ESSA Bancorp, Inc. Announces Operating Results for the First

ESSA Bancorp, Inc. Announces Operating Results for the First Fiscal
Quarter of 2013 
STROUDSBURG, PA -- (Marketwire) -- 01/23/13 --  ESSA Bancorp, Inc.
(NASDAQ: ESSA), the holding company for ESSA Bank & Trust, today
announced its operating results for its fiscal first quarter 2013.
The Company reported net income of $2.9 million, or $0.24 per diluted
share, for the three months ended December 31, 2012, compared with
net income of $886,000, or $0.08 per diluted share, for the
corresponding 2011 period. 
The Company completed its acquisition of First Star Bancorp, Inc. on
July 31, 2012. The results for the quarter ended December 31, 2012,
reflect the effects of a larger company in fiscal first quarter 2013
compared to the company in fiscal first quarter 2012. Additionally,
the quarter ended December 31, 2012, includes the recapture of
approximately $973,000, before tax, of previous fair value
adjustments on loans acquired as part of the First Star acquisition,
as well as increased gains on the sale of fixed-rate long-term loans
of $334,000 before tax. 
Gary S. Olson, President and CEO, commented: "In our first full
quarter as a combined entity, we operated with an increased base of
earning assets and an enhanced presence throughout Pennsylvania's
Lehigh Valley. Our earnings were consistent with anticipated results,
with the positive addition of the recapture of interest income from
the loans we acquired from First Star in 2012. We have made a good
start in leveraging the strengths of a significantly larger
As examples of the Bank's increased scale, Mr. Olson noted that
assets in fiscal first quarter 2013 were $1.4 billion, compared with
$1.1 billion in first quarter 2012. Loans receivable after loss
allowance in fiscal first quarter 2013 were $940.3 million, compared
with $742.1 million in fiscal first quarter 2012. Total deposits
increased to $967.9 million in fiscal first quarter 2013, compared
with $640.3 million in fiscal first quarter 2012. 
"We continue to see evidence that the acquired assets are of strong
quality," said Olson. "We feel asset and customer retention rates are
high, and we have had excellent interaction with First Star customers
on both the retail and commercial sides of our business. 
"Developing a positive corporate cult
ure following an acquisition is
critical to our success. Employees have shown excitement about new
opportunities, and have been instrumental in facilitating the
transition. I think this spirit and attitude is evidenced by very
high customer retention levels in the months following the
acquisition's closing. I have had many informal meetings with
employees and managers, and have been impressed with the quality and
sincerity of their ideas and contributions. ESSA Bank & Trust is the
largest locally based community bank in the region. I believe our
employees are committed to making ESSA the clear banking choice for
individuals and businesses in the region. 
"For several years, our theme has been 'The Right Way to Bank.' We
believe the best way for a community bank to retain and win banking
business is with an enthusiastic, experienced team providing
financial solutions and a great experience for customers and the
"We are beginning to see the financial benefits of eliminating First
Star's high-rate debt instruments, reducing First Star expenses,
consolidating back-office operations, as well as ESSA's prepayment of
$37 million of its own higher rate borrowings in fiscal 2012. With
more efficient operations and lower debt obligations, ESSA is well
positioned to focus on growth opportunities." 
Income Statement Demonstrates Stability, Growth Opportunities 
Net interest income increased $4.0 million, or 59.8%, to $10.7
million for the three months ended December 31, 2012, from $6.7
million for the comparable period in the prior year fiscal quarter,
primarily reflecting $2.9 million growth in interest income, and a
decrease in interest expense from other borrowings of $1.2 million.
Interest income increased primarily as a result of the growth of the
company's loan portfolio in fiscal first quarter 2013 compared with
fiscal first quarter 2012. 
Interest income for the fiscal first quarter 2013 also includes the
recapture of approximately $500,000, before tax, of a previously
recorded fair value adjustment to a loan acquired as part of the
First Star acquisition. This loan was fully repaid in the first
quarter. An additional $473,000, before tax, was recaptured during
the quarter related to similar loans that were partially repaid. 
