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Section 1: 10-Q (10-Q)

mlvf-10q_20190630.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 June 30, 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:

7,765,395 shares

(Title of Class)

(Outstanding as of August 9, 2019)

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

3

 

 

 

Item  1.

Financial Statements

4

 

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

4

 

Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018 (unaudited)

5

 

Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2019 and 2018 (unaudited)

6

 

Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended June 30, 2019 and 2018 (unaudited)

7

 

Consolidated Statements of Cash Flows for the nine months ended June 30, 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

42

 

 

 

Item  3.

Qualitative and Quantitative Disclosures about Market Risk

58

 

 

 

Item  4.

Controls and Procedures

58

 

 

 

PART II – OTHER INFORMATION.

60

 

 

 

Item  1.

Legal Proceedings

60

 

 

 

Item  1A.

Risk Factors

60

 

 

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

 

 

 

Item  3.

Default Upon Senior Securities

60

 

 

 

Item  4.

Mine Safety Disclosure

60

 

 

 

Item  5.

Other Information

61

 

 

 

Item  6.

Exhibits

61

 

 

 

SIGNATURES

62

 

 

 


 

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 nine months ended June 30, 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)

 

 

 

June 30,

2019

 

 

September 30,

2018

 

 

 

(Dollars in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from depository institutions

 

$

1,535

 

 

$

1,563

 

Interest bearing deposits in depository institutions

 

 

148,501

 

 

 

29,271

 

Cash and Cash Equivalents

 

 

150,036

 

 

 

30,834

 

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

   $23,783 and $24,804, respectively)

 

 

23,552

 

 

 

24,298

 

Investment securities held to maturity (fair value of $23,309 and $28,968,

   respectively)

 

 

23,323

 

 

 

30,092

 

Restricted stock, at cost

 

 

10,404

 

 

 

8,537

 

Loans receivable, net of allowance for loan losses of $10,106 and $9,021,

   respectively

 

 

1,009,959

 

 

 

902,136

 

Other real estate owned

 

 

5,796

 

 

 

-

 

Accrued interest receivable

 

 

4,237

 

 

 

3,800

 

Property and equipment, net

 

 

6,795

 

 

 

7,181

 

Deferred income taxes

 

 

3,542

 

 

 

3,195

 

Bank-owned life insurance

 

 

19,766

 

 

 

19,403

 

Other assets

 

 

8,468

 

 

 

4,475

 

Total Assets

 

$

1,265,878

 

 

$

1,033,951

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Deposits-noninterest-bearing

 

 

48,580

 

 

 

41,677

 

Deposits-interest-bearing

 

 

908,619

 

 

 

732,486

 

Total Deposits

 

 

957,199

 

 

 

774,163

 

FHLB advances

 

 

133,000

 

 

 

118,000

 

Other short-term borrowings

 

 

-

 

 

 

2,500

 

Subordinated debt

 

 

24,579

 

 

 

24,461

 

Advances from borrowers for taxes and insurance

 

 

3,345

 

 

 

1,305

 

Accrued interest payable

 

 

1,443

 

 

 

784

 

Other liabilities

 

 

6,644

 

 

 

1,915

 

Total Liabilities

 

 

1,126,210

 

 

 

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; 7,782,258 and

   7,765,395 shares issued and outstanding, respectively, at  June 30, 2019

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

 

 

78

 

 

 

66

 

Additional paid-in-capital

 

 

84,705

 

 

 

61,099

 

Retained earnings

 

 

57,045

 

 

 

50,412

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

 

(1,229

)

 

 

(1,338

)

Accumulated other comprehensive (loss) income

 

 

(595

)

 

 

584

 

    Treasury stock, at cost: 16,863 shares at June 30, 2019

 

 

(336

)

 

 

-

 

Total Shareholders' Equity

 

 

139,668

 

 

 

110,823

 

Total Liabilities and Shareholders' Equity

 

$

1,265,878

 

 

$

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 June 30,

 

 

Nine Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except share data)

