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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, 2024

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to __________

Commission File No. 001-33384

 

ESSA Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

20-8023072

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

200 Palmer Street, Stroudsburg, Pennsylvania

18360

(Address of Principal Executive Offices)

(Zip Code)

(570) 421-0531

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

ESSA

Nasdaq Stock Market LLC

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

   ☐

Accelerated filer

☐

 

 

 

 

Non-accelerated filer

   ☒

Smaller reporting company

☒

 

 

 

 

Emerging growth company

☐

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 5, 2025, there were 10,154,664 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

 

33

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

Item 4

Controls and Procedures

 

40

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

43

 

 

 

 

Item 4.

Mine Safety Disclosures

 

43

 

 

 

 

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,

 

 

 

2024

 

 

2024

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

42,832

 

 

$

38,683

 

Interest-bearing deposits with other institutions

 

 

10,099

 

 

 

9,897

 

Total cash and cash equivalents

 

 

52,931

 

 

 

48,580

 

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

 

 

211,757

 

 

 

215,869

 

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

 

 

46,164

 

 

 

47,378

 

Loans receivable (net of allowance for credit losses of $15,082 and $15,306)

 

 

1,756,230

 

 

 

1,744,284

 

Regulatory stock, at cost

 

 

16,056

 

 

 

18,750

 

Premises and equipment, net

 

 

11,264

 

 

 

11,253

 

Bank-owned life insurance

 

 

39,800

 

 

 

39,571

 

Foreclosed real estate

 

 

3,195

 

 

 

3,195

 

Goodwill

 

 

13,801

 

 

 

13,801

 

Deferred income taxes

 

 

4,691

 

 

 

3,889

 

Derivative and hedging assets

 

 

10,412

 

 

 

8,203

 

Other assets

 

 

29,798

 

 

 

32,944

 

TOTAL ASSETS

 

$

2,196,099

 

 

$

2,187,717

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

$

1,699,982

 

 

$

1,629,051

 

Short-term borrowings

 

 

215,000

 

 

 

280,000

 

Other borrowings

 

 

10,000

 

 

 

10,000

 

Advances by borrowers for taxes and insurance

 

 

10,322

 

 

 

6,870

 

Derivative and hedging liabilities

 

 

7,138

 

 

 

9,183

 

Other liabilities

 

 

19,474

 

 

 

22,192

 

TOTAL LIABILITIES

 

 

1,961,916

 

 

 

1,957,296

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock ($0.01 par value; 10,000,000 shares authorized, none issued)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value; 40,000,000 shares authorized, 18,133,095 issued;
   10,154,664 and 10,123,708 outstanding at December 31, 2024 and September 30,
   2024, respectively)

 

 

181

 

 

 

181

 

Additional paid in capital

 

 

183,071

 

 

 

183,073

 

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

 

 

(5,443

)

 

 

(5,557

)

Retained earnings

 

 

165,948

 

 

 

163,473

 

Treasury stock, at cost; 7,978,431 and 8,009,387 shares outstanding at
   December 31, 2024 and September 30, 2024, respectively

 

 

(103,782

)

 

 

(104,184

)

Accumulated other comprehensive loss

 

 

(5,792

)

 

 

(6,565

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

234,183

 

 

 

230,421

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

2,196,099

 

 

$

2,187,717

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(dollars in thousands, except per
share data)

 

INTEREST INCOME

 

 

 

 

 

 

Loans receivable, including fees

 

$

22,993

 

 

$

21,414

 

Investment securities:

 

 

 

 

 

 

Taxable

 

 

2,510

 

 

 

3,887

 

Exempt from federal income tax

 

 

11

 

 

 

11

 

Other investment income

 

 

858

 

 

 

778

 

Total interest income

 

 

26,372

 

 

 

26,090

 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

10,329

 

 

 

8,462

 

Short-term borrowings

 

 

1,755

 

 

 

2,656

 

Other borrowings

 

 

144

 

 

 

108

 

Total interest expense

 

 

12,228

 

 

 

11,226

 

NET INTEREST INCOME

 

 

14,144

 

 

 

14,864

 

Release of credit losses

 

 

(607

)

 

 

(397

)

NET INTEREST INCOME AFTER RELEASE OF CREDIT
   LOSSES

 

 

14,751

 

 

 

15,261

 

NONINTEREST INCOME

 

 

 

 

 

 

Service fees on deposit accounts

 

 

715

 

 

 

696

 

Services charges and fees on loans

 

 

280

 

 

 

330

 

Loan swap fees

 

 

99

 

 

 

-

 

Unrealized gain (loss) on equity securities, net

 

 

1

 

 

 

(3

)

Trust and investment fees

 

 

475

 

 

 

393

 

Gain on sale of loans, net

 

 

60

 

 

 

118

 

Earnings on bank-owned life insurance

 

 

234

 

 

 

212

 

Insurance commissions

 

 

120

 

 

 

128

 

Other

 

 

74

 

 

 

87

 

Total noninterest income

 

 

2,058

 

 

 

1,961

 

NONINTEREST EXPENSE

 

 

 

 

 

 

Compensation and employee benefits

 

 

7,200

 

 

 

6,746

 

Occupancy and equipment

 

 

1,188

 

 

 

1,229

 

Professional fees

 

 

963

 

 

 

1,025

 

Data processing

 

 

1,468

 

 

 

1,342

 

Advertising

 

 

104

 

 

 

136

 

Federal Deposit Insurance Corporation (FDIC) premiums

 

 

357

 

 

 

380

 

Foreclosed real estate

 

 

-

 

 

 

101

 

Amortization of intangible assets

 

 

-

 

 

 

47

 

Other

 

 

654

 

 

 

851

 

Total noninterest expense

 

 

11,934

 

 

 

11,857

 

Income before income taxes

 

 

4,875

 

 

 

5,365

 

Income taxes

 

 

919

 

 

 

1,028

 

NET INCOME

 

$

3,956

 

 

$

4,337

 

Earnings per share

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

0.45

 

Diluted

 

$

0.41

 

 

$

0.45

 

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,

 

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Net income

 

$

3,956

 

 

$

4,337

 

Other comprehensive income

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Unrealized holding (losses) gains

 

 

(3,272

)

 

 

7,885

 

Tax effect

 

 

687

 

 

 

(1,656

)

Net of tax amount

 

 

(2,585

)

 

 

6,229

 

Derivative and hedging activities adjustments:

 

 

 

 

 

 

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

 

 

5,642

 

 

 

(2,745

)

Tax effect

 

 

(1,187

)

 

 

579

 

Reclassification adjustment for losses on derivatives included in net income

 

 

(1,389

)

 

 

(2,350

)

Tax effect

 

 

292

 

 

 

494

 

Net of tax amount

 

 

3,358

 

 

 

(4,022

)

Total other comprehensive income

 

 

773

 

 

 

2,207

 

Comprehensive income

 

$

4,729

 

 

$

6,544

 

 

See accompanying notes to the unaudited consolidated financial statements.

4

 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED) THREE MONTHS ENDED DECEMBER 31, 2024 AND 2023

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2024

 

 

10,123,708

 

 

$

181

 

 

$

183,073

 

 

$

(5,557

)

 

$

163,473

 

 

$

(104,184

)

 

$

(6,565

)

 

$

230,421

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,956

 

 

 

 

 

 

 

 

 

3,956

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

773

 

 

 

773

 

Cash dividends declared ($0.15 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,481

)

 

 

 

 

 

 

 

 

(1,481

)

Stock based compensation

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

294

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

109

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

 

223

 

Allocation of treasury shares to incentive plan

 

 

30,956

 

 

 

 

 

 

(405

)

 

 

 

 

 

 

 

 

402

 

 

 

 

 

 

(3

)

Balance, December 31, 2024

 

 

10,154,664

 

 

$

181

 

 

$

183,071

 

 

$

(5,443

)

 

$

165,948

 

 

$

(103,782

)

 

$

(5,792

)

 

$

234,183

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

3,956

 

 

$

4,337

 

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

 

 

 

 

 

 

Release of credit losses

 

 

(607

)

 

 

(397

)

Provision for depreciation and amortization

 

 

258

 

 

 

281

 

Amortization of discounts and premiums, net

 

 

(142

)

 

 

(1,682

)

Unrealized (gain) loss on equity securities

 

 

(1

)

 

 

3

 

Gain on sale of loans, net

 

 

(60

)

 

 

(118

)

Origination of residential real estate loans for sale

 

 

(3,639

)

 

 

(4,261

)

Proceeds on sale of residential real estate loans

 

 

3,699

 

 

 

4,629

 

Compensation expense on ESOP

 

 

223

 

 

 

188

 

Amortization of right-of-use asset

 

 

204

 

 

 

224

 

Stock based compensation

 

 

294

 

 

 

293

 

Decrease (increase) in accrued interest receivable

 

 

579

 

 

 

(520

)

(Decrease) increase in accrued interest payable

 

 

(82

)

 

 

2,324

 

Earnings on bank-owned life insurance

 

 

(229

)

 

 

(212

)

Deferred federal income taxes

 

 

(1,008

)

 

 

433

 

Decrease in accrued pension

 

 

(164

)

 

 

(89

)

Loss on foreclosed real estate, net

 

 

-

 

 

 

101

 

Amortization of intangible assets

 

 

-

 

 

 

47

 

Other, net

 

 

(145

)

 

 

1,130

 

Net cash provided by operating activities

 

 

3,136

 

 

 

6,711

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Proceeds from principal repayments and maturities

 

 

7,969

 

 

 

79,906

 

Purchases

 

 

(7,102

)

 

 

(25,181

)

Investment securities held to maturity:

 

 

 

 

 

 

Proceeds from principal repayments and maturities

 

 

1,198

 

 

 

1,224

 

Increase in loans receivable, net

 

 

(11,208

)

 

 

(22,999

)

Redemption of regulatory stock

 

 

7,303

 

 

 

7,345

 

Purchase of regulatory stock

 

 

(4,609

)

 

 

(8,214

)

Proceeds from sale of foreclosed real estate

 

 

-

 

 

 

15

 

Disposal of premises, equipment and software, net

 

 

(238

)

 

 

(67

)

Net cash (used for) provided by investing activities

 

 

(6,687

)

 

 

32,029

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 Increase (decrease) in deposits, net

 

 

70,931

 

 

 

(70,798

)

Net decrease in short-term borrowings

 

 

(65,000

)

 

 

(13,152

)

Proceeds from other borrowings

 

 

-

 

 

 

10,000

 

Purchase of common stock

 

 

-

 

 

 

(5,063

)

Increase in advances by borrowers for taxes and insurance

 

 

3,452

 

 

 

3,527

 

Dividends on common stock

 

 

(1,481

)

 

 

(1,476

)

Net cash provided by (used for) financing activities

 

 

7,902

 

 

 

(76,962

)

 Increase (decrease) in cash and cash equivalents

 

 

4,351

 

 

 

(38,222

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

48,580

 

 

 

85,402

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

$

52,931

 

 

$

47,180

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

 

 

 

Cash Paid:

 

 

 

 

 

 

Interest

 

$

12,311

 

 

$

8,901

 

Noncash items:

 

 

 

 

 

 

Unrealized holding (losses) gains

 

 

(3,272

)

 

 

7,885

 

 

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 periods ended December 31, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.

