REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees, Plan Administrator, and Plan Participants of the ESSA Bank & Trust 401(k) Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the ESSA Bank
& Trust 401(k) Plan as of December 31, 2018, and 2017, the related statement of changes in net assets available for benefits for the year ended December 31, 2018, and the related notes to the financial statements (collectively, the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2018, and 2017, and the changes in net assets available for benefits for the year
ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the ESSA Bank & Trust 401(k) Plan’s
management. Our responsibility is to express an opinion on the ESSA Bank & Trust 401(k) Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the ESSA Bank & Trust 401(k) Plan, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Report on Supplemental Information
The supplemental information in the accompanying schedule of Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December
31, 2018, has been subjected to audit procedures performed in conjunction with the audit of the ESSA Bank & Trust 401(k) Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not
a required part of the financial statements, but includes supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The
supplemental information is the responsibility of the ESSA Bank & Trust 401(k) Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying
accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in
Report on Supplemental Information (Continued)
the accompanying schedule, we evaluated whether the supplemental information, including its form and
content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying
schedule is fairly stated in all material respects in relation to the financial statements as a whole.
We have served as the ESSA Bank & Trust 401(k) Plan’s auditor since 2005.
Cranberry Township, Pennsylvania
June 26, 2019
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN
The following brief description of the ESSA Bank & Trust 401(k) Plan (the “Plan”) for employees of ESSA Bank &
Trust (the “Bank”) is provided for general information purposes only. Participants should refer to the Plan Document for a more comprehensive description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering the employees of the Bank who have attained the age of 21 and have met
the service requirements. The Plan’s initial service requirements are 166 hours in 60 days. If the service requirements are not met in the first 60 days, the requirement reverts to 1,000 hours from hire date to anniversary date. If the service
requirements are still not met after the first anniversary year, the requirement switches to 1,000 hours in a plan year (1/1 to 12/31). An employee is eligible to participate in the first of the quarter (January, April, July, October) coincident
with or next following the date that the eligibility requirements are met. The Plan includes a 401(k) before-tax and after-tax savings features, which permits participants to defer compensation under Section 401(k) of the Internal Revenue Code.
It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. The Benefits Committee is responsible for oversight of the Plan. The Benefits Committee determines the appropriateness of the Plan’s
investment offerings, and monitors investment performance.
Contributions
Employees may elect to contribute any amount up to the maximum percentage allowable, not to exceed the limits of Code
Sections 401(k), 402(g), 404, and 415. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. The participants may direct their accounts into several different investment options.
Contributions are subject to certain limitations. Effective March 1, 2017, the Plan was amended to reinstate the employer match. The Bank will match 100 percent of the participant’s annual elective deferrals that do not exceed 3 percent of the
participant’s compensation, plus 50 percent of the amount of the participant’s annual elective deferrals that exceed 3 percent but that do not exceed 5 percent of the participant’s compensation.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, as well as allocations of Plan earnings
based upon participant’s account balances at the beginning of the valuation period. Participant accounts are charged with an allocation of administrative expenses that are paid by the Plan. Allocations are based on participant earnings, account
balances, or specific participant transactions, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are immediately vested in their voluntary contributions and actual earnings thereon. Employer
contributions are also immediately vested.
Payment of Benefits
Upon termination of service due to death, disability, or retirement, participants whose accounts do not exceed $1,000
may receive a lump-sum amount equal to the value of their account. Participants whose accounts are between $1,000 and $5,000 may receive a lump-sum distribution or may have the balance of their account rolled over into an Individual Retirement
Account (“IRA”). Participants whose vested account balance at the time of termination exceeds $5,000 may receive a lump-sum distribution or may defer payments of benefits until April 1 of the calendar year following the calendar year during
which the participant reaches age 70 1/2. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump sum distribution.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or
50 percent of their account balance. The loans are secured by the balance in the participant’s account and bear interest ranging from 4.25 to 6.00 percent, which is commensurate with local prevailing rates. Principal and interest are paid ratably
through monthly payroll deductions. Loans may be requested for hardship purposes only.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by the Plan and the methods of applying these principles conform to U.S. generally
accepted accounting principles. The financial statements of the Plan are prepared on the accrual basis of accounting.
A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial
statements follows:
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those estimates.
