Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

mlvf-10q_20191231.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

Commission File Number:  000-54835

 

MALVERN BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

45-5307782

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

42 Lancaster Avenue, Paoli, Pennsylvania 19301

(Address of Principal Executive Offices) (Zip Code)

(610) 644-9400

(Registrant’s Telephone Number, Including Area Code)

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MLVF

Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

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

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.      Yes     No  

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Common Stock, par value $0.01:

7,777,006 shares

(Title of Class)

(Outstanding as of February 10, 2020)

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

3

 

 

 

Item  1.

Financial Statements

4

 

Consolidated Statements of Financial Condition at December 31, 2019 (unaudited) and September 30, 2019

4

 

Consolidated Statements of Operations for the three months ended December 31, 2019 and 2018 (unaudited)

5

 

Consolidated Statements of Comprehensive Income for the three months ended December 31, 2019 and 2018 (unaudited)

6

 

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended December 31, 2019 and 2018 (unaudited)

7

 

Consolidated Statements of Cash Flows for the three months ended December 31, 2019 and 2018 (unaudited)

8

 

Notes to Unaudited Consolidated Financial Statements

9

 

 

 

Item  2.

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

40

 

 

 

Item  3.

Qualitative and Quantitative Disclosures about Market Risk

51

 

 

 

Item  4.

Controls and Procedures

51

 

 

 

PART II – OTHER INFORMATION.

53

 

 

 

Item  1.

Legal Proceedings

53

 

 

 

Item  1A.

Risk Factors

53

 

 

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

 

 

 

Item  3.

Default Upon Senior Securities

53

 

 

 

Item  4.

Mine Safety Disclosure

53

 

 

 

Item  5.

Other Information

53

 

 

 

Item  6.

Exhibits

53

 

 

 

SIGNATURES

54

 

 

 


 

PART I – FINANCIAL INFORMATION

The following unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal and recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2020, or for any interim period. The Malvern Bancorp, Inc. Annual Report on Form 10-K for the fiscal year ended September 30, 2019 should be read in conjunction with these financial statements.

 

-3-


 

Item 1. Financial Statements

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

December 31,

2019

 

 

September 30,

2019

 

 

 

(In thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from depository institutions

 

$

1,337

 

 

$

1,400

 

Interest bearing deposits in depository institutions

 

 

158,465

 

 

 

152,143

 

Cash and Cash Equivalents

 

 

159,802

 

 

 

153,543

 

Investment securities available for sale, at fair value (amortized cost of

   $23,761 and $18,522, respectively)

 

 

23,723

 

 

 

18,411

 

Investment securities held to maturity (fair value of $20,670 and $22,609,

   respectively)

 

 

20,578

 

 

 

22,485

 

Restricted stock, at cost

 

 

11,115

 

 

 

11,129

 

Loans receivable, net of allowance for loan losses of $10,100 and $10,095,

   respectively

 

 

994,803

 

 

 

1,007,714

 

Other real estate owned

 

 

5,796

 

 

 

5,796

 

Accrued interest receivable

 

 

4,061

 

 

 

4,253

 

Operating lease right-of-use assets

 

 

3,119

 

 

 

-

 

Property and equipment, net

 

 

6,594

 

 

 

6,678

 

Deferred income taxes

 

 

2,806

 

 

 

2,840

 

Bank-owned life insurance

 

 

20,018

 

 

 

19,891

 

Other assets

 

 

8,341

 

 

 

12,482

 

Total Assets

 

$

1,260,756

 

 

$

1,265,222

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Deposits-noninterest-bearing

 

 

41,273

 

 

 

55,684

 

Deposits-interest-bearing

 

 

902,546

 

 

 

898,127

 

Total Deposits

 

 

943,819

 

 

 

953,811

 

FHLB advances

 

 

133,000

 

 

 

133,000

 

Subordinated debt

 

 

24,658

 

 

 

24,619

 

Advances from borrowers for taxes and insurance

 

 

2,344

 

 

 

1,761

 

Accrued interest payable

 

 

1,271

 

 

 

978

 

Operating lease liabilities

 

