Malvern Bancorp, Inc. Reports Second Quarter 2021 Operating Results

Malvern Bancorp, Inc. (NASDAQ_ MLVF)

PAOLI, PA — Malvern Bancorp, Inc. (NASDAQ: MLVF), the parent company of Malvern Bank, National Association, has reported operating results for the second fiscal quarter ended March 31, 2021. Net income amounted to $2.2 million, or $0.30 per fully diluted common share, compared with net income of $1.9 million, or $0.25 per fully diluted common share, for the quarter ended March 31, 2020. The increases in net income and diluted earnings per share from the second quarter of 2020 were primarily due to a decrease in provision for loan losses. Annualized return on average assets (“ROAA”) was 0.73 percent for the quarter ended March 31, 2021, compared to 0.61 percent for the quarter ended March 31, 2020, and annualized return on average equity (“ROAE”) was 6.14 percent for the quarter ended March 31, 2021, compared with 5.29 percent for the quarter ended March 31, 2020.

For the six months ended March 31, 2021, net income amounted to $4.5 million, or $0.60 per fully diluted common share, compared with net income of $2.7 million, or $0.35 per fully diluted common share, for the six months ended March 31, 2020. The annualized ROAA was 0.73 percent for the six months ended March 31, 2021, compared to 0.43 percent for the six months ended March 31, 2020, and the annualized ROAE was 6.26 percent for the six months ended March 31, 2021, compared with 3.74 percent for the six months ended March 31, 2020.

“I am pleased to report improved business results for the second quarter, including increased net income, net interest margin, and other key metrics, which indicate a recent economic momentum in our markets. With continued momentum, we also anticipate a marked improvement in business opportunities and an environment in which businesses can rebound further. These trends should lead to improved credit quality and strong operating results for the balance of 2021,” commented Anthony C. Weagley, President and Chief Executive Officer.

Statement of Income Highlights at March 31, 2021

  • Net interest margin (“NIM”) increased to 2.54 percent for the quarter ended March 31, 2021, compared to 2.24 percent for the prior year’s quarter ended March 31, 2020. The increase was driven by the reduction in interest expense, partially offset by a decrease in interest-earning assets. On a linked quarter basis, NIM compressed 0.08 percent to 2.62 percent; the linked quarter compression was driven by adjustments to loan interest income as a result of non-accrual interest and related COVID deferred interest.
  • Net interest income increased $425,000, or 3.1 percent, for the six months ended March 31, 2021 compared to the six months ended March 31, 2020. The increase in net interest income was due primarily to a reduction in cost of interest-bearing deposits. Net interest income decreased $502,000 compared to the sequential quarter ended December 31, 2020.
  • The Company did not record a provision for loan losses during the three-month period ended March 31, 2021. The Company’s provision for loan losses in the sequential quarter ended December 31, 2020 was $550,000. For the six months ended March 31, 2021, provision for loan losses was $550,000, or $2.2 million less than the $2.8 million provision recorded for the six months ended March 31, 2020.
Linked Quarter Financial Ratios
(unaudited)
As of or for the quarter ended: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Return on average assets (1) 0.73 % 0.74 % (1.15 %) 0.47 % 0.61 %
Return on average equity (1) 6.14 % 6.38 % (9.54 %) 4.06 % 5.29 %
Net interest margin (1) 2.54 % 2.62 % 2.38 % 2.28 % 2.24 %
Loans / deposits ratio 108.14 % 111.33 % 116.62 % 117.93 % 111.02 %
Shareholders’ equity / total assets 12.09 % 11.73 % 11.64 % 11.92 % 11.58 %
Efficiency ratio 63.5 % 58.3 % 61.5 % 66.7 % 59.8 %
Book value per common share $ 19.17 $ 18.83 $ 18.47 $ 18.86 $ 18.67

(1)   Annualized.

