10-Q 1 essa-20231231.htm 10-Q 10-Q
--09-30falseQ10001382230http://fasb.org/us-gaap/2023#GainLossOnSalesOfLoansNethttp://fasb.org/us-gaap/2023#GainLossOnSalesOfLoansNethttp://fasb.org/us-gaap/2023#MarketApproachValuationTechniqueMemberhttp://fasb.org/us-gaap/2023#MeasurementInputAppraisedValueMemberhttp://fasb.org/us-gaap/2023#MarketApproachValuationTechniqueMemberhttp://fasb.org/us-gaap/2023#MeasurementInputAppraisedValueMemberhttp://fasb.org/us-gaap/2023#MarketApproachValuationTechniqueMemberhttp://fasb.org/us-gaap/2023#MeasurementInputAppraisedValueMemberhttp://fasb.org/us-gaap/2023#MarketApproachValuationTechniqueMemberhttp://fasb.org/us-gaap/2023#MeasurementInputAppraisedValueMemberhttp://fasb.org/us-gaap/2023#InterestExpensehttp://fasb.org/us-gaap/2023#InterestExpense0001382230us-gaap:USTreasurySecuritiesMember2023-09-300001382230us-gaap:CorporateDebtSecuritiesMember2023-09-300001382230us-gaap:EmployeeStockOptionMember2023-10-012023-12-310001382230us-gaap:DebtSecuritiesMember2023-09-300001382230us-gaap:PassMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230essa:OtherFinancingReceivableMember2023-12-310001382230us-gaap:EmployeeStockOptionMember2022-10-012022-12-310001382230us-gaap:DebtSecuritiesMember2023-12-310001382230us-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:AutomobileLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-310001382230us-gaap:TreasuryStockCommonMember2023-10-012023-12-310001382230us-gaap:PerformingFinancingReceivableMemberessa:HomeEquityLoansAndLinesOfCreditMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230essa:OtherFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-3000013822302023-09-300001382230us-gaap:PassMemberus-gaap:CommercialRealEstatePortfolioSegmentMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:USTreasurySecuritiesMember2023-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:TwentySixteenEquityIncentivePlanMember2023-12-310001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-09-300001382230us-gaap:TreasuryStockCommonMember2022-10-012022-12-310001382230us-gaap:PerformingFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-300001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-310001382230us-gaap:RestrictedStockMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:ResidentialPortfolioSegmentMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230us-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001382230us-gaap:RetainedEarningsMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2023-09-300001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2022-09-300001382230essa:GovernmentalNationalMortgageAssociationSecuritiesMember2023-09-300001382230us-gaap:CommonStockMember2023-09-300001382230essa:OtherFinancingReceivableMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-3100013822302022-09-300001382230essa:ImpairedLoansMembersrt:MaximumMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2023-09-300001382230us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-09-300001382230essa:ImpairedLoansWithAllowanceRecordedMember2023-09-300001382230us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-09-300001382230us-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Membersrt:MinimumMemberessa:ForeclosedRealEstateOwnedMember2023-09-300001382230us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-09-300001382230us-gaap:DesignatedAsHedgingInstrumentMember2023-09-300001382230us-gaap:PassMemberessa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230us-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:FairValueMeasurementsRecurringMember2023-12-3100013822302024-02-070001382230essa:UnallocatedCommonStockHeldByEsopMember2022-09-300001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2022-12-310001382230us-gaap:AdditionalPaidInCapitalMember2023-09-300001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:ConsumerPortfolioSegmentMember2023-09-3000013822302022-12-310001382230essa:ConstructionPortfolioSegmentMember2023-12-310001382230essa:OtherFinancingReceivableMember2023-09-300001382230us-gaap:TreasuryStockCommonMember2022-09-300001382230us-gaap:RealEstateLoanMemberessa:ImpairedLoansWithNoAllowanceRecordedMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-09-300001382230us-gaap:RealEstateLoanMemberessa:ImpairedLoansWithAllowanceRecordedMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2022-10-012022-12-310001382230us-gaap:CommonStockMember2022-09-300001382230us-gaap:AutomobileLoanMember2023-09-300001382230us-gaap:RealEstateLoanMemberessa:ImpairedLoansWithAllowanceRecordedMemberus-gaap:ResidentialPortfolioSegmentMember2023-09-300001382230us-gaap:CommonStockMember2022-10-012022-12-310001382230us-gaap:CommercialPortfolioSegmentMember2023-09-300001382230us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:EstimateOfFairValueFairValueDisclosureMember2023-09-300001382230us-gaap:ConsumerPortfolioSegmentMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-10-012023-12-310001382230us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2023-09-300001382230us-gaap:SpecialMentionMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:CommonStockMember2023-12-310001382230us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-12-310001382230us-gaap:SpecialMentionMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2023-12-310001382230us-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberessa:ConstructionPortfolioSegmentMember2023-12-310001382230us-gaap:RealEstateLoanMemberessa:ImpairedLoansWithNoAllowanceRecordedMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2022-10-012022-12-310001382230essa:FannieMaeMember2023-09-300001382230us-gaap:FinancialAssetNotPastDueMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2022-10-012022-12-310001382230us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:RealEstateMember2023-12-310001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:CommercialPortfolioSegmentMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2023-09-300001382230us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMember2023-12-310001382230us-gaap:CommercialPortfolioSegmentMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230us-gaap:MortgageBackedSecuritiesMember2023-12-310001382230us-gaap:AdditionalPaidInCapitalMember2022-10-012022-12-310001382230us-gaap:NonperformingFinancingReceivableMemberessa:OtherFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230srt:MaximumMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Memberessa:IndividuallyEvaluatedLoansHeldForInvestmentMember2023-12-310001382230us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230essa:FannieMaeMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2023-10-012023-12-310001382230essa:UnallocatedCommonStockHeldByEsopMember2023-10-012023-12-310001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-300001382230us-gaap:CommercialPortfolioSegmentMemberus-gaap:SubstandardMember2023-12-310001382230srt:MaximumMemberus-gaap:RestrictedStockMember2023-10-012023-12-3100013822302023-12-310001382230us-gaap:SubstandardMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230essa:HomeEquityLoansAndLinesOfCreditMember2022-09-300001382230us-gaap:PassMember2023-12-3100013822302023-10-012023-12-310001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2023-10-012023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:PerformingFinancingReceivableMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230us-gaap:AdditionalPaidInCapitalMember2022-12-310001382230essa:UnallocatedCommonStockHeldByEsopMember2022-10-012022-12-310001382230us-gaap:CommercialPortfolioSegmentMember2022-12-310001382230us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001382230us-gaap:AutomobileLoanMember2022-09-300001382230essa:OtherFinancingReceivableMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-310001382230us-gaap:AutomobileLoanMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:TreasuryStockCommonMember2023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2022-09-300001382230us-gaap:FairValueInputsLevel2Memberus-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230us-gaap:CorporateDebtSecuritiesMember2023-12-310001382230us-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230essa:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Membersrt:MinimumMember2023-09-300001382230essa:FederalAgencyMortgageBackedSecuritiesMember2023-12-310001382230essa:OtherFinancingReceivableMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2023-09-300001382230us-gaap:RestrictedStockMember2016-03-012016-03-020001382230us-gaap:CommercialPortfolioSegmentMember2023-12-310001382230us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-12-310001382230essa:HomeEquityLoansAndLinesOfCreditMemberus-gaap:RealEstateMember2023-12-310001382230us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:AutomobileLoanMemberessa:OtherCollateralDependentMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2022-10-012022-12-310001382230essa:OtherFinancingReceivableMember2022-12-310001382230us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2022-10-012022-12-310001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-012022-12-310001382230us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2022-12-310001382230us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMember2023-12-310001382230us-gaap:NonperformingFinancingReceivableMemberessa:OtherFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:AutomobileLoanMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:CarryingReportedAmountFairValueDisclosureMember2023-12-310001382230essa:ImpairedLoansWithNoAllowanceRecordedMemberessa:HomeEquityLoansAndLinesOfCreditMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:PerformingFinancingReceivableMemberessa:ConstructionPortfolioSegmentMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMember2022-10-012022-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FederalHomeLoanBankAdvancesMember2023-09-300001382230essa:GovernmentalNationalMortgageAssociationSecuritiesMember2023-12-310001382230srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230essa:HomeEquityLoansAndLinesOfCreditMember2023-09-300001382230us-gaap:AutomobileLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Memberessa:ForeclosedRealEstateOwnedMember2023-12-310001382230essa:UnallocatedCommonStockHeldByEsopMember2022-12-310001382230essa:OtherFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-09-300001382230us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2023-10-012023-12-310001382230essa:HomeEquityLoansAndLinesOfCreditMember2023-10-012023-12-310001382230us-gaap:CommonStockMember2023-10-012023-12-310001382230us-gaap:NonperformingFinancingReceivableMemberessa:HomeEquityLoansAndLinesOfCreditMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:ImpairedLoansWithNoAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2023-10-012023-12-310001382230us-gaap:MortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230us-gaap:MortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:AutomobileLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:CommercialPortfolioSegmentMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230essa:StateAndPoliticalSubdivisionsBondMember2023-12-310001382230us-gaap:SubstandardMemberus-gaap:CommercialPortfolioSegmentMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:UnallocatedFinancingReceivablesMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230us-gaap:AutomobileLoanMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2023-09-300001382230us-gaap:UnallocatedFinancingReceivablesMember2023-09-300001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2023-09-300001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FederalHomeLoanBankAdvancesMemberus-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:VariableIncomeInterestRateMember2023-12-310001382230essa:ImpairedLoansWithNoAllowanceRecordedMemberessa:HomeEquityLoansAndLinesOfCreditMember2023-09-3000013822302022-10-012022-12-310001382230us-gaap:RealEstateLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberessa:ConstructionPortfolioSegmentMember2023-12-310001382230us-gaap:RestrictedStockMembersrt:MinimumMember2023-10-012023-12-310001382230us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2022-12-310001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:RealEstateLoanMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberessa:ConstructionPortfolioSegmentMember2023-09-300001382230us-gaap:CommercialPortfolioSegmentMemberessa:ImpairedLoansWithAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:CarryingReportedAmountFairValueDisclosureMember2023-09-300001382230us-gaap:MortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2022-10-012023-09-300001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-09-300001382230us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-09-300001382230us-gaap:SpecialMentionMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2022-09-300001382230us-gaap:CommercialPortfolioSegmentMember2022-10-012022-12-310001382230essa:UnallocatedCommonStockHeldByEsopMember2023-12-310001382230us-gaap:MortgageBackedSecuritiesMember2023-09-300001382230us-gaap:EmployeeStockOptionMember2016-03-012016-03-020001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2023-12-310001382230us-gaap:CommercialRealEstatePortfolioSegmentMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CommercialLoanMember2023-09-300001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2023-09-300001382230us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001382230us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2023-12-310001382230us-gaap:PassMemberessa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2023-12-310001382230us-gaap:OtherDebtSecuritiesMember2023-12-310001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:OtherFinancingReceivableMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:TreasuryStockCommonMember2022-12-310001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:OtherFinancingReceivableMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-09-300001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2023-10-012023-12-310001382230essa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:AutomobileLoanMember2022-10-012022-12-310001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-12-310001382230us-gaap:CommercialPortfolioSegmentMember2022-09-300001382230us-gaap:RetainedEarningsMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMember2023-12-310001382230us-gaap:SubstandardMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:FairValueInputsLevel2Memberus-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:RealEstateLoanMemberessa:ImpairedLoansWithAllowanceRecordedMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-09-300001382230us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:RealEstateMember2023-12-310001382230us-gaap:RetainedEarningsMember2022-12-310001382230us-gaap:AdditionalPaidInCapitalMember2023-10-012023-12-310001382230us-gaap:CorporateBondSecuritiesMember2023-12-310001382230us-gaap:PassMemberus-gaap:CommercialPortfolioSegmentMember2023-12-310001382230us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMember2023-09-300001382230us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-12-310001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberessa:IndividuallyEvaluatedLoansHeldForInvestmentMemberus-gaap:FairValueInputsLevel3Member2023-12-310001382230us-gaap:TreasuryStockCommonMember2023-09-300001382230us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:RestrictedStockMember2023-09-300001382230us-gaap:CommonStockMember2022-12-310001382230us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:CollateralizedMortgageObligationsMember2023-12-310001382230us-gaap:InterestRateContractMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMember2022-10-012022-12-310001382230us-gaap:SubstandardMember2023-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Memberessa:ForeclosedRealEstateOwnedMember2023-09-300001382230us-gaap:UnallocatedFinancingReceivablesMember2022-12-310001382230us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:RealEstateMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:AutomobileLoanMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:InterestRateContractMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMember2023-10-012023-12-310001382230srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-310001382230essa:HomeEquityLoansAndLinesOfCreditMember2022-10-012022-12-310001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001382230essa:OtherFinancingReceivableMember2022-10-012022-12-310001382230us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-09-300001382230us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2023-12-310001382230us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-09-300001382230srt:MaximumMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Memberessa:ForeclosedRealEstateOwnedMember2023-09-300001382230us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001382230us-gaap:RetainedEarningsMember2022-09-300001382230us-gaap:CommercialPortfolioSegmentMember2023-10-012023-12-310001382230essa:BusinessAssetsMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:UnallocatedFinancingReceivablesMember2022-09-300001382230essa:HomeEquityLoansAndLinesOfCreditMember2023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMemberessa:ImpairedLoansWithAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:RetainedEarningsMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230essa:ImpairedLoansWithNoAllowanceRecordedMember2023-09-300001382230us-gaap:RestrictedStockMember2022-10-012022-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberessa:IndividuallyEvaluatedLoansHeldForInvestmentMemberus-gaap:FairValueInputsLevel3Membersrt:MinimumMember2023-12-310001382230us-gaap:AutomobileLoanMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:PassMemberus-gaap:CommercialPortfolioSegmentMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230essa:OtherFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-10-012023-12-310001382230essa:TroubledDebtRestructuringsMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230essa:OtherFinancingReceivableMemberessa:OtherCollateralDependentMember2023-12-310001382230us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:HomeEquityLoansAndLinesOfCreditMember2022-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2023-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CommercialLoanMember2023-12-310001382230essa:OtherFinancingReceivableMember2022-09-300001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2022-10-012022-12-310001382230us-gaap:PassMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230essa:UnallocatedCommonStockHeldByEsopMember2023-09-300001382230essa:ImpairedLoansWithAllowanceRecordedMember2022-10-012022-12-310001382230us-gaap:USStatesAndPoliticalSubdivisionsMember2023-09-300001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230us-gaap:CommercialPortfolioSegmentMemberessa:ImpairedLoansWithNoAllowanceRecordedMember2022-10-012022-12-310001382230essa:UnallocatedFinancingReceivableMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230us-gaap:RetainedEarningsMember2022-10-012022-12-310001382230us-gaap:AutomobileLoanMember2023-12-310001382230essa:UnallocatedFinancingReceivableMember2023-12-310001382230us-gaap:AdditionalPaidInCapitalMember2023-12-310001382230essa:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2023-09-300001382230us-gaap:AdditionalPaidInCapitalMember2022-09-300001382230us-gaap:AutomobileLoanMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2022-09-300001382230us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMemberessa:CommercialAndMunicipalPortfolioSegmentMember2023-09-300001382230us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-12-310001382230essa:TwentyZeroSevenEquityIncentivePlanMember2016-03-020001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2022-10-012022-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2023-10-012023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-12-310001382230us-gaap:AutomobileLoanMember2022-12-310001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-10-012023-12-310001382230us-gaap:CommercialLoanMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:VariableIncomeInterestRateMember2023-12-310001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-10-012022-12-310001382230us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2023-09-300001382230us-gaap:AutomobileLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2022-10-012022-12-310001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2023-12-310001382230us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001382230us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230us-gaap:RealEstateLoanMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2022-12-310001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2023-09-300001382230us-gaap:OtherDebtSecuritiesMember2023-09-300001382230essa:ObligationsOfStatesAndPoliticalSubdivisionsLoanMember2023-12-310001382230us-gaap:RealEstateLoanMemberessa:ConstructionPortfolioSegmentMember2022-10-012022-12-310001382230us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FederalHomeLoanBankAdvancesMember2023-12-310001382230us-gaap:RetainedEarningsMember2023-10-012023-12-310001382230us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:ResidentialPortfolioSegmentMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-310001382230us-gaap:UnallocatedFinancingReceivablesMember2022-10-012022-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:FinancialAssetNotPastDueMemberus-gaap:ResidentialPortfolioSegmentMember2023-12-310001382230essa:OtherFinancingReceivableMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:ConsumerPortfolioSegmentMember2023-09-300001382230essa:OtherFinancingReceivableMember2023-10-012023-12-310001382230us-gaap:USStatesAndPoliticalSubdivisionsMember2023-12-310001382230us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2023-09-300001382230us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-09-300001382230essa:OtherFinancingReceivableMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-09-300001382230us-gaap:NonperformingFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2023-12-310001382230us-gaap:MortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001382230essa:OtherCollateralDependentMember2023-12-310001382230us-gaap:RealEstateLoanMemberus-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberessa:ConstructionPortfolioSegmentMember2023-12-310001382230us-gaap:CommercialPortfolioSegmentMemberessa:BusinessAssetsMember2023-12-310001382230us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-09-300001382230us-gaap:RestrictedStockMember2023-12-310001382230us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMembersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-12-31xbrli:pureessa:Securityessa:Loanxbrli:sharesiso4217:USDxbrli:sharesiso4217:USDessa:Contract

