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Section 1: 8-K (FORM 8-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): November 1, 2019 (October 30, 2019)

 

MALVERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Pennsylvania 000-54385 45-5307782
(State or other jurisdiction of (Commission file number) (IRS Employer
incorporation or organization)   Identification No.)

 

42 East Lancaster Avenue, Paoli, Pennsylvania 19301

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (610) 644-9400

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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

 

Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock MLVF The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ¨

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Item 2.02Results of Operations and Financial Condition


On October 30, 2019, Malvern Bancorp, Inc. (the “Company”), the holding company for Malvern Bank, National Association (the “Bank”), issued a press release setting forth its results of operations for the fourth fiscal quarter ended September 30, 2019. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.

 

The information furnished under Item 2.02 and Item 9.01 of this Current Report on Form 8-K, including Exhibit 99.1 to this Current Report on Form 8-K, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under that Section, nor shall it be deemed incorporated by reference in any registration statement or other filings of the Company under the Securities Act of 1933, as amended, except as shall be set forth by specific reference in such filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d)       Exhibits

 

The exhibits that are filed or furnished with this report are listed in the Exhibit Index that immediately follows the signatures hereto, which list is incorporated herein by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  MALVERN BANCORP, INC.
   
Dated: November 1, 2019 By:  /s/ Joseph D. Gangemi
    Joseph D. Gangemi
Senior Vice President and Chief Financial Officer

 

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EXHIBIT INDEX

 

 

Exhibit No.   Description
     
99.1   Press release dated October 30, 2019.

 

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(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 Exhibit 99.1

 

 

 

Investor Relations:

Joseph D. Gangemi

SVP & CFO

(610) 695-3676

 

Investor Contact:

Ronald Morales

(610) 695-3646

 

Malvern Bancorp, Inc. Reports Fourth Quarter and 2019 Fiscal Year End Results

PAOLI, PA., October 30, 2019 -- Malvern Bancorp, Inc. (NASDAQ: MLVF) (the "Company"), parent company of Malvern Bank, National Association (“Malvern” or the “Bank”), today reported operating results for the fourth quarter ended September 30, 2019. Net income amounted to $2.7 million, or $0.35 per fully diluted common share, for the quarter ended September 30, 2019, compared with net income of $2.6 million, or $0.41 per fully diluted common share, for the quarter ended September 30, 2018. Annualized return on average assets (“ROAA”) was 0.86 percent for the quarter ended September 30, 2019, compared to 1.02 percent for the quarter ended September 30, 2018, and annualized return on average equity (“ROAE”) was 7.65 percent for the quarter ended September 30, 2019, compared with 9.63 percent for the quarter ended September 30, 2018.

 

For the fiscal year ended September 30, 2019, net income amounted to $9.3 million, or $1.22 per fully diluted common share, compared with net income of $7.3 million, or $1.13 per fully diluted common share, for fiscal year ended September 30, 2018. ROAA was 0.80 percent for the fiscal year ended September 30, 2019, compared to 0.69 percent for the fiscal year ended September 30, 2018, and ROAE was 6.78 percent for the fiscal year ended September 30, 2019, compared with 6.88 percent for the fiscal year ended September 30, 2018. Excluding provision for loan loss expense, net of tax, of $1.9 million, adjusted ROAA was 0.96 percent and adjusted ROAE was 8.14 percent for the fiscal year ended September 30, 2019.

“We are proud of our accomplishments throughout our fiscal year, especially with respect to our year over year growth in gross loans of 11.7%, total assets of 22.4% and deposits of 23.2%. We did so in a challenging environment and while maintaining strong asset quality and a solid efficiency ratio. We believe we are well positioned to grow and continue to execute on our strategic plan,” commented Anthony C. Weagley, President & Chief Executive Officer.  

Joseph D. Gangemi, Chief Financial Officer of the Company, added: “The change in the net interest margin was primarily due to new margin compression caused by the continued high levels of cash and elevated loan payoffs. Absent these items, the core net interest margin likely would have been closer to 2.70 percent and more in-line with our internal business plans.” He added, “as a result of the September cut in the Federal Funds Rate and the expectation of another 25 basis point cut later this year, we believe that the near-term compression will be abated through the combined deployment of cash and reduction of excess cash, improving spreads.”

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 Linked Quarter Financial Ratios
(unaudited)
                         
                          
As of or for the quarter ended:   9/30/19    6/30/19    3/31/19    12/31/18    9/30/18 
Return on average assets (1)   0.86%   0.88%   0.70%   0.74%   1.02%
Return on average equity (1)   7.65%   7.66%   5.74%   6.00%   9.63%
Net interest margin (tax equivalent basis) (2)   2.45%   2.54%   2.67%   2.65%   2.85%
Loans / deposits ratio   106.64%   106.52%   106.82%   110.70%   117.62%
Shareholders’ equity / total assets   11.26%   11.03%   11.37%   12.02%   10.72%
Efficiency ratio, non-GAAP (1)  (2)  (3)   54.3%   56.6%   57.2%   47.8%   58.3%
Book value per common share  $18.35   $17.99   $17.68   $17.45   $16.84 

_____________

(1)Annualized.
(2)Information reconciling non-GAAP measures to GAAP measures is presented beginning on page 12 in this press release.