Linked Quarter Income Statement Data

(unaudited)
(in thousands, except share and per share data)
For the quarter ended: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Net interest income $ 6,802 $ 7,304 $ 6,720 $ 6,631 $ 6,793
Provision for loan losses 550 7,400 435 625
Net interest income after provision for loan losses 6,802 6,754 (680 ) 6,196 6,168
Other income 1,167 1,224 692 389 964
Other expense 5,063 4,972 4,558 4,684 4,638
Income (loss) before income tax expense 2,906 3,006 (4,546 ) 1,901 2,494
Income tax expense (benefit) 682 733 (1,043 ) 447 586
Net income (loss) $ 2,224 $ 2,273 $ (3,503 ) $ 1,454 $ 1,908
Earnings (loss) per common share
Basic $ 0.30 $ 0.30 $ (0.46 ) $ 0.19 $ 0.25
Diluted $ 0.30 $ 0.30 $ (0.46 ) $ 0.19 $ 0.25
Weighted average common shares outstanding
Basic 7,529,408 7,525,808 7,522,199 7,538,375 7,663,771
Diluted 7,530,151 7,526,376 7,522,360 7,538,375 7,663,771

Net Interest Income

Net interest income was $6.8 million for the quarters ended March 31, 2021 and 2020. For the quarter ended March 31, 2021, NIM increased by 30 basis points to 2.54 percent, as compared to 2.24 percent for the quarter ended March 31, 2020. This increase was primarily driven by a reduction in interest expenses as the cost of interest-bearing deposits decreased by 79 basis points compared to the second fiscal quarter of 2020, offset in part by the impact of adjustments to loan interest income as a result of non-accrual interest and related COVID deferred interest. The cost of borrowings decreased by 42 basis points compared to the second fiscal quarter of 2020.

Net interest income was $14.1 million for the six months ended March 31, 2021, an increase of $425,000, or 3.1 percent, from $13.7 million for the six months ended March 31, 2020. For the six months ended March 31, 2021, NIM increased by 30 basis points to 2.58 percent, as compared to 2.28 percent for the six months ended March 31, 2020. Consistent with the current quarter, this increase was primarily driven by the 74 basis point decrease in cost of interest-bearing deposits compared to the six months ended March 31, 2020. The cost of borrowings decreased by 43 basis points compared to the six months ended March 31, 2020.

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Total Interest Income

For the quarters ended March 31, 2021 and March 31, 2020, total interest income was $9.5 million and $11.6 million, respectively. The average yield on interest-earning assets declined 27 basis points when compared to the same period in 2020. Total interest income fell for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to a 53 basis point decrease on the average yield on loans.

For the six months ended March 31, 2021, total interest income was $20.1 million, a decrease of $3.3 million or 14.2 percent, from $23.5 million for the six months ended March 31, 2020. The average yield on interest-earning assets declined 22 basis points when compared to the same period in 2020. Total interest income fell for the six months ended March 31, 2021, compared to the six months ended March 31, 2020, primarily due to a 48 basis point decrease on the average yield on loans.

Interest Expense

For the quarter ended March 31, 2021, interest expense decreased by $2.1 million, or 43.4 percent, to $2.7 million, compared to $4.8 million for the quarter ended March 31, 2020. The decrease in interest expense is primarily attributable to rate related factors, as the average rate on interest-bearing liabilities fell 75 basis points. This decline is reflected in a 79 basis point decrease in the rate on interest-bearing deposits.

On a linked quarter basis, the annualized average rate paid on total interest-bearing liabilities decreased 22 basis points to 1.08 percent for the quarter ended March 31, 2021, compared to 1.30 percent for the quarter ended December 31, 2020. The decrease is reflected in a 23 basis point decrease in the rate on interest-bearing deposits.

