UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2025
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to __________
Commission File No. 001-33384
ESSA Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
20-8023072
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
200 Palmer Street, Stroudsburg, Pennsylvania
18360
(Address of Principal Executive Offices)
(Zip Code)
(570) 421-0531
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common
ESSA
Nasdaq Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
Non-accelerated filer
☒
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 7, 2025, there were 10,154,664 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.
Table of Contents
Page
Part I. Financial Information
Item 1.
Financial Statements (unaudited)
2
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3
Quantitative and Qualitative Disclosures About Market Risk
44
Item 4
Controls and Procedures
45
Part II. Other Information
Legal Proceedings
46
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
47
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
48
Signature Page
49
Item 1. Financial Statements
ESSA BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31,
September 30,
2025
2024
(dollars in thousands)
ASSETS
Cash and due from banks
$
26,553
38,683
Interest-bearing deposits with other institutions
2,999
9,897
Total cash and cash equivalents
29,552
48,580
Investment securities available for sale, at fair value (net of allowance for credit losses of $0)
209,937
215,869
Investment securities held to maturity, at amortized cost (net of allowance for credit losses of $0)
44,997
47,378
Loans receivable (net of allowance for credit losses of $14,950 and $15,306)
1,757,056
1,744,284
Regulatory stock, at cost
15,506
18,750
Premises and equipment, net
11,296
11,253
Bank-owned life insurance
40,020
39,571
Foreclosed real estate
3,667
3,195
Goodwill
13,801
Deferred income taxes
4,562
3,889
Derivative and hedging assets
7,586
8,203
Other assets
29,644
32,944
TOTAL ASSETS
2,167,624
2,187,717
LIABILITIES
Deposits
1,689,754
1,629,051
Short-term borrowings
200,739
280,000
Other borrowings
-
10,000
Advances by borrowers for taxes and insurance
13,242
6,870
Derivative and hedging liabilities
7,126
9,183
Other liabilities
20,277
22,192
TOTAL LIABILITIES
1,931,138
1,957,296
STOCKHOLDERS’ EQUITY
Preferred stock ($0.01 par value; 10,000,000 shares authorized, none issued)
Common stock ($0.01 par value; 40,000,000 shares authorized, 18,133,095 issued; 10,154,664 and 10,123,708 outstanding at March 31, 2025 and September 30, 2024, respectively)
181
Additional paid in capital
183,278
183,073
Unallocated common stock held by the Employee Stock Ownership Plan (ESOP)
(5,327
)
(5,557
Retained earnings
167,241
163,473
Treasury stock, at cost; 7,978,431 and 8,009,387 shares outstanding at March 31, 2025 and September 30, 2024, respectively
(103,826
(104,184
Accumulated other comprehensive loss
(5,061
(6,565
TOTAL STOCKHOLDERS’ EQUITY
236,486
230,421
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See accompanying notes to the unaudited consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three MonthsEnded March 31,
For the Six MonthsEnded March 31,
(dollars in thousands, except pershare data)
INTEREST INCOME
Loans receivable, including fees
22,520
21,724
45,513
43,138
Investment securities:
Taxable
2,438
2,750
4,948
6,637
Exempt from federal income tax
7
10
18
21
Other investment income
667
1,166
1,525
1,944
Total interest income
25,632
25,650
52,004
51,740
INTEREST EXPENSE
9,813
7,590
20,142
16,052
1,530
3,064
3,285
5,720
79
142
223
250
Total interest expense
11,422
10,796
23,650
22,022
NET INTEREST INCOME
14,210
14,854
28,354
29,718
Release of credit losses
(42
(496
(649
(893
NET INTEREST INCOME AFTER RELEASE OF CREDIT LOSSES
14,252
15,350
29,003
30,611
NONINTEREST INCOME
Service fees on deposit accounts
665
674
1,380
1,370
Services charges and fees on loans
329
295
609
625
Loan swap fees
33
74
132
Unrealized loss on equity securities, net
(1
(2
(5
Trust and investment fees
435
418
910
811
Gain on sale of loans, net
98
58
158
176
Earnings on bank-owned life insurance
220
454
432
Insurance commissions
125
134
245
262
Other
113
133
187
Total noninterest income
2,017
2,004
4,075
3,965
NONINTEREST EXPENSE
Compensation and employee benefits
6,880
6,673
14,080
13,419
Occupancy and equipment
1,215
1,228
2,403
2,457
Professional fees
1,133
1,039
2,096
2,064
Data processing
1,432
1,360
2,900
2,702
Advertising
168
239
272
375
Federal Deposit Insurance Corporation (FDIC) premiums
398
475
755
855
101
Merger-related costs
1,044
Amortization of intangible assets
91
537
656
1,191
1,507
Total noninterest expense
12,807
11,714
24,741
23,571
Income before income taxes
3,462
5,640
8,337
11,005
Income taxes
727
1,078
1,646
2,106
NET INCOME
2,735
6,691
8,899
Earnings per share
Basic
0.29
0.48
0.70
0.93
Diluted
Dividends per share
0.15
0.30
3
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss)
Investment securities available for sale:
Unrealized holding gains (losses)
3,739
(1,332
467
6,553
Tax effect
(785
280
(98
(1,376
Net of tax amount
2,954
(1,052
369
5,177
Derivative and hedging activities adjustments:
Changes in unrealized holding (losses) gains on derivatives included in net income
(1,724
3,005
3,918
260
362
(634
(825
(55
Reclassification adjustment for losses on derivatives included in net income
(1,089
(2,368
(2,478
(4,718
228
497
520
991
(2,223
500
1,135
(3,522
Total other comprehensive income (loss)
731
(552
1,504
1,655
Comprehensive income
3,466
4,010
8,195
10,554
4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Unallocated
Accumulated
Common Stock
Additional
Total
Number of
Paid In
Stock Held by
Retained
Treasury
Comprehensive
Stockholders’
Shares
Amount
Capital
the ESOP
Earnings
Stock
Loss
Equity
(dollars in thousands except share data)
Balance, September 30, 2023
10,394,689
182,681
(6,009
151,856
(99,508
(9,493
219,708
Other comprehensive income
Cash dividends declared ($0.30 per share)
(2,951
Cumulative effect of adoption of ASU 2016-13
530
Stock based compensation
385
Allocation of ESOP stock
151
226
377
Allocation of treasury shares to incentive plan
40,441
(521
521
—
Purchase of treasury stock
(303,609
(5,063
Balance, March 31, 2024
10,131,521
182,696
(5,783
158,334
(104,050
(7,838
223,540
Balance, September 30, 2024
10,123,708
(2,923
387
230
453
30,956
(405
358
(47
Balance, March 31, 2025
10,154,664
5
Balance, December 31, 2023
182,528
(5,896
155,247
(7,286
220,724
Other comprehensive loss
Cash dividends declared ($0.15 per share)
(1,475
92
76
189
Balance, December 31, 2024
183,071
(5,443
165,948
(103,782
(5,792
234,183
(1,442
93
114
116
(44
6
CONSOLIDATED STATEMENT OF CASH FLOWS
OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation and amortization
504
562
Amortization of discounts and premiums, net
(246
(2,021
Unrealized loss on equity securities
(158
(176
Origination of residential real estate loans for sale
(6,865
(8,991
Proceeds on sale of residential real estate loans
7,023
8,668
Compensation expense on ESOP
Amortization of right-of-use asset
449
Decrease (increase) in accrued interest receivable
429
(613
(Decrease) increase in accrued interest payable
(820
869
(454
(432
Deferred federal income taxes
(1,073
356
Decrease in accrued pension
(329
(179
Loss on foreclosed real estate, net
Other, net
1,620
(501
Net cash provided by operating activities
6,898
6,956
INVESTING ACTIVITIES
Proceeds from principal repayments and maturities
13,544
161,093
Purchases
(7,102
(34,016
Investment securities held to maturity:
2,349
2,307
Increase in loans receivable, net
(12,360
(25,888
Redemption of regulatory stock
13,076
10,530
Purchase of regulatory stock
(9,832
(14,133
Proceeds from sale of foreclosed real estate
15
Disposal of premises, equipment and software, net
(492
153
Net cash (used for) provided by investing activities
(817
100,061
FINANCING ACTIVITIES
Increase (decrease) in deposits, net
60,703
(214,711
Net (decrease) increase in short-term borrowings
(79,261
93,265
Proceeds from other borrowings
Repayment of other borrowings
(10,000
Purchase of common stock
Increase in advances by borrowers for taxes and insurance
6,372
6,230
Dividends on common stock
Net cash used for financing activities
(25,109
(113,230
Decrease in cash and cash equivalents
(19,028
(6,213
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
85,402
CASH AND CASH EQUIVALENTS AT END OF YEAR
79,189
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid:
Interest
24,470
21,154
850
2,310
Noncash items:
Transfers from loans to foreclosed real estate
472
Unrealized holding gains
Notes to Consolidated Financial Statements
(unaudited)
The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the “Company”), its wholly owned subsidiary, ESSA Bank & Trust (the “Bank”), and the Bank’s wholly owned subsidiaries, ESSACOR Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Delaware, Chester, Montgomery, Lackawanna, and Luzerne Counties, Pennsylvania. The Bank is a Pennsylvania chartered savings bank and is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the “FDIC”). The investment in the Bank on the parent company’s financial statements is carried at the parent company’s equity in the underlying net assets.