(3)Efficiency ratio is a non-GAAP financial measure and is defined as other expense, excluding certain non-core items, as a percentage of net interest income on a tax equivalent basis plus other income.

Linked Quarter Income Statement Highlights

(unaudited)
(in thousands, except share and per share data)
         
                
For the quarter ended:   9/30/19    6/30/19    3/31/19    12/31/18    9/30/18 
Net interest income  $7,418   $7,461   $7,249   $6,947   $7,109 
Provision for loan losses   —      56    870    1,453    125 
 Net interest income after provision for loan losses   7,418    7,405    6,379    5,494    6,984 
Other income   551    454    441    1,146    429 
Other expense   4,453    4,497    4,443    4,094    4,437 
Income before income tax expense   3,516    3,362    2,377    2,546    2,976 
Income tax expense   817    706    411    535    334 
Net income  $2,699   $2,656   $1,966   $2,011   $2,642 
Earnings per common share                         
Basic  $0.35   $0.35   $0.26   $0.27   $0.41 
Diluted  $0.35   $0.35   $0.26   $0.27   $0.41 
Weighted average common shares outstanding                         
Basic   7,663,242    7,671,623    7,667,518    7,555,810    6,464,326 
Diluted   7,663,593    7,672,284    7,667,518    7,555,969    6,467,628 

 

 

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Net Interest Income

Net interest income both as reported and on a fully tax equivalent basis, a non-GAAP measure, was $7.4 million for the quarter ended September 30, 2019. Net interest income on a fully tax-equivalent basis, a non-GAAP measure, increased $254,000, or 3.5 percent, from $7.2 million for the comparable quarter period in fiscal 2018. The change for the quarter ended September 30, 2019 primarily was the result of an increase of $106.3 million in the average balance of loans. The increase in average loans primarily reflects a net increase in commercial loans and, to a lesser extent, a net increase in residential loans. The net interest spread on an annualized tax-equivalent basis was 2.19 percent and 2.64 percent for the quarter ended September 30, 2019 and 2018, respectively. For the quarter ended September 30, 2019, the Company’s net interest margin on a tax-equivalent basis decreased to 2.45 percent as compared to 2.85 percent for the same three-month period in fiscal 2018.

Net interest income both as reported and on a fully tax equivalent basis, a non-GAAP measure, was $29.1 million for the fiscal year ended September 30, 2019. Net interest income on a fully tax equivalent basis, a non-GAAP measure, increased $1.9 million, or 7.1 percent, from $27.2 million for the fiscal year ended September 30, 2018. The change for the fiscal year ended September 30, 2019 primarily was the result of an increase of $117.5 million in the average balance of commercial loans. The net interest spread on an annualized tax-equivalent basis was 2.31 percent and 2.48 percent for the fiscal year ended September 30, 2019 and 2018, respectively. For the fiscal year ended September 30, 2019, the Company’s net interest margin on a tax-equivalent basis decreased to 2.57 percent as compared to 2.66 percent for the same twelve-month period in fiscal 2018.

Total Interest Income

For the quarter ended September 30, 2019, total interest income both as reported and on a fully tax-equivalent basis, a non-GAAP measure, was $12.7 million. Total interest income on a fully tax equivalent basis, a non-GAAP measure, increased $2.0 million, or 18.9 percent, from $10.7 million for quarter ended September 30, 2018, primarily due to a $106.3 million increase in the average balance of loans.

For the fiscal year ended September 30, 2019, total interest income both as reported and on a fully tax equivalent basis, a non-GAAP measure, was $47.7 million. Total interest income on a fully tax equivalent basis, a non-GAAP measure, increased $7.5 million, or 18.7 percent, from $40.2 million for the fiscal year ended September 30, 2018. Total interest income rose for the fiscal year ended September 30, 2019, compared to the comparable period in fiscal 2018, primarily due to a $117.5 million increase in average loan balances. Compared to the fiscal year ended September 30, 2018, average interest earning assets increased $109.5 million, the net interest spread decreased on an annualized tax-equivalent basis by seventeen basis points and the net interest margin decreased on an annualized tax-equivalent basis by nine basis points for fiscal year ended September 30, 2019.

 

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Interest Expense

For the quarter ended September 30, 2019, interest expense increased by $1.8 million, or 50.2 percent, to $5.3 million, compared to the same period in fiscal 2018, primarily due to an increase of $1.5 million in interest expense on deposits mainly due to an increase in average rates. The increase in interest expense on deposits mainly reflects an increase in interest-bearing demand and time deposits. The annualized average rate of total interest-bearing liabilities increased 40 basis points to 2.00 percent for the quarter ended September 30, 2019, from 1.60 percent for the quarter ended September 30, 2018 and, on a linked sequential quarter basis, increased from 1.95 percent or five basis points compared to the third quarter of fiscal 2019. At the same time, the average balance of total interest-bearing liabilities increased by $176.8 million. This increase primarily reflects an increase in the average balance of total interest-bearing deposit accounts of $164.4 million and an increase in the average balance of borrowings of $12.4 million. 

