ESSA Bancorp, Inc. - Quarter Report: 2015 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2015

¨	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)

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 x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 x

As of August 3, 2015 there were 11,412,821 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		34

Item 3	Quantitative and Qualitative Disclosures About Market Risk		44

Item 4	Controls and Procedures		44

Part II. Other Information

Item 1.	Legal Proceedings		45

Item 1A.	Risk Factors		45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		45

Item 3.	Defaults Upon Senior Securities		45

Item 4.	Mine Safety Disclosures		45

Item 5.	Other Information		45

Item 6.	Exhibits		46

Signature Page			47

Part I. Financial Information

Item 1. Financial Statements

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2015			September 30, 2014
	(dollars in thousands)
Cash and due from banks	$	16,017		$	20,884
Interest-bearing deposits with other institutions		1,675			1,417

Total cash and cash equivalents		17,692			22,301
Certificates of deposit		1,750			1,767
Investment securities available for sale, at fair value		381,375			383,078
Loans receivable (net of allowance for loan losses of $8,767 and $8,634)		1,092,527			1,058,267
Regulatory stock, at cost		14,537			14,284
Premises and equipment, net		16,655			16,957
Bank-owned life insurance		30,421			29,720
Foreclosed real estate		2,595			2,759
Intangible assets, net		1,910			2,396
Goodwill		10,259			10,259
Deferred income taxes		11,045			12,027
Other assets		18,058			21,000


TOTAL ASSETS	$	1,598,824		$	1,574,815


LIABILITIES
Deposits	$	1,075,553		$	1,133,889
Short-term borrowings		120,856			108,020
Other borrowings		208,805			151,300
Advances by borrowers for taxes and insurance		11,617			4,093
Other liabilities		10,666			10,204


TOTAL LIABILITIES		1,427,497			1,407,506


STOCKHOLDERS’ EQUITY
Preferred Stock ($.01 par value; 10,000,000 shares authorized, none issued)
Common stock ($.01 par value; 40,000,000 shares authorized, 18,133,095 issued; 11,419,321 and 11,590,378 outstanding at June 30, 2015 and September 30, 2014)		181			181
Additional paid in capital		182,358			182,486
Unallocated common stock held by the Employee Stock Ownership Plan (ESOP)		(9,740	)		(10,079	)
Retained earnings		82,289			77,413
Treasury stock, at cost; 6,713,774 and 6,542,717 shares outstanding at June 30, 2015 and September 30, 2014, respectively		(82,105	)		(80,113	)
Accumulated other comprehensive loss		(1,656	)		(2,579	)


TOTAL STOCKHOLDERS’ EQUITY		171,327			167,309


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,598,824		$	1,574,815

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)


	For the Three Months Ended June 30,					For the Nine Months Ended June 30,
	2015		2014			2015			2014
	(dollars in thousands, except per share data)
INTEREST INCOME
Loans receivable, including fees	$	11,398	$	11,807		$	33,947		$	32,173
Investment securities:
Taxable		1,741		1,632			5,429			4,682
Exempt from federal income tax		248		173			721			318
Other investment income		181		173			759			317


Total interest income		13,568		13,785			40,856			37,490


INTEREST EXPENSE
Deposits		1,800		2,015			5,643			5,909
Short-term borrowings		118		54			324			104
Other borrowings		639		619			1,826			1,951


Total interest expense		2,557		2,688			7,793			7,964


NET INTEREST INCOME		11,011		11,097			33,063			29,526
Provision for loan losses		525		500			1,500			2,000


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		10,486		10,597			31,563			27,526


NONINTEREST INCOME
Service fees on deposit accounts		842		828			2,426			2,342
Services charges and fees on loans		274		283			863			572
Trust and investment fees		218		260			660			701
Gain/(loss) on sale of investments, net		194		(10	)		398			226
Earnings on Bank-owned life insurance		231		234			701			687
Insurance commissions		183		205			582			625
Gain on acquisition		—		241			—			241
Other		6		59			33			85


Total noninterest income		1,948		2,100			5,663			5,479


NONINTEREST EXPENSE
Compensation and employee benefits		5,213		4,912			15,559			13,577
Occupancy and equipment		996		1,051			3,111			3,034
Professional fees		517		441			1,438			1,348
Data processing		861		977			2,566			2,426
Advertising		373		243			725			463
Federal Deposit Insurance Corporation (FDIC) premiums		269		266			850			730
(Gain)/loss on foreclosed real estate		8		(65	)		(167	)		(116	)
Merger related costs		—		176			—			522
Amortization of intangible assets		157		282			486			756
Other		965		812			2,855			1,987


Total noninterest expense		9,359		9,095			27,423			24,727


Income before income taxes		3,075		3,602			9,803			8,278
Income taxes		618		976			2,318			2,146


NET INCOME	$	2,457	$	2,626		$	7,485		$	6,132


Earnings per share

Basic	$	0.24	$	0.24		$	0.72		$	0.56
Diluted	$	0.23	$	0.24		$	0.71		$	0.56
Dividends per share	$	0.09	$	0.07		$	0.25		$	0.19

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended June 30,						Nine Months Ended June 30,
	2015			2014			2015			2014
	(dollars in thousands)

Net income	$	2,457		$	2,626		$	7,485		$	6,132
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gain (loss)		(3,496	)		3,281			1,616			2,578
Tax effect		1,188			(1,116	)		(549	)		(877	)
Reclassification of (gains) losses recognized in net income		(194	)		10			(398	)		(226	)
Tax effect		66			(3	)		135			77


Net of tax amount		(2,436	)		2,172			804			1,552
Pension plan adjustment:
Related to actuarial losses and prior service cost		61			7			181			21
Tax effect		(22	)		(2	)		(62	)		(7	)


Net of tax amount		39			5			119			14


Total other comprehensive income (loss)		(2,397	)		2,177			923			1,566


Comprehensive income	$	60		$	4,803		$	8,408		$	7,698

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Common Stock
	Number of Shares			Amount		Additional Paid In Capital			Unallocated Common Stock Held by the ESOP			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(dollars in thousands)

Balance, September 30, 2014		11,590,378		$	181	$	182,486		$	(10,079	)	$	77,413		$	(80,113	)	$	(2,579	)	$	167,309

Net income													7,485									7,485
Other comprehensive income																			923			923
Cash dividends declared ($.25 per share)													(2,609	)								(2,609	)
Stock based compensation							81															81
Allocation of ESOP stock							76			339												415
Allocation of treasury shares to incentive plan							(285	)								285						—
Treasury shares purchased		(171,057	)													(2,277	)					(2,277	)


Balance, June 30, 2015		11,419,321		$	181	$	182,358		$	(9,740	)	$	82,289		$	(82,105	)	$	(1,656	)	$	171,327

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended June 30,
	2015			2014
	(dollars in thousands)
OPERATING ACTIVITIES

Net income	$	7,485		$	6,132
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,500			2,000
Provision for depreciation and amortization		980			948
Amortization and accretion of discounts and premiums, net		322			829
Net gain on sale of investment securities		(398	)		(226	)
Compensation expense on ESOP		415			371
Stock based compensation		81			170
Increase in accrued interest receivable		(54	)		(629	)
Increase in accrued interest payable		99			202
Earnings on bank-owned life insurance		(701	)		(687	)
Deferred federal income taxes		(507	)		(738	)
Gain on foreclosed real estate, net		(167	)		(116	)
Amortization of identifiable intangible assets		486			756
Other, net		4,478			1,701


Net cash provided by operating activities		14,019			10,713


INVESTING ACTIVITIES
Maturities of certificates of deposit		17			—
Investment securities available for sale:
Proceeds from sale of investment securities		5,904			8,065
Proceeds from principal repayments and maturities		46,953			27,863
Purchases		(50,532	)		(37,720	)
(Increase) decrease in loans receivable, net		(37,329	)		27,025
Redemption of regulatory stock		11,660			2,431
Purchase of regulatory stock		(11,913	)		(4,204	)
Proceeds from sale of foreclosed real estate		2,543			2,038
Acquisition, including cash acquired		—			(15,415	)
Capital improvements to foreclosed real estate		30			—
Purchase of premises, equipment, and software		(604	)		(498	)


Net cash (used for) provided by investing activities		(33,271	)		9,585


FINANCING ACTIVITIES
Decrease in deposits, net		(58,336	)		(68,902	)
Net increase in short-term borrowings		12,836			55,749
Proceeds from other borrowings		66,705			42,500
Repayment of other borrowings		(9,200	)		(56,387	)
Increase in advances by borrowers for taxes and insurance		7,524			6,962
Purchase of treasury stock shares		(2,277	)		(1,328	)
Dividends on common stock		(2,609	)		(2,060	)


Net cash provided by (used for) financing activities		14,643			(23,466	)


Decrease in cash and cash equivalents		(4,609	)		(3,168	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		22,301			26,648


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	17,692		$	23,480


SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid:
Interest	$	7,694		$	7,762
Income taxes		250			2
Noncash items:
Transfers from loans to foreclosed real estate		2,242			2,342
Acquisition of FNCB:
Cash received					4,640
Noncash assets acquired
Loans receivable and accrued interest receivable					1,033
Premises and equipment					1,626
Goodwill					1,442

Total non cash assets				$	4,101

Liabilities assumed:
Certificates of deposit					3,069
Deposits other than certificates of deposit					5,683

Total liabilities					8,752


Net noncash assets acquired					(4,651	)
Cash acquired				$	11


Acquisition of Franklin Security Bank assets and liabilities:
Noncash assets acquired
Investment securities, available for sale					55,901
Loans receivable					152,188
Federal Home Loan Bank stock					1,569
Premises and equipment					176
Foreclosed real estate					436
Intangible assets, net					889
Deferred income taxes					1,031
Other assets					2,504

Total assets acquired				$	214,694

Liabilities assumed:
Certificates of deposit					90,869
Deposits other than certificates of deposit					71,317
Other borrowings					30,177
Other liabilities					2,265

Total liabilities					194,628
Net noncash assets acquired					20,066
Cash acquired				$	(19,825	)

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

1.	Nature of Operations and Basis of Presentation

The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the “Company”), its wholly owned subsidiary, ESSA Bank & Trust (the “Bank”), and the Bank’s wholly owned subsidiaries, ESSACOR Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. On November 6, 2014, the Company converted its status from a savings and loan holding company to a bank holding company. In addition, the Bank converted from a Pennsylvania-chartered savings association to a Pennsylvania-chartered savings bank. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Lackawanna, and Luzerne Counties, Pennsylvania. The Bank is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The investment in subsidiary 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 owned 100 percent 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 nine month period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015.