ESSACOR, Inc. is a Pennsylvania corporation that has been used to purchase properties at tax sales that represent collateral for delinquent loans of the Bank. Pocono Investment Company is a Delaware corporation formed as an investment company subsidiary to hold and manage certain investments, including certain intellectual property. ESSA Advisory Services, LLC is a Pennsylvania limited liability company wholly owned by ESSA Bank & Trust. ESSA Advisory Services, LLC is a full-service insurance benefits consulting company offering group services such as health insurance, life insurance, short-term and long-term disability, dental, vision, and 401(k) retirement planning as well as individual health products. Integrated Financial Corporation is a Pennsylvania corporation that provided investment advisory services to the general public and is currently inactive. Integrated Abstract Incorporated is a Pennsylvania corporation that provided title insurance services and is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three and six month periods ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the three and six months ended March 31, 2025 and 2024.
Three Months Ended
Six Months Ended
Weighted-average common shares outstanding
18,133,095
Average treasury stock shares
(8,009,386
(8,001,574
(7,979,870
(7,931,665
Average unearned ESOP shares
(558,335
(592,281
(552,737
(597,970
Average unearned non-vested shares
(28,164
(25,584
(30,224
(27,730
Weighted average common shares and common stock equivalents used to calculate basic earnings per share
9,537,210
9,513,656
9,570,264
9,575,730
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share
23,068
22,418
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share
9,560,278
9,513,798
9,592,682
. At March 31, 2025 and 2024 there were no shares of nonvested stock outstanding that were not included in the computation of diluted earnings per share because to do so would have been antidilutive.
8
The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles conform to U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for public business entities for annual periods beginning after December 15, 2024, and for annual periods beginning after December 15, 2025, for all other entities. The Company adopted the new disclosures for the annual periods beginning on January 1, 2025. The Company will include the applicable and relevant required disclosures in the Income Taxes footnote in the Form 10-K.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures. This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements.
9
The amortized cost, gross unrealized gains and losses, allowance for credit losses and fair value of investment securities are summarized as follows (in thousands):
March 31, 2025
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance forCredit Losses
Fair Value
Available for Sale
Fannie Mae
51,618
211
(3,201
48,628
Freddie Mac
52,548
42
(2,445
50,145
Governmental National Mortgage Association
17,561
160
(376
17,345
Total mortgage-backed securities
121,727
413
(6,022
116,118
Obligations of states and political subdivisions
8,022
(259
7,763
U.S. government agency securities
7,252
1
(12
7,241
Corporate obligations
74,854
(3,229
71,801
Other debt securities
7,345
68
(399
7,014
219,200
658
(9,921
Held to Maturity
23,390
(3,266
20,124
19,152
(2,815
16,337
42,542
(6,081
36,461
2,455
(326
2,129
(6,407
38,590
September 30, 2024
55,287
342
(2,604
53,025
54,075
157
(1,770
52,462
16,860
214
(336
16,738
126,222
713
(4,710
122,225
9,025
(234
8,791
6,280
(19
6,266
76,262
51
(5,196
71,117
7,810
88
(428
7,470
225,599
857
(10,587
24,774
(3,030
21,744
20,153
(2,524
17,629
44,927
(5,554
39,373
2,451
(305
2,146
(5,859
41,519
The amortized cost and fair value of debt securities at March 31, 2025, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
Available For Sale
Due in one year or less
6,955
6,934
Due after one year through five years
33,851
33,107
Due after five years through ten years
69,142
65,664
5,770
5,179
Due after ten years
109,252
104,232
39,227
33,411
For the three and six months ended March 31, 2025 and 2024, the Company realized no gross gains or gross losses on proceeds from the sale on investment securities.
The following tables show the gross unrealized losses and fair value of the Company's investments for which an allowance for credit losses has not been recorded, which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2025 and September 30, 2024 (dollars in thousands):
Number ofSecurities
Less than TwelveMonths
Twelve Months orGreater
FairValue
1,417
(20
58,453
(6,447
59,870
(6,467
67
6,989
(83
52,503
(5,177
59,492
(5,260
13
5,809
1,644
(9
4,626
6,270
(338
997
(3
6,766
(256
73
5,630
55,866
(3,053
61,496
333
4,870
(398
5,203
254
17,010
(292
188,893
(16,036
205,903
(16,328
Twelve Months or Greater
1,968
63,409
(5,629
65,377
(5,634
61
2,717
54,159
(4,275
56,876
(4,294
Governmental National Mortgage Association securities
14
6,164
7,791
4,628
(324
77
4,585
(175
56,881
(5,021
61,466
17
355
5,220
5,575
253
9,625
(199
198,252
(16,247
207,877
(16,446
11
At March 31, 2025, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $167.3 million, including unrealized losses of $9.9 million. The Company does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Company concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.1 million at March 31, 2025 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.
At March 31, 2025, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $38.6 million, including unrealized losses of $6.4 million. The Company did not recognize any credit losses on held-to-maturity debt securities for the three and six months ended March 31, 2025 and 2024. Accrued interest receivable on held-to-maturity debt securities totaled $60,000 at March 31, 2025 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.
At September 30, 2024, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $166.4 million, including unrealized losses of $10.6 million. The Company does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Company concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.5 million at September 30,2024 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.At September 30, 2024, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $41.5 million, including unrealized losses of $5.9 million. The Company did not recognize any credit losses on held-to-maturity debt securities for the year ended September 30, 2024 or other-than-temporary impairment charges during 2023. Accrued interest receivable on held-to-maturity debt securities totaled $63,000 at September 30, 2024 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.
Securities classified as held-to-maturity are included under the CECL methodology. Calculation of expected credit loss under CECL is done on a collective (“pooled”) basis, with assets grouped when similar risk characteristics exist. The Company notes that at March 31, 2025 all securities in the held-to-maturity classification are U.S. government agency and US government mortgage-backed securities; therefore, they share the same risk characteristics and can be evaluated on a collective basis. The expected credit loss on these securities is evaluated based on historical credit losses of this security type and the expected possibility of default in the future, and these securities are guaranteed by the U.S. government. U.S. government agency and mortgage-backed securities often receive the highest credit rating by rating agencies and the Company has concluded that the possibility of default is considered remote. The U.S. government agency and mortgage-backed securities held by the Company in the held-to-maturity category carry an AA+ rating from Standard & Poor’s, Aaa from Moody’s Investor Services, and AAA from Fitch. The Company concludes that the long history with no credit losses for these securities (adjusted for current conditions and reasonable and supportable forecasts) indicates an expectation that nonpayment of the amortized cost basis is zero. Management has concluded that there is no prepayment risk and it is expected to recover the recorded investment. The Company has the intent and ability to hold the securities to maturity.