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, 2024 and 2023.

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Weighted-average common shares outstanding

 

 

18,133,095

 

 

 

18,133,095

 

Average treasury stock shares

 

 

(7,979,148

)

 

 

(7,862,516

)

Average unearned ESOP shares

 

 

(555,419

)

 

 

(603,596

)

Average unearned non-vested shares

 

 

(34,540

)

 

 

(31,568

)

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

 

 

9,563,988

 

 

 

9,635,415

 

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

 

 

27,074

 

 

 

1,766

 

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

 

 

9,591,062

 

 

 

9,637,181

 

 

At December 31, 2024, there were 28,217 shares of nonvested stock outstanding at an average weighted price of $18.82 per share that were not included in the computation of diluted earnings per share because to do so would have been antidilutive. At December 31, 2023 there were no shares of nonvested stock outstanding that were not included in the computation of diluted earnings per share because to do so would have been antidilutive.

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

 

Recent Accounting Pronouncements

 

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. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718), amended the guidance in ASC 718 to add an example showing how to apply the scope guidance to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures.This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This new guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The ASU requires entities to apply a preexisting contract approach. To qualify for induced conversion accounting under this approach, the inducement offer is required to preserve the form of consideration and result in an amount of consideration that is no less than that issuable pursuant to the preexisting conversion privileges. The guidance is effective for fiscal years beginning after December 15, 2025, with early adoption permitted, and it can be adopted either on a prospective or retrospective basis. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. This Update is not expected to have a significant impact on the Company’s financial statements.

 

8

 

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, 2024

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Allowance for
Credit Losses

 

 

Fair Value

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

53,254

 

 

$

153

 

 

$

(4,094

)

 

$

-

 

 

$

49,313

 

Freddie Mac

 

 

54,052

 

 

 

26

 

 

 

(3,577

)

 

 

-

 

 

 

50,501

 

Governmental National Mortgage Association

 

 

17,794

 

 

 

88

 

 

 

(509

)

 

 

-

 

 

 

17,373

 

Total mortgage-backed securities

 

 

125,100

 

 

 

267

 

 

 

(8,180

)

 

 

-

 

 

 

117,187

 

Obligations of states and political subdivisions

 

 

9,024

 

 

 

-

 

 

 

(339

)

 

 

-

 

 

 

8,685

 

U.S. government agency securities

 

 

7,316

 

 

 

3

 

 

 

(16

)

 

 

-

 

 

 

7,303

 

Corporate obligations

 

 

75,877

 

 

 

149

 

 

 

(4,380

)

 

 

-

 

 

 

71,646

 

Other debt securities

 

 

7,443

 

 

 

16

 

 

 

(523

)

 

 

-

 

 

 

6,936

 

Total

 

$

224,760

 

 

$

435

 

 

$

(13,438

)

 

$

-

 

 

$

211,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Allowance for
Credit Losses

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

24,074

 

 

$

-

 

 

$

(3,756

)

 

$

20,318

 

 

$

-

 

Freddie Mac

 

 

19,637

 

 

 

-

 

 

 

(3,290

)

 

 

16,347

 

 

 

-

 

Total mortgage-backed securities

 

 

43,711

 

 

 

-

 

 

 

(7,046

)

 

 

36,665

 

 

 

-

 

U.S. government agency securities

 

 

2,453

 

 

 

-

 

 

 

(395

)

 

 

2,058

 

 

 

-

 

Total

 

$

46,164

 

 

$

-

 

 

$

(7,441

)

 

$

38,723

 

 

$

-

 

 

 

 

September 30, 2024

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Allowance for
Credit Losses

 

 

Fair Value

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

55,287

 

 

$

342

 

 

$

(2,604

)

 

$

-

 

 

$

53,025

 

Freddie Mac

 

 

54,075

 

 

 

157

 

 

 

(1,770

)

 

 

-

 

 

 

52,462

 

Governmental National Mortgage Association

 

 

16,860

 

 

 

214

 

 

 

(336

)

 

 

-

 

 

 

16,738

 

Total mortgage-backed securities

 

 

126,222

 

 

 

713

 

 

 

(4,710

)

 

 

-

 

 

 

122,225

 

Obligations of states and political subdivisions

 

 

9,025

 

 

 

-

 

 

 

(234

)

 

 

-

 

 

 

8,791

 

U.S. government agency securities

 

 

6,280

 

 

 

5

 

 

 

(19

)

 

 

-

 

 

 

6,266

 

Corporate obligations

 

 

76,262

 

 

 

51

 

 

 

(5,196

)

 

 

-

 

 

 

71,117

 

Other debt securities

 

 

7,810

 

 

 

88

 

 

 

(428

)

 

 

-

 

 

 

7,470

 

Total

 

$

225,599

 

 

$

857

 

 

$

(10,587

)

 

$

-

 

 

$

215,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Allowance for
Credit Losses

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

24,774

 

 

$

-

 

 

$

(3,030

)

 

$

21,744

 

 

$

-

 

Freddie Mac

 

 

20,153

 

 

 

-

 

 

 

(2,524

)

 

 

17,629

 

 

 

-

 

Total mortgage-backed securities

 

 

44,927

 

 

 

-

 

 

 

(5,554

)

 

 

39,373

 

 

 

-

 

U.S. government agency securities

 

 

2,451

 

 

 

-

 

 

 

(305

)

 

 

2,146

 

 

 

-

 

Total

 

$

47,378

 

 

$

-

 

 

$

(5,859

)

 

$

41,519

 

 

$

-

 

 

9

 

The amortized cost and fair value of debt securities at December 31, 2024, 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

 

$

8,955

 

 

$

8,908

 

 

$

-

 

 

$

-

 

Due after one year through five years

 

 

33,956

 

 

 

32,823

 

 

 

-

 

 

 

-

 

Due after five years through ten years

 

 

69,585

 

 

 

64,891

 

 

 

5,971

 

 

 

5,255

 

Due after ten years

 

 

112,264

 

 

 

105,135

 

 

 

40,193

 

 

 

33,468

 

Total

 

$

224,760

 

 

$

211,757

 

 

$

46,164

 

 

$

38,723

 

 

For the three months ended December 31, 2024 and 2023, 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, 2024 and September 30, 2024 (dollars in thousands):

 

 

 

December 31, 2024

 

 

 

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

 

 

75

 

 

$

2,974

 

 

$

(66

)

 

$

59,130

 

 

$

(7,784

)

 

$

62,104

 

 

$

(7,850

)

Freddie Mac

 

 

70

 

 

 

12,202

 

 

 

(266

)

 

 

52,575

 

 

 

(6,601

)

 

 

64,777

 

 

 

(6,867

)

Governmental National Mortgage
   Association

 

 

18

 

 

 

6,169

 

 

 

(54

)

 

 

5,944

 

 

 

(455

)

 

 

12,113

 

 

 

(509

)

U.S. government agency securities

 

 

3

 

 

 

1,685

 

 

 

(4

)

 

 

4,546

 

 

 

(407

)

 

 

6,231

 

 

 

(411

)

Obligations of states and political
   subdivisions

 

 

10

 

 

 

992

 

 

 

(8

)

 

 

7,692

 

 

 

(331

)

 

 

8,684

 

 

 

(339

)

Corporate obligations

 

 

80

 

 

 

7,895

 

 

 

(309

)

 

 

57,388

 

 

 

(4,071

)

 

 

65,283

 

 

 

(4,380

)

Other debt securities

 

 

17

 

 

 

344

 

 

 

(1

)

 

 

4,838

 

 

 

(522

)

 

 

5,182

 

 

 

(523

)

Total

 

 

273

 

 

$

32,261

 

 

$

(708

)

 

$

192,113

 

 

$

(20,171

)

 

$

224,374

 

 

$

(20,879

)

 

 

 

September 30, 2024

 

 

 

 

 

 

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

 

 

73

 

 

$

1,968

 

 

$

(5

)

 

$

63,409

 

 

$

(5,629

)

 

$

65,377

 

 

$

(5,634

)

Freddie Mac

 

 

61

 

 

 

2,717

 

 

 

(19

)

 

 

54,159

 

 

 

(4,275

)

 

 

56,876

 

 

 

(4,294

)

Governmental National Mortgage
   Association securities

 

 

14

 

 

 

-

 

 

 

-

 

 

 

6,164

 

 

 

(336

)

 

 

6,164

 

 

 

(336

)

Obligations of states and political subdivisions

 

 

9

 

 

 

-

 

 

 

-

 

 

 

7,791

 

 

 

(234

)

 

 

7,791

 

 

 

(234

)

U.S. government agency securities

 

 

2

 

 

 

-

 

 

 

-

 

 

 

4,628

 

 

 

(324

)

 

 

4,628

 

 

 

(324

)

Corporate obligations

 

 

77

 

 

 

4,585

 

 

 

(175

)

 

 

56,881

 

 

 

(5,021

)

 

 

61,466

 

 

 

(5,196

)

Other debt securities

 

 

17

 

 

 

355

 

 

 

-

 

 

 

5,220

 

 

 

(428

)

 

 

5,575

 

 

 

(428

)

Total

 

 

253

 

 

$

9,625

 

 

$

(199

)

 

$

198,252

 

 

$

(16,247

)

 

$

207,877

 

 

$

(16,446

)

 

10

 

 

At December 31, 2024, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $185.6 million, including unrealized losses of $13.4 million. The Company does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Company concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.2 million at December 31, 2024 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, 2024, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $38.7 million, including unrealized losses of $7.4 million. The Company did not recognize any credit losses on held-to-maturity debt securities for the three months ended December 31, 2024 and 2023. Accrued interest receivable on held-to-maturity debt securities totaled $61,000 at December 31, 2024 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

 

At September 30, 2024, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $166.4 million, including unrealized losses of $10.6 million. The Company does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Company concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.5 million at September 30,2024 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.At September 30, 2024, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $41.5 million, including unrealized losses of $5.9 million. The Company did not recognize any credit losses on held-to-maturity debt securities for the year ended September 30, 2024 or other-than-temporary impairment charges during 2023. Accrued interest receivable on held-to-maturity debt securities totaled $63,000 at September30, 2024 and is included within other assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

 

Securities classified as held-to-maturity are included under the CECL methodology. Calculation of expected credit loss under CECL is done on a collective (“pooled”) basis, with assets grouped when similar risk characteristics exist. The Company notes that at December 31, 2024 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.