2.	Earnings per Share

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the three and nine month periods ended June 30, 2015 and 2014.


	Three months ended						Nine months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Weighted-average common shares outstanding		18,133,095			18,133,095			18,133,095			18,133,095
Average treasury stock shares		(6,709,111	)		(6,272,961	)		(6,671,091	)		(6,233,349	)
Average unearned ESOP shares		(967,514	)		(1,012,790	)		(978,875	)		(1,024,151	)
Average unearned non-vested shares		(25,008	)		(9,752	)		(19,045	)		(11,233	)


Weighted average common shares and common stock equivalents used to calculate basic earnings per share		10,431,462			10,837,592			10,464,084			10,864,362


Additional common stock equivalents (non-vested stock) used to calculate diluted earnings per share		627			—			—			—
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		133,034			—			69,620			—


Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		10,565,123			10,837,592			10,533,704			10,864,362

At June 30, 2015 and 2014 there were options to purchase 317,910 shares of common stock outstanding at a price of $12.35 per share that were not included in the computation of diluted EPS because to do so would have been anti-dilutive. At June 30, 2015 and 2014 there were 35,057 and 4,440 shares, respectively, of nonvested stock outstanding at prices of $12.27 and $10.94 per share, respectively that were not included in the computation of diluted EPS because to do so would have been anti-dilutive.

3.	Use of Estimates in the Preparation of Financial Statements

The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles conform to U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ significantly from those estimates.

4.	Recent Accounting Pronouncements:

Recent Accounting Pronouncements:

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual

periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update did not have a significant impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update is not expected to have a significant impact on the Company’s financial statements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-04, Compensation-Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-05, Intangible – Goodwill and Other Internal Use Software (Topic 350-40), as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, the Board decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-08, Business Combinations - Pushdown Accounting - Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This ASU was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115. This Update did not have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services-Insurance (Topic 944) - Disclosure about Short-Duration Contracts. The amendments apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services-Insurance. The amendments require insurance entities to disclose for annual reporting periods certain information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. Additionally, the amendments require insurance entities to disclose for annual and interim reporting periods a rollforward of the liability for unpaid claims and claim adjustment expenses, described in Topic 944. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. For all other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

5.	Investment Securities

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


	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Fannie Mae	$	134,184	$	1,470	$	(913	)	$	134,741
Freddie Mac		92,368		738		(562	)		92,544
Governmental National Mortgage Association		16,534		106		(77	)		16,563
Other mortgage-backed securities		2,663		—		(12	)		2,651


Total mortgage-backed securities		245,749		2,314		(1,564	)		246,499
Obligations of states and political subdivisions		48,887		1,293		(376	)		49,804
U.S. government agency securities		44,246		280		(14	)		44,512
Corporate obligations		21,493		142		(236	)		21,399
Trust-preferred securities		3,194		277		—			3,471
Other debt securities		15,579		122		(36	)		15,665


Total debt securities		379,148		4,428		(2,226	)		381,350
Equity securities - financial services		25		—		—			25


Total	$	379,173	$	4,428	$	(2,226	)	$	381,375


	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Fannie Mae	$	144,291	$	1,327	$	(1,550	)	$	144,068
Freddie Mac		99,556		548		(1,277	)		98,827
Governmental National Mortgage Association		19,446		92		(161	)		19,377
Other mortgage-backed securities		2,795		—		(15	)		2,780


Total mortgage-backed securities		266,088		1,967		(3,003	)		265,052
Obligations of states and political subdivisions		41,375		1,654		(258	)		42,771
U.S. government agency securities		47,821		192		(383	)		47,630
Corporate obligations		13,140		236		(48	)		13,328
Trust-preferred securities		5,027		594		—			5,621
Other debt securities		6,618		51		(18	)		6,651


Total debt securities		380,069		4,694		(3,710	)		381,053
Equity securities - financial services		2,025		—		—			2,025


Total	$	382,094	$	4,694	$	(3,710	)	$	383,078

The amortized cost and fair value of debt securities at June 30, 2015, 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
	Amortized Cost		Fair Value
Due in one year or less	$	6,506	$	6,516
Due after one year through five years		49,366		49,771
Due after five years through ten years		64,198		64,601
Due after ten years		259,078		260,462

Total	$	379,148	$	381,350

For the three months ended June 30, 2015, the Company realized gross gains of $194,000 and no gross losses on proceeds from the sale of investment securities of $2.6 million. For the nine months ended June 30, 2015, the Company realized gross gains of $398,000 and no gross losses on proceeds from the sale of investment securities of $5.9 million. For the three months ended June 30, 2014, the Company realized gross losses of $10,000 on proceeds from the sale of investment securities of $100. For the nine months ended June 30, 2014, the Company realized gross gains of $247,000 and gross losses of $21,000 on proceeds from the sale of investment securities of $8.1 million.

6.	Unrealized Losses on Securities

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands):


	June 30, 2015
	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		26	$	15,652	$	(129	)	$	24,511	$	(784	)	$	40,163	$	(913	)
Freddie Mac		21		15,946		(101	)		16,010		(461	)		31,956		(562	)
Governmental National Mortgage Association		4		1,244		(7	)		2,399		(70	)		3,643		(77	)
Other mortgage-backed securities		3		—		—			2,651		(12	)		2,651		(12	)
Obligations of states and political subdivisions		14		9,172		(195	)		4,581		(181	)		13,753		(376	)
U.S. government agency securities		4		7,986		(13	)		1,000		(1	)		8,986		(14	)
Corporate obligations		10		9,906		(214	)		979		(22	)		10,885		(236	)
Other debt securities		7		6,097		(27)			1,801		(9)			7,898		(36)
Total		89		66,003		(686	)		53,932		(1,540	)		119,935		(2,226	)

	September 30, 2014
	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		39	$	34,377	$	(164	)	$	33,249	$	(1,386	)	$	67,626	$	(1,550	)
Freddie Mac		36		38,210		(216	)		29,269		(1,061	)		67,479		(1,277	)
Governmental National Mortgage Association		5		4,127		(22	)		2,981		(139	)		7,108		(161	)
Other mortgage-backed securities		3		—		—			2,780		(15	)		2,780		(15	)
Obligations of states and political subdivisions		5		—		—			7,207		(258	)		7,207		(258	)
U.S. government agency securities		11		8,004		(25	)		18,629		(358	)		26,633		(383	)
Corporate obligations		5		3,142		(32	)		1,130		(16	)		4,272		(48	)
Other debt securities		2		1,980		(18	)		—		—			1,980		(18	)


Total		106	$	89,840	$	(477	)	$	95,245	$	(3,233	)	$	185,085	$	(3,710	)

The Company’s investment securities portfolio contains unrealized losses on securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government, or generally viewed as having the implied guarantee of the U.S. government, other mortgage backed securities, debt obligations of a U.S. state or political subdivision, corporate debt obligations and equity securities.

The Company reviews its position quarterly and has asserted that at June 30, 2015, the declines outlined in the above table represent temporary declines and the Company would not be required to sell the security before its anticipated recovery in market value.

The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the non-collection of principal and interest during the period.

