Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

mlvf-10q_20200331.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, 2020

OR

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

For the transition period from                to

Commission File Number:  000-54835

 

MALVERN BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

45-5307782

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

42 Lancaster Avenue, Paoli, Pennsylvania 19301

(Address of Principal Executive Offices) (Zip Code)

(610) 644-9400

(Registrant’s Telephone Number, Including Area Code)

 

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MLVF

Nasdaq Stock Market, LLC

 

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

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

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

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

Emerging growth company

 

 

 

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

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

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

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Common Stock, par value $0.01:

7,633,871 shares

(Title of Class)

(Outstanding as of May 8, 2020)

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

3

 

 

 

Item  1.

Financial Statements

4

 

Consolidated Statements of Financial Condition at March 31, 2020 (unaudited) and September 30, 2019

4

 

Consolidated Statements of Operations for the three and six months ended March 31, 2020 and 2019 (unaudited)

5

 

Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2020 and 2019 (unaudited)

6

 

Consolidated Statements of Changes in Shareholders’ Equity for the six months ended March 31, 2020 and 2019 (unaudited)

7

 

Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and 2019 (unaudited)

8

 

Notes to Unaudited Consolidated Financial Statements

9

 

 

 

Item  2.

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

46

 

 

 

Item  3.

Qualitative and Quantitative Disclosures about Market Risk

61

 

 

 

Item  4.

Controls and Procedures

61

 

 

 

PART II – OTHER INFORMATION.

62

 

 

 

Item  1.

Legal Proceedings

62

 

 

 

Item  1A.

Risk Factors

62

 

 

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

Item  3.

Default Upon Senior Securities

64

 

 

 

Item  4.

Mine Safety Disclosure

64

 

 

 

Item  5.

Other Information

64

 

 

 

Item  6.

Exhibits

64

 

 

 

SIGNATURES

66

 

 

 


 

PART I – FINANCIAL INFORMATION

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

 

-3-


 

Item 1. Financial Statements

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

 

 

March 31,

2020

 

 

September 30,

2019

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from depository institutions

 

$

1,829

 

 

$

1,400

 

Interest bearing deposits in depository institutions

 

 

124,239

 

 

 

152,143

 

Cash and Cash Equivalents

 

 

126,068

 

 

 

153,543

 

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

   $21,994 and $18,522, respectively)

 

 

21,839

 

 

 

18,411

 

Investment securities held to maturity (fair value of $18,434 and $22,609,

   respectively)

 

 

18,046

 

 

 

22,485

 

Restricted stock, at cost

 

 

10,913

 

 

 

11,129

 

Loans receivable, net of allowance for loan losses of $10,556 and $10,095,

   respectively

 

 

1,002,907

 

 

 

1,007,714

 

Other real estate owned

 

 

5,796

 

 

 

5,796

 

Accrued interest receivable

 

 

4,121

 

 

 

4,253

 

Operating lease right-of-use assets

 

 

2,959

 

 

 

-

 

Property and equipment, net

 

 

6,476

 

 

 

6,678

 

Deferred income taxes

 

 

2,974

 

 

 

2,840

 

Bank-owned life insurance

 

 

20,144

 

 

 

19,891

 

Other assets

 

 

13,869

 

 

 

12,482

 

Total Assets

 

$

1,236,112

 

 

$

1,265,222

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Deposits-non-interest-bearing

 

 

42,874

 

 

 

55,684

 

Deposits-interest-bearing

 

 

873,026

 

 

 

898,127

 

Total Deposits

 

 

915,900

 

 

 

953,811

 

FHLB advances

 

 

133,000

 

 

 

133,000

 

Subordinated debt

 

 

24,697

 

 

 

24,619

 

Advances from borrowers for taxes and insurance

 

 

2,593

 

 

 

1,761

 

Accrued interest payable

 

 

873

 

 

 

978

 

Operating lease liabilities

 

 

2,976

 

 

 

-

 

Other liabilities

 

 

12,923

 

 

 

8,545

 

Total Liabilities

 

 

1,092,962

 

 

 

1,122,714

 

Commitments and Contingencies

 

 

-

 

 

 

-

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock, $0.01 par value, 50,000,000 shares authorized; 7,798,769 and

