Malvern Bancorp Reports Third Fiscal Quarter Operating Results

Malvern Bancorp, Inc. (NASDAQ_ MLVF)

PAOLI, PA — Malvern Bancorp, Inc. (NASDAQ: MLVF), the parent company of Malvern Bank, National Association (the “Bank”), has reported operating results for the third fiscal quarter ended June 30, 2022. Net income amounted to $1.8 million, or $0.24 per fully diluted common share, compared with $1.6 million, or $0.21 per fully diluted common share, for the quarter ended June 30, 2021. Annualized return on average assets (“ROAA”) was 0.69% for the quarter ended June 30, 2022, compared to 0.53% for the quarter ended June 30, 2021, and annualized return on average equity (“ROAE”) was 5.06% for the quarter ended June 30, 2022, compared with 4.35% for the quarter ended June 30, 2021.

For the nine months ended June 30, 2022, net income amounted to $4.4 million, or $0.58 per fully diluted common share, compared with net income of $6.1 million, or $0.81 per fully diluted common share, for the nine months ended June 30, 2021. Annualized ROAA was 0.52% for the nine months ended June 30, 2022, compared to 0.67% for the nine months ended June 30, 2021, and annualized ROAE was 4.02% for the nine months ended June 30, 2022, compared with 5.61% for the nine months ended June 30, 2021.

Statement of Income Highlights for the three months ended June 30, 2022

  • Net interest margin (“NIM”) increased 27 basis points to 2.97% for the quarter ended June 30, 2022, compared to 2.70% for the quarter ended June 30, 2021. The increase was driven by a reduction in interest expense, partially offset by a decrease in interest-earning assets.
  • Total interest expense decreased $1.0 million, or 44.8%, to $1.3 million for the quarter ended June 30, 2022, compared to $2.3 million for the quarter ended June 30, 2021, which resulted primarily from the reduction of costs on interest-bearing deposits.
  • The Company did not record a provision for loan losses during the quarter ended June 30, 2022.
Linked Quarter Financial Ratios
(unaudited)
As of or for the quarter ended: 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Return on average assets (1) 0.69 % 0.18 % 0.69 % (2.06 %) 0.53 %
Return on average equity (1) 5.06 % 1.43 % 5.61 % (16.59 %) 4.35 %
Net interest margin (1) 2.97 % 2.81 % 2.78 % 2.61 %  2.70 %
Loans / deposits ratio 102.91 % 94.57 % 95.06 % 97.41 % 104.84 %
Shareholders’ equity / total assets 14.11 % 13.11 % 12.54 % 11.76 % 12.50 %
Efficiency ratio (2) 70.0 % 91.1 % 66.3 % 68.7 % 73.6 %
Book value per common share $19.03 $18.95 $18.97 $18.65 $19.44

(1)   Annualized.
(2)   3/31/2022 quarter includes the impact of a valuation allowance adjustment related to a held-for-sale commercial real estate loan.

Linked Quarter Income Statement Data
(unaudited)
(in thousands, except share and per share data)
For the quarter ended: 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Net interest income $ 7,293 $ 6,954 $ 7,158 $ 6,825 $ 7,129
Provision for loan losses 10,626
Net interest income (loss) after provision for loan losses 7,293 6,954 7,158 (3,801 ) 7,129
Other income 482 561 727 579 793
Other expense 5,439 6,845 5,228 5,084 5,832
Income (loss) before income tax expense 2,336 670 2,657 (8,306 ) 2,090
Income tax expense (benefit) 502 148 640 (2,116 ) 489
Net income (loss) $ 1,834 $ 522 $ 2,017 $ (6,190 ) $ 1,601
Earnings (loss) per common share
Basic 0.24 0.07 0.27 (0.82 ) 0.21
Diluted 0.24 0.07 0.27 (0.82 ) 0.21
Weighted average common shares outstanding
Basic 7,569,806 7,554,955 7,551,606 7,548,958 7,545,371
Diluted 7,574,266 7,556,194 7,553,208 7,550,766 7,546,200
Net Interest Income
Net interest income was $7.3 million for the quarter ended June 30, 2022, an increase of $164,000, or 2.3%, from $7.1 million for the quarter ended June 30, 2021. For the quarter ended June 30, 2022, NIM increased by 27 basis points to 2.97%, as compared to 2.70% for the quarter ended June 30, 2021. This increase was primarily driven by a reduction in interest expense as the cost of borrowings decreased by 58 basis points and interest-bearing deposits decreased by 25 basis points compared to the quarter ended June 30, 2021. The cost of interest-bearing liabilities decreased by 33 basis points compared to the quarter ended June 30, 2021. The overall reduction of interest-bearing liabilities was offset in part by a 9 basis point reduction of interest-earning assets compared to the quarter ended June 30, 2021.