Total interest expense decreased by $3.8 million, or 38.4 percent, to $6.0 million for the six months ended March 31, 2021, compared to $9.8 million for the six months ended March 31, 2020. 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 1.19 percent for the six months ended March 31, 2021, from 1.88 percent for the six months ended March 31, 2020. This decrease primarily reflects a decrease in the average rate of interest-bearing deposits of 0.74 percent and a decrease in the average rate of borrowings of 0.43 percent. The decrease in the average rate of interest-bearing deposits consisted of a 0.77 percent decrease in average rate of other interest-bearing deposit accounts, a 0.72 percent decrease in the average rate of certificates of deposit, and a 0.70 percent decrease in the average rate of money market accounts.

Other Income

Other income increased $203,000, or 21.1 percent, during the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. The increase in other income was primarily due to increases of $274,000 in net gains on sale of loans and $79,000 in net gains on sale of investments, partially offset by a decrease of $185,000 in service charges and other fees.   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 net gain on sale of investments resulted from managing and optimizing portfolio activity in the ordinary course of business. The decrease in service charges and other fees was primarily due to the recognition of approximately $371,000 of net swap fees through the Bank’s commercial loan hedging program realized during the quarter ended March 31, 2020, offset by approximately $131,000 in prepayment penalties and $44,000 of PPP loan referral income recognized during the quarter ended March 31, 2021.

For the six months ended March 31, 2021, total other income increased $984,000 compared to the same period in 2020. This increase was primarily a result of a $675,000 increase in net gains on sale of loans and a $434,000 increase in net gains on sale of investments, offset by a decrease of $197,000 in service charges and other fees. The decrease in service charges and other fees is primarily due to the recognition of approximately $371,000 less of net swap fees through the Bank’s commercial loan hedging program during the six months ended March 31, 2020.

Other Expense

Other expense for the quarter ended March 31, 2021 increased $425,000, or 9.2 percent, when compared to the quarter ended March 31, 2020. The increase was primarily due to increases of $382,000 in professional fees associated with legal, accounting, and audit expenses related to the Company’s periodic and annual filings. Other increases included $80,000 in federal deposit insurance premium expense due to expiration of credits generated from Deposit Insurance Fund reserve ratio exceeding the official required reserve ratio in the prior period.

Other expense for the six months ended March 31, 2021 increased $975,000, or 10.8 percent, when compared to the six months ended March 31, 2020. The increase was primarily due to increases of $604,000 in professional fees associated with legal, accounting, and audit expenses related to the Company’s periodic and annual filings. Other increases included $159,000 in federal deposit insurance premium expense as addressed above and $151,000 in salaries and employee benefits due to normal increases to salary and benefits to support overall franchise growth.

Income Taxes

The Company recorded $682,000 in income tax expense during the quarter ended March 31, 2021 compared to $586,000 in income tax expense during the quarter ended March 31, 2020. The effective tax rate for the Company for the quarters ended March 31, 2021 and 2020 was 23.5 percent.

For the six months ended March 31, 2021, income tax expense increased by $855,000 or 152.7 percent, to $1.4 million from $560,000 for the six months ended March 31, 2020. The effective tax rates for the Company for the six months ended March 31, 2021 and 2020 were 23.9 percent and 17.2 percent, respectively. Tax expense for the six months ended March 31, 2020 was impacted due to discrete tax items in the first fiscal quarter of 2020.

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Statement of Condition Highlights at March 31, 2021

  • Total assets stood at $1.206 billion at March 31, 2021, a decrease of $1.9 million, or 0.2 percent, compared to September 30, 2020.
  • Deposits totaled $912.2 million at March 31, 2021, an increase of $21.3 million, or 2.4 percent, compared to September 30, 2020.
  • Non-performing assets (“NPAs”) were 2.39 percent and 1.87 percent of total assets at March 31, 2021 and September 30, 2020, respectively. Excluding one OREO property of $5.8 million, NPAs were 1.91 percent and 1.39 percent of total assets at March 31, 2021 and September 30, 2020, respectively. The allowance for loan losses as a percentage of total non-performing loans was 54.7 percent at March 31, 2021, compared to 74.1 percent at September 30, 2020.
  • The Company’s ratio of shareholders’ equity to total assets was 12.09 percent at March 31, 2021, compared to 11.64 percent at September 30, 2020.
  • Book value per common share amounted to $19.17 at March 31, 2021, compared to $18.47 at September 30, 2020.