For the fiscal year ended September 30, 2019, interest expense increased by $5.6 million, or 43.0 percent, to $18.6 million, compared to the comparable period in fiscal 2018. The average rate of total interest-bearing liabilities increased 45 basis points to 1.90 percent for the fiscal year ended September 30, 2019, from 1.45 percent for the fiscal year ended September 30, 2018. At the same time, the average balance of total interest-bearing liabilities increased by $83.5 million. This increase primarily reflects an increase in the average balance of deposits of $88.3 million and a decrease in the average balance of borrowings of $4.8 million.  The increase in the average balance of deposits consisted primarily of a $72.8 million increase in the average balance of other interest-bearing deposit accounts, and a $16.1 million increase in the average balance of certificates of deposit accounts.

 

Other Income

Other income increased $122,000, or 28.4 percent, during the fourth fiscal quarter of 2019 compared with the same period in 2018. The increase in total other income was primarily due to a $136,000 increase in service charges and other fees offset in part by a $13,000 decrease in rental income. The increase in service charges and other fees during the quarter ended September 30, 2019 is primarily due to higher net swap fees through the Bank’s commercial loan hedging program. The decrease in rental income was primarily due to a loss of a tenant in our Downingtown/Lionville financial center building.

For the fiscal year ended September 30, 2019, other income decreased $712,000 compared to the same period in 2018. This decrease was primarily a result of a one-time $1.2 million gain recorded in 2018 on the sale of the Exton, Pennsylvania branch location. Additionally, there was a $65,000 decrease in net gains on sale of loans and a $25,000 decrease in rental income, partially offset by an increase of $528,000 in service charges and a $28,000 gain on sale of investments. The change in service charges and other fees during the fiscal year ended September 30, 2019 is primarily due to the recognition of approximately $708,000 of net swap fees through the Bank’s commercial loan hedging program during the first fiscal quarter of 2019.

Other Expense

Total other expense for the quarter ended September 30, 2019 increased $16,000, or 0.4 percent, when compared to the quarter ended September 30, 2018. The increase was primarily due to a $201,000 increase in other operating expense, and a $113,000 increase in net other real estate owned expense, partially offset by a $125,000 decrease in professional fees, an $81,000 decrease in salaries and employee benefits, and a $70,000 decrease in the federal deposit insurance premium. The increase in other operating expense was primarily due to the imposition of the Pennsylvania shares tax related to the Bank’s new standing as a National Association. The increase in net other real estate owned expense was mainly due to the payment of real estate taxes, while the decrease in salaries and employee benefits was primarily due to normal attrition. The reduction in the federal deposit insurance premium resulted from the Deposit Insurance Fund reserve ratio exceeding the official required reserve ratio, which in turn generates credits to qualified participating banks. The Company has a current credit balance of approximately $160,000 that can be used to offset premiums during the next several quarters, should FDIC reserves remain above the required reserve ratio level.

For the fiscal year ended September 30, 2019, total other expense decreased $316,000, or 1.8 percent, compared to the same period in 2018. The decrease primarily reflected a $1.1 million decrease in professional fees, and a $77,000 decrease in the federal deposit insurance premium. These decreases were offset by a $471,000 increase in other operating expenses, a $348,000 increase in salaries and employee benefits and a $192,000 increase in net other real estate owned expense. The decrease in professional fees during the twelve-month period ended September 30, 2019 was primarily due to lower legal expense. The reduction in the federal deposit insurance premium resulted from the aforementioned credit received during the fourth quarter of 2019. The increase in salaries and employee benefits reflects normal increases to salary and benefits. The increase in other operating expenses was primarily due to the Pennsylvania shares tax while the increase in net other real estate owned expense was due to expenses related to an other real estate owned (“OREO”) property.

 

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The following table presents the components of Other Expense for the periods indicated.

(in thousands, unaudited)               
For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Salaries and employee benefits  $2,097   $2,223   $2,213   $2,008   $2,178 
Occupancy expense   580    560    577    539    570 
Federal deposit insurance premium   1    78    73    69    71 
Advertising   17    30    30    30    30 
Data processing   260    259    251    254    279 
Professional fees   440    405    455    499    565 
Net other real estate owned expense   113    30    28    21    —   
Other operating expenses   945    912    816    674    744 
   Total other expense  $4,453   $4,497   $4,443   $4,094   $4,437 

 

Income Taxes

 

The Company recorded $817,000 in income tax expense during the quarter ended September 30, 2019 compared to $334,000 in income tax expense during the quarter ended September 30, 2018. The effective tax rates for the Company for the quarter ended September 30, 2019 and 2018 were 23.2 percent and 11.2 percent, respectively. For the fiscal year ended September 30, 2019, income tax expense decreased $1.8 million, or 42.3 percent, to $2.5 million from $4.3 million for the fiscal year ended September 30, 2018. The effective tax rates for the Company for the fiscal year ended September 30, 2019 and 2018 were 20.9 percent and 36.9 percent, respectively.

 

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Statement of Condition Highlights at September 30, 2019

Gross loans were $1.0 billion at September 30, 2019, increasing $106.6 million, or 11.7 percent, from September 30, 2018.

 

Total assets stood at $1.3 billion at September 30, 2019, increasing $231.3 million, or 22.4 percent, compared to September 30, 2018.

 

Deposits totaled $953.8 million at September 30, 2019, an increase of $179.6 million, or 23.2 percent, compared to September 30, 2018.

 

Federal Home Loan Bank (FHLB) advances totaled $133.0 million at September 30, 2019, an increase from $118.0 million at September 30, 2018.

