Press Release

Malvern Bancorp, Inc. Reports Fourth Quarter and Fiscal Year End 2020 Operating Results

Company Release - 11/9/2020 4:15 PM ET

PAOLI, Pa., Nov. 09, 2020 (GLOBE NEWSWIRE) -- Malvern Bancorp, Inc. (NASDAQ: MLVF) (the “Company”), the parent company of Malvern Bank, National Association (the “Bank”), today reported operating results for the fourth fiscal quarter and fiscal year ended September 30, 2020. Net income for the quarter ended September 30, 2020 amounted to $2.2 million, or $0.30 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 September 30, 2019. The decreases in net income and diluted earnings per share from the fourth quarter of 2019 were primarily due to a decrease in net interest income. Net interest income for the quarter ended September 30, 2020 was $432,000 lower than in the quarter ended September 30, 2019. This decrease was mainly driven by the lower interest rate environment. Annualized return on average assets (“ROAA”) was 0.74 percent for the quarter ended September 30, 2020, compared to 0.86 percent for the quarter ended September 30, 2019, and annualized return on average equity (“ROAE”) was 6.08 percent for the quarter ended September 30, 2020, compared with 7.65 percent for the quarter ended September 30, 2019.

For the fiscal year ended September 30, 2020, net income amounted to $6.4 million, or $0.84 per fully diluted common share, compared with net income of $9.3 million, or $1.22 per fully diluted common share, for the fiscal year ended September 30, 2019. The decreases in net income and diluted earnings per share were primarily due to higher loan loss provision expense necessitated by the COVID-19 pandemic and lower net interest income, as well as the partial charge-off of $2.3 million in the first fiscal quarter ended December 31, 2019 related to one commercial loan relationship. ROAA was 0.52 percent for the fiscal year ended September 30, 2020, compared to 0.80 percent for the fiscal year ended September 30, 2019, and ROAE was 4.42 percent for the fiscal year ended September 30, 2020, compared with 6.78 percent for the fiscal year ended September 30, 2019.  

“We continue to operate in an unprecedented environment of sustained low interest rates and, of course, the pandemic. While the economic outlook remains uncertain, we are encouraged by the resiliency of our customers who are also adapting to their own difficult operating conditions. I am very proud of the Malvern Bank team, which continues to execute day-to-day to fulfill our highest priority – to be a trusted partner to our customers, especially in difficult times,” commented Anthony C. Weagley, President and Chief Executive Officer. 

Ongoing Impact of COVID–19

The Company continues to take the necessary steps to protect the health and well-being of both its employees and clients, and to assist clients who have been impacted by the COVID-19 pandemic.  The Company also continues to focus on meeting the needs of its client base during the pandemic by maintaining close communication with both individual and commercial customers and allowing for deferral extensions on an as-needed, case-by-case basis.

There remains significant uncertainty about COVID-19, including the extent and duration of the impact on individuals, communities and the Company. While it is not possible to know at this time the full impact that COVID-19 will have on the Company’s operations, the Company will continue to disclose potentially material items of which it is aware.

Paycheck Protection Program (“PPP”) Loans 

As of September 30, 2020, the Company funded 255 Small Business Administration (“SBA”) PPP loans, totaling $20.8 million for existing and new customers with an average loan size of approximately $81,000. These loans are expected to generate net origination fees of approximately $574,000, to be recognized over the life of the loans or when the loan is forgiven. The Company continues to work with customers on applying for loan forgiveness.

Loan Deferrals

The Bank continues to provide payment deferrals and forbearances to business customers and mortgage customers that are experiencing hardship because of the effects of COVID-19. At September 30, 2020, the Company had 44 COVID-19-related modified loan deferrals totaling approximately $146.6 million (down approximately $166.9 million or 53% from 153 COVID-19-related modified loan deferrals totaling approximately $313.5 million at June 30, 2020). At November 3, 2020, the Company had 20 COVID-19-related modified loan deferrals totaling $92.9 million or 8.9% of total loans. Of the remaining $92.9 million deferrals, approximately $56.3 million or 60.6% of the deferrals are paying the contractual interest payments.

Statement of Income Highlights at September 30, 2020

  • Net interest income decreased $432,000, or 5.8 percent, for the three months ended September 30, 2020 when compared to the three months ended September 30, 2019. The decrease was mainly attributable to interest rate cuts by the Board of Governors of the Federal Reserve.

  • Net interest margin (“NIM”) increased to 2.48 percent for the quarter ended September 30, 2020, compared to 2.45 percent for the prior year’s quarter and 2.29 percent in the sequential quarter ended June 30, 2020. These increases were driven by the reduction in interest expense, partially offset by a decrease in interest-earning assets. On a linked quarter basis, the average yield on interest-earning assets increased 14 basis points and the total cost of funds decreased 8 basis points, as the cost of interest-bearing deposits decreased 11 basis points.