 

 

 

11

 

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

Loans receivable consist of the following (in thousands):

 

 

 

December 31, 2024

 

 

September 30, 2024

 

Real estate loans:

 

 

 

 

 

 

Residential

 

$

730,995

 

 

$

721,505

 

Construction

 

 

16,245

 

 

 

14,851

 

Commercial

 

 

875,614

 

 

 

884,621

 

Commercial

 

 

45,504

 

 

 

36,799

 

Obligations of states and political subdivisions

 

 

48,491

 

 

 

48,570

 

Home equity loans and lines of credit

 

 

52,336

 

 

 

51,306

 

Auto loans

 

 

61

 

 

 

65

 

Other

 

 

2,066

 

 

 

1,873

 

 

 

 

1,771,312

 

 

 

1,759,590

 

Less allowance for credit losses

 

 

15,082

 

 

 

15,306

 

Net loans

 

$

1,756,230

 

 

$

1,744,284

 

 

As of December 31, 2024 and September 30, 2024, the Company considered its concentration of credit risk to be acceptable. As of December 31, 2024, the highest concentrations are in lessors of residential buildings and dwellings and the lessors of nonresidential buildings and dwellings categories, with loans outstanding of $333.0 million, or 18.8% of loans outstanding, to residential lessors, and $297.9 million, or 16.8% of loans outstanding, to commercial lessors. As of September 30, 2024, the highest concentrations are in lessors of residential buildings and dwellings and the lessors of nonresidential buildings and dwellings categories, with loans outstanding of $346.9 million, or 19.7% of loans outstanding, to residential lessors, and $296.1 million, or 16.8% of loans outstanding, to commercial lessors. There were no charge-offs on loans within these concentrations in the 3 months ended December 31, 2024.

 

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

 

 

 

Total Loans

 

 

Individually
Evaluated for
Credit Loss

 

 

Collectively
Evaluated for
Credit Loss

 

December 31, 2024

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

730,995

 

 

$

1,878

 

 

$

729,117

 

Construction

 

 

16,245

 

 

 

-

 

 

 

16,245

 

Commercial

 

 

875,614

 

 

 

5,838

 

 

 

869,776

 

Commercial

 

 

45,504

 

 

 

874

 

 

 

44,630

 

Obligations of states and political subdivisions

 

 

48,491

 

 

 

-

 

 

 

48,491

 

Home equity loans and lines of credit

 

 

52,336

 

 

 

32

 

 

 

52,304

 

Auto loans

 

 

61

 

 

 

-

 

 

 

61

 

Other

 

 

2,066

 

 

 

-

 

 

 

2,066

 

Total

 

$

1,771,312

 

 

$

8,622

 

 

$

1,762,690

 

 

 

 

12

 

 

 

Total Loans

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

September 30, 2024

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

721,505

 

 

$

1,122

 

 

$

720,383

 

Construction

 

 

14,851

 

 

 

-

 

 

 

14,851

 

Commercial

 

 

884,621

 

 

 

5,552

 

 

 

879,069

 

Commercial

 

 

36,799

 

 

 

906

 

 

 

35,893

 

Obligations of states and political subdivisions

 

 

48,570

 

 

 

-

 

 

 

48,570

 

Home equity loans and lines of credit

 

 

51,306

 

 

 

35

 

 

 

51,271

 

Auto loans

 

 

65

 

 

 

-

 

 

 

65

 

Other

 

 

1,873

 

 

 

-

 

 

 

1,873

 

Total

 

$

1,759,590

 

 

$

7,615

 

 

$

1,751,975

 

 

The Company maintains a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential credit deterioration in loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific credit loss allowances are established for identified losses based on a review of such information. A loan is analyzed for credit loss when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Credit loss is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

 

 

 

13

 

 

 

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.

 

 

 

 

 

 

 

14

 

 

 

Based on the most recent analysis performed, the following tables present the recorded investment in non-homogenous pools by internal risk rating systems (in thousands);

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

Revolving

 

 

Term Loans Amortized on Cost Basis by Origination Year

Loans

Loans

 

 

 

 

 

 

 

 

Amortized

Converted

 

December 31, 2024

2025

2024

2023

2022

2021

Prior

Cost Basis

to Term

Total

Commercial real estate

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$9,607

$94,823

$142,929

$221,409

$129,106

$236,738

$11,622

$-

$846,234

Special Mention

-

431

11,054

346

-

9,061

-

-

20,892

Substandard

-

-

-

-

132

8,356

-

-

8,488

Doubtful

-

-

-

-

-

-

-

-

-

Total

$9,607

$95,254

$153,983

$221,755

$129,238

$254,155

$11,622

$-

$875,614

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$3,165

$2,106

$6,977

$3,835

$362

$8,648

$17,890

$-

$42,983

Special Mention

-

-

-

-

962

-

-

-

962

Substandard

-

-

460

-

422

677

-

-

1,559

Doubtful

-

-

-

-

-

-

-

-

-

Total

$3,165

$2,106

$7,437

$3,835

$1,746

$9,325

$17,890

$-

$45,504

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

Pass

$-

$2,378

$3,248

$4,456

$11,539

$26,870

$-

$-

$48,491

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

-

Doubtful

-

-

-

-

-

-

-

-

-

Total

$-

$2,378

$3,248

$4,456

$11,539

$26,870

$-

$-

$48,491

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$-

$-

$-

$-

$-

$-

$-

$-

$-

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$12,772

$99,307

$153,154

$229,700

$141,007

$272,256

$29,512

$-

$937,708

Special Mention

-

431

11,054

346

962

9,061

-

-

21,854

Substandard

-

-

460

-

554

9,033

-

-

10,047

Doubtful

-

-

-

-

-

-

-

-

-

Total

$12,772

$99,738

$164,668

$230,046

$142,523

$290,350

$29,512

$-

$969,609

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

 

Revolving

 

 

 

 

Term Loans Amortized on Cost Basis by Origination Year

 

Loans

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Converted

 

 

 

September 30, 2024

2024

 

2023

 

2022

 

2021

 

2020

 

Prior

 

Cost Basis

 

to Term

 

Total

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

86,925

 

$

144,838

 

$

221,196

 

$

143,090

 

$

65,522

 

$

175,306

 

$

16,084

 

$

-

 

$

852,961

 

Special Mention

 

437

 

 

10,675

 

 

357

 

 

-

 

 

11,247

 

 

62

 

 

-

 

 

-

 

 

22,778

 

Substandard

 

-

 

 

-

 

 

-

 

 

132

 

 

-

 

 

8,750

 

 

-

 

 

-

 

 

8,882

 

Doubtful

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

87,362

 

$

155,513

 

$

221,553

 

$

143,222

 

$

76,769

 

$

184,118

 

$

16,084

 

$

-

 

$

884,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

15

 

$

-

 

$

-

 

$

-

 

$

-

 

$

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

2,274

 

$

6,147

 

$

3,926

 

$

1,649

 

$

1,240

 

$

7,570

 

$

11,488

 

$

-

 

$

34,294

 

Special Mention

 

-

 

 

-

 

 

-

 

 

-

 

 

36

 

 

-

 

 

865

 

 

-

 

 

901

 

Substandard

 

-

 

 

470

 

 

-

 

 

226

 

 

290

 

 

406

 

 

212

 

 

-

 

 

1,604

 

Doubtful

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

2,274

 

$

6,617

 

$

3,926

 

$

1,875

 

$

1,566

 

$

7,976

 

$

12,565

 

$

-

 

$

36,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

22

 

$

-

 

$

-

 

$

-

 

$

-

 

$

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

2,289

 

$

1,492

 

$

4,629

 

$

11,604

 

$

7,808

 

$

20,748

 

$

-

 

$

-

 

$

48,570

 

Special Mention

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Substandard

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Doubtful

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

2,289

 

$

1,492

 

$

4,629

 

$

11,604

 

$

7,808

 

$

20,748

 

$

-

 

$

-

 

$

48,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

91,488

 

$

152,477

 

$

229,751

 

$

156,343

 

$

74,570

 

$

203,624

 

$

27,572

 

$

-

 

$

935,825

 

Special Mention

 

437

 

 

10,675

 

 

357

 

 

-

 

 

11,283

 

 

62

 

 

865

 

 

-

 

 

23,679

 

Substandard

 

-

 

 

470

 

 

-

 

 

358

 

 

290

 

 

9,156

 

 

212

 

 

-

 

 

10,486

 

Doubtful

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

91,925

 

$

163,622

 

$

230,108

 

$

156,701

 

$

86,143

 

$

212,842

 

$

28,649

 

$

-

 

$

969,990

 

 

16

 

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due over 90 days and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly. The following tables present the carrying value of residential and consumer loans based on payment activity (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

 

Revolving

 

 

 

 

Term Loans Amortized on Cost Basis by Origination Year

 

Loans

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Converted

 

 

 

December 31, 2024

2025

 

2024

 

2023

 

2022

 

2021

 

Prior

 