12
Loans receivable consist of the following (in thousands):
Real estate loans:
Residential
734,751
721,505
Construction
15,083
14,851
Commercial
870,770
884,621
48,559
36,799
48,305
48,570
Home equity loans and lines of credit
52,534
51,306
Auto loans
65
1,873
1,772,006
1,759,590
Less allowance for credit losses
14,950
15,306
Net loans
As of March 31, 2025 and September 30, 2024, the Company considered its concentration of credit risk to be acceptable. As of March 31, 2025, the highest concentrations are in lessors of residential buildings and dwellings and the lessors of nonresidential buildings and dwellings categories, with loans outstanding of $317.8 million, or 17.9% of loans outstanding, to residential lessors, and $298.7 million, or 16.9% of loans outstanding, to commercial lessors. As of September 30, 2024, the highest concentrations are in lessors of residential buildings and dwellings and the lessors of nonresidential buildings and dwellings categories, with loans outstanding of $346.9 million, or 19.7% of loans outstanding, to residential lessors, and $296.1 million, or 16.8% of loans outstanding, to commercial lessors. There were no charge-offs on loans within these concentrations in the six months ended March 31, 2025.
The following tables show the amount of loans in each category that were individually and collectively evaluated for credit loss at the dates indicated (in thousands):
Total Loans
IndividuallyEvaluated forCredit Loss
CollectivelyEvaluated forCredit Loss
682
734,069
5,579
865,191
600
47,959
16
52,518
6,877
1,765,129
1,122
720,383
5,552
879,069
906
35,893
35
51,271
7,615
1,751,975
The Company maintains a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential credit deterioration in loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific credit loss allowances are established for identified losses based on a review of such information. A loan is analyzed for credit loss when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Credit loss is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
The Company uses a dual risk rating methodology to monitor the credit quality of the overall commercial loan portfolio. This rating system consists of a borrower rating scale from 1 to 14 and a collateral coverage rating scale from A to J that provides a mechanism to separate borrower creditworthiness from the value of collateral recovery in the event of default. The two ratings are combined using a matrix to develop an overall composite loan quality risk rating. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are fundamentally sound yet, exhibit potentially unacceptable credit risk or deteriorating trends or characteristics which if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in the Loss category are considered uncollectible and of little value that their continuance as bankable assets is not warranted.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Company’s credit management team performs an annual review of all commercial relationships $2,000,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company engages an external consultant to conduct loan reviews on at least a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or all criticized relationships equal to or greater than $500,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Substandard category that are analysed for credit loss are given separate consideration in the determination of the allowance.
The Bank uses the following definitions for risk ratings:
Pass. Loans classified as pass are loans in which the condition of the borrower and the performance of the loans are satisfactory of better
Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Based on the most recent analysis performed, the following tables present the recorded investment in non-homogenous pools by internal risk rating systems (in thousands);
Revolving
Term Loans Amortized on Cost Basis by Origination Year
Loans
Amortized
Converted
2023
2022
2021
Prior
Cost Basis
to Term
Commercial real estate
Risk Rating
Pass
$19,716
$100,351
$135,332
$210,925
$127,505
$231,309
$14,349
$-
$839,487
Special Mention
425
11,221
11,703
23,349
Substandard
7,934
Doubtful
$100,776
$146,553
$250,946
$870,770
Current period gross charge-offs
$11,503
$2,066
$6,536
$3,711
$1,354
$7,651
$13,911
$46,732
777
450
1,050
$6,986
$9,028
$48,559
$2,218
$3,890
$4,456
$11,393
$26,348
$48,305
$31,219
$104,635
$145,758
$219,092
$140,252
$265,308
$28,260
$934,524
12,480
24,126
8,534
8,984
$105,060
$157,429
$286,322
$967,634
2020
86,925
144,838
221,196
143,090
65,522
175,306
16,084
852,961
437
10,675
357
11,247
62
22,778
8,750
8,882
87,362
155,513
221,553
143,222
76,769
184,118
2,274
6,147
3,926
1,649
1,240
7,570
11,488
34,294
865
901
470
290
406
212
1,604
6,617
1,875
1,566
7,976
12,565
22
2,289
1,492
4,629
11,604
7,808
20,748
91,488
152,477
229,751
156,343
74,570
203,624
27,572
935,825
11,283
23,679
9,156
10,486
91,925
163,622
230,108
156,701
86,143
212,842
28,649
969,990
The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due over 90 days and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly. The following tables present the carrying value of residential and consumer loans based on payment activity (in thousands):
Residential real estate
Payment Performance
Performing
28,988
57,325
102,582
145,502
129,244
269,267
732,908
Nonperforming
111
1,545
1,843
57,512
145,613
270,812
3,725
10,438
920
3,213
5,902
9,171
6,457
1,589
3,686
19,790
2,698
52,506
28
3,714
Auto
139
557
180
41
143
923
1,983
164
36,065
74,222
112,853
152,000
130,833
273,096
20,713
802,480
1,594
1,892
74,409
152,111
274,690
804,372
45,845
101,439
151,329
133,147
101,061
186,729
719,550
283
96
1,576
1,955
151,612
101,157
188,305
11,252
3,599
4,372
10,198
7,076
1,816
1,343
2,888
21,454
2,124
2,923
32
64
112
1,028
1,850
23
135
61,838
115,475
158,493
134,967
102,414
189,793
22,482
787,586
1,635
2,014
158,776
102,510
191,428
789,600
19
The Company further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2025 and September 30, 2024 (in thousands):
31-60 Days
61-89 Days
90 + Days
Current
Past Due
730,181
2,622
1,562
386
4,570
863,531
5,676
1,563
7,239
48,350
209
52,467
1,759,900
8,574
1,970
12,106
717,766
1,862
760
1,117
880,939
554
2,673
455
3,682
36,589
210
51,264
20
63
1,751,892
2,437
3,455
1,806
7,698
The following tables presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of March 31, 2025 (in thousands):
Nonaccrual with No ACL
Nonaccrual with ACL
Total Nonaccrual
Loans Past Due Over 90 Days and Still Accruing
Total Nonperforming
5,499
81
5,580
601
7,992
8,073
5,876
1,136
9,026
There are no loans 90 days or more past due that are accruing interest at March 31, 2025 or September 30, 2024.
We maintain the ACL at a level that we believe to be appropriate to absorb estimated credit losses in the loan portfolios as of the balance sheet date. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Financial Instruments - Credit Losses ("ASC 326").
The allowance for credit losses represents management’s estimate of expected losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for credit losses are maintained through charges to the provision for credit losses in the Consolidated Statements of Operations as expected losses are estimated. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.
We maintain a credit review system, which allows for a periodic review of our loan portfolio and the early identification of potential non performing loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General credit loss allowances are based upon a combination of factors including, but not limited to, actual credit loss experience, composition of the loan portfolio, current economic conditions, management’s judgment and losses which are probable and reasonably estimable. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize probable and reasonably estimable loan losses, future credit provisions may be necessary, based on changing economic conditions. Payments received on non performing loans generally are either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. The allowance for credit losses as of March 31, 2025 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.
In addition, the FDIC and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for credit losses. The banking regulators may require that we recognize additions to the allowance based on its analysis and review of information available to it at the time of its examination.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ACL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL.
