---

ESSA BANK & TRUST 401(k) PLAN

STROUDSBURG, PENNSYLVANIA

AUDIT REPORT

DECEMBER 31, 2017

ESSA BANK & TRUST 401(k) PLAN

DECEMBER 31, 2017

 

To the Trustees, Plan Administrator, and Plan Participants of the ESSA Bank & Trust 401(k) Plan

Opinion on the Financial Statements

We have audited the accompanying statements of net assets available for benefits of the ESSA Bank & Trust 401(k) Plan as of December 31, 2017, and 2016, the related statement of changes in net assets available for benefits for the year ended December 31, 2017, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017, and 2016, and the changes in net assets available for benefits for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the ESSA Bank & Trust 401(k) Plan's management. Our responsibility is to express an opinion on the ESSA Bank & Trust 401(k) Plan's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the ESSA Bank & Trust 401(k) Plan, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Report on Supplemental Information

The supplemental information in the accompanying schedule of Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December 31, 2017, has been subjected to audit procedures performed in conjunction with the audit of the ESSA Bank & Trust 401(k) Plan's financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements, but includes supplemental information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the ESSA Bank & Trust 401(k) Plan's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in

 

 

Report on Supplemental Information (Continued)

the accompanying schedule, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedule is fairly stated in all material respects in relation to the financial statements as a whole.

We have served as the ESSA Bank & Trust 401(k) Plan's auditor since 2008.

Cranberry Township, Pennsylvania

June 29, 2018

ESSA BANK & TRUST 401(k) PLAN

STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS

				December 31,
				2017		2016
ASSETS
Investments, at fair value
	ESSA Bancorp, Inc. common stock fund		$	4,017,492	$	4,956,409
	Pooled separate accounts			10,515,604		8,767,714
		Total investments, at fair value		14,533,096		13,724,123
	Guaranteed investment contract,
	at contract value			4,193,362		3,249,543
		Total investments		18,726,458		16,973,666
	Notes receivable from participants			26,341		29,757
		Total assets		18,752,799		17,003,423
LIABILITIES				-		-
	Net assets available for benefits		$	18,752,799	$	17,003,423

     The accompanying notes are an integral part of these financial statements.

ESSA BANK & TRUST 401(k) PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31, 2017

 

ADDITIONS TO NET ASSETS ATTRIBUTED TO:
		Investment income:
			Net appreciation in fair value of investments			$	1,734,683
			Interest and dividends on investments				205,262
				Total investment income			1,939,945
		Interest income on notes receivable from participants					1,260
		Contributions:
		Contributions by employees					843,852
		Contributions by employer					357,418
		Rollover contributions					294,200
				Total contributions			1,495,470
				Total additions			3,436,675
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
		Benefits paid to participants					1,673,729
		Administrative expenses					13,570
				Total deductions			1,687,299
		Net increase					1,749,376
NET ASSETS AVAILABLE FOR BENEFITS:
		Beginning of the period					17,003,423
		End of the period				$	18,752,799

The accompanying notes are an integral part of these financial statements.

ESSA BANK & TRUST 401(k) PLAN

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF PLAN

The following brief description of the ESSA Bank & Trust 401(k) Plan (the "Plan") for employees of ESSA Bank & Trust (the "Bank") is provided for general information purposes only.  Participants should refer to the Plan Document for a more comprehensive description of the Plan's provisions.

The Plan is a defined contribution plan covering the employees of the Bank who have attained the age of 21 and have met the service requirements.  The Plan's initial service requirements are 166 hours in 60 days.  If the service requirements are not met in the first 60 days, the requirement reverts to 1,000 hours from hire date to anniversary date.  If the service requirements are still not met after the first anniversary year, the requirement switches to 1,000 hours in a plan year (1/1 to 12/31).  An employee is eligible to participate in the first of the quarter (January, April, July, October) coincident with or next following the date that the eligibility requirements are met. The Plan includes a 401(k) before-tax and after-tax savings features, which permits participants to defer compensation under Section 401(k) of the Internal Revenue Code.  It is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended.   The Benefits Committee is responsible for oversight of the Plan.  The Benefits Committee determines the appropriateness of the Plan's investment offerings, and monitors investment performance.