 

 

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 December 31, 2023

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. YesNo

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). YesNo

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). YesNo

As of February 7, 2024, there were 10,131,521 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

 

 


 

ESSA Bancorp, Inc.

FORM 10-Q

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

 

35

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

Item 4

Controls and Procedures

 

42

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

43

 

 

 

 

Item 1A.

Risk Factors

 

43

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

44

 

 

 

 

Item 4.

Mine Safety Disclosures

 

44

 

 

 

 

Item 5.

Other Information

 

44

 

 

 

 

Item 6.

Exhibits

 

45

 

 

 

 

Signature Page

 

46

 

 

 


 

Part I. Financial Information

Item 1. Financial Statements

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

 

 

December 31,

 

 

September 30,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

32,682

 

 

$

39,008

 

Interest-bearing deposits with other institutions

 

 

14,498

 

 

 

46,394

 

Total cash and cash equivalents

 

 

47,180

 

 

 

85,402

 

Investment securities available for sale, at fair value (net of allowance for credit losses of $0)

 

 

288,768

 

 

 

334,056

 

Investment securities held to maturity, at amortized cost net of allowance for credit losses of $0

 

 

51,012

 

 

 

52,242

 

Loans held for sale

 

 

 

 

 

250

 

Loans receivable (net of allowance for credit losses of $15,430 and $18,525)

 

 

1,704,728

 

 

 

1,680,525

 

Regulatory stock, at cost

 

 

18,759

 

 

 

17,890

 

Premises and equipment, net

 

 

11,936

 

 

 

12,913

 

Bank-owned life insurance

 

 

39,238

 

 

 

39,026

 

Foreclosed real estate

 

 

3,195

 

 

 

3,311

 

Intangible assets, net

 

 

44

 

 

 

91

 

Goodwill

 

 

13,801

 

 

 

13,801

 

Deferred income taxes

 

 

5,857

 

 

 

6,877

 

Derivative and hedging assets

 

 

13,401

 

 

 

19,662

 

Other assets

 

 

27,519

 

 

 

27,200

 

TOTAL ASSETS

 

$

2,225,438

 

 

$

2,293,246

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

$

1,590,218

 

 

$

1,661,016

 

Short-term borrowings

 

 

361,500

 

 

 

374,652

 

Other borrowings

 

 

10,000

 

 

 

-

 

Advances by borrowers for taxes and insurance

 

 

10,077

 

 

 

6,550

 

Derivative and hedging liabilities

 

 

8,413

 

 

 

9,579

 

Other liabilities

 

 

24,506

 

 

 

21,741

 

TOTAL LIABILITIES

 

 

2,004,714

 

 

 

2,073,538

 

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;
   
10,131,521 and 10,394,689 outstanding at December 31, 2023 and September 30,
   2023, respectively)

 

 

181

 

 

 

181

 

Additional paid in capital

 

 

182,528

 

 

 

182,681

 

Unallocated common stock held by the Employee Stock Ownership Plan (ESOP)

 

 

(5,896

)

 

 

(6,009

)

Retained earnings

 

 

155,247

 

 

 

151,856

 

Treasury stock, at cost; 8,001,574 and 7,738,406 shares outstanding at
   December 31, 2023 and September 30, 2023, respectively

 

 

(104,050

)

 

 

(99,508

)

Accumulated other comprehensive loss

 

 

(7,286

)

 

 

(9,493

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

220,724

 

 

 

219,708

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

2,225,438

 

 

$

2,293,246

 

 

See accompanying notes to the unaudited consolidated financial statements.

2


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months
Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands, except per
share data)

 

INTEREST INCOME

 

 

 

 

 

 

Loans receivable, including fees

 

$

21,414

 

 

$

16,085

 

Investment securities:

 

 

 

 

 

 

Taxable

 

 

3,887

 

 

 

2,091

 

Exempt from federal income tax

 

 

11

 

 

 

11

 

Other investment income

 

 

778

 

 

 

432

 

Total interest income

 

 

26,090

 

 

 

18,619

 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

8,462

 

 

 

2,001

 

Short-term borrowings

 

 

2,656

 

 

 

958

 

Other borrowings

 

 

108

 

 

 

 

Total interest expense

 

 

11,226

 

 

 

2,959

 

NET INTEREST INCOME

 

 

14,864

 

 

 

15,660

 

(Release of) provision for credit losses

 

 

(397

)

 

 

150

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT
   LOSSES

 

 

15,261

 

 

 

15,510

 

NONINTEREST INCOME

 

 

 

 

 

 

Service fees on deposit accounts

 

 

696

 

 

 

799

 

Services charges and fees on loans

 

 

330

 

 

 

367

 

Loan swap fees

 

 

-

 

 

 

2

 

Unrealized (loss) gain on equity securities, net

 

 

(3

)

 

 

2

 

Trust and investment fees

 

 

393

 

 

 

402

 

Gain on sale of loans, net

 

 

118

 

 

 

-

 

Earnings on bank-owned life insurance

 

 

212

 

 

 

191

 

Insurance commissions

 

 

128

 

 

 

146

 

Other

 

 

87

 

 

 

6

 

Total noninterest income

 

 

1,961

 

 

 

1,915

 

NONINTEREST EXPENSE

 

 

 

 

 

 

Compensation and employee benefits

 

 

6,746

 

 

 

6,740

 

Occupancy and equipment

 

 

1,229

 

 

 

1,046

 

Professional fees

 

 

1,025

 

 

 

1,243

 

Data processing

 

 

1,342

 

 

 

1,179

 

Advertising

 

 

136

 

 

 

186

 

Federal Deposit Insurance Corporation (FDIC) premiums

 

 

380

 

 

 

188

 

Foreclosed real estate

 

 

101

 

 

 

(21

)

Amortization of intangible assets

 

 

47

 

 

 

47

 

Other

 

 

851

 

 

 

826

 

Total noninterest expense

 

 

11,857

 

 

 

11,434

 

Income before income taxes

 

 

5,365

 

 

 

5,991

 

Income taxes

 

 

1,028

 

 

 

1,125

 

NET INCOME

 

$

4,337

 

 

$

4,866

 

Earnings per share

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.50

 

Diluted

 

$

0.45

 

 

$

0.50

 

Dividends per share

 

$

0.15

 

 

$

0.15

 

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months
Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Net income

 

$

4,337

 

 

$

4,866

 

Other comprehensive income (loss)

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Unrealized holding gains

 

 

7,885

 

 

 

1,061

 

Tax effect

 

 

(1,656

)

 

 

(223

)

Net of tax amount

 

 

6,229

 

 

 

838

 

Derivative and hedging activities adjustments:

 

 

 

 

 

 

Changes in unrealized holding (losses) gains on derivatives included in net income

 

 

(2,745

)

 

 

668

 

Tax effect

 

 

579

 

 

 

(140

)

Reclassification adjustment for gains on derivatives included in net income

 

 

(2,350

)

 

 

(1,834

)

Tax effect

 

 

494

 

 

 

385

 

Net of tax amount

 

 

(4,022

)

 

 

(921

)

Total other comprehensive income (loss)

 

 

2,207

 

 

 

(83

)

Comprehensive income

 

$

6,544

 

 

$

4,783

 

 

See accompanying notes to the unaudited consolidated financial statements.