The following table summarizes changes in the primary segments of the allowance for credit losses during the three and six months ended March 31, 2025 and 2024 (in thousands):
Home
Obligations of
States and
Loans and
Real Estate Loans
Political
Lines of
Subdivisions
Credit
ACL balance at December 31, 2024
5,443
289
7,501
736
286
794
31
15,082
Charge-offs
Recoveries
Provision
(50
(27
(217
129
(4
(10
(168
ACL balance at March 31, 2025
5,406
7,302
803
ALL balance at December 31, 2023
4,889
431
8,377
690
276
746
15,430
(15
(22
(6
(43
37
40
(368
(11
ALL balance at March 31, 2024
4,953
8,031
1,043
278
15,416
ALL balance at September 30, 2024
5,379
268
7,815
281
773
0
26
34
72
(547
105
(7
ALL balance at September 30, 2023
4,897
183
11,983
941
110
346
18,525
Impact or adopting ASC 326
503
(3,729
423
(41
(2,755
(53
50
(448
(104
(245
416
39
(13
(351
During the three months ended March 31, 2025, the Company recorded release of allowance for credit losses for construction real estate loans, residential real estate loans, commercial real estate loans, other loans and auto loan segments due to decreased loan balances, improved asset quality, changes in the loan mix within the pool, and/or decreased charge-off activity in those segments. The Company recorded credit provision expense for the commercial loans, obligations of states and political subdivisions and home equity loans and lines of credit due to increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments.
During the three months ended March 31, 2024, the Company recorded release of allowance for credit losses for residential real estate loans, construction real estate loans, home equity loans and lines of credit and auto loans due to either decreased loan balances, improved asset quality, changes in the loan mix within the pool, and/or decreased charge-off activity in those segments. The Company recorded credit provision expense for the commercial real estate loans, commercial loans segments, obligations of states and political subdivisions and other loans due to increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments.
During the six months ended March 31, 2025, the Company recorded release of allowance for credit losses for construction real estate loans, commercial real estate loans, other loans and auto loan segments due to decreased loan balances, improved asset quality, changes in the loan mix within the pool, and/or decreased charge-off activity in those segments. The Company recorded credit provision expense for the residential real estate loans, commercial loans, obligations of states and political subdivisions and home equity loans and lines of credit due to increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments.
During the six months ended March 31, 2024, the Company recorded provision expense for the obligations of states and political subdivisions, other loans and commercial loans segments due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Credit provisions were recorded for loan loss for the residential real estate loans, construction real estate loans, commercial real estate loans, home equity loans and lines of credit and auto loans due to either decreased loan balances, improved asset quality, changes in the loan mix within the pool, and/or decreased charge-off activity in those segments.
The following tables summarizes the amount of loans in each segments that were individually and collectively evaluated for credit loss as of March 31, 2025 and September 30, 2024 (in thousands):
Auto Loans
Individually evaluated for Credit Loss
82
Collectively evaluated for Credit Loss
7,220
14,868
Ending balance at March 31, 2025
5,377
15,304
Ending balance at September 30, 2024
Collateral-Dependent Loans
The following tables present the collateral-dependent loans by portfolio segment at December 31, 2024 and September 30, 2024 (in thousands):
Real Estate
Business Assets
6,277
6,709
Occasionally, the Company modifies loans to borrowers in financial distress by providing term extensions and interest rate reductions. In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession,such as and interest rate reduction, may be granted. During the three and six months ended March 31, 2025 no modifications were made to borrowers experiencing financial difficulty.
Deposits consist of the following major classifications (in thousands):
Non-interest bearing demand accounts
264,827
256,638
Interest bearing demand accounts
285,849
312,683
Money market accounts
348,203
334,638
Savings and club accounts
143,386
143,031
Certificates of deposit
647,489
582,061
For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 12 of the Company’s Consolidated Financial Statements for the year ended September 30, 2024 included in the Company’s Annual Report on Form 10-K.
The following table comprises the components of net periodic benefit cost (income) for the three and six months ended March 31, 2025 and 2024 (in thousands):
For the Three Months Ended March 31,
For the Six Months Ended March 31,
Service Cost
Interest Cost
149
173
297
344
Expected return on plan assets
(262
(610
(523
Partial settlement
Amortization of net loss from earlier periods
Net periodic benefit income
(163
(89
(328
The Company’s board of directors adopted resolutions to freeze the status of the Defined Benefit Plan (“the plan”) effective February 28, 2017 (“the freeze date”). Accordingly, no additional participants have been allowed to enter the plan since February 28, 2017; no additional years of service for benefit accrual purposes have been credited since the freeze date under the plan; and compensation earned by participants after the freeze date is not taken into account under the plan.
24
The Company previously maintained the ESSA Bancorp, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan provided for a total of 2,377,326 shares of common stock for issuance upon the grant or exercise of awards. Of the shares that were available under the Plan, 1,698,090 were available to be issued in connection with the exercise of stock options and 679,236 were available to be issued as restricted stock. The Plan allowed for the granting of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), and restricted stock. Options granted under the plan were granted at no less than the fair value of the Company’s common stock on the date of the grant. As of the effective date of the 2016 Equity Incentive Plan (detailed below), no further grants will be made under the Plan and forfeitures of outstanding awards under the Plan will be added to the shares available under the 2016 Equity Incentive Plan.
The Company replaced the 2007 Equity Incentive Plan with the ESSA Bancorp, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) which was approved by shareholders on March 3, 2016. The 2016 Plan provides for a total of 250,000 shares of common stock for issuance upon the grant or exercise of awards. The 2016 Plan allows for the granting of restricted stock, restricted stock units, ISOs and NSOs.
The Company replaced the 2016 Equity Incentive Plan with the ESSA Bancorp, Inc. 2024 Equity Incentive Plan (the “2024 Plan”) which was approved by shareholders on March 7, 2024. The 2024 Plan provides for a total of 200,000 shares of common stock for issuance upon the grant or exercise of awards. The 2024 Plan allows for the granting of restricted stock, restricted stock units, ISO’s and NSO’s.
The Company classifies share-based compensation for employees and outside directors within “Compensation and employee benefits” in the Consolidated Statement of Operations to correspond with the same line item as compensation paid.
Restricted stock shares outstanding at March 31, 2025 vest over periods ranging from six to 39 months. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company expenses the fair value of all share based compensation grants over the requisite service period.
For the three months ended March 31, 2025 and 2024, the Company recorded $93,000 and $92,000 of share-based compensation expense, respectively, comprised of restricted stock expense. For the six months ended March 31, 2025 and 2024, the Company recorded $387,000 and $385,000 of shared-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the restricted shares outstanding at March 31, 2025 is $769,000 over the remaining vesting period of 3.50 years.
The following is a summary of the status of the Company’s restricted stock as of March 31, 2025, and changes therein during the three month period then ended:
Number ofRestricted Stock
Weighted-averageGrant DateFair Value
Nonvested at September 30, 2024
34,830
16.53
Granted
31,106
18.97
Vested
(10,604
19.75
Forfeited
Nonvested at March 31, 2025
55,332
17.28
25
The following disclosures show the hierarchal disclosure framework associated within the level of pricing observations utilized in measuring assets and liabilities at fair value. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
The following tables provide the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheet as of March 31, 2025 and September 30, 2024 by level within the fair value hierarchy (in thousands).
Recurring Fair Value Measurements at Reporting Date
Assets
Level I
Level II
Level III
Mortgage backed securities
66,748
5,053
Total debt securities
204,884
Equity securities- financial services
Derivatives and hedging activities
Liabilities
66,561
4,556
211,313
Equity securities-financial services
Liabilities:
The following table presents a summary of changes in the fair value of the Company’s Level III investments for the three and six months ended March 31, 2025 and 2024 (in thousands).
Fair Value Measurement UsingSignificant Unobservable Inputs(Level III)
March 31, 2024
Beginning balance
4,900
2,975
Purchases, sales, issuances, settlements, net
Total unrealized (loss) gain:
Included in earnings
Included in other comprehensive (loss) income
84
Transfers in and/or out of Level III
3,059
2,836
Total unrealized gain (loss):
Each financial asset and liability is identified as having been valued according to a specified level of input, 1, 2 or 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.