   7,668,571 shares issued and outstanding, respectively, at March 31, 2020

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

 

 

77

 

 

 

78

 

Additional paid-in-capital

 

 

84,939

 

 

 

84,783

 

Retained earnings

 

 

62,437

 

 

 

59,744

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

 

(1,120

)

 

 

(1,192

)

Accumulated other comprehensive loss

 

 

(1,071

)

 

 

(569

)

    Treasury stock, at cost: 130,198 shares and 16,863 shares at March 31, 2020 and September 30, 2019, respectively

 

 

(2,112

)

 

 

(336

)

Total Shareholders’ Equity

 

 

143,150

 

 

 

142,508

 

Total Liabilities and Shareholders’ Equity

 

$

1,236,112

 

 

$

1,265,222

 

 

See accompanying notes to unaudited consolidated financial statements.

-4-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except share data)

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

10,587

 

 

$

10,661

 

 

$

21,468

 

 

$

20,756

 

Investment securities, taxable

 

 

231

 

 

 

250

 

 

 

446

 

 

 

501

 

Investment securities, tax-exempt

 

 

34

 

 

 

57

 

 

 

73

 

 

 

118

 

Dividends, restricted stock

 

 

182

 

 

 

158

 

 

 

370

 

 

 

291

 

Interest-bearing cash accounts

 

 

550

 

 

 

475

 

 

 

1,022

 

 

 

847

 

Total Interest and Dividend Income

 

 

11,584

 

 

 

11,601

 

 

 

23,379

 

 

 

22,513

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,623

 

 

 

3,395

 

 

 

7,360

 

 

 

6,339

 

Short-term borrowings

 

 

-

 

 

 

2

 

 

 

-

 

 

 

7

 

Long-term borrowings

 

 

785

 

 

 

572

 

 

 

1,572

 

 

 

1,205

 

Subordinated debt

 

 

383

 

 

 

383

 

 

 

766

 

 

 

766

 

Total Interest Expense

 

 

4,791

 

 

 

4,352

 

 

 

9,698

 

 

 

8,317

 

Net Interest Income

 

 

6,793

 

 

 

7,249

 

 

 

13,681

 

 

 

14,196

 

Provision for Loan Losses

 

 

625

 

 

 

870

 

 

 

2,775

 

 

 

2,323

 

Net Interest Income after Provision for Loan losses

 

 

6,168

 

 

 

6,379

 

 

 

10,906

 

 

 

11,873

 

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and other fees

 

 

604

 

 

 

238

 

 

 

863

 

 

 

1,178

 

Rental income

 

 

55

 

 

 

64

 

 

 

109

 

 

 

131

 

Net gains on sale of investments

 

 

180

 

 

 

-

 

 

 

180

 

 

 

-

 

Net gains on sale of loans

 

 

-

 

 

 

19

 

 

 

3

 

 

 

37

 

Earnings on bank-owned life insurance

 

 

125

 

 

 

120

 

 

 

252

 

 

 

241

 

Total Other Income

 

 

964

 

 

 

441

 

 

 

1,407

 

 

 

1,587

 

Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,271

 

 

 

2,213

 

 

 

4,396

 

 

 

4,221

 

Occupancy expense

 

 

591

 

 

 

577

 

 

 

1,173

 

 

 

1,116

 

Federal deposit insurance premium

 

 

3

 

 

 

73

 

 

 

-

 

 

 

142

 

Advertising

 

 

32

 

 

 

30

 

 

 

54

 

 

 

60

 

Data processing

 

 

272

 

 

 

251

 

 

 

550

 

 

 

505

 

Professional fees

 

 

502

 

 

 

455

 

 

 

943

 

 

 

954

 

Other real estate owned expense, net

 

 

(1

)

 

 

28

 

 

 

70

 

 

 

49

 

Pennsylvania shares tax

 

 

170

 

 

 

92

 

 

 

340

 

 

 

92

 

Other operating expenses

 

 

798

 

 

 

724

 

 

 

1,534

 

 

 

1,398

 

Total Other Expenses

 

 

4,638

 

 

 

4,443

 

 

 

9,060

 

 

 

8,537

 

Income before income tax expense

 

 

2,494

 

 

 