  • The Company did not record a provision during the three-month period ended September 30, 2020. For the fiscal year ended September 30, 2020, the Company recorded a provision for loan losses of $3.2 million. Due to the uncertainty created by COVID-19, the Company believes that additional provisioning might be required in future quarters until businesses have fully reopened and deferral periods have expired.
      
Linked Quarter Financial Ratios
(unaudited)
     
      
As of or for the quarter ended:9/30/20
 6/30/20
 3/31/20
 12/31/19
 9/30/19
 
Return on average assets (1) 0.74% 0.48% 0.61% 0.26% 0.86%
Return on average equity (1) 6.08% 4.06% 5.29% 2.19% 7.65%
Net interest margin (1) 2.48% 2.29% 2.25% 2.33% 2.45%
Loans / deposits ratio 116.83% 117.45% 110.56% 106.14% 106.64%
Shareholders’ equity / total assets 12.08% 11.92% 11.58% 11.40% 11.26%
Efficiency ratio, non-GAAP (1)(2) (3) 60.3% 66.0% 60.9% 58.9% 55.0%
Book value per common share$19.23 $18.86 $18.67 $18.48 $18.35 
                

_______________
(1)   Annualized.
(2)   Information reconciling non-GAAP measures to GAAP measures is presented beginning on pages 10 and 11 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 plus other income.

Linked Quarter Income Statement Data
(unaudited)
(in thousands, except share and per share data)

For the quarter ended: 9/30/20  6/30/20  3/31/20  12/31/19   9/30/19
Net interest income$6,986 $6,631 $6,793 $6,888  $7,418
Provision for loan losses -  435  625  2,150   -
Net interest income after provision for loan losses 6,986  6,196  6,168  4,738   7,418
Other income 692  389  964  443   551
Other expense 4,558  4,684  4,638  4,422   4,453
Income before income tax expense 3,120  1,901  2,494  759   3,516
Income tax expense (benefit) 886  447  586  (26)  817
Net income$2,234 $1,454 $1,908 $785  $2,699
Earnings per common share              
Basic$0.30 $0.19 $0.25 $0.10  $0.35
Diluted$0.30 $0.19 $0.25 $0.10  $0.35
Weighted average common shares outstanding          
Basic 7,522,199  7,538,375  7,663,771  7,665,842   7,663,242
Diluted 7,522,360  7,538,375  7,663,771  7,665,842   7,663,593
                

Net Interest Income

Net interest income was $7.0 million for the quarter ended September 30, 2020, a decrease of $432,000, or 5.8 percent, from $7.4 million for the quarter ended September 30, 2019. The decline continues to be driven by the Federal Reserve Board’s zero rate policy, as the yield on interest earning assets has declined 45 basis points for the period. However, the net interest spread on an annualized basis increased from 2.19 for the quarter ended September 30, 2019 to 2.31 percent for the quarter ended September 30, 2020.

For the quarter ended September 30, 2020, the Company’s NIM increased by 3 basis points to 2.48 percent, as compared to the quarter ended September 30, 2019. This increase was primarily driven by the decrease in the cost of interest-bearing deposits, which decreased by 58 basis points compared to the fourth fiscal quarter of 2019.

As of September 30, 2020, we had a total of $28.0 million of average interest-bearing cash balances. This excess liquidity diluted the NIM by approximately 9 basis points.   In addition, we had $20.5 million of PPP loans that had a slightly dilutive effect on our NIM. The PPP loans have an annual interest rate of 1.00 percent plus the accretion of the origination fee.

Net interest income was $27.3 million for the fiscal year ended September 30, 2020, a decrease of $1.8 million, or 6.1 percent, from $29.1 million for the fiscal year ended September 30, 2019. The change for the fiscal year ended September 30, 2020 was primarily the result of the low rate environment and an increase in total interest-bearing liabilities of $41.1 million, partially offset by an increase of $48.3 million in the average balance of loans. The net interest spread was 2.12 percent and 2.31 percent for the fiscal year ended September 30, 2020 and 2019, respectively.

For the fiscal year ended September 30, 2020, the Company’s NIM decreased by 24 basis points to 2.33 percent as compared to 2.57 percent for the fiscal year ended September 30, 2019.

