Annual Report 2010 e s s A B r An c h l Oc A TiOn s AD DiTiOnAl l Oc A TiOn s i n w e i s s u p e r mAr k eT s se r v i c e s Blakeslee Brodheadsville Asset Management & Trust Services Brodheadsville Crawford Drive (Bethlehem) ESSA Investment Services Bushkill Eagle Valley (East Stroudsburg) East Stroudsburg Mount Pocono Marshalls Creek North Cedar Crest Blvd. (Allentown) Mountainhome Stroudsburg Tannersville Pen Argyl Schnecksville Stroud Township Tannersville B O ArD Of Di r e c T Or s O f f i c e r s AnD g e n e r Al c Ou n s e l John E. Burrus Chairman of the Board Landscape Consultant, John E. Burrus Landscaping (retired) Gary S. Olson President & CEO, ESSA Bank & Trust Elizabeth Bensinger Weekes, Esq. Partner, Bensinger & Weekes, PA William P. Douglass President, Douglass Enterprises, Inc. Daniel J. Henning President, A.C. Henning Enterprises, Inc. Frederick E. Kutteroff President, Keystone Savings Bank (retired) John S. Schoonover, Jr. Partner, Schoonover & Vanderhoof Architects, LLC Robert C. Selig, Jr. President, Selig Construction Company William A. Viechnicki, DDS Orthodontist Todd R. Williams, Esq. General Counsel Gary S. Olson, President & CEO Allan A. Muto, Executive Vice President & CFO Robert S. Howes, Jr., Senior Vice President V. Gail Warner, Senior Vice President Diane K. Reimer, Vice President Thomas J. Grayuski, Vice President Cathy J. Callahan, Vice President William J. Lewis, Vice President Robert L. Selitto, Vice President & Controller Suzie T. Farley, Corporate Secretary Corporate Headquarters ESSA Bancorp, Inc. 200 Palmer Street Stroudsburg, PA 18360 Mailing Address PO Box L Stroudsburg, PA 18360-0160 Auditors S.R. Snodgrass, A.C. 2100 Corporate Drive, Suite 400 Wexford, PA 15090-7647 (724) 934-0344 General Counsel Newman, Williams, Mishkin, Corveleyn, Wolfe & Fareri, P.C. 712 Monroe Street Stroudsburg, PA 18360 Asset Management & Trust Services ESSA Investment Services c On s Ol iD A TeD fi nAn c iAl hi g h l i g hT The following information is derived from the audited Consolidated Financial Statements of ESSA Bancorp, Inc. For additional information, reference is made to s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of ESSA Bancorp, Inc. and related notes included in Form 10-K as filed with the Securities and Exchange Commission. selected Balance sheet Data: Total assets ................................................................................................ Cash and cash equivalents .......................................................................... Investment securities: Available for sale ............................................................................... Held to maturity ................................................................................ Loans, net ................................................................................................... Federal Home Loan Bank stock ................................................................... Premises and equipment ............................................................................. Bank-owned life insurance .......................................................................... Deposits ...................................................................................................... Borrowed funds ........................................................................................... Equity .......................................................................................................... selected Operations Data: Interest income .......................................................................................... Interest expense ........................................................................................ Net interest income .................................................................................... Provision for loan losses ............................................................................ Net interest income after provision for loan losses .......................... Non-interest income ................................................................................... Non-interest expense .................................................................................. Income (loss) before income tax expense ................................................... Income tax expense .................................................................................... Net income (loss) .............................................................................. Earnings (loss) per share (1): Basic Diluted $ $ $ $ 2010 2009 At September 30, 2008 (In thousands) 2007 2006 $ 1,071,997 10,890 $ 1,042, 1 19 18,593 $ 993,482 12,614 $ 910,415 16,779 $ 725,796 12,730 252,341 12,795 730,842 20,727 12,189 15,618 540,410 350,076 171,623 2010 49,257 21,306 27,951 2,175 25,776 6,708 26,128 6,356 1,844 4,512 217,566 6,709 733,580 20,727 10,620 15,072 408,855 438,598 185,506 204,078 1 1,857 706,890 1 9,188 10,662 14,516 370,529 412,757 200,086 205,267 17,130 619,845 16,453 1 1,277 13,941 384,716 313,927 204,692 2009 For the Year Ended September 30, 2008 (In thousands) 2007 $ 52,733 23,739 28,994 1,500 27,494 5,728 24,1 13 9,109 2,553 6,556 $ $ 52,065 25,642 26,423 900 25,523 4,803 21,181 9,145 3,068 6,077 $ $ 45,510 23,805 21,705 360 21,345 5,496 31,185 (4,344) 782 (5,126) $ 89,122 19,715 556,677 13,675 1 1,447 13,376 402,153 259,299 58,337 2006 $ 36,451 19,217 17,234 300 16,934 5,518 16,685 5,767 1,81 3 3,954 $ 0.36 0.36 $ $ 0.47 0.47 $ $ 0.39 0.38 $ $ (0.47) (0.47) $ $ N/A N/A (1) Earnings per share for 2007 are calculated for the period beginning with the company’s date of conversion of April 3, 2007. selected Other Data: Return on average assets ........................................................................... Return on average equity ............................................................................ Interest rate spread (2) .............................................................................. Net interest margin (3) ............................................................................... Non-performing assets as a percent of total assets ................................... Non-performing loans as a percent of total loans ....................................... Allowance for loan losses as a percent of total loans ................................. Total risk-based capital (to risk-weighted assets) ....................................... Average equity to average total assets ....................................................... 2010 0.43% 2.49% 2.34% 2.78% 1.20% 1.47% 1.01% 32.60% 17.26% At or For the Year Ended September 30, 2008 2009 2007 0.64% 3.42% 2.40% 2.93% 0.74% 0.70% 0.79% 31.00% 18.59% 0.63% 2.92% 2.09% 2.88% 0.40% 0.55% 0.69% 30.30% 21.77% (0.62)% (3.88)% 2.18 % 2.78 % 0.06 % 0.09 % 0.67 % 32.84 % 15.98 % 2006 0.58% 6.96% 2.46% 2.70% 0.07% 0.08% 0.69% 15.77% 8.36% (2) The interest rate spread represents the difference between the weighted-average yield on a fully tax equivalent basis on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year. (3) The net interest margin represents net interest income on a fully tax equivalent basis as a percent of average interest-earning assets for the year. 1 Fellow Shareholders: The Right Way to Bank. As I reflect upon the past year, I realize that this simple phrase describes what we do every day here at ESSA to create value for our shareholders, customers, employees and community. This has been an especially difficult year, easier and more efficient ways to bank. Our new eDeposit product for businesses as challenging economic conditions confronted most brings remote industries, companies and individuals. Despite these deposit capture obstacles, we are fortunate to have an engaged staff to our customers, and board whose tireless work has allowed ESSA to saving them time continue operating as a safe, sound and stable banking and money. institution. Our extended Banking is a business of managing risks. By prudently branch network managing these risks we’ve provided our stakeholders increases customer with the value they expect. Two of the greatest risks convenience and we face are managing our capital and maintaining our provides access to a knowledgeable, friendly staff strong credit quality. Our commitment to capital man- ready to assist with their financial needs. In our nine agement strategies led to the completion of a second supermarket branches, this includes the availability and the start of a third stock repurchase program in of 7-day banking, extended hours and the added 2010. We have repurchased over four million shares convenience of being able to bank where you shop! of ESSA Bancorp, Inc. stock in the first two buy-back For ESSA’s most important asset — our employees — programs and authorization to purchase up to an we’ve provided state of the art technology to improve additional 5 percent of outstanding shares was granted efficiencies in time, quality of work and overall pro- with the third stock repurchase program. Our capital ductivity. New phone and web conferencing make it final-gold-cover-emboss-mask-no-arc.psd remains significant — more than double the industry possible to include all staff members in important minimum requirement. ESSA’s lending policies have meetings and training sessions. We’ve also updated our provided us with a strong loan portfolio. Our non- capability to provide employees with online training performing assets remain below national and peer and educational opportunities. averages. As we continue to lend money and actively The communities we serve benefit from our suc- work with qualified borrowers, we will strive to maintain cess through our continued charitable donations and and enhance our credit quality. employee volunteerism. We also give back through our The bank’s growth continues on many fronts. community development program — implemented under Deposits increased over $131.6 million and for the first the Community Reinvestment Act — which earned an time ESSA was ranked in the number one position for “Outstanding” rating this past year for our efforts in deposit market share in Monroe County. We closed meeting the credit needs of the community at large. $126 million in loans this past year, and our commercial It is through these initiatives that shareholders loan portfolio now stands at almost $100 million. maintain confidence that ESSA Bancorp, Inc. will We added four new branches to our branch network: remain a solid investment over time. Since converting one traditional