Employees may elect to contribute any amount up to the maximum percentage allowable, not to exceed the limits of Code Sections 401(k), 402(g), 404, and 415.  Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. The participants may direct their accounts into several different investment options.  Contributions are subject to certain limitations.  Effective March 1, 2017, the Plan was amended to reinstate the employer match.  The Bank will match 100 percent of the participant's annual elective deferrals that do not exceed 3 percent of the participant's compensation, plus 50 percent of the amount of the participant's annual elective deferrals that exceed 3 percent but that do not exceed 5 percent of the participant's compensation.

Each participant's account is credited with the participant's contributions, as well as allocations of Plan earnings based upon participant's account balances at the beginning of the valuation period.  Participant accounts are charged with an allocation of administrative expenses that are paid by the Plan.  Allocations are based on participant earnings, account balances, or specific participant transactions, as defined.  The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.

Participants are immediately vested in their voluntary contributions and actual earnings thereon.  Employer contributions are also immediately vested.

Upon termination of service due to death, disability, or retirement, participants whose accounts do not exceed $1,000 may receive a lump-sum amount equal to the value of their account.  Participants whose accounts are between $1,000 and $5,000 may receive a lump-sum distribution or may have the balance of their account rolled over into an Individual Retirement Account ("IRA").  Participants whose vested account balance at the time of termination exceeds $5,000 may receive a lump-sum distribution or may defer payments of benefits until April 1 of the calendar year following the calendar year during which the participant reaches age 70 1/2.  For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump sum distribution.

Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their account balance. The loans are secured by the balance in the participant's account and bear interest ranging from 4.25 to 5.25 percent, which is commensurate with local prevailing rates. Principal and interest are paid ratably through monthly payroll deductions.  Loans may be requested for hardship purposes only.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting principles followed by the Plan and the methods of applying these principles conform to U.S. generally accepted accounting principles.  The financial statements of the Plan are prepared on the accrual basis of accounting.

A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts and disclosures.  Actual results could differ from those estimates.

The Plan's investments are reported at fair value (except for the fully-benefit-responsive guaranteed investment contract, which is reported at contract value).  The fair value of pooled separate accounts is determined using the observable net asset value of the underlying investment.  The fair value of ESSA Bancorp, Inc. common stock fund is determined based on a quoted market price.

Purchases and sales of investments are recorded on a trade-date basis.  Interest income is recorded on the accrual basis.  Dividends are recorded on the ex-dividend date.  The net appreciation in fair value of investments includes investments purchased, sold, and held during the year.

Guaranteed investment contracts held by a defined-contribution plan are required to be reported at contract value which is the relevant measurement for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participants' loans are reclassified as distributions based upon the terms of the Plan Document.  No allowance for credit losses has been recorded as of December 31, 2017 and 2016.

Benefit payments to participants are recorded upon distribution.

Administrative expenses of the Plan relating to investment management and recordkeeping fees are paid by the Plan.  Fees relating to accounting and miscellaneous administrative expenses are paid by the Plan's sponsor.

Amounts payable to participants for contributions in excess of amounts allowed by the Internal Revenue Service are recorded as a liability with a corresponding reduction to contributions. The Plan had no excess contributions for the years ended December 31, 2017 and 2016.

NOTE 3 - GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY

The Plan has a benefit-responsive guaranteed investment contract with Massachusetts Mutual Life Insurance Company. Massachusetts Mutual Life Insurance Company maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The guaranteed investment contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. The investment contract is considered a "traditional" contract, meaning that the Plan owns the contract itself and not the underlying assets for the investment contract.

Because the guaranteed investment contract is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract. The guaranteed investment contract is presented on the face of the Statement of Net Assets Available for Benefits at contract value in arriving at net assets available for benefits. Contract value, as reported to the Plan by Massachusetts Mutual Life Insurance Company, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.

There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be less than 3 percent. Such interest rates are reviewed on a quarterly basis for resetting.

 

Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (1) amendments to the Plan documents (including complete or partial Plan termination or

 

NOTE 3 - GUARANTEED INVESTMENT CONTRACT WITH MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY(Continued)

merger with another plan); (2) changes to the Plan's prohibition on competing investment options or deletion of equity wash provisions; (3) bankruptcy of the Plan Sponsor or other Plan Sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan; or (4) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan Administrator does not believe that any events which would limit the Plan's ability to transact at contract value with participants are probable of occurring.

 

NOTE 4 - PLAN TERMINATION

Although it has not expressed any intent to do so, the Bank has the right under the Plan to terminate the Plan subject to the provisions of ERISA.  In the event of termination of the Plan, participants will become 100 percent vested in their accounts.