4


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Common

 

 

 

 

 

 

 

 

Other

 

 

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, 2022

 

 

10,371,022

 

 

$

181

 

 

$

182,173

 

 

$

(6,462

)

 

$

139,139

 

 

$

(99,800

)

 

$

(2,894

)

 

$

212,337

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,866

 

 

 

 

 

 

 

 

 

4,866

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

(83

)

Cash dividends declared ($0.15 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,463

)

 

 

 

 

 

 

 

 

(1,463

)

Stock based compensation

 

 

 

 

 

 

 

 

295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

295

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

117

 

 

 

113

 

 

 

 

 

 

 

 

 

 

 

 

230

 

Allocation of treasury shares to incentive plan

 

 

30,848

 

 

 

 

 

 

(403

)

 

 

 

 

 

 

 

 

399

 

 

 

 

 

 

(4

)

Balance, December 31, 2022

 

 

10,401,870

 

 

$

181

 

 

$

182,182

 

 

$

(6,349

)

 

$

142,542

 

 

$

(99,401

)

 

$

(2,977

)

 

$

216,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Common

 

 

 

 

 

 

 

 

Other

 

 

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

 

 

$

181

 

 

$

182,681

 

 

$

(6,009

)

 

$

151,856

 

 

$

(99,508

)

 

$

(9,493

)

 

$

219,708

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,337

 

 

 

 

 

 

 

 

 

4,337

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,207

 

 

 

2,207

 

Cash dividends declared ($0.15 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,476

)

 

 

 

 

 

 

 

 

(1,476

)

Cumulative effect of adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

530

 

 

 

 

 

 

 

 

 

530

 

Stock based compensation

 

 

 

 

 

 

 

 

293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

293

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

75

 

 

 

113

 

 

 

 

 

 

 

 

 

 

 

 

188

 

Allocation of treasury shares to incentive plan

 

 

40,441

 

 

 

 

 

 

(521

)

 

 

 

 

 

 

 

 

521

 

 

 

 

 

 

 

Purchase of common stock

 

 

(303,609

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,063

)

 

 

 

 

 

(5,063

)

Balance, December 31, 2023

 

 

10,131,521

 

 

$

181

 

 

$

182,528

 

 

$

(5,896

)

 

$

155,247

 

 

$

(104,050

)

 

$

(7,286

)

 

$

220,724

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

5


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Three Months
Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

4,337

 

 

$

4,866

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

(Release of) provision for credit losses

 

 

(397

)

 

 

150

 

Provision for depreciation and amortization

 

 

281

 

 

 

277

 

(Amortization) and accretion of discounts and premiums, net

 

 

(1,682

)

 

 

41

 

Unrealized loss (gain) on equity securities

 

 

3

 

 

 

(2

)

Gain on sale of loans, net

 

 

(118

)

 

 

 

Origination of residential real estate loans for sale

 

 

(4,261

)

 

 

 

Proceeds on sale of residential real estate loans

 

 

4,629

 

 

 

 

Compensation expense on ESOP

 

 

188

 

 

 

230

 

Amortization of right-of-use asset

 

 

224

 

 

 

243

 

Stock based compensation

 

 

293

 

 

 

295

 

Increase in accrued interest receivable

 

 

(520

)

 

 

(2,083

)

Increase in accrued interest payable

 

 

2,324

 

 

 

341

 

Earnings on bank-owned life insurance

 

 

(212

)

 

 

(191

)

Deferred federal income taxes

 

 

433

 

 

 

306

 

Increase in accrued pension

 

 

(89

)

 

 

(78

)

Loss (gain) on foreclosed real estate, net

 

 

101

 

 

 

(21

)

Amortization of intangible assets

 

 

47

 

 

 

47

 

Other, net

 

 

1,130

 

 

 

(1,299

)

Net cash provided by operating activities

 

 

6,711

 

 

 

3,122

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Proceeds from principal repayments and maturities

 

 

79,906

 

 

 

5,364

 

Purchases

 

 

(25,181

)

 

 

(1,000

)

Investment securities held to maturity:

 

 

 

 

 

 

Proceeds from principal repayments and maturities

 

 

1,224

 

 

 

1,260

 

Increase in loans receivable, net

 

 

(22,999

)

 

 

(68,678

)

Redemption of regulatory stock

 

 

7,345

 

 

 

3,295

 

Purchase of regulatory stock

 

 

(8,214

)

 

 

(6,006

)

Proceeds from sale of foreclosed real estate

 

 

15

 

 

 

50

 

Purchase of premises, equipment and software, net

 

 

(67

)

 

 

(399

)

Net cash provided by (used for) investing activities

 

 

32,029

 

 

 

(66,114

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Decrease in deposits, net

 

 

(70,798

)

 

 

(10,037

)

Net (decrease)increase in short-term borrowings

 

 

(13,152

)

 

 

74,772

 

Proceeds from other borrowings

 

 

10,000

 

 

 

-

 

Purchase of common stock

 

 

(5,063

)

 

 

 

Increase in advances by borrowers for taxes and insurance

 

 

3,527

 

 

 

555

 

Dividends on common stock

 

 

(1,476

)

 

 

(1,463

)

Net cash (used for) provided by financing activities

 

 

(76,962

)

 

 

63,827

 

 (Decrease) increase in cash and cash equivalents

 

 

(38,222

)

 

 

835

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

85,402

 

 

 

27,937

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

$

47,180

 

 

$

28,772

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

 

 

 

Cash Paid:

 

 

 

 

 

 

Interest

 

$

8,901

 

 

$

2,618

 

Noncash items:

 

 

 

 

 

 

Transfers from loans to foreclosed real estate

 

 

-

 

 

 

26

 

Unrealized holding gains

 

 

7,885

 

 

 

1,061

 

 

See accompanying notes to the unaudited consolidated financial statements.

6


 

ESSA BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

1.
Nature of Operations and Basis of Presentation

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 month period ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024.

2.
Earnings per Share

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 months ended December 31, 2023 and 2022.

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Weighted-average common shares outstanding

 

 

18,133,095

 

 

 

18,133,095

 

Average treasury stock shares

 

 

(7,862,516

)

 

 

(7,734,761

)

Average unearned ESOP shares

 

 

(603,596

)

 

 

(648,860

)

Average unearned non-vested shares

 

 

(31,568

)

 

 

(52,619

)

Weighted average common shares and common stock
   equivalents used to calculate basic earnings per share

 

 

9,635,415

 

 

 

9,696,855

 

Additional common stock equivalents (nonvested stock)
   used to calculate diluted earnings per share

 

 

1,766

 

 

 

8,818

 

Weighted average common shares and common stock
   equivalents used to calculate diluted earnings per share

 

 

9,637,181

 

 

 

9,705,673

 

 

At December 31, 2023 and December 31, 2022 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 anti-dilutive.

7


 

3.
Use of Estimates in the Preparation of Financial Statements

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.

4.
Accounting Pronouncements

 

Accounting Pronouncements Recently Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires the Company to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans, held to maturity investment securities, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on October 1, 2023 for the Bank. The results reported for periods beginning after October 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Company adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans, held to maturity debt securities and unfunded commitments. As a result the allowance for credit losses related to loans was decreased by $2,755,000. No reserve was required for investment securities held to maturity. The Company also recorded a reserve for unfunded commitments of $2,083,000. The corresponding increase to retained earnings as a result of these reserve changes was $672,000, before taxes and $530,000, net of tax.

The Company adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to October 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Company as of the date of adoption.

 

The impact of the change from the incurred loss model to the current expected credit loss model is detailed below (in thousands).

 

 

 

October 1, 2023

 

 

 

Pre-adoption

 

Adoption Impact

 

As Reported

 

Assets

 

 

 

 

 

 

 

ACL on debt securities held-to-maturity

 

$

-

 

$

-

 

$

-

 

ACL on debt securities available for sale

 

 

-

 

 

-

 

 

-

 

ACL on debt securities loans

 

 

 

 

 

 

 

Real estate loans:

 

 

-

 

 

-

 

 

-

 

Residential

 

 

4,897

 

 

503

 

 

5,400

 

Construction

 

 

183

 

 

254

 

 

437

 

Commercial

 

 

11,983

 

 

(3,729

)

 

8,254

 

Commercial

 

 

941

 

 

(292

)

 

649

 

Obligations of states and political subdivisions

 

 

110

 

 

129

 

 

239

 

Home equity loans and lines of credit

 

 

346

 

 

423

 

 

769

 

Auto loans

 

 

2

 

 

2

 

 

4

 

Other

 

 

22

 

 

(4

)

 

18

 

Unallocated

 

 

41

 

 

(41

)

 

-

 

Liabilites

 

 

 

 

 

 

 

ACL for unfunded commitments

 

 

52

 

 

2,083

 

 

2,135

 

 

 

$

18,577

 

$

(672

)

$

17,905

 

 

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of

8


 

financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company adopted this guidance on October 1, 2023.

 

Recent Accounting Pronouncements

 

 

In March 2023, the FASB issued ASU No. 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)". The ASU allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in Accounting Standards Codification (ASC) 323-740-25-1. While the ASU does not significantly alter the existing eligibility criteria, it does provide clarifications to address existing interpretive issues. It also prescribes specific information reporting entities must disclose about tax credit investments each period. This ASU is effective for reporting periods beginning after December 15, 2023, for public business entities, or January 1, 2024 for the Company. The Company does not expect the adoption of this ASU to have a material impact on the Company's financial statements.

 

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718), which amends or supersedes various SEC paragraphs within the Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (TOPIC 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Public entities are required to adopt the changes retrospectively, recasting each prior-period disclosure for which a comparative income statement is presented in the period of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

 

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 ASU is effective for public business entities for annual period beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have a significant impact on the Entity's consolidated financial statements.

9


 

5.
Investment Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and fair value of investment securities are summarized as follows (in thousands):

 

 

 

December 31, 2023

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Allowance for
Credit Losses

 

 

Fair Value

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

59,010

 

 

$

290

 

 

$

(3,699

)

 

$

-

 

 

$

55,601

 

Freddie Mac

 

 

54,416

 

 

 

40

 

 

 

(2,742

)

 

 

-

 

 

 

51,714

 

Governmental National Mortgage Association

 

 

14,159

 

 

 

96

 

 

 

(437

)

 

 

-

 

 

 

13,818

 

Total mortgage-backed securities

 

 

127,585

 

 

 

426

 

 

 

(6,878

)

 

 

-

 

 

 

121,133

 

Obligations of states and political subdivisions

 

 

9,575

 

 

 

-

 

 

 

(471

)

 

 

-

 

 

 

9,104

 

U.S. government treasury securities

 

 

49,828

 

 

 

17

 

 

 

-

 

 

 

-

 

 

 

49,845

 

U.S. government agency securities

 

 

29,422

 

 

 

5

 

 

 

(70

)

 

 

-

 

 

 

29,357

 

Corporate obligations

 

 

77,949

 

 

 

17

 

 

 

(6,863

)

 

 

-

 

 

 

71,103

 

Other debt securities

 

 

8,711

 

 

 

50

 

 

 

(535

)

 

 

-

 

 

 

8,226

 

Total

 

$

303,070

 

 

$

515

 

 

$

(14,817

)

 

$

-

 

 

$

288,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Allowance for
Credit Losses

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

26,962

 

 

$

-

 

 

$

(3,791

)

 

$

23,171

 

 

$

-

 

Freddie Mac

 

 

21,603

 

 

 

-

 

 

 

(3,234

)

 

 

18,369

 

 

 

-

 

Total mortgage-backed securities

 

 

48,565

 

 

 

-

 

 

 

(7,025

)

 

 

41,540

 

 

 

-

 

U.S. government agency securities

 

 

2,447

 

 

 

-

 

 

 

(395

)

 

 

2,052

 

 