 

3,128

 

 

 

-

 

Other liabilities

 

 

7,284

 

 

 

8,545

 

Total Liabilities

 

 

1,115,504

 

 

 

1,122,714

 

Commitments and Contingencies

 

 

-

 

 

 

-

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

 

 

-

 

 

 

-

 

Common stock, $0.01 par value, 50,000,000 shares authorized; 7,782,412 and

   7,765,549 shares issued and outstanding, respectively, at  December 31, 2019

   and 7,782,258 and 7,765,395 shares issued and outstanding, respectively, at September 30, 2019

 

 

78

 

 

 

78

 

Additional paid-in-capital

 

 

84,860

 

 

 

84,783

 

Retained earnings

 

 

62,246

 

 

 

59,744

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

 

(1,156

)

 

 

(1,192

)

Accumulated other comprehensive loss

 

 

(440

)

 

 

(569

)

    Treasury stock, at cost: 16,863 shares at December 31, 2019 and September 30, 2019

 

 

(336

)

 

 

(336

)

Total Shareholders' Equity

 

 

145,252

 

 

 

142,508

 

Total Liabilities and Shareholders' Equity

 

$

1,260,756

 

 

$

1,265,222

 

 

See accompanying notes to unaudited consolidated financial statements.

-4-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands, except share data)

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

Loans, including fees

 

$

10,905

 

 

$

10,095

 

Investment securities, taxable

 

 

215

 

 

 

251

 

Investment securities, tax-exempt

 

 

39

 

 

 

61

 

Dividends, restricted stock

 

 

188

 

 

 

133

 

Interest-bearing cash accounts

 

 

472

 

 

 

372

 

Total Interest and Dividend Income

 

 

11,819

 

 

 

10,912

 

Interest Expense

 

 

 

 

 

 

 

 

Deposits

 

 

3,737

 

 

 

2,944

 

Short-term borrowings

 

 

-

 

 

 

5

 

Long-term borrowings

 

 

787

 

 

 

633

 

Subordinated debt

 

 

383

 

 

 

383

 

Total Interest Expense

 

 

4,907

 

 

 

3,965

 

Net Interest Income

 

 

6,912

 

 

 

6,947

 

Provision for Loan Losses

 

 

-

 

 

 

1,453

 

Net Interest Income after Provision for Loan losses

 

 

6,912

 

 

 

5,494

 

Other Income

 

 

 

 

 

 

 

 

Service charges and other fees

 

 

259

 

 

 

940

 

Rental income

 

 

54

 

 

 

67

 

Net gains on sale of loans

 

 

3

 

 

 

18

 

Earnings on bank-owned life insurance

 

 

127

 

 

 

121

 

Total Other Income

 

 

443

 

 

 

1,146

 

Other Expenses

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,125

 

 

 

2,008

 

Occupancy expense

 

 

582

 

 

 

539

 

Federal deposit insurance premium

 

 

      (3

)

 

 

69

 

Advertising

 

 

22

 

 

 

30

 

Data processing

 

 

278

 

 

 

254

 

Professional fees

 

 

441

 

 

 

499

 

Other real estate owned expense, net

 

 

71

 

 

 

21

 

Pennsylvania shares tax

 

 

170

 

 

 

-

 

Other operating expenses

 

 

736

 

 

 

674

 

Total Other Expenses

 

 

4,422

 

 

 

4,094

 

Income before income tax expense

 

 

2,933

 

 

 

2,546

 

Income tax expense

 

 

431

 

 

 

535

 

Net Income

 

$

2,502

 

 

$

2,011

 

Earnings Per Common Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.27

 

Diluted

 

$

0.33

 

 

$

0.27

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

7,665,842

 

 

 

7,555,810

 

Diluted

 

 

7,665,842

 

 

 

7,555,969

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

-5-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Net Income

 

$

2,502

 

 

$

2,011

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available-for-sale securities

 

 

71

 

 

 

(33

)

Tax effect

 

 

(15

)

 

 

7

 

Net of tax amount

 

 

56

 

 

 

(26

)

Accretion of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity

 

 

1

 