Cost Basis

 

to Term

 

Total

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

19,973

 

$

51,906

 

$

100,732

 

$

148,570

 

$

131,082

 

$

276,908

 

$

-

 

$

-

 

$

729,171

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

206

 

 

-

 

 

1,618

 

 

-

 

 

-

 

 

1,824

 

Total

$

19,973

 

$

51,906

 

$

100,732

 

$

148,776

 

$

131,082

 

$

278,526

 

$

-

 

$

-

 

$

730,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

1,175

 

$

11,739

 

$

3,331

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

16,245

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

1,175

 

$

11,739

 

$

3,331

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

16,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

1,619

 

$

4,212

 

$

9,537

 

$

6,814

 

$

1,716

 

$

3,977

 

$

21,805

 

$

2,624

 

$

52,304

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

32

 

 

-

 

 

-

 

 

32

 

Total

$

1,619

 

$

4,212

 

$

9,537

 

$

6,814

 

$

1,716

 

$

4,009

 

$

21,805

 

$

2,624

 

$

52,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

-

 

$

-

 

 

 

$

-

 

$

-

 

$

61

 

$

-

 

$

-

 

$

61

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

61

 

$

-

 

$

-

 

$

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

100

 

$

134

 

$

205

 

$

62

 

$

2

 

$

145

 

$

1,396

 

$

-

 

$

2,044

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22

 

 

-

 

 

-

 

 

22

 

Total

$

100

 

$

134

 

$

205

 

$

62

 

$

2

 

$

167

 

$

1,396

 

$

-

 

$

2,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

22,867

 

$

67,991

 

$

113,805

 

$

155,446

 

$

132,800

 

$

281,091

 

$

23,201

 

$

2,624

 

$

799,825

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

206

 

 

-

 

 

1,672

 

 

-

 

 

-

 

 

1,878

 

Total

$

22,867

 

$

67,991

 

$

113,805

 

$

155,652

 

$

132,800

 

$

282,763

 

$

23,201

 

$

2,624

 

$

801,703

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

 

Revolving

 

 

 

 

Term Loans Amortized on Cost Basis by Origination Year

 

Loans

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Converted

 

 

 

September 30, 2024

2024

 

2023

 

2022

 

2021

 

2020

 

Prior

 

Cost Basis

 

to Term

 

Total

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

45,845

 

$

101,439

 

$

151,329

 

$

133,147

 

$

101,061

 

$

186,729

 

$

-

 

$

-

 

$

719,550

 

Nonperforming

 

-

 

 

-

 

 

283

 

 

-

 

 

96

 

 

1,576

 

 

-

 

 

-

 

 

1,955

 

Total

$

45,845

 

$

101,439

 

$

151,612

 

$

133,147

 

$

101,157

 

$

188,305

 

$

-

 

$

-

 

$

721,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

11,252

 

$

3,599

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

14,851

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

11,252

 

$

3,599

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

14,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

4,372

 

$

10,198

 

$

7,076

 

$

1,816

 

$

1,343

 

$

2,888

 

$

21,454

 

$

2,124

 

$

51,271

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

35

 

 

-

 

 

-

 

 

35

 

Total

$

4,372

 

$

10,198

 

$

7,076

 

$

1,816

 

$

1,343

 

$

2,923

 

$

21,454

 

$

2,124

 

$

51,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

32

 

$

-

 

$

-

 

$

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

-

 

$

-

 

 

 

$

-

 

$

-

 

$

64

 

$

-

 

$

-

 

$

64

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1

 

 

-

 

 

-

 

 

1

 

Total

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

65

 

$

-

 

$

-

 

$

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

5

 

$

-

 

$

-

 

$

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

369

 

$

239

 

$

88

 

$

4

 

$

10

 

$

112

 

$

1,028

 

$

-

 

$

1,850

 

Nonperforming

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

23

 

 

-

 

 

-

 

 

23

 

Total

$

369

 

$

239

 

$

88

 

$

4

 

$

10

 

$

135

 

$

1,028

 

$

-

 

$

1,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

$

-

 

$

-

 

$

10

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

61,838

 

$

115,475

 

$

158,493

 

$

134,967

 

$

102,414

 

$

189,793

 

$

22,482

 

$

2,124

 

$

787,586

 

Nonperforming

 

-

 

 

-

 

 

283

 

 

-

 

 

96

 

 

1,635

 

 

-

 

 

-

 

 

2,014

 

Total

$

61,838

 

$

115,475

 

$

158,776

 

$

134,967

 

$

102,510

 

$

191,428

 

$

22,482

 

$

2,124

 

$

789,600

 

 

18

 

 

 

 

 

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, 2024 and September 30, 2024 (in thousands):

 

 

 

 

 

 

31-60 Days

 

 

61-89 Days

 

 

90 + Days

 

 

Total

 

 

Total

 

 

 

Current

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

727,508

 

 

$

2,261

 

 

$

995

 

 

$

231

 

 

$

3,487

 

 

$

730,995

 

Construction

 

 

16,245

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,245

 

Commercial

 

 

862,525

 

 

 

12,956

 

 

 

-

 

 

 

133

 

 

 

13,089

 

 

 

875,614

 

Commercial

 

 

45,306

 

 

 

-

 

 

 

-

 

 

 

198

 

 

 

198

 

 

 

45,504

 

Obligations of states and political subdivisions

 

 

48,491

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,491

 

Home equity loans and lines of credit

 

 

52,268

 

 

 

68

 

 

 

-

 

 

 

-

 

 

 

68

 

 

 

52,336

 

Auto loans

 

 

61

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61

 

Other

 

 

2,044

 

 

 

-

 

 

 

-

 

 

 

22

 

 

 

22

 

 

 

2,066

 

Total

 

$

1,754,448

 

 

$

15,285

 

 

$

995

 

 

$

584

 

 

$

16,864

 

 

$

1,771,312

 

 

 

 

 

 

 

 

31-60 Days

 

 

61-89 Days

 

 

90 + Days

 

 

Total

 

 

Total

 

 

 

Current

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

717,766

 

 

$

1,862

 

 

$

760

 

 

$

1,117

 

 

$

3,739

 

 

$

721,505

 

Construction

 

 

14,851

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,851

 

Commercial

 

 

880,939

 

 

 

554

 

 

 

2,673

 

 

 

455

 

 

 

3,682

 

 

 

884,621

 

Commercial

 

 

36,589

 

 

 

-

 

 

 

-

 

 

 

210

 

 

 

210

 

 

 

36,799

 

Obligations of states and political subdivisions

 

 

48,570

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,570

 

Home equity loans and lines of credit

 

 

51,264

 

 

 

20

 

 

 

22

 

 

 

-

 

 

 

42

 

 

 

51,306

 

Auto loans

 

 

63

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

2

 

 

 

65

 

Other

 

 

1,850

 

 

 

-

 

 

 

-

 

 

 

23

 

 

 

23

 

 

 

1,873

 

Total

 

$

1,751,892

 

 

$

2,437

 

 

$

3,455

 

 

$

1,806

 

 

$

7,698

 

 

$

1,759,590

 

 

The following tables presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of December 31, 2024 (in thousands):

 

19

 

 

 

Nonaccrual with No ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past Due Over 90 Days and Still Accruing

 

 

Total Nonperforming

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,824

 

 

$

-

 

 

$

1,824

 

 

$

-

 

 

$

1,824

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

5,841

 

 

 

-

 

 

 

5,841

 

 

 

-

 

 

 

5,841

 

Commercial

 

 

875

 

 

 

-

 

 

 

875

 

 

 

-

 

 

 

875

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

32

 

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Auto loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

22

 

 

 

-

 

 

 

22

 

 

 

-

 

 

 

22

 

Total

 

$

8,594

 

 

$

-

 

 

$

8,594

 

 

$

-

 

 

$

8,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual with No ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past Due Over 90 Days and Still Accruing

 

 

Total Nonperforming

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,955

 

 

$

-

 

 

$

1,955

 

 

$

-

 

 

$

1,955

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

5,876

 

 

 

-

 

 

 

5,876

 

 

 

-

 

 

 

5,876

 

Commercial

 

 

1,136

 

 

 

-

 

 

 

1,136

 

 

 

-

 

 

 

1,136

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

35

 

 

 

-

 

 

 

35

 

 

 

-

 

 

 

35

 

Auto loans

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Other

 

 

23

 

 

 

-

 

 

 

23

 

 

 

-

 

 

 

23

 

Total

 

$

9,026

 

 

$

-

 

 

$

9,026

 

 

$

-

 

 

$

9,026

 

 

 

 

There are no loans 90 days or more past due that are accruing interest at December 31, 2024.

 

We maintain the ACL at a level that we believe to be appropriate to absorb estimated credit losses in the loan portfolios as of the balance sheet date. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Financial Instruments - Credit Losses ("ASC 326").


The allowance for credit losses represents management’s estimate of expected losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for credit losses are maintained through charges to the provision for credit losses in the Consolidated Statements of Operations as expected losses are estimated. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.


We maintain a credit review system, which allows for a periodic review of our loan portfolio and the early identification of potential non performing loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General credit loss allowances are based upon a combination of factors including, but not limited to, actual credit loss experience, composition of the loan portfolio, current economic conditions, management’s judgment and losses which are probable and reasonably estimable. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize probable and reasonably estimable loan losses, future credit provisions may be necessary, based on changing economic conditions. Payments received on non performing loans generally are either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. The allowance for credit losses as of December 31, 2024 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, 2024 and 2023 (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

 

ACL balance at September 30, 2024

$

5,379

 

 

$

268

 

 

$

7,815

 

 

$

760

 

 

$

281

 

 

$

773

 

 

$

2

 

 

$

28

 

 

$

-

 

 

$

15,306

 

Charge-offs

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

13

 

 

 

-

 

 

 

17

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

37

 

Provision

 

51

 

 

 

21

 

 

 

(331

)

 

 

(24

)

 

 

5

 

 

 

20

 

 

 

(6

)

 

 

3

 

 

 

-

 

 

 

(261

)

ACL balance at December 31, 2024

$

5,443

 

 

$

289

 

 

$

7,501

 

 

$

736

 

 

$

286

 

 

$

794

 

 

$

2

 

 

$

31

 

 

$

-

 

 

$

15,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL balance at September 30, 2023

$

4,897

 

 

$

183

 

 

$

11,983

 

 

$

941

 

 

$

110

 

 

$

346

 

 

$

2

 

 

$

22

 

 

$

41

 

 

 

18,525

 

Impact or 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

)

ALL balance at December 31, 2023

$

4,889

 

 

$

431

 

 

$

8,377

 

 

$

690

 

 

$

276

 

 

$

746

 

 

$

3

 

 

$

18

 

 

$

-

 

 

$

15,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended December 31, 2024, the Company recorded release of allowance for credit losses for commercial real estate loans commercial loans and auto loan segments due to decreased loan balances, improved asset quality, changes in the loan mix within the pool, and/or decreased charge-off activity in those segments. The Company recorded credit provision expense for the construction real estate loans, residential real estate loans, obligations of states and political subdivisions, home equity loans and lines of credit due 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, 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.

