182,889				182,681
Unallocated common stock held by the
Employee Stock Ownership Plan ("ESOP")			(5,670	)			(6,009	)
Retained earnings			160,770				151,856
Treasury stock, at cost			(104,050	)			(99,508	)
Accumulated other comprehensive loss			(8,625	)			(9,493	)
TOTAL STOCKHOLDERS' EQUITY			225,495				219,708
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,233,634			$	2,293,246

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

		Three Months Ended June 30,								Nine Months Ended June 30,
		2024				2023				2024				2023
		(dollars in thousands, except per share data)
INTEREST INCOME
Loans receivable, including fees		$	21,965				19,132				65,103				52,721
Investment securities:
Taxable			2,564				2,161				9,201				6,348
Exempt from federal income tax			11				11				32				32
Other investment income			1,122				461				3,066				1,337
Total interest income			25,662				21,765				77,402				60,438
INTEREST EXPENSE
Deposits			7,973				4,915				24,025				10,733
Short-term borrowings			3,380				1,606				9,100				3,691
Other borrowings			144				-				394				-
Total interest expense			11,497				6,521				33,519				14,424
NET INTEREST INCOME			14,165				15,244				43,883				46,014
(Release of) Provision for credit losses			(347	)			150				(1,240	)			450
NET INTEREST INCOME AFTER (RELEASE OF) PROVISION
FOR CREDIT LOSSES			14,512				15,094				45,123				45,564
NONINTEREST INCOME
Service fees on deposit accounts			719				782				2,089				2,343
Services charges and fees on loans			356				288				981				985
Loan swap fees			53				-				127				138
Unrealized loss on equity securities			(1	)			(1	)			(6	)			(4	)
Trust and investment fees			400				426				1,211				1,231
Gain on sale of loans, net			112				39				288				97
Earnings on bank-owned life insurance			220				196				652				582
Insurance commissions			133				145				395				459
Other			127				64				347				92
Total noninterest income			2,119				1,939				6,084				5,923
NONINTEREST EXPENSE
Compensation and employee benefits			6,771				6,622				20,190				20,154
Occupancy and equipment			1,170				1,068				3,627				3,223
Professional fees			1,218				1,223				3,282				3,581
Data processing			1,364				1,296				4,066				3,697
Advertising			116				181				491				535
Federal Deposit Insurance Corporation ("FDIC") premiums			454				380				1,309				748
Foreclosed real estate			-				(1	)			101				(4	)
Amortization of intangible assets			-				47				91				142
Other			715				677				2,222				2,143
Total noninterest expense			11,808				11,493				35,379				34,219
Income before income taxes			4,823				5,540				15,828				17,268
Income taxes			909				1,144				3,015				3,321
NET INCOME		$	3,914			$	4,396			$	12,813			$	13,947
Earnings per share:
Basic		$	0.41			$	0.45			$	1.34			$	1.44
Diluted		$	0.41			$	0.45			$	1.34			$	1.44
Dividends per share		$	0.15			$	0.15			$	0.45			$	0.45

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2024				2023				2024				2023
		(unaudited)
		(dollars in thousands, except per share data)
CONSOLIDATED AVERAGE BALANCES:
Total assets		$	2,171,985			$	2,012,804			$	2,199,980			$	1,950,672
Total interest-earning assets			2,056,044				1,899,554				2,085,204				1,837,787
Total interest-bearing liabilities			1,649,117				1,495,520				1,682,086				1,431,090
Total stockholders' equity			226,090				221,279				222,873				218,894
PER COMMON SHARE DATA:
Average shares outstanding - basic			9,517,948				9,734,708				9,560,306				9,716,593
Average shares outstanding - diluted			9,517,948				9,734,708				9,560,306				9,716,593
Book value shares			10,131,521				10,401,205				10,131,521				10,401,205
Net interest rate spread:			2.22	%			2.85	%			2.30	%			3.04	%
Net interest margin:			2.77	%			3.22	%			2.81	%			3.34	%

SOURCE: ESSA Bancorp Inc.

View the original press release on accesswire.com

FAQ

What was ESSA Bancorp's net income for Q3 2024?

ESSA Bancorp's net income for Q3 2024 was $3.9 million, or $0.41 per diluted share.

How did ESSA's total interest income change in Q3 2024 compared to Q3 2023?

ESSA's total interest income increased 17.9% to $25.7 million in Q3 2024 compared to Q3 2023.

What was ESSA Bancorp's net interest margin for Q3 2024?

ESSA Bancorp's net interest margin for Q3 2024 was 2.77%, down from 3.22% in Q3 2023.

How much did ESSA's total net loans increase to as of June 30, 2024?

ESSA's total net loans increased to $1.71 billion as of June 30, 2024, up from $1.68 billion at September 30, 2023.

What was ESSA Bancorp's nonperforming assets to total assets ratio as of June 30, 2024?

ESSA Bancorp's nonperforming assets to total assets ratio was 0.56% as of June 30, 2024.