branch within our current market area to a public company in 2007, we have consistently out- of Monroe County and three supermarket branches performed the SNL Thrift Index and the Russell 2000 inside Weis Markets in neighboring Lehigh Valley. This Index in terms of total return performance. ESSA’s growth provides a foundation for future success by cumulative total return on its common stock between expanding our footprint into new markets. April 7, 2007 and September 30, 2010 was 104.14 per- ESSA continues to provide its customers with faster, cent as compared to 36.16 percent for SNL Thrift Index 2 2010 Annual Report and 87.60 percent for Russell 2000 over the same staff, making the right choices to accomplish ESSA’s period. Additionally, our total return to investors in mission within the parameters of our guiding principles. 2010 was 12.99 percent while industry average was only The rewards will be many — the community will have a 4.5 percent. Currently, we are ranked 203 in market trusted partner dedicated to making lives better, our capitalization out of 1,250 publicly traded banks and customers will have a stable bank from which to get thrifts and ended the year with a tangible common needed products and services, our staff will continue equity to total assets ratio of 15.1 percent. This ensures to have rewarding employment and our shareholders that we have the capital strength to withstand the will see their investments increase in value. We are well tough economic climate. Our strong capital position has positioned to continue with the consistency required to made it possible to continue to reward shareholders achieve “The Right Way to Bank.” with a $.05 per share quarterly dividend being paid in March, June, September and December. Sincerely, At ESSA Bancorp, Inc., we strive to do the right thing for the communities we serve and for every customer, every employee and every shareholder every day. As the industry evolves it will no doubt provide us with more challenges. It will take each and every one of us, Gary S. Olson from the Board of Directors through management and President & CEO essA mission statement essA guiding principles We believe in long-term success, operating as a safe, sound, and stable institution. Long-term success is dependent upon profits, but never will profit seeking compromise our mission. We believe in satisfying the wants and needs of our customers. Satisfaction is dependent upon a continual improvement of our service, products, systems, and operations. We believe our employees are our most valuable assets. Our employees will be provided with a work environment which is “the best in town.” We believe our decisions should enhance ESSA’s value. Enhanced value is achieved through quality earnings, growth, and strong management practices. We believe in giving back to the community to improve the quality of life. The ESSA Bank & Trust Foundation has been established to support this principle. ESSA Bank & Trust will be the leading service-oriented community financial institution offering a full range of financial products to greater Pocono area customers. We will ensure our long-term prosperity by providing products and services in a manner consistent with high standards of quality, on a profitable basis, at the fair- est price, in order to create the best possible value for our customers. They will be delivered through distribu- tion systems staffed and supported by customer-driven, friendly, productive employees with a high degree of integrity. essA code of ethics and conflict of interest policy No profession or industry has maintained higher standards of conduct nor provided greater public service than the community banking industry. The ESSA Bancorp, Inc. Board of Directors has approved an Insider Code of Ethics and Conflict of Interest policy. This policy provides directors and employees with specific guidance promoting honest and ethical conduct and deterring wrongdoing. Our policy may be found on our website at www.essabank.com. 3 The right way to bank At ESSA Bank & Trust, “The right way to bank” is more than just a phrase used in advertising copy; it’s a part of everything we do. We believe that To assist customers with mortgage loans, a local loan originator has also been assigned. Combining a successful track record in supermarket banking, a doing the right things, whether that be supporting local full range of financial products and services, and organizations in their efforts to make the community a knowledgeable, friendly employees who continue to better place to live or offering 7-day banking for added exceed customers’ needs and expectations has estab- convenience, translates into being the right way to lished a solid foundation upon which to grow in the bank. Our Guiding Principles have consistently provided Lehigh Valley. the foundation upon which we decide what’s right for Products and Services • The continual improve- us, our customers and the community. ment of products and services is an important part of In 2010, “doing the right thing” included continued ESSA’s commitment to customer satisfaction. In 2010, expansion and growth, the addition of new products that commitment led to both the introduction of new and services and ongoing