 

 

The following tables summarizes the amount of loans in each segments that were individually and collectively evaluated for credit loss as of December 31, 2024 and September 30, 2024 (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

 

Total

 

Individually
   evaluated for
   Credit Loss

$

1

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

1

 

Collectively
   evaluated for
   Credit Loss

 

5,442

 

 

289

 

 

7,501

 

 

736

 

 

286

 

 

794

 

 

2

 

 

31

 

 

15,081

 

Ending balance at December 31, 2024

$

5,443

 

$

289

 

$

7,501

 

$

736

 

$

286

 

$

794

 

$

2

 

$

31

 

$

15,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Total

 

Individually
   evaluated for
   Credit Loss

$

2

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

2

 

Collectively
   evaluated for
   Credit Loss

 

5,377

 

 

268

 

 

7,815

 

 

760

 

 

281

 

 

773

 

 

2

 

 

28

 

 

15,304

 

Ending balance at September 30, 2024

$

5,379

 

$

268

 

$

7,815

 

$

760

 

$

281

 

$

773

 

$

2

 

$

28

 

$

15,306

 

 

21

 

 

Collateral-Dependent Loans

 

The following tables present the collateral-dependent loans by portfolio segment at December 31, 2024 and September 30, 2024 (in thousands):

 

 

Real Estate

 

 

Business Assets

 

 

Other

 

December 31, 2024

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

1,878

 

 

$

-

 

 

$

-

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

5,838

 

 

 

-

 

 

 

-

 

Commercial

 

 

-

 

 

 

874

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

32

 

 

 

-

 

 

 

-

 

Auto loans

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

7,748

 

 

$

874

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

Business Assets

 

 

Other

 

September 30, 2024

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential

 

$

1,122

 

 

$

-

 

 

$

-

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

5,552

 

 

 

-

 

 

 

-

 

Commercial

 

 

-

 

 

 

906

 

 

 

-

 

Obligations of states and political subdivisions

 

 

-

 

 

 

-

 

 

 

-

 

Home equity loans and lines of credit

 

 

35

 

 

 

-

 

 

 

-

 

Auto loans

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

6,709

 

 

$

906

 

 

$

-

 

 

Occasionally, the Company modifies loans to borrowers in financial distress by providing term extensions and interest rate reductions. In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession,
such as and interest rate reduction, may be granted. During the three months ended December 31, 2024 no modifications were made to borrowers experiencing financial difficulty.

 

 

7.
Deposits

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

 

 

 

December 31, 2024

 

 

September 30, 2024

 

Non-interest bearing demand accounts

 

$

255,460

 

 

$

256,638

 

Interest bearing demand accounts

 

 

277,865

 

 

 

312,683

 

Money market accounts

 

 

375,098

 

 

 

334,638

 

Savings and club accounts

 

 

142,005

 

 

 

143,031

 

Certificates of deposit

 

 

649,554

 

 

 

582,061

 

Total

 

$

1,699,982

 

 

$

1,629,051

 

 

22

 

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, 2024 included in the Company’s Annual Report on Form 10-K.

The following table comprises the components of net periodic benefit cost (income) for the three months ended December 31, 2024 and 2023 (in thousands):

 

 

 

For the Three Months Ended December 31,

 

 

 

2024

 

 

2023

 

Service Cost

 

$

-

 

 

$

-

 

Interest Cost

 

 

149

 

 

 

171

 

Expected return on plan assets

 

 

(305

)

 

 

(261

)

Partial settlement

 

 

-

 

 

 

-

 

Amortization of net loss from earlier periods

 

 

(8

)

 

 

-

 

Net periodic benefit income

 

$

(164

)

 

$

(90

)

 

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.

 

23

 

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 replaced the 2016 Equity Incentive Plan with the ESSA Bancorp, Inc. 2024 Equity Incentive Plan (the “2024 Plan”) which was approved by shareholders on March 7, 2024. The 2024 Plan provides for a total of 200,000 shares of common stock for issuance upon the grant or exercise of awards. The 2024 Plan allows for the granting of restricted stock, restricted stock units, ISO’s and NSO’s.

 

The Company classifies share-based compensation for employees and outside directors within “Compensation and employee benefits” in the Consolidated Statement of Operations to correspond with the same line item as compensation paid.

 

Restricted stock shares outstanding at December 31, 2024 vest over periods ranging from three 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, 2024 and 2023, the Company recorded $294,000 and $293,000 of share-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the restricted shares outstanding at December 31, 2024 is $827,000 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, 2024, and changes therein during the three month period then ended:

 

 

 

Number of
Restricted Stock

 

 

Weighted-
average
Grant Date
Fair Value

 

Nonvested at September 30, 2024

 

 

34,830

 

 

$

16.53

 

Granted

 

 

31,106

 

 

 

18.97

 

Vested

 

 

(500

)

 

 

18.76

 

Forfeited

 

 

—

 

 

 

—

 

Nonvested at December 31, 2024

 

 

65,436

 

 

$

17.56

 

 

24

 

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, 2024 and September 30, 2024 by level within the fair value hierarchy (in thousands).

 

Recurring Fair Value Measurements at Reporting Date

 

 

 

December 31, 2024

 

Assets

 

Level I

 

 

Level II

 

 

Level III

 

 

 

Total

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

$

-

 

 

$

117,187

 

 

$

-

 

 

 

$

117,187

 

Obligations of states and political subdivisions

 

 

-

 

 

 

8,685

 

 

 

-

 

 

 

 

8,685

 

U.S. government agency securities

 

 

-

 

 

 

7,303

 

 

 

-

 

 

 

 

7,303

 

Corporate obligations

 

 

-

 

 

 

66,746

 

 

 

4,900

 

 

 

 

71,646

 

Other debt securities

 

 

-

 

 

 

6,936

 

 

 

-

 

 

 

 

6,936

 

Total debt securities

 

$

-

 

 

$

206,857

 

 

$

4,900

 

 

 

$

211,757

 

Equity securities- financial services

 

 

27

 

 

 

-

 

 

 

-

 

 

 

 

27

 

Derivatives and hedging activities

 

 

-

 

 

 

10,412

 

 

 

-

 

 

 

 

10,412

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging activities

 

$

-

 

 

$

7,138

 

 

$

-

 

 

 

$

7,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024

 

Assets

 

Level I

 

 

Level II

 

 

Level III

 

 

 

Total

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

$

-

 

 

$

122,225

 

 

$

-

 

 

 

$

122,225

 

Obligations of states and political subdivisions

 

 

-

 

 

 

8,791

 

 

 

-

 

 

 

 

8,791

 

U.S. government agency securities

 

 

-

 

 

 

6,266

 

 

 

 

 

 

 

6,266

 

Corporate obligations

 

 

-

 

 

 

66,561

 

 

 

4,556

 

 

 

 

71,117

 

Other debt securities

 

 

-

 

 

 

7,470

 

 

 

 

 

 

 

7,470

 

Total debt securities

 

 

 

 

$

211,313

 

 

$

4,556

 

$

-

 

$

215,869

 

Equity securities-financial services

 

 

26

 

 

 

 

 

 

-

 

 

 

 

26

 

Derivatives and hedging activities

 

 

 

 

 

8,203

 

 

 

 

 

 

 

8,203

 

Liabilities:

 

 

-

 

 

 

 

 

 

-

 

 

 

 

 

Derivatives and hedging activities

 

$

-

 

 

$

9,183

 

 

$

-

 

 

 

$

9,183

 

 

25

 

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, 2024 and 2023 (in thousands).

 

 

 

Fair Value Measurement Using
Significant Unobservable Inputs
(Level III)

 

 

 

Three Months Ended

 

 

 

December 31, 2024

 

 

December 31, 2023

 

Beginning balance

 

$

4,556

 

 

$

2,836

 

Purchases, sales, issuances, settlements, net

 

 

-

 

 

 

-

 

Total unrealized (loss) gain:

 

 

 

 

 

 

Included in earnings

 

 

-

 

 

 

-

 

Included in other comprehensive (loss) income

 

 

344

 

 

 

139

 

Transfers in and/or out of Level III

 

 

-

 

 

 

-

 

 

 

$

4,900

 

 

$

2,975

 

 

 

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, 2024 and September 30, 2024 by level within the fair value hierarchy:

 

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

 

 

 

December 31, 2024

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Foreclosed real estate

 

$

-

 

 

$

-

 

 

$

3,195

 

 

$

3,195

 

Individually evaluated loans held for investment

 

 

-

 

 

 

-

 

 

 

8,622

 

 

 

8,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Foreclosed real estate

 

$

-

 

 

$

-

 

 

$

3,195

 

 

$

3,195

 

Individually evaluated loans held for investment

 

 

-

 

 

 

-

 

 

 

7,615

 

 

 

7,615

 

 

26

 

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, 2024

 

 

 

 

 

 

 

 

 

Individually evaluated loans held for investment

 

$

8,622

 

 

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, 2024

 

 

 

 

 

 

 

 

 

Individually evaluated loans held for investment

 

$

7,615

 

 

Appraisal of
collateral (1)

 

Appraisal
adjustments (2)

 

0% to 35%
(20.8%)

Foreclosed real estate owned

 

 

3,195

 

 

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 credit losses is allocated to the loan. At December 31, 2024, 36 individually analyzed loans with a carrying value of $8.6 million were reduced by an ACL totaling $1,000 resulting in a net fair value of $8.6 million based on Level 3 inputs.