 

The Bank had gross originations of $46.2 million during the quarter ended September 30, 2019, with net portfolio reduction of $2.4 million. Gross loan originations during the quarter consisted of $27.0 million in commercial loans, $10.9 million in residential mortgage loans, $6.4 million in construction and development loans, and $1.9 million in consumer loans.

 

Non-performing assets (“NPAs”) were 0.64 percent of total assets at September 30, 2019, compared to 0.30 percent at September 30, 2018. Allowance for loan losses as a percentage of total non-performing loans was 434.6 percent at September 30, 2019, compared to 294.7 percent at September 30, 2018.

 

Excluding one OREO property of $5.8 million, NPAs were 0.18 percent of total assets at September 30, 2019.

 

The Company’s ratio of shareholders? equity to total assets was 11.26 percent at September 30, 2019, compared to 10.72 percent at September 30, 2018.

 

Book value per common share amounted to $18.35 at September 30, 2019, compared to $16.84 at September 30, 2018.

 

The efficiency ratio, a non-GAAP measure, was 54.3 percent at September 30, 2019, compared to 58.3 percent at September 30, 2018.

 

 

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Linked Quarter Statements of Condition Data

 

(in thousands, unaudited)
             
At quarter ended:   9/30/19    6/30/19    3/31/19    12/31/18    9/30/18 
Cash and due from depository institutions  $1,400   $1,535   $1,370   $1,377   $1,563 
Interest bearing deposits in depository
institutions
   152,143    148,501    109,450    98,499    29,271 
Investment securities, available for sale, at fair
value
   18,411    23,552    19,371    19,231    24,298 
Investment securities held to maturity   22,485    23,323    26,789    29,323    30,092 
Restricted stock, at cost   11,129    10,404    8,952    9,493    8,537 
Loans receivable, net of allowance for loan
losses
   1,007,714    1,009,959    997,114    924,639    902,136 
Other real estate owned   5,796    5,796    5,796    5,796    —   
Accrued interest receivable   4,253    4,237    4,344    3,724    3,800 
Property and equipment, net   6,678    6,795    6,948    7,067    7,181 
Deferred income taxes, net   2,840    3,542    3,434    3,367    3,195 
Bank-owned life insurance   19,891    19,766    19,643    19,524    19,403 
Other assets   12,482    8,468    7,029    6,452    4,475 
   Total assets  $1,265,222   $1,265,878   $1,210,240   $1,128,492   $1,033,951 
Deposits  $953,811   $957,199   $942,374   $843,200   $774,163 
FHLB advances   133,000    133,000    98,000    118,000    118,000 
Other short-term borrowings   —      —      —      —      2,500 
Subordinated debt   24,619    24,579    24,540    24,500    24,461 
Other liabilities   11,284    11,432    7,758    7,113    4,004 
Shareholders' equity   142,508    139,668    137,568    135,679    110,823 
   Total liabilities and shareholders’ equity  $1,265,222   $1,265,878   $1,210,240   $1,128,492   $1,033,951 

  

The following table sets forth the Company’s consolidated average statements of condition for the periods presented.

 

Condensed Consolidated Average Statements of Condition
                
(in thousands, unaudited)                         
                          
   For the quarter ended:   9/30/19    6/30/19    3/31/19    12/31/18    9/30/18 
Investment securities  $42,256   $49,408   $47,761   $53,882   $64,848 
Loans   1,015,251    1,010,033    956,840    912,259    908,962 
Allowance for loan losses   (10,143)   (10,061)   (9,408)   (8,638)   (9,077)
All other assets   204,912    164,424    130,712    123,643    72,535 
   Total assets   1,252,276    1,213,804    1,125,905    1,081,146    1,037,268 
Non-interest bearing deposits  $44,104   $42,151   $41,035   $40,420   $43,330 
Interest-bearing deposits   896,928    882,825    814,412    758,813    732,489 
FHLB advances   133,000    115,363    101,000    116,859    118,326 
Other short-term borrowings   54    —      277    761    2,522 
Subordinated debt   24,602    24,563    24,523    24,483    24,440 
Other liabilities   12,413    10,192    7,728    5,750    6,457 
Shareholders’ equity   141,175    138,710    136,930    134,060    109,704 
   Total liabilities and shareholders’ equity  $1,252,276   $1,213,804   $1,125,905   $1,081,146   $1,037,268 


 

The following table reflects the composition of the Company’s deposits as of the dates indicated.

 

Deposits

 

               
(in thousands, unaudited)                         
At quarter ended:   9/30/19    6/30/19    3/31/19    12/31/18    9/30/18 
Demand:                         
    Non-interest bearing  $55,684   $48,580   $42,937   $39,734   $41,677 
    Interest-bearing   302,039    288,555    295,475    261,025    184,073 
Savings   41,875    43,334    43,943    44,438    44,642 
Money market   276,644    288,561    283,571    253,436    270,834 
Time   277,569    288,169    276,448    244,567    232,937 
   Total deposits  $953,811   $957,199   $942,374   $843,200   $774,163 

 

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Loans

Total net loans amounted to $1.0 billion at September 30, 2019 compared to $902.1 million at September 30, 2018, for a net increase of $105.6 million or 11.7 percent. The allowance for loan losses amounted to $10.1 million and $9.0 million at September 30, 2019 and September 30, 2018, respectively. Average loans during the fourth fiscal quarter of 2019 totaled $1.0 billion as compared to $909.0 million during the fourth fiscal quarter of 2018, also representing a 11.7 percent increase.