7.	Loans Receivable, Net and Allowance for Loan Losses

Loans receivable consist of the following (in thousands):


	June 30, 2015		September 30, 2014
Real estate loans:
Residential	$	618,198	$	654,152
Construction		1,151		1,367
Commercial		195,503		190,536
Commercial		35,035		25,807
Obligations of states and political subdivisions		56,868		49,177
Home equity loans and lines of credit		40,975		41,387
Auto Loans		150,370		100,571
Other		3,194		3,904
		1,101,294		1,066,901
Less allowance for loan losses		8,767		8,634

Net loans	$	1,092,527	$	1,058,267


	Total Loans		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality		Collectively Evaluated for Impairment

June 30, 2015
Real estate loans:
Residential	$	618,198	$	12,671	$	—	$	605,527
Construction		1,151		—		—		1,151
Commercial		195,503		15,627		4,365		175,511
Commercial		35,035		219		74		34,742
Obligations of states and political subdivisions		56,868		—		—		56,868
Home equity loans and lines of credit		40,975		607		—		40,368
Auto loans		150,370		340		—		150,030
Other		3,194		—		—		3,194

Total	$	1,101,294	$	29,464	$	4,439	$	1,067,391


	Total Loans		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality			Collectively Evaluated for Impairment

September 30, 2014
Real estate loans:

Residential	$	654,152	$	13,528	$	110		$	640,514
Construction		1,367		—		—			1,367
Commercial		190,536		17,517		4,727			168,292
Commercial		25,807		456		263			25,088
Obligations of states and political subdivisions		49,177		—		—			49,177
Home equity loans and lines of credit		41,387		266		(3	)		41,124
Auto loans		100,571		101		—			100,470
Other		3,904		—		—			3,904

Total	$	1,066,901	$	31,868	$	5,097		$	1,029,936

We maintain a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential impaired 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 loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired 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 identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Impairment 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.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate may be removed from the TDR status after one year of performance.

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable (in thousands).


	Recorded Investment		Unpaid Principal Balance		Associated Allowance
June 30, 2015
With no specific allowance recorded:
Real estate loans
Residential	$	9,378	$	11,231	$	—
Construction		—		—		—
Commercial		19,847		20,789		—
Commercial		293		305		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		529		533		—
Auto loans		159		237		—
Other		—		—		—


Total		30,206		33,095		—


With an allowance recorded:
Real estate loans
Residential		3,293		3,761		432
Construction		—		—		—
Commercial		145		174		1
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		78		106		69
Auto loans		181		181		76
Other		—		—		—


Total		3,697		4,222		578


Total:
Real estate loans
Residential		12,671		14,992		432
Construction		—		—		—
Commercial		19,992		20,963		1
Commercial		293		305		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		607		639		69
Auto loans		340		418		76
Other		—		—		—


Total Impaired Loans	$	33,903	$	37,317	$	578


	Recorded Investment		Unpaid Principal Balance		Associated Allowance
September 30, 2014
With no specific allowance recorded:
Real Estate Loans
Residential	$	11,030	$	13,225	$	—
Construction		—		—		—
Commercial		21,587		22,428		—
Commercial		719		777		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		210		377		—
Auto Loans		101		101		—
Other		—		—		—


Total		33,647		36,908		—


With an allowance recorded:
Real Estate Loans
Residential		2,608		2,997		334
Construction		—		—		—
Commercial		657		677		84
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		53		76		50
Auto Loans		—		—		—
Other		—		—		—


Total		3,318		3,750		468


Total:
Real Estate Loans
Residential		13,638		16,222		334
Construction		—		—		—
Commercial		22,244		23,105		84
Commercial		719		777		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		263		453		50
Auto Loans		101		101		—
Other		—		—		—


Total Impaired Loans	$	36,965	$	40,658	$	468

The following table represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired (in thousands).


	Three months ended
	June 30,
	2015		2014		2015		2014
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized

With no specific allowance recorded:
Real estate loans
Residential	$	9,522	$	8,989	$	59	$	92
Construction		—		—		—		—
Commercial		20,152		20,640		222		179
Commercial		306		3,289		2		43
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		433		215		2		2
Auto loans		116		—		—		—
Other		—		—		—		—


Total		30,529		33,133		285		316


With an allowance recorded:
Real estate loans
Residential		2,697		3,806		3		21
Construction		—		—		—		—
Commercial		146		978		—		—
Commercial		—		—		—		—
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		51		37		—		—
Auto loans		60		—		2		—
Other		—		—		—		—


Total		2,954		4,821		5		21


Total:
Real estate loans
Residential		12,219		12,795		62		113
Construction		—		—		—		—
Commercial		20,298		21,618		222		179
Commercial		306		3,289		2		43
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		484		252		2		2
Auto loans		176		—		2		—
Other		—		—		—		—


Total Impaired Loans	$	33,483	$	37,954	$	290	$	337


	Nine months ended
	June 30,
	2015		2014		2015		2014
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized

With no specific allowance recorded:
Real estate loans
Residential	$	10,334	$	9,556	$	222	$	242
Construction		—		—		—		—
Commercial		20,729		20,241		606		553
Commercial		550		1,764		6		49
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		307		285		4		4
Auto loans		74		—		1		—
Other		—		—		—		—


Total		31,994		31,846		839		848


With an allowance recorded:
Real estate loans
Residential		2,535		3,425		45		79
Construction		—		—		—		—
Commercial		343		1,896		—		—
Commercial		—		—		—		—
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		34		17		—		—
Auto loans		83		—		5		—
Other		—		—		—		—


Total		2,995		5,338		50		79


Total:
Real estate loans
Residential		12,869		12,981		267		321
Construction		—		—		—		—
Commercial		21,072		22,137		606		553
Commercial		550		1,764		6		49
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		341		302		4		4
Auto loans		157		—		6		—
Other		—		—		—		—


Total Impaired Loans	$	34,989	$	37,184	$	889	$	927

The Company uses a ten-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as Pass-rated. 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. Certain residential real estate loans, construction loans, home equity loans and lines of credit, auto loans and other consumer loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank 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 Bank’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 Bank’s Commercial Loan Officers perform an annual review of all commercial relationships $500,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank engages an external consultant to conduct loan reviews on at least a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or all criticized relationships. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of June 30, 2015 and September 30, 2014 (in thousands):


June 30, 2015	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate loans	$	169,502	$	3,382	$	22,619	$	—	$	195,503
Commercial		32,325		2,295		415		—		35,035
Obligations of states and political subdivisions		56,868		—		—		—		56,868


Total	$	258,695	$	5,677	$	23,034	$	—	$	287,406


September 30, 2014	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate loans	$	160,749	$	8,020	$	21,469	$	298	$	190,536
Commercial		24,874		345		588		—		25,807
Obligations of states and political subdivisions		49,177		—		—		—		49,177


Total	$	234,800	$	8,365	$	22,057	$	298	$	265,520

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. The following tables present the risk ratings in the consumer categories of performing and non-performing loans at June 30, 2015 and September 30, 2014 (in thousands):


	Performing		Non-performing		Total
June 30, 2015
Real estate loans:
Residential	$	608,002	$	10,196	$	618,198
Construction		1,151		—		1,151
Home equity loans and lines of credit		40,281		694		40,975
Auto loans		150,263		107		150,370
Other		3,156		38		3,194


Total	$	802,853	$	11,035	$	813,888


	Performing		Non-performing		Total
September 30, 2014
Real estate loans:
Residential	$	644,374	$	9,778	$	654,152
Construction		1,367		—		1,367
Home equity loans and lines of credit		41,128		259		41,387
Auto loans		100,571		—		100,571
Other		3,884		20		3,904


Total	$	791,324	$	10,057	$	801,381

Management 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 June 30, 2015 and September 30, 2014 (in thousands):


	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non- Accrual		Total Loans
June 30, 2015
Real estate loans
Residential	$	604,655	$	1,930	$	1,417	$	—	$	10,196	$	13,543	$	618,198
Construction		1,151		—		—		—		—		—		1,151
Commercial		185,696		300		—		—		9,507		9,807		195,503
Commercial		34,496		370		11		—		158		539		35,035
Obligations of states and political subdivisions		56,868		—		—		—		—		—		56,868
Home equity loans and lines of credit		40,148		63		70		—		694		827		40,975
Auto loans		148,588		1,549		126		—		107		1,782		150,370
Other		3,147		—		9		—		38		47		3,194

Total	$	1,074,749	$	4,212	$	1,633	$	—	$	20,700	$	26,545	$	1,101,294


	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non- Accrual		Total Loans
September 30, 2014
Real estate loans
Residential	$	640,583	$	2,398	$	1,393	$	—	$	9,778	$	13,569	$	654,152
Construction		1,367		—		—		—		—		—		1,367
Commercial		179,319		516		89		—		10,612		11,217		190,536
Commercial		24,424		110		30		—		1,243		1,383		25,807
Obligations of states and political subdivisions		49,159		18		—		—		—		18		49,177
Home equity loans and lines of credit		40,870		225		33		—		259		517		41,387
Auto loans		100,112		426		33		—		—		459		100,571
Other		3,884		—		—		—		20		20		3,904

Total	$	1,039,718	$	3,693	$	1,578	$	—	$	21,912	$	27,183	$	1,066,901

Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. Our allowance for loan losses consists of two elements: (1) an allocated allowance, which comprises allowances established on specific loans and class allowances based on historical loss experience and current trends, and (2) an allocated allowance based on general economic conditions and other risk factors in our markets and portfolios. We maintain a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired 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 loan loss allowances are based upon a combination of factors including, but not limited to, actual loan 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 loss provisions may be necessary, based on changing economic conditions. Payments received on impaired 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 loan losses as of June 30, 2015 is 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, have periodically reviewed our allowance for loan 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 ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The following tables summarize changes in the primary segments of the ALL for the three and nine month periods ending June 30, 2015 and 2014 (in thousands):