Total Interest Income

For the quarters ended September 30, 2020 and September 30, 2019, total interest income was $10.6 million and $12.7 million, respectively. Average interest-earning assets decreased $83.7 million for the quarter ended September 30, 2020 when compared to the quarter ended September 30, 2019, while the average yield on interest-earning assets declined 45 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 fiscal year ended September 30, 2020, total interest income was $44.4 million, a decrease of $3.3 million, or 6.8 percent, from $47.7 million for the fiscal year ended September 30, 2019. The decline in total interest income was driven primarily by a lower earning asset yield of 41 basis points.

Interest Expense

For the quarter ended September 30, 2020, interest expense decreased by $1.7 million, or 32.1 percent, to $3.6 million, compared to the quarter ended September 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 $59.7 million in certificate deposits, and a 58 basis point decrease in the rate on interest-bearing deposits.   The decrease in deposits was a strategic decision to reduce excess cash on the balance sheet, match funding expectations and improve the margin. The reduction in certificates was primarily listing service deposits and the reduction in money market were primarily public funds deposits.

The annualized average rate of total interest-bearing liabilities decreased 8 basis points to 1.43 percent for the quarter ended September 30, 2020, compared to 1.51% for the third (June 30, 2020) fiscal quarter of 2020.   For the quarter ended September 30, 2020, the average balance of total interest-bearing liabilities decreased by $16.1 million, reflecting a decrease in the average balance of total interest-bearing deposit accounts of $9.7 million and a decrease in the average balance of borrowings of $6.4 million, compared to the quarter ended June 30, 2020.  

Total interest expense decreased by $1.5 million, or 8.0 percent, to $17.1 million for the fiscal year ended September 30, 2020, compared to the fiscal year ended September 30, 2019. The average rate of total interest-bearing liabilities decreased to 1.68 percent for the fiscal year ended September 30, 2020, from 1.90 percent for the fiscal year ended September 30, 2019. At the same time, the average balance of total interest-bearing liabilities increased by $41.1 million. This increase primarily reflects an increase in the average balance of interest-bearing deposits of $24.7 million and an increase in the average balance of borrowings of $16.4 million. 

Other Income

Other income increased $141,000, or 25.6 percent, during the fourth fiscal quarter of 2020 compared with the fourth fiscal quarter of 2019. The increase in other income was primarily due to increases of $148,000 in gain on sale of investments and $102,000 in gain on sale of loans, offset by a decrease of $108,000 in service charges and other fees. The gain on sale of investments resulted from managing and optimizing portfolio activity in the ordinary course of business. The gain on sale of loans was a result of a strategic effort to originate and sell residential loans in this low interest rate environment. The decline in service charges and other fees was primarily the result of lower loan swap fees through the Bank’s commercial loan hedging program in the fourth quarter of 2019.

For the fiscal year ended September 30, 2020, total other income decreased $104,000 compared to the year ended September 30, 2019. This decrease was primarily a result of decreases of $480,000 in service charges and other fees, partially offset by increases of $302,000 in gain on sale of investments and $79,000 in gain on sale of loans. The decrease in service charges and other fees during the fiscal year ended September 30, 2020 is primarily due to the recognition of approximately $428,000 less of net swap fees through the Bank’s commercial loan hedging program. Consistent with the quarter, the increase on the sale of investments resulted from managing and optimizing normal portfolio activity. Also consistent with the quarterly results, the gain on sale of loans was a result of a strategic effort to originate and sell residential loans in this low interest rate environment.

Other Expense

Other expense for the quarter ended September 30, 2020 increased $105,000, or 2.4 percent, when compared to the quarter ended September 30, 2019. The increase was primarily due to increases of $117,000 in salaries and employee benefits, $88,000 in professional fees, which included COVID-19-related expenses, and $75,000 in federal deposit insurance premium expense.  These increases were partially offset by decreases of $124,000 in other real estate owned (“OREO”) expense, net, and $66,000 in other operating expenses. The increase in salary and employee benefits was mainly due to adding employees throughout the year and was offset partially by other reductions in staff in response to conditions brought on by the pandemic during the quarter ended September 30, 2020. The increased federal deposit premium resulted from the Deposit Insurance Fund reserve ratio exceeding the required reserve ratio during the fourth quarter of 2019. This was the second consecutive quarter the Bank did not receive a credit from the fund and does not have a credit balance that can be used to offset premiums in future quarters. The decrease in OREO expense, net, was due to rent received from an OREO property that more than covered the expenses related to that property. The decrease in other operating expenses primarily related to events and travel that were postponed in response to COVID-19.

