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EB

ESSA Bancorp, Inc. (ESSA)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 diluted EPS was $0.41 and net income was $3.9M, down year over year (EPS $0.45, net income $4.4M) as higher funding costs compressed net interest margin to 2.77% from 3.22% .
  • Total interest income grew 17.9% YoY to $25.7M on asset yield expansion (5.02% vs 4.60%) and loan growth, but interest expense rose 76.3% YoY to $11.5M as deposits and borrowings repriced, pressuring spread and NIM .
  • Asset quality remained strong (nonperforming assets 0.56% of total assets; ACL/loans 0.89%), and Tier 1 capital improved to 9.8%; tangible book value per share increased to $20.89 .
  • Management emphasized disciplined deposit pricing and expense control; a release of credit loss provision ($0.347M) supported earnings, a positive surprise versus prior-year provision .
  • Wall Street consensus estimates via S&P Global for Q3 2024 were unavailable; no beat/miss analysis provided. Estimates were not available from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Strong asset yield and loan growth: Total interest income increased 17.9% YoY to $25.7M; total yield on average interest-earning assets rose to 5.02% (from 4.60%) .
  • Asset quality and capital: NPA ratio improved to 0.56% (from 0.63% at 9/30/23); Tier 1 capital ratio reached 9.8%; tangible book value per share up to $20.89 .
  • Provision release: Q3 recorded a $0.347M provision release (vs $0.150M provision in Q3 2023), reflecting lower expected losses; net recoveries year-to-date were $0.137M .
    • Management quote: “Expense management and asset quality are critical to supporting quality earnings… [and] a reduction in the provision for credit losses based on anticipated risk.”

What Went Wrong

  • Funding cost pressure: Interest expense rose 76.3% YoY to $11.5M; cost of interest-bearing liabilities increased to 2.80% (from 1.75%) .
  • Margin compression: Net interest margin fell to 2.77% (from 3.22% YoY), and spread narrowed to 2.22% (from 2.85%) .
  • Deposit mix shift and runoff: Core deposits fell to 64% of total (from 70% at 9/30/23); higher-rate CDs (including brokered) increased, raising funding costs; total deposits declined to $1.55B (from $1.66B) .

Financial Results

Quarterly Trend (prior two quarters vs current)

MetricQ1 2024Q2 2024Q3 2024
Total Interest Income ($USD millions)$26.09 $25.65 $25.66
Interest Expense ($USD millions)$11.23 $10.80 $11.50
Net Interest Income ($USD millions)$14.86 $14.85 $14.17
Noninterest Income ($USD millions)$1.96 $2.00 $2.12
Net Income ($USD millions)$4.34 $4.56 $3.91
Diluted EPS ($)$0.45 $0.48 $0.41
Net Interest Margin (%)2.79% 2.87% 2.77%
ROAA (%)0.77% 0.84% 0.72%
ROAE (%)7.84% 8.23% 6.96%

YoY Comparison (Q3 2024 vs Q3 2023)

MetricQ3 2023Q3 2024
Total Interest Income ($USD millions)$21.77 $25.66
Interest Expense ($USD millions)$6.52 $11.50
Net Interest Income ($USD millions)$15.24 $14.17
Noninterest Income ($USD millions)$1.94 $2.12
Net Income ($USD millions)$4.40 $3.91
Diluted EPS ($)$0.45 $0.41
Net Interest Margin (%)3.22% 2.77%
Yield on Avg Interest-Earning Assets (%)4.60% 5.02%
Cost of Interest-Bearing Liabilities (%)1.75% 2.80%

Balance Sheet and Mix

CategorySep 30, 2023Jun 30, 2024
Total Assets ($USD billions)$2.29 $2.23
Total Net Loans ($USD billions)$1.68 $1.71
Residential Real Estate Loans ($USD millions)$713.3 $713.4
Commercial Real Estate Loans ($USD millions)$822.0 $847.6
Commercial & Industrial Loans ($USD millions)$48.1 $47.7
Loans to States & Political Subdivisions ($USD millions)$48.1 $48.1
Consumer Loans ($USD millions)$48.2 $50.0
Total Deposits ($USD billions)$1.66 $1.55
Core Deposits (% of total)70% 64%
Certificates of Deposit ($USD millions)$503.9 $564.5
Brokered CDs change ($USD millions)-$18.8 (Q1) +$29.1 (Q3)
Total Borrowings ($USD millions)$374.7 $406.5

