ESSA ESSA Bancorp Inc

ESSA Bancorp, Inc. (the “Company”) (NASDAQ Global MarketSM “ESSA”) the holding company for ESSA Bank & Trust (the “Bank”) today announced its operating results for the three months ended December 31, 2009. The Company reported net income of $794,000, or $0.06 per diluted share, for the three months ended December 31, 2009, as compared to net income of $1.8 million, or $0.13 per diluted share, for the corresponding 2008 period. Net income of $794,000 for the three months ending December 31, 2009, included a pre-tax write-down of $1.2 million in the value of the Company’s foreclosed real estate portfolio. The charge related to a single property in the Bank’s foreclosed real estate portfolio, and was made to reflect a more current appraisal. Net income for the three months ended December 31, 2008, included a one time tax benefit of $317,000.

“Overall, we continue to feel that our credit quality is strong, our fundamental banking business is solid and our capital position is outstanding,” commented Gary S. Olson, President and Chief Executive Officer of the Company. “The Bank continues to lend and meet the credit needs of our community. However, until the economic recovery accelerates in our market area, we will continue to see pressure in our delinquent and problem loan trends. We are taking the actions necessary to stay ahead of these trends including actively monitoring our loan portfolio, writing down our foreclosed real estate and adding to our loan loss allowance.”

Net Interest Income:

Net interest income increased $289,000, or 4.1%, to $7.3 million for the three months ended December 31, 2009, from $7.0 million for the comparable period in 2008. The increase was primarily attributable to an increase in the Company’s interest rate spread to 2.45% for the three months ended December 31, 2009, from 2.28% for the comparable period in 2008, offset in part by a decrease in the Company’s average net earning assets of $7.2 million.

Provision for Loan Losses:

The provision for loan losses increased $125,000 or 33.3%, to $500,000 for the three months ended December 31, 2009, from $375,000 for the comparable period in 2008.

In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. The changes in the provision for loan losses for the three-month period ended December 31, 2009, as compared to the comparable 2008 period was in response to this evaluation.

Noninterest Income:

Noninterest income increased $131,000, or 9.9%, to $1.5 million for the three months ended December 31, 2009, from $1.3 million for the comparable period in 2008. The primary reason for the increase was the gains on the sale of loans of $155,000 during the 2009 period. The Company sold $5.7 million of long-term fixed-rate residential loans during the three months ended December 31, 2009, as part of an overall interest rate risk management strategy.

Noninterest Expense:

Noninterest expense increased $1.5 million, or 25.4%, to $7.2 million for the three months ended December 31, 2009, from $5.8 million for the comparable period in 2008. The primary reason for the increase was the write-down of foreclosed real estate of $1.2 million in the 2009 period, along with increases in FDIC insurance premiums of $330,000 and compensation and employee benefits of $152,000. These increases were offset, in part, by decreases in occupancy and equipment expense of $151,000 and advertising expense of $105,000.

Balance Sheet:

Total assets decreased $8.2 million, or 0.8%, to $1,034.0 million at December 31, 2009, compared to $1,042.1 million at September 30, 2009. The primary reasons for the decrease in assets were decreases in certificates of deposit of $1.7 million, net loans receivable of $3.7 million, investment securities available for sale of $2.6 million, and investment securities held to maturity of $1.0 million. The decrease in net loans receivable included a decrease in residential loans of $6.4 million, which was partially offset by increases in commercial real estate loans of $2.1 million and commercial loans of $853,000. The Company sold $5.7 million of long-term fixed rate residential loans during the three months ended December 31, 2009, as part of an overall interest rate risk management strategy.

Total deposits decreased $8.7 million at December 31, 2009, compared to September 30, 2009, primarily as a result of a decrease in certificates of deposit accounts of $14.5 million which included a decrease of $3.4 million in brokered certificates of deposit. These decreases were partially offset by an increase in noninterest bearing demand accounts of $2.0 million, NOW accounts of $2.6 million and savings and club accounts of $2.0 million. Borrowed funds increased during the same time period by $3.1 million.

Stockholders’ equity decreased $3.3 million to $182.2 million at December 31, 2009, compared to $185.5 million at September 30, 2009, primarily as a result of a previously announced stock repurchase program the Company began in June 2008. In June, 2009, the Company announced that it had completed its first stock repurchase program having purchased 2,547,135 shares at a weighted average cost of $13.14. It was also announced that the Company’s Board of Directors authorized a second stock repurchase program to purchase up to an additional 10% of its outstanding shares. As of December 31, 2009, the Company had purchased an additional 395,300 shares at a weighted average cost of $12.78 per share under the second stock repurchase program including the repurchase of 283,300 shares at an average cost of $12.68 during the three months ended December 31, 2009.

Asset Quality:

Nonperforming assets totaled $9.9 million, or 0.96%, of total assets at December 31, 2009, compared to $7.7 million, or 0.74%, of total assets at September 30, 2009. The increase was due to increases of $1.1 million in nonperforming residential loans and $2.1 million in commercial loans offset, in part, by a decrease of $834,000 in foreclosed real estate. Commercial nonperforming loans increased primarily as a result of the addition of two commercial real estate relationships. Foreclosed real estate declined primarily as a result of the write-down of $1.2 million in the value of one property. The Company, in response to these and other trends, made a provision for loan losses of $500,000 for the three months ended December 31, 2009, compared to a provision of $375,000 for the comparable three-month period in 2008. The allowance for loan losses was $6.2 million, or 0.84%, of loans outstanding at December 31, 2009, compared to $5.8 million, or 0.79%, of loans outstanding at September 30, 2008.

ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc., has total assets of over $1.0 billion and is the leading service-oriented financial institution headquartered in the greater Pocono, Pennsylvania region. The Bank maintains its corporate headquarters in downtown Stroudsburg, Pennsylvania and has 13 community offices throughout the Pocono, Pennsylvania area. In addition to being one of the region’s largest mortgage lenders, ESSA Bank & Trust offers a full range of retail and commercial financial services. ESSA Bancorp, Inc. stock trades on The NASDAQ Global MarketSM 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 regulatory fees 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.

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, which 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 SUBSIDIARYCONSOLIDATED BALANCE SHEET(UNAUDITED)

   

December 31,2009

September 30,2009

(dollars in thousands) ASSETS Cash and due from banks $ 7,245 $ 7,103 Interest-bearing deposits with other institutions   10,827     11,490   Total cash and cash equivalents 18,072 18,593 Certificates of deposit 3,684 5,355 Investment securities available for sale 214,937 217,566 Investment securities held to maturity (fair value of $5,857 and $6,923) 5,679 6,709 Loans receivable (net of allowance for loan losses of $6,204 and $5,815) 729,861 733,580 Federal Home Loan Bank stock 20,727 20,727 Premises and equipment 11,246 10,620 Bank-owned life insurance 15,211 15,072 Foreclosed real estate 1,745 2,579 Other assets   12,795     11,318   TOTAL ASSETS $ 1,033,957   $ 1,042,119     LIABILITIES Deposits $ 400,168 $ 408,855 Short-term borrowings 61,013 48,091 Other borrowings 380,707 390,507 Advances by borrowers for taxes and insurance 3,004 1,377 Other liabilities   6,834     7,783   TOTAL LIABILITIES   851,726     856,613   Commitment and contingencies — —   STOCKHOLDERS’ EQUITY Preferred Stock — — Common stock 170 170 Additional paid in capital 162,809 162,243 Unallocated common stock held by the Employee Stock Ownership Plan (12,226 ) (12,339 ) Retained earnings 62,464 62,337 Treasury stock, at cost (31,287 ) (27,695 ) Accumulated other comprehensive income   301     790   TOTAL STOCKHOLDERS’ EQUITY   182,231     185,506   TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,033,957   $ 1,042,119      

ESSA BANCORP, INC. AND SUBSIDIARYCONSOLIDATED STATEMENT OF INCOME(UNAUDITED)

   

For the Three MonthsEnded December 31,

2009   2008 (dollars in thousands)   INTEREST INCOME Loans receivable

$

10,341

 

$

10,601

 

Investment securities: Taxable 2,237 2,453 Exempt from federal income tax 83 83 Other investment income   1     119   Total interest income   12,662     13,256     INTEREST EXPENSE Deposits 1,406 1,971 Short-term borrowings 49 155 Other borrowings   3,924     4,136   Total interest expense   5,379     6,262     NET INTEREST INCOME 7,283 6,994 Provision for loan losses   500     375     NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,783     6,619     NONINTEREST INCOME Service fees on deposit accounts 827 840 Services charges and fees on loans 101 121 Trust and investment fees 220 209 Gain on sale of loans, net 155 - Earnings on Bank-owned life insurance 140 139 Other   13     16   Total noninterest income   1,456     1,325         NONINTEREST EXPENSE Compensation and employee benefits 3,736 3,584 Occupancy and equipment 559 710 Professional fees 377 335 Data processing 450 469 Advertising 98 203 FDIC premiums 358 28 Loss on foreclosed real estate 1,200 - Other   453     438   Total noninterest expense  

7,231

    5,767   Income before income taxes 1,008 2,177 Income taxes   214     347     NET INCOME $ 794   $ 1,830     EARNINGS PER SHARE Basic $ 0.06 $ 0.13 Diluted 0.06 0.13    

ESSA BANCORP, INC. AND SUBSIDIARYOTHER FINANCIAL DATA(UNAUDITED)

       

For the Three MonthsEnded December 31,

For the Year endedEnded December 31,

2009 2008 2009 2008 (dollars in thousands, except per share data) CONSOLIDATED AVERAGE BALANCES: Total assets $ 1,031,067 $ 1,002,374 $ 1,031,067 $ 1,002,374 Total interest-earning assets 989,470 959,617 989,470 959,617 Total interest-bearing liabilities 809,204 772,157 809,204 772,157

Total stockholders’ equity

185,779 197,136 185,779 197,136   PER COMMON SHARE DATA: Average shares outstanding - basic 13,076,894 14,579,030 13,076,894 14,579,030 Average shares outstanding - diluted 13,076,894 14,602,412 13,076,894 14,602,412 Book value share computation: Issued 16,980,900 16,980,900 16,980,900 16,980,900 Treasury shares   (2,857,111 )   (1,462,500 )   (2,857,111 )   (1,462,500 ) Shares outstanding 14,123,789 15,518,400 14,123,789 15,518,400 Unvested restricted stock awards   471,531     589,414     471,531     589,414   Book value shares 14,595,320 16,107,814 14,595,320 16,107,814