	Real Estate Loans
	Residential			Construction			Commercial			Commercial Loans			Obligations of States and Political Subdivisions			Home Equity Loans and Lines of Credit			Auto Loans			Other Loans			Unallocated			Total
ALL balance at March 31, 2015	$	5,289		$	17		$	843		$	635		$	87		$	468		$	1,023		$	30		$	276		$	8,668
Charge-offs		(390	)		—			—			(3	)		—			(3	)		(136	)		(5	)		—			(537	)
Recoveries		—			—			54			11			—			—			40			6			—			111
Provision		359			(8	)		(189	)		(2	)		112			10			406			(3	)		(160	)		525

ALL balance at June 30, 2015	$	5,258		$	9		$	708		$	641		$	199		$	475		$	1,333		$	28		$	116		$	8,767


March 31, 2014	$	5,920		$	26		$	1,003		$	369		$	106		$	500		$	—		$	26		$	712		$	8,662
Charge-offs		(332	)		—			(23	)		—			—			(10	)		—			—			—			(365	)
Recoveries		34			—			—			2			—			—			—			3			—			39
Provision		312			(2	)		(399	)		222			10			(17	)		56			(3	)		321			500

ALL balance at June 30, 2014	$	5,934		$	24		$	581		$	593		$	116		$	473		$	56		$	26		$	1,033		$	8,836


	Real Estate Loans
	Residential			Construction			Commercial			Commercial Loans			Obligations of States and Political Subdivisions			Home Equity Loans and Lines of Credit			Auto Loans			Other Loans			Unallocated			Total
ALL balance at September 30, 2014	$	5,573		$	11		$	663		$	528		$	163		$	470		$	459		$	32		$	735		$	8,634
Charge-offs		(1,150	)		—			(53	)		(30	)		—			(22	)		(301	)		(5	)		—			(1,561	)
Recoveries		22			—			85			20			—			12			49			6			—			194
Provision		813			(2	)		13			123			36			15			1,126			(5	)		(619	)		1,500

ALL balance at June 30, 2015	$	5,258		$	9		$	708		$	641		$	199		$	475		$	1,333		$	28		$	116		$	8,767


September 30, 2013	$	5,787		$	20		$	946		$	337		$	130		$	430		$	—		$	21		$	393		$	8,064
Charge-offs		(1,255	)		—			(73	)		(48	)		—			(73	)		—			—			—			(1,449	)
Recoveries		112			—			83			14			—			—			—			12			—			221
Provision		1,290			4			(375	)		290			(14	)		116			56			(7	)		640			2,000

ALL balance at June 30, 2014	$	5,934		$	24		$	581		$	593		$	116		$	473		$	56		$	26		$	1,033		$	8,836

Acquired loans are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

The following table summarizes the primary segments of the ALL, segregated into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2015 and September 30, 2014 (in thousands):


	Real Estate Loans
	Residential		Construction		Commercial		Commercial Loans		Obligations of States and Political Subdivisions		Home Equity Loans and Lines of Credit		Auto Loans		Other Loans		Unallocated		Total
Individually evaluated for impairment	$	432	$	—	$	1	$	—	$	—	$	69	$	76	$	—	$	—	$	578
Collectively evaluated for impairment		4,826		9		707		641		199		406		1,257		28		116		8,189

ALL Balance at June 30, 2015	$	5,258	$	9	$	708	$	641	$	199	$	475	$	1,333	$	28	$	116	$	8,767

Individually evaluated for impairment	$	334	$	—	$	84	$	—	$	—	$	50	$	—	$	—	$	—	$	468
Collectively evaluated for impairment		5,239		11		579		528		163		420		459		32		735		8,166

ALL balance at September 30, 2014	$	5,573	$	11	$	663	$	528	$	163	$	470	$	459	$	32	$	735	$	8,634

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. The Company allocated decreased provisions to residential real estate for the nine month period ending June 30, 2015 due to declining loan balances and impairment evaluations in those segments. The Company allocated increased provisions to commercial real estate, commercial loans and obligations of states and political subdivisions for the nine month period ending June 30, 2015 due primarily to increased loan balances. The Company allocated increased provisions in auto loans due to increased loan balances and increased charge off activity. Despite the above allocations, the allowance for loan losses is general in nature and is available to absorb losses from any loan segment.

The following is a summary of troubled debt restructuring granted during the three and nine months ended June 30, 2015 and 2014 (dollars in thousands).


	For the Three Months Ended June 30, 2015
	Dollars in thousands
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real estate loans:
Residential		3	$	695	$	695
Construction		—		—		—
Commercial		—		—		—
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		1		25		25
Auto loans		—		—		—
Other		—		—		—


Total		4	$	720	$	720

All four new troubled debt restructurings, granted for the three months ended June 30, 2015, were granted terms and rate concessions.


	For the Three Months Ended June 30, 2014
	Dollars in thousands
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real estate loans:
Residential		2	$	236	$	236
Construction		—		—		—
Commercial		—		—		—
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		—		—		—
Auto loans		—		—		—
Other		—		—		—


Total		2	$	236	$	236

Of the two new troubled debt restructurings granted for the three months ended June 30, 2014, one loan totaling $208,000 was granted terms and rate concessions and one loan totaling $28,000 was granted terms concessions.


	For the Nine Months Ended June 30, 2015
	Dollars in thousands
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real estate loans:
Residential		12	$	2,115	$	2,115
Construction		—		—		—
Commercial		—		—		—
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		2		175		175
Auto loans		—		—		—
Other		—		—		—


Total		14	$	2,290	$	2,290

Of the fourteen new troubled debt restructurings granted for the nine months ended June 30, 2015, ten loans totaling $1.6 million were granted terms and rate concessions and four loans totaling $607,000 were granted terms concessions.


	For the Nine Months Ended June 30, 2014
	Dollars in thousands
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real estate loans:
Residential		9	$	1,293	$	1,293
Construction		—		—		—
Commercial		1		197		197
Commercial		—		—		—
Obligations of states and political subdivisions		—		—		—
Home equity loans and lines of credit		—		—		—
Other		—		—		—


Total		10	$	1,490	$	1,490

Of the ten new troubled debt restructurings granted for the nine months ended June 30, 2014, six loans totaling $883,000 were granted terms and rate concessions and four loans totaling $607,000 were granted terms concessions.

For the three months ended June 30, 2015, one residential real estate loan totaling $68,000 defaulted on a restructuring agreement within one year of modification. For the nine months ended June 30, 2015, five residential real estate loans totaling $712,000 defaulted on a restructuring agreement within one year of modification. There were no troubled debt restructurings that have subsequently defaulted within one year of modification for the three and nine months ended June 30, 2014.

8.	Deposits

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


	June 30, 2015		September 30, 2014
Non-interest bearing demand accounts	$	103,419	$	70,048
Interest bearing demand accounts		98,498		163,936
Money market accounts		155,140		170,158
Savings and club accounts		131,295		122,734
Certificates of deposit		587,201		607,013


Total	$	1,075,553	$	1,133,889

9.	Net Periodic Benefit Cost-Defined Benefit Plan

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements for the year ended September 30, 2014 included in the Company’s Form 10-K.

The following table comprises the components of net periodic benefit cost for the periods ended (in thousands):


	Three Months Ended June 30,						Nine Months Ended June 30,
	2015			2014			2015			2014

Service Cost	$	219		$	144		$	655		$	433
Interest Cost		207			191			619			572
Expected return on plan assets		(309	)		(290	)		(925	)		(871	)
Amortization of unrecognized loss		61			7			181			21


Net periodic benefit cost	$	178		$	52		$	530		$	155

The Bank contributed $500,000 to its pension plan in April 2015.

10.

Equity Incentive Plan

The Company maintains the ESSA Bancorp, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan provides for a total of 2,377,326 shares of common stock for issuance upon the grant or exercise of awards. Of the shares available under the Plan, 1,698,090 may be issued in connection with the exercise of stock options and 679,236 may be issued as restricted stock. The Plan allows for the granting of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), and restricted stock. Options are granted at no less than the fair value of the Company’s common stock on the date of the grant.

Certain officers, employees and outside directors were granted in aggregate 1,140,469 NSOs; 317,910 ISOs; and 590,320 shares of restricted stock on May 23, 2008. Certain officers were granted in aggregate 30,000 shares of restricted stock on April 1, 2013, 19,880 of restricted stock on July 22, 2014 and 21,843 shares of restricted stock on May 20, 2105. In accordance with generally accepted accounting principles, the Company expenses the fair value of all share-based compensation grants over the requisite service periods.

The Company classifies share-based compensation for employees and outside directors within “Compensation and employee benefits” in the consolidated statement of income to correspond with the same line item as compensation paid. Additionally, generally accepted accounting principles require the Company to report: (1) the expense associated with the grants as an adjustment to operating cash flows and (2) any benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense as a financing cash flow.

Stock options vest over a five-year service period and expire ten years after grant date. The Company recognizes compensation expense for the fair values of these awards, which vest on a straight-line basis over the requisite service period of the awards.

The 2013 restricted stock shares vested over an 18-month service period. The 2014 restricted shares vest over a 39 month service period. The 2015 restricted shares vest over a 40 month service period. 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 recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.

For the nine months ended June 30, 2015 and 2014, the Company recorded $171,000 and $170,000 of share-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the 14,906 (2014 shares) restricted shares, at June 30, 2015 is $152,000 over the remaining vesting period of 2.25 years. Expected future compensation expense relating to the 21,843 restricted shares (2015 shares) at June 30, 2015 is $271,000 over the remaining vesting period of 3.25 years.