At the end of the fourth quarter of fiscal 2019, the loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial loans accounting for 70.6 percent and single-family residential real estate loans accounting for 21.6 percent of the loan portfolio. Construction and development loans amounted to 4.3 percent and consumer loans represented 3.5 percent of the loan portfolio at such date. The increase in the loan portfolio at September 30, 2019 compared to September 30, 2018, primarily reflected an increase of $86.9 million in commercial loans, an increase of $22.8 million in residential mortgage loans and were offset by a $2.9 million decrease in construction and development loans, and a $289,000 decrease in consumer loans.

For the quarter ended September 30, 2019, the Company originated total new loan volume of $46.2 million, which was offset by prepayments totaling $25.1 million, amortization of $10.6 million, loan payoffs of $9.3 million, and participations of $3.6 million.

Loan Portfolio Composition (which does not include loans held for sale):

 

(in thousands, unaudited)               
At quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Residential mortgage  $220,011   $216,114   $202,655   $202,306   $197,219 
Construction and Development:                         
   Residential and commercial   40,346    47,485    44,014    41,140    37,433 
   Land   3,420    3,809    5,696    7,180    9,221 
Total construction and
development
   43,766    51,294    49,710    48,320    46,654 
Commercial:                         
   Commercial real estate   543,452    543,045    550,933    508,448    493,929 
   Farmland   7,563    5,388    12,041    12,054    12,066 
   Multi-family   62,884    64,050    64,328    44,989    45,102 
   Commercial and industrial   99,747    97,877    82,731    76,892    73,895 
   Other   4,450    5,356    8,111    7,344    6,164 
Total commercial   718,096    715,716    718,144    649,727    631,156 
Consumer:                         
   Home equity lines of credit   19,506    19,348    18,466    14,484    14,884 
   Second mortgages   13,737    15,018    15,773    16,674    18,363 
   Other   2,030    2,081    1,904    1,915    2,315 
Total consumer   35,273    36,447    36,143    33,073    35,562 
Total loans   1,017,146    1,019,571    1,006,652    933,426    910,591 
Deferred loan costs, net   663    494    478    460    566 
Allowance for loan losses   (10,095)   (10,106)   (10,016)   (9,247)   (9,021)
   Loans Receivable, net  $1,007,714   $1,009,959   $997,114   $924,639   $902,136 


 

At September 30, 2019, the Company had $138.6 million in overall undisbursed loan commitments, which consisted primarily of unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities. The Company's current "Approved, Accepted but Unfunded" pipeline at September 30, 2019 included approximately $144.6 million in commercial and construction loans and $23.3 million in residential mortgage loans expected to fund over the following quarters.

 

 8 

 

Asset Quality

Non-accrual loans were $1.8 million at September 30, 2019, a decrease of $866,000, or 32.2 percent, as compared to $2.7 million at September 30, 2018. The decrease in non-accrual loans was primarily due to the sale of one commercial real estate with an aggregate balance of approximately $367,000 during the fourth fiscal quarter of 2019. In addition, four residential loans and one consumer loan with aggregate balances of approximately $420,000 and $44,000, respectively, returned to accrual status during the fourth fiscal quarter of 2019. The portfolio of non-accrual loans at September 30, 2019 was comprised of twelve residential real estate loans with an aggregate outstanding balance of approximately $1.5 million and eleven consumer loans with an aggregate outstanding balance of approximately $288,000.

At September 30, 2019, non-performing assets totaled $8.1 million, or 0.64 percent of total assets, as compared with $3.1 million, or 0.30 percent of total assets, at September 30, 2018. The increase in non-performing assets at September 30, 2019 compared to September 30, 2018 was primarily due to the transfer to OREO of one commercial real estate loan in the amount of $5.8 million.

 

OREO was $5.8 million at September 30, 2019 and zero at September 30, 2018. Excluding the OREO property of $5.8 million, NPAs totaled $2.3 million, or 0.18 percent of total assets at September 30, 2019. During the fourth fiscal quarter a national tenant signed a lease agreement that is expected to make this OREO property produce income.

Performing Troubled Debt Restructuring (“TDR”) loans were $12.2 million at September 30, 2019 and $18.6 million at September 30, 2018.

Non-Performing Asset and Other Asset Quality Data:

(dollars in thousands, unaudited)               
As of or for the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Non-accrual loans(1)  $1,821   $2,189   $2,432   $2,562   $2,687 
Loans 90 days or more past due and still accruing   502    228    —      759    374 
   Total non-performing loans   2,323    2,417    2,432    3,321    3,061 
OREO   5,796    5,796    5,796    5,796    —   
   Total non-performing assets  $8,119   $8,213   $8,228   $9,117   $3,061 
Performing TDR loans  $12,170   $11,824   $12,099   $12,164   $18,640 
                          
Non-performing assets / total assets   0.64%   0.65%   0.68%   0.81%   0.30%
Non-performing loans / total loans   0.23%   0.24%   0.24%   0.36%   0.34%
Net charge-offs(recoveries)  $11   $(34)  $101   $1,227   $128 
Net charge-offs(recoveries)/average loans(2)   %   (0.01)%   0.04%   0.54%   0.06%
Allowance for loan losses / total loans   0.99%   0.99%   0.99%   0.99%   0.99%
Allowance for loan losses / non-performing loans   434.6%   418.1%   411.8%   278.4%   294.7%
                          
Total assets  $1,265,222   $1,265,878   $1,210,240   $1,128,492   $1,033,951 
Total gross loans   1,017,146    1,019,571    1,006,652    933,426    910,591 
Average loans   1,015,251    1,010,033    956,840    912,259    908,962 
Allowance for loan losses   10,095    10,106    10,016    9,247    9,021 

______________

(1)Twenty-one loans totaling approximately $1.7 million, or 92.2 percent of the total non-accrual loan balance, were making payments at September 30, 2019.
(2)Annualized.