 

 

2

 

Tax effect

 

 

-

 

 

 

(1

)

Net of tax amount

 

 

1

 

 

 

1

 

Fair value adjustments on derivatives

 

 

91

 

 

 

(710

)

Tax effect

 

 

(19

)

 

 

150

 

Net of tax amount

 

 

72

 

 

 

(560

)

Total other comprehensive income (loss)

 

 

129

 

 

 

(585

)

Total comprehensive income

 

$

2,631

 

 

$

1,426

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

-6-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Unearned

ESOP

Shares

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury Stock

 

 

Total

Shareholders'

Equity

 

 

 

(In thousands, except share data)

 

Balance, October 1, 2018

 

 

66

 

 

 

61,099

 

 

 

50,412

 

 

 

(1,338

)

 

 

584

 

 

 

-

 

 

 

110,823

 

Net Income

 

 

-

 

 

 

-

 

 

 

2,011

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,011

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(585

)

 

 

-

 

 

 

(585

)

Stock issuance (net of issuance of proceeds of $25,000)

 

 

12

 

 

 

23,332

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,344

 

Committed to be released ESOP

   shares (3,600 shares)

 

 

-

 

 

 

36

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

72

 

Stock based compensation

 

 

-

 

 

 

14

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14

 

Balance, December 31, 2018

 

 

78

 

 

 

84,481

 

 

 

52,423

 

 

 

(1,302

)

 

 

(1

)

 

 

-

 

 

 

135,679

 

Balance, October 1, 2019

 

 

78

 

 

 

84,783

 

 

 

59,744

 

 

 

(1,192

)

 

 

(569

)

 

 

(336

)

 

 

142,508

 

Net Income

 

 

-

 

 

 

-

 

 

 

2,502

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,502

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

129

 

 

 

-

 

 

 

129

 

Committed to be released ESOP

   shares (3,600 shares)

 

 

-

 

 

 

45

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

81

 

Stock based compensation

 

 

-

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

Balance, December 31, 2019

 

$

78

 

 

$

84,860

 

 

$

62,246

 

 

$

(1,156

)

 

$

(440

)

 

$

(336

)

 

$

145,252

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

-7-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

2,502

 

 

$

2,011

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

187

 

 

 

191

 

Provision for loan losses

 

 

-

 

 

 

1,453

 

Deferred income tax expense (benefit)

 

 

34

 

 

 

(295

)

ESOP expense

 

 

81

 

 

 

72

 

Stock based compensation

 

 

32

 

 

 

14

 

Amortization of premiums and discounts on investments securities, net

 

 

181

 

 

 

269

 

Amortization (accretion) of loan origination fees and costs

 

 

1,535

 

 

 

(192

)

Amortization of mortgage servicing rights

 

 

5

 

 

 

10

 

Net gain on sale of secondary market loans

 

 

(3

)

 

 

(18

)

Proceeds from sale of secondary market loans

 

 

73

 

 

 

1,543

 

Originations of  secondary market loans

 

 

(70

)

 

 

(1,525

)

Earnings on bank-owned life insurance

 

 

(127

)

 

 

(121

)

Decrease in accrued interest receivable

 

 

192

 

 

 

76

 

Increase in accrued interest payable

 

 

293

 

 

 

467

 

Operating lease liability payments

 

 

(166

)

 

 

-

 

Increase in other liabilities

 

 

1,867

 

 

 

1,805

 

Decrease (increase) in other assets

 

 

1,239

 

 

 

(2,418

)

Amortization of subordinate debt

 

 

39

 

 

 

39

 

Net Cash Provided by Operating Activities

 

 

7,894

 

 

 

3,381

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(5,252

)

 

 

(5,000

)

        Sales

 

 

-

 

 

 

25

 

Maturities, calls and principal repayments

 

 

2

 

 

 

10,000

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

Maturities, calls and principal repayments

 

 

1,737

 

 

 

512

 

Net decrease (increase) in loans

 

 

11,376

 

 

 

(29,560

)

Net decrease (increase) in restricted stock

 

 

14

 

 

 

(956

)