For the fiscal year ended September 30, 2020, total other expense increased $815,000, or 4.7 percent, compared to the fiscal year ended September 30, 2019. This increase primarily reflects a $348,000 increase in salaries and employee benefits, a $247,000 increase in the Pennsylvania shares tax, and a $196,000 increase in professional fees. These increases were partially offset by a $104,000 decrease in OREO expense, net, and a $66,000 decrease in the federal deposit insurance premium. The increase in salaries and employee benefits during the fiscal year ended September 30, 2020 reflects normal increases to salary and benefits and additional hires to support overall franchise growth. The increased Pennsylvania shares tax was due to the Bank not being subject to this tax until the second quarter of 2019.   The increase in professional fees was due to higher legal and professional services expenses of $182,000 and $160,000, respectively, partially offset by lower audit and accounting expenses of approximately $143,000. The decrease in OREO expense, net, was due to successfully managing and leasing the space while actively working to dispose of the associated property. 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 generated credits to qualified participating banks. These credits have been fully utilized in fiscal 2020.

Income Taxes

The Company recorded $886,000 in income tax expense during the quarter ended September 30, 2020 compared to $817,000 in income tax expense during the quarter ended September 30, 2019. The effective tax rates for the Company for the quarters ended September 30, 2020 and 2019 were 28.4 percent and 23.2 percent, respectively.  

For the fiscal year ended September 30, 2020, income tax expense decreased $576,000, or 23.3 percent, to $1.9 million from $2.5 million for the fiscal year ended September 30, 2019. The effective tax rates for the Company for the fiscal year ended September 30, 2020 and 2019 were 22.9 percent and 20.9 percent, respectively. Tax expense for the fiscal year ended September 30, 2020 was positively impacted by discreet items recorded in the first fiscal quarter ended December 31, 2019.

Statement of Condition Highlights at September 30, 2020

  • Gross loans totaled $1.041 billion at September 30, 2020, increasing $23.7 million or 2.3 percent, compared to September 30, 2019.
  • Total assets stood at $1.211 billion at September 30, 2020, decreasing $53.8 million, or 4.3 percent, compared to September 30, 2019. The decline in assets was driven by the strategic reduction in cash due from interest-bearing deposits in other institutions to better match loan funding expectations and improve the margin.
  • The deposit mix improved with the reduction of wholesale certificates of $14.8 million and reduction of money market public fund deposits of $58.5 million from September 30, 2019 to September 30, 2020. Deposits totaled $890.9 million at September 30, 2020, a decrease of $62.9 million, or 6.6 percent, 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 1.25 percent of total assets at September 30, 2020, compared to 0.64 percent at September 30, 2019. Excluding one OREO property of $5.8 million, NPAs were 0.77 percent of total assets and 0.18 percent of total assets at September 30, 2020 and September 30, 2019, respectively. The allowance for loan losses as a percentage of total non-performing loans was 118.6 percent at September 30, 2020, compared to 434.6 percent at September 30, 2019.
  • The Company’s ratio of shareholders’ equity to total assets was 12.08 percent at September 30, 2020, compared to 11.26 percent at September 30, 2019.
  • Book value per common share amounted to $19.23 at September 30, 2020, compared to $18.35 at September 30, 2019.

Linked Quarter Statement of Condition Data

(in thousands, unaudited)  

At quarter ended: 9/30/20  6/30/20  3/31/20  12/31/19  9/30/19
Cash and due from depository institutions$16,386 $30,653 $1,829 $1,337 $1,400
Interest-bearing deposits in depository institutions 45,053  28,291  124,239  158,465  152,143
Investment securities, available for sale, at fair value 31,541  33,245  21,839  23,723  18,411
Investment securities held to maturity 14,970  15,921  18,046  20,578  22,485
Restricted stock, at cost 9,622  9,766  10,913  11,115  11,129
Loans receivable, net of allowance for loan losses 1,030,069  1,028,093  1,002,907  992,629  1,007,714
OREO 5,796  5,796  5,796  5,796  5,796
Accrued interest receivable 3,714  5,680  4,121  4,061  4,253
Operating lease right-of-use-assets 2,638  2,799  2,959  3,119  
Property and equipment, net 6,274  6,355  6,476  6,594  6,678
Deferred income taxes, net 3,341  3,103  2,974  2,806  2,840
Bank-owned life insurance 25,400  20,270  20,144  20,018  19,891
Other assets 16,573  13,873  13,869  8,341  12,482
Total assets$1,211,377 $1,203,845 $1,236,112 $1,258,582 $1,265,222
Deposits$890,906 $884,444 $915,900 $943,819 $953,811
FHLB advances 130,000  130,000  133,000  133,000  133,000
Subordinated debt 24,776  24,737  24,697  24,658  24,619
Operating lease liabilities 2,671  2,824  2,976  3,128  
Other liabilities 16,694  18,309  16,389  10,442  11,284
Shareholders’ equity 146,330  143,531  143,150  143,535  142,508
Total liabilities and shareholders’ equity$1,211,377 $1,203,845 $1,236,112 $1,258,582 $1,265,222
               