The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparable. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on a security’s relationship to other benchmark quoted securities. Most of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Securities reported at fair value utilizing Level 1 inputs are limited to actively traded equity securities whose market price is readily available from the New York
27
Stock Exchange or the NASDAQ exchange. A few securities are valued using Level 3 inputs, all of these are classified as available for sale and are reported at fair value using Level 3 inputs.
Assets and Liabilities Required to be Measured and Reported on a Non-Recurring Basis
The following tables provide the fair value for assets required to be measured and reported at fair value on a non-recurring basis on the Consolidated Balance Sheet as of March 31, 2025 and September 30, 2024 by level within the fair value hierarchy:
Non-Recurring Fair Value Measurements at Reporting Date (in thousands)
Individually evaluated loans held for investment
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Quantitative Information about Level 3 Fair Value Measurements
Fair ValueEstimate
ValuationTechniques
UnobservableInput
Range (Average)
Appraisal ofcollateral (1)
Appraisaladjustments (2)
0% to 35%(20.7%)
Foreclosed real estate owned
10% to 40%(13.9%)
0% to 35%(20.8%)
10 to 35% (10.2%)
Foreclosed real estate is measured at fair value, less cost to sell at the date of foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from foreclosed real estate.
Individually evaluated loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for credit losses is allocated to the loan. At March 31, 2025, 33 individually analyzed loans with a carrying value of $7.0 million were reduced by an ACL totaling $81,000 resulting in a net fair value of $6.9 million based on Level 3 inputs.
At September 30, 2024, 36 impaired loans with a carrying value of $7.6 million were reduced by a specific valuation totaling $2,000 resulting in a net fair value of $7.6 million based on Level 3 inputs.
Assets and Liabilities not Required to be Measured and Reported at Fair Value
The following tables provide the carrying value and fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheet at March 31, 2025 and September 30, 2024 by level within the fair value hierarchy:
(in thousands)
Carrying Value
Total FairValue
Financial assets:
Investment securities held to maturity
Loans receivable, net
1,627,778
Mortgage servicing rights
1,100
1,600
Financial liabilities:
1,042,265
646,486
1,688,751
Short term borrowings
200,071
1,635,032
1,051
1,450
1,046,990
581,842
1,628,832
10,042
29
The activity in accumulated other comprehensive income (loss) for the three and six months ended March 31, 2025 and 2024 is as follows (in thousands):
Accumulated OtherComprehensive Income/(Loss)
DefinedBenefitPension Plan
Unrealized Gains(Losses) onSecuritiesAvailable for Sale
Derivatives
Balance at December 31, 2024
1,891
(10,270
2,587
Other comprehensive (loss) income before reclassifications
(1,362
1,592
Amounts reclassified from accumulated other comprehensive income (loss)
(861
Period change
Balance at March 31, 2025
(7,316
364
Balance at December 31, 2023
66
(11,296
3,944
2,371
1,319
Amounts reclassified from accumulated other comprehensive (loss) income
(1,871
Balance at March 31, 2024
(12,348
4,444
Balance at September 30, 2024
(7,685
(771
Other comprehensive income (loss) before reclassifications
3,093
(1,958
Balance at September 30, 2023
(17,525
7,966
205
5,382
(3,727
30
The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended March 31, 2025 and 2024 (in thousands):
Amount Reclassified fromAccumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income (Loss) Components
Accumulated Other Comprehensive Income (Loss) for the Three Months Ended March 31,
Affected Line Item in theConsolidated Statement of Operations
Derivatives and hedging activities:
Interest expense, effective portion
1,089
2,368
Interest expense
Related income tax expense
(228
(497
Net effect on accumulated other comprehensive income (loss) for the period
861
1,871
Total reclassification for the period
Accumulated Other Comprehensive Income (Loss) For the Six Months Ended March 31,
Derivative and hedging activities:
2,478
4,718
(520
(991
1,958
3,727
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings.
Fair Values of Derivative Instruments on the Consolidated Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as of March 31, 2025 and September 30, 2024 (in thousands).
Fair Values of Derivative Instruments
Asset Derivatives
As of March 31, 2025
As of September 30, 2024
Hedged Item
NotionalAmount
FHLB Advances
200,000
1,708
125,000
2,375
Commercial Loans
100,815
5,878
97,089
5,828
300,815
222,089
Liability Derivatives
155,000
1,243
255,000
3,348
130,785
5,883
127,497
5,835
285,785
382,497
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments. As of March 31, 2025, the Company had seventeen interest rate swaps with a notional principal amount of $355.0 million associated with the Company’s cash outflows associated with various FHLB advances and $231.6 million associated with associated with various commercial loans.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the three or six months ended March 31, 2025 and 2024.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives that will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the three months ended March 31, 2025, the Company had $1.1 million of gains, which resulted in a decrease to interest expense. During the three months ended March 31, 2024, the Company had $2.4 million of gains which resulted in a decrease to interest expense. During the six months ended March 31, 2025, the Company had $2.5 million of gains, which resulted in a decrease to interest expense. During the six months ended March 31, 2024, the Company had $4.7 million of gains which resulted in a decrease to interest expense. During the next twelve months, the Company estimates that $1.1 million will be reclassified as a decrease to interest expense.
The table below presents the effect of the Company’s cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) for the three and six months ended March 31, 2025 and 2024 (in thousands).
The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)
Derivatives in Hedging Relationships
(Gain) Loss Recognized inOCI on Derivative(Effective Portion) Three Months Ended March 31,
Location of Gainor (Loss)Reclassified fromAccumulated OCIinto Income(Effective Portion)
Gain (Loss) Reclassifiedfrom Accumulated OCI into Income(Effective Portion) Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products
(2,813
637
Derivatives in Cash FlowHedging Relationships
Gain (Loss) Recognized inOCI on Derivative(Effective Portion) Six Months Ended March 31,
Gain (Loss) Recognizedin OCI on Derivative(Effective Portion) Six Months Ended March 31,
1,440
(4,458
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
As of March 31, 2025 and September 30, 2024, the Company had no derivatives in a net liability position and was not required to post collateral against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2025 and September 30, 2024, it could have been required to settle its obligations under the agreements at the termination value.
The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of Management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.
The Company and its subsidiary, ESSA Bank and Trust (“ESSA B&T”) were named as defendants, among others, in an action commenced on December 8, 2016 by one plaintiff who sought to pursue the suit as a class action on behalf of the entire class of people similarly situated. The plaintiff alleged that a subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks in the process of making loans, in violation of the Real Estate Settlement Procedures Act. In an order dated January 29, 2018, the district court granted the defendants’ motion to dismiss the case. The plaintiff appealed the court’s ruling. In an opinion and order dated April 26, 2019, the appellate court reversed the district court’s order dismissing the plaintiff’s case against the Company and remanded the case to the district court in order to continue the litigation. The litigation is now proceeding before the district court. On December 9, 2019, the court permitted an amendment to the complaint to add two new plaintiffs to the case asserting similar claims. On May 21, 2020, the court granted the plaintiffs’ motion for class certification. Fact and expert discovery were completed, but, as explained below, have recently been re-opened. The Company and ESSA B&T filed motions seeking to have the case dismissed (in whole or in part) and/or the class de-certified, as well as for other relief. Plaintiffs opposed the motions. On August 18, 2023 the Court granted the motions to dismiss as to the Company and ESSA B&T, with the result that the only remaining defendant was a now-dissolved former wholly-owned subsidiary of a previously-acquired company. The Court also amended its class certification order, and severed one of the original plaintiffs’ claims from those of the class, ordering a separate trial for that plaintiff. Plaintiffs sought permission to appeal from these and other related rulings, but the Court denied their request. Plaintiffs then filed a motion seeking relief from some of the Court’s prior orders. On November 20, 2024 the Court granted Plaintiffs’ motion and vacated the prior orders that had granted summary judgment in favor of all defendants except the now-dissolved former wholly-owned
subsidiary alleged to have employed the individuals who allegedly violated RESPA. The Court also allowed Plaintiffs additional discovery. The Company and ESSA B&T will continue to vigorously defend against Plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or ESSA B&T, the amount or range of such exposure is not currently estimable but could be substantial.