community involvement. products and services for business banking customers By concentrating on these efforts, our decisions have and the appointment of a Cash Management Officer, strengthened an already safe, sound and stable posi- Roxanne Odierno, to help customers determine the best tion, enhanced the bank’s value and improved the solution for their particular financial needs. quality of life for those in the communities we serve. The diversity of products now available for business Market Expansion and Growth • ESSA Bank & customers makes it easier to find the ideal fit for each Trust continues to strengthen its position in the situation. Monroe County market area. The bank is now ranked • Checks can now be efficiently and easily deposited number one in market share as of June 30, 2010 with 23.53 percent of the deposits in Monroe County, an electronically at the customer’s convenience using eDeposit, ESSA’s remote deposit capture product. increase of 3.87 percent over last year. This was due in • Automated Clearing House (ACH) Origination part to the opening of the bank’s fourteenth branch in provides a gateway between ESSA customers and Mountainhome last March. The new branch has already other financial institutions for processing electronic booked more than $3 million in deposits and continues transactions. to grow. • Electronic customer payments are handled In late spring of 2010, ESSA also expanded into the accurately and securely with Merchant Payment Lehigh Valley with three new branches inside Weis Solutions. Markets in Allentown, Bethlehem and Schnecksville. Additionally, ESSA Bank & Trust rolled out its own Supermarket branches have been a successful strategy branded Visa® credit cards in 2010. Available for both for the bank, providing customers with the convenience business and retail customers, over 750 new accounts of banking where they shop and the extended banking have already been established. hours in which to do it. Employees in these new branch- Community Involvement • As a leading business es have taken the initiative of putting themselves out member of the community, ESSA has long believed in in the store to meet and develop relationships with the giving back to improve the quality of life for residents. supermarket customers. As a result, deposits stand at The ESSA Bank & Trust Foundation exists to fund over $1 million to date. the needs of 501(c)3 organizations and to ensure the As part of ESSA’s long-term commitment to make continued support of non-profit work which enhances the Lehigh Valley a permanent part of its geography, housing programs, parks and recreation, educational both a Commercial Loan Officer, Steven Levendusky, programs, community health and the arts. The private and a Trust Officer, William Evans, have been added to foundation has committed over $5 million to local our staff and are dedicated to this specific market. charitable organizations to date. 4 2010 Annual Report The bank also reaches out to the community employees play a large part in improving the commu- through its Brown Bag Luncheon Seminars, which nities in which they work and live through volunteer bring expert speakers and relevant topics to com- efforts. From senior management to entry level staff, munity members. Offered on a quarterly basis, the ESSA employees dedicate their time and talent to seminars have dealt with such topics as recognizing local charities through board service, leadership roles, the signs and symptoms of stroke, restoring finan- committee memberships, team participation and fund- cial balance, hypertension in women and diagnosing raising efforts. It is through their dedicated service that Alzheimer’s disease. ESSA employees demonstrate their value to the bank, Community support from ESSA isn’t limited to its customers and the community at large. corporate donations and sponsorships. The bank’s c Or pOr A Te in f Or mA TiOn Stock Listing ESSA Bancorp, Inc. common stock is listed on the NASDAQ Global MarketSM under the symbol “ESSA.” Inquiries For financial services offered through ESSA Bank & Trust, call (570) 421-0531. Individual investors should contact Investor Relations at (570) 422-0182. Internet Information ESSA Bancorp, Inc. financial reports and information about the products and services of its wholly owned subsidiary, ESSA Bank & Trust, are available on the Internet at www.essabank.com. Financial Information We are subject to the informa- tional requirements of the Securities Exchange Act of 1934. Therefore, we file annual, quarterly and current reports as well as proxy materials with the Securities and Exchange Commission (SEC). You can obtain copies of these and other filings, including exhibits, electroni- cally at the SEC’s website at www.sec.gov or through the ESSA website at www.essabank.com by clicking on the Investor Relations link. Copies of the annual report and Form 10-K may also be obtained by contacting Investor Relations at (570) 422-0182 or via e-mail at sfarley@essabank.com. Corporate Governance Information about our Board and its committees and about corporate governance at ESSA is available in the Governance Documents section of the Investor Relations link on the ESSA website at www.essabank.com. Shareholders who would like to request