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Section 1: 10-Q (10-Q)

mlvf-10q_20190331.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 March 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 (or for such shorter period that the registrant was required to file such reports), 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 (check one):

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:

7,783,866 shares

(Title of Class)

(Outstanding as of May 9, 2019)

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

3

 

 

 

Item  1.

Financial Statements

4

 

Consolidated Statements of Financial Condition at March 31, 2019 (unaudited) and September 30, 2018

4

 

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

5

 

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

6

 

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

7

 

Consolidated Statements of Cash Flows for the six months ended March 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

41

 

 

 

Item  3.

Qualitative and Quantitative Disclosures about Market Risk

56

 

 

 

Item  4.

Controls and Procedures

56

 

 

 

PART II – OTHER INFORMATION.

58

 

 

 

Item  1.

Legal Proceedings

58

 

 

 

Item  1A.

Risk Factors

58

 

 

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

 

Item  3.

Default Upon Senior Securities

58

 

 

 

Item  4.

Mine Safety Disclosure

58

 

 

 

Item  5.

Other Information

59

 

 

 

Item  6.

Exhibits

59

 

 

 

SIGNATURES

60

 

 

 


 

PART I – FINANCIAL INFORMATION

The following unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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 and six months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2019, or for any other interim period. The Malvern Bancorp, Inc. Annual Report on Form 10-K for the fiscal year ended September 30, 2018 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)

 

 

 

March 31,

2019

 

 

September 30,

2018

 

 

 

(Dollars in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from depository institutions

 

$

1,370

 

 

$

1,563

 

Interest bearing deposits in depository institutions

 

 

109,450

 

 

 

29,271

 

Cash and Cash Equivalents

 

 

110,820

 

 

 

30,834

 

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

   $19,754 and $24,804, respectively)

 

 

19,371

 

 

 

24,298

 

Investment securities held to maturity (fair value of $26,338 and $28,968,

   respectively)

 

 

26,789

 

 

 

30,092

 

Restricted stock, at cost

 

 

8,952

 

 

 

8,537

 

Loans receivable, net of allowance for loan losses of $10,016 and $9,021,

   respectively

 

 

997,114

 

 

 

902,136

 

Other real estate owned

 

 

5,796

 

 

 

-

 

Accrued interest receivable

 

 

4,344

 

 

 

3,800

 

Property and equipment, net

 

 

6,948

 

 

 

7,181

 

Deferred income taxes

 

 

3,434

 

 

 

3,195

 

Bank-owned life insurance

 

 

19,643

 

 

 

19,403

 

Other assets

 

 

7,029

 

 

 

4,475

 

Total Assets

 

$

1,210,240

 

 

$

1,033,951

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Deposits-noninterest-bearing

 

 

42,937

 

 

 

41,677

 

Deposits-interest-bearing

 

 

899,437

 

 

 

732,486

 

Total Deposits

 

 

942,374

 

 

 

774,163

 

FHLB advances

 

 

98,000

 

 

 

118,000

 

Other short-term borrowings

 

 

-

 

 

 

2,500

 

Subordinated debt

 

 

24,540

 

 

 

24,461

 

Advances from borrowers for taxes and insurance

 

 

2,244

 

 

 

1,305

 

Accrued interest payable

 

 

859

 

 

 

784

 

Other liabilities

 

 

4,655

 

 

 

1,915

 

Total Liabilities

 

 

1,072,672

 

 

 

923,128

 

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; 7,780,639 and

   7,780,475 shares issued and outstanding, respectively, at  March 31, 2019 and

   6,580,879 shares issued and outstanding at September 30, 2018

    

 

78

 

 

 

66

 

Additional paid-in-capital

 

 

84,559

 

 

 

61,099

 

Retained earnings

 

 

54,389

 

 

 

50,412

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

 

(1,265

)

 

 

(1,338

)

Accumulated other comprehensive (loss) income

 

 

(190

)

 

 

584

 

Treasury stock, at cost: 164 shares at March 31, 2019

 

 

(3

)

 

 

-

 

Total Shareholders' Equity

 

 

137,568

 

 

 

110,823

 

Total Liabilities and Shareholders' Equity

 

$

1,210,240

 

 

$

1,033,951

 

 

See accompanying notes to unaudited consolidated financial statements.