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

Condensed Consolidated Average Statement of Condition

(in thousands, unaudited)

For the quarter ended: 9/30/20   6/30/20   3/31/20   12/31/19   9/30/19 
Investment securities$48,549  $43,349  $40,165  $40,855  $42,256 
Interest-bearing cash accounts 27,996   76,828   148,580   122,234   143,297 
Loans 1,041,345   1,028,996   1,010,767   1,006,729   1,015,251 
Allowance for loan losses (11,071)  (10,618)  (9,756)  (10,095)  (10,143)
All other assets 107,512   85,169   63,434   62,341   61,615 
Total assets$1,214,331  $1,223,724  $1,253,190  $1,222,064  $1,252,276 
Non-interest-bearing deposits$49,139  $46,450  $41,916  $41,716  $44,104 
Interest-bearing deposits 842,727   852,330   892,583   864,317   896,928 
FHLB advances 130,000   136,121   133,000   133,000   133,000 
Other short-term borrowings    276   275      54 
Subordinated debt 24,760   24,719   24,680   24,641   24,602 
Other liabilities 20,853   20,509   16,440   14,805   12,413 
Shareholders’ equity 146,852   143,319   144,296   143,585   141,175 
Total liabilities and shareholders’ equity$1,214,331  $1,223,724  $1,253,190  $1,222,064  $1,252,276 
                    

Deposits

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

(in thousands, unaudited)

At quarter ended: 9/30/20  6/30/20  3/31/20  12/31/19  9/30/19
Demand:              
Non-interest-bearing$50,422 $47,443 $42,874 $41,273 $55,684
Interest-bearing 303,682  277,238  291,191  327,956  302,039
Savings 45,072  43,702  43,550  40,908  41,875
Money market 277,711  281,419  280,173  279,883  276,644
Time 214,019  234,642  258,112  253,799  277,569
Total deposits$890,906 $884,444 $915,900 $943,819 $953,811
               

Loans

For the quarter ended September 30, 2020, the Company originated a total new loan volume of $45.7 million, which was partially offset by prepayments of $14.2 million, amortization of $6.5 million, loan payoffs of $22.3 million, and participations of $689,000. Total loan growth for the three months ended September 30, 2020 included an increase of $3.1 million of PPP loans.

Total net loans amounted to $1.030 billion at September 30, 2020 compared to $1.008 billion at September 30, 2019, for a net increase of $22.4 million or 2.2 percent year to year. The allowance for loan losses amounted to $11.1 million, or 1.09 percent of total loans, excluding PPP loans, at September 30, 2020 and $10.1 million or 0.99 percent at September 30, 2019. Average loan balances for the quarter ended September 30, 2020 totaled $1.041 billion as compared to $1.015 billion for the quarter ended September 30, 2019, representing a 2.6 percent increase.

At the end of the fourth 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 67.2 percent and single-family residential real estate loans accounting for 23.3 percent. Construction and development loans amounted to 6.6 percent and consumer loans represented 3.0 percent of the gross loan portfolio at such date. The increase in the gross loan portfolio at September 30, 2020 compared to September 30, 2019 primarily reflected an increase of $22.1 million in residential mortgage loans and $25.0 million in construction and development loans, which were partially offset by a decrease of $18.9 million in commercial loans, net of $20.8 million of PPP commercial and industrial loan originations, and a decrease of $4.6 million in consumer loans.

The following table reflects the Company’s loan portfolio composition (excluding loans held for sale) as of the dates indicated.

               
(in thousands, unaudited)              
At quarter ended: 9/30/20   6/30/20   3/31/20   12/31/19   9/30/19 
Residential mortgage$242,090  $246,215  $240,633  $234,738  $220,011 
Construction and Development:              
Residential and commercial 65,703   56,999   52,313   49,095   40,346 
Land 3,110   3,535   3,579   3,625   3,420 
Total construction and development 68,813   60,534   55,892   52,720   43,766 
Commercial:              
Commercial real estate 497,215   501,955   511,467   521,495   543,452 
Farmland 7,517   7,531   7,537   7,563   7,563 
Multi-family 67,767   66,416   59,978   43,473   62,884 
Commercial and industrial 116,584   115,899   96,574   99,494   99,747 
Other 10,142   8,397   7,604   8,569   4,450 
Total commercial 699,225   700,198   683,160   680,594   718,096 
Consumer:              
Home equity lines of credit 17,128   18,097   18,441   18,372   19,506 
Second mortgages 10,711   11,704   12,393   13,179   13,737 
Other 2,851   2,074   2,112   2,160   2,030 
Total consumer 30,690   31,875   32,946   33,711   35,273 
Total loans 1,040,818   1,038,822   1,012,631   1,001,763   1,017,146 
Deferred loan costs, net 326   338   832   828   663 
Allowance for loan losses (11,075)  (11,067)  (10,556)  (9,962)  (10,095)
Loans Receivable, net$1,030,069  $1,028,093  $1,002,907  $992,629  $1,007,714 
                    

At September 30, 2020, the Company had $132.0 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.