Purchase of property and equipment

 

 

(103

)

 

 

(78

)

Net Cash Provided by (Used in) Investing Activities

 

 

7,774

 

 

 

(25,057

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net (decrease) increase  in deposits

 

 

(9,992

)

 

 

69,037

 

Proceeds for long-term borrowings

 

 

-

 

 

 

30,000

 

Repayment of long-term borrowings

 

 

-

 

 

 

(30,000

)

Repayment of other borrowed money

 

 

-

 

 

 

(2,500

)

Increase in advances from borrowers for taxes and insurance

 

 

583

 

 

 

837

 

Net proceeds from issuance of common stock

 

 

-

 

 

 

23,344

 

Net Cash (Used in) Provided by Financing Activities

 

 

(9,409

)

 

 

90,718

 

Net Increase in Cash and Cash Equivalents

 

 

6,259

 

 

 

69,042

 

Cash and Cash Equivalents - Beginning

 

 

153,543

 

 

 

30,834

 

Cash and Cash Equivalents - Ending

 

$

159,802

 

 

$

99,876

 

Supplemental Cash Flows Information

 

 

 

 

 

 

 

 

Interest paid

 

$

4,614

 

 

$

3,498

 

Income taxes paid

 

$

-

 

 

$

163

 

    Non-cash transfer to other real estate owned

 

$

-

 

 

$

5,796

 

See accompanying notes to unaudited consolidated financial statements.

-8-


 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company

Malvern Bancorp, Inc. (the “Company” or “Malvern Bancorp”), a Pennsylvania corporation, is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”).  Malvern Bancorp is the holding company for Malvern Bank, National Association (“Malvern Bank” or the “Bank”), a national bank that was originally organized in 1887 as a federally-chartered savings bank.  Malvern Bank now serves as one of the oldest banks headquartered on the Philadelphia Main Line.  For more than a century, the Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect and integrity.     

The Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia, and through its twelve other banking locations in Chester, Delaware and Bucks counties, Pennsylvania, Morristown, New Jersey, its New Jersey regional headquarters, Palm Beach, Florida, and Montchanin, Delaware. The Bank also maintains representative offices in Wellington, Florida and Allentown, Pennsylvania. The Bank’s primary market niche is providing personalized service to its client base.  

In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the unaudited consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other real estate owned, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of derivative positions.  The unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

Note 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation. The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements present the Company’s financial position at December 31, 2019 and September 30, 2019 and the results of operations for the three months ended December 31, 2019 and 2018, and cash flows for the three months ended December 31, 2019 and 2018. In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments, which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of the dates and for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 16, 2019 (the  “2019 Annual Report”). The consolidated statements of operations for the three months ended December 31, 2019 and the consolidated statements of cash flows for the three months ended December 31, 2019 are not necessarily indicative of the results of operations or cash flows for the full year ending September 30, 2020 or any interim period.

   There have been no significant changes to the Critical Accounting Policies as described in the 2019 Annual Report. Those significant accounting policies remain unchanged at December 31, 2019, except as described below:

 

Leases

 

           The Company accounts for our leases in accordance with ASC 842 - Leases. Most of our leases are recognized on the balance sheet by recording a right-of-use asset and lease liability for each lease. The right-of-use asset represents the right to use the asset under lease for the lease term, and the lease liability represents the contractual obligation to make lease payments. The right-of-use asset is tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

 

As a lessee, the Company enters into operating leases for certain bank branches, office space, and office equipment. The right-of-use assets and lease liabilities are initially recognized based on the net present value of the remaining lease payments which include renewal options where management is reasonably certain they will be exercised. The net present value is determined using the incremental borrowing rate based on the Federal Home Loan Bank (“FHLB”) liquidity and funding rates at commencement date. The right-of-use asset is measured at the amount of the lease liability adjusted for any prepaid rent, lease incentives and initial direct costs incurred. The right-of-use asset and lease liability is amortized over the individual lease terms. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

-9-


 

Recently Issued Accounting Pronouncements

Income Taxes. In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740). This ASU identifies, evaluates, and improves areas of general accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the Company.