At September 30, 2024, 36 impaired loans with a carrying value of $7.6 million were reduced by a specific valuation totaling $2,000 resulting in a net fair value of $7.6 million based on Level 3 inputs.

27

 

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, 2024 and September 30, 2024 by level within the fair value hierarchy:

 

 

 

December 31, 2024

 

(in thousands)

 

Carrying Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity

 

$

46,164

 

 

$

-

 

 

$

38,723

 

 

$

-

 

 

$

38,723

 

Loans receivable, net

 

 

1,756,230

 

 

 

-

 

 

 

-

 

 

 

1,621,494

 

 

 

1,621,494

 

Mortgage servicing rights

 

 

1,074

 

 

 

-

 

 

 

-

 

 

 

1,600

 

 

 

1,600

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,699,982

 

 

$

1,050,428

 

 

$

-

 

 

$

648,293

 

 

$

1,698,721

 

Short term borrowings

 

 

215,000

 

 

 

-

 

 

 

-

 

 

 

215,056

 

 

 

215,056

 

Other borrowings

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

10,016

 

 

 

10,016

 

 

 

 

September 30, 2024

 

(in thousands)

 

Carrying Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity

 

$

47,378

 

 

$

-

 

 

$

41,519

 

 

$

-

 

 

$

41,519

 

Loans receivable, net

 

 

1,744,284

 

 

 

-

 

 

 

-

 

 

 

1,635,032

 

 

 

1,635,032

 

Mortgage servicing rights

 

 

1,051

 

 

 

-

 

 

 

-

 

 

 

1,450

 

 

 

1,450

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,629,051

 

 

$

1,046,990

 

 

$

-

 

 

$

581,842

 

 

$

1,628,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

280,000

 

 

 

-

 

 

 

-

 

 

 

280,000

 

 

 

280,000

 

Other borrowings

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

10,042

 

 

 

10,042

 

 

28

 

11.
Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three months ended December 31, 2024 and 2023 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, 2024

 

$

1,891

 

 

$

(7,685

)

 

$

(771

)

 

$

(6,565

)

Other comprehensive (loss) income before
   reclassifications

 

 

-

 

 

 

(2,585

)

 

 

4,455

 

 

 

1,870

 

Amounts reclassified from accumulated
   other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

(1,097

)

 

 

(1,097

)

Period change

 

 

-

 

 

 

(2,585

)

 

 

3,358

 

 

 

773

 

Balance at December 31, 2024

 

$

1,891

 

 

$

(10,270

)

 

$

2,587

 

 

$

(5,792

)

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 (loss) income

 

 

-

 

 

 

-

 

 

 

(1,856

)

 

 

(1,856

)

Period change

 

 

-

 

 

 

6,229

 

 

 

(4,022

)

 

 

2,207

 

Balance at December 31, 2023

 

$

66

 

 

$

(11,296

)

 

$

3,944

 

 

$

(7,286

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended December 31, 2024 and 2023 (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

 

 

2024

 

 

2023

 

 

 

Derivatives and hedging activities:

 

 

 

 

 

 

 

 

Interest expense, effective portion

 

 

1,389

 

 

 

2,350

 

 

Interest expense

Related income tax expense

 

 

(292

)

 

 

(494

)

 

Income taxes

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

 

 

1,097

 

 

 

1,856

 

 

 

Total reclassification for the period

 

$

1,097

 

 

$

1,856

 

 

 

 

 

 

 

 

 

 

 

 

29

 

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, 2024 and September 30, 2024 (in thousands).

 

Fair Values of Derivative Instruments

 

Asset Derivatives

 

 

As of December 31, 2024

 

 

As of September 30, 2024

 

Hedged Item

Notional
Amount

 

 

Fair
Value

 

 

Notional
Amount

 

 

Fair
Value

 

FHLB Advances

$

220,000

 

 

$

3,799

 

 

$

125,000

 

 

$

2,375

 

Commercial Loans

 

105,632

 

 

 

6,613

 

 

 

97,089

 

 

 

5,828

 

Total

$

325,632

 

 

$

10,412

 

 

$

222,089

 

 

$

8,203

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Values of Derivative Instruments

 

Liability Derivatives

 

 

As of December 31, 2024

 

 

As of September 30, 2024

 

Hedged Item

Notional
Amount

 

 

Fair
Value

 

 

Notional
Amount

 

 

Fair
Value

 

FHLB Advances

$

160,000

 

 

$

522

 

 

$

255,000

 

 

$

3,348

 

Commercial Loans

 

121,292

 

 

 

6,616

 

 

 

127,497

 

 

 

5,835

 

Total

$

281,292

 

 

$

7,138

 

 

$

382,497

 

 

$

9,183

 

 

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, 2024, the Company had eighteen interest rate swaps with a notional principal amount of $380.0 million associated with the Company’s cash outflows associated with various FHLB advances and $226.9 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, 2024 and 2023.

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, 2024, the Company had $1.4 million of gains, which resulted in a decrease to interest expense. 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 next twelve months, the Company estimates that $2.2 million will be reclassified as a decrease to interest expense.

30

 

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, 2024 and 2023 (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

 

2024

 

 

2023

 

 

 

 

2024

 

 

2023

 

Interest Rate Products

 

$

4,253

 

 

$

(5,095

)

 

Interest expense

 

$

1,389

 

 

$

2,350

 

Total

 

$

4,253

 

 

$

(5,095

)

 

 

 

$

1,389

 

 

$

2,350

 

 

 

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, 2024 and September 30, 2024, the Company had no derivatives in a net liability position and was not required to post collateral against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2024 and September 30, 2024, 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 (“the Bank”) were named as defendants, among others, in an action commenced on December 8, 2016 by one plaintiff who sought to pursue the suit as a class action on behalf of the entire class of people similarly situated. The plaintiff alleged that a subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks in the process of making loans, in violation of the Real Estate Settlement Procedures Act. In an order dated January 29, 2018, the district court granted the defendants’ motion to dismiss the case. The plaintiff appealed the court’s ruling. In an opinion and order dated April 26, 2019, the appellate court reversed the district court’s order dismissing the plaintiff’s case against the Company and remanded the case to the district court in order to continue the litigation. The litigation is now proceeding before the district court. On December 9, 2019, the court permitted an amendment to the complaint to add two new plaintiffs to the case asserting similar claims. On May 21, 2020, the court granted the plaintiffs’ motion for class certification. Fact and expert discovery were completed, but, as explained below, have recently been re-opened. The Company and the Bank 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 the Bank, 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, and severed one of the original plaintiffs’ claims from those of the class, ordering a separate trial for that plaintiff. Plaintiffs sought permission to appeal from these and other related rulings, but the court denied their request. Plaintiffs filed a motion seeking relief from some of the court’s prior orders. On November 20, 2024 the court granted Plaintiffs’ motion and vacated the prior orders that had granted summary judgment in favor of all defendants except the subsidiary alleged to have employed the individuals who allegedly violated RESPA. The court also allowed Plaintiffs additional discovery. The Company and the Bank will continue to vigorously defend against Plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or the Bank, the amount or range of such exposure is not currently estimable but could be substantial.

On May 29, 2020, the Company and the Bank were named as defendants in a second action commenced by three plaintiffs who also sought to pursue the action as a class action on behalf of the entire class of people similarly situated. The plaintiffs allege that a subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks from a different title company than

31

 

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 the Bank intend to vigorously defend against plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or the Bank, the amount or range of such exposure is not currently estimable but could be substantial.

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.

 

32

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to: our proposed merger with CNB Financial Corporation (“CNB”), which may not be consummated or may take longer or be more expensive to accomplish than expected, and which may divert our resources and management’s attention from ongoing business operations and opportunities. These forward-looking statements also include:

•
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/or 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;
•
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.

On January 9, 2025, ESSA Bancorp, Inc. and ESSA Bank entered into an agreement and plan of merger with CNB Financial Corporation (“CNB”) and CNB Bank, pursuant to which CNB will acquire ESSA Bancorp, Inc. Under the terms of the merger agreement, each outstanding share of ESSA common stock will be converted into the right to receive 0.8547 shares of CNB common stock. The merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of CNB and Evans, and is expected to close in the second half of 2025. For further information on the merger agreement, see the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 10, 2025.

 

Comparison of Financial Condition at December 31, 2024 and September 30, 2024

Total Assets. Total assets increased by $8.4 million, or 0.4%, to $2.2 billion at December 31, 2024 from September 30, 2024 due primarily to increases in total cash and cash equivalents and loans receivable partially offset by decreases in investment securities available for sale, regulatory stock and other assets.

Total Cash and Cash Equivalents. Total cash and cash equivalents increased $4.4 million, or 9.0%, to $52.9 million at December 31, 2024 from $48.6 million at September 30, 2024.

Net Loans. Net loans increased $11.9 million, or 0.7%, to $1.76 billion at December 31, 2024 from $1.74 billion at September 30, 2024. During this period, residential loans increased $9.4 million to $731.0 million as the Company sold $3.6 million

33

 

of residential mortgage loans, construction loans increased $1.4 million to $16.2 million, commercial real estate loans decreased $9.0 million to $875.6 million, commercial loans increased 8.7 million to $45.5 million, obligations of states and political subdivisions decreased $79,000 to $48.5 million, home equity loans and lines of credit increased $1.0 million to $52.3 million, and auto loans decreased $4,000 to $61,000 reflecting expected runoff of the portfolio following the Company’s previously announced discontinuation of indirect auto lending in July 2018, and other loans increased $193,000 to $2.1 million.

Investment Securities Available for Sale. Investment securities available for sale decreased $4.1 million, or 1.9%, to $211.8 million at December 31, 2024 from $215.9 million at September 30, 2024 due primarily to runoff of mortgage backed securities.

Investment Securities Held to Maturity. Investment securities held to maturity decreased to $46.2 million at December 31, 2024 from $47.4 million at September 30, 2024. The Company carries some investment securities as held to maturity to manage fluctuations in comprehensive loss caused by interest rate changes.