The following is a summary of the Company’s stock option activity and related information for its option grants for the nine month period ended June 30, 2015.


	Number of Stock Options			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding, September 30, 2014		1,443,379		$	12.35		3.67	$	—
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited		(123,799	)		12.35		2.92		—


Outstanding, June 30, 2015		1,319,580		$	12.35		2.92	$	673,000


Exercisable at June 30, 2015		1,319,580		$	12.35		2.92	$	673,000

The following is a summary of the status of the Company’s restricted stock as of June 30, 2015, and changes therein during the nine month period then ended:


	Number of Restricted Stock		Weighted- average Grant Date Fair Value
Nonvested at September 30, 2014		14,906	$	11.07
Granted		21,843		13.05
Vested		—		—
Forfeited		—		—


Nonvested at June 30, 2015		36,749	$	12.25

11.

Fair Value Measurement

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 to 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.

The following table presents information about the Company’s securities, other real estate owned and impaired loans measured at fair value as of June 30, 2015 and September 30, 2014 and indicates the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value:


	Fair Value Measurement at June 30, 2015
Fair Value Measurements Utilized for the Company’s Financial Assets (in thousands):	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balances as of June 30, 2015
Securities available-for-sale measured on a recurring basis
Mortgage backed securities	$	—	$	246,499	$	—	$	246,499
Obligations of states and political subdivisions		—		49,804		—		49,804
U.S. government agencies		—		44,512		—		44,512
Corporate obligations		—		19,399		2,000		21,399
Trust-preferred securities		—		1,741		1,730		3,471
Other debt securities		—		15,165		500		15,665
Equity securities-financial services		25		—		—		25


Total debt and equity securities	$	25	$	377,120	$	4,230	$	381,375
Foreclosed real estate owned measured on a non-recurring basis	$	—	$	—	$	2,595	$	2,595
Impaired loans measured on a non-recurring basis	$	—	$	—	$	33,325	$	33,325

	Fair Value Measurement at September 30, 2014
Fair Value Measurements Utilized for the Company’s Financial Assets (in thousands):	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balances as of September 30, 2014
Securities available-for-sale measured on a recurring basis
Mortgage backed securities	$	—	$	265,052	$	—	$	265,052
Obligations of states and political subdivisions		—		42,771		—		42,771
U.S. government agencies		—		47,630		—		47,630
Corporate obligations		—		13,328		—		13,328
Trust-preferred securities		—		3,891		1,730		5,621
Other debt securities		—		6,151		500		6,651
Equity securities-financial services		2,025		—		—		2,025


Total debt and equity securities	$	2,025	$	378,823	$	2,230	$	383,078
Foreclosed real estate owned measured on a non-recurring basis	$	—	$	—	$	2,759	$	2,759
Impaired loans measured on a non-recurring basis	$	—	$	—	$	36,497	$	36,497

The following table presents a summary of changes in the fair value of the Company’s Level III investments for the three and nine month periods ended June 30, 2015 and June 30, 2014 (in thousands).


	Fair Value Measurement Using Significant Unobservable Inputs (Level III)
	Three months ended
	June 30, 2015			June 30, 2014
Beginning balance	$	4,240		$	1,830
Purchases, sales, issuances, settlements, net		—			—
Total unrealized gain:
Included in earnings		—			—
Included in other comprehensive income		(10	)		—
Transfers in and/or out of Level III		—			—


	$	4,230		$	1,830


	Fair Value Measurement Using Significant Unobservable Inputs (Level III)
	Nine months ended
	June 30, 2015		June 30, 2014
Beginning balance	$	2,230	$	1,800
Purchases, sales, issuances, settlements, net		2,000		—
Total unrealized gain:
Included in earnings		—		—
Included in other comprehensive income		—		30
Transfers in and/or out of Level III		—		—


	$	4,230	$	1,830

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 Bank 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 comparables. 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. 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. Impaired loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is allocated to the loan. At June 30, 2015, 246 impaired loans with a carrying value of $33.9 million were reduced by specific valuation allowance totaling $578,000 resulting in a net fair value of $33.3 million based on Level 3 inputs. At September 30, 2014, 264 impaired loans with a carrying value of $37.0 million were reduced by a specific valuation totaling $468,000 resulting in a net fair value of $36.5 million based on Level 3 inputs.

The following table presents 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
(in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
June 30, 2015 :
Impaired loans	$	33,325	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to 50% (22.7%)
Foreclosed real estate owned		2,595	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	19% to 30% (21.1%)

	Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
September 30, 2014 :
Impaired loans	$	36,497	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to 35% (23.0%)
Foreclosed real estate owned		2,759	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	19% to 35% (21.2%)

(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.

(3)	Includes qualitative adjustments by management and estimated liquidation expenses.

The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below.

Disclosures about Fair Value of Financial Instruments

The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below.


	June 30, 2015
	Carrying Value		Level I		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	17,692	$	17,692	$	—	$	—	$	17,692
Investment and mortgage backed securities available for sale		381,375		25		377,120		4,230		381,375
Loans receivable, net		1,092,527		—		—		1,109,147		1,109,147
Accrued interest receivable		5,115		5,115		—		—		5,115
Regulatory stock		14,537		14,537		—		—		14,537
Mortgage servicing rights		478		—		—		478		478
Bank owned life insurance		30,421		30,421		—		—		30,421

Financial liabilities:
Deposits	$	1,075,553	$	488,352	$	—	$	590,123	$	1,078,475
Short-term borrowings		120,856		120,856		—		—		120,856
Other borrowings		208,805		—		—		209,841		209,841
Advances by borrowers for taxes and insurance		11,617		11,617		—		—		11,617
Accrued interest payable		930		930		—		—		930

	September 30, 2014
	Carrying Value		Level I		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	22,301	$	22,301	$	—	$	—	$	22,301
Investment and mortgage backed securities available for sale		383,078		2,025		378,823		2,230		383,078
Loans receivable, net		1,058,267		—		—		1,077,585		1,077,585
Accrued interest receivable		5,061		5,061		—		—		5,061
Regulatory stock		14,284		14,284		—		—		14,284
Mortgage servicing rights		688		—		—		688		688
Bank owned life insurance		29,720		29,720		—		—		29,720

Financial liabilities:
Deposits	$	1,133,889	$	526,876	$	—	$	608,936		1,135,812
Short-term borrowings		108,020		108,020		—		—		108,020
Other borrowings		151,300		—		—		151,617		151,617
Advances by borrowers for taxes and insurance		4,093		4,093		—		—		4,093
Accrued interest payable		831		831		—		—		831

Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling.

As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the values are based may have a significant impact on the resulting estimated values.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Bank, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.

The Company employed simulation modeling in determining the fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Accrued Interest Receivable, Short-Term Borrowings, Advances by Borrowers for Taxes and Insurance, and Accrued Interest Payable

The fair value approximates the current book value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the Bank-owned life insurance.

Investment and Mortgage-Backed Securities Available for Sale and FHLB Stock

The fair value of investment and mortgage-backed securities available for sale is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the fair market value approximates the carrying amount. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Loans Receivable

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Mortgage Servicing Rights

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

Deposits

The fair values disclosed for demand, savings, and money market deposit accounts are valued at the amount payable on demand as of quarter-end. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits of similar remaining maturities.

Other Borrowings

Fair values for other borrowings are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for other borrowings of similar remaining maturities.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

12.

Accumulated Other Comprehensive Income/(Loss)

The activity in accumulated other comprehensive income/(loss) for the three and nine months ended June 30, 2015 and 2014 is as follows (in thousands):


	Accumulated Other Comprehensive Income/(Loss)
	Defined Benefit Pension Plan			Unrealized Gains (Losses) on Securities Available for Sale			Total
Balance at March 31, 2015	$	(3,148	)	$	3,889		$	741
Other comprehensive income before reclassifications		—			(2,308	)		(2,308	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		39			(128	)		(89	)

Period change		39			(2,436	)		(2,397	)

Balance at June 30, 2015	$	(3,109	)	$	1,453		$	(1,656	)


Balance at March 31, 2014	$	(1,297	)	$	(549	)	$	(1,846	)
Other comprehensive loss before reclassifications		—			2,165			2,165
Amounts reclassified from accumulated other comprehensive loss, net of tax		5			7			12

Period change		5			2,172			2,177

Balance at June 30, 2014	$	(1,292	)	$	1,623		$	331


	Accumulated Other Comprehensive Income/(Loss)
	Defined Benefit Pension Plan			Unrealized Gains (Losses) on Securities Available for Sale			Total
Balance at September 30, 2014	$	(3,228	)	$	649		$	(2,579	)
Other comprehensive loss before reclassifications		—			1,067			1,067
Amounts reclassified from accumulated other comprehensive loss		119			(263	)		(144	)

Period change		119			804			923

Balance at June 30, 2015	$	(3,109	)	$	1,453		$	(1,656	)


Balance at September 30, 2013	$	(1,306	)	$	71		$	(1,235	)
Other comprehensive loss before reclassifications		—			1,701			1,701
Amounts reclassified from accumulated other comprehensive loss		14			(149	)		(135	)