 

Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied currently will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, this ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.  In April 2019, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. This ASU will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.  The Bank has a software system in place to assist with the calculation of Current Expected Credit Losses (“CECL”).  The Company formed a cross functional implementation team to review the requirements of ASU 2016-13 and contracted with a third-party provider to assist in the development and implementation of the revised credit loss methodology. The impacts on the consolidated earnings, financial position and cash flows of the Company, upon adoption of this ASU are currently unknown.  On October 16, 2019, the FASB approved its August 2019 proposal to delay the effective date for adopting credit losses CECL standard for certain small reporting companies and private companies/ not-for-profit organizations to January 2023. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) making this ASU effective for interim and annual periods beginning after December 15, 2022. As such the Company would be required to implement the ASU on October 1, 2023. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which provides guidance on stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13.

Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet. This ASU will require lessees to recognize a right-of-use (“ROU”) asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation for leases with terms of more than twelve months. Accounting by lessors will remain largely unchanged from current U.S. GAAP. This ASU also requires expanded quantitative and qualitative disclosures for both lessees and lessors. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an additional (and optional) transition method in which the entity applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has applied the new transition method upon adoption. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors, which clarifies the treatment of sales taxes and other taxes collected from lessees, lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease and non-lease components. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which aligned the new lease guidance with the existing guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers. It also clarified an exemption for lessors and lessees from a certain interim disclosure requirement associated with adopting the board’s new lease accounting standard. The Company adopted the guidance in these ASUs on October 1, 2019 and will not restate comparative periods. As a result, the Company recorded right-of-use assets and related lease liabilities of $3.3 million at October 1, 2019. At December 31, 2019 the Company had right-of-use assets and related lease liabilities of $3.1 million.

-10-


 

Note 3Non-Interest Income

On October 1, 2018, the Company adopted the amendments of ASU 2014-09 - Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. A significant amount of the Company’s revenues is derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. Some sources of revenue included within non-interest income fall within the scope of Topic 606, while other sources do not. The Company recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of the contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. Revenue is recognized as the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. When consideration includes a variable component, the amount of consideration attributable to variability is included in the transaction price only to the extent it is probable that significant revenue recognized will not be reversed when uncertainty associated with the variable consideration is subsequently resolved. The Company’s contracts generally do not contain terms that require significant judgement to determine the variability impacting the transaction price. The Company has included the following table regarding the Company’s other income for the periods presented.

 

 

 

Three Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Rental income

 

$

54

 

 

$

67

 

Net gains on sale of loans

 

 

3

 

 

 

18

 

Earnings on bank-owned life insurance

 

 

127

 

 

 

121

 

Other income within the scope of other GAAP topics

 

 

184

 

 

 

206

 

ATM fees

 

 

2

 

 

 

1

 

Credit card fee income

 

 

6

 

 

 

6

 

DDA fee income

 

 

30

 

 

 

37

 

DDA service fees

 

 

19

 

 

 

19

 

Debit card fees

 

 

66

 

 

 

60

 

Other loan fee income

 

 

77

 

 

 

764

 

Other fee income

 

 

57

 

 

 

52

 

Other non-interest income

 

 

2

 

 

 

1

 

Other income from contracts with customers

 

$

259

 

 

$

940

 

Total Other Income

 

$

443

 

 

$

1,146

 

 

The decrease in other loan fee income during the three months ended December 31, 2019 is primarily due to lower net swap fees  of approximately $710,000 through the Bank’s commercial loan hedging program.

 

Note 4 – Earnings Per Share

Basic earnings per common share is computed based on the weighted average number of shares outstanding reduced by unearned Employee Stock Ownership Plan (“ESOP”) shares. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common stock equivalents (“CSEs”) that would arise from the exercise of dilutive securities, reduced by unearned ESOP shares.  During the three months ended December 31, 2019, the Company issued 1,764 restricted shares, which are considered CSEs. The Company did not grant any stock options during the three months ended December 31, 2019. During the three months ended Decmber 31, 2018, the Company granted 3,238 restricted shares, which are considered CSEs. The Company did not grant any stock options during the three months ended December 31, 2018.    