 

-

 

Total

 

$

51,012

 

 

$

-

 

 

$

(7,420

)

 

$

43,592

 

 

$

-

 

 

 

 

September 30, 2023

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

55,878

 

 

$

-

 

 

$

(6,418

)

 

$

49,460

 

Freddie Mac

 

 

49,833

 

 

 

1

 

 

 

(5,552

)

 

 

44,282

 

Governmental National Mortgage Association securities

 

 

6,986

 

 

 

-

 

 

 

(397

)

 

 

6,589

 

Total mortgage-backed securities

 

 

112,697

 

 

 

1

 

 

 

(12,367

)

 

 

100,331

 

Obligations of states and political subdivisions

 

 

9,794

 

 

 

-

 

 

 

(742

)

 

 

9,052

 

U.S. government treasury securities

 

 

123,562

 

 

 

19

 

 

 

(1

)

 

 

123,580

 

U.S. government agency securities

 

 

29,089

 

 

 

-

 

 

 

(137

)

 

 

28,952

 

Corporate obligations

 

 

73,962

 

 

 

-

 

 

 

(8,241

)

 

 

65,721

 

Other debt securities

 

 

7,139

 

 

 

-

 

 

 

(719

)

 

 

6,420

 

Total

 

$

356,243

 

 

$

20

 

 

$

(22,207

)

 

$

334,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

27,652

 

 

$

-

 

 

$

(5,217

)

 

$

22,435

 

Freddie Mac

 

 

22,145

 

 

 

-

 

 

 

(4,424

)

 

 

17,721

 

Total

 

 

49,797

 

 

 

-

 

 

 

(9,641

)

 

 

40,156

 

U.S. government agency securities

 

 

2,445

 

 

 

-

 

 

 

(511

)

 

 

1,934

 

Total

 

$

52,242

 

 

$

-

 

 

$

(10,152

)

 

$

42,090

 

 

10


 

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended December 31, 2023 and 2022.

 

(in thousands)

 

For the Three Months Ended December 31, 2023

 

 

For the Three Months Ended December 31, 2022

 

Net (losses) gains recognized during the period on equity securities

 

$

(3

)

 

$

2

 

Less: Net (losses) gains recognized during the period on equity securities sold
   during the period

 

 

-

 

 

 

-

 

Unrealized (losses) gains recognized during the reporting period on equity
   securities still held at the reporting date

 

$

(3

)

 

$

2

 

 

The amortized cost and fair value of debt securities at December 31, 2023, 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

 

 

Held to Maturity

 

 

 

Amortized
Cost

 

 

Fair Value

 

 

Amortized
Cost

 

 

Fair Value

 

Due in one year or less

 

$

78,785

 

 

$

78,779

 

 

$

 

 

$

 

Due after one year through five years

 

 

39,478

 

 

 

37,874

 

 

 

 

 

 

 

Due after five years through ten years

 

 

70,017

 

 

 

63,294

 

 

 

6,809

 

 

 

5,988

 

Due after ten years

 

 

114,790

 

 

 

108,821

 

 

 

44,203

 

 

 

37,604

 

Total

 

$

303,070

 

 

$

288,768

 

 

$

51,012

 

 

$

43,592

 

 

For the three months ended December 31, 2023 and 2022, 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 December 31, 2023 and September 30, 2023 (dollars in thousands):

 

 

 

December 31, 2023

 

 

 

Number of
Securities

 

 

Less than Twelve
Months

 

 

Twelve Months or
Greater

 

 

Total

 

 

 

 

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

Fannie Mae

 

 

74

 

 

$

220

 

 

$

(10

)

 

$

68,383

 

 

$

(7,480

)

 

$

68,603

 

 

$

(7,490

)

Freddie Mac

 

 

65

 

 

 

6,629

 

 

 

(71

)

 

 

59,103

 

 

 

(5,905

)

 

 

65,732

 

 

 

(5,976

)

Governmental National Mortgage
   Association

 

 

14

 

 

 

2,134

 

 

 

(68

)

 

 

4,285

 

 

 

(369

)

 

 

6,419

 

 

 

(437

)

U.S. government agency securities

 

 

3

 

 

 

-

 

 

 

-

 

 

 

6,481

 

 

 

(465

)

 

 

6,481

 

 

 

(465

)

Obligations of states and political
   subdivisions

 

 

10

 

 

 

-

 

 

 

-

 

 

 

9,104

 

 

 

(471

)

 

 

9,104

 

 

 

(471

)

Corporate obligations

 

 

87

 

 

 

5,060

 

 

 

(117

)

 

 

62,231

 

 

 

(6,746

)

 

 

67,291

 

 

 

(6,863

)

Other debt securities

 

 

17

 

 

 

386

 

 

 

-

 

 

 

5,870

 

 

 

(535

)

 

 

6,256

 

 

 

(535

)

Total

 

 

270

 

 

$

14,429

 

 

$

(266

)

 

$

215,457

 

 

$

(21,971

)

 

$

229,886

 

 

$

(22,237

)

 

11


 

 

 

 

September 30, 2023

 

 

 

 

 

 

Less than Twelve
Months

 

 

Twelve Months or Greater

 

 

Total

 

 

 

Number of
Securities

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

Fannie Mae

 

 

77

 

 

$

5,675

 

 

$

(196

)

 

$

66,220

 

 

$

(11,439

)

 

$

71,895

 

 

$

(11,635

)

Freddie Mac

 

 

63

 

 

 

3,828

 

 

 

(159

)

 

 

57,168

 

 

 

(9,817

)

 

 

60,996

 

 

 

(9,976

)

Governmental National Mortgage
   Association securities

 

 

14

 

 

 

2,151

 

 

 

(51

)

 

 

4,438

 

 

 

(346

)

 

 

6,589

 

 

 

(397

)

Obligations of states and political
   subdivisions

 

 

11

 

 

 

-

 

 

 

-

 

 

 

9,052

 

 

 

(742

)

 

 

9,052

 

 

 

(742

)

U.S. government treasury securities

 

 

1

 

 

 

24,705

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

24,705

 

 

 

(1

)

U.S. government agency securities

 

 

4

 

 

 

24,582

 

 

 

(6

)

 

 

6,304

 

 

 

(642

)

 

 

30,886

 

 

 

(648

)

Corporate obligations

 

 

87

 

 

 

6,045

 

 

 

(273

)

 

 

59,677

 

 

 

(7,968

)

 

 

65,722

 

 

 

(8,241

)

Other debt securities

 

 

17

 

 

 

395

 

 

 

-

 

 

 

6,025

 

 

 

(719

)

 

 

6,420

 

 

 

(719

)

Total

 

 

274

 

 

$

67,381

 

 

$

(686

)

 

$

208,884

 

 

$

(31,673

)

 

$

276,265

 

 

$

(32,359

)

 

At December 31, 2023, 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 $186.3 million, including unrealized losses of $14.8 million. These holdings were comprised of (1) 241 federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses, (2) two collateralized mortgage obligation bonds, (3) one state and political subdivisions bond and (4) one investment grade corporate bond. The Corporation 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 Corporation 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 $1.2 million at December 31, 2023 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

At December 31, 2023, 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 $43.6 million, including unrealized losses of $7.4 million. These holdings were comprised of 29 federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the year ended December 31, 2023 or other-than-temporary impairment charges during 2022. Accrued interest receivable on held-to-maturity debt securities totaled $79,000 at December 31, 2023 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 December 31, 2023 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


 

 

6.
Loans Receivable, Net and Allowance for Credit Losses on Loans

Loans receivable consist of the following (in thousands):

 

 

 

December 31, 2023

 

 

September 30, 2023

 

Real estate loans:

 

 

 

 

 

 

Residential

 

$

712,035

 

 

$

713,326

 

Construction

 

 

15,859

 

 

 

16,768

 

Commercial

 

 

851,098

 

 

 

821,958

 

Commercial

 

 

40,427

 

 

 

48,143

 

Obligations of states and political subdivisions

 

 

49,487

 

 

 

48,118

 

Home equity loans and lines of credit

 

 

49,323

 

 

 

48,212

 

Auto loans

 

 

292

 

 

 

523

 

Other

 

 

1,637

 

 

 

2,002

 

 

 

 

1,720,158

 

 

 

1,699,050

 

Less allowance for credit losses

 

 

15,430

 

 

 

18,525

 

Net loans

 

$

1,704,728

 

 

$

1,680,525

 

 

The following table shows the amount of loans in each category that were individually and collectively evaluated for credit loss at the dates indicated (in thousands):

 

 

 

Total Loans

 

 

Individually
Evaluated for
Credit Loss

 

 

Collectively
Evaluated for
Credit Loss

 

December 31, 2023

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

712,035

 

 

$

1,624

 

 

$

710,411

 

Construction

 

 

15,859

 

 

 

-

 

 

 

15,859

 

Commercial

 

 

851,098

 

 

 

7,540

 

 

 

843,558

 

Commercial

 

 

40,427

 

 

 

635

 

 

 

39,792

 

Obligations of states and political subdivisions

 

 

49,487

 

 

 

-

 

 

 

49,487

 

Home equity loans and lines of credit

 

 

49,323

 

 

 

25

 

 

 

49,298

 

Auto loans

 

 

292

 

 

 

4

 

 

 

288

 

Other

 

 

1,637

 

 

 

2

 

 

 

1,635

 

Total

 

$

1,720,158

 

 

$

9,830

 

 

$

1,710,328

 

 

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated (in thousands):

 

 

 

Total Loans

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

September 30, 2023

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

713,326

 

 

$

1,393

 

 

$

711,933

 

Construction

 

 

16,768

 

 

 

-

 

 

 

16,768

 

Commercial

 

 

821,958

 

 

 

7,664

 

 

 

814,294

 

Commercial

 

 

48,143

 

 

 

648

 

 

 

47,495

 

Obligations of states and political subdivisions

 

 

48,118

 

 

 

-

 

 

 

48,118

 

Home equity loans and lines of credit

 

 

48,212

 

 

 

27

 

 

 

48,185

 

Auto loans

 

 

523

 

 

 

-

 

 

 

523

 

Other

 

 

2,002

 

 

 

3

 

 

 

1,999

 

Total

 

$

1,699,050

 

 

$

9,735

 

 

$

1,689,315

 

 

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

13


 

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 following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount at the dates indicated, if applicable under ASC 310 (in thousands):

 

 

 

Recorded
Investment

 

 

Unpaid
Principal
Balance

 

 

Associated
Allowance

 

September 30, 2023

 

 

 

 

 

 

 

 

 

With no specific allowance recorded:

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

 

 

 

 

 

 

 

 

Residential

 

$

1,294

 

 

$

2,091

 

 

$

-

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

6,240

 

 

 

7,094

 

 

 

-

 

Commercial

 

 

648

 

 

 

960

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

27

 

 

 

62

 

 

 

-

 

Auto Loans

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

3

 

 

 

17

 

 

 

-

 

Total

 

 

8,212

 

 

 

10,224

 

 

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

 

 

 

 

 

 

 

 

Residential

 

 

99

 

 

 

103

 

 

 

7

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

1,424

 

 

 

1,562

 

 

 

35

 

Commercial

 

 

-

 

 

 

-

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

-

 

 

 

-

 

 

 

-

 

Auto Loans

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

 

1,523

 

 

 

1,665

 

 

 

42

 

Total:

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

 

 

 

 

 

 

 

 

Residential

 

 

1,393

 

 

 

2,194

 

 

 

7

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

7,664

 

 

 

8,656

 

 

 

35

 

Commercial

 

 

648

 

 

 

960

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

27

 

 

 

62

 

 

 

-

 

Auto Loans

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

3

 

 

 

17

 

 

 

-

 

Total Impaired Loans

 

$

9,735

 

 

$

11,889

 

 

$

42

 

 

 

14


 

 

The following tables represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired under ASC 310 (in thousands):

 

 

 

For the Three Months Ended December 31,

 

 

 

2022

 

 

2022

 

 

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

With no specific allowance recorded:

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

Residential

 

$

1,216

 

 

$

1

 

Construction

 

 

-

 

 

 

-

 

Commercial

 

 

10,563

 

 

 

-

 

Commercial

 

 

699

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

35

 

 

 

-

 

Auto loans

 

 

6

 

 

 

-

 

Other

 

 

5

 

 

 

-

 

Total

 

 

12,524

 

 

 

1

 

With an allowance recorded:

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

Residential

 

 

103

 

 

 

-

 

Construction

 

 

-

 

 

 

-

 

Commercial

 

 

1,570

 

 

 

-

 

Commercial

 

 

231

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

-

 

 

 

-

 

Auto loans

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

Total

 

 

1,904

 

 

 

-

 

Total:

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

Residential

 

 

1,319

 

 

 

1

 

Construction

 

 

-

 

 

 

-

 

Commercial

 

 

12,133

 

 

 

-

 

Commercial

 

 

930

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

35

 

 

 

-

 

Auto loans

 

 

6

 

 

 

-

 

Other

 

 

5

 

 

 

-

 

Total Impaired Loans

 

$

14,428

 

 

$

1

 

 

 

15


 

 

 

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.