NOTE 5 - TAX STATUS

The Plan obtained its latest determination letter on March 31, 2014, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code.  The Plan has been amended since receiving the determination letter.  However, the Plan Administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code.

Plan management is required to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2017, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.  The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2014.

NOTE 6 - PARTY-IN-INTEREST TRANSACTIONS

Certain Plan investments, such as pooled separate accounts and the guaranteed investment contract are managed by Massachusetts Mutual Life Insurance Company, the defined trustee of the Plan.  Therefore, related transactions qualify as party-in-interest transactions.

The Plan's sponsor absorbs fees related to accounting and miscellaneous administrative expenses.  Such costs amounted to $14,046 for the year ended December 31, 2017.

At December 31, 2017 and 2016, the Plan held 240,761 and 296,866 shares of ESSA Bancorp, Inc. common stock, respectively.  Dividends received on these shares in 2017 totaled $97,423.

NOTE 7 - FAIR VALUE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.  The three broad levels of pricing observations are as follows:

NOTE 7 - FAIR VALUE MEASUREMENTS (Continued)

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data, when available.

The following table presents the assets reported on the Statement of Net Assets Available for Benefits at their fair value as of December 31, 2017 and 2016, by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			December 31, 2017
			Level I		Level II		Level III		Total
ESSA Bancorp, Inc. common stock fund		$	4,017,492	$	-	$	-	$	4,017,492
Total assets in the fair value hierarchy			4,017,492		-		-		4,017,492
Investments measured at net asset
value (1)			-		-		-		10,515,604
Investments at fair value		$	4,017,492	$	-	$	-	$	14,533,096
			December 31, 2016
			Level I		Level II		Level III		Total
ESSA Bancorp, Inc. common stock fund		$	4,956,409	$	-	$	-	$	4,956,409
Total assets in the fair value hierarchy			4,956,409		-		-		4,956,409
Investments measured at net asset
value (1)			-		-		-		8,767,714
Investments at fair value		$	4,956,409	$	-	$	-	$	13,724,123
(1)  In accordance with Subtopic 820-10, certain investments that were measured at net asset value per
share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items
presented in the Statement of Net Assets Available for Benefits.

NOTE 7 - FAIR VALUE MEASUREMENTS (Continued)

Following is a description of the valuation methodologies used for assets measured at fair value.  There have been no changes in the methodologies used at December 31, 2017 and 2016.

Valued at the closing price of ESSA Bancorp, Inc.'s common stock reported on the active market on which the individual securities are traded plus the carrying value of the cash component of the fund, which approximates fair value.

The following table summarizes investments measured at fair value based on NAV per share as of December 31, 2017 and 2016, respectively.             

 

December 31, 2017	Fair Value	Unfunded Commitments	Redemption Frequency (if currently eligible)	Redemption Notice Period
Pooled separate accounts:
Asset Allocation/Lifecycle	$   2,682,193	N/A	Daily	Daily
High Yield Bond	165,761	N/A	Daily	Daily
Intermediate Term Bond	531,887	N/A	Daily	Daily
International/Global Growth	541,953	N/A	Daily	Daily
International/Global Small/Mid Cap	169,168	N/A	Daily	Daily
Large Cap Core	1,369,275	N/A	Daily	Daily
Large Cap Growth	2,776,873	N/A	Daily	Daily
Mid Cap Growth	588,245	N/A	Daily	Daily
Multi Sector Bond	184,136	N/A	Daily	Daily
Small Cap Core	453,054	N/A	Daily	Daily
Small Cap Growth	697,181	N/A	Daily	Daily
Small Cap Value	355,878	N/A	Daily	Daily
December 31, 2016	Fair Value	Unfunded Commitments	Redemption Frequency (if currently eligible)	Redemption Notice Period
Pooled separate accounts:
Asset Allocation/Lifecycle	$   2,361,260	N/A	Daily	Daily
High Yield Bond	165,438	N/A	Daily	Daily
Intermediate Term Bond	436,002	N/A	Daily	Daily
International/Global Growth	415,813	N/A	Daily	Daily
International/Global Small/Mid Cap	115,170	N/A	Daily	Daily
Large Cap Core	1,136,792	N/A	Daily	Daily
Large Cap Growth	2,148,006	N/A	Daily	Daily
Mid Cap Growth	527,931	N/A	Daily	Daily
Multi Sector Bond	219,194	N/A	Daily	Daily
Small Cap Core	422,545	N/A	Daily	Daily
Small Cap Growth	498,360	N/A	Daily	Daily
Small Cap Value	321,203	N/A	Daily	Daily

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments are defined as cash, evidence of 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 liquidation or sale.  If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

Investments in common stock fund, pooled separate accounts, and notes receivable would be considered financial instruments.  At December 31, 2017 and 2016, the carrying amounts of these financial instruments approximate fair value.