Net interest income was $21.4 million for the nine months ended June 30, 2022, an increase of $170,000, or 0.8%, from $21.2 million for the nine months ended June 30, 2021. For the nine months ended June 30, 2022, NIM increased by 23 basis points to 2.85%, as compared to 2.62% for the nine months ended June 30, 2021. Consistent with the current quarter, this increase was primarily driven by the 42 basis point decrease in cost of interest-bearing deposits compared to the nine months ended June 30, 2021. The cost of borrowings decreased by 18 basis points compared to the nine months ended June 30, 2021. The cost of interest-bearing liabilities decreased by 47 basis points compared to the nine months ended June 30, 2021.
Interest Income

For the quarters ended June 30, 2022 and June 30, 2021, total interest income was $8.6 million and $9.4 million, respectively. Total interest income decreased for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021, primarily due to the decrease in average loan balances of $146.5 million.

For the nine months ended June 30, 2022, total interest income was $25.7 million, a decrease of $3.9 million or 13.1%, from $29.6 for the nine months ended June 30, 2021. The average balance of the Company’s total loans decreased $133.1 million, or 13.3%, for the nine months ended June 30, 2022 as compared to the same period in fiscal year 2021, while the average yield on loans decreased by 12 basis points for the nine months ended June 30, 2022 compared with the same period in fiscal year 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the nine months ended June 30, 2022 compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to a decrease in interest income on loans of $1.2 million, while the rate-related factors decreased interest income on loans by $3.3 million.

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Interest Expense

For the quarter ended June 30, 2022, interest expense decreased by $1.0 million, or 44.8%, to $1.3 million, compared to $2.3 million for the quarter ended June 30, 2021. The decrease in interest expense is primarily attributable to interest rate related factors, as the average rate on interest-bearing liabilities in the current quarter fell 33 basis points to 0.59% compared to 0.92% for the quarter ended June 30, 2021.

Total interest expense decreased by $4.0 million, or 48.6%, to $4.3 million for the nine months ended June 30, 2022, compared to $8.3 million for the nine months ended June 30, 2021. The decrease in interest expense on deposits is primarily attributable to rate related factors. The annualized average rate on total interest-bearing liabilities decreased to 0.63% for the nine months ended June 30, 2022, from 1.10% for the nine months ended June 30, 2021. This decrease primarily reflects a decrease in the average rate of interest-bearing deposits of 42 basis points and a decrease in the average rate of borrowings of 18 basis points. The decrease in the average rate of interest-bearing deposits consisted of a 50 basis points decrease in the average rate of certificates of deposit, a 55 basis points decrease in the average rate of money market accounts and a 17 basis points decrease in average rate of other interest-bearing deposit accounts.

Other Income

Other income decreased $311,000, or 39.2%, during the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021. The decrease in other income was primarily due to a decrease in net gains on sale of investments and loans by $215,000 to $15,000 for quarter ended June 30, 2022, compared to $230,000 for the quarter ended June 30, 2021. In addition, service charges and other fees decreased by $96,000 during quarter ended June 30, 2022 compared to the quarter ended June 30, 2021.

For the nine months ended June 30, 2022, total other income decreased $1.4 million, or 44.4%, to $1.8 million compared to $3.2 million the same period in 2021. This decrease was primarily the result of a $1.4 million decrease in net gains on sale of investments and loans.

Other Expense

Other expense for the quarter ended June 30, 2022 decreased $393,000, or 6.7%, to $5.4 million when compared to the quarter ended June 30, 2021. The decrease was primarily due to a decrease of $591,000 in other real estate owned (“OREO”) expense, partially offset by an increase of $212,000 in professional fees. The increase in professional fees was primarily due to legal fees associated with loan workouts and disclosure and other matters concerning nonperforming loans. Also, during the quarter ended June 30, 2022, the Company adjusted the carrying value of the OREO property by $198,000 based on a negotiated sales price. A purchase agreement has been executed and is currently under a due diligence period, and is expected to settle during the fourth fiscal quarter.