 

 9 

 

 

The allowance for loan losses at September 30, 2019 amounted to approximately $10.1 million, or 0.99 percent of total loans, compared to $9.0 million, or 0.99 percent of total loans, at September 30, 2018. The Company did not record a provision for loan losses during the fiscal quarter ended September 30, 2019 compared to $125,000 for the fiscal quarter ended September 30, 2018.

 

Capital

At September 30, 2019, our total shareholders' equity amounted to $142.5 million, or 11.26 percent of total assets, compared to $110.8 million, or 10.72 percent of total assets at September 30, 2018. At September 30, 2019, the Bank’s common equity tier 1 ratio was 15.38 percent, tier 1 leverage ratio was 12.23 percent, tier 1 risk-based capital ratio was 15.38 percent and the total risk-based capital ratio was 16.40 percent. At September 30, 2018, the Bank’s common equity tier 1 ratio was 15.09 percent, tier 1 leverage ratio was 12.71 percent, tier 1 risk-based capital ratio was 15.09 percent and the total risk-based capital ratio was 16.13 percent. At September 30, 2019, the Bank was in compliance with all applicable regulatory capital requirements.

Under the Company’s approved stock repurchase plan, during the fiscal quarter ended September 30, 2019, the Company did not purchase any shares of its common stock in the open market under the repurchase plan. During the fiscal year ended September 30, 2019, the Company purchased 16,863 shares of its common stock in the open market under the repurchase plan at an average cost of $19.95 per share. At September 30, 2019, the Company had 177,653 shares remaining in the repurchase plan.

Non-GAAP Financial Measures

The Company's management believes that the supplemental non-GAAP information provided in this press release is utilized by market analysts and others to evaluate a company's financial condition and, therefore, that such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures presented by other companies.

The Company’s net income is presented in the table below including non-core income and expense items.

(in thousands)               
For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Net income as reported under GAAP  $2,699   $2,656   $1,966   $2,011   $2,642 
Non-core items, net of tax:                         
    OREO expense(1)   87    24    23    17    —   
    Audit expenses(2)   —      —      —      110    —   
    Other(3)   16    —      10    100    15 
Core net income, non-GAAP  $2,802   $2,680   $1,999   $2,238   $2,657 
Earnings per common share:                         
    Diluted  $0.37   $0.35   $0.26   $0.30   $0.41 
Weighted average common shares outstanding:                         
    Diluted   7,663,593    7,672,284    7,667,518    7,555,969    6,467,628 

  

(1)Non-core items for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018 include OREO expense of one commercial real estate loan.
(2)Non-core items for the quarter ended December 31, 2018 consisted of expenses arising out of the dismissal of the Company’s Certifying Accountant, as previously announced in the Company’s Form 8-K filed on July 9, 2018, which required issuance of consent on previously audited consolidated financial statements.
(3)Included in non-core items such as accelerated payoff and non-accrual interest amounts.

 10 

 

 

The Company’s other income is presented in the table below including and excluding net investment securities gains. The Company’s management believes that many investors evaluate other income without regard to such gains.

(in thousands)               
For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Other income  $551   $454   $441   $1,146   $429 
Less: Net investment securities
gains
   1    27    —      —      —   
Other income, excluding net
investment securities gains
  $550   $427   $441   $1,146   $429 

 

“Efficiency ratio” is a non-GAAP financial measure and is defined as other expense, excluding certain non-core items, as a percentage of net interest income on a tax equivalent basis, plus other income, calculated as follows:

 

(dollars in thousands)               
For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Other expense as reported under GAAP  $4,453   $4,497   $4,443   $4,094   $4,437 
Less: non-core items(1)    113    30    28    160    —   
Other expense, excluding non-core items, non-GAAP  $4,340   $4,467   $4,415   $3,934   $4,437 
Net interest income (tax
equivalent basis), non-GAAP
  $7,426   $7,471   $7,263   $6,958   $7,172 
Non-core items(2)   21    —      12    127    16 
Net interest income (tax
equivalent basis), including non-core items, non-GAAP
   7,447    7,471    7,275    7,085    7,188 
Other income, excluding gain on sale of investments   550    427    441    1,146    429 
   Total  $7,997   $7,898   $7,716   $8,231   $7,617 
                          
Efficiency ratio, non-GAAP   54.3%   56.6%   57.2%   47.8%   58.3%

___________

(1)Non-core items for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018 include OREO expense of one commercial real estate loan. In addition, non-core items for the quarter ended December 31, 2018 consisted of expenses arising out of the dismissal of the Company?s Certifying Accountant, as previously announced in the Company?s Form 8-K filed on July 9, 2018, which required issuance of consent on previously audited consolidated financial statements.
(2)Included in non-core items such as accelerated payoff and non-accrual interest amounts.