Period change		14			1,552			1,566

Balance at June 30, 2014	$	(1,292	)	$	1,623		$	331


	Amount Reclassified from Accumulated Other Comprehensive Income
	Accumulated Other Comprehensive Income for the Three Months Ended June 30,						Affected Line Item in the Consolidated Statement of Income
	2015			2014
Securities available for sale:
Net securities gains reclassified into earnings	$	194		$	(10	)	Gain on sale of investments, net
Related income tax expense		(66	)		(3	)	Income taxes

Net effect on accumulated other comprehensive loss for the period		128			(7	)	Net of tax

Defined benefit pension plan:
Amortization of net loss and prior service costs		(61	)		(7	)	Compensation and employee benefits
Related income tax expense		22			2		Income taxes

Net effect on accumulated other comprehensive loss for the period	$	(39	)	$	(5	)	Net of tax

Total reclassification for the period	$	89		$	(12	)	Net of tax


	Amount Reclassified from Accumulated Other Comprehensive Income
	Accumulated Other Comprehensive Income for the Nine Months Ended June 30,						Affected Line Item in the Consolidated Statement of Income
	2015			2014
Securities available for sale:
Net securities gains reclassified into earnings	$	398		$	226		Gain on sale of investments, net
Related income tax expense		(135	)		(77	)	Income taxes

Net effect on accumulated other comprehensive loss for the period		263			149		Net of tax

Defined benefit pension plan:
Amortization of net loss and prior service costs		(181	)		(21	)	Compensation and employee benefits
Related income tax expense		62			7		Income taxes

Net effect on accumulated other comprehensive loss for the period	$	(119	)	$	(14	)	Net of tax

Total reclassification for the period	$	144		$	135		Net of tax

13.	Subsequent Events.

On July 29, 2015, the Company announced that it and Eagle National Bancorp, Inc. (“ENB”) had executed a definitive agreement whereby the Company will acquire ENB and its wholly owned subsidiary, Eagle National Bank through an all-cash deal. Under the terms of the merger agreement, stockholders of ENB will receive $5.80 per share or an aggregate of approximately $24.7 million. Pending the satisfaction of customary closing conditions, including the receipt of all regulatory approvals and the approval of ENB stockholders, the transaction is expected to close in the fourth calendar quarter of 2015.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans and prospects and growth and operating strategies;

•

statements regarding the asset quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K and Part II, Item 1A of this Report on Form 10-Q, as well as the following factors:

•

significantly increased competition among depository and other financial institutions;

•

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

adverse changes in the securities markets;

•

legislative or regulatory changes that adversely affect our business;

•

our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and

•

changes in our organization, compensation and benefit plans.

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

Comparison of Financial Condition at June 30, 2015 and September 30, 2014

Total Assets. Total assets increased by $24.0 million, or 1.5%, to $1.60 billion at June 30, 2015 from $1.57 billion at September 30, 2014. An increase in loans receivable of $34.3 million, which was partially offset by decreases in cash and due from banks of $4.9 million, deferred income taxes of $1.0 million, investment securities available for sale of $1.7 million, and other assets of $2.9 million was the primary reason for the increase.

Total Cash and Cash Equivalents. Total cash and cash equivalents decreased $4.6 million, or 20.7%, to $17.7 million at June 30, 2015 from $22.3 million at September 30, 2014. Decreases in cash and due from banks of $4.9 million were partially offset by an increase in interest bearing deposits with other institutions of $258,000. The decrease in cash and due from banks was due to normal fluctuations in cash held at the Federal Reserve Bank.

Net Loans. Net loans increased $34.3 million, or 3.2%, to $1.09 billion at June 30, 2015 from $1.06 billion at September 30, 2014. During this period, commercial real estate loans increased $5.0 million to $195.5 million, commercial loans increased $9.2 million to $35.0 million, obligations of states and political subdivisions increased $7.7 million to $56.9 million and auto loans increased $49.8 million to $150.4 million. These increases were partially offset by decreases in residential loans of $36.0 million to $618.2 million, construction loans of $216,000 to $1.2 million, home equity loans and lines of credit of $412,000 to $41.0 million and other loans of $710,000 to $3.2 million.

Investment Securities Available for Sale. Investment securities available for sale decreased $1.7 million, or 0.4%, to $381.4 million at June 30, 2015 from $383.1 million at September 30, 2014. The decrease was due primarily to decreases in mortgage backed securities of $18.6 million, U.S. government agency securities of $3.1 million, trust preferred securities of $2.2 million and equity securities of $2.0 million, offset in part by increases in obligations of states and political subdivisions of $7.0 million, corporate obligations of $8.1 million and other debt securities of $9.0 million.

Deposits. Deposits decreased $58.3 million, or 5.1%. to $1.08 billion at June 30, 2015 from $1.13 billion at September 30, 2014. primarily as a result of decreases in interest bearing demand accounts, money market accounts and certificates of deposit, offset in part by increases in non-interest bearing demand accounts and savings accounts. At June 30, 2015, compared to September 30, 2014, certificate of deposit accounts decreased $19.8 million to $587.2 million, interest bearing demand accounts decreased $65.4 million to $98.5 million, non-interest bearing demand accounts increased $33.4 million to $103.4 million, money market accounts decreased $15.0 million to $155.1 million and savings and club accounts increased $8.6 million to $131.3 million. Included in the certificates of deposit at June 30, 2015 was an increase in brokered certificates of $30.7 million to $249.0 million to help offset the decline in retail deposits.

Borrowed Funds. Borrowed funds increased by $70.3 million, or 27.1%, to $329.7 million at June 30, 2015, from $259.3 million at September 30, 2014. The increase in borrowed funds was due to increases in short term borrowings of $12.8 million and other borrowings of $57.5 million. All borrowings at June 30, 2015 represent advances from the Pittsburgh FHLB.

Stockholders’ Equity. Stockholders’ equity increased by $4.0 million, or 2.4% to $171.3 million at June 30, 2015 from $167.3 million at September 30, 2014. Increases resulting from net income and the change to accumulated other comprehensive income were partially offset by the payment of dividends and the repurchase of common stock.

Average Balance Sheets for the Three and Nine Months Ended June 30, 2015 and 2014

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 June 30,
	2015									2014
	Average Balance			Interest Income/ Expense			Yield/Cost			Average Balance			Interest Income/ Expense			Yield/Cost
	(dollars in thousands)

Interest-earning assets:
Loans⁽¹⁾	$	1,091,356		$	11,398			4.19	%	$	1,054,409		$	11,807			4.49	%
Investment Securities
Taxable⁽²⁾		82,731			433			2.10	%		81,064			411			2.03	%
Exempt from federal income tax⁽²⁾⁽³⁾		38,382			248			3.93	%		32,298			173			3.26	%

Total investment securities		121,113			681			2.68	%		113,362			584			2.38	%
Mortgage-backed securities		260,522			1,308			2.01	%		244,722			1,221			2.00	%
Regulatory stock		13,670			177			5.19	%		12,153			167			5.51	%
Other		3,170			4			0.51	%		17,589			6			0.14	%

Total interest-earning assets		1,489,831			13,568			3.69	%		1,442,235			13,785			3.86	%
Allowance for loan losses		(8,708	)								(8,697	)
Noninterest-earning assets		106,842									113,084

Total assets	$	1,587,965								$	1,546,622


Interest-bearing liabilities:
Interest bearing demand accounts	$	100,123		$	28			0.11	%	$	121,934			20			0.07	%
Money market accounts		176,533			110			0.25	%		178,056			92			0.21	%
Savings and club accounts		126,209			16			0.05	%		122,691			17			0.06	%
Certificates of deposit		575,014			1,646			1.15	%		652,488			1,886			1.16	%
Borrowed funds		314,155			757			0.97	%		215,097			673			1.26	%

Total interest-bearing liabilities		1,292,034			2,557			0.79	%		1,290,266			2,688			0.84	%
Non-interest-bearing demand accounts		102,598									67,056
Non-interest-bearing liabilities		19,655									19,035

Total liabilities		1,414,287									1,376,357
Equity		173,678									170,265

Total liabilities and equity	$	1,587,965								$	1,546,622


Net interest income				$	11,011								$	11,097

Interest rate spread								2.90	%								3.02	%
Net interest-earning assets	$	197,797								$	151,969

Net interest margin⁽⁴⁾								2.96	%								3.09	%
Average interest-earning assets to average interest-bearing liabilities					115.31	%								111.78	%


	For the Nine Months Ended June 30,
	2015									2014
	Average Balance			Interest Income/ Expense			Yield/Cost			Average Balance			Interest Income/ Expense			Yield/Cost
	(dollars in thousands)
Interest-earning assets:
Loans⁽¹⁾	$	1,077,664		$	33,947			4.21	%	$	968,243		$	32,173			4.44	%
Investment Securities
Taxable⁽²⁾		81,429			1,370			2.25	%		83,408			1,250			2.00	%
Exempt from federal income tax⁽²⁾⁽³⁾		36,456			721			4.01	%		19,896			318			3.24	%

Total investment securities		117,885			2,091			2.79	%		103,304			1,568			2.24	%
Mortgage-backed securities		264,463			4,059			2.05	%		227,106			3,432			2.02	%
Regulatory stock		12,995			745			7.66	%		10,687			303			3.79	%
Other		3,745			14			0.50	%		11,802			14			0.16	%

Total interest-earning assets		1,476,752			40,856			3.73	%		1,321,142			37,490			3.81	%
Allowance for loan losses		(8,606	)								(8,342	)
Noninterest-earning assets		108,606									108,291

Total assets	$	1,576,752								$	1,421,091


Interest-bearing liabilities:
Interest bearing demand accounts	$	111,346		$	76			0.09	%	$	100,849			42			0.06	%
Money market accounts		194,385			372			0.26	%		151,834			225			0.20	%
Savings and club accounts		121,929			46			0.05	%		113,959			45			0.05	%
Certificates of deposit		581,590			5,149			1.18	%		619,283			5,597			1.21	%
Borrowed funds		292,999			2,150			0.98	%		187,720			2,055			1.46	%

Total interest-bearing liabilities		1,302,249			7,793			0.80	%		1,173,645			7,964			0.90	%
Non-interest-bearing demand accounts		85,118									62,026
Non-interest-bearing liabilities		17,480									16,443

Total liabilities		1,404,847									1,252,114
Equity		171,905									168,977

Total liabilities and equity	$	1,576,752								$	1,421,091


Net interest income				$	33,063								$	29,526

Interest rate spread								2.93	%								2.91	%
Net interest-earning assets	$	174,503								$	147,497

Net interest margin⁽⁴⁾								2.99	%								2.99	%
Average interest-earning assets to average interest-bearing liabilities					113.40	%								112.57	%

(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 34%.

