Market Overview

Malvern Bancorp, Inc. Reports Third Fiscal Quarter 2020 Results

Share:

PAOLI, Pa., Aug. 05, 2020 (GLOBE NEWSWIRE) -- Malvern Bancorp, Inc. (NASDAQ:MLVF) (the "Company"), the parent company of Malvern Bank, National Association ("Malvern" or the "Bank"), today reported operating results for the third fiscal quarter ended June 30, 2020.   Net income for the quarter ended June 30, 2020 amounted to $1.5 million, or $0.19 per fully diluted common share, compared with net income of $2.7 million, or $0.35 per fully diluted common share, for the quarter ended June 30, 2019. The decreases in net income and diluted earnings per share from the third quarter of 2019 were primarily due to an increase in the provision for loan losses and a decrease in net interest income. The Company recorded a provision for loan losses of $435,000 for the quarter ended June 30, 2020, an increase of $379,000 compared to the quarter ended June 30, 2019, substantially due to economic uncertainties caused by the coronavirus pandemic ("COVID-19"). Net interest income for the quarter ended June 30, 2020 was $830,000 lower than in the quarter ended June 30, 2019. This decrease was mainly driven by the lower interest rate environment. Annualized return on average assets ("ROAA") was 0.48 percent for the quarter ended June 30, 2020, compared to 0.88 percent for the quarter ended June 30, 2019, and annualized return on average equity ("ROAE") was 4.06 percent for the quarter ended June 30, 2020, compared with 7.66 percent for the quarter ended June 30, 2019.

For the nine months ended June 30, 2020, net income amounted to $4.1 million, or $0.54 per fully diluted common share, compared with net income of $6.6 million, or $0.87 per fully diluted common share, for the nine months ended June 30, 2019. The decreases in net income and diluted earnings per share were primarily due to higher provision expense and lower net interest income, as well as the partial charge-off of $2.3 million in the first fiscal quarter of 2020 related to one commercial loan relationship. Annualized ROAA was 0.45 percent for the nine months ended June 30, 2020, compared to 0.78 percent for the nine months ended June 30, 2019, and annualized ROAE was 3.85 percent for the nine months ended June 30, 2020, compared with 6.48 percent for the nine months ended June 30, 2019.  

"Over the last several months, we have operated under what can only be described as unprecedented circumstances.  While we've always tested and planned for emergencies, realizing one as significant as the COVID-19 pandemic, and activating our plan in March to work remotely and through drive-thru service only for almost three months, could not have been forecasted by anyone.  As the COVID-19 pandemic continues to provide a drag on both our business and the broader economy amidst the backdrop of virus spikes in certain states and the uncertainty of a vaccine, the question of when the economy will return to a more normal environment creates heightened uncertainty and new challenges to adapt our business," commented Anthony C. Weagley, President and Chief Executive Officer. "Our priority remains keeping our staff and clients safe and helping our clients while we implement strategies to navigate this crisis and continue to move forward," continued Mr. Weagley.

Ongoing Impact of COVID-19

The Company continues to take the following significant steps to protect the health and well-being of its employees and clients and to assist clients who have been impacted by the COVID-19 pandemic.

  • Continuing limited lobby hours; prioritizing drive-thru and appointment banking. 
  • High-risk designated hours offered to assist our high-risk clients.
  • Continuing to assist existing and new customers in the Small Business Association's Paycheck Protection Program ("PPP"). As of June 30, 2020, the Company has obtained approval from the Small Business Administration ("SBA") for 208 loans totaling $17.7 million for existing and new customers with an average loan size of approximately $85,000. As of August 1, 2020, the Company has originated 249 PPP loans totaling $20.7 million for both existing and new customers, with an average loan size of approximately $83,000. These loans are expected to generate fee income of approximately $763,000 in future quarters.
  • Continuing to provide payment deferrals and forbearances to business customers and mortgage customers that are experiencing hardship because of the crisis. At June 30, 2020, the Company had $313.5 million in COVID-19 modified loan deferrals. As of August 1, 2020, $269.1 million, or 85.8 percent, of COVID-19 modified loans reached their initial 90-day forbearance expiration. Of this amount, $140.6 million, or 52.2 percent have returned to original contractual monthly payments and $128.5 million, or 47.8 percent have requested or been approved for a second forbearance period for a maximum of 90 additional days. Of the $128.5 million, $22.7 million, or 17.6 percent, started making interest-only payments during the second forbearance period.

Statement of Income Highlights at June 30, 2020

  • The Company recorded a provision for loan losses of $435,000 and $3.2 million during the three months ended June 30, 2020 and the nine months ended June 30, 2020, respectively. The increase in the provision for loan losses in the recent quarter as compared with the prior quarter ended June 30, 2019 reflects an increase in qualitative factors as a result of COVID-19. The larger component of the year-to-date increase was attributable to a partial charge-off of $2.3 million in the first fiscal quarter of 2020 related to one commercial loan relationship. Due to the uncertainty created by COVID-19, the Company anticipates elevated provisioning until businesses have fully reopened and deferral periods have expired.
     