The Company’s efficiency ratio, calculated on a GAAP basis, without excluding net investment securities gains and without deducting non-core items from other expense, follows:

For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Efficiency ratio on a GAAP basis   55.9%   56.8%   57.8%   50.6%   58.9%

Net interest margin, which is net interest income as a percentage of average interest-earning assets, is presented on a fully tax equivalent (“TE”) basis as we believe this non-GAAP measure is the preferred industry measurement for this item. The Company revised its estimated annual effective tax rate to reflect a change in the federal statutory rate from 35 percent to 21 percent, resulting from the enactment of the Tax Cuts and Jobs Act of 2017. The TE basis adjusts GAAP interest income and yields for the tax benefit of income on certain tax-exempt investments using the blended statutory rate of 21 percent for the current period and 24.5 percent for each of the prior periods presented. Below is a reconciliation of GAAP net interest income to the TE basis and the related GAAP basis and TE net interest margins for the periods presented.

 11 

 

(dollars in thousands)               
For the quarter ended:  9/30/19  6/30/19  3/31/19  12/31/18  9/30/18
Net interest income (GAAP)  $7,418   $7,461   $7,249   $6,947   $7,109 
Tax-equivalent adjustment(1)     8    10    14    11    63 
TE net interest income, non-GAAP  $7,426   $7,471   $7,263   $6,958   $7,172 
                          
Net interest income margin (GAAP)   2.45%   2.54%   2.66%   2.65%   2.82%
Tax-equivalent effect   —      —      0.01    —      0.03 
Net interest margin (TE), non-GAAP   2.45%   2.54%   2.67%   2.65%   2.85%

______________

(1)Reflects tax-equivalent adjustment for tax exempt investments

 
About Malvern Bancorp, Inc.

Malvern Bancorp, Inc. is the holding company for Malvern Bank, National Association, an institution that was originally organized in 1887 as a federally-chartered savings bank. Malvern Bank, National Association now serves as one of the oldest banks headquartered on the Philadelphia Main Line. For more than a century, Malvern Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect and integrity.

Malvern 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 operates a representative office in Montchanin, Delaware and a Private Banking Office in West Chester, Pennsylvania. Its primary market niche is providing personalized service to its client base.  

Malvern Bank, through its Private Banking division and a strategic partnership with Bell Rock Capital in Rehoboth Beach, Delaware, provides personalized wealth management and advisory services to high net worth individuals and families. These services include banking, liquidity management, investment services, 401(k) accounts and planning, custody, tailored lending, wealth planning, trust and fiduciary services, family wealth advisory services and philanthropic advisory services. The Bank offers insurance services though Malvern Insurance Associates, LLC, which provides clients a rich array of financial services, including commercial and personal insurance and commercial and personal lending.

For further information regarding Malvern Bancorp, Inc., please visit our web site at http://ir.malvernbancorp.com. For information regarding Malvern Bank, National Association, please visit our web site at http://www.mymalvernbank.com.

 

 12 

 

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, and shareholder value creation.

 

Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of competition and the acceptance of the Company’s products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations (including the Dodd-Frank Wall Street Reform and Consumer Protection Act) and of governmental efforts to restructure the U.S. financial regulatory system; technological changes; changes in the level of the Company’s nonperforming assets and charge offs; any oversupply of inventory and deterioration in values of real estate in the markets in which the Company operates, both residential and commercial; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; the effects of the Company’s lack of a widely-diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; unanticipated regulatory or judicial proceedings; and the Company’s ability to manage the risk involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the 2018 Annual Report on Form 10-K of Malvern Bancorp, Inc. filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

 

The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, unless required by law.

 

 13 

 

 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

       
(in thousands, except for share and per share data)  September 30, 2019  September 30, 2018
(unaudited)          
ASSETS          
Cash and due from depository institutions  $1,400   $1,563 
Interest bearing deposits in depository institutions   152,143    29,271 
    Total cash and cash equivalents   153,543    30,834 
Investment securities available for sale, at fair value (amortized cost of $18,522 and $24,804 at September 30, 2019 and September 30, 2018, respectively)   18,411    24,298 
Investment securities held to maturity (fair value of $22,609 and $28,968 at September 30, 2019 and September 30, 2018, respectively)   22,485    30,092 
Restricted stock, at cost   11,129    8,537 
Loans receivable, net of allowance for loan losses   1,007,714    902,136 
Other real estate owned   5,796    —   
Accrued interest receivable   4,253    3,800 
Property and equipment, net   6,678    7,181 
Deferred income taxes, net   2,840    3,195 
Bank-owned life insurance   19,891    19,403 
Other assets   12,482    4,475 
   Total assets  $1,265,222   $1,033,951 
LIABILITIES          
Deposits:          
   Non-interest bearing  $55,684   $41,677 
   Interest-bearing   898,127    732,486 
Total deposits   953,811    774,163 
FHLB advances   133,000    118,000 
Other short-term borrowings   —      2,500 
Subordinated debt   24,619    24,461 
Advances from borrowers for taxes and insurance   1,761    1,305 
Accrued interest payable   978    784 
Other liabilities   8,545    1,915 
   Total liabilities   1,122,714    923,128 
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 issued and outstanding, respectively, at September 30, 2019, and 6,580,879 shares issued and outstanding at September 30, 2018   78    66 
Additional paid in capital   84,783    61,099 
Retained earnings   59,744    50,412 
Unearned Employee Stock Ownership Plan (ESOP) shares   (1,192)   (1,338)
Accumulated other comprehensive (loss) income   (569)   584 
Treasury stock, at cost: 16,863 shares at September 30, 2019   (336)   —   
   Total shareholders’ equity   142,508    110,823 
   Total liabilities and shareholders’ equity  $1,265,222   $1,033,951 