Interest expense decreased primarily as a result of a decrease in
interest rates and a decrease in higher rate borrowings for the three
months ended December 31, 2012 compared with the three months ended
December 31, 2011. The company's interest rate spread was 3.14% for
the three months ended December 31, 2012 and 2.30% for the prior
year's first quarter. Net interest margin was 3.26% in fiscal first
quarter 2013, compared with 2.57% in fiscal first quarter 2012. 
Olson stated: "Acquiring First Star bolstered interest income, and we
believe we have an excellent platform for building our commercial and
lending businesses that should contribute to our future growth. A key
initiative is to grow both business and retail checking in our served
markets throughout the coming year. A critical component of this will
be to expand relationships with both retail customers and businesses. 
"We have maintained our banking leadership role in Monroe County, as
a major lending source, and have the most deposits of any bank
serving the county. However, this area was hard-hit by the recession
and has struggled to recover. Our loan and deposit base in this
market remains reasonably stable, but does not offer immediate
opportunities for market growth as mortgage lending and business
lending have been scarce. We have a solid and stable customer base in
a market that has supported ESSA for 97 years, and we'll continue to
seek out every opportunity to serve Monroe County and support its
recovery and growth." 
The provision for loan losses increased $500,000, or 100.0%, to
$1,000,000 for the three months ended December 31, 2012, from
$500,000 for the comparable period in 2011. 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 provision for loan
losses was in response to this evaluation. 
Noninterest income increased $502,000, or 32.9%, to $2.0 million for
the three months ended December 31, 2012, compared with the three
months ended December 31, 2011, primarily reflecting an increase in
the gain on sale of loans of $334,000. As part of its interest rate
risk management strategy, the Company sold $11.5 million of
long-term, fixed-rate mortgage loans during the quarter ended
December 31, 2012. There were no loans sold during the comparable
2011 period. 
"Although these loans are currently generating attractive returns in
a low-interest rate environment, and they are good quality credits,
we determined that since the Federal Reserve continues to keep
long-term rates low, loans at these rates could h
ave a negative
impact on the Bank's margins once rates begin to rise," said Olson.
"We anticipate selling more of these long-term loans during the next
several quarters to further reduce our interest rate risk." 
Noninterest expense increased to $7.5 million or 12.7%, for the three
months ended December 31, 2012, from $6.7 million for the comparable
period in 2011, reflecting increases in compensation and employee
benefits of $620,000, occupancy and equipment of $193,000, data
processing of $181,000 and amortization of intangible assets of
$169,000. These increases were partially offset by decreases in
professional fees of $178,000 and a decrease in the cost to liquidate
foreclosed real estate of $293,000. 
The increases in noninterest expenses were due primarily to the
larger organization in fiscal first quarter 2013 compared with fiscal
first quarter 2012. Management notes the Company is on-track to
achieve a 30% cost savings in First Star's operations. The decrease
in professional fees was due primarily to merger-related legal fees.
There was a gain on the sales of foreclosed real estate of $226,000
for the quarter ended December 31, 2012, compared with a loss of
$67,000 for the comparable period in 2011. 
Balance Sheet, Asset Quality and Capital Adequacy 
Total assets decreased $13.1 million, or 0.9%, to $1.41 billion at
December 31, 2012, compared to $1.42 billion at September 30, 2012,
although up significantly compared with pre-merger total assets.
Increases in cash and cash equivalents of $4.4 million and investment
securities of $1.9 million at December 31, 2012, compared with
September 30, 2012, were offset by decreases in total loans
receivable of $8.0 million, regulatory stock of $2.9 million and
other assets of $8.5 million. 
Total deposits decreased $27.7 million, or 2.8%, to $967.9 million at
December 31, 2012, from $995.6 million at September 30, 2012. The
primary reason for the decrease in deposits was a decrease in
higher-rate certificates of deposit of $22.1 million, which the
Company did not renew. Borrowings increased $9.2 million to $244.0
million from $234.7 million during the same period. 