  • Net interest income decreased $830,000, or 11.1 percent, for the three months ended June 30, 2020 when compared to the three months ended June 30, 2019. Lower rates were attributable to the Federal Open Market Committee ("FOMC") lowering its target rate from 2.25-2.50 percent to 0-0.25 percent between July 2019 and March 2020.
     
  • On a linked-quarter basis, the reported net interest margin and net interest margin on a tax-equivalent basis, a non-GAAP measure, increased 4 basis points to 2.29 percent. This increase was driven by the reduction in interest expense, partially offset by a decrease in interest earning assets. Information reconciling non-GAAP measures to GAAP measures is presented beginning on page 13 in this press release. Average loan yields declined 29 basis points and the total cost of funds decreased 31 basis points, as the cost of interest-bearing deposits decreased 27 basis points compared to the second fiscal quarter of 2020.
           
Linked Quarter Financial Ratios  
(unaudited)
         
           
As of or for the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Return on average assets (1) 0.48% 0.61% 0.26% 0.86% 0.88%
Return on average equity (1) 4.06% 5.29% 2.19% 7.65% 7.66%
Net interest margin (tax equivalent basis) (2) 2.29% 2.25% 2.34% 2.45% 2.54%
Loans / deposits ratio 117.45% 110.56% 106.14% 106.64% 106.52%
Shareholders' equity / total assets 11.92% 11.58% 11.40% 11.26% 11.03%
Efficiency ratio, non-GAAP (1)  (2)  (3) 66.0% 60.8% 58.9% 54.9% 56.6%
Book value per common share $ 18.86 $ 18.67 $ 18.48 $ 18.35 $ 17.99

_____________

(1) Annualized.
(2) Information reconciling non-GAAP measures to GAAP measures is presented beginning on page 13 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 Data

(unaudited)
(in thousands, except share and per share data)
 
           
For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Net interest income $ 6,631 $ 6,793 $ 6,888 $ 7,418 $ 7,461
Provision for loan losses 435 625 2,150 - 56
 Net interest income after provision for loan losses 6,196 6,168 4,738 7,418 7,405
Other income 389 964 443 551 454
Other expense 4,684 4,638 4,422 4,453 4,497
Income before income tax expense 1,901 2,494 759 3,516 3,362
Income tax expense (benefit) 447 586 (26 817 706
Net income $ 1,454 $ 1,908 $ 785 $   2,699 $   2,656
Earnings per common share          
Basic $ 0.19 $ 0.25 $ 0.10 $ 0.35 $ 0.35
Diluted $ 0.19 $ 0.25 $ 0.10 $ 0.35 $ 0.35
Weighted average common shares outstanding    
Basic 7,538,375 7,663,771 7,665,842 7,663,242 7,669,851
Diluted 7,538,375 7,663,771 7,665,842 7,663,593 7,670,106
           

Net Interest Income

Net interest income was $6.6 million for the quarter ended June 30, 2020, a decrease of $830,000, or 11.1 percent, from $7.5 million for the quarter ended June 30, 2019. The decline was driven by the Federal Reserve Board's zero rate policy. The net interest spread on an annualized basis was 2.10 percent and 2.29 percent for the quarters ended June 30, 2020 and 2019, respectively. 

For the quarter ended June 30, 2020, the Company's reported net interest margin and net interest margin on a tax-equivalent basis, a non-GAAP measure, decreased by 25 basis points to 2.29 percent, as compared to the quarter ended June 30, 2019. This decrease was primarily driven by the low rate environment. Average loan yields declined 62 basis points and the total cost of funds decreased 44 basis points, as the cost of interest-bearing deposits decreased 43 basis points compared to third fiscal quarter of 2019. 

As of June 30, 2020, we had a total of $76.8 million of average interest-bearing cash balances. This excess liquidity diluted the net interest margin by approximately 25 basis points. In addition, we had $17.7 million of PPP loans that had a slight dilutive effect on our net interest margin. The PPP loans are at 1.00 percent plus the accretion of the origination fee.

Net interest income was $20.3 million for the nine months ended June 30, 2020, a decrease of $1.3 million, or 6.2 percent, from $21.6 million for the nine months ended June 30, 2019.  The change for the nine months ended June 30, 2020 was primarily the result of the low rate environment and an increase in total interest-bearing liabilities of $74.1 million, partially offset by an increase of $55.9 million in the average balance of loans. The net interest spread on an annualized basis was 2.06 percent and 2.36 percent for the nine months ended June 30, 2020 and 2019, respectively. 

For the nine months ended June 30, 2020, the Company's net interest margin decreased by 32 basis points to 2.29 percent as compared to 2.61 percent for the same nine-month period in fiscal 2019.

For the nine months ended June 30, 2020, the Company's net interest margin on a tax-equivalent basis, a non-GAAP measure, decreased by 33 basis points to 2.29 percent as compared to 2.62 percent for the same nine-month period in fiscal 2019.