-4-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except share data)

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

10,661

 

 

$

8,740

 

 

$

20,756

 

 

$

17,441

 

Investment securities, taxable

 

 

250

 

 

 

302

 

 

 

501

 

 

 

532

 

Investment securities, tax-exempt

 

 

57

 

 

 

65

 

 

 

118

 

 

 

130

 

Dividends, restricted stock

 

 

158

 

 

 

134

 

 

 

291

 

 

 

203

 

Interest-bearing cash accounts

 

 

475

 

 

 

463

 

 

 

847

 

 

 

909

 

Total Interest and Dividend Income

 

 

11,601

 

 

 

9,704

 

 

 

22,513

 

 

 

19,215

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,395

 

 

 

2,182

 

 

 

6,339

 

 

 

4,337

 

Short-term borrowings

 

 

2

 

 

 

22

 

 

 

7

 

 

 

41

 

Long-term borrowings

 

 

572

 

 

 

546

 

 

 

1,205

 

 

 

1,109

 

Subordinated Debt

 

 

383

 

 

 

386

 

 

 

766

 

 

 

778

 

Total Interest Expense

 

 

4,352

 

 

 

3,136

 

 

 

8,317

 

 

 

6,265

 

Net Interest Income

 

 

7,249

 

 

 

6,568

 

 

 

14,196

 

 

 

12,950

 

Provision for Loan Losses

 

 

870

 

 

 

240

 

 

 

2,323

 

 

 

240

 

Net Interest Income after Provision for Loan losses

 

 

6,379

 

 

 

6,328

 

 

 

11,873

 

 

 

12,710

 

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and other fees

 

 

238

 

 

 

237

 

 

 

1,178

 

 

 

508

 

Rental income

 

 

64

 

 

 

67

 

 

 

131

 

 

 

133

 

Net gains on sale of real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,186

 

Net gains on sale of loans

 

 

19

 

 

 

26

 

 

 

37

 

 

 

93

 

Earnings on bank-owned life insurance

 

 

120

 

 

 

119

 

 

 

241

 

 

 

240

 

Total Other Income

 

 

441

 

 

 

449

 

 

 

1,587

 

 

 

2,160

 

Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,213

 

 

 

2,001

 

 

 

4,221

 

 

 

3,991

 

Occupancy expense

 

 

577

 

 

 

586

 

 

 

1,116

 

 

 

1,148

 

Federal deposit insurance premium

 

 

73

 

 

 

75

 

 

 

142

 

 

 

151

 

Advertising

 

 

30

 

 

 

38

 

 

 

60

 

 

 

92

 

Data processing

 

 

251

 

 

 

267

 

 

 

505

 

 

 

545

 

Professional fees

 

 

455

 

 

 

450

 

 

 

954

 

 

 

1,238

 

Other real estate owned expense, net

 

 

28

 

 

 

-

 

 

 

49

 

 

 

-

 

Other operating expenses

 

 

816

 

 

 

688

 

 

 

1,490

 

 

 

1,411

 

Total Other Expenses

 

 

4,443

 

 

 

4,105

 

 

 

8,537

 

 

 

8,576

 

Income before income tax expense

 

 

2,377

 

 

 

2,672

 

 

 

4,923

 

 

 

6,294

 

Income tax expense

 

 

411

 

 

 

654

 

 

 

946

 

 

 

3,873

 

Net Income

 

$

1,966

 

 

$

2,018

 

 

$

3,977

 

 

$

2,421

 

Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

 

$

0.31

 

 

$

0.52

 

 

$

0.38

 

Diluted

 

$

0.26

 

 

$

0.31

 

 

$

0.52

 

 

$

0.38

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,667,518

 

 

 

6,448,691

 

 

 

7,611,051

 

 

 

6,446,959

 

Diluted

 

 

7,667,518

 

 

 

6,452,246

 

 

 

7,611,051

 

 

 

6,451,205

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

-5-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Net Income

 

$

1,966

 

 

$

2,018

 

 

$

3,977

 

 

$

2,421

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

154

 

 

 

(136

)

 

 

121

 

 

 

(219

)

Tax effect

 

 

(32

)

 

 

3

 

 

 

(25

)

 

 

28

 

Net of tax amount

 

 

122

 

 

 

(133

)

 

 

96

 

 

 

(191

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of unrealized holding losses on securites transferred from available-for-sale

   to held-to-maturity

 

 

1

 

 

 

4

 

 

 

3

 

 

 

6

 

Tax effect

 

 

-

 

 

 

(1

)

 

 

(1

)

 

 

(2

)

Net of tax amount

 

 

1

 

 

 

3

 

 

 

2

 

 

 

4

 

Fair value adjustments on derivatives

 

 

(393

)

 

 