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

11,415

 

 

$

9,380

 

 

$

32,171

 

 

$

26,821

 

Investment securities, taxable

 

 

259

 

 

 

300

 

 

 

760

 

 

 

832

 

Investment securities, tax-exempt

 

 

49

 

 

 

61

 

 

 

167

 

 

 

191

 

Dividends, restricted stock

 

 

159

 

 

 

130

 

 

 

450

 

 

 

333

 

Interest-bearing cash accounts

 

 

574

 

 

 

327

 

 

 

1,421

 

 

 

1,236

 

Total Interest and Dividend Income

 

 

12,456

 

 

 

10,198

 

 

 

34,969

 

 

 

29,413

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,926

 

 

 

2,304

 

 

 

10,265

 

 

 

6,641

 

Short-term borrowings

 

 

-

 

 

 

13

 

 

 

7

 

 

 

54

 

Long-term borrowings

 

 

686

 

 

 

539

 

 

 

1,891

 

 

 

1,648

 

Subordinated Debt

 

 

383

 

 

 

366

 

 

 

1,149

 

 

 

1,144

 

Total Interest Expense

 

 

4,995

 

 

 

3,222

 

 

 

13,312

 

 

 

9,487

 

Net Interest Income

 

 

7,461

 

 

 

6,976

 

 

 

21,657

 

 

 

19,926

 

Provision for Loan Losses

 

 

56

 

 

 

589

 

 

 

2,379

 

 

 

829

 

Net Interest Income after Provision for Loan losses

 

 

7,405

 

 

 

6,387

 

 

 

19,278

 

 

 

19,097

 

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and other fees

 

 

252

 

 

 

530

 

 

 

1,430

 

 

 

1,038

 

Rental income

 

 

53

 

 

 

63

 

 

 

184

 

 

 

196

 

Net gain on sale of investments

 

 

27

 

 

 

-

 

 

 

27

 

 

 

-

 

Net gains on sale of real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,186

 

Net gains on sale of loans

 

 

-

 

 

 

3

 

 

 

37

 

 

 

96

 

Earnings on bank-owned life insurance

 

 

122

 

 

 

119

 

 

 

363

 

 

 

359

 

Total Other Income

 

 

454

 

 

 

715

 

 

 

2,041

 

 

 

2,875

 

Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,223

 

 

 

2,024

 

 

 

6,444

 

 

 

6,015

 

Occupancy expense

 

 

560

 

 

 

577

 

 

 

1,676

 

 

 

1,725

 

Federal deposit insurance premium

 

 

78

 

 

 

76

 

 

 

220

 

 

 

227

 

Advertising

 

 

30

 

 

 

30

 

 

 

90

 

 

 

122

 

Data processing

 

 

259

 

 

 

274

 

 

 

764

 

 

 

819

 

Professional fees

 

 

405

 

 

 

1,088

 

 

 

1,359

 

 

 

2,326

 

Other real estate owned expense, net

 

 

30

 

 

 

-

 

 

 

79

 

 

 

-

 

Other operating expenses

 

 

912

 

 

 

721

 

 

 

2,402

 

 

 

2,132

 

Total Other Expenses

 

 

4,497

 

 

 

4,790

 

 

 

13,034

 

 

 

13,366

 

Income before income tax expense

 

 

3,362

 

 

 

2,312

 

 

 

8,285

 

 

 

8,606

 

Income tax expense

 

 

706

 

 

 

69

 

 

 

1,652

 

 

 

3,942

 

Net Income

 

$

2,656

 

 

$

2,243

 

 

$

6,633

 

 

$

4,664

 

Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.35

 

 

$

0.87

 

 

$

0.72

 

Diluted

 

$

0.35

 

 

$

0.35

 

 

$

0.87

 

 

$

0.72

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,669,851

 

 

 

6,453,031

 

 

 

7,630,650

 

 

 

6,449,089

 

Diluted

 

 

7,670,106

 

 

 

6,456,048

 

 