Asset Quality

Non-accrual loans totaled $9.3 million at September 30, 2020 and $1.8 million at September 30, 2019. The portfolio of non-accrual loans at September 30, 2020 was comprised of two commercial real estate loans with an aggregate outstanding balance of approximately $7.0 million, fifteen residential real estate loans with an aggregate outstanding balance of approximately $2.0 million, and eleven consumer loans with an aggregate outstanding balance of approximately $280,000. The increase in non-accrual loans compared to September 30, 2019 was due primarily to one commercial real estate loan with an outstanding balance of approximately $6.7 million moving to non-accrual status during the first quarter of fiscal 2020.  

At September 30, 2020, NPAs totaled $15.1 million, or 1.25 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 September 30, 2020 and September 30, 2019. Excluding the $5.8 million of OREO, NPAs totaled $9.3 million, or 0.77 percent of total assets at September 30, 2020, and $2.3 million, or 0.18 percent of total assets at September 30, 2019.

Performing TDR loans were $13.4 million at September 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 interest during the second (March 31, 2020) fiscal quarter of 2020.  Management subsequently restructured this loan and reclassified it as a performing TDR during the third fiscal quarter ended June 30, 2020. There were no new TDRs in the fourth fiscal quarter of 2020.

Non-Performing Asset and Other Asset Quality Data:

(dollars in thousands, unaudited) 

As of or for the quarter ended: 9/30/20   6/30/20   3/31/20   12/31/19   9/30/19 
Non-accrual loans(1)$9,279  $8,871  $8,655  $8,649  $1,821 
Loans 90 days or more past due and still accruing 58   265   168   1   502 
Total non-performing loans 9,337   9,136   8,823   8,650   2,323 
OREO 5,796   5,796   5,796   5,796   5,796 
Total NPAs$15,133  $14,932  $14,619  $14,446  $8,119 
Performing TDR loans$13,418  $13,640  $3,243  $3,460  $12,170 
               
NPAs / total assets 1.25%  1.24%  1.18%  1.15%  0.64%
Non-performing loans / total loans 0.90%  0.88%  0.87%  0.86%  0.23%
Net (recoveries) charge-offs$(8) $(76) $31  $2,283  $11 
Net (recoveries) charge-offs /average loans(2) %  (0.03)%  0.01%  0.91%  %
Allowance for loan losses / total loans 1.09%  1.08%  1.04%  0.99%  0.99%
Allowance for loan losses / non-performing loans 118.6%  121.1%  119.6%  115.2%  434.6%
               
Total assets$1,211,377  $1,203,845  $1,236,112  $1,258,582  $1,265,222 
Total gross loans 1,040,818   1,038,822   1,012,631   1,001,763   1,017,146 
Average loans 1,041,345   1,028,996   1,010,767   1,006,729   1,015,251 
Allowance for loan losses 11,075   11,067   10,556   9,962   10,095 
                    

______________
(1)   Fifteen loans totaling approximately $8.2 million, or 88.4 percent of the total non-accrual loan balance, were making payments as of September 30, 2020.
(2)   Annualized.

The allowance for loan losses at September 30, 2020 amounted to approximately $11.1 million, or 1.09 percent of total loans excluding PPP loans, a non-GAAP measure, compared to $10.1 million, or 0.99 percent of total loans, at September 30, 2019. The Company did not record a provision for loan losses during the fiscal quarters ended September 30, 2020 and September 30, 2019.

Capital

At September 30, 2020, total shareholders’ equity amounted to $146.3 million, or 12.08 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 15.94 percent, Tier 1 leverage ratio was 13.30 percent, Tier 1 risk-based capital ratio was 15.94 percent and the total risk-based capital ratio was 17.04 percent. At 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.

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 and EPS including non-core income and expense items, is presented in the table below.

(in thousands)              
For the quarter ended: 9/30/20   6/30/20   3/31/20   12/31/19  9/30/19 
Net income as reported under GAAP$2,234  $1,454  $1,908  $785 $2,699 
Non-core items, net of tax:              
OREO expense(1) (8)  22      73  87 
Net investment security gains (107)  (1)  (138)    (1)
Swap fees(2)            (71)
Other(3) 32   24   31   54  16 
Core net income, non-GAAP$2,151  $1,499  $1,801  $912 $2,730 
Adjusted Earnings per common share:              
Diluted$0.29  $0.20  $0.24  $0.12 $0.36 
Weighted average common shares outstanding:              
Diluted 7,522,360   7,538,375   7,663,771   7,665,842  7,663,593 
                   
(1)   Non-core items include OREO expense relating to one commercial real estate loan for all quarters presented.  
(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.
 