253

 

 

 

(1,103

)

 

 

495

 

Tax effect

 

 

81

 

 

 

(86

)

 

 

231

 

 

 

(109

)

Net of tax amount

 

 

(312

)

 

 

167

 

 

 

(872

)

 

 

386

 

Total other comprehensive (loss),  income

 

 

(189

)

 

 

37

 

 

 

(774

)

 

 

199

 

Total comprehensive income

 

$

1,777

 

 

$

2,055

 

 

$

3,203

 

 

$

2,620

 

 

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

 

 

 

(Dollars in thousands, except share data)

 

Balance, October 1, 2017

 

 

66

 

 

 

60,736

 

 

 

43,139

 

 

 

(1,483

)

 

 

62

 

 

 

-

 

 

 

102,520

 

Net Income

 

 

-

 

 

 

-

 

 

 

2,421

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,421

 

Impact of adoption of new accounting standard (1)

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

 

24

 

 

 

-

 

 

 

-

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

199

 

 

 

-

 

 

 

199

 

Committed to be released ESOP

   shares (7,200 shares)

 

 

-

 

 

 

112

 

 

 

-

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

184

 

Stock based compensation

 

 

-

 

 

 

38

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38

 

Balance, March 31, 2018

 

 

66

 

 

 

60,886

 

 

 

45,536

 

 

 

(1,411

)

 

 

285

 

 

 

-

 

 

 

105,362

 

Balance, October 1, 2018

 

 

66

 

 

 

61,099

 

 

 

50,412

 

 

 

(1,338

)

 

 

584

 

 

 

-

 

 

 

110,823

 

Net Income

 

 

-

 

 

 

-

 

 

 

3,977

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,977

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(774

)

 

 

-

 

 

 

(774

)

Treasury stock activity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3

)

 

 

(3

)

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

 

 

12

 

 

 

23,332

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,344

 

Committed to be released ESOP

   shares (7,200 shares)

 

 

-

 

 

 

65

 

 

 

-

 

 

 

73

 

 

 

-

 

 

 

-

 

 

 

138

 

Stock based compensation

 

 

-

 

 

 

63

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

63

 

Balance, March 31, 2019

 

$

78

 

 

$

84,559

 

 

$

54,389

 

 

$

(1,265

)

 

$

(190

)

 

$

(3

)

 

$

137,568

 

 

(1) Represents the impact of adopting ASU 2018-02.

 

See accompanying notes to unaudited consolidated financial statements.

 

-7-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

3,977

 

 

$

2,421

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

382

 

 

 

377

 

Provision for loan losses

 

 

2,323

 

 

 

240

 

Deferred income tax (benefit) expense

 

 

(363

)

 

 

2,898

 

ESOP expense

 

 

138

 

 

 

184

 

Stock based compensation

 

 

63

 

 

 

38

 

Amortization of premiums and discounts on investments securities, net

 

 

130

 

 

 

166

 

Accretion of loan origination fees and costs

 

 

(154

)

 

 

(122

)

Amortization of mortgage servicing rights

 

 

21

 

 

 

24

 

Net gain on sale of real estate

 

 

-

 

 

 

(1,186

)

Net gain on sale of secondary market loans

 

 

(37

)

 

 

(93

)

Proceeds from sale of secondary market loans

 

 

2,867

 

 

 

8,037

 

Originations of  secondary market loans

 

 

(2,829

)

 

 

(7,944

)

Earnings on bank-owned life insurance

 

 

(241

)

 

 

(240

)

Increase in accrued interest receivable

 

 

(544

)

 

 

(444

)

Increase in accrued interest payable

 

 

75

 

 

 

19

 

Increase in other liabilities

 

 

2,740

 

 

 

781

 

Increase in other assets

 

 

(3,349

)

 

 

(808

)

Amortization of subordinate debt

 

 

79

 

 

 

79

 

Net Cash Provided by Operating Activities

 

 

5,278

 

 

 

4,427

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(5,000

)

 

 

(30,140

)

        Sales

 

 

25

 

 

 

-

 

Maturities, calls and principal repayments

 

 

10,000

 

 

 

123

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

Maturities, calls and principal repayments

 

 

3,200

 

 

 

1,747

 

Net increase in loans

 

 

(102,943

)

 

 

(3,101

)

Net increase in restricted stock

 

 

(415

)

 

 

(3,024

)

Proceeds from sale of real estate

 

 

-

 

 

 

1,315

 

Purchase of property and equipment

 

 

(150

)

 

 