-11-


 

The following table sets forth the composition of the weighted average shares (denominator) used in the earnings per share computations.

 

 

 

Three Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands, except share data)

 

Net Income

 

$

2,502

 

 

$

2,011

 

Weighted average shares outstanding

 

 

7,764,383

 

 

 

7,668,751

 

Average unearned ESOP shares

 

 

(98,541

)

 

 

(112,941

)

Basic weighted average shares outstanding

 

 

7,665,842

 

 

 

7,555,810

 

Plus: effect of potential dilutive common stock equivalents - stock options

 

 

-

 

 

 

159

 

Diluted weighted average common shares outstanding

 

 

7,665,842

 

 

 

7,555,969

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.27

 

Diluted

 

$

0.33

 

 

$

0.27

 

 

Note 5 – Employee Stock Ownership Plan

The Company maintains an ESOP for substantially all of its full-time employees. The current ESOP trustee is Pentegra.  Shares of the Company’s common stock purchased by the ESOP are held until released for allocation to participants.  Shares released are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of all eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes a compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released.  To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to additional paid-in capital.  During the period from May 20, 2008 to September 30, 2008, the ESOP purchased 241,178 shares of Company common stock for approximately $2.6 million, at an average price of $10.86 per share, which was funded by a loan from Malvern Federal Bancorp, Inc. (the Company’s predecessor).  The ESOP loan is being repaid principally from the Bank’s contributions to the ESOP.  The loan, which bears an interest rate of 5%, is being repaid in quarterly installments through 2026.  Shares are released to participants proportionately as the loan is repaid. During each of the three months ended December 31, 2019 and 2018, there were  3,600 shares committed to be released.  At December 31, 2019, there were 96,765 unallocated shares and 162,453 allocated shares held by the ESOP. The unallocated shares had an aggregate fair value of approximately $2.2 million at December 31, 2019.

Note 6 - Investment Securities

The Company’s investment securities are classified as available-for-sale or held-to-maturity at December 31, 2019 and at September 30, 2019. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value.   Held-to-maturity securities, which are carried at amortized cost, are investments where there is positive intent and ability to hold to maturity.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

-12-


 

The following tables present information related to the Company’s investment securities at December 31, 2019 and September 30, 2019.

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(In thousands)

 

Investment Securities Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

3,000

 

 

$

-

 

 

$

-

 

 

$

3,000

 

State and municipal obligations

 

 

4,710

 

 

 

16

 

 

 

-

 

 

 

4,726

 

Single issuer trust preferred security

 

 

1,000

 

 

 

-

 

 

 

(66

)

 

 

934

 

Corporate debt securities

 

 

13,551

 

 

 

199

 

 

 

(185

)

 

 

13,565

 

Mutual fund

 

 

1,500

 

 

 

-

 

 

 

(2

)

 

 

1,498

 

Total

 

$

23,761

 

 

$

215

 

 

$

(253

)

 

$

23,723

 

Investment Securities Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

4,488

 

 

$

79

 

 

$

-

 

 

$

4,567

 

Corporate debt securities

 

 

3,581

 

 

 

158

 

 

 

-

 

 

 

3,739

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations ("CMO"), fixed-rate

 

 

12,509

 

 

 

4

 

 

 

(149

)

 

 

12,364

 

        Total

 

$

20,578

 

 

$

241

 

 

$

(149

)

 

$

20,670

 

Total investment securities

 

$

44,339

 

 

$

456

 

 

$

(402

)

 

$

44,393

 

 

 

 

September 30, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(In thousands)

 

Investment Securities Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

3,000

 

 

$

-

 

 

$

-

 

 

$

3,000

 

State and municipal obligations

 

 

4,715

 

 

 

17

 

 

 

-

 

 

 

4,732

 

Single issuer trust preferred security

 

 

1,000

 

 

 

-

 

 

 

(77

)

 

 

923

 

Corporate debt securities

 

 

9,557

 

 

 

181

 

 

 

(232

)

 

 

9,506

 

Mutual fund

 

 

250

 

 

 

-