Linked Quarter Statement of Condition Data

(in thousands, unaudited)
At quarter ended: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Cash and due from depository institutions $ 99,358 $ 83,764 $ 16,386 $ 30,653 $ 1,829
Interest-bearing deposits in depository institutions 9,556 25,458 45,053 28,291 124,239
Investment securities, available for sale, at fair value 28,899 35,224 31,541 33,245 21,839
Investment securities held to maturity 25,834 14,161 14,970 15,921 18,046
Restricted stock, at cost 8,891 9,327 9,622 9,766 10,913
Loans receivable, net of allowance for loan losses 974,596 990,346 1,026,894 1,032,318 1,007,132
OREO 5,796 5,796 5,796 5,796 5,796
Accrued interest receivable 3,598 4,051 3,677 5,680 4,121
Operating lease right-of-use-assets 2,322 2,479 2,638 2,799 2,959
Property and equipment, net 6,040 6,154 6,274 6,355 6,476
Deferred income taxes, net 3,535 3,601 3,680 3,103 2,974
Bank-owned life insurance 25,725 25,564 25,400 20,270 20,144
Other assets 12,269 14,999 16,344 13,873 13,869
Total assets $ 1,206,419 $ 1,220,924 $ 1,208,275 $ 1,208,070 $ 1,240,337
Deposits $ 912,213 $ 900,465 $ 890,906 $ 884,444 $ 915,900
FHLB advances 110,000 130,000 130,000 130,000 133,000
Secured borrowings 4,225 4,225 4,225
Other borrowings 5,000
Subordinated debt 24,855 24,816 24,776 24,737 24,697
Operating lease liabilities 2,357 2,512 2,671 2,824 2,976
Other liabilities 11,143 14,865 15,104 18,309 16,389
Shareholders’ equity 145,851 143,266 140,593 143,531 143,150
Total liabilities and shareholders’ equity $ 1,206,419 $ 1,220,924 $ 1,208,275 $ 1,208,070 $ 1,240,337

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: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Investment securities $ 58,559 $ 59,135 $ 48,549 $ 43,349 $ 40,165
Interest-bearing cash accounts 21,506 21,690 27,996 76,828 148,580
Loans 990,913 1,032,483 1,045,595 1,033,246 1,015,017
Allowance for loan losses (13,037 ) (12,462 ) (11,071 ) (10,618 ) (9,756 )
All other assets 165,942 123,919 107,512 85,169 63,434
Total assets $ 1,223,883 $ 1,224,765 $ 1,218,581 $ 1,227,974 $ 1,257,440
Non-interest-bearing deposits $ 50,327 $ 48,152 $ 49,139 $ 46,450 $ 41,916
Interest-bearing deposits 866,153 854,649 842,727 852,330 892,583
FHLB advances 116,889 130,000 130,000 136,121 133,000
Other short-term borrowings 3,111 5,918 4,250 4,526 4,525
Subordinated debt 24,835 24,794 24,760 24,719 24,680
Other liabilities 17,751 18,689 20,853 20,509 16,440
Shareholders’ equity 144,817 142,563 146,852 143,319 144,296
Total liabilities and shareholders’ equity $ 1,223,883 $ 1,224,765 $ 1,218,581 $ 1,227,974 $ 1,257,440

Deposits

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

(in thousands, unaudited)
At quarter ended: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Demand:
Non-interest-bearing $ 54,210 $ 49,264 $ 50,422 $ 47,443 $ 42,874
Interest-bearing 313,865 303,535 303,682 277,238 291,191
Savings 49,601 46,531 45,072 43,702 43,550
Money market 338,100 303,796 277,711 281,419 280,173
Time 156,437 197,339 214,019 234,642 258,112
Total deposits $ 912,213 $ 900,465 $ 890,906 $ 884,444 $ 915,900