Other expense for the nine months ended June 30, 2022, increased $1.6 million, or 10.4%, when compared to the nine months ended June 30, 2021. The increase was primarily due to an increased valuation allowance of $359,000 recorded during the March 31, 2022 period and $1.3 million in real estate tax expense on loans held for sale.

Income Taxes

The Company recorded income tax expense of $502,000 during the quarter ended June 30, 2022, compared to $489,000 for the quarter ended June 30, 2021. The effective tax rates for the Company for the quarters ended June 30, 2022 and June 30, 2021 were 21.5% and 23.4%, respectively.

For the nine months ended June 30, 2022 income tax expense decreased by $614,000, or 32.2%, to $1.3 million from $1.9 million for the nine months ended June 30, 2021. The effective tax rates for the Company for the nine months ended June 30, 2022 and 2021 were 22.8% and 23.8%, respectively.

Statement of Condition Highlights at June 30, 2022

  • Non-performing assets (“NPAs”) were 0.61% and 0.72% of total assets at June 30, 2022 and September 30, 2021, respectively.
  • Non-performing loans (“NPLs”) were 0.18% and 0.40% of total loans at June 30, 2022 and September 30, 2021, respectively.
  • Total assets were $1.0 billion at June 30, 2022, a decrease of $179.6 million, or 14.9%, compared to September 30, 2021. The decrease was primarily due to a $97.0 million decline in net loans receivable driven by payoffs and pay downs during the nine month period, and a $19.3 million decrease in loans held-for-sale.
  • Total liabilities were $884.3 million at June 30, 2022, a decrease of $184.5 million, or 17.3%, compared to September 30, 2021. The decrease was primarily due to a decrease of $146.5 million in total deposits, and the repayment of a $30.0 million FHLB advance. The prior reduction in deposits were in line with the Bank’s overall funding strategy to reduce excess balance sheet cash and better match funding needs.
  • Book value per common share amounted to $19.03 at June 30, 2022, compared to $18.65 at September 30, 2021.
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Linked Quarter Statement of Condition Data
(in thousands, unaudited)
At the quarter ended: 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Cash and due from depository institutions $ 9,560 $ 49,674 104,568 $ 99,670 $ 90,441
Interest bearing deposits in depository institutions 30,199 72,349 30,336 36,920 14,513
Investment securities, available for sale, at fair value 53,080 54,183 41,718 40,813 34,502
Equity securities 1,412 1,445 1,491 1,500
Investment securities held to maturity, at amortized cost 52,350 48,512 39,045 28,507 31,795
Restricted stock, at cost 6,027 6,462 6,294 7,776 7,896
Loans held-for-sale 13,863 13,244 13,616 33,199
Loans receivable, net of allowance for loan losses 805,957 799,310 858,203 902,981 940,735
Other real estate owned 4,763 4,961 4,961 4,961 4,961
Accrued interest receivable 3,671 3,478 3,394 3,512 3,370
Property and equipment, net 5,365 5,486 5,635 5,777 5,902
Deferred income taxes, net 3,975 3,632 3,461 3,530 3,389
Bank-owned life insurance 26,063 25,896 26,224 26,056 25,889
Other assets 13,268 14,964 14,254 13,941 22,351
Total assets $ 1,029,553 $ 1,103,596 $ 1,153,200 $ 1,209,143 $ 1,185,744
Deposits $ 791,694 $ 854,437 $ 912,688 $ 938,159 $ 907,704
FHLB advances 60,000 60,000 60,000 90,000 90,000
Secured borrowings
Subordinated debt 25,000 25,000 24,974 24,934 24,895
Other liabilities 7,569 19,609 10,981 13,882 14,953
Shareholders’ equity 145,290 144,550 144,557 142,168 148,192
Total liabilities and shareholders’ equity $ 1,029,553 $ 1,103,596 $ 1,153,200 $ 1,209,143 $ 1,185,744
Condensed Consolidated
Average Statement of Condition
(in thousands, unaudited)
For the quarter ended: 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Investment securities $ 113,539 $ 97,697 $ 82,126 $ 75,004 $ 71,811
Interest-bearing cash accounts 48,161 36,452 32,775 26,339 16,914
Loans, net of allowance for loan losses 811,829 846,420 899,430 933,727 955,012
All other assets 93,481 148,374 163,117 165,439 164,288
Total assets $ 1,067,010 $ 1,128,943 $ 1,177,448 $ 1,200,509 $ 1,208,025
Non-interest-bearing deposits $ 57,479 $ 54,501 $ 54,092 $ 51,534 $ 52,799
Interest-bearing deposits 767,843 829,050 876,269 869,914 868,099
FHLB advances 60,000 60,000 66,847 90,000 99,505
Other short-term borrowings 120
Subordinated debt 25,000 24,990 24,952 24,917 24,877
Other liabilities 11,658 14,250 11,408 14,907 15,399
Shareholders’ equity 145,030 146,152 143,760 149,237 147,346
Total liabilities and shareholders’ equity $ 1,067,010 $ 1,128,943 $ 1,177,448 $ 1,200,509 $ 1,208,025
Deposits