 

 

 

 

 

 

 

16


 

 

 

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogenous pools by internal risk rating systems under ASC 326 (in thousands);

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

Revolving

 

 

Term Loans Amortized on Cost Basis by Origination Year

Loans

Loans

 

 

 

 

 

 

 

 

Amortized

Converted

 

December 31, 2023

2024

2023

2022

2021

2020

Prior

Cost Basis

to Term

Total

Commercial real estate

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$24,285

$82,095

$135,993

$134,511

$77,428

$192,082

$191,203

$-

$837,597

Special Mention

-

-

-

-

2,297

65

-

-

2,362

Substandard

-

-

-

-

-

10,372

767

-

11,139

Doubtful

-

-

-

-

-

-

-

-

-

Total

$24,285

$82,095

$135,993

$134,511

$79,725

$202,519

$191,970

$-

$851,098

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$756

$13,681

$5,064

$2,386

$5,375

$10,385

$1,262

$-

$38,909

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

547

-

971

-

-

1,518

Doubtful

-

-

-

-

-

-

-

-

-

Total

$756

$13,681

$5,064

$2,933

$5,375

$11,356

$1,262

$-

$40,427

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$2,400

$4,629

$9,022

$7,808

$17,464

$-

$8,164

$-

$49,487

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

-

Doubtful

-

-

-

-

-

-

-

-

-

Total

$2,400

$4,629

$9,022

$7,808

$17,464

$-

$8,164

$-

$49,487

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$27,441

$100,405

$150,079

$144,705

$100,267

$202,467

$200,629

$-

$925,993

Special Mention

-

-

-

-

2,297

65

-

-

2,362

Substandard

-

-

-

547

-

11,343

767

-

12,657

Doubtful

-

-

-

-

-

-

-

-

-

Total

$27,441

$100,405

$150,079

$145,252

$102,564

$213,875

$201,396

$-

$941,012

 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful or Loss within the internal risk rating system at September 30, 2023 under ASC 310 (in thousands):

 

 

 

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful
or Loss

 

 

Total

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

$

807,736

 

 

$

3,200

 

 

$

11,022

 

 

$

-

 

 

$

821,958

 

Commercial

 

 

46,452

 

 

 

-

 

 

 

1,691

 

 

 

-

 

 

 

48,143

 

Obligations of states and political subdivisions

 

 

48,118

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,118

 

Total

 

$

902,306

 

 

$

3,200

 

 

$

12,713

 

 

$

-

 

 

$

918,219

 

 

 

17


 

 

 

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 table presents the carrying value of residential and consumer loans based on payment activity under ASC 326 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

 

Revolving

 

 

 

 

Term Loans Amortized on Cost Basis by Origination Year

 

Loans

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Converted

 

 

 

December 31, 2023

2024

 

2023

 

2022

 

2021

 

2020

 

Prior

 

Cost Basis

 

to Term

 

Total

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

6,365

 

$

87,830

 

$

153,598

 

$

139,331

 

$

108,026

 

$

214,242

 

$

-

 

$

-

 

$

709,392

 

Nonperforming

 

-

 

 

205

 

 

-

 

 

-

 

 

-

 

 

2,438

 

 

-

 

 

-

 

 

2,643

 

Total

$

6,365

 

$

88,035

 

$

153,598

 

$

139,331

 

$

108,026

 

$

216,680

 

$

-

 

$

-

 

$

712,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

455

 

$

13,350

 

$

2,054

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

15,859

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

455

 

$

13,350

 

$

2,054

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

15,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

2,527

 

$

11,740

 

$

7,942

 

$

2,052

 

$

1,679

 

$

3,607

 

$

19,667

 

$

58

 

$

49,272

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

25

 

 

26

 

 

-

 

 

51

 

Total

$

2,527

 

$

11,740

 

$

7,942

 

$

2,052

 

$

1,679

 

$

3,632

 

$

19,693

 

$

58

 

$

49,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

19

 

$

139

 

$

42

 

$

-

 

$

8

 

$

80

 

$

-

 

$

-

 

$

288

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4

 

 

-

 

 

-

 

 

4

 

Total

$

19

 

$

139

 

$

42

 

$

-

 

$

8

 

$

84

 

$

-

 

$

-

 

$

292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

72

 

$

340

 

$

171

 

$

118

 

$

15

 

$

466

 

$

426

 

$

-

 

$

1,608

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

29

 

 

-

 

 

-

 

 

29

 

Total

$

72

 

$

340

 

$

171

 

$

118

 

$

15

 

$

495

 

$

426

 

$

-

 

$

1,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

10

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

9,438

 

$

113,399

 

$

163,807

 

$

141,501

 

$

109,728

 

$

218,395

 

$

20,093

 

$

58

 

$

776,419

 

Nonperforming

 

-

 

 

205

 

 

-

 

 

-

 

 

-

 

 

2,496

 

 

26

 

 

-

 

 

2,727

 

Total

$

9,438

 

$

113,604

 

$

163,807

 

$

141,501

 

$

109,728

 

$

220,891

 

$

20,119

 

$

58

 

$

779,146

 

 

18


 

. The following table presents the risk ratings in the consumer categories of performing and non-performing loans at and September 30, 2023 under ASC 310(in thousands):

 

 

 

 

Performing

 

 

Non-
performing

 

 

Total

 

September 30, 2023

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

710,757

 

 

$

2,569

 

 

$

713,326

 

Construction

 

 

16,768

 

 

 

-

 

 

 

16,768

 

Home equity loans and lines of credit

 

 

48,165

 

 

 

47

 

 

 

48,212

 

Auto loans

 

 

523

 

 

 

-

 

 

 

523

 

Other

 

 

1,972

 

 

 

30

 

 

 

2,002

 

Total

 

$

778,185

 

 

$

2,646

 

 

$

780,831

 

 

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 December 31, 2023 and September 30, 2023 (in thousands):

 

 

 

 

 

 

31-60 Days

 

 

61-89 Days

 

 

90 + Days

 

 

Total

 

 

Total

 

 

 

Current

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

708,388

 

 

$

1,351

 

 

$

527

 

 

$

1,769

 

 

$

3,647

 

 

$

712,035

 

Construction

 

 

15,859

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,859

 

Commercial

 

 

839,405

 

 

 

10,015

 

 

 

813

 

 

 

865

 

 

 

11,693

 

 

 

851,098

 

Commercial

 

 

38,907

 

 

 

970

 

 

 

300

 

 

 

250

 

 

 

1,520

 

 

 

40,427

 

Obligations of states and political subdivisions

 

 

49,487

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49,487

 

Home equity loans and lines of credit

 

 

49,295

 

 

 

-

 

 

 

2

 

 

 

26

 

 

 

28

 

 

 

49,323

 

Auto loans

 

 

255

 

 

 

23

 

 

 

10

 

 

 

4

 

 

 

37

 

 

 

292

 

Other

 

 

1,610

 

 

 

-

 

 

 

-

 

 

 

27

 

 

 

27

 

 

 

1,637

 

Total

 

$

1,703,206

 

 

$

12,359

 

 

$

1,652

 

 

$

2,941

 

 

$

16,952

 

 

$

1,720,158

 

 

 

 

 

 

 

 

31-60 Days

 

 

61-89 Days

 

 

90 + Days

 

 

Total

 

 

Total

 

 

 

Current

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

710,290

 

 

$

792

 

 

$

199

 

 

$

2,045

 

 

$

3,036

 

 

$

713,326

 

Construction

 

 

16,768

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,768

 

Commercial

 

 

820,853

 

 

 

240

 

 

 

-

 

 

 

865

 

 

 

1,105

 

 

 

821,958

 

Commercial

 

 

47,893

 

 

 

-

 

 

 

-

 

 

 

250

 

 

 

250

 

 

 

48,143

 

Obligations of states and political subdivisions

 

 

48,118

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,118

 

Home equity loans and lines of credit

 

 

48,191

 

 

 

-

 

 

 

-

 

 

 

21

 

 

 

21

 

 

 

48,212

 

Auto loans

 

 

485

 

 

 

37

 

 

 

1

 

 

 

-

 

 

 

38

 

 

 

523

 

Other

 

 

1,959

 

 

 

10

 

 

 

33

 

 

 

-

 

 

 

43

 

 

 

2,002

 

Total

 

$

1,694,557

 

 

$

1,079

 

 

$

233

 

 

$

3,181

 

 

$

4,493

 

 

$

1,699,050

 

 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing interest as of December 31, 2023 (in thousands):

 

 

 

Nonaccrual with no ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past due over 90 days and still Accruing

 

 

Total nonperforming

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

2,643

 

 

$

-

 

 

$

2,643

 

 

$

-

 

 

$

2,643

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

7,639

 

 

 

-

 

 

 

7,639

 

 

 

-

 

 

 

7,639

 

Commercial

 

 

391

 

 

 

247

 

 

 

638

 

 

 

-

 

 

 

638

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

51

 

 

 

-

 

 

 

51

 

 

 

-

 

 

 

51

 

Auto loans

 

 

4

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

4

 

Other

 

 

29

 

 

 

-

 

 

 

29

 

 

 

-

 

 

 

29

 

Total

 

$

10,757

 

 

$

247

 

 

$

11,004

 

 

$

-

 

 

$

11,004

 

 

19


 

The following table presents nonaccrual loans as of September 30, 2023 under ASC 310 (in thousands):

 

Non-Accrual Loans

 

September 30, 2023

 

Real estate loans:

 

 

 

Residential

 

$

2,569

 

Construction

 

 

-

 

Commercial

 

 

7,763

 

Commercial

 

 

652

 

Obligations of states and
   political subdivisions

 

 

-

 

Home equity loans and lines of
   credit

 

 

47

 

Auto loans

 

 

-

 

Other

 

 

30

 

Total

 

$

11,061

 

 

There are no loans greater than 90 days past due that are accruing interest.

 

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 December 31, 2023 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.