 

7,630,944

 

 

 

6,452,068

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

-5-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Net Income

 

$

2,656

 

 

$

2,243

 

 

$

6,633

 

 

$

4,664

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

177

 

 

 

34

 

 

 

298

 

 

 

(185

)

Tax effect

 

 

(37

)

 

 

(7

)

 

 

(62

)

 

 

21

 

Net of tax amount

 

 

140

 

 

 

27

 

 

 

236

 

 

 

(164

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for net gains arising during the period (1)

 

 

(27

)

 

 

-

 

 

 

(27

)

 

 

-

 

Tax effect

 

 

6

 

 

 

-

 

 

 

6

 

 

 

-

 

Net of tax amount

 

 

(21

)

 

 

-

 

 

 

(21

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   to held-to-maturity

 

 

1

 

 

 

1

 

 

 

4

 

 

 

7

 

Tax effect

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

(2

)

Net of tax amount

 

 

1

 

 

 

1

 

 

 

3

 

 

 

5

 

Fair value adjustments on derivatives

 

 

(664

)

 

 

253

 

 

 

(1,767

)

 

 

748

 

Tax effect

 

 

139

 

 

 

(49

)

 

 

370

 

 

 

(158

)

Net of tax amount

 

 

(525

)

 

 

204

 

 

 

(1,397

)

 

 

590

 

Total other comprehensive (loss),  income

 

 

(405

)

 

 

232

 

 

 

(1,179

)

 

 

431

 

Total comprehensive income

 

$

2,251

 

 

$

2,475

 

 

$

5,454

 

 

$

5,095

 

 

(1) Amounts are included in net gains on sales of investments, net on the Consolidated Statements of Operations in total other income.

 

 

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

 

 

-

 

 

 

-

 

 

 

4,664

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,664

 

Reclassification of certain tax effects from           accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

 

33

 

 

 

-

 

 

 

-

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

431

 

 

 

-

 

 

 

431

 

Committed to be released ESOP

   shares (10,800 shares)

 

 

-

 

 

 

167

 

 

 

-

 

 

 

109

 

 

 

-

 

 

 

-

 

 

 

276

 

Stock based compensation

 

 

-

 

 

 

82

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

82

 

Balance, June 30, 2018

 

 

66

 

 

 

60,985

 

 

 

47,770

 

 

 

(1,374

)

 

 

526

 

 

 

-

 

 

 

107,973

 

Balance, October 1, 2018

 

 

66

 

 

 

61,099

 

 

 

50,412

 

 

 

(1,338

)

 

 

584

 

 

 

-

 

 

 

110,823

 

Net Income

 

 

-

 

 

 

-

 

 

 

6,633

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,633

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,179

)

 

 

-

 

 

 

(1,179

)

Treasury stock activity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(336

)

 

 

(336

)

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

 

 

12

 

 

 

23,332

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,344

 

Committed to be released ESOP

   shares (10,800 shares)

 

 

-

 

 

 

102

 

 

 

-

 

 

 

109

 

 

 

-

 

 

 

-

 

 

 

211

 

Stock based compensation

 

 

-

 

 

 

172

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

172

 

Balance, June 30, 2019

 

$

78

 

 

$

84,705

 

 

$

57,045

 

 

$

(1,229

)

 

$

(595

)

 

$

(336

)

 

$

139,668

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

-7-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

6,633

 

 

$

4,664

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

573

 

 

 

569

 

Provision for loan losses

 

 

2,379

 

 

 

829

 

Deferred income tax (benefit) expense

 

 

(471

)

 

 

2,643

 

ESOP expense

 

 

211

 

 

 

276

 

Stock based compensation

 

 

172

 

 

 

82

 

Amortization of premiums and discounts on investments securities, net

 

 

210

 

 

 

275

 

Accretion of loan origination fees and costs

 

 

(564

)

 

 

(132

)

Amortization of mortgage servicing rights

 

 

32

 

 

 

35

 

