ESSA Bancorp 10Q 2025 Q1 Quarterly report

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

☐ 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.

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.

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.

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.

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.

ESSA BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

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.

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.

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.

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.

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	$	-

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	)

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.

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


	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.

The Company uses a dual risk rating methodology to monitor the credit quality of the overall commercial loan portfolio. This rating system consists of a borrower rating scale from 1 to 14 and a collateral coverage rating scale from A to J that provides a mechanism to separate borrower creditworthiness from the value of collateral recovery in the event of default. The two ratings are combined using a matrix to develop an overall composite loan quality risk rating. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are fundamentally sound yet, exhibit potentially unacceptable credit risk or deteriorating trends or characteristics which if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in the Loss category are considered uncollectible and of little value that their continuance as bankable assets is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Company’s credit management team performs an annual review of all commercial relationships $2,000,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company engages an external consultant to conduct loan reviews on at least a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or all criticized relationships equal to or greater than $500,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Substandard category that are analysed for credit loss are given separate consideration in the determination of the allowance.

The Bank uses the following definitions for risk ratings:

Pass. Loans classified as pass are loans in which the condition of the borrower and the performance of the loans are satisfactory of better

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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



							Revolving	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



													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

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



													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

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):


	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.

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

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.

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

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.

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

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

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

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.

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

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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:

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Level I – Valuation is based upon quoted prices for identical instruments traded in active markets.

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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.

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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.

Item 4. Controls and Procedures

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

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

Part II – Other Information

Item 1. Legal Proceedings

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

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:

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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;

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the required approval of the merger agreement by the Company’s shareholders is not obtained;

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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

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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:

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the Company materially breaches the non-solicitation provisions in the merger agreement; or

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the Company’s Board of Directors:

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fails to recommend approval of the merger agreement, or withdraws, modifies or changes such recommendation in a manner adverse to CNB’s interests;

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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

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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

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:

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the Company may be required, under certain circumstances, to pay CNB a termination fee of $8.8 million;

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the Company could incur substantial costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;

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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

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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.

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.”

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)

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

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ESSA Bancorp (ESSA) 10-Q2025 Q1 Quarterly report

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