Total Interest Income

For the quarters ended June 30, 2020 and June 30, 2019, total interest income was $10.5 million and $12.5 million, respectively. Average interest earning assets decreased $17.0 million for the quarter ended June 30, 2020 when compared to the quarter ended June 30, 2019, while the average yield on interest earning assets declined 63 basis points when compared to the same period in 2019. The average yield was affected by the Federal Reserve Board's zero rate policy.

For the nine months ended June 30, 2020, total interest income was $33.8 million, a decrease of $1.2 million, or 3.2 percent, from $35.0 million for the nine months ended June 30, 2019. The decline in total interest income was driven by a lower earning asset yield of 41 basis points.

Interest Expense

For the quarter ended June 30, 2020, interest expense decreased by $1.2 million, or 23.5 percent, to $3.8 million, compared to the quarter ended June 30, 2019, primarily due to decreased rates on deposits and other interest-bearing liabilities.  The decrease in interest expense on deposits is primarily attributable to a decrease of $34.8 million and $18.4 million for certificate and money market deposits, respectively, partially offset by an increase of $22.5 million in other interest-bearing liabilities. The decrease in deposits was strategic, a method to reduce excess cash on the balance sheet, match funding expectations and improve the margin.  The reduction in certificates were all listing services and the reduction in money market were public funds deposits.  This shift in deposits also improves our strategy to develop relationship-based customers.

The annualized average rate of total interest-bearing liabilities decreased  44 basis points to 1.51 percent for the quarter ended June 30, 2020, from 1.95 percent for the quarter ended June 30, 2019 and, on a linked sequential quarter basis, decreased 31 basis points from 1.82 percent compared to the second fiscal quarter of 2020. For the quarter ended June 30, 2020, the average balance of total interest-bearing liabilities decreased by $9.3 million, reflecting a decrease in the average balance of total interest-bearing deposit accounts of $30.5 million and an increase in the average balance of borrowings of $21.2 million, compared to the quarter ended June 30, 2019.  

Total interest expense increased by $209,000, or 1.6 percent, to $13.5 million for the nine months ended June 30, 2020, compared to the nine months ended June 30, 2019. The average rate of total interest-bearing liabilities decreased to 1.75 percent for the nine months ended June 30, 2020, from 1.86 percent for the nine months ended June 30, 2019. At the same time, the average balance of total interest-bearing liabilities increased by $74.1 million. This increase primarily reflects an increase in the average balance of interest-bearing deposits of $51.2 million and an increase in the average balance of borrowings of $22.9 million. 

Other Income

Other income decreased $65,000, or 14.3 percent, during the third fiscal quarter of 2020 compared with the third fiscal quarter of 2019.  The decrease in other income was primarily due to a decrease in service charges, as there were noticeably lower customer transaction volumes in the COVID-19 environment.

For the nine months ended June 30, 2020, total other income decreased $245,000 compared to the nine months ended June 30, 2019. This decrease was primarily a result of a $372,000 decrease in service charges and other fees, partially offset by a $154,000 increase in gain on sale of investments. The decrease in service charges and other fees during the nine months ended June 30, 2020 is primarily due to the recognition of approximately $337,000 less of net swap fees through the Bank's commercial loan hedging program. 

Other Expense

Other expense for the quarter ended June 30, 2020 increased $187,000, or 4.2 percent, when compared to the quarter ended June 30, 2019. The increase was primarily due to an increase of $119,000 in professional fees, which included COVID-19 related expenses, and an increase of $56,000 in salaries and employee benefits.  These were partially offset by a decrease of $23,000 in other operating expenses.  The increase in professional fees was due to higher legal and professional expense.  The increase in salaries and employee benefits were mainly due to four strategic hires to support franchise growth.  

For the nine months ended June 30, 2020, total other expense increased $710,000, or 5.5 percent, compared to the nine months ended June 30, 2019. This increase primarily reflects a $248,000 increase in the Pennsylvania shares tax, a $231,000 increase in salaries and employee benefits, a $113,000 increase in other operating expenses, and a $108,000 increase in professional fees. These increases were partially offset by a $141,000 decrease in the federal deposit insurance premium. The increase in the Pennsylvania shares tax was due to the Bank not being subject to this tax until the second quarter of 2019. The increase in salaries and employee benefits during the nine-month period ended June 30, 2020 reflects normal increases to salary and benefits to support overall franchise growth. The increase in professional fees was due to higher professional services and legal expenses of $178,000 and $71,000, respectively, partially offset by lower audit and accounting expenses of approximately $140,000.  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 Bank currently does not have any further credit balance that can be used to offset premiums in future quarters.

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

(in thousands, unaudited)          
For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Salaries and employee benefits $ 2,279 $ 2,271 $ 2,125 $ 2,097 $ 2,223
Occupancy expense 576 591 582 580 560
Federal deposit insurance premium 79 3 (3) 1 78
Advertising 33 32 22 17 30
Data processing 275 272 278 260 259
Professional fees 524 502 441 440 405
Net other real estate owned expense 29 (1) 71 113 30
Pennsylvania shares tax 169 170 170 170 170
Other operating expenses 720 798 736 775 742
  Total Other Expense $ 4,684 $ 4,638 $ 4,422 $ 4,453 $ 4,497
 

Income Taxes

The Company recorded $447,000 in income tax expense during the quarter ended June 30, 2020 compared to $706,000 in income tax expense during the quarter ended June 30, 2019. The effective tax rates for the Company for the quarters ended June 30, 2020 and 2019 were 23.5 percent and 21.0 percent, respectively. 