Total deposits decreased $146.5 million, or 15.6%, from $938.2 million at September 30, 2021 to $791.7 million at June 30, 2022. The decrease in deposits was primarily related to a reduction of $84.3 million in money market deposits and a reduction of $66.1 million in interest bearing demand deposits, partially offset by increases of $6.6 million in savings and non-interest-bearing demand deposits categories, collectively.

The Company continues to focus on the maintenance, development, and expansion of its deposit base strategically with its funding requirements and liquidity needs, with an emphasis on serving the needs of its communities to provide a long-term relationship base to efficiently compete for and retain deposits in its market.

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

(in thousands, unaudited)
At quarter ended: 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Demand:
Non-interest-bearing $ 56,731 $ 54,712 $ 60,320 $ 53,849 $ 53,365
Interest-bearing 270,532 302,468 335,411 336,645 329,372
Savings 54,184 54,074 56,342 50,582 51,011
Money market 301,165 328,324 346,023 385,480 359,040
Time 109,082 114,859 114,592 111,603 114,916
Total deposits $ 791,694 $ 854,437 $ 912,688 $ 938,159 $ 907,704
Loans

Total net loans amounted to $806.0 million at June 30, 2022, compared to $903.0 million at September 30, 2021, resulting in a net decrease of $97.0 million, or 10.6%, for the period driven by higher loan payoffs and paydowns during the period primarily in the commercial loan category. Loans held-for-sale amounted to $13.9 million at June 30, 2022, compared to $33.2 million at September 30, 2021. The decline in loans held-for-sale was primarily related to the sale in the December 31, 2021 quarter of three commercial loans totaling $18.9 million. Average loan balances for the quarter ended June 30, 2022, totaled $821.1 million as compared to $933.7 million for the quarter ended September 30, 2021, representing a decrease of $112.6 million or 12.1%.

At June 30, 2022, gross loans, which excludes loans held-for-sale, remained weighted toward two primary components: the commercial and core residential portfolios, with commercial loans accounting for 73.2% and single-family residential real estate loans accounting for 21.6% of the gross loan portfolio at such date. Construction and development loans amounted to 2.8% and consumer loans represented 2.4% of the gross loan portfolio at such date. The decrease in the gross loan portfolio at June 30, 2022, compared to September 30, 2021, primarily reflected decreases of $29.5 million in commercial loans, $11.2 million in residential mortgage loans, and $4.7 million in construction and development loans.

The following table reflects the Company’s loan portfolio composition, excluding loans held-for-sale.

(in thousands, unaudited)
At quarter ended: 06/30/2022 03/31/2022 12/31/2021 9/30/2021 6/30/2021
Residential mortgage $ 176,499 $ 177,669 $ 187,516 $ 198,710 $ 201,737
Construction and Development:
Residential and commercial 20,459 25,558 56,876 61,492 61,484
Land 2,054 4,603 2,138 2,204 2,253
Total construction and development 22,513 30,161 59,014 63,696 63,737
Commercial:
Commercial real estate 407,783 400,974 416,248 426,915 478,032
Farmland 15,348 15,624 15,582 10,297 10,335
Multi-family 54,879 54,788 54,448 66,332 66,725
Commercial and industrial 104,504 101,354 106,493 115,246 97,955
Other 13,955 7,978 7,433 10,954 10,896
Total commercial 596,469 580,718 600,204 629,744 663,943
Consumer:
Home equity lines of credit 12,432 12,283 13,174 13,491 12,822
Second mortgages 4,605 4,969 5,384 5,884 7,039
Other 2,182 2,237 2,282 2,299 2,372
Total consumer 19,219 19,489 20,840 21,674 22,233
Total loans 814,700 808,037 867,574 913,824 951,650
Deferred loan costs, net 566 574 667 629 685
Allowance for loan losses (9,309 ) (9,301 ) (10,037 ) (11,472 ) (11,600 )
Loans Receivable, net $ 805,957 $ 799,310 $ 858,204 $ 902,981 $ 940,735
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At June 30, 2022, the Company had $130.9 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, excluding loans held-for-sale, totaled $1.1 million at June 30, 2022, and $3.7 million at September 30, 2021. The decrease in non-accrual loans was primarily due a partial charge-off of $1.4 million related to one non-accrual commercial and industrial loan. The partial charge-off was the result of the ongoing monitoring and evaluation of classified loan values and is reflective of changes in current market and economic conditions. Performing troubled debt restructured (“TDR”) loans were $5.8 million at June 30, 2022, and $17.6 million at September 30, 2021. The decrease is primarily related to two TDR commercial real estate loans totaling $11.4 million that were sold during the December 31, 2021 period.