Foreclosed Real Estate. Foreclosed real estate was unchanged at $3.2 million at December 31, 2024 and September 30, 2024. The Company has one commercial real estate property, which it is actively marketing.

Deposits. Deposits increased $70.9 million, or 4.4%, to $1.70 billion at December 31, 2024 from $1.63 billion at September 30, 2024. The increase was comprised of increases in certificates of deposit of $67.5 million and money market accounts of $40.5 million, partially offset by decreases in interest bearing demand accounts of $34.8 million, savings and club accounts of $1.0 million and non-interest bearing demand accounts of $1.2 million . At December 31, 2024, uninsured deposits, including fully collateralized public deposits of $160.2 million, amounted to approximately 17.6% of total deposits.

Short-Term and Other Borrowings. Short-term borrowings decreased to $215.0 million at December 31, 2024 from $280.0 million at September 30, 2024. Other borrowings of terms over one year from the FHLB was unchanged at $10.0 million at December 31, 2024 and September 30, 2024.

Stockholders’ Equity. Stockholders’ equity increased by $3.8 million, or 1.6%, to $234.2 million at December 31, 2024 from $230.4 million at September 30, 2024. The increase in stockholders’ equity was primarily due to net income of $4.0 million and other comprehensive income of $773,000 which were partially offset by regular cash dividends of $0.15 per share which reduced stockholders’ equity by $1.5 million.

 

34

 

Average Balance Sheets for the Three Months Ended December 31, 2024 and 2023

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,

 

 

 

2024

 

 

2023

 

 

 

Average Balance

 

 

Interest Income/
Expense

 

 

Yield/Cost

 

 

Average Balance

 

 

Interest Income/
Expense

 

 

Yield/Cost

 

 

 

(dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans(1)

 

$

1,771,126

 

 

$

22,993

 

 

 

5.16

%

 

$

1,706,957

 

 

$

21,414

 

 

 

4.99

%

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable(2)

 

 

86,757

 

 

 

1,096

 

 

 

5.03

%

 

 

198,825

 

 

 

2,584

 

 

 

5.17

%

Exempt from federal income
   tax(2)(3)

 

 

1,912

 

 

 

11

 

 

 

2.90

%

 

 

1,830

 

 

 

11

 

 

 

3.03

%

Total investment securities

 

 

88,669

 

 

 

1,107

 

 

 

4.98

%

 

 

200,655

 

 

 

2,595

 

 

 

5.15

%

Mortgage-backed securities

 

 

172,098

 

 

 

1,414

 

 

 

3.27

%

 

 

166,359

 

 

 

1,303

 

 

 

3.12

%

Federal Home Loan Bank stock

 

 

17,094

 

 

 

376

 

 

 

8.77

%

 

 

17,853

 

 

 

377

 

 

 

8.40

%

Other

 

 

41,124

 

 

 

482

 

 

 

4.66

%

 

 

29,674

 

 

 

401

 

 

 

5.38

%

Total interest-earning assets

 

 

2,090,111

 

 

 

26,372

 

 

 

5.02

%

 

 

2,121,498

 

 

 

26,090

 

 

 

4.89

%

Allowance for credit losses

 

 

(15,324

)

 

 

 

 

 

 

 

 

(18,644

)

 

 

 

 

 

 

Noninterest-earning assets

 

 

126,356

 

 

 

 

 

 

 

 

 

133,758

 

 

 

 

 

 

 

Total assets

 

$

2,201,143

 

 

 

 

 

 

 

 

$

2,236,612

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

$

302,593

 

 

$

625

 

 

 

0.82

%

 

$

316,354

 

 

$

473

 

 

 

0.59

%

Money market accounts

 

 

357,502

 

 

 

2,444

 

 

 

2.72

%

 

 

363,083

 

 

 

2,023

 

 

 

2.22

%

Savings and club accounts

 

 

142,343

 

 

 

26

 

 

 

0.07

%

 

 

158,937

 

 

 

24

 

 

 

0.06

%

Certificates of deposit

 

 

627,142

 

 

 

7,234

 

 

 

4.59

%

 

 

525,141

 

 

 

5,942

 

 

 

4.50

%

Borrowed funds

 

 

252,618

 

 

 

1,899

 

 

 

2.99

%

 

 

357,794

 

 

 

2,764

 

 

 

3.07

%

Total interest-bearing liabilities

 

 

1,682,198

 

 

 

12,228

 

 

 

2.89

%

 

 

1,721,309

 

 

 

11,226

 

 

 

2.59

%

Non-interest-bearing NOW
   accounts

 

 

246,653

 

 

 

 

 

 

 

 

 

255,452

 

 

 

 

 

 

 

Non-interest-bearing liabilities

 

 

38,862

 

 

 

 

 

 

 

 

 

40,227

 

 

 

 

 

 

 

Total liabilities

 

 

1,967,713

 

 

 

 

 

 

 

 

 

2,016,988

 

 

 

 

 

 

 

Equity

 

 

233,430

 

 

 

 

 

 

 

 

 

219,624

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,201,143

 

 

 

 

 

 

 

 

$

2,236,612

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

14,144

 

 

 

 

 

 

 

 

$

14,864

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

2.13

%

 

 

 

 

 

 

 

 

2.30

%

Net interest-earning assets

 

$

407,913

 

 

 

 

 

 

 

 

$

400,189

 

 

 

 

 

 

 

Net interest margin(4)

 

 

 

 

 

 

 

 

2.69

%

 

 

 

 

 

 

 

 

2.79

%

Average interest-earning assets to
   average interest-bearing liabilities

 

 

 

 

 

124.25

%

 

 

 

 

 

 

 

 

123.25

%

 

 

 

 

__________________

(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 months ended December 31, 2024 and 2023.
(4)
Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

35

 

 

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

Net Income. Net income decreased $381,000, or 8.8%, to $4.0 million for the three months ended December 31, 2024 compared to net income of $4.3 million for the comparable period in 2023. The decrease was primarily due to increases in non-interest expense and a decrease in net interest income, partially offset by a decrease in the provision for credit losses.

Net Interest Income. Net interest income decreased $720,000, or 4.8%, to $14.1 million for the three months ended December 31, 2024 compared to $14.9 million for the comparable period in 2023.

Interest Income. Total interest income was $26.4 million for the three months ended December 31, 2024 compared with $26.1 million for the three months ended December 31, 2023 reflecting increases in interest rates and total yield on average interest earning assets from 4.89% for the three months ended December 31, 2023 to 5.01% for the three months ended December 31, 2024. A decrease of $31.4 million in average interest earning assets a partially offset the increase in interest income.

Interest Expense. Interest expense was $12.2 million for the quarter ended December 31, 2024 compared to $11.2 million for the same period in 2023. The cost of interest-bearing liabilities increased to 2.88% for the quarter ended December 31, 2024 from 2.59% for the comparable period in 2023, reflecting higher interest rates, repricing of deposits and higher-cost borrowings. The average balance of interest-bearing liabilities decreased $39.1 million year-over-year.

Provision for Credit Losses. For the three months ended December 31, 2024, the provision for credit losses decreased $210,000, compared the three months ended December 31, 2023. For the three months ended December 31, 2024, we recorded a release of the allowance for credit losses of $607,000 comprised of a release of $261,000 for loans and $346,000 for off balance sheet credit exposure. The Company did not recognize any credit losses on held-to-maturity debt securities for the year ended December 31, 2024. 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 $15.1 million, or 0.85% of loans outstanding, at December 31, 2024, compared to $15.3 million, or 0.87% of loans outstanding, at September 30, 2024.

Non-interest Income. Noninterest income increased 5.0% to $2.1 million for the three months ended December 31, 2024, compared with $2.0 million for the three months ended December 31, 2023. Increases in loan swap fees of $99,000 and trust and investments fees of $82,000 were partially offset by decreases in service charges and fees on deposit accounts of $50,000 and gain on sale of loans of $58,000 for the quarter ended December 31, 2024 compared with the comparable period in 2023.

Non-interest Expense. Noninterest expense increased $77,000, or 0.7%, to $11.9 million for the three months ended December 31, 2023 compared with the comparable period a year earlier primarily reflecting increases in compensation and employee benefits of $454,000 and data processing of $126,000, partially offset by decreases in professional fees of $62,000 and foreclosed real estate of $101,000 and other expenses of $197,000.

Income Taxes. Income tax expense decreased $109,000 to $919,000 for the three months ended December 31, 2024 from the comparable 2023 period. The effective tax rate for the three months ended December 31, 2024 and 2023 was 18.9% and 19.2%, respectively.

 

 

 

 

36

 

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

 

 

 

December 31, 2024

 

 

September 30, 2024

 

Non-performing assets:

 

 

 

 

 

 

Non-accruing loans

 

$

8,594

 

 

$

9,026

 

Loans 90+ days delinquent and accruing interest

 

 

-

 

 

 

-

 

Total non-performing loans

 

 

8,594

 

 

 

9,026

 

Foreclosed real estate

 

 

3,195

 

 

 

3,195

 

Total non-performing assets

 

$

11,789

 

 

$

12,221

 

Ratio of non-performing loans to total loans

 

 

0.49

%

 

 

0.51

%

Ratio of non-performing loans to total assets

 

 

0.39

%

 

 

0.48

%

Ratio of non-performing assets to total assets

 

 

0.54

%

 

 

0.56

%

Ratio of allowance for credit losses to total loans

 

 

0.85

%

 

 

0.87

%

 

Loans are reviewed on a regular basis and are placed on non-accrual status when they become 90 days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and further income is recognized only to the extent received. Non-performing assets decreased $432,000 from September 30, 2024 to December 31, 2024. The $8.6 million of non-accruing loans at December 31, 2024 included 21 residential loans with an aggregate outstanding balance of $1.8 million, 18 commercial and commercial real estate loans with aggregate outstanding balances of $6.7 million and five consumer loans with aggregate balances of $54,000. Within the residential loan balance were $328,000 of loans past due less than 90 days. In the quarter ended December 31, 2024, the Company identified six residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate was unchanged from September 30, 2024 to December 31, 2024 at $3.2 million. 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, 2024, $52.9 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, 2024, we had $225.0 million of borrowings outstanding from the Pittsburgh FHLB. We have access to total FHLB advances of up to approximately $872.7 million. The Company also has a fully secured $90.0 million borrowing from the Federal Reserve Bank of Philadelphia.