(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 June 30, 2015 and June 30, 2014

Net Income. Net income decreased $169,000, or 6.4%, to $2.5 million for the three months ended June 30, 2015 compared to net income of $2.6 million for the comparable period in 2014. The decrease was due primarily to decreases in net interest income and non-interest income combined with an increase in non-interest expenses.

Net Interest Income. Net interest income decreased $86,000, or 0.8%, to $11.0 million for the three months ended June 30, 2015 from $11.1 million for the comparable period in 2014. The decrease was primarily attributable to a decrease in the Company’s interest rate spread to 2.90% for the three months ended June 30, 2015, from 3.02% for the comparable period in 2014, offset in part by an increase of $45.8 million in the Company’s average net interest-earnings assets. Net interest-earning assets increased primarily due to the Company’s acquisition of Franklin Security Bancorp on April 4, 2014.

Interest Income. Interest income decreased $217,000, or 1.6%, to $13,6 million for the three months ended June 30, 2015 from $13.8 million for the comparable 2014 period. The decrease resulted primarily from a decrease in the yield on interest earning assets of 17 basis points, offset in part by an increase in interest earning assets of $47.6 million. The average yield on interest earning assets was 3.69% for the three months ended June 30, 2015, as compared to 3.86% for the comparable 2014 period. Loans increased on average $36.9 million between the two periods. In addition, average investment securities increased $7.8 million, mortgage-backed securities increased $15.8 million, regulatory stock increased $1.5 million and other interest earning assets decreased $14.4 million.

Interest Expense. Interest expense decreased $131,000, or 4.9%, to $2.6 million for the three months ended June 30, 2015 from $2.7 million for the comparable 2014 period. The decrease resulted from a 5 basis point decrease in the overall cost of interest bearing liabilities to 0.79% for the three months ended June 30, 2015 from 0.84% for the comparable 2014 period, offset in part by an increase in average interest bearing liabilities of $1.8 million. Increases in average balances of borrowed funds and savings and club accounts were offset by declines in interest bearing demand accounts, money market accounts and certificates of deposit.

Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. After an evaluation of these factors, management made a provision for loan losses of $525,000 for the three month period ended June 30, 2015 compared to $500,000 for the three month period ended June 30, 2014. The allowance for loan losses was $8.8 million, or 0.80% of loans outstanding, at June 30, 2015, compared to $8.6 million, or 0.81% of loans outstanding at September 30, 2014.

Non-interest Income. Non-interest income decreased $152,000, or 7.2%, to $1.9 million for the three months ended June 30, 2015 from $2.1 million for the comparable period in 2014. An increase of $204,000 in gain on the sale of investments was more than offset by declines in the gain on acquisition of $241,000 and other income of $53,000.

Non-interest Expense. Non-interest expense increased $264,000, or 2.9%, to $9.4 million for the three months ended June 30, 2015 from $9.1 million for the comparable period in 2014. The primary reasons for the increase were increases in compensation and employee benefits of $301,000, advertising of $130,000, foreclosed real estate of $73,000 and other expenses of $154,000 which were offset in part by declines in occupancy and equipment of $55,000, data processing of $116,000, merger related costs of $176,000 and amortization of intangible assets of $126,000.

Income Taxes. Income tax expense decreased $358,000 to $618,000 for the three months ended June 30, 2015 from $976,000 for the comparable 2014 period. The decrease was primarily a result of the decrease in income before taxes of $527,000 for the three months ended June 30, 2015 and a decline in the effective tax rate. The effective tax rate was 20.1% for the three months ended June 30, 2015, compared to 27.1% for the 2014 period.

Comparison of Operating Results for the Nine Months Ended June 30, 2015 and June 30, 2014

Net Income. Net income increased $1.4 million, or 22.1%, to $7.5 million for the nine months ended June 30, 2015 compared to net income of $6.1 million for the comparable period in 2014. The increase was due primarily to increases in net interest income and non-interest income, offset in part by an increase in non-interest expenses.

Net Interest Income. Net interest income increased $3.5 million, or 12.0%, to $33.1 million for the nine months ended June 30, 2015 from $29.5 million for the comparable period in 2014. The increase was primarily attributable to an increase in the Company’s interest rate spread to 2.93% for the nine months ended June 30, 2015, from 2.91% for the comparable period in 2014, and an increase of $27.0 million in the Company’s average net interest-earnings assets.

Interest Income. Interest income increased $3.4 million, or 9.0%, to $40.9 million for the nine months ended June 30, 2015 from $37.5 million for the comparable 2014 period. The increase resulted primarily from an increase in interest earning assets of $155.6 million, offset in

part by a decline in the yield on interest earning assets of eight basis points. The average yield on interest earning assets was 3.73% for the nine months ended June 30, 2015, as compared to 3.81% for the comparable 2014 period. Loans increased on average $109.4 million between the two periods. In addition, average investment securities increased $14.6 million, mortgage-backed securities increased $37.4 million, regulatory stock increased $2.3 million and other interest earning assets decreased $8.1 million. Average interest earning assets increased primarily due to the Franklin acquisition.

Interest Expense. Interest expense decreased $171,000, or 2.2%, to $7.8 million for the nine months ended June 30, 2015 from $8.0 million for the comparable 2014 period. The decrease resulted from a 10 basis point decrease in the overall cost of interest bearing liabilities to 0.80% for the nine months ended June 30, 2015 from 0.90% for the comparable 2014 period offset by a $128.6 million increase in average interest bearing liabilities for the nine months ended June 30, 2015. Increases in all interest bearing accounts as a result of the Franklin Security Bancorp merger was the primary reason for the increase in average interest bearing liabilities.

Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. After an evaluation of these factors, management made a provision for loan losses of $1.5 million for the nine month period ended June 30, 2015 as compared to $2.0 million for the nine month period ended June 30, 2014. The allowance for loan losses was $8.8 million, or 0.80% of loans outstanding, at June 30, 2015, compared to $8.6 million, or 0.81% of loans outstanding at September 30, 2014.

Non-interest Income. Non-interest income increased $184,000, or 3.4%, to $5.7 million for the nine months ended June 30, 2015 from $5.5 million for the comparable period in 2014. The primary reasons for the increase were increases in service charges and fees of deposit accounts of $84,000, offset in part by declines in gain on acquisition of $241,000, insurance commissions of $43,000 and other expense of $52,000.

Non-interest Expense.Non-interest expense increased $2.7 million, or 10.9%, to $27.4 million for the nine months ended June 30, 2015 from $24.7 million for the comparable period in 2014. The primary reasons for the increase were increases in compensation and employee benefits of $2.0 million and other expenses of $869,000 due to increased expenses since the acquisition of Franklin Security Bank. Declines in merger related costs of $522,000 and amortization of intangibles partially offset the increase in other expenses.

Income Taxes. Income tax expense increased $172,000 to $2.3 million for the nine months ended June 30, 2015 from $2.1million for the comparable 2014 period. The increase was primarily a result of the increase in income before taxes of $1.5 million for the nine months ended June 30, 2015. The effective tax rate was 23.6% for the nine months ended June 30, 2015, compared to 25.9% for the 2014 period.