For the nine months ended June 30, 2020, income tax expense decreased $645,000, or 39.0 percent, to $1.0 million from $1.7 million for the nine months ended June 30, 2019. The effective tax rates for the Company for the nine months ended June 30, 2020 and 2019 were 19.5 percent and 19.9 percent, respectively. Tax expense for the nine months ended June 30, 2020 was impacted by discreet items recorded in the first fiscal quarter ended December 31, 2019.

Statement of Condition Highlights at June 30, 2020

  • Gross loans totaled $1.039 billion at June 30, 2020, increasing $19.3 million or 1.9 percent, compared to June 30, 2019. Gross loans at June 30, 2020 increased $21.7 million, or 2.1 percent, compared to September 30, 2019. Total loan growth for the three months ended June 30, 2020 included $17.7 million of PPP commercial and industrial loans.

  • Total assets stood at $1.204 billion at June 30, 2020, decreasing $62.0 million, or 4.9 percent, compared to June 30, 2019. Total assets at June 30, 2020 decreased $61.4 million, or 4.9 percent, compared to September 30, 2019. The decline in assets was driven by the strategic reduction in interest-bearing deposits in other institutions to better match funding expectations and improve the margin.

  • The deposit mix improved with the reduction of wholesale certificates of $18.7 million and reduction of money market public fund deposits of $44.1 million. Deposits totaled $884.4 million at June 30, 2020, a decrease of $72.8 million, or 7.6 percent, compared to June 30, 2019, and decreased $69.4 million or 7.3 percent, when compared to September 30, 2019. The reductions in deposits are in line with the Bank's overall funding strategy to reduce excess balance sheet cash and better match funding needs.
  • Non-performing assets ("NPAs") were 1.24 percent of total assets at June 30, 2020, compared to 0.64 percent at September 30, 2019 and 0.65 percent at June 30, 2019. Excluding one OREO property of $5.8 million, NPAs were 0.76 percent of total assets and 0.18 percent of total assets at June 30, 2020 and September 30, 2019, respectively. The allowance for loan losses as a percentage of total non-performing loans was 121.1 percent at June 30, 2020, compared to 434.6 percent at September 30, 2019 and 418.1 percent at June 30, 2019.

  • The Company's ratio of shareholders' equity to total assets was 11.92 percent at June 30, 2020, compared to 11.26 percent at September 30, 2019 and 11.03 percent at June 30, 2019.

  • Book value per common share amounted to $18.86 at June 30, 2020, compared to $18.35 at September 30, 2019 and $17.99 at June 30, 2019. 

Linked Quarter Statement of Condition Data

(in thousands, unaudited)
           
           
At quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Cash and due from depository institutions $ 30,653 $ 1,829 $ 1,337 $ 1,400 $ 1,535
Interest bearing deposits in depository
  institutions
28,291 124,239 158,465 152,143 148,501
Investment securities, available for sale, at fair
  value
33,245 21,839 23,723 18,411 23,552
Investment securities held to maturity 15,921 18,046 20,578 22,485 23,323
Restricted stock, at cost 9,766 10,913 11,115 11,129 10,404
Loans receivable, net of allowance for loan
  losses
1,028,093 1,002,907 992,629 1,007,714 1,009,959
Other real estate owned 5,796 5,796 5,796 5,796 5,796
Accrued interest receivable 5,680 4,121 4,061 4,253 4,237
Operating lease right-of-use-assets 2,799 2,959 3,119
Property and equipment, net 6,355 6,476 6,594 6,678 6,795
Deferred income taxes, net 3,103 2,974 2,806 2,840 3,542
Bank-owned life insurance 20,270 20,144 20,018 19,891 19,766
Other assets 13,873 13,869 8,341 12,482 8,468
  Total assets $ 1,203,845 $ 1,236,112 $ 1,258,582 $ 1,265,222 $ 1,265,878
Deposits $ 884,444 $ 915,900 $ 943,819 $ 953,811 $ 957,199
FHLB advances 130,000 133,000 133,000 133,000 133,000
Subordinated debt 24,737 24,697 24,658 24,619 24,579
Operating lease liabilities 2,824 2,976 3,128
Other liabilities 18,309 16,389 10,442 11,284 11,432
Shareholders' equity 143,531 143,150 143,535 142,508 139,668
  Total liabilities and shareholders' equity $ 1,203,845 $ 1,236,112 $ 1,258,582 $ 1,265,222 $ 1,265,878
 

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

Condensed Consolidated Average Statement of Condition
           
(in thousands, unaudited)          
           