Loans

Total net loans amounted to $974.6 million at March 31, 2021 compared to $1.027 billion at September 30, 2020, for a net decrease of $52.3 million or 5.09 percent for the period. The allowance for loan losses amounted to $12.6 million, or 1.28 percent of total loans, at March 31, 2020 and $12.4 million, or 1.22 percent of total loans excluding PPP loans, at September 30, 2020.   Average loan balances for the quarter ended March 31, 2021 totaled $990.9 million as compared to $1.046 billion for the quarter ended September 30, 2020, representing a 5.23 percent decrease.

At the end of the second fiscal quarter of 2021, the gross loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial loans accounting for 67.1 percent and single-family residential real estate loans accounting for 22.1 percent. Construction and development loans amounted to 8.1 percent and consumer loans represented 2.7 percent of the gross loan portfolio at such date. The decrease in the gross loan portfolio at March 31, 2020 compared to September 30, 2020 primarily reflected decreases of $16.0 million in commercial loans net of the sale of $19.7 million of PPP loans, $23.9 million in residential mortgage loans, and $4.0 million in consumer loans, which were partially offset by an increase of $11.0 million in construction and development 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: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Residential Mortgage $ 218,165 $ 232,481 $ 242,090 $ 246,215 $ 240,633
Construction and Development:
Residential and commercial 76,257 73,000 65,703 56,999 52,313
Land 3,596 3,648 3,110 3,535 3,579
Total construction and development 79,853 76,648 68,813 60,534 55,892
Commercial:
Commercial real estate 482,611 478,808 495,398 506,180 515,692
Farmland 7,344 7,378 7,517 7,531 7,537
Multi-family 67,122 67,457 67,767 66,416 59,978
Commercial and industrial 94,706 101,852 116,584 115,899 96,574
Other 9,927 10,010 10,142 8,397 7,604
Total commercial 661,710 665,505 697,408 704,423 687,385
Consumer:
Home equity lines of credit 15,936 16,389 17,128 18,097 18,441
Second mortgages 8,114 9,097 10,711 11,704 12,393
Other 2,650 2,388 2,851 2,074 2,112
Total consumer 26,700 27,874 30,690 31,875 32,946
Total loans 986,428 1,002,508 1,039,001 1,043,047 1,016,856
Deferred loan costs, net 769 873 326 338 832
Allowance for loan losses (12,601 ) (13,035 ) (12,433 ) (11,067 ) (10,556 )
Loans Receivable, net $ 974,596 $ 990,346 $ 1,026,894 $ 1,032,318 $ 1,007,132
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At March 31, 2021, the Company had $130.8 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 $22.3 million at March 31, 2021 and $16.7 million at September 30, 2020. The increase in non-accrual loans was primarily due to one $12.9 million commercial real estate loan classified as substandard and non-accruing as of March 31, 2021. This loan was placed on non-accrual during the quarter, and is currently making payments in accordance with the loan’s contractual terms, which are being applied 100 percent to reduce the principal balance of the loan.

This increase in non-accrual loans was partially offset by a $6.5 million commercial real estate, TDR loan that was returned to accrual status. The total portfolio of non-accrual loans at March 31, 2021 was comprised of two commercial real estate loans with an aggregate outstanding balance of approximately $20.3 million, twelve residential mortgage loans with an aggregate outstanding balance of approximately $1.6 million, and eleven consumer loans with an aggregate outstanding balance of approximately $323,000.

At March 31, 2021, NPAs totaled $28.8 million, or 2.39 percent of total assets, as compared with $22.6 million, or 1.87 percent of total assets, at September 30, 2020. The increase in NPAs is due to the increase in non-accrual loans as described above.