NOTE 9 - RISKS AND UNCERTAINTIES

The Plan invests in various investment securities.  Investment securities are exposed to various risks such as interest rate, market, and credit risks.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statement of Net Assets Available for Benefits.

SUPPLEMENTAL SCHEDULE

ESSA BANK & TRUST 401(k) PLAN

SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)

EMPLOYER IDENTIFICATION NUMBER 24-0568185

PLAN NUMBER - 002

DECEMBER 31, 2017

 

				(c)  Description of Investment,
		(b)  Identity of		Including Maturity Date,
		Issuer, Borrower,		Rate of Interest, Collateral,				(e)  Current Value
(a)		Lessor, or Similar Party		Par, or Maturity Value		(d) Cost**
		Common stock
*		ESSA Bancorp, Inc.		ESSA Bancorp, Inc. common stock fund		$         -		$      4,017,492
		Pooled separate accounts
*		Massachusetts Mutual Life Insurance Company		Premier Core Bond (Barings)		-		531,887
*		Massachusetts Mutual Life Insurance Company		MM S&P 500 Index (Northern Trust)		-		1,369,275
*		Massachusetts Mutual Life Insurance Company		SeIect Mid Cap Growth II (TRP/Frontier)		-		588,245
*		Massachusetts Mutual Life Insurance Company		Premier International Equity (OFI Inst)		-		541,953
*		Massachusetts Mutual Life Insurance Company		Select TRP/LS Blue Chip Growth		-		1,726,876
*		Massachusetts Mutual Life Insurance Company		New Horizons (T Rowe Price)		-		697,181
*		Massachusetts Mutual Life Insurance Company		Washington Mut Invs (American)		-		1,049,997
*		Massachusetts Mutual Life Insurance Company		NFJ Small Cap Val (AllianzGI)		-		355,878
*		Massachusetts Mutual Life Insurance Company		Int'l New Discovery (MFS)		-		169,168
*		Massachusetts Mutual Life Insurance Company		Strategic Income (Loomis Sayles)		-		184,136
*		Massachusetts Mutual Life Insurance Company		Premier High Yield (Barings)		-		165,761
*		Massachusetts Mutual Life Insurance Company		Premier Oppenheimer Funds Small Cap Opp II		-		453,054
*		Massachusetts Mutual Life Insurance Company		Balanced(American)		-		37,383
*		Massachusetts Mutual Life Insurance Company		Retirement Balanced (T. Rowe Price)		-		202,600
*		Massachusetts Mutual Life Insurance Company		Retirement 2015 (T. Rowe Price)		-		320,318
*		Massachusetts Mutual Life Insurance Company		Retirement 2025 (T. Rowe Price)		-		714,917
*		Massachusetts Mutual Life Insurance Company		Retirement 2035 (T. Rowe Price)		-		354,776
*		Massachusetts Mutual Life Insurance Company		Retirement 2045 (T. Rowe Price)		-		419,781
*		Massachusetts Mutual Life Insurance Company		Retirement 2055 (T. Rowe Price)		-		43,637
*		Massachusetts Mutual Life Insurance Company		Retirement 2030 (T. Rowe Price)		-		150,754
*		Massachusetts Mutual Life Insurance Company		Retirement 2040 (T. Rowe Price)		-		157,402
*		Massachusetts Mutual Life Insurance Company		Retirement 2020 (T. Rowe Price)		-		218,992
*		Massachusetts Mutual Life Insurance Company		Retirement 2050 (T. Rowe Price)		-		55,461
*		Massachusetts Mutual Life Insurance Company		Retirement 2060 (T. Rowe Price)		-		6,172
								10,515,604
*		Massachusetts Mutual Life Insurance Company		Guaranteed investment contract		-		4,193,362
*		Notes receivable from participants		Interest rates of 4.25% to 5.25% maturity thru 2020		-		26,341
		Total						$    18,752,799
*		Indicates party-in-interest to the Plan
**		Per ERISA guidelines, the cost of the investments is not required to be included on this schedule.

 

---

 

 

EXHIBIT INDEX

 

Exhibit Number		Description
23.1		Consent of S.R. Snodgrass, P.C.