For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Investment securities $ 43,349  $ 40,165  $ 40,855  $ 42,256 $ 49,408
Interest-bearing cash accounts 76,828 148,580 122,234 143,297 107,761
Loans 1,028,996  1,010,767  1,006,729  1,015,251  1,010,033 
Allowance for loan losses (10,618) (9,756) (10,095) (10,143) (10,061)
All other assets 85,169  63,434  62,341  61,615  56,663 
  Total assets $ 1,223,724 $ 1,253,190 $ 1,222,064 $ 1,252,276 $ 1,213,804
Non-interest-bearing deposits $ 46,450 $ 41,916 $ 41,716 $ 44,104 $ 42,151
Interest-bearing deposits 852,330  892,583  864,317  896,928  882,825 
FHLB advances 136,121  133,000  133,000  133,000  115,363 
Other short-term borrowings 276 275 54
Subordinated debt 24,719 24,680 24,641 24,602 24,563
Other liabilities 20,509  16,440  14,805  12,413  10,192 
Shareholders' equity 143,319  144,296  143,585  141,175  138,710 
  Total liabilities and shareholders' equity $ 1,223,724 $ 1,253,190 $ 1,222,064 $ 1,252,276 $ 1,213,804
           

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

Deposits            
(in thousands, unaudited)          
At quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Demand:          
  Non-interest-bearing $ 47,443 $ 42,874 $ 41,273 $ 55,684 $ 48,580
  Interest-bearing 277,238 291,191 327,956 302,039 288,555
Savings 43,702 43,550 40,908 41,875 43,334
Money market 281,419 280,173 279,883 276,644 288,561
Time 234,642 258,112 253,799 277,569 288,169
  Total deposits $ 884,444 $ 915,900 $ 943,819 $ 953,811 $ 957,199
 

Loans

For the quarter ended June 30, 2020, the Company originated a total new loan volume of $49.5 million, which was partially offset by prepayments of $6.0 million, amortization of $4.9 million, loan payoffs of $9.7 million, and participations of $3.7 million.  Total loan growth for the three months ended June 30, 2020 included an increase of $17.7 million of PPP commercial and industrial loans.

Total net loans amounted to $1.028 billion at June 30, 2020 compared to $1.008 billion at September 30, 2019, for a net increase of $20.4 million or 2.0 percent for the period.  The allowance for loan losses amounted to $11.1 million, or 1.08 percent of total loans, at June 30, 2020 and $10.1 million at September 30, 2019.  Average loan balances during the quarter ended June 30, 2020 totaled $1.029 billion as compared to $1.010 billion during the quarter ended June 30, 2019, representing a 1.9 percent increase.  Average loan balances during the quarters ended June 30, 2020 and September 30, 2019 totaled $1.029 billion and $1.015 billion, respectively, representing a 1.4 percent increase.

At the end of the third fiscal quarter of 2020, the gross loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial loans accounting for 67.4 percent and single-family residential real estate loans accounting for 23.7 percent of the loan portfolio.  Construction and development loans amounted to 5.8 percent and consumer loans represented 3.1 percent of the gross loan portfolio at such date.  The increase in the gross loan portfolio at June 30, 2020 compared to September 30, 2019 primarily reflected an increase of $26.2 million in residential mortgage loans and $16.8 million in construction and development loans, which were partially offset by  a decrease of $17.9 million in commercial loans, net of $17.7 million of PPP commercial and industrial loan originations, and a decrease of $3.4 million in consumer loans.

Loan Portfolio Composition (not including loans held for sale):

           
(in thousands, unaudited)          
At quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Residential mortgage $ 246,215 $ 240,633 $ 234,738 $ 220,011 $ 216,114
Construction and Development:          
  Residential and commercial 56,999 52,313 49,095 40,346 47,485
  Land 3,535 3,579 3,625 3,420 3,809
Total construction and
  development
60,534 55,892 52,720 43,766 51,294
Commercial:          
  Commercial real estate 501,955 511,467 521,495 543,452 543,045
  Farmland 7,531 7,537 7,563 7,563 5,388
  Multi-family 66,416 59,978 43,473 62,884 64,050
  Commercial and industrial 115,899 96,574 99,494 99,747 97,877
  Other 8,397 7,604 8,569 4,450 5,356
Total commercial 700,198 683,160 680,594 718,096 715,716
Consumer:          
  Home equity lines of credit 18,097 18,441 18,372 19,506 19,348
  Second mortgages 11,704 12,393 13,179 13,737 15,018
  Other 2,074 2,112 2,160 2,030 2,081
Total consumer 31,875 32,946 33,711 35,273 36,447
Total loans 1,038,822 1,012,631 1,001,763 1,017,146 1,019,571
Deferred loan costs, net 338 832 828 663 494
Allowance for loan losses (11,067) (10,556) (9,962) (10,095) (10,106)
  Loans Receivable, net $ 1,028,093 $ 1,002,907 $ 992,629 $ 1,007,714 $ 1,009,959
 

At June 30, 2020, the Company had $140.6 million in overall undisbursed loan commitments, which consisted primarily of available usage from active construction facilities, unused commercial lines of credit, and home equity lines of credit. The Company's current "Approved, Accepted but Unfunded" pipeline at June 30, 2020 included approximately $6.2 million in commercial and construction loans and $3.1 million in residential mortgage loans expected to fund over the following quarters. Active loan pipelines were reduced pending stability with respect to economic conditions.