At June 30, 2022, NPAs totaled $6.2 million, or 0.61% of total assets, as compared with $8.7 million, or 0.72% of total assets, at September 30, 2021. The decrease in NPAs is due to the decrease in non-accrual loans as described above.

OREO, which is comprised of one commercial real estate property, totaled $4.8 million at June 30, 2022 and $5.0 million at September 30, 2021. Excluding the OREO property, NPAs totaled $1.5 million, or 0.14% of total assets, at June 30, 2022, and $3.7 million, or 0.31% of total assets, at September 30, 2021.

Non-Performing Asset and Other Asset Quality Data:
(dollars in thousands, unaudited)
As of or for the quarter ended: 06/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Non-accrual loans $ 1,075 $ 1,101 $ 1,790 $ 3,697 $ 23,547
Loans 90 days or more past due and still accruing 401 3 212
Total non-performing loans 1,476 1,104 1,790 3,697 23,759
OREO 4,763 4,961 4,961 4,961 4,961
Total NPAs $ 6,239 $ 6,065 $ 6,751 $ 8,658 $ 28,720
Performing TDR loans $ 5,753 $ 5,787 $ 6,310 $ 17,601 $ 23,352
NPAs / total assets 0.61 % 0.55 % 0.59 % 0.72 % 2.42 %
Non-performing loans / total loans 0.18 % 0.14 % 0.21 % 0.40 % 2.50 %
Net charge-offs $ (8 ) $ 736 $ 1,436 $ 10,754 $ 1,001
Net charge-offs /average loans(1) (0.00 %) 0.35 % 0.63 % 4.61 % 0.41 %
Allowance for loan losses / total loans 1.14 % 1.15 % 1.16 % 1.26 % 1.22 %
Allowance for loan losses / non-performing loans 630.7 % 842.5 % 560.7 % 310.3 % 48.8 %
Total assets $ 1,029,553 $ 1,103,596 $ 1,153,200 $ 1,209,143 $ 1,185,744
Total gross loans 814,700 808,037 867,574 913,824 951,650
Average net loans 811,829 846,420 899,430 933,727 955,012
Allowance for loan losses 9,309 9,301 10,037 11,472 11,600

(1)   Annualized.

The allowance for loan losses at June 30, 2022 amounted to $9.3 million, or 1.14% of total gross loans, compared to $11.5 million, or 1.26% of total gross loans, at September 30, 2021. The Company did not record a provision for loan losses for the quarter ended June 30, 2022, compared to $10.6 million provision for loan losses for the quarter ended September 30, 2021. The decline reflected a $2.2 million charge off during the March 31, 2022 period and the overall decline in total loans at June 30, 2022 of $99.1 million compared to September 30, 2021.

Capital

At June 30, 2022 the Company’s total shareholders’ equity amounted to $145.3 million, or 14.1% of total assets, compared to $142.2 million, or 11.8% of total assets at September 30, 2021, which continues to exceed all regulatory capital requirements. At June 30, 2022, the Bank’s common equity Tier 1 capital ratio was 18.79%, Tier 1 leverage ratio was 15.33%, Tier 1 risk-based capital ratio was 18.79% and the total risk-based capital ratio was 19.87%. At September 30, 2021, the Bank’s common equity Tier 1 capital ratio was 16.13%, Tier 1 leverage ratio was 13.14%, Tier 1 risk-based capital ratio was 16.13% and the total risk-based capital ratio was 17.32%.

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