Press Release

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

Company Release - 10/30/2019 8:30 AM ET

PAOLI, Pa., Oct. 30, 2019 (GLOBE NEWSWIRE) -- 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."  

  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 ratio106.64% 106.52% 106.82% 110.70% 117.62% 
Shareholders’ equity / total assets11.26% 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:9/30/196/30/193/31/1912/31/189/30/18 
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 

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. 

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.

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

(in thousands, unaudited)     
For the quarter ended:9/30/196/30/193/31/1912/31/189/30/18
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. 

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. 

Linked Quarter Statements of Condition Data

(in thousands, unaudited)
      
At quarter ended:9/30/196/30/193/31/1912/31/189/30/18
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:9/30/196/30/193/31/1912/31/189/30/18
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:9/30/196/30/193/31/1912/31/189/30/18
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

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:9/30/196/30/193/31/1912/31/189/30/18
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 $46.4 million in commercial and construction loans and $23.3 million in residential mortgage loans expected to fund over the following quarters.

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:9/30/196/30/193/31/1912/31/189/30/18
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.

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:9/30/196/30/193/31/1912/31/189/30/18
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.

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:9/30/196/30/193/31/1912/31/189/30/18
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:9/30/196/30/193/31/1912/31/189/30/18
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:9/30/196/30/193/31/1912/31/189/30/18
Efficiency ratio on a GAAP basis55.9%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.

(dollars in thousands)     
For the quarter ended:9/30/196/30/193/31/1912/31/189/30/18
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.

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. 


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


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


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) 9/30/20196/30/20199/30/2018
(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

Investor Relations:
Joseph D. Gangemi
SVP & CFO
(610) 695-3676

Investor Contact:
Ronald Morales
(610) 695-3646

malvern logo.JPG

Source: Malvern Bancorp, Inc.