Asset Quality

Non-accrual loans totaled $8.9 million at June 30, 2020 and $1.8 million at September 30, 2019. The portfolio of non-accrual loans at June 30, 2020 was comprised of one commercial real estate loan with an outstanding balance of approximately $6.7 million, fourteen residential real estate loans with an aggregate outstanding balance of approximately $1.9 million, and ten consumer loans with an aggregate outstanding balance of approximately $251,000.    

At June 30, 2020, NPAs totaled $14.9 million, or 1.24 percent of total assets, as compared with $8.1 million, or 0.64 percent of total assets, at September 30, 2019.

OREO totaled $5.8 million at both June 30, 2020 and September 30, 2019.  Excluding the $5.8 million of OREO, NPAs totaled $9.1 million, or 0.76 percent of total assets at June 30, 2020, and $2.3 million, or 0.18 percent of total assets at September 30, 2019.

Performing TDR loans were $13.6 million at June 30, 2020 and $12.2 million at September 30, 2019. One commercial real estate loan in the amount of $10.6 million previously classified as non-impaired, moved to substandard impaired and was accruing during the second fiscal quarter of 2020.  Management has restructured this loan and reclassified it as a performing TDR during the third fiscal quarter ended June 30, 2020.

Non-Performing Asset and Other Asset Quality Data:

 (dollars in thousands, unaudited)          
As of or for the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Non-accrual loans(1) $ 8,871 $ 8,655 $ 8,649 $ 1,821 $ 2,189
Loans 90 days or more past due and still accruing 265 168 1 502 228
  Total non-performing loans 9,136 8,823 8,650 2,323 2,417
OREO 5,796 5,796 5,796 5,796 5,796
  Total NPAs $ 14,932 $ 14,619 $ 14,446 $ 8,119 $ 8,213
Performing TDR loans $ 13,640 $ 3,243 $ 3,460 $ 12,170 $ 11,824
           
NPAs / total assets 1.24% 1.18% 1.15% 0.64% 0.65%
Non-performing loans / total loans 0.88% 0.87% 0.86% 0.23% 0.24%
Net (recoveries) charge-offs $   (76) $   31 $   2,283 $   11 $   (34)
Net (recoveries) charge-offs /average loans(2) (0.03)% 0.01% 0.91% —% (0.01)%
Allowance for loan losses / total loans 1.08% 1.04% 0.99% 0.99% 0.99%
Allowance for loan losses / non-performing loans 121.1% 119.6% 115.2% 434.6% 418.1%
           
Total assets $ 1,203,845 $ 1,236,112 $ 1,258,582 $ 1,265,222 $ 1,265,878
Total gross loans 1,038,822 1,012,631 1,001,763 1,017,146 1,019,571
Average loans  1,028,996  1,010,767  1,006,729  1,015,251  1,010,033
Allowance for loan losses 11,067 10,556 9,962 10,095 10,106

______________

(1) Nineteen loans totaling approximately $1.6 million, or 17.7 percent of the total non-accrual loan balance, were making payments as of June 30, 2020. 
(2) Annualized.
   

The allowance for loan losses excluding PPP loans, a non-GAAP measure, at June 30, 2020 amounted to approximately $11.1 million, or 1.08 percent of total loans, compared to $10.1 million, or 0.99 percent of total loans, at September 30, 2019.  The allowance for loan losses increased quarter over quarter due to provision expense of $435,000 and recoveries of $76,000.  The Company did not record a provision for loan losses during the fiscal quarter ended September 30, 2019.  

Capital

At June 30, 2020, total shareholders' equity amounted to $143.5 million, or 11.92 percent of total assets, compared to $142.5 million, or 11.26 percent of total assets at September 30, 2019.  The Company's capital position provides a source of strength and continues to significantly exceed all regulatory capital guidelines.  The Bank's common equity Tier 1 capital ratio was 15.63 percent, Tier 1 leverage ratio was 12.98 percent, Tier 1 risk-based capital ratio was 15.63 percent and the total risk-based capital ratio was 16.73 percentAt September 30, 2019, the Bank's common equity Tier 1 capital 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. 

The Company purchased 64,318 shares of its common stock at an average cost $11.69 per share in the open market under its repurchase plan during the fiscal quarter ended June 30, 2020.  As of June 30, 2020, there were no shares remaining in the repurchase plan.  