20


 

The following table summarizes changes in the primary segments of the allowance for credit losses during the three months ended December 31, 2023 and 2022 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Home

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and

 

 

Loans and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

 

Commercial

 

 

Political

 

 

Lines of

 

 

Auto

 

 

Other

 

 

 

 

 

 

 

 

Residential

 

 

Construction

 

 

Commercial

 

 

Loans

 

 

Subdivisions

 

 

Credit

 

 

Loans

 

 

Loans

 

 

Unallocated

 

 

Total

 

Beginning balance at September 30, 2023

$

4,897

 

 

$

183

 

 

$

11,983

 

 

$

941

 

 

$

110

 

 

$

346

 

 

$

2

 

 

$

22

 

 

$

41

 

 

$

18,525

 

Impact of adopting ASC 326

 

503

 

 

 

254

 

 

 

(3,729

)

 

 

(292

)

 

 

129

 

 

 

423

 

 

 

2

 

 

 

(4

)

 

$

(41

)

 

 

(2,755

)

Charge-offs

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

(10

)

Recoveries

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

10

 

Provision

 

(511

)

 

 

(6

)

 

 

123

 

 

 

41

 

 

 

37

 

 

 

(26

)

 

 

(8

)

 

 

10

 

 

 

-

 

 

 

(340

)

Ending balance at December 31, 2023

$

4,889

 

 

$

431

 

 

$

8,377

 

 

$

690

 

 

$

276

 

 

$

746

 

 

$

3

 

 

$

18

 

 

$

-

 

 

$

15,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL balance at September 30, 2022

$

5,122

 

 

$

319

 

 

$

10,754

 

 

$

698

 

 

$

283

 

 

$

361

 

 

$

22

 

 

$

22

 

 

$

947

 

 

$

18,528

 

Charge-offs

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(21

)

 

 

-

 

 

 

-

 

 

 

(21

)

Recoveries

 

2

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

51

 

 

 

30

 

 

 

-

 

 

 

-

 

 

 

84

 

Provision

 

162

 

 

 

9

 

 

 

439

 

 

 

350

 

 

 

(8

)

 

 

(40

)

 

 

(17

)

 

 

-

 

 

 

(745

)

 

 

150

 

ALL balance at December 31, 2022

$

5,286

 

 

$

328

 

 

$

11,194

 

 

$

1,048

 

 

$

275

 

 

$

372

 

 

$

14

 

 

$

22

 

 

$

202

 

 

$

18,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended December 31, 2023, 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 three months ended December 31, 2022, the Company recorded provision expense for the residential real estate loans, construction real estate loans, commercial real estate 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 obligations of states and political subdivisions, 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 table summarizes the amount of loans in each segments that were individually and collectively evaluated for credit loss as of December 31, 2023 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Home

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and

 

Loans and

 

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

Commercial

 

Political

 

Lines of

 

 

 

Other

 

 

 

 

 

 

Residential

 

Construction

 

Commercial

 

Loans

 

Subdivisions

 

Credit

 

Auto Loans

 

Loans

 

Unallocated

 

Total

 

Individually
   evaluated for
   Credit Loss

$

6

 

$

-

 

$

-

 

$

16

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

22

 

Collectively
   evaluated for
   Credit Loss

 

4,883

 

 

431

 

 

8,377

 

 

674

 

 

276

 

 

746

 

 

3

 

 

18

 

 

-

 

 

15,408

 

Ending balance at December 31, 2023

$

4,889

 

$

431

 

$

8,377

 

$

690

 

$

276

 

$

746

 

$

3

 

$

18

 

$

-

 

$

15,430

 

 

 

 

 

 

 

 

21


 

 

The following table summarizes the primary segments of the ALL, segregated into two categories, the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2023 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Home

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and

 

Loans and

 

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

Commercial

 

Political

 

Lines of

 

 

 

Other

 

 

 

 

 

 

Residential

 

Construction

 

Commercial

 

Loans

 

Subdivisions

 

Credit

 

Auto Loans

 

Loans

 

Unallocated

 

Total

 

Individually
   evaluated for
   impairment

$

7

 

$

-

 

$

35

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

42

 

Collectively
   evaluated for
   impairment

 

4,890

 

 

183

 

 

11,948

 

 

941

 

 

110

 

 

346

 

 

2

 

 

22

 

 

41

 

 

18,483

 

ALL balance at September 30, 2023

$

4,897

 

$

183

 

$

11,983

 

$

941

 

$

110

 

$

346

 

$

2

 

$

22

 

$

41

 

$

18,525

 

 

Collateral-Dependent Loans

 

The following table presents the collateral-dependent loans by portfolio segment at December 31, 2023 (in thousands):

 

 

 

Real Estate

 

 

Business Assets

 

 

Other

 

December 31, 2023

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

2,643

 

 

 

 

 

 

 

Construction

 

 

-

 

 

 

 

 

 

 

Commercial

 

 

7,639

 

 

 

 

 

 

 

Commercial

 

 

-

 

 

 

638

 

 

 

 

Obligations of states and political subdivisions

 

 

-

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

51

 

 

 

 

 

 

 

Auto loans

 

 

-

 

 

 

 

 

 

4

 

Other

 

 

-

 

 

 

 

 

 

29

 

Total

 

$

10,333

 

 

$

638

 

 

$

33

 

 

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.

 

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers
experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted under ASC 326 (in thousands):

 

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

 

 

 

 

 

 

 

 

 

 

 

Combination - Term Extension and Interest Rate Reduction

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost Basis

 

 

% of Total Class of

 

 

at December 31, 2023

 

 

Financing Receivable

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

Residential

 

$

 

71

 

 

 

0.01

 

%

 

 

 

 

 

 

 

 

 

Total

 

S

 

71

 

 

 

 

 

 

22


 

 

 

 

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty under ASC 326 during the quarter ended December 31, 2023:

 

Combination - Term Extension and Interest Rate Reduction

 

 

Loan Type

Financial Effect

Real estate loans:

 

Residential

Reduced weighted-average contractual interest rate form 7.25% to 5%. Extended term

 

for 360 months. Only one loan was modified.

 

The Bank closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 3 months under ASC 326 (in thousands):

 

 

 

 

 

 

31-60 Days

 

 

61-89 Days

 

 

90 + Days

 

 

Total

 

 

 

Current

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

71

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

71

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Auto loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

71

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

71

 

 

 

During the year ended September 30, 2023, the Bank adopted ASU 2022-02 on a modified retrospective basis. ASU 2022-02 eliminates the TDR accounting model, and requires that the Bank evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan. This change required all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, and subject entities to new disclosure requirements on loan modifications to borrowers experiencing financial difficulty. Upon adoption of CECL, the TDRs were evaluated and included in the CECL loan segment pools if the loans shared similar risk characteristics to other loans in the pool or remained with individually evaluated loans for which the ACL was measured using the collateral-dependent or discounted cash flow method. The following table presents the most comparable required information for the prior period for impaired loans that were TDRs, with the recorded investment at December 31, 2022:

 

 

 

The following is a summary of troubled debt restructuring granted during the three months ended December 31, 2022 under ASC 310(dollars in thousands):

 

 

For the Three Months
Ended December 31, 2022

 

 

 

Number of
Contracts

 

 

Pre-Modification
Outstanding
Recorded
Investment

 

 

Post-Modification
Outstanding
Recorded
Investment

 

Troubled Debt Restructurings

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

 

1

 

 

$

51

 

 

$

54

 

Construction

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

Auto loans

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Total

 

 

1

 

 

$

51

 

 

$

54

 

 

23


 

 

For the three months ended December 31, 2023 and 2022, no loans defaulted on a modification agreement within one year of modification.

 

24


 

7.
Deposits

Deposits consist of the following major classifications (in thousands):

 

 

 

December 31, 2023

 

 

September 30, 2023

 

Non-interest bearing demand accounts

 

$

264,620

 

 

$

280,473

 

Interest bearing demand accounts

 

 

288,532

 

 

 

346,458

 

Money market accounts

 

 

367,505

 

 

 

366,866

 

Savings and club accounts

 

 

156,195

 

 

 

163,248

 

Certificates of deposit

 

 

513,366

 

 

 

503,971

 

Total

 

$

1,590,218

 

 

$

1,661,016

 

 

8.
Net Periodic Benefit Cost-Defined Benefit Plan

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, 2023 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 months ended December 31, 2023 and 2022 (in thousands):

 

 

 

For the Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Service Cost

 

$

-

 

 

$

-

 

Interest Cost

 

 

171

 

 

 

164

 

Expected return on plan assets

 

 

(261

)

 

 

(242

)

Partial settlement

 

 

-

 

 

 

-

 

Amortization of net loss from earlier periods

 

 

-

 

 

 

-

 

Net periodic benefit income

 

$

(90

)

 

$

(78

)

 

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.

 

25


 

9.
Equity Incentive Plan

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 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 December 31, 2023 vest over periods ranging from 3 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 December 31, 2023 and 2022, the Company recorded $293,000 and $295,000 of share-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the restricted shares outstanding at December 31, 2023 is $854,000 over the remaining vesting period of 3.75 years.

 

The following is a summary of the status of the Company’s restricted stock as of December 31, 2023, and changes therein during the nine month period then ended:

 

 

 

Number of
Restricted
Stock

 

 

Weighted-
average
Grant Date
Fair Value

 

Nonvested at September 30, 2023

 

 

32,512

 

 

$

17.03

 

Granted

 

 

40,586

 

 

 

14.85

 

Vested

 

 

(500

)

 

 

15.56

 

Forfeited

 

 

 

 

 

 

Nonvested at December 31, 2023

 

 

72,598

 

 

$

15.82

 

 

26


 

10.
Fair Value

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 December 31, 2023 and September 30, 2023 by level within the fair value hierarchy (in thousands).

 

Recurring Fair Value Measurements at Reporting Date

 

 

 

December 31, 2023

 

Assets

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

$

-

 

 

$

121,133

 

 

$

-

 

 

$

121,133

 

Obligations of states and political subdivisions

 

 

-

 

 

 

9,104

 

 

 

-

 

 

 

9,104

 

U.S. government treasury securities

 

 

-

 

 

 

49,845

 

 

 

-

 

 

 

49,845

 

U.S. government agency securities

 

 

-

 

 

 

29,357

 

 

 

-

 

 

 

29,357

 

Corporate obligations

 

 

-

 

 

 

68,128

 

 

 

2,975

 

 

 

71,103

 

Other debt securities

 

 

-

 

 

 

8,226

 

 

 

-

 

 

 

8,226

 

Total debt securities

 

$

-

 

 

$

285,793

 

 

$

2,975

 

 

$

288,768

 

Equity securities- financial services

 

 

29

 

 

 

-

 

 

 

-

 

 

 

29

 

Derivatives and hedging activities

 

 

-

 

 

 

13,401

 

 

 

-

 

 

 

13,401

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging activities

 

$

-

 

 

$

8,413

 

 

$

-

 

 

$

8,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023

 

Assets

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

$

-

 

 

$

100,331

 

 

$

-

 

 

$

100,331

 

Obligations of states and political subdivisions

 

 

-

 

 

 

9,052

 

 

 

-

 

 

 

9,052

 

U.S. government treasury securities

 

 

 

 

 

123,580

 

 

 

-

 

 

 

123,580

 

U.S. government agency securities

 

 

-

 

 

 

28,952

 

 

 

-

 

 

 

28,952

 

Corporate obligations

 

 

-

 

 

 

62,885

 

 

 

2,836

 

 

 

65,721

 

Other debt securities

 

 

-

 

 

 

6,420

 

 

 

-

 

 

 

6,420

 

Total debt securities

 

$

-

 

 

$

331,220

 

 

$

2,836

 

 

$

334,056

 

Equity securities-financial services

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

Derivatives and hedging activities

 

 

-

 

 

 

19,662

 

 

 

-

 

 

 

19,662

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging activities

 

$

-

 

 

$

9,579

 

 

$

-

 

 

$

9,579

 

 

27


 

The following table presents a summary of changes in the fair value of the Company’s Level III investments for the three months ended December 31, 2023 and 2022 (in thousands).

 

 

 

Fair Value Measurement Using
Significant Unobservable Inputs
(Level III)

 

 

 

Three Months Ended

 

 

 

December 31, 2023

 

 

December 31, 2022

 

Beginning balance

 

$

2,836

 

 

$

7,374

 

Purchases, sales, issuances, settlements, net

 

 

-

 

 

 

-

 

Total unrealized (loss) gain:

 

 

 

 

 

 

Included in earnings

 

 

-

 

 

 

-

 

Included in other comprehensive (loss) income

 

 

139

 

 

 

(175

)

Transfers in and/or out of Level III

 

 

-

 

 

 

-

 

 

 

$

2,975

 

 

$

7,199

 

 

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 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 December 31, 2023 and September 30, 2023 by level within the fair value hierarchy:

 

Non-Recurring Fair Value Measurements at Reporting Date (in thousands)

 

 

 

December 31, 2023

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Foreclosed real estate

 

$

-

 

 

$

-

 

 

$

3,195

 

 

$

3,195

 

Individually evaluated loans held for investment

 

 

-

 

 

 

-

 

 

 

9,808

 

 

 

9,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Foreclosed real estate

 

$

-

 

 

$

-

 

 

$

3,311

 

 

$

3,311

 

Impaired loans

 

 

-

 

 

 

-

 

 

 

9,693

 

 

 

9,693

 

 

28


 

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

(dollars in thousands)

 

Fair Value
Estimate

 

 

Valuation
Techniques

 

Unobservable
Input

 

Range (Average)

December 31, 2023

 

 

 

 

 

 

 

 

 

Individually evaluated loans held for investment

 

$

9,808

 

 

Appraisal of
collateral
 (1)

 

Appraisal
adjustments
 (2)

 

0% to 35%
(
20.7%)

Foreclosed real estate owned

 

 

3,195

 

 

Appraisal of
collateral
 (1)

 

Appraisal
adjustments
 (2)

 

10%
(
10.0%)

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

(dollars in thousands)

 

Fair Value
Estimate

 

 

Valuation
Techniques

 

Unobservable
Input

 

Range (Average)

September 30, 2023

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

3,311

 

 

Appraisal of
collateral
 (1)

 

Appraisal
adjustments
 (2)

 

0% to 35%
(
20.8%)

Foreclosed real estate owned

 

 

9,693

 

 

Appraisal of
collateral
 (1)

 

Appraisal
adjustments
 (2)

 

10 to 35%
(
10.2%)

 

(1)
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2)
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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 loan losses is allocated to the loan. At December 31, 2023, 36 individually analyzed loans with a carrying value of $9.8 million were reduced by an ACL totaling $22,000 resulting in a net fair value of $9.8 million based on Level 3 inputs.