KPIs

KPIQ1 2024Q2 2024Q3 2024
Yield on Avg Interest-Earning Assets (%)4.89% 4.95% 5.02%
Cost of Interest-Bearing Liabilities (%)2.59% 2.58% 2.80%
Net Interest Margin (%)2.79% 2.87% 2.77%
NPA / Total Assets (%)0.64% 0.64% 0.56%
ACL / Total Loans (%)0.90% 0.89% 0.89%
Tier 1 Capital Ratio (%)9.1% 9.5% 9.8%
Tangible Book Value per Share ($)$20.42 $20.70 $20.89

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per Share ($)Q1 2024N/A$0.15 Maintained
Dividend per Share ($)Q2 2024$0.15 $0.15 Maintained
Dividend per Share ($)Q3 2024$0.15 $0.15 Maintained
Formal Revenue/Margin/OpEx GuidanceFY/Q3None providedNone providedMaintained (no guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024 and Q2 2024)Current Period (Q3 2024)Trend
Margin dynamicsNIM stabilized and improved Q1→Q2 (2.79% to 2.87%); management expected modest improvement in balance of interest income/expense despite continued pressure NIM 2.77%; continued margin pressure from higher funding costs Slight deterioration QoQ; continued pressure
Deposit strategyEmphasis on attracting/retaining core deposits; avoiding “highest rate” chasing; loan-to-deposit ratio discipline Core deposits 64% (down from 70%); higher CDs including brokered; selective rate adjustments Mix shifting to higher-cost CDs
Asset qualityStrong asset quality, negligible charge-offs; NPA ~0.64% NPA improved to 0.56%; net recoveries YTD $0.137M; ACL/loans 0.89% Positive/Stable
Loan growthCRE growth; residential stable; subdued lending environment with solid pipeline CRE up to $847.6M; residential flat; C&I slightly lower Modest growth concentrated in CRE
Capital & shareholder valueTier 1 capital 9.1–9.5%; TBVPS rising; share repurchases in Q1 Tier 1 9.8%; TBVPS $20.89; equity up to $225.5M Improving

Management Commentary

  • “The Company delivered another quarter of steady earnings and enhanced shareholder value by focusing on operating efficiently, maintaining asset strength, and managing the diversity and risk characteristics of our loan, deposit and investment portfolios.” — Gary S. Olson, President & CEO
  • “Generating and retaining retail deposits continues to be one of the Bank’s key initiatives… We have selectively adjusted rates on interest bearing accounts and avoided chasing customers by offering the highest rates.”
  • “We are encouraged by margins stabilizing and even improving during the past two quarters… we may see modest improvement in the balance between interest income and interest expense. However, we anticipate significant pressure on margins will continue.”

Q&A Highlights

  • No Q3 2024 earnings call transcript was available in the document catalog; therefore, Q&A highlights and guidance clarifications are unavailable.

Estimates Context

  • Wall Street consensus estimates via S&P Global for ESSA Q3 2024 were unavailable; as a result, we cannot assess beats/misses versus Street expectations. Values were not provided by S&P Global.

Key Takeaways for Investors

  • Earnings resilient despite funding cost headwinds: Net interest income of $14.2M and EPS $0.41, supported by a $0.347M provision release; watch for sustainability if provision normalizes .
  • Margin remains the key swing factor: NIM fell to 2.77% on higher deposit/borrowing costs; any relief in funding costs or further asset yield expansion could be a catalyst .
  • Deposit mix shift elevates funding costs: Core deposits dropped to 64%; CD growth (including brokered) raises cost of funds; management is disciplined on pricing to protect spreads .
  • Asset quality and capital are strengths: NPA at 0.56%, ACL/loans 0.89%, Tier 1 at 9.8%; these metrics underpin downside protection and support capital return capacity (dividends) .
  • CRE-led loan growth: Continued growth in commercial real estate while residential remains stable; monitor sector concentrations amid macro uncertainty .
  • TBVPS rising: Tangible book value per share increased to $20.89; equity growth provides valuation support in rate-volatile environments .
  • Near-term trading lens: Stock likely sensitive to funding costs and deposit mix headlines; catalysts include stabilization/improvement in NIM and confirmation of asset quality strength in subsequent quarters .