Stockholders' equity increased $1.9 million, or 1.1%, to $177.3
million at December 31, 2012, from $175.4 million at September 30,
2012. The increase was due primarily to an increase in retained
earnings of $2.3 million. The Company's tier 1 leverage ratio was
12.38% at December 31, 2012. 
Nonperforming assets totaled $28.5 million, or 2.03%, of total assets
at December 31, 2012, compared with $27.2 million, or 1.92%, of total
assets at September 30, 2012. The increase in nonperforming assets of
$1.3 million at December 31, 2012 compared to September 30, 2012 was
due primarily to an increase in non-performing residential mortgage
loans of $1.3 million. The Company made a provision for loan losses
of $1,000,000 for the three months ended December 31, 2012, compared
with a provision of $500,000 for the comparable three-month period in
2011. The allowance for loan losses was $7.6 million, or 0.80%, of
loans outstanding at December 31, 2012, compared to $7.3 million, or
0.76%, of loans outstanding at September 30, 2012. 
"We continue to be satisfied with the quality of our loan portfolio,"
explained Olson. "We maintain very strict credit quality policies,
and are comfortable with our current loan loss allowance and asset
quality ratios. Due to a slowly recovering economy, we will continue
to carefully monitor asset quality metrics and will continue to work
diligently to reduce non-performing loans." 
Olson concluded: "We believe economic conditions in the Lehigh
Valley, particularly Bethlehem and Allentown, have not only
stabilized, but are showing encouraging signs of strength and
revitalization that we believe can generate lending and banking
relationship opportunities. We also provide a full range of asset
management, business services and employee benefits consulting
capabilities, which we believe gives us a competitive advantage in
winning customers' financial services business." 
ESSA Bank & Trust, a wholly-owned subsidiary of ESSA Bancorp, Inc.,
has total assets of over $1.4 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 26
community offices throughout the Greater Pocono and Lehigh Valley
areas in Pennsylvania. In addition to being one of the region's
largest mortgage lenders, ESSA Bank & Trust offers a full range of
retail, commercial financial services, and financial advisory and
asset management capabilities. 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.  
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                         
                                               December 31,   September 30, 
                                                    2012           2012     
                                               -------------  ------------- 
                               (dollars in thousands)    
  Cash and due from banks                      $      12,443  $      11,034 
  Interest-bearing deposits with other                                      
   institutions                                        7,474          4,516 
                                               -------------  ------------- 
    Total cash and cash equivalents                   19,917         15,550 
  Certificates of deposit                              1,766          1,266 
  Investment securities available for sale           331,525        329,585 
  Loans receivable held for sale                       2,096            346 
  Loans receivable (net of allowance for loan                               
   losses of $7,555 and $7,302)                      940,275        950,009 
  Regulatory stock, at cost                           19,054         21,914 
  Premises and equipment, net                         16,100         16,170 
  Bank-owned life insurance                           28,075         27,848 
  Foreclosed real estate                               2,503          2,998 
  Intangible assets, net                               3,207          3,457 
  Goodwill                                             8,541          8,541 
  Deferred income taxes                               11,359         11,336 
  Other assets                                        21,224         29,766 
                                               -------------  ------------- 
    TOTAL ASSETS                               $   1,405,642  $   1,418,786 
                                               =============  ============= 
  Deposits                                     $     967,892  $     995,634 
  Short-term borrowings                               84,500         43,281 
  Other borrowings                                   159,460        191,460 
  Advances by borrowers for taxes and                                       
   insurance                                           6,943          3,432 
  Other liabilities                                    9,500          9,568 
                                               -------------  ------------- 
    TOTAL LIABILITIES                              1,228,295      1,243,375 
                                               -------------  ------------- 
STOCKHOLDERS' EQUITY                                                        
  Common stock                                           181            181 
  Additional paid in capital                         181,748        181,220 
  Unallocated common stock held by the                                      
   Employee Stock Ownership Plan                     (10,872)       (10,985)
  Retained earnings                                   67,455         65,181 
  Treasury stock, at cost                            (62,353)       (61,944)
  Accumulated other comprehensive income               1,188          1,758 
                                               -------------  ------------- 
    TOTAL STOCKHOLDERS' EQUITY                       177,347        175,411 
                                               -------------  ------------- 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $   1,405,642  $   1,418,786 
                                               =============  ============= 
                     ESSA BANCORP, INC. AND SUBSIDIARY                      