 

 14 

 

 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

   Three months ended September 30,  Twelve months ended September 30,
(in thousands, except for share data)  2019  2018  2019  2018
(unaudited)            
Interest and Dividend Income                    
Loans, including fees  $11,403   $10,041   $43,574   $36,862 
Investment securities, taxable   222    262    982    1,094 
Investment securities, tax-exempt   40    60    207    251 
Dividends, restricted stock   177    134    627    467 
Interest-bearing cash accounts   844    120    2,265    1,356 
       Total Interest and Dividend Income   12,686    10,617    47,655    40,030 
Interest Expense                    
Deposits   4,083    2,559    14,348    9,200 
Short-term borrowings   —      14    7    68 
Long-term borrowings   802    552    2,693    2,200 
Subordinated debt   383    383    1,532    1,527 
Total Interest Expense   5,268    3,508    18,580    12,995 
Net interest income   7,418    7,109    29,075    27,035 
Provision for Loan Losses   —      125    2,379    954 

Net Interest Income after Provision for

Loan Losses

   7,418    6,984    26,696    26,081 
Other Income                    
Service charges and other fees   366    230    1,796    1,268 
Rental income-other   59    72    243    268 
Net gains on sale of investments   1    —      28    —   
Net gains on sale of real estate   —      —      —      1,186 
Net gains on sale of loans   —      6    37    102 
Earnings on bank-owned life insurance   125    121    488    480 
Total Other Income   551    429    2,592    3,304 
Other Expense                    
Salaries and employee benefits   2,097    2,178    8,541    8,193 
Occupancy expense   580    570    2,256    2,295 
Federal deposit insurance premium   1    71    221    298 
Advertising   17    30    107    152 
Data processing   260    279    1,024    1,098 
Professional fees   440    565    1,799    2,891 
Net other real estate owned expense   113    —      192    —   
Other operating expenses   945    744    3,347    2,876 
Total Other Expense   4,453    4,437    17,487    17,803 
Income before income tax expense   3,516    2,976    11,801    11,582 
Income tax expense   817    334    2,469    4,276 
Net Income  $2,699   $2,642   $9,332   $7,306 
                     
Earnings per common share                    
Basic  $0.35   $0.41   $1.22   $1.13 
Diluted  $0.35   $0.41   $1.22   $1.13 

Weighted Average Common Shares

Outstanding

                    
Basic   7,663,242    6,464,326    7,638,866    6,456,154 
Diluted   7,663,593    6,467,628    7,639,166    6,459,510 

 

 

 15 

 

 

 

MALVERN BANCORP, INC AND SUBSIDIARIES

SELECTED QUARTERLY FINANCIAL AND STATISTICAL DATA

 

    
   Three Months Ended

(in thousands, except for share and per share data) (annualized where applicable)

  9/30/2019  6/30/2019  9/30/2018
(unaudited)         
Statements of Operations Data         
          
   Interest income  $12,686   $12,456   $10,617 
   Interest expense   5,268    4,995    3,508 
      Net interest income   7,418    7,461    7,109 
   Provision for loan losses   —      56    125 
      Net interest income after provision for loan losses   7,418    7,405    6,984 
   Other income   551    454    429 
   Other expense   4,453    4,497    4,437 
   Income before income tax expense   3,516    3,362    2,976 
      Income tax expense   817    706    334 
   Net income  $2,699   $2,656   $2,642 
Earnings (per Common Share)               
   Basic  $0.35   $0.35   $0.41 
   Diluted  $0.35   $0.35   $0.41 
Statements of Condition Data (Period-End)               
   Investment securities available for sale, at fair value  $18,411   $23,552   $24,298 
   Investment securities held to maturity (fair value of $22,609,   $23,309 and $28,968, respectively)   22,485    23,323    30,092 
   Loans, net of allowance for loan losses   1,007,714    1,009,959    902,136 
   Total assets   1,265,222    1,265,878    1,033,951 
   Deposits   953,811    957,199    774,163 
   FHLB advances   133,000    133,000    118,000 
   Short-term borrowings   —      —      2,500 
   Subordinated debt   24,619    24,579    24,461 
   Shareholders' equity   142,508    139,668    110,823 
Common Shares Dividend Data               
   Cash dividends  $—     $—     $—   
Weighted Average Common Shares Outstanding               
   Basic   7,663,242    7,671,623    6,464,326 
   Diluted   7,663,593    7,672,284    6,467,628 
Operating Ratios               
   Return on average assets   0.86%   0.88%   1.02%
   Return on average equity   7.65%   7.66%   9.63%
   Average equity / average assets   11.27%   11.43%   10.58%
   Book value per common share (period-end)  $18.35   $17.99   $16.84 
Non-Financial Information (Period-End)               
   Common shareholders of record   391    396    405 
   Full-time equivalent staff   82    84    85 

 

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