At September 30, 2023, 49 impaired loans with a carrying value of $9.7 million were reduced by a specific valuation totaling $42,000 resulting in a net fair value of $9.7 million based on Level 3 inputs.

29


 

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 December 31, 2023 and September 30, 2023 by level within the fair value hierarchy:

 

 

 

December 31, 2023

 

(in thousands)

 

Carrying Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity

 

$

51,012

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Loans receivable, net

 

 

1,704,728

 

 

 

-

 

 

 

-

 

 

 

1,575,236

 

 

 

1,575,236

 

Mortgage servicing rights

 

 

914

 

 

 

-

 

 

 

-

 

 

 

1,430

 

 

 

1,430

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,590,218

 

 

$

1,076,852

 

 

$

-

 

 

$

495,286

 

 

$

1,572,138

 

Short term borrowings

 

 

361,500

 

 

 

 

 

 

 

 

 

365,684

 

 

 

365,684

 

Other borrowings

 

 

10,000

 

 

 

 

 

 

 

 

 

10,000

 

 

 

10,000

 

 

 

 

September 30, 2023

 

(in thousands)

 

Carrying Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity

 

$

52,242

 

 

$

-

 

 

$

42,090

 

 

$

-

 

 

$

42,090

 

Loans receivable, net

 

 

1,680,525

 

 

 

-

 

 

 

-

 

 

 

1,524,615

 

 

 

1,524,615

 

Mortgage servicing rights

 

 

874

 

 

 

-

 

 

 

-

 

 

 

1,470

 

 

 

1,470

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,661,016

 

 

$

1,157,045

 

 

$

-

 

 

$

499,101

 

 

$

1,656,146

 

Short-term borrowings

 

 

374,652

 

 

 

-

 

 

 

-

 

 

 

364,291

 

 

 

364,291

 

 

30


 

11.
Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three months ended December 31, 2023 and 2022 is as follows (in thousands):

 

 

 

Accumulated Other
Comprehensive Income/(Loss)

 

 

 

Defined
Benefit
Pension Plan

 

 

Unrealized Gains
(Losses) on
Securities
Available for Sale

 

 

Derivatives

 

 

Total

 

Balance at September 30, 2023

 

$

66

 

 

$

(17,525

)

 

$

7,966

 

 

$

(9,493

)

Other comprehensive (loss) income before
   reclassifications

 

 

-

 

 

 

6,229

 

 

 

(2,166

)

 

 

4,063

 

Amounts reclassified from accumulated
   other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

(1,856

)

 

 

(1,856

)

Period change

 

 

-

 

 

 

6,229

 

 

 

(4,022

)

 

 

2,207

 

Balance at December 31, 2023

 

$

66

 

 

$

(11,296

)

 

$

3,944

 

 

$

(7,286

)

Balance at September 30, 2022

 

$

(1,108

)

 

$

(13,879

)

 

$

12,093

 

 

$

(2,894

)

Other comprehensive (loss) income before
   reclassifications

 

 

-

 

 

 

838

 

 

 

528

 

 

 

1,366

 

Amounts reclassified from accumulated
   other comprehensive (loss) income

 

 

-

 

 

 

-

 

 

 

(1,449

)

 

 

(1,449

)

Period change

 

 

-

 

 

 

838

 

 

 

(921

)

 

 

(83

)

Balance at December 31, 2022

 

$

(1,108

)

 

$

(13,041

)

 

$

11,172

 

 

$

(2,977

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended December 31, 2023 and 2022 (in thousands):

 

 

 

 

Amount Reclassified from
Accumulated Other Comprehensive Income (Loss)

Details About Accumulated Other Comprehensive Income (Loss) Components

 

Accumulated Other Comprehensive Income (Loss) for the Three Months Ended December 31,

 

 

Affected Line Item in the
Consolidated Statement of Operations

 

 

2023

 

 

2022

 

 

 

Derivatives and hedging activities:

 

 

 

 

 

 

 

 

Interest expense, effective portion

 

 

2,350

 

 

 

1,834

 

 

Interest expense

Related income tax expense

 

 

(494

)

 

 

(385

)

 

Income taxes

Net effect on accumulated other comprehensive income (loss)
   for the period

 

 

1,856

 

 

 

1,449

 

 

 

Total reclassification for the period

 

$

1,856

 

 

$

1,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31


 

12.
Derivatives and Hedging Activities

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 December 31, 2023 and September 30, 2023 (in thousands).

 

Fair Values of Derivative Instruments

 

Asset Derivatives

 

 

As of December 31, 2023

 

 

As of September 30, 2023

 

Hedged Item

Notional
Amount

 

 

Fair
Value

 

 

Notional
Amount

 

 

Fair
Value

 

FHLB Advances

$

165,000

 

 

$

6,696

 

 

$

230,000

 

 

$

10,086

 

Commercial Loans

 

85,569

 

 

 

6,705

 

 

 

86,265

 

 

 

9,576

 

Total

$

250,569

 

 

$

13,401

 

 

$

316,265

 

 

$

19,662

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Values of Derivative Instruments

 

Liability Derivatives

 

 

As of December 31, 2023

 

 

As of September 30, 2023

 

Hedged Item

Notional
Amount

 

 

Fair
Value

 

 

Notional
Amount

 

 

Fair
Value

 

FHLB Advances

$

115,000

 

 

$

1,702

 

 

$

-

 

 

$

-

 

Commercial Loans

$

116,612

 

 

$

6,711

 

 

$

117,516

 

 

$

9,579

 

Total

$

231,612

 

 

$

8,413

 

 

$

117,516

 

 

$

9,579

 

 

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 December 31, 2023, the Company had twelve interest rate swaps with a notional principal amount of $280.0 million associated with the Company’s cash outflows associated with various FHLB advances and $202.2 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 months ended December 31, 2023 and 2022.

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 December 31, 2023, the Company had $2.4 million of gains, which resulted in a decrease to interest expense. During the three months ended December 31, 2022, the Company had $1.8 million of gains which resulted in a decrease to interest expense. During the next twelve months, the Company estimates that $5.8 million will be reclassified as a decrease to interest expense.

32


 

The table below presents the effect of the Company’s cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) for the three months ended December 31, 2023 and 2022 (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 in
OCI on Derivative
(Effective Portion)
 Three Months Ended December 31,

 

 

Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)

 

Gain (Loss) Reclassified
from Accumulated OCI into Income
(Effective Portion)
 Three Months Ended December 31,

 

Derivatives in Cash Flow Hedging Relationships

 

2023

 

 

2022

 

 

 

 

2023

 

 

2022

 

Interest Rate Products

 

$

(5,095

)

 

$

(1,166

)

 

Interest expense

 

$

2,350

 

 

$

1,834

 

Total

 

$

(5,095

)

 

$

(1,166

)

 

 

 

$

2,350

 

 

$

1,834

 

 

 

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 December 31, 2023 and September 30, 2023, 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 December 31, 2023 and September 30, 2023, it could have been required to settle its obligations under the agreements at the termination value.

13.
Contingent Liabilities

Legal Proceedings

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 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 is now complete, and 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 is a now-dissolved former wholly-owned subsidiary of a previously-acquired company. The Court also amended its class certification order. Plaintiffs sought permission to appeal from these and other related rulings but the court denied their request. 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 seek to pursue this action as a class action on behalf of the entire class of people similarly situated. The plaintiffs allege that a bank previously 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. The case is currently in the discovery phase. 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.

33


 

14.
Revenue Recognition

 

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.

 

34


 

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 include:

statements of our goals, intentions and expectations;
statements regarding our business plans and prospects and growth and operating strategies;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

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 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:

significantly increased competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
general economic conditions, either nationally or in our market areas, that are worse than expected;
adverse changes in the securities markets;
legislative or regulatory changes that adversely affect our business;
our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the FASB; and
changes in our organization, compensation and benefit plans.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Comparison of Financial Condition at December 31, 2023 and September 30, 2023

Total Assets. Total assets decreased by $67.8 million, or 3.0%, to $2.23 billion at December 31, 2023 from $2.3 billion at September 30, 2023 due primarily to decreases in total cash and cash equivalents and investment securities available for sale.

Total Cash and Cash Equivalents. Total cash and cash equivalents decreased $38.2 million, or 44.8%, to $47.2 million at December 31, 2023 from $85.4 million at September 30, 2023.

Net Loans. Net loans increased $24.2 million, or 1.4%, to $1.70 billion at December 31, 2023 from $1.68 billion at September 30, 2023. During this period, residential loans decreased $1.3 million to $712.0 million due primarily to the sale of $4.6 million of residential mortgage loans, construction loans decreased $909,000 to $15.9 million, commercial real estate loans increased $29.1 million to $851.1 million, commercial loans decreased $7.7 million to $40.4 million, obligations of states and political subdivisions increased $1.4 million to $49.5 million, home equity loans and lines of credit increased $1.1 million to $49.3 million, auto loans decreased $231,000 to $292,000 reflecting expected runoff of the portfolio following the Company’s previously announced discontinuation of indirect auto lending in July 2018, and other loans decreased $365,000 to $1.6 million.

Investment Securities Available for Sale. Investment securities available for sale decreased $45.3 million, or 13.6%, to $288.8 million at December 31, 2023 from $334.1 million at September 30, 2023 due primarily to maturities of U.S. treasury securities.

35


 

Investment Securities Held to Maturity. Investment securities held to maturity decreased to $51.0 million at December 31, 2023 from $52.2 million at September 30, 2023. 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 decreased to $3.2 million at December 31, 2023 from $3.3 million at September 30, 2023. The Company has one commercial real estate property which it is actively marketing.

Deposits. Deposits decreased $70.8 million, or 4.3%, to $1.59 billion at December 31, 2023 from $1.66 billion at September 30, 2023. Decreases in interest bearing demand accounts of $57.9 million, savings and club accounts of $7.1 million and non-interest bearing demand accounts of $15.9 million was offset in part by increases in certificates of deposit of $9.4 million and money market accounts of $639,000. At December 31, 2023, uninsured deposits, including fully collateralized public deposits of $181.2 million, amounted to approximately 30.9% of total deposits.

Short-Term and Other Borrowings. Short-term borrowings decreased to $361.5 million at December 31, 2023 from $374.7 million at September 30, 2023. Other borrowings of terms over one year from the FHLB increased to $10.0 million at December 31, 2023.

Stockholders’ Equity. Stockholders’ equity increased by $1.0 million, or 0.46%, to $220.7 million at December 31, 2023 from $219.7 million at September 30, 2023. The increase in stockholders’ equity was primarily due to net income of $4.3 million, other comprehensive income of $2.2 million and a $530,000 cumulative effect adjustment due to the adoption of ASU 2016-13 which was partially offset by regular cash dividends of $0.15 per share which reduced stockholders’ equity by $1.5 million and purchases of treasury stock of $5.1 million.

 

36


 

Average Balance Sheets for the Three Months Ended December 31, 2023 and 2022

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.