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At December 31, 2024, we had $380.3 million in loan commitments outstanding, which included, in part, $93.2 million in undisbursed construction loans and land development loans, $58.3 million in unused home equity lines of credit, $81.4 million in commercial lines of credit and commitments to originate commercial loans, $14.3 million in performance and standby letters of credit, $132.0 million in standby letters of credit issued by the Pittsburgh FHLB on the Companies behalf and $1.2 million in other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of December 31, 2024 totaled $510.1 million, or 78.5% 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, 2025. 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 $3.1 million and $6.7 million for the three months ended December 31, 2024 and 2023, respectively. These amounts differ from our net income because of a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash (used for) provided by investing activities was $(6.7) million and $32.0 million for the three months ended December 31, 2024 and 2023, 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 provided by (used for) financing activities of $7.9 million and $(77.0) million for the three months ended December 31, 2024 and 2023, respectively.

Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies:

Allowance for Credit Losses.

The allowance for credit losses (ACL) represents an amount which, in management’s judgment, is adequate to absorb expected credit losses on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics ot the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.

Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes in the interest rate environment which may directly impact prepayment and curtailment rate assumption, and changes in the financial condition of the borrowers.

Goodwill and Intangible Assets. Goodwill is not amortized, but it is tested at least annually for impairment in the fourth quarter, or more frequently if indicators of impairment are present. If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit. Based on this analysis, no impairment was recorded in 2024 or 2023.

38

 

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 2024 or 2023.

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, 2024.

39

 

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective.

There were no changes made in the Company’s internal controls over financial reporting (as defined by Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q.

 

 

40

 

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 (“the Bank”) were named as defendants, among others, in an action commenced on December 8, 2016 by one plaintiff who sought to pursue the suit as a class action on behalf of the entire class of people similarly situated. The plaintiff alleged that a subsidiary of a bank previously acquired by the Company received unearned fees and kickbacks in the process of making loans, in violation of the Real Estate Settlement Procedures Act. In an order dated January 29, 2018, the district court granted the defendants’ motion to dismiss the case. The plaintiff appealed the court’s ruling. In an opinion and order dated April 26, 2019, the appellate court reversed the district court’s order dismissing the plaintiff’s case against the Company and remanded the case to the district court in order to continue the litigation. The litigation is now proceeding before the district court. On December 9, 2019, the court permitted an amendment to the complaint to add two new plaintiffs to the case asserting similar claims. On May 21, 2020, the court granted the plaintiffs’ motion for class certification. Fact and expert discovery were completed, but, as explained below, have recently been re-opened. The Company and the Bank 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 the Bank, 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, and severed one of the original plaintiffs’ claims from those of the class, ordering a separate trial for that plaintiff. Plaintiffs sought permission to appeal from these and other related rulings, but the court denied their request. Plaintiffs filed a motion seeking relief from some of the court’s prior orders. On November 20, 2024 the court granted Plaintiffs’ motion and vacated the prior orders that had granted summary judgment in favor of all defendants except the subsidiary alleged to have employed the individuals who allegedly violated RESPA. The court also allowed Plaintiffs additional discovery. The Company and the Bank will continue to vigorously defend against Plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or the Bank, the amount or range of such exposure is not currently estimable but could be substantial.

On May 29, 2020, the Company and the Bank were named as defendants in a second action commenced by three plaintiffs who also sought to pursue the action as a class action on behalf of the entire class of people similarly situated. The plaintiffs allege that a subsidiary of 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 the Bank intend to vigorously defend against plaintiffs’ allegations. To the extent that this matter could result in exposure to the Company and/or the Bank, the amount or range of such exposure is not currently estimable but could be substantial.


Item 1A. Risk Factors

 

The following risk factors relating to the Company’s proposed merger with CNB represent a material update and addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, as filed with the SEC on December 13, 2024:

The Company will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on the Company’s employees, suppliers and customers may have an adverse effect on the Company. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with the Company to seek to change existing business relationships. Employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with CNB.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect the financial results of the Company. In addition, the merger agreement requires that the Company operate in the ordinary course of business consistent with past practice and restricts the Company from taking certain actions prior to the effective time of the merger or termination of the merger agreement without CNB’s written consent. These restrictions may

41

 

prevent the Company from retaining existing customers or pursuing attractive business opportunities that may arise prior to the completion of the merger.

The merger agreement contains provisions that limit the Company’s ability to pursue alternatives to the merger and may discourage other companies from trying to acquire the Company.

The merger agreement contains covenants that restrict the Company’s ability to, directly or indirectly, initiate, solicit, induce, knowingly encourage, or knowingly facilitate inquiries, offers or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by the Company’s Board of Directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any alternative acquisition proposals. Additionally, the merger agreement provides for an $8.8 million termination fee payable by the Company to CNB under certain circumstances. Such provisions may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from pursuing such acquisition.

The merger agreement may be terminated in accordance with its terms and the merger may not be completed.

CNB and the Company can mutually agree to terminate the merger agreement at any time before the merger has been completed, and either company can terminate the merger agreement if:

•
any regulatory approval required for consummation of the merger and the other transactions contemplated by the merger agreement has been denied by final, nonappealable action of any regulatory authority, or an application for regulatory approval has been permanently withdrawn at the request of a governmental authority;
•
the required approval of the merger agreement by the Company’s shareholders is not obtained;
•
the other party materially breaches any of its representations, warranties, covenants or other agreements set forth in the merger agreement (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement), which breach is not cured within 30 days of written notice of the breach, or by its nature cannot be cured prior to the closing of the merger, and such breach would entitle the non-breaching party not to consummate the merger; or
•
merger is not consummated by January 9, 2026, unless the failure to consummate the merger by such date is due to a material breach of the merger agreement by the terminating party.

 

In addition, CNB may terminate the merger agreement if:

•
the Company materially breaches the non-solicitation provisions in the merger agreement; or
•
the Company’s Board of Directors:
•
fails to recommend approval of the merger agreement, or withdraws, modifies or changes such recommendation in a manner adverse to CNB’s interests;
•
recommends, proposes or publicly announces its intention to recommend or propose to engage in an acquisition transaction with any person other than CNB or any of its subsidiaries; or
•
fails to call, give notice of, convene and hold its special meeting.

The merger is subject to a number of conditions, including the receipt of waivers and/or approvals from governmental authorities, that may delay the merger or adversely impact CNB’s and the Company’s ability to complete the merger.

The completion of the merger is subject to the satisfaction or waiver of a number of conditions. Before the merger may be completed, certain approvals, waivers or consents must be obtained from federal governmental authorities, including the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency. Satisfying the requirements of these governmental authorities may delay the date of completion of the merger. In addition, these governmental authorities may include conditions on the completion of the merger or require changes to the terms of the merger. While it is currently anticipated that the merger will be completed promptly following the receipt of all required regulatory and shareholder approvals, there can be no assurance that the conditions to closing will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied. The parties are not obligated to complete the merger should any regulatory approval contain a condition, restriction or requirement that CNB reasonably determines in good faith would, individually or in the aggregate, materially

42

 

reduce the benefits of the merger to such a degree that CNB would not have entered into the merger agreement had such condition, restriction or requirement been known at the date of the merger agreement.

CNB and the Company cannot provide any assurances with respect to the timing of the closing of the merger, whether the merger will be completed at all and when Company shareholders would receive the consideration for the merger, if at all.

Failure to complete the merger could negatively impact the stock prices and future business and financial results of the Company.

Completion of the merger is subject to the satisfaction or waiver of a number of conditions, including approval by the Company’s shareholders of the merger. The Company cannot guarantee when or if these conditions will be satisfied or that the merger will be successfully completed. The consummation of the merger may be delayed, the merger may be consummated on terms different than those contemplated by the merger agreement, or the merger may not be consummated at all. If the merger is not completed, the ongoing businesses of the Company may be adversely affected, and the Company will be subject to several risks, including the following:

•
the Company may be required, under certain circumstances, to pay CNB a termination fee of $8.8 million;
•
the Company could incur substantial costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;
•
the Company is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies; and
•
the Company’s management’s and employees’ attention may be diverted from our day-to-day business and operational matters as a result of efforts relating to the attempt to consummate the merger.

In addition, if the merger is not completed, the Company may experience negative reactions from the financial markets and from their respective customers and employees. The Company also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against the Company to perform their respective obligations under the merger agreement. Such events could materially affect the Company’s stock prices and business and financial results.

Shareholder litigation could prevent or delay the closing of the merger or otherwise negatively affect the business and operations of the Company.

The Company may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the proposed merger. Such litigation could have an adverse effect on the financial condition and results of operations of the Company and could prevent or delay the consummation of the merger.

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, 2024, as filed with the Securities and Exchange Commission on December 14, 2024.

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

 

On June 6, 2022 the Company announced the authorization of a ninth repurchase program for up to 500,000 shares of its common stock. This program has no expiration date. The Company made no purchases of its common stock under this program

during the three month period ended December 31, 2024. There are currently 86,242 shares that may yet be repurchased under the

program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

43

 

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers.

During the three months ended December 31, 2024, 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:

 

2.1

Exhibit 2.1 Agreement and Plan of Merger, dated January 9, 2025, by and among CNB Financial Corporation, CNB Bank, ESSA Bancorp, Inc. and ESSA Bank & Trust (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (Registration No. 001-33384) filed on January 10, 2025).

 

 

3.1

Articles of Incorporation of ESSA Bancorp, Inc. (incorporated by reference to the Registration Statement on Form S-1 of ESSA Bancorp, Inc. (file no. 333-139157), originally filed with the Securities and Exchange Commission on December 7, 2006)

 

 

3.2

Bylaws of ESSA Bancorp, Inc. (incorporated by reference to the Registration Statement on Form S-1 of ESSA Bancorp, Inc. (file no. 333-139157), originally filed with the Securities and Exchange Commission on December 7, 2006)

 

 

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 10, 2025

/s/ Gary S. Olson

Gary S. Olson

President and Chief Executive Officer

 

 

Date: February 10, 2025

/s/ Allan A. Muto

Allan A. Muto

Executive Vice President and Chief Financial Officer

 

46