2,377

 

 

 

3,253

 

 

 

4,923

 

Income tax expense

 

 

586

 

 

 

411

 

 

 

560

 

 

 

946

 

Net Income

 

$

1,908

 

 

$

1,966

 

 

$

2,693

 

 

$

3,977

 

Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

0.26

 

 

$

0.35

 

 

$

0.52

 

Diluted

 

$

0.25

 

 

$

0.26

 

 

$

0.35

 

 

$

0.52

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,663,771

 

 

 

7,667,518

 

 

 

7,664,813

 

 

 

7,611,051

 

Diluted

 

 

7,663,771

 

 

 

7,667,518

 

 

 

7,664,813

 

 

 

7,611,051

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Net Income

 

$

1,908

 

 

$

1,966

 

 

$

2,693

 

 

$

3,977

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available-for-sale securities

 

 

62

 

 

 

154

 

 

 

133

 

 

 

121

 

Tax effect

 

 

(13

)

 

 

(32

)

 

 

(28

)

 

 

(25

)

Net of tax amount

 

 

49

 

 

 

122

 

 

 

105

 

 

 

96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(180

)

 

 

-

 

 

 

(180

)

 

 

-

 

Tax effect

 

 

38

 

 

 

-

 

 

 

38

 

 

 

-

 

Net of tax amount

 

 

(142

)

 

 

-

 

 

 

(142

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity (2)

 

 

1

 

 

 

1

 

 

 

2

 

 

 

3

 

Tax effect

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1

)

Net of tax amount

 

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

Fair value adjustments on derivatives

 

 

(682

)

 

 

(393

)

 

 

(591

)

 

 

(1,103

)

Tax effect

 

 

143

 

 

 

81

 

 

 

124

 

 

 

231

 

Net of tax amount

 

 

(539

)

 

 

(312

)

 

 

(467

)

 

 

(872

)

Total other comprehensive loss

 

 

(631

)

 

 

(189

)

 

 

(502

)

 

 

(774

)

Total comprehensive income

 

$

1,277

 

 

$

1,777

 

 

$

2,191

 

 

$

3,203

 

 

 

(1)

Amounts are included in net gains on sale of investments on the Consolidated Statement of Operations in total other income.

 

(2)

Amounts are included in interest and dividends on investment securities on the Consolidated Statement of Operations.

See accompanying notes to unaudited consolidated financial statements.

-6-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Unearned

ESOP

Shares

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury Stock

 

 

Total

Shareholders'

Equity

 

 

 

(In thousands, except share data)

 

Balance, October 1, 2018

 

 

66

 

 

 

61,099

 

 

 

50,412

 

 

 

(1,338

)

 

 

584

 

 

 

-

 

 

 

110,823

 

Net Income

 

 

-

 

 

 

-

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2019

 

 

78

 

 

 

84,783

 

 

 

59,744

 

 

 

(1,192

)

 

 

(569

)

 

 

(336

)

 

 

142,508

 

Net Income

 

 

-

 

 

 

-

 

 

 

2,693

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,693

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(502

)

 

 

-

 

 

 

(502

)

Treasury stock activity

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,776

)

 

 

(1,777

)

Committed to be released ESOP

   shares (7,200 shares)

 

 

-

 

 

 

78

 

 

 

-

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

150

 

Stock based compensation

 

 

-

 

 

 

78

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

78

 

Balance, March 31, 2020

 

$

77

 

 

$

84,939

 

 

$

62,437

 

 

$

(1,120

)

 

$

(1,071

)

 

$

(2,112

)

 

$

143,150

 

 

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,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

2,693

 

 

$

3,977

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

374

 

 

 

382

 

Provision for loan losses

 

 

2,775

 

 

 

2,323

 

Deferred income tax benefit

 

 

(134

)

 

 

(363

)

ESOP expense

 

 

150

 

 

 

138

 

Stock based compensation

 

 

78

 

 

 

63

 

Amortization of premiums and discounts on investments securities, net

 

 

97

 

 

 

130

 

Amortization (accretion) of loan origination fees and costs

 

 

1,519

 

 

 

(154

)

Amortization of mortgage servicing rights

 

 

33

 

 

 

21

 

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

 

 