On May 29, 2020, the Company and ESSA B&T were named as defendants in a second action commenced by three plaintiffs who also sought to pursue the action as a class action on behalf of the entire class of people similarly situated. The plaintiffs allege that a now-dissolved former wholly-owned subsidiary of a bankpreviously acquired by the Company received unearned fees and kickbacks from a different title company than the one involved in the previously discussed litigation in the process of making loans. The original complaint alleged violations of the Real Estate Settlement Procedures Act, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The plaintiffs filed an Amended Complaint on September 30, 2020 that dropped the RICO claim, but they are continuing to pursue the Real Estate Settlement Procedures Act and Sherman Act claims. The defendants moved to dismiss the Sherman Act claim on October 14, 2020, and that motion was denied on April 2, 2021. On March 13, 2023 the court granted plaintiffs’ motion for class certification. Discovery is now complete. . The Company and ESSA B&T intend to vigorously defend against plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or ESSA B&T, the amount or range of such exposure is not currently estimable but could be substantial.
On February 21, 2025, the Company and ESSA B&T were named as defendants in an action commenced by a plaintiff who had previously been a member of the class of plaintiffs in the first lawsuit described in this Item. As a result of that Court’s subsequent ruling re-defining that class, the plaintiff in this action no longer met the Court-ordered definition for the class membership. The plaintiff alleges that a now-dissolved former wholly-owned subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks, and that he was charged an incorrect title insurance premium in connection with the process of making his loan, allegedly violating the Real Estate Settlement Procedures Act. The plaintiff also seeks to pursue the action as a class action on behalf of the entire class of people similarly situated to him. The Company has not yet been served with the Complaint. The Company and ESSA B&T intend to vigorously defend against plaintiff’s allegations. To the extent that this matter could result in exposure to the Company and/or ESSA B&T, the amount or range of such exposure is not currently estimable but could be substantial.
Management determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including investment security gains, loan servicing charges, gains on the sale of loans, and earnings on bank owned life insurance are not within the scope of Topic 606.
Noninterest income within the scope of Topic 606 are as follows:
Trust and Investment Fees
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customer’s accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e. as incurred). Payment is received shortly after services are rendered.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e. net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Fees, Exchange, and Other Service Charges
Fees, interchange, and other service charges are primarily comprised of debit card income, ATM fees, cash management income, and other services charges. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a company ATM. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Insurance Commissions
Insurance income primarily consists of commissions received on product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the policy. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to: our proposed merger with CNB Financial Corporation (“CNB”), which may not be consummated or may take longer or be more expensive to accomplish than expected, and which may divert our resources and management’s attention from ongoing business operations and opportunities. These forward-looking statements also include:
By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K, as amended, and Part II, Item 1A of this and any previous Quarterly Report on Form 10-Q filed since our most recent Annual Report on Form 10-K, as well as the following factors:
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
On January 9, 2025, ESSA Bancorp, Inc. and ESSA Bank entered into an agreement and plan of merger with CNB Financial Corporation (“CNB”) and CNB Bank, pursuant to which CNB will acquire ESSA Bancorp, Inc. Under the terms of the merger agreement, each outstanding share of ESSA common stock will be converted into the right to receive 0.8547 shares of CNB common stock. The merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of CNB and ESSA, and is expected to close in the second half of 2025. For further information on the merger agreement, see the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 10, 2025.
Comparison of Financial Condition at March 31, 2025 and September 30, 2024
Total Assets. Total assets decreased by $20.1 million, or 0.9%, to $2.2 billion at March 31, 2025 from September 30, 2024 due primarily to decreases in total cash and cash equivalents, investment securities available for sale, regulatory stock and other assets partially offset by an increase in loans receivable.
Total Cash and Cash Equivalents. Total cash and cash equivalents decreased $19.0 million, or 39.2%, to $29.6 million at March 31, 2025 from $48.6 million at September 30, 2024.
Net Loans. Net loans increased $12.8 million, or 0.7%, to $1.76 billion at March 31, 2025 from $1.74 billion at September 30, 2024. During this period, residential loans increased $13.2 million to $734.8 million as the Company sold $6.9 million of residential mortgage loans, construction loans increased $232,000 to $15.1 million, commercial real estate loans decreased $13.9 million to $870.8 million, commercial loans increased $11.8 million to $48.6 million, obligations of states and political subdivisions decreased
$265,000 to $48.3 million, home equity loans and lines of credit increased $1.2 million to $52.5 million, auto loans decreased $65,000 to zero reflecting expected runoff of the portfolio following the Company’s previously announced discontinuation of indirect auto lending in July 2018, and other loans increased $131,000 to $2.0 million.
Investment Securities Available for Sale. Investment securities available for sale decreased $5.9 million, or 2.8%, to $209.9 million at March 31, 2025 from $215.9 million at September 30, 2024 due primarily to runoff of mortgage backed securities.
Investment Securities Held to Maturity. Investment securities held to maturity decreased to $45.0 million at March 31, 2025 from $47.4 million at September 30, 2024. The Company carries some investment securities as held to maturity to manage fluctuations in comprehensive loss caused by interest rate changes.
Foreclosed Real Estate. Foreclosed real estate increased to $3.7 million at March 31, 2025 from $3.2 million at September 30, 2024. The Company has two commercial real estate properties which it is actively marketing.
Deposits. Deposits increased $60.7 million, or 3.7%, to $1.69 billion at March 31, 2025 from $1.63 billion at September 30, 2024. The increase was comprised of increases in certificates of deposit of $65.4 million, money market accounts of $13.6 million, savings and club accounts of $355,000 and non-interest bearing demand accounts of $8.2 million, partially offset by decreases in interest bearing demand accounts of $26.8 million.
Short-Term and Other Borrowings. Short-term borrowings decreased to $200.7 million at March 31, 2025 from $280.0 million at September 30, 2024. Other borrowings of terms over one year from the FHLB decreased $10.0 million from September 30, 2024 to March 31, 2025.
Stockholders’ Equity. Stockholders’ equity increased by$6.1 million, or 2.6%, to $236.5 million at March 31, 2025 from $230.4 million at September 30, 2024. The increase in stockholders’ equity was primarily due to net income of $6.7 million and other comprehensive income of $1.5 million partially offset by regular cash dividends of $0.30 per share which reduced stockholders’ equity by $2.9 million.
Average Balance Sheets for the Three and Six Months ended March 31, 2025 and 2024
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances, the yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income.