Net gain on sale of investments securities available-for-sale

 

 

(27

)

 

 

-

 

Net gain on sale of real estate

 

 

-

 

 

 

(1,186

)

Net gain on sale of secondary market loans

 

 

(37

)

 

 

(96

)

Proceeds from sale of secondary market loans

 

 

2,867

 

 

 

8,615

 

Originations of  secondary market loans

 

 

(2,829

)

 

 

(8,519

)

Earnings on bank-owned life insurance

 

 

(363

)

 

 

(359

)

Increase in accrued interest receivable

 

 

(437

)

 

 

(432

)

Increase in accrued interest payable

 

 

659

 

 

 

401

 

Increase (decrease) in other liabilities

 

 

4,729

 

 

 

(40

)

Increase in other assets

 

 

(4,991

)

 

 

(769

)

Amortization of subordinate debt

 

 

118

 

 

 

118

 

Net Cash Provided by Operating Activities

 

 

8,864

 

 

 

6,974

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(12,000

)

 

 

(30,140

)

        Sales

 

 

2,055

 

 

 

-

 

Maturities, calls and principal repayments

 

 

10,952

 

 

 

10,123

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

Maturities, calls and principal repayments

 

 

6,601

 

 

 

3,715

 

Net increase in loans

 

 

(115,800

)

 

 

(59,720

)

Net increase in restricted stock

 

 

(1,867

)

 

 

(3,222

)

Proceeds from sale of real estate

 

 

-

 

 

 

1,315

 

Purchase of property and equipment

 

 

(187

)

 

 

(431

)

Net Cash Used in Investing Activities

 

 

(110,246

)

 

 

(78,360

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

183,036

 

 

 

(2,464

)

Net increase in short-term borrowings

 

 

-

 

 

 

5,000

 

Proceeds for long-term borrowings

 

 

70,000

 

 

 

105,000

 

Repayment of long-term borrowings

 

 

(55,000

)

 

 

(105,000

)

Repayment of other borrowed money

 

 

(2,500

)

 

 

(2,500

)

Increase in advances from borrowers for taxes and insurance

 

 

2,040

 

 

 

1,595

 

Net proceeds from issuance of common stock

 

 

23,344

 

 

 

-

 

Acquisition of treasury stock

 

 

(336

)

 

 

-

 

Net Cash Provided by Financing Activities

 

 

220,584

 

 

 

1,631

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

119,202

 

 

 

(69,755

)

Cash and Cash Equivalents - Beginning

 

 

30,834

 

 

 

117,136

 

Cash and Cash Equivalents - Ending

 

$

150,036

 

 

$

47,381

 

Supplemental Cash Flows Information

 

 

 

 

 

 

 

 

Interest paid

 

$

12,653

 

 

$

9,086

 

Income taxes paid

 

$

1,255

 

 

$

1,871

 

    Non-cash transfer to other real estate owned

 

$

5,796

 

 

$

-

 

   Non-cash transfer of loans to loans held for sale

 

$

367

 

 

$

-

 

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 its 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 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 June 30, 2019 and September 30, 2018 and the results of operations for the three and nine months ended June 30, 2019 and 2018, and cash flows for the nine months ended June 30, 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  “2018 Annual Report”). The consolidated statements of operations for the three and nine months ended June 30, 2019 and the consolidated statements of cash flows for the nine months ended June 30, 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.

Loans Held-For-Sale. Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value on the consolidated statement of financial condition.  Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan.  Servicing is retained at the Bank for loans sold in the secondary market and are placed as a mortgage servicing asset on the consolidated statement of financial condition.  As of June 30, 2019, there was one commercial real estate loan with a balance of $367,000 classified as held for sale. There were no loans classified as held for sale as of September 30, 2018.

Treasury stock. The Company records 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 the Critical Accounting Policies as described in the 2018 Annual Report.

 

 

-9-


 

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 and is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the Company.

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. This ASU also expands the disclosure requirements for Level 3 fair value measurements and is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the consolidated e