Non-Performing Assets

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


	June 30, 2015			September 30, 2014

Non-performing assets:
Non-accruing loans	$	20,700		$	21,912
Troubled debt restructures		—			238


Total non-performing loans		20,700			22,150
Foreclosed real estate		2,595			2,759
Other repossessed assets		63			69

Total non-performing assets	$	23,358		$	24,978


Ratio of non-performing loans to total loans		1.89	%		2.08	%
Ratio of non-performing loans to total assets		1.29	%		1.41	%
Ratio of non-performing assets to total assets		1.46	%		1.58	%
Ratio of allowance for loan losses to total loans		0.80	%		0.81	%

Loans are reviewed on a regular basis and are placed on non-accrual status when they become more than 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 $1.6 million to $23.4 million at June 30, 2015 from $25.0 million at September 30, 2014. Non-performing loans decreased $1.5 million to $20.7 million at June 30, 2015 from $22.2 million at September 30, 2014. The year to date decrease was primarily due to decreases of $2.2 million in non-performing commercial loans offset, in part, by increases of $179,000 in non-performing mortgage loans and $560,000 in non-performing consumer loans. The number of nonperforming residential loans remained at 96 for June 30, 2015, and September 30, 2014. The $20.7 million of non-accruing loans at June 30, 2015 included 96 residential loans with an aggregate outstanding balance of $10.2 million, 60 commercial and commercial real estate loans with aggregate outstanding balances of $10.0 million and 37 consumer loans with aggregate balances of $840,000. Within the residential loan balance are $3.9 million of loans less than 90 days past due. In the quarter ended June 30, 2015, the Company identified 29 residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate decreased $164,000 to $2.6 million at June 30, 2015 from $2.8 million at September 30, 2014. Foreclosed real estate consists of 27 residential properties, seven building lots and one commercial property.

At June 30, 2015, the principal balance of troubled debt restructures was $8.0 million as compared to $6.8 million at September 30, 2014. Of the $8.0 million of troubled debt restructures at June 30, 2015, $2.5 million are performing loans and $5.5 million are non-accrual loans.

Of the 62 loans that comprise our troubled debt restructures at June 30, 2015, no loans were granted a rate concession at a below market interest rate. Twenty-three loans with balances totaling $3.4 million were granted market rate and terms concessions, 11 loans totaling $1.0 million were granted an interest rate concession and 28 loans with balances totaling $3.7 million were granted term concessions.

As of June 30, 2015, troubled debt restructures were comprised of 51 residential loans totaling $6.6 million, 8 commercial and commercial real estate loans totaling $1.2 million, and three consumer (home equity loans, home equity lines and credit, and other) loans totaling $268,000.

For the three month period ended June 30, 2015, one loan totaling $120,000 was removed from non-performing TDR status due to completion of one year of consecutive on time payments and two loans were foreclosed totaling $308,000. For the nine months ended June 30, 2015 one loan for $198,000 was paid off, ten loans totaling $1.1 million were removed for consecutive on-time payments and three loans for $343,000 were transferred to foreclosed real estate.

We have modified terms of loans that do not meet the definition of a TDR. The vast majority of such loans were rate modifications of residential first mortgage loans in lieu of refinancing. The non-TDR rate modifications were all performing loans when the rates were reset to current market rates. For the three months ended June 30, 2015, we modified 5 loans ($771,000) in this fashion. For the nine months ended June 30, 2015, we modified 41 loans ($5.4 million) in this fashion. With regard to commercial loans, including commercial real estate loans, there were five loans in the three months ended June 30, 2015 totaling $1.6 million. There were eighteen such loans in the nine months ended June 30, 2015 with an aggregate balance of approximately $12.0 million.

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 FHLBank 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 June 30, 2015, $17.7 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. Short-term investment securities (maturing in one year or less) totaled $6.6 million at June 30, 2015. As of June 30, 2015, we had $329.7 million in borrowings outstanding from FHLBank Pittsburgh. We have access to total FHLBank advances of up to approximately $556.5 million.

At June 30, 2015, we had $105.1 million in loan commitments outstanding, which included, in part, $31.3 million in undisbursed construction loans and land development loans, $31.8 million in unused home equity lines of credit, $32.4 million in commercial lines of credit and commitments to originate commercial loans, $3.2 million in performance standby letters of credit and $6.3 million in other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of June 30, 2015 totaled $262.8 million, or 44.8% 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 June 30, 2016. 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 Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $14.0 million and $10.7 million for the nine months ended June 30, 2015 and 2014, 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 ($33.3) million and $9.6 million for the nine months ended June 30, 2015 and 2014, 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) of $14.6 million and ($23.5) million for the nine months ended June 30, 2015 and 2014, 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 Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions.

The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allocations. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results.

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 2015 or 2014.

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 2015 and 2014.

Employee Benefit Plans. The Bank maintains a noncontributory, defined benefit pension plan for all employees who have met age and length of service requirements. The Bank also maintains a defined contribution Section 401(k) plan covering eligible employees. The Company created an ESOP for the benefit of employees who meet certain eligibility requirements. The Company makes cash contributions to the ESOP on an annual basis.

The Company maintains an equity incentive plan to provide for issuance or granting of shares of common stock for stock options or restricted stock. The Company has recorded stock-based employee compensation cost using the fair value method as allowed under generally accepted accounting principles. Management estimated the fair values of all option grants using the Black-Scholes option-pricing model. Management estimated the expected life of the options using the simplified method as allowed under generally accepted accounting principles. The risk-free rate was determined utilizing the treasury yield for the expected life of the option contract.

Fair Value Measurements. We group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

•

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

•

Level II – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level III – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in generally accepted accounting principles.

Fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid, and other market information. Subsequently, all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. In certain cases, however, when market observable inputs for model-based valuation techniques may not be readily available, we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations.

Other-than-Temporary Investment Security Impairment. Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carryback declines, or if we project lower levels of future taxable income. Such a valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.

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.

Contractual Obligations

During the first nine months of fiscal 2015, the Company’s contractual obligations did not change materially from those discussed in the Company’s Financial Statements for the year ended September 30, 2014.

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, 2014.

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 report.

Part II – Other Information

Item 1.

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 financial condition or results of operations.

Item 1A.

Risk Factors

In addition to the risk factors relating the Company that were disclosed in response to Item 1A of Form 10-K for the year ended September 30, 2014, the following additional risk factor exists relating to the recently announced execution of a merger agreement by and among the Company and Eagle National Bancorp, Inc., the holding company to Eagle National Bank (collectively referred to herein as “Eagle”):

The merger of the Company and Eagle and the integration of the companies may be more difficult, costly or time consuming than expected. It is possible that the integration process could result in the loss of key employees or disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the Company’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the merger. As with any member of banking institutions, there may also be business disruptions that cause the Company to lose customers or cause customers to withdraw their deposits from the Company’s banking subsidiaries. The success of the combined company following the merger may depend in large part on the ability to integrate the two business models and cultures. If we are not able to integrate the Company’s and Eagle’s operations successfully and in a timely manner, the expected benefits of the merger may not be realized.

The Company may fail to realize the cost savings estimated for the merger. The Company estimates that it will achieve cost savings from the merger when the two companies have been fully integrated, while the Company continues to be comfortable with these expectations, it is possible that the estimates of the potential cost savings could turn out to be incorrect. The cost savings estimates also assume the ability to combine the businesses of the Company and Eagle in a manner that permits those cost savings to be realized. If the estimates turn out to be incorrect or the Company is not able to successfully combine the two companies the anticipated cost savings may not be fully realized or realized at all, or may take longer to realize than expected.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents a summary of the company’s share repurchases during the quarter ended June 30, 2015.

Company Purchases of Common Stock


Month Ending	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs

April 30, 2015		1,900	$	12.79		1,900		—
May 31, 2015		5,000		12.91		5,000		—
June 30, 2015		30,000		12.84		30,000		—

Total		36,900	$	12.85		36,900		91,400

On February 27, 2014, the Board of Directors approved a sixth stock repurchase program, which authorized the repurchase of up to 5% of the Company’s outstanding shares of common stock. Stock repurchases will be made from time to time and may be effected through open market purchases, block trades and in privately negotiated transactions.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

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


3.1		Articles of Incorporation of ESSA Bancorp, Inc.*

3.2		Bylaws of ESSA Bancorp, Inc.*

4		Form of Common Stock Certificate of ESSA Bancorp, Inc.*

10.1		Amended and Restated Employment Agreement for Gary S, Olson**

10.2		Amended and Restated Employment Agreement for Allan A, Muto**

10.3		Amended and Restated Employment Agreement for Diane K, Reimer **

10.4		Amended and Restated Employment Agreement for V, Gail Bryant (Warner)**

10.5		Supplemental Executive Retirement Plan**

10.6		Endorsement Split Dollar Life Insurance Agreement for Gary S, Olson**

10.7		Endorsement Split Dollar Life Insurance Agreement for Allan A, Muto **

10.8		Endorsement Split Dollar Life Insurance Agreement for Diane K, Reimer **

10.9		Endorsement Split Dollar Life Insurance Agreement for V, Gail Bryant (Warner)**

10.10		ESSA Bancorp, Inc. 2007 Equity Incentive Plan***

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: (i) the Consolidated Statements of Condition; (ii) the Consolidated Statement of Income; (iii) the Consolidated Statement of Changes in Stockholder Equity; the Consolidated Statement of Cash Flows; and (iv) the Notes to Consolidated Financial Statements.

*	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.

**	Incorporated by reference to ESSA Bancorp, Inc.’s current report on Form 8-K filed with the Securities and Exchange Commission on October 6, 2008.

***	Incorporated by reference to Appendix A to the Proxy Statement for the Annual Meeting of Stockholders of ESSA Bancorp, Inc. (file no. 001-33384), filed by ESSA Bancorp, Inc. under the Exchange Act on April 4, 2008.

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: August 10, 2015				/s/ Gary S. Olson
				Gary S. Olson
				President and Chief Executive Officer

Date: August 10, 2015				/s/ Allan A. Muto
				Allan A. Muto
				Executive Vice President and Chief Financial Officer