Average Balance
Interest Income/Expense
Yield/Cost
Interest-earning assets:
Loans(1)
1,770,177
5.16
%
1,719,854
5.07
Investment securities
Taxable(2)
88,217
1,064
4.89
102,779
1,329
5.19
Exempt from federal income tax(2)(3)
1,446
2.49
1,864
2.72
Total investment securities
89,663
1,071
4.85
104,643
1,339
5.14
Mortgage-backed securities
166,154
1,374
3.35
177,571
1,421
3.21
Federal Home Loan Bank stock
16,287
347
8.64
18,542
395
8.54
33,899
320
3.83
56,464
771
5.48
Total interest-earning assets
2,076,180
5.01
2,077,074
4.95
Allowance for credit losses
(15,107
(15,520
Noninterest-earning assets
122,600
129,990
Total assets
2,183,673
2,191,544
Interest-bearing liabilities:
290,534
492
0.69
305,131
383
0.50
364,114
2,358
2.63
334,119
1,787
2.15
141,681
0.07
156,047
0.09
627,492
6,939
4.48
474,821
5,385
4.55
Borrowed funds
230,688
1,609
2.84
405,713
3,206
3.17
Total interest-bearing liabilities
1,654,509
2.80
1,675,831
2.58
Non-interest-bearing NOW accounts
252,879
248,604
Non-interest-bearing liabilities
40,069
44,203
Total liabilities
1,947,457
1,968,638
236,216
222,906
Total liabilities and equity
Net interest income
Interest rate spread
2.21
2.37
Net interest-earning assets
421,671
401,243
Net interest margin(4)
2.78
2.87
Average interest-earning assets to average interest-bearing liabilities
125.49
123.94
38
__________________
1,770,651
5.15
1,713,405
5.02
87,487
2,161
150,802
3,913
5.18
1,679
1,847
89,166
2,179
4.91
152,649
3,934
169,126
2,787
3.30
171,965
2,724
3.16
16,690
723
8.69
18,197
8.45
37,626
802
4.27
43,068
1,173
5.43
2,083,259
2,099,284
4.92
(15,215
(17,082
124,364
131,774
2,192,408
2,213,976
292,163
1,018
310,743
800
0.51
360,808
4,802
2.67
348,601
3,809
2.18
142,635
157,492
60
0.08
627,317
14,272
4.56
499,981
11,383
4.54
241,653
3,508
2.91
381,754
5,970
3.12
1,664,576
2.85
1,698,571
2.59
254,166
252,028
38,843
42,112
1,957,585
1,992,711
234,823
221,265
2.16
2.33
418,683
400,713
2.73
2.82
125.15
123.59
Comparison of Operating Results for the Three Months Ended March 31, 2025 and 2024
Net Income. Net income decreased $1.8 million, or 40.0%, to $2.7 million for the three months ended March 31, 2025 compared to net income of $4.6 million for the comparable period in 2024. The decrease was primarily due to merger related costs, increases in non-interest expense, a decrease in the release of credit losses and a decrease in net interest income.
Net Interest Income. Net interest income decreased $644,000, or 4.3%, to $14.2 million for the three months ended March 31, 2025 compared to $14.9 million for the comparable period in 2024.
Interest Income. Total interest income was $25.6 million for the three months ended March 31, 2025 compared with $25.7 million for the three months ended March 31, 2024 reflecting increases in interest rates and total yield on average interest earning assets from 4.95% for the three months ended March 31, 2024 to 5.01% for the three months ended March 31, 2025. A decrease of $894,000 in average interest earning assets a partially offset the increase in interest income.
Interest Expense. Interest expense was $11.4 million for the quarter ended March 31, 2025 compared to $10.8 million for the same period in 2024. The cost of interest-bearing liabilities increased to 2.80% for the quarter ended March 31, 2025 from 2.58% for the comparable period in 2024, reflecting higher interest rates, repricing of deposits and higher-cost borrowings. The average balance of interest-bearing liabilities decreased $21.3 million year-over-year.
Provision for Credit Losses. For the three months ended March 31, 2025, the release of credit losses decreased $454,000, compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, we recorded a release of the allowance for credit losses of $42,000 that comprised of a release of $168,000 for loans and $125,000 provision for off balance sheet credit exposure. The Company did not recognize any credit losses on held-to-maturity debt securities for the year to date period ended March 31, 2025. For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for Credit Losses” below and Note 6 - Loans Receivable, Net of Allowance For Credit Losses on Loans to the unaudited consolidated financial statements. The allowance for credit losses was $15.0 million, or 0.84% of loans outstanding, at March 31, 2025, compared to $15.3 million, or 0.87% of loans outstanding, at September 30, 2024.
Non-interest Income. Noninterest income increased 0.7% to $2.0 million for the three months ended March 31, 2025, compared with the three months ended March 31, 2024. Increases in service charges and fees on loans of $34,000, gain on sale of loans of $40,000 and trust and investments fees of $17,000 were partially offset by decreases in loan swap fees of $41,000 for the quarter ended March 31, 2025 compared with the comparable period in 2024.
Non-interest Expense. Noninterest expense increased $1.1 million, or 9.3%, to $12.8 million for the three months ended March 31, 2025 compared with the comparable period a year earlier primarily reflecting increases in merger-related costs of $1.0 million and compensation and employee benefits of $207,000, professional fees of $94,000 and data processing of $72,000, partially offset by decreases in advertising of $71,000, FDIC insurance of $77,000 and other expenses of $119,000.
Income Taxes. Income tax expense decreased $351,000 to $727,000 for the three months ended March 31, 2025 from the comparable 2024 period. The effective tax rate for the three months ended March 31, 2025 and 2024 was 21.0% and 19.1%, respectively.
Comparison of Operating Results for the Six Months Ended March 31, 2025 and 2024
Net Income. Net income decreased $2.2 million, or 24.8%, to $6.7 million for the six months ended March 31, 2025 compared to net income of $8.9 million for the comparable period in 2024. The decrease was primarily due to merger related costs, increases in non-interest expense, a decrease in the release of credit losses and a decrease in net interest income..
Net Interest Income. Net interest income decreased $1.4 million, or 4.6%, to $28.4 million for the six months ended March 31, 2025 compared to $29.7 million for the comparable period in 2024.
Interest Income. Total interest income was $52.0 million for the six months ended March 31, 2025 compared with $51.7 million for the six months ended March 31, 2024 reflecting increases in interest rates and total yield on average interest earning assets from 4.92% for the six months ended March 31, 2024 to 5.01% for the six months ended March 31, 2025. A decrease of $16.0 million in average interest earning assets partially offset the increase in interest income.
Interest Expense. Interest expense was $23.7 million for the six months ended March 31, 2025 compared to $22.0 million for the same period in 2024. The cost of interest-bearing liabilities increased to 2.85% for the six months ended March 31, 2025 from 2.59% for the comparable period in 2024, reflecting higher interest rates, repricing of deposits and higher-cost borrowings. The average balance of interest-bearing liabilities decreased $34.0 million year-over-year.
Provision for Credit Losses. For the six months ended March 31, 2025, the release of credit losses decreased $244,000, compared to the six months ended March 31, 2024. For the six months ended March 31, 2025, we recorded a release of the allowance for credit losses of $649,000 comprised of a release of $429,000 for loans and $220,000 for off balance sheet credit exposure. The Company did not recognize any credit losses on held-to-maturity debt securities for the year to date period ended March 31, 2025. For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for Credit Losses” below and Note 6 - Loans Receivable, Net of Allowance For Credit Losses on Loans to the unaudited consolidated financial statements. The allowance for credit losses was $15.0 million, or 0.84% of loans outstanding, at March 31, 2025, compared to $15.3 million, or 0.87% of loans outstanding, at September 30, 2024.
Non-interest Income. Noninterest income increased 2.8% to $4.1 million for the six months ended March 31, 2025, compared with $4.0 million for the six months ended March 31, 2024. Increases in loan swap fees of $58,000 and trust and investments fees of $99,000 were partially offset by decreases in gain on sale of loans, net of $18,000 and other expenses of $33,000 for the six months ended March 31, 2025 compared with the comparable period in 2024.
Non-interest Expense. Noninterest expense increased $1.2 million, or 5.0%, to $24.7 million for the six months ended March 31, 2025 compared with the comparable period a year earlier primarily reflecting increases in merger-related costs of $1.0 million, compensation and employee benefits of $661,000 and data processing of $198,000, partially offset by decreases in other expenses of $316,000.
Income Taxes. Income tax expense decreased $460,000 to $1.6 million for the six months ended March 31, 2025 from the comparable 2024 period. The effective tax rate for the six months ended March 31, 2025 and 2024 was 19.7% and 19.1%, respectively.
The following table provides information with respect to the Bank’s non-performing assets at the dates indicated (dollars in thousands).