For the quarter ended: 9/30/20  6/30/20  3/31/20  12/31/19  9/30/19
Earnings per share GAAP$0.30  $0.19 $0.25  $0.10 $0.35
Plus/(less):              
OREO expense, net investment              
security gains, swap fees and other (0.01)  0.01  (0.01)  0.02  0.01
Adjusted Earnings per common share non-GAAP$0.29  $0.20 $0.24  $0.12 $0.36
                 

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

(in thousands)              
For the quarter ended: 9/30/20  6/30/20  3/31/20  12/31/19  9/30/19
Other income as reported under GAAP$692 $389 $964 $443 $551
Less: Net investment securities gains 149  1  180    1
Less: Net swap fees         92
Other income, excluding net investment securities gains and net swap fees$543 $388 $784 $443 $458
               

“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, plus other income, calculated as follows:

(dollars in thousands)              
For the quarter ended: 9/30/20   6/30/20   3/31/20   12/31/19   9/30/19 
Other expense as reported under GAAP$4,558  $4,684  $4,638  $4,422  $4,453 
Less: non-core items(1) (11)  29   (1)  71   113 
Other expense, excluding non-core items, non-GAAP$4,569  $4,655  $4,639  $4,351  $4,340 
Net interest income$6,986  $6,631  $6,793  $6,888  $7,418 
Non-core items(2) 45   32   41   52   21 
Net interest income, including non-core items, non-GAAP 7,031   6,663   6,834   6,940   7,439 
Other income, excluding net gain on sale of investments and net swap fees 543   388   784   443   458 
Total$7,574  $7,051  $7,618  $7,383  $7,897 
               
Efficiency ratio, non-GAAP 60.3%  66.0%  60.9%  58.9%  55.0%
                    
(1)   Non-core items include OREO expense relating to one commercial real estate loan for all quarters presented.
(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:9/30/20 6/30/20 3/31/20 12/31/19 9/30/19 
Efficiency ratio on a GAAP basis59.4%66.7%59.8%60.3%55.9%

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 and Delaware counties, Pennsylvania, Morristown, New Jersey, its New Jersey regional headquarters, Palm Beach, Florida. 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 NIM 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

 September 30, 2020 September 30, 2019
(in thousands, except for share and per share data)(unaudited)   
ASSETS     
Cash and due from depository institutions$16,386  $1,400 
Interest-bearing deposits in depository institutions 45,053   152,143 
Total cash and cash equivalents 61,439   153,543 
Investment securities available for sale, at fair value (amortized cost of $31,658 and $18,522 at September 30, 2020 and September 30, 2019, respectively) 31,541   18,411 
Investment securities held to maturity (fair value of $15,608 and $22,609 at September 30, 2020 and September 30, 2019, respectively) 14,970   22,485 
Restricted stock, at cost 9,622   11,129 
Loans receivable, net of allowance for loan losses 1,030,069   1,007,714 
Other real estate owned 5,796   5,796 
Accrued interest receivable 3,714   4,253 
Operating lease right-of-use-assets 2,638    
Property and equipment, net 6,274   6,678 
Deferred income taxes, net 3,341   2,840 
Bank-owned life insurance 25,400   19,891 
Other assets 16,573   12,482 
Total assets$1,211,377  $1,265,222 
LIABILITIES     
Deposits:     
Non-interest bearing$50,422  $55,684 
Interest-bearing 840,484   898,127 
Total deposits 890,906   953,811 
FHLB advances 130,000   133,000 
Subordinated debt 24,776   24,619 
Advances from borrowers for taxes and insurance 1,741   1,761 
Accrued interest payable 728   978 
Operating lease liabilities 2,671    
Other liabilities 14,225   8,545 
Total liabilities 1,065,047   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 September 30, 2020, and 7,782,258 and 7,765,395 shares issued and outstanding, at September 30, 2019 76   78 
Additional paid in capital 85,127   84,783 
Retained earnings 66,125   59,744 
Unearned Employee Stock Ownership Plan (ESOP) shares (1,047)  (1,192)
Accumulated other comprehensive loss (1,088)  (569)
Treasury stock, at cost: 194,516 shares and 16,863 shares at September 30, 2020 and September 30, 2019, respectively (2,863)  (336)
Total shareholders’ equity 146,330   142,508 
Total liabilities and shareholders’ equity$1,211,377  $1,265,222 
        

MALVERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

 Three Months Ended September 30, Year Ended September 30,
(in thousands, except for share data)2020 2019 2020 2019
(unaudited)           
Interest and Dividend Income           
Loans, including fees$10,037  $11,403 $41,529 $43,574
Investment securities, taxable 349   222  1,048  982
Investment securities, tax-exempt 24   40  124  207
Dividends, restricted stock 137   177  631  627
Interest-bearing cash accounts 15   844  1,063  2,265
TotalInterest and Dividend Income 10,562   12,686  44,395  47,655
InterestExpense           
Deposits 2,610   4,083  12,846  14,348
Short-term borrowings        7
Long-term borrowings 584   802  2,720  2,693
Subordinated debt 382   383  1,531  1,532
TotalInterestExpense 3,576   5,268  17,097  18,580
Net interestincome 6,986   7,418  27,298  29,075
Provision for Loan Losses      3,210  2,379
NetInterestIncomeafterProvisionforLoanLosses 6,986   7,418  24,088  26,696
OtherIncome           
Service charges and other fees 258   366  1,316  1,796
Rental income-other 54   59  217  243
Net gains on sale of investments 149   1  330  28
Net gains on sale of loans 102     116  37
Earnings on bank-owned life insurance 129   125  509  488
TotalOtherIncome 692   551  2,488  2,592
Other Expense           
Salaries and employee benefits 2,214   2,097  8,889  8,541
Occupancy expense 560   580  2,309  2,256
Federal deposit insurance premium 76   1  155  221
Advertising 32   17  119  107
Data processing 280   260  1,105  1,024
Professional fees 528   440  1,995  1,799
Net other real estate owned expense (11)  113  88  192
Pennsylvania shares tax 169   169  678  431
Other operating expenses 710   776  2,964  2,916
TotalOtherExpense 4,558   4,453  18,302  17,487
Incomebeforeincometaxexpense 3,120   3,516  8,274  11,801
Income tax expense 886   817  1,893  2,469
NetIncome$2,234  $2,699 $6,381 $9,332
Earningsper common share           
Basic$0.30  $0.35 $0.84 $1.22
Diluted$0.30  $0.35 $0.84 $1.22
Weighted Average Common Shares Outstanding           
Basic 7,522,199   7,663,242  7,597,528  7,638,866
Diluted 7,522,360   7,663,593  7,597,726  7,639,166
             

MALVERN BANCORP, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL AND STATISTICAL DATA

 Three Months Ended Three Months Ended Three Months Ended
(in thousands, except for share and per share data) (annualized where applicable) 9/30/2020 6/30/2020 9/30/2019
(unaudited)        
Statements of Operations Data        
         
Interest income$10,562  $10,454  $12,686 
Interest expense 3,576   3,823   5,268 
Net interest income 6,986   6,631   7,418 
Provision for loan losses    435    
Net interest income after provision for loan losses 6,986   6,196   7,418 
Other income 692   389   551 
Other expense 4,558   4,684   4,453 
Income before income tax expense 3,120   1,901   3,516 
Income tax expense 886   447   817 
Net income$2,234  $1,454  $2,699 
Earnings (per Common Share)        
Basic$0.30  $0.19  $0.35 
Diluted$0.30  $0.19  $0.35 
Statements of Condition Data (Period-End)        
Investment securities available for sale, at fair value$31,541  $33,245  $18,411 
Investment securities held to maturity (fair value of $15,608, $16,507, and $22,609, respectively) 14,970   15,921   22,485 
Loans, net of allowance for loan losses 1,030,069   1,028,093   1,007,714 
Total assets 1,211,377   1,203,845   1,265,222 
Deposits 890,906   884,444   953,811 
FHLB advances 130,000   130,000   133,000 
Subordinated debt 24,776   24,737   24,619 
Shareholders' equity 146,330   143,531   142,508 
Common Shares Dividend Data         
Cash dividends$  $  $ 
Weighted Average Common Shares Outstanding        
Basic 7,522,199   7,538,375   7,663,242 
Diluted 7,522,360   7,538,375   7,663,593 
Operating Ratios        
Return on average assets 0.74%  0.48%  0.86%
Return on average equity 6.08%  4.06%  7.65%
Average equity / average assets 12.09%  11.71%  11.27%
Book value per common share (period-end)$19.23  $18.86  $18.35 
Non-Financial Information (Period-End)        
Common shareholders of record 385   387   391 
Full-time equivalent staff 82   88   82 
            

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

Investor Relations Contact:
Ronald Morales
610-695-3646


malvern logo.JPG

Source: Malvern Bancorp, Inc.