(180

)

 

 

-

 

Net loss on sale of fixed assets

 

 

4

 

 

 

-

 

Net gain on sale of secondary market loans

 

 

(3

)

 

 

(37

)

Proceeds from sale of secondary market loans

 

 

73

 

 

 

2,866

 

Originations of  secondary market loans

 

 

(70

)

 

 

(2,829

)

Earnings on bank-owned life insurance

 

 

(252

)

 

 

(241

)

Decrease (increase) in accrued interest receivable

 

 

132

 

 

 

(544

)

(Decrease) increase in accrued interest payable

 

 

(105

)

 

 

75

 

Operating lease liability payments

 

 

(332

)

 

 

-

 

Increase in other liabilities

 

 

7,354

 

 

 

2,740

 

Increase in other assets

 

 

(4,506

)

 

 

(3,348

)

Amortization of subordinate debt

 

 

78

 

 

 

79

 

Net Cash Provided by Operating Activities

 

 

9,778

 

 

 

5,278

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(12,100

)

 

 

(5,000

)

        Sales

 

 

5,045

 

 

 

25

 

Maturities, calls and principal repayments

 

 

3,740

 

 

 

10,000

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

Maturities, calls and principal repayments

 

 

4,364

 

 

 

3,200

 

Net decrease (increase) in loans

 

 

514

 

 

 

(102,943

)

Net decrease (increase) in restricted stock

 

 

216

 

 

 

(415

)

Purchase of property and equipment

 

 

(176

)

 

 

(150

)

Net Cash Provided by (Used in) Investing Activities

 

 

1,603

 

 

 

(95,283

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net (decrease) increase  in deposits

 

 

(37,911

)

 

 

168,211

 

Proceeds for long-term borrowings

 

 

-

 

 

 

30,000

 

Repayment of long-term borrowings

 

 

-

 

 

 

(50,000

)

Repayment of other borrowed money

 

 

-

 

 

 

(2,500

)

Increase in advances from borrowers for taxes and insurance

 

 

832

 

 

 

939

 

Net proceeds from issuance of common stock

 

 

-

 

 

 

23,344

 

Acquisition of treasury stock

 

 

(1,777

)

 

 

(3

)

Net Cash (Used in) Provided by Financing Activities

 

 

(38,856

)

 

 

169,991

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(27,475

)

 

 

79,986

 

Cash and Cash Equivalents - Beginning

 

 

153,543

 

 

 

30,834

 

Cash and Cash Equivalents - Ending

 

$

126,068

 

 

$

110,820

 

Supplemental Cash Flows Information

 

 

 

 

 

 

 

 

Interest paid

 

$

9,803

 

 

$

8,242

 

Income taxes paid

 

$

902

 

 

$

769

 

    Non-cash transfer to other real estate owned

 

$

-

 

 

$

5,796

 

See accompanying notes to unaudited consolidated financial statements.

-8-


 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company

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

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

In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the unaudited consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other real estate owned, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of derivative positions.  The unaudited consolidated financial statements have been prepared in conformity with 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 condition at March 31, 2020 and September 30, 2019 and the results of operations for the three and six months ended March 31, 2020 and 2019, and cash flows for the six months ended March 31, 2020 and 2019. 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 2019 Annual Report filed with the Securities and Exchange Commission (“SEC”) on December 16, 2019. The consolidated statements of operations for the three and six months ended March 31, 2020 and the consolidated statements of cash flows for the six months ended March 31, 2020 are not necessarily indicative of the results of operations or cash flows for the full year ending September 30, 2020 or any interim period. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

   There have been no significant changes to the Critical Accounting Policies as described in the 2019 Annual Report. Those significant accounting policies remain unchanged at March 31, 2020, except as described below:

 

Leases

 

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

 

As a lessee, the Company enters into operating leases for certain bank branches, office space, and office equipment. The right-of-use assets and lease liabilities are initially recognized based on the net present value of the remaining lease payments which include renewal options where management is reasonably certain they will be exercised. The net present value is determined using the incremental borrowing rate based on the Federal Home Loan Bank (“FHLB”) liquidity and funding rates at commencement date. The

-9-


 

right-of-use asset is measured at the amount of the lease liability adjusted f