(356

)

Net Cash Used in Investing Activities

 

 

(95,283

)

 

 

(33,436

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

168,211

 

 

 

35,173

 

Proceeds for long-term borrowings

 

 

30,000

 

 

 

70,000

 

Repayment of long-term borrowings

 

 

(50,000

)

 

 

(70,000

)

Repayment of other borrowed money

 

 

(2,500

)

 

 

(2,500

)

Increase in advances from borrowers for taxes and insurance

 

 

939

 

 

 

910

 

Net proceeds from issuance of common stock

 

 

23,344

 

 

 

-

 

Acquisition of treasury stock

 

 

(3

)

 

 

-

 

Net Cash Provided by Financing Activities

 

 

169,991

 

 

 

33,583

 

Net Increase in Cash and Cash Equivalents

 

 

79,986

 

 

 

4,574

 

Cash and Cash Equivalents - Beginning

 

 

30,834

 

 

 

117,136

 

Cash and Cash Equivalents - Ending

 

$

110,820

 

 

$

121,710

 

Supplemental Cash Flows Information

 

 

 

 

 

 

 

 

Interest paid

 

$

8,242

 

 

$

6,246

 

Income taxes paid

 

$

769

 

 

$

254

 

    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.  Effective February 12, 2018, the Bank converted from a federal savings bank charter to a national bank charter and Malvern Bancorp converted from a savings and loan holding company to a bank holding company. On October 9, 2018, the Company closed an underwritten public offering of shares of our common stock for gross proceeds of $25.0 million and net proceeds of approximately $23.3 million (after deducting the underwriting discount and other offering expenses).

The Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia, and through its nine other banking locations in Chester, Delaware and Bucks counties, Pennsylvania, Palm Beach, Florida, and Morristown, New Jersey, its New Jersey regional headquarters.  The Bank also maintains a representative office in Montchanin, Delaware.  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 wholly-owned subsidiary, Malvern Bank, National Association and the Bank’s wholly-owned subsidiary, Malvern Insurance Associates, LLC. 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 March 31, 2019 and September 30, 2018 and the results of operations for the three and six months ended March 31, 2019 and 2018, and cash flows for the six months ended March 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 14, 2018. The consolidated statement of operations for the three and six months ended March 31, 2019 and the consolidated statements of cash flows for the six months ended March 31, 2019 are not necessarily indicative of the results of operations or cash flows for the full year ending September 30, 2019 or any other period.

Treasury stock. We record common stock purchased for treasury at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the first-in, first-out basis.

There have been no other significant changes to our Critical Accounting Policies as described in our 2018 Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

Collaborative Arrangements. In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18, Collaborative Arrangements (Topic 808). This ASU clarifies the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. This ASU is effective for fiscal years beginning after December 15, 2019. 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.

-9-


 

Fair Value. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of such transfers and the valuation process for Level 3 fair value measurements. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The ASU is effective for fiscal years beginning after December 15, 2019, 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. The 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, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This ASU will be effective for interim and annual periods beginning after December 15, 2019. All entities may adopt the amendments in this Update earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect to early adopt these changes. The Bank has a software system in place to assist with the calculation of Current Expected Credit Losses (“CECL”).  The Company has formed a cross functional implementation team to review the requirements of ASU 2016-13 and has contracted with a third-party provider to assist in the development and implementation of the revised credit loss methodology. The Company has not determined the impact that the adoption of this ASU will have on our consolidated financial statements.

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. The 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. The 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 plans to apply the new transition method upon adoption. The Company has established an implementation team that continues to make progress toward completing the evaluation of the impact of the new standard. Based on a preliminary assessment, the Company expects to record right-of-use assets and associated lease liabilities of approximately $3.2 million. In December 2018, the FASB released issued ASU 2018-20 for 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. The Company anticipates finalizing its accounting policy and process modifications during the fourth quarter of fiscal 2019 and plans to adopt the guidance in these ASUs effective October 1, 2019.

-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 non-interest income for the periods presented.

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Rental income

 

$

64

 

 

$

67

 

 

$

131

 

 

$

133

 

Net gains on sale of real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,186

 

Net gains on sale of loans

 

 

19

 

 

 

26

 

 

 

37

 

 

 

93

 

Earnings on bank-owned life insurance

 

 

120

 

 

 

119

 

 

 

241

 

 

 

240

 

Non-interest income within the scope of other GAAP topics

 

 

203

 

 

 

212

 

 

 

409

 

 

 

1,652

 

ATM fees

 

 

1