 

 

 

For the Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

Average Balance

 

 

Interest Income/
Expense

 

 

Yield/Cost

 

 

Average Balance

 

 

Interest Income/
Expense

 

 

Yield/Cost

 

 

 

(dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans(1)

 

$

1,706,957

 

 

$

21,414

 

 

 

4.99

%

 

$

1,484,083

 

 

$

16,085

 

 

 

4.30

%

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable(2)

 

 

198,825

 

 

 

2,584

 

 

 

5.17

%

 

 

91,437

 

 

 

926

 

 

 

4.02

%

Exempt from federal income
   tax
(2)(3)

 

 

1,830

 

 

 

11

 

 

 

3.03

%

 

 

1,831

 

 

 

11

 

 

 

3.02

%

Total investment securities

 

 

200,655

 

 

 

2,595

 

 

 

5.15

%

 

 

93,268

 

 

 

937

 

 

 

4.00

%

Mortgage-backed securities

 

 

166,359

 

 

 

1,303

 

 

 

3.12

%

 

 

169,938

 

 

 

1,165

 

 

 

2.72

%

Federal Home Loan Bank stock

 

 

17,853

 

 

 

377

 

 

 

8.40

%

 

 

16,108

 

 

 

320

 

 

 

7.88

%

Other

 

 

29,674

 

 

 

401

 

 

 

5.38

%

 

 

13,185

 

 

 

112

 

 

 

3.37

%

Total interest-earning assets

 

 

2,121,498

 

 

 

26,090

 

 

 

4.89

%

 

 

1,776,582

 

 

 

18,619

 

 

 

4.16

%

Allowance for credit losses

 

 

(18,644

)

 

 

 

 

 

 

 

 

(18,587

)

 

 

 

 

 

 

Noninterest-earning assets

 

 

133,758

 

 

 

 

 

 

 

 

 

134,151

 

 

 

 

 

 

 

Total assets

 

$

2,236,612

 

 

 

 

 

 

 

 

$

1,892,146

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

316,354

 

 

$

473

 

 

 

0.59

%

 

$

346,146

 

 

$

148

 

 

 

0.17

%

Money market accounts

 

 

363,083

 

 

 

2,023

 

 

 

2.22

%

 

 

387,640

 

 

 

1,043

 

 

 

1.07

%

Savings and club accounts

 

 

158,937

 

 

 

24

 

 

 

0.06

%

 

 

190,436

 

 

 

25

 

 

 

0.05

%

Certificates of deposit

 

 

525,141

 

 

 

5,942

 

 

 

4.50

%

 

 

165,974

 

 

 

785

 

 

 

1.88

%

Borrowed funds

 

 

357,794

 

 

 

2,764

 

 

 

3.07

%

 

 

278,476

 

 

 

958

 

 

 

1.36

%

Total interest-bearing liabilities

 

 

1,721,309

 

 

 

11,226

 

 

 

2.59

%

 

 

1,368,672

 

 

 

2,959

 

 

 

0.86

%

Non-interest-bearing NOW
   accounts

 

 

255,452

 

 

 

 

 

 

 

 

 

270,190

 

 

 

 

 

 

 

Non-interest-bearing liabilities

 

 

40,227

 

 

 

 

 

 

 

 

 

38,138

 

 

 

 

 

 

 

Total liabilities

 

 

2,016,988

 

 

 

 

 

 

 

 

 

1,677,000

 

 

 

 

 

 

 

Equity

 

 

219,624

 

 

 

 

 

 

 

 

 

215,146

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,236,612

 

 

 

 

 

 

 

 

$

1,892,146

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

14,864

 

 

 

 

 

 

 

 

$

15,660

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

2.30

%

 

 

 

 

 

 

 

 

3.30

%

Net interest-earning assets

 

$

400,189

 

 

 

 

 

 

 

 

$

407,910

 

 

 

 

 

 

 

Net interest margin(4)

 

 

 

 

 

 

 

 

2.79

%

 

 

 

 

 

 

 

 

3.50

%

Average interest-earning assets to
   average interest-bearing liabilities

 

 

 

 

 

123.25

%

 

 

 

 

 

 

 

 

129.80

%

 

 

 

_____________________

(1)
Non-accruing loans are included in the outstanding loan balances.
(2)
Available for sale securities are reported at fair value.
(3)
Yields on tax exempt securities have been calculated on a fully tax equivalent basis assuming a tax rate of 21.00% for the three ended December 31, 2023 and 2022.
(4)
Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

37


 

 

Comparison of Operating Results for the Three Months Ended December 31, 2023 and 2022

Net Income. Net income decreased $529,000, or 10.9%, to $4.3 million for the three months ended December 31, 2023 compared to net income of $4.9 million for the comparable period in 2022. The decrease was primarily due to increases in non-interest expense and a decrease in net interest income partially offset by increases in non-interest income and a decrease in the provision for credit losses and the income tax provision.

Net Interest Income. Net interest income decreased $796,000, or 5.1%, to $14.9 million for the three months ended December 31, 2023 compared to $15.7 million for the comparable period in 2022.

Interest Income. Total interest income was $26.1 million for the three months ended December 31, 2023 compared with $18.6 million for the three months ended December 31, 2022 reflecting increases in interest rates and total yield on average interest earning assets from 4.16% for the three months ended December 31, 2022 to 4.89% for the three months ended December 31, 2023. An increase of $344.9 million in average interest earning assets also contributed to the increase in interest income.

Interest Expense. Interest expense was $11.2 million for the quarter ended December 31, 2023 compared to $3.0 million for the same period in 2023. The cost of interest-bearing liabilities increased to 2.59% for the quarter ended December 31, 2023 from 0.86% for the comparable period in 2022, reflecting higher interest rates, repricing of deposits and higher-cost borrowings. The average balance of interest-bearing liabilities increased $352.6 million year-over-year.

Provision for Credit Losses. For the three months ended December 31, 2023, the provision for credit losses decreased $547,000, compared the three months ended December 31, 2022. On October 1, 2023 we implemented ASU 2016-13 Financial Instruments - Credit Losses. This resulted in a decrease to the allowance for credit losses of $2.8 million. For the three months ended December 31, 2023, we recorded a release of the allowance for credit losses of $397,000 which was made up of a release of $340,000 for loans and $57,000 for off balance sheet credit exposure. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the year ended December 31, 2023. 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 $15.4 million, or 0.90% of loans outstanding, at December 31, 2023, compared to $18.5 million, or 1.09% of loans outstanding, at September 30, 2023.

Non-interest Income. Noninterest income increased 2.4% to $2.0 million for the three months ended December 31, 2023, compared with $1.9 million for the three months ended December 31, 2022. Increases in gain on sale of loans net of $118,000 were partially offset by decreases in service charges and fees on deposit accounts of $103,000 for the quarter ended December 31, 2023 compared with the comparable period in 2022.

Non-interest Expense. Noninterest expense increased $423,000, or 3.7%, to $11.9 million for the three months ended December 31, 2022 compared with the comparable period a year earlier primarily reflecting increases in occupancy and equipment of $183,000, data processing of $163,000, Federal Deposit Insurance Corporation premiums of $192,000 and gain on foreclosed real estate of $100,000, partially offset by decreases in professional fees of $218,000 and advertising of $50,000.

Income Taxes. Income tax expense decreased $97,000 to $1.0 million for the three months ended December 31, 2023 from the comparable 2022 period. The effective tax rate for the three months ended December 31, 2023 was 19.2% compared to 18.8% for the 2022 period.

 

 

 

 

38


 

The following table provides information with respect to the Bank’s non-performing assets at the dates indicated (dollars in thousands).

 

 

 

December 31, 2023

 

 

September 30, 2023

 

Non-performing assets:

 

 

 

 

 

 

Non-accruing loans

 

$

11,004

 

 

$

11,061

 

Loans 90+ days delinquent and accruing interest

 

 

-

 

 

 

-

 

Total non-performing loans

 

 

11,004

 

 

 

11,061

 

Foreclosed real estate

 

 

3,195

 

 

 

3,311

 

Total non-performing assets

 

$

14,199

 

 

$

14,372

 

Ratio of non-performing loans to total loans

 

 

0.64

%

 

 

0.65

%

Ratio of non-performing loans to total assets

 

 

0.49

%

 

 

0.48

%

Ratio of non-performing assets to total assets

 

 

0.64

%

 

 

0.63

%

Ratio of allowance for credit losses to total loans

 

 

0.90

%

 

 

1.09

%

 

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 $173,000 from September 30, 2023 to December 31, 2023. The $11.0 million of non-accruing loans at December 31, 2023 included 19 residential loans with an aggregate outstanding balance of $2.6 million, 21 commercial and commercial real estate loans with aggregate outstanding balances of $8.3 million and 5 consumer loans with aggregate balances of $84,000. Within the residential loan balance were $509,000 of loans past due less than 90 days. In the quarter ended December 31, 2023, the Company identified four residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate decreased $116,000 to $3.2 million at December 31, 2023. Foreclosed real estate consists of one commercial property.

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 December 31, 2023, $47.2 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 December 31, 2023, we had $311.5 million of borrowings outstanding from the Pittsburgh FHLB. We have access to total FHLB advances of up to approximately $888.8 million. The Company also has a fully secured $60.0 million borrowing from the Federal Reserve Bank of Philadelphia.

39


 

At December 31, 2023, we had $266.3 million in loan commitments outstanding, which included, in part, $115.5 million in undisbursed construction loans and land development loans, $54.1 million in unused home equity lines of credit, $81.7 million in commercial lines of credit and commitments to originate commercial loans, $13.4 million in performance standby letters of credit and $1.5 million in other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of December 31, 2023 totaled $423.8 million, or 82.5% 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 December 31, 2024. 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 $6.7 million and $3.1 million for the three months ended December 31, 2023 and 2022, 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 provided by (used for) investing activities was $32.0 million and $(66.1) million for the three months ended December 31, 2023 and 2022, 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) provided by financing activities of $(77.0) million and $63.8 million for the three months ended December 31, 2023 and 2022, 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 following discussion is regarding the critical accounting estimates related to the application of CECL, which was adopted on October 1, 2023.

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 2023 or 2022.

40


 

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 2023 or 2022.

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:

Level I – Valuation is based upon quoted prices for identical instruments traded in active markets.
Level II – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level III – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

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, 2023.

41


 

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.

Changes in Internal Controls

During the three months ended December 31, 2023, the Corporation implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes in ESSA’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, ESSA’s internal control over financial reporting during the three months ended December 31, 2023.

42


 

Part II – Other Information

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 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 is now complete, and 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 is a now-dissolved former wholly-owned subsidiary of a previously-acquired company. The Court also amended its class certification order. Plaintiffs sought permission to appeal from these and other related rulings but the court denied their request. 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 seek to pursue this action as a class action on behalf of the entire class of people similarly situated. The plaintiffs allege that a bank previously 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. The case is currently in the discovery phase. 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.


Item 1A. Risk Factors

 

For information regarding the Company’s risk factors, see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for fiscal year ended September 30, 2023, as filed with the Securities and Exchange Commission on December 14, 2023.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

Company Purchases of Common Stock

 

Month Ending

 

Total number of
shares purchased

 

 

Average price paid
per share

 

 

Total number of
shares
purchased as
part of publicly
announced plans
or programs(1)

 

 

Maximum number
of shares that may
yet be purchased
under the plans or
programs

 

October 31, 2023

 

 

-

 

 

$

-

 

 

 

-

 

 

 

-

 

November 30, 2023

 

 

212,651

 

 

$

16.45

 

 

 

212,651

 

 

 

-

 

December 31, 2023

 

 

90,958

 

 

$

17.19

 

 

 

90,958

 

 

 

179,336

 

Total

 

 

303,609

 

 

$

16.67

 

 

 

303,609

 

 

 

 

 

(1) 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.

43


 

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers.

During the three months ended December 31, 2023, 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.”

44


 

Item 6. Exhibits

The following exhibits are either filed as part of this Report or are incorporated herein by reference:

 

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)

 

 

4

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

 

 

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101

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)

 

45


 

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: February 13, 2024

/s/ Gary S. Olson

Gary S. Olson

President and Chief Executive Officer

 

 

Date: February 13, 2024

/s/ Allan A. Muto

Allan A. Muto

Executive Vice President and Chief Financial Officer

 

46