Non-performing assets:
Non-accruing loans
Loans 90+ days delinquent and accruing interest
Total non-performing loans
Total non-performing assets
11,740
12,221
Ratio of non-performing loans to total loans
0.46
Ratio of non-performing loans to total assets
0.37
Ratio of non-performing assets to total assets
0.54
0.56
Ratio of allowance for credit losses to total loans
0.84
0.87
Loans are reviewed on a regular basis and are placed on non-accrual status when they become 90 days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and further income is recognized only to the extent received. Non-performing assets decreased $481,000 from September 30, 2024 to March 31, 2025. The $8.1 million of non-accruing loans at March 31, 2025 included 20 residential loans with an aggregate outstanding balance of $1.8 million, 15 commercial and commercial real estate loans with aggregate outstanding balances of $6.2 million and six consumer loans with aggregate balances of $49,000. Within the residential loan balance were $205,000 of loans past due less than 90 days. In the quarter ended March 31, 2025, the Company identified five residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate increased to $3.7 million at March 31, 2025 from $3.2 million at September 30, 2024 . Foreclosed real estate consists of two commercial properties at March 31, 2025.
Liquidity and Capital Resources
We maintain liquid assets at levels we consider adequate to meet both our short-term and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.
Our primary sources of liquidity are deposits, prepayment and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLB advances and other borrowing sources. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits.
A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At March 31, 2025, $29.6 million of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the maturities of investment securities, principal repayments of mortgage-backed securities and increases in deposit accounts and borrowings. As of March 31, 2025, we had $290.0 million of borrowings outstanding from the Pittsburgh FHLB. We have access to total FHLB advances of up to approximately $877.1 million. The Company also has access to a fully secured $90.0 million borrowing from the Federal Reserve Bank of Philadelphia.
At March 31, 2025, we had $376.0 million in loan commitments outstanding, which included, in part, $87.8 million in undisbursed construction loans and land development loans, $58.7 million in unused home equity lines of credit, $96.9 million in commercial lines of credit and commitments to originate commercial loans, $13.5 million in performance and standby letters of credit, $115.0 million in standby letters of credit issued by the Pittsburgh FHLB on the Company’s behalf and $1.2 million in other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of March 31, 2025 totaled $531.4 million, or 82.1% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2026. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
As reported in the Consolidated Statements of Cash Flow, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $6.9 million and $7.0 million for the six months ended March 31, 2025 and 2024, respectively. These amounts differ from our net income because of a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash (used for) provided by investing activities was $(0.8) million and $100.1 million for the six months ended March 31, 2025 and 2024, respectively, principally reflecting our loan and investment security activities. Deposit and borrowing cash flows have comprised most of our financing activities, which resulted in net cash used for financing activities of $(25.1) million and $(113.2) million for the six months ended March 31, 2025 and 2024, respectively.
Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies:
Allowance for Credit Losses.
The allowance for credit losses (ACL) represents an amount which, in management’s judgment, is adequate to absorb expected credit losses on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics ot the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.
Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.
Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes in the interest rate environment which may directly impact prepayment and curtailment rate assumption, and changes in the financial condition of the borrowers.
Goodwill and Intangible Assets. Goodwill is not amortized, but it is tested at least annually for impairment in the fourth quarter, or more frequently if indicators of impairment are present. If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit. Based on this analysis, no impairment was recorded in fiscal 2025 or 2024.
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The other intangibles assets are assigned useful lives, which are amortized on an accelerated basis over their weighted-average lives. The Company periodically reviews the intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. Based on these reviews, no impairment was recorded in 2025 or 2024.
Fair Value Measurements. We group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in generally accepted accounting principles.
Fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid, and other market information. Subsequently, all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. In certain cases, however, when market observable inputs for model-based valuation techniques may not be readily available, we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits and borrowings. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has approved guidelines for managing the interest rate risk inherent in our assets and liabilities, given our business strategy, operating environment, capital, liquidity and performance objectives. Senior management monitors the level of interest rate risk on a regular basis and the asset/liability committee meets quarterly to review our asset/liability policies and interest rate risk position.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. The net proceeds from the Company’s stock offering increased our capital and provided management with greater flexibility to manage our interest rate risk. In particular, management used the majority of the capital we received to increase our interest-earning assets. There have been no material changes in our interest rate risk since September 30, 2024.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective.
There were no changes made in the Company’s internal controls over financial reporting (as defined by Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q.
Part II – Other Information
Item 1. Legal Proceedings
The Company and its subsidiary, ESSA Bank and Trust (“ESSA B&T”) were named as defendants, among others, in an action commenced on December 8, 2016 by one plaintiff who sought to pursue the suit as a class action on behalf of the entire class of people similarly situated. The plaintiff alleged that a subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks in the process of making loans, in violation of the Real Estate Settlement Procedures Act. In an order dated January 29, 2018, the district court granted the defendants’ motion to dismiss the case. The plaintiff appealed the court’s ruling. In an opinion and order dated April 26, 2019, the appellate court reversed the district court’s order dismissing the plaintiff’s case against the Company and remanded the case to the district court in order to continue the litigation. The litigation is now proceeding before the district court. On December 9, 2019, the court permitted an amendment to the complaint to add two new plaintiffs to the case asserting similar claims. On May 21, 2020, the court granted the plaintiffs’ motion for class certification. Fact and expert discovery were completed, but, as explained below, have recently been re-opened. The Company and ESSA B&T filed motions seeking to have the case dismissed (in whole or in part) and/or the class de-certified, as well as for other relief. Plaintiffs opposed the motions. On August 18, 2023 the Court granted the motions to dismiss as to the Company and ESSA B&T, with the result that the only remaining defendant was a now-dissolved former wholly-owned subsidiary of a previously-acquired company. The Court also amended its class certification order, and severed one of the original plaintiffs’ claims from those of the class, ordering a separate trial for that plaintiff. Plaintiffs sought permission to appeal from these and other related rulings, but the Court denied their request. Plaintiffs then filed a motion seeking relief from some of the Court’s prior orders. On November 20, 2024 the Court granted Plaintiffs’ motion and vacated the prior orders that had granted summary judgment in favor of all defendants except the now-dissolved former wholly-owned subsidiary alleged to have employed the individuals who allegedly violated RESPA. The Court also allowed Plaintiffs additional discovery. The Company and ESSA B&T will continue to vigorously defend against Plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or ESSA B&T, the amount or range of such exposure is not currently estimable but could be substantial.
Item 1A. Risk Factors
There were no changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, as filed with the SEC on December 13, 2024 and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2024, as filed with the SEC on February 10, 2025.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
On June 6, 2022 the Company announced the authorization of a ninth repurchase program for up to 500,000 shares of its common stock. This program has no expiration date. The Company made no purchases of its common stock under this program
during the three month period ended March 31, 2025. There are currently 86,242 shares that may yet be repurchased under the
program.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers.
During the six months ended March 31, 2025, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 6. Exhibits
The following exhibits are either filed as part of this Report or are incorporated herein by reference:
2.1
Exhibit 2.1 Agreement and Plan of Merger, dated January 9, 2025, by and among CNB Financial Corporation, CNB Bank, ESSA Bancorp, Inc. and ESSA Bank & Trust (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (Registration No. 001-33384) filed on January 10, 2025).
3.1
Articles of Incorporation of ESSA Bancorp, Inc. (incorporated by reference to the Registration Statement on Form S-1 of ESSA Bancorp, Inc. (file no. 333-139157), originally filed with the Securities and Exchange Commission on December 7, 2006)
3.2
Bylaws of ESSA Bancorp, Inc. (incorporated by reference to the Registration Statement on Form S-1 of ESSA Bancorp, Inc. (file no. 333-139157), originally filed with the Securities and Exchange Commission on December 7, 2006)
Form of Common Stock Certificate of ESSA Bancorp, Inc. (incorporated by reference to the Registration Statement on Form S-1 of ESSA Bancorp, Inc. (file no. 333-139157), originally filed with the Securities and Exchange Commission on December 7, 2006)
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition; (ii) the Consolidated Statement of Income; (iii) the Consolidated Statement of Changes in Stockholder Equity; (iv) the Consolidated Statement of Cash Flows; and (v) the Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ESSA BANCORP, INC.
Date: May 9, 2025
/s/ Gary S. Olson
Gary S. Olson
President and Chief Executive Officer
/s/ Allan A. Muto
Allan A. Muto
Executive Vice President and Chief Financial Officer