printed copies of the Code of Ethics or the charters of our Board’s Nominating and Corporate Governance, Audit and Compensation committees (all of which are posted on the ESSA website through the Inves- tor Relations link) may do so by sending their requests in writing to Suzie T. Farley, Corporate Secretary, at corporate headquarters at PO Box L, Stroudsburg, PA 18360-0160. Analysts and institutional investors should contact Allan A. Muto, Executive Vice President & CFO, at (570) 422-0181 or via e-mail at amuto@essabank.com. News media representatives and others seeking general information should contact Lynn Dailey, Director of Marketing Services, at (570) 422-0188 or via e-mail at ldailey@essabank.com. Annual Shareholders Meeting All shareholders are invited to attend the ESSA Bancorp, Inc. annual meeting on Thursday, March 3, 2011 at 11:00 am, Eastern Time, at: Lawnhaven Stroudsmoor Country Inn Stroudsmoor Road Stroudsburg, PA 18360 Registrar and Transfer Agent Registrar & Transfer Company 10 Commerce Drive Cranford, NJ 07016 (800) 368-5948 Special Counsel Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 780 Washington, DC 20015 5 c A uTiOnAr Y s T A Te m e nT r e g ArDi n g f Or w ArD -l O Ok i n g i n f Or mA TiOn / e s s A B An c Or p , i n c . We make statements in this Report, and we may • Competition can have an impact on customer from time to time make other statements, regarding acquisition, growth and retention, as well as on our our outlook or expectations for earnings, revenues, credit spreads and product pricing, which can affect expenses and/or other matters regarding or affecting market share, deposits and revenues. ESSA Bancorp, Inc. that are forward-looking statements • Legal and regulatory developments could have an within the meaning of the Private Securities Litigation impact on our ability to operate our businesses or Reform Act. Forward-looking statements are typically our financial condition or results of operations or identified by words such as “believe,” “expect,” “an- our competitive position or reputation. Impact on ticipate,” “intend,” “outlook,” “estimate,” “forecast,” our reputation, in turn, could affect matters such as “project” and other similar words and expressions. business generation and retention, our ability to Forward-looking statements are subject to numer- attract and retain management, liquidity and fund- ous assumptions, risks and uncertainties, which change ing. These developments could include: (a) the over time. Forward-looking statements speak only as resolution of legal proceedings or regulatory and of the date they are made. We do not assume any duty other governmental inquiries; (b) increased litiga- and do not undertake to update our forward-looking tion risk from recent regulatory and other govern- statements. Actual results or future events could differ, mental developments; (c) the results of the regula- possibly materially, from those that we anticipated in tory examination process, our failure to satisfy the our forward-looking statements, and future results requirements of agreements with governmental could differ materially from our historical performance. agencies, and regulators’ future use of supervisory Our forward-looking statements are subject to the and enforcement tools; (d) legislative and regulatory following principal risks and uncertainties. We provide reforms including changes to laws and regulations greater detail regarding these factors in our Form 10-K involving tax, pension, and the protection of con- for the year ended September 30, 2010, including the fidential customer information; and (e) changes in Risk Factors section. Our forward-looking statements accounting policies and principles. may also be subject to other risks and uncertainties • Our business and operating results are affected by including those discussed elsewhere in this Report or in the ability to identify and effectively manage risks our filings with the SEC accessible on the SEC’s website inherent in our business lines. at www.sec.gov or through the Investor Relations link • Our ability to anticipate and respond to technologi- on our corporate website at www.essabank.com. cal changes can have an impact on our ability to • Our business and operating results are affected respond to customer needs and to meet competitive by business and economic conditions generally or demands. The adequacy of our intellectual property specifically in the principal markets in which we do protection, and the extent of any costs associated business. We are affected by changes in our custom- with obtaining rights in intellectual property claimed ers’ financial performance, as well as changes in by others, can also impact our business and operat- customer preferences and behaviors, including those ing results. resulting from changing economic conditions. • The value of our assets and liabilities, as well as our overall financial performance, are affected by changes in interest rates or in valuations in the debt and equity markets. Actions by government agen- cies, including those that impact money supply and market interest rates, can affect our activities and financial results. 2010 Annual Report 200 Palmer Street PO Box L Stroudsburg, PA 18360-0160 (570) 421-0531