13.

Acquisitions

Acquisition of Eagle National Bancorp, Inc.

On December 4, 2015, the Company closed on a merger transaction pursuant to which ESSA Bancorp, Inc. acquired Eagle National Bancorp, Inc. (“ENB”) and its’ wholly owned subsidiary Eagle National Bank, in a cash transaction. The acquisition added five branch locations in the Philadelphia, Pennsylvania market, establishing ESSA’s presence in that market.

Under the terms of the merger agreement, the Company acquired all of the outstanding shares of ENB, for a total cash purchase price of approximately $24.7 million. Eagle National Bank has been merged into ESSA Bank & Trust, with ESSA Bank & Trust as the surviving entity.

The acquired assets and assumed liabilities were measured at estimated fair values. Management made significant estimates and exercised significant judgment in accounting for the acquisition. Management measured loan fair values based on loan file reviews (including borrower financial statements or tax returns), appraised collateral values, expected cash flows and historical loss factors of ENB. The Company also recorded an identifiable intangible asset representing the core deposit base of ENB based on management’s evaluation of the cost of such deposits relative to alternative funding sources. Management used market quotations to measure the fair value of investment securities. The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration. ENB’s loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality. Such loans were fair valued and the difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a nonaccretable difference. At the acquisition date, the Company recorded $3.5 million of purchased credit-impaired loans subject to a nonaccretable difference of $2.0 million. The method of measuring carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such, the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans as amortized cost.

ENB’s loans without evidence of credit deterioration were measured to fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value. Additionally, consideration was given to management’s best estimates of default rates and payment speeds. At acquisition, ENB’s loan portfolio without evidence of deterioration totaled $120.7 million and was recorded at a fair value of $121.4 million.

The following condensed statement reflects the values assigned to ENB net assets as of the acquisitions date:


Total purchase price	$	24,655
Net assets acquired:
Cash	$	8,481
Investments available for sale		36,275
Loans receivable		123,380
Regulatory stock		889
Premises and equipment, net		945
Intangible assets		1,491
Deferred tax assets		715
Other assets		2,174
Certificates of deposits		(32,408	)
Deposits other than certificates of deposits		(119,865	)
Other liabilities		(964	)

		21,113

Goodwill resulting from the ENB merger		3,542

Results of operations for ENB prior to the acquisition date are not included in the Consolidated Statement of Income for the three and six month periods ended March 31, 2016. The following table presents financial information regarding the former Eagle National Bank operations included in the Consolidated Statement of Income from the date of acquisition through March 31, 2016 under column “Actual from acquisition date through March 31, 2016.” In addition, the following table presents unaudited pro forma information as if the acquisition of ENB had occurred on October 1, 2014 under the “Pro Forma” columns. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Merger and acquisition integration costs and amortization of fair value adjustments net of the related income tax effects are included in the amounts below.


	Actual From Acquisition Date Through March 31, 2016 (in thousands)
Net interest income	$	2,123
Non interest income		166
Net income	$	575


	Pro Formas
	Three months ended March 31,				Six months ended March 31,
	2016		2015		2016		2015
	(in thousands, except per share data)
Net interest income	$	12,284	$	12,653	$	24,760	$	25,376
Non interest income		2,278		2,037		4,177		3,999
Net income		2,128		2,469		2,436		4,961
Pro forma earnings per share:
Basic	$	0.21	$	0.24	$	0.24	$	0.47
Diluted	$	0.20	$	0.24	$	0.23	$	0.47