Non-GAAP Financial Measures

In addition to the results presented in accordance with generally accepted accounting principles ("GAAP"), this press release includes certain 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: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Net income as reported under GAAP $ 1,454 $ 1,908 $ 785 $ 2,699 $ 2,656
Non-core items, net of tax:          
  OREO expense(1) 22 73 87 24
  Net investment security gains (1) (138) (1) (21)
  Swap fees(2) (71)
  Other(3) 24 31 54 16
Core net income, non-GAAP $ 1,499 $ 1,801 $   912 $ 2,730 $ 2,659
Earnings per common share:          
  Diluted $ 0.20 $ 0.24 $ 0.12 $ 0.36 $ 0.35
Weighted average common shares outstanding:          
  Diluted 7,538,375 7,663,771 7,665,842 7,663,593 7,670,106


(1) Non-core items for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, include OREO expense relating to one commercial real estate loan.
(2) Upfront recognition of net swap fees through the Bank's commercial loan hedging program.
(3) Items such as accelerated payoff and non-accrual interest amounts are included in non-core items.
   

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

(in thousands)          
For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Other income as reported under GAAP $ 389 $ 964 $ 443 $ 551 $ 454
Less: Net investment securities gains 1 180 1 27
Less: Net swap fees 92
Other income, excluding net investment securities gains $ 388 $ 784 $ 443 $ 458 $ 427
 

"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: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Other expense as reported under GAAP $ 4,684 $ 4,638 $ 4,422 $ 4,453 $ 4,497
Less: non-core items(1) 29 (1) 71 113 30
Other expense, excluding non-core items, non-GAAP $ 4,655 $   4,639 $ 4,351 $ 4,340 $ 4,467
Net interest income (tax
equivalent basis), non-GAAP
$ 6,637 $ 6,800 $ 6,896 $ 7,426 $ 7,471
Non-core items(2) 32 41 52 21
Net interest income (tax
equivalent basis), including non-core items, non-GAAP
6,669 6,841 6,948 7,447 7,471
Other income, excluding gain on sale of investments and swap fees 388 784 443 458 427
  Total $ 7,057 $ 7,625 $ 7,391 $ 7,905 $ 7,898
           
Efficiency ratio, non-GAAP 66.0% 60.8% 58.9% 54.9% 56.6%

______________

(1) Non-core items for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019 include OREO expense relating to one commercial real estate loan.
(2) Items such as accelerated payoff and non-accrual interest amounts are included in non-core items.
   

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

For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Efficiency ratio on a GAAP basis 66.7% 59.8% 60.3% 55.9% 56.8%
           

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.  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.

(dollars in thousands)          
For the quarter ended: 6/30/20 3/31/20 12/31/19 9/30/19 6/30/19
Net interest income as reported under GAAP $ 6,631 $ 6,793 $ 6,888 $ 7,418 $ 7,461
Tax-equivalent adjustment(1)  6 7 8 8 10
TE net interest income, non-GAAP $ 6,637 $ 6,800 $ 6,896 $ 7,426 $ 7,471
           
Net interest margin as reported under GAAP 2.29% 2.25% 2.33% 2.45% 2.54%
Tax-equivalent effect 0.01
Net interest margin (TE), non-GAAP 2.29% 2.25% 2.34% 2.45% 2.54%

______________

(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 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. 

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.

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 effects of, and changes in, trade, monetary and fiscal policies and laws, including recent changes in 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; technological changes; 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; 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 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 Company's 2019 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC and available at the SEC's Internet site (http://www.sec.gov).

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are subject to any of the following risks, any of which could continue to have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to continue to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board's target federal funds rate to near 0 percent, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experience additional resolution costs.

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.

 

MALVERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

       
  June 30, 2020    September 30, 2019
(in thousands, except for share and per share data) (unaudited)      
ASSETS          
Cash and due from depository institutions $ 30,653   $ 1,400
Interest bearing deposits in depository institutions   28,291     152,143
  Total cash and cash equivalents   58,944     153,543
Investment securities available for sale, at fair value (amortized cost of $33,704 and $18,522 at June 30, 2020 and September 30, 2019, respectively)   33,245     18,411
Investment securities held to maturity (fair value of $16,507 and $22,609 at June 30, 2020 and September 30, 2019, respectively)   15,921     22,485
Restricted stock, at cost   9,766     11,129
Loans receivable, net of allowance for loan losses   1,028,093     1,007,714
Other real estate owned   5,796     5,796
Accrued interest receivable   5,680     4,253
Operating lease right-of-use-assets   2,799    
Property and equipment, net   6,355     6,678
Deferred income taxes, net   3,103     2,840
Bank-owned life insurance   20,270     19,891
Other assets   13,873     12,482
  Total assets $ 1,203,845   $ 1,265,222
LIABILITIES          
Deposits:          
  Non-interest bearing $ 47,443   $ 55,684
  Interest-bearing   837,001     898,127
Total deposits   884,444     953,811
FHLB advances   130,000     133,000
Subordinated debt   24,737     24,619
Advances from borrowers for taxes and insurance   3,630     1,761
Accrued interest payable   1,096     978
Operating lease liabilities   2,824    
Other liabilities   13,583     8,545
  Total liabilities   1,060,314     1,122,714
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; 7,804,469 and 7,609,953 issued and outstanding, respectively, at June 30, 2020, and 7,782,258 and 7,765,395shares issued and outstanding, at September 30, 2019     76       78
Additional paid in capital   85,068     84,783
Retained earnings   63,891     59,744
Unearned Employee Stock Ownership Plan (ESOP) shares   (1,083)     (1,192)
Accumulated other comprehensive loss   (1,558)     (569)
Treasury stock, at cost: 194,516 shares and 16,863 shares at June 30, 2020 and September 30, 2019, respectively   (2,863)     (336)
  Total shareholders' equity   143,531     142,508
  Total liabilities and shareholders' equity $ 1,203,845   $ 1,265,222
 