                      CONSOLIDATED STATEMENT OF INCOME                      
                                                    For the Three Months    
                                                     Ended December 31      
                                                   (dollars in thousands)   
                                                    2012           2011     
                                               -------------  --------------
INTEREST INCOME                                                             
  Loans receivable                             $      12,237  $        9,341
  Investment securities:                                                    
    Taxable                                            1,630           1,638
    Exempt from federal income tax                        54              48
  Other investment income                                 29               2
                                               -------------  --------------
    Total interest income                             13,950          11,029
                                               -------------  --------------
INTEREST EXPENSE                                                            
  Deposits                                             1,971           1,911
  Short-term borrowings                                   36               5
  Other borrowings                                     1,224           2,405
                                               -------------  --------------
    Total interest expense                             3,231           4,321
                                               -------------  --------------
NET INTEREST INCOME                                   10,719           6,708
  Provision for loan losses                            1,000             500
                                               -------------  --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN                                
 LOSSES                                                9,719           6,208
                                               -------------  --------------
NONINTEREST INCOME                                                          
  Service fees on deposit accounts                       807             727
  Services charges and fees on loans                     229             184
  Trust and investment fees                              215             215
  Gain on sale of investments, net                        30               -
  Gain on sale of loa
ns, net                             334               -
  Earnings on Bank-owned life insurance                  226             198
  Insurance commissions                                  175             191
  Other                                                   10               9
                                               -------------  --------------
    Total noninterest income                           2,026           1,524
                                               -------------  --------------
NONINTEREST EXPENSE                                                         
  Compensation and employee benefits                   4,556           3,936
  Occupancy and equipment                                949             756
  Professional fees                                      312             490
  Data processing                                        663             482
  Advertising                                            110              86
  Federal Deposit Insurance Corporation (FDIC)                              
   Premiums                                              185             162
  Loss (Gain) on foreclosed real estate                 (226)             67
  Amortization of intangible assets                      250              81
  Other                                                  706             602
                                               -------------  --------------
    Total noninterest expense                          7,505           6,662
                                               -------------  --------------
Income before income taxes                             4,240           1,070
Income taxes                                           1,361             184
                                               -------------  --------------
NET INCOME                                     $       2,879  $          886
                                               =============  ==============
Earnings per share                                                          
  Basic                                        $        0.24  $         0.08
  Diluted                                               0.24            0.08
                                                At and for the Three Months 
                                                    Ended December 31,      
                                                    2012           2011     
                                               -------------  ------------- 
                                                  (dollars in thousands)    
CONSOLIDATED AVERAGE BALANCES:                                              
  Total assets                                 $   1,398,734  $   1,091,756 
  Total interest-earning assets                    1,304,096      1,037,175 
  Total interest-bearing liabilities               1,157,020        887,040 
  Total stockholders' equity                         177,337        161,880 
PER COMMON SHARE DATA:                                                      
  Average shares outstanding - basic              12,088,125     10,807,598 
  Average shares outstanding - diluted            12,088,125     10,807,598 
  Book value shares                               13,191,008     12,109,622 
Net interest rate spread                                3.14%          2.30%
Net interest margin                                     3.26%          2.57%

Gary S. Olson
President & CEO
Corporate Office:
200 Palmer Street
Stroudsburg, Pennsylvania 18360
Telephone: (570) 421-0531 
Press spacebar to pause and continue. Press esc to stop.