OREO totaled $5.8 million at both March 31, 2021 and September 30, 2020. Excluding the $5.8 million of OREO, NPAs totaled $23.0 million, or 1.91 percent of total assets at March 31, 2021, and $16.8 million, or 1.39 percent of total assets at September 30, 2020.

Performing TDR loans were $22.7 million at March 31, 2021 and $13.4 million at September 30, 2020. As noted above, one commercial real estate loan in the amount of $6.5 million was returned to accruing status and as such is now classified as a performing TDR as of the second fiscal quarter of 2021.

Non-Performing Asset and Other Asset Quality Data:

(dollars in thousands, unaudited)
As of or for the quarter ended: 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20
Non-accrual loans(1) $ 22,281 $ 16,240 $ 16,730 $ 8,871 $ 8,655
Loans 90 days or more past due and still accruing 765 775 58 265 168
Total non-performing loans 23,046 17,015 16,788 9,136 8,823
OREO 5,796 5,796 5,796 5,796 5,796
Total NPAs $ 28,842 $ 22,811 $ 22,584 $ 14,932 $ 14,619
Performing TDR loans $ 22,697 $ 16,229 $ 13,418 $ 13,640 $ 3,243
NPAs / total assets 2.39 % 1.87 % 1.87 % 1.24 % 1.18 %
Non-performing loans / total loans 2.34 % 1.70 % 1.62 % 0.88 % 0.87 %
Net (recoveries) charge-offs $       434 $ (52 ) $           6,034 $ (76 ) $ 31
Net (recoveries) charge-offs /average loans(2) 0.18 % (0.02 %) 2.31 % (0.03 %) 0.01 %
Allowance for loan losses / total loans 1.28 % 1.30 % 1.22 % 1.08 % 1.04 %
Allowance for loan losses / non-performing loans 54.7 % 76.6 % 74.1 % 121.1 % 119.6 %
Total assets $ 1,206,419 $ 1,220,924 $ 1,208,275 $ 1,208,070 $ 1,240,337
Total gross loans 986,428 1,002,508 1,039,001 1,043,047 1,016,856
Average loans 990,913 1,032,483 1,045,595 1,033,246 1,015,017
Allowance for loan losses 12,601 13,035 12,433 11,067 10,556

(1)   Fourteen loans totaling approximately $14.2 million, or 63.7 percent of the total non-accrual loan balance, were making payments as of March 31, 2021.
(2)   Annualized.

The allowance for loan losses at March 31, 2021 amounted to approximately $12.6 million, or 1.28 percent of total loans compared to $12.4 million, or 1.22 percent of total loans excluding PPP loans, a non-GAAP measure, at September 30, 2020. The Company did not record a provision for loan losses during the fiscal quarter ended March 31, 2021.

Loan Deferrals

At March 31, 2021, the Company had six COVID-19-related modified loan deferrals totaling approximately $1.8 million or 0.18 percent of total loans, down approximately $67.1 million or 97% from 16 COVID-19-related modified loan deferrals totaling approximately $68.9 million or 6.87 percent of total loans at December 31, 2020. At May 7, 2021 the Company had two COVID-19-related modified loan deferrals totaling approximately $222,000 or 0.02 percent of total loans.

Capital

On March 31, 2021, total shareholders’ equity amounted to $145.9 million, or 12.09 percent of total assets, compared to $140.6 million, or 11.64 percent of total assets at September 30, 2020. The Company’s capital position continues to significantly exceed all regulatory capital guidelines. At March 31, 2021, the Bank’s common equity Tier 1 capital ratio was 16.20 percent, Tier 1 leverage ratio was 13.18 percent, Tier 1 risk-based capital ratio was 16.20 percent and the total risk-based capital ratio was 17.45 percent. At September 30, 2020, the Bank’s common equity Tier 1 capital ratio was 15.40 percent, Tier 1 leverage ratio was 12.78 percent, Tier 1 risk-based capital ratio was 15.40 percent and the total risk-based capital ratio was 16.64 percent.

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