 

MALVERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

  Three Months Ended June 30,   Nine months Ended June 30,
(in thousands, except for share data)   2020     2019     2020     2019
(unaudited)                      
Interest and Dividend Income                      
Loans, including fees $ 10,024   $ 11,415   $ 31,492   $ 32,171
Investment securities, taxable   253     259     699     760
Investment securities, tax-exempt   27     49     100     167
Dividends, restricted stock   124     159     494     450
Interest-bearing cash accounts   26     574     1,048     1,421
  Total Interest and Dividend Income   10,454     12,456     33,833     34,969
Interest Expense                      
Deposits   2,876     3,926     10,236     10,265
Short-term borrowings               7
Long-term borrowings   564     686     2,136     1,891
Subordinated debt   383     383     1,149     1,149
Total Interest Expense   3,823     4,995     13,521     13,312
Net interest income   6,631     7,461     20,312     21,657
Provision for Loan Losses   435     56     3,210     2,379
Net Interest Income after Provision for
  Loan Losses
  6,196     7,405     17,102     19,278
Other Income                      
Service charges and other fees   195     252     1,058     1,430
Rental income-other   54     53     163     184
Net gains on sale of investments   1     27     181     27
Net gains on sale of loans   11         14     37
Earnings on bank-owned life insurance   128     122     380     363
Total Other Income   389     454     1,796     2,041
Other Expense                      
Salaries and employee benefits   2,279     2,223     6,675     6,444
Occupancy expense   576     560     1,749     1,676
Federal deposit insurance premium   79     78     79     220
Advertising   33     30     87     90
Data processing   275     259     825     764
Professional fees   524     405     1,467     1,359
Net other real estate owned expense   29     30     99     79
Pennsylvania shares tax   169     169     509     261
Other operating expenses   720     743     2,254     2,141
Total Other Expense   4,684     4,497     13,744     13,034
Income before income tax expense   1,901     3,362     5,154     8,285
Income tax expense   447     706     1,007     1,652
Net Income $ 1,454   $ 2,656   $ 4,147   $ 6,633
                       
Earnings per common share                      
Basic $ 0.19   $ 0.35   $ 0.54   $ 0.87
Diluted $ 0.19   $ 0.35   $ 0.54   $ 0.87
Weighted Average Common Shares
  Outstanding
                     
Basic   7,538,375     7,669,851     7,622,820     7,630,650
Diluted   7,538,375     7,670,106     7,622,820     7,630,944
                       
                       

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) 6/30/2020 3/31/2020 6/30/2019
(unaudited)         
Statements of Operations Data      
       
  Interest income $   10,454 $   11,584 $   12,456
  Interest expense 3,823 4,791 4,995
   Net interest income 6,631 6,793 7,461
  Provision for loan losses 435 625 56
  Net interest income after provision for loan losses 6,196 6,168 7,405
  Other income 389 964 454
  Other expense 4,684 4,638 4,497
  Income before income tax expense 1,901 2,494 3,362
  Income tax expense 447 586 706
  Net income $   1,454 $   1,908 $   2,656
Earnings (per Common Share)      
  Basic $   0.19 $   0.25 $   0.35
  Diluted $   0.19 $   0.25 $   0.35
Statements of Condition Data (Period-End)      
  Investment securities available for sale, at fair value $   33,245 $   21,839 $   23,552
  Investment securities held to maturity (fair value of $16,507, $18,434, and $23,309, respectively) 15,921 18,046 23,323
  Loans, net of allowance for loan losses 1,028,093 1,002,907 1,009,959
  Total assets 1,203,845 1,236,112 1,265,878
  Deposits 884,444 915,900 957,199
  FHLB advances 130,000 133,000 133,000
  Subordinated debt 24,737 24,697 24,579
  Shareholders' equity 143,531 143,150 139,668
Common Shares Dividend Data      
  Cash dividends $  — $  — $   —
Weighted Average Common Shares Outstanding      
  Basic 7,538,375 7,663,771 7,669,851
  Diluted 7,538,375 7,663,771 7,670,106
Operating Ratios      
  Return on average assets 0.48% 0.61% 0.88%
  Return on average equity 4.06% 5.29% 7.66%
  Average equity / average assets 11.71% 11.51% 11.43%
  Book value per common share (period-end) $ 18.86 $ 18.67 $ 17.99
Non-Financial Information (Period-End)      
  Common shareholders of record 387 383 396
  Full-time equivalent staff 88 89 84
       

Investor Contacts:
Joseph D. Gangemi
Corporate Investor Relations
610-695-3676

Investor Relations Contact:
Ronald Morales
610-695-3646

Primary Logo

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com