Investment Valuation and Income
Recognition
The Plan’s investments are reported at fair value (except for the fully-benefit-responsive guaranteed investment
contract, which is reported at contract value). The fair value of pooled separate accounts is determined using the observable net asset value of the underlying investment. The fair value of ESSA Bancorp, Inc. common stock fund is determined
based on a quoted market price.
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual
basis. Dividends are recorded on the ex-dividend date. The net depreciation in fair value of investments includes investments purchased, sold, and held during the year.
Guaranteed Investment Contract
Guaranteed investment contracts held by a defined-contribution plan are required to be reported at contract value which
is the relevant measurement for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest.
Delinquent participants’ loans are reclassified as distributions based upon the terms of the Plan Document. No allowance for credit losses has been recorded as of December 31, 2018 and 2017.
Payment of Benefits
Benefit payments to participants are recorded upon distribution.
Administrative
Expenses
Administrative expenses of the Plan relating to investment management and recordkeeping fees are paid by the Plan. Fees
relating to accounting and miscellaneous administrative expenses are paid by the Plan’s sponsor.
NOTE 3 - GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
The Plan has a benefit-responsive guaranteed investment contract with Massachusetts Mutual Life Insurance Company.
Massachusetts Mutual Life Insurance Company maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The guaranteed
investment contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. The investment contract is considered a “traditional” contract, meaning that the Plan owns the contract
itself and not the underlying assets for the investment contract.
Because the guaranteed investment contract is fully benefit-responsive, contract value is the relevant measurement
attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract. The guaranteed investment contract is presented on the face of the Statement of Net Assets Available for Benefits at contract
value in arriving at net assets available for benefits. Contract value, as reported to the Plan by Massachusetts Mutual Life Insurance Company, represents contributions made under the contract, plus earnings, less participant withdrawals and
administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest
rate is based on a formula agreed upon with the issuer, but it may not be less than 3 percent. Such interest rates are reviewed on a quarterly basis for resetting.
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the
following: (1) amendments to the Plan documents (including complete or partial Plan termination or merger
NOTE 3 - GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY(Continued)
with another plan); (2) changes to the Plan’s prohibition on competing investment options or deletion of equity wash
provisions; (3) bankruptcy of the Plan Sponsor or other Plan Sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan; or (4) the failure of the trust to qualify for exemption from
federal income taxes or any required prohibited transaction exemption under ERISA. The Plan Administrator does not believe that any events which would limit the Plan’s ability to transact at contract value with participants are probable of
occurring.
NOTE 4 - PLAN TERMINATION
Although it has not expressed any intent to do so, the Bank has the right under the Plan to terminate the Plan subject
to the provisions of ERISA. In the event of termination of the Plan, participants will become 100 percent vested in their accounts.
NOTE 5 - TAX STATUS
The Plan obtained its latest determination letter on March 31, 2014, in which the Internal Revenue Service stated that
the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan Administrator believes that the Plan is currently
designed and being operated in compliance with the applicable requirements of the Internal Revenue Code.
Plan management is required to evaluate tax positions taken by the Plan and recognize a tax liability
if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December 31, 2018, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however,
there are currently no audits for any tax periods in progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2015.
NOTE 6 - PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments, such as pooled separate accounts and the guaranteed investment contract are managed by
Massachusetts Mutual Life Insurance Company, the defined trustee of the Plan. Therefore, related transactions qualify as party-in-interest transactions.
The Plan’s sponsor absorbs fees related to accounting and miscellaneous administrative expenses. Such costs amounted to
$14,300 and $14,046 for the years ended December 31, 2018 and 2017, respectively.
At both December 31, 2018 and 2017, the Plan held 240,761 shares of ESSA Bancorp, Inc. common stock. Dividends received
on these shares in 2018 totaled $89,082.
NOTE 7 - FAIR VALUE MEASUREMENTS
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations
utilized in measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:
NOTE 7 - FAIR VALUE MEASUREMENTS (Continued)
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Level I:
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Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
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Level II:
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Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature
of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
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Level III:
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Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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This hierarchy requires the use of observable market data, when available.
The following table presents the assets reported on the Statement of Net Assets Available for Benefits at their fair
value as of December 31, 2018 and 2017, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.