PAOLI, Pa., April 25, 2018 (GLOBE NEWSWIRE) -- Malvern Bancorp, Inc. (NASDAQ:MLVF) (the "Company"), parent company of Malvern Bank, National Association (“Malvern” or the “Bank”), today reported operating results for the second fiscal quarter ended March 31, 2018.   Net income amounted to $2.0 million or $0.31 per fully diluted common share, for the quarter ended March 31, 2018, an increase of $0.8 million, or 72.5 percent, as compared with net income of $1.2 million, or $0.18 per fully diluted common share, for the quarter ended March 31, 2017. 

For the six months ended March 31, 2018, net income amounted to $2.4 million, or $0.38 per fully diluted common share, compared with net income of $2.1 million, or $0.33 per fully diluted common share, for the six months ended March 31, 2017.

“We see this as a strong quarter with fundamental strength. Our results for the period reflected a set of positive factors, including strong loan growth, rebounding from the prior quarter, and strong forward momentum for continued loan growth, a widening of the net interest margin, despite a high liquidity pool, favorable credit results, and continued management of operating overhead” indicated Anthony C. Weagley, President and Chief Executive Officer. 

Highlights for the quarter include:

• Return on average assets (“ROAA”) was 0.77 percent for the three months ended March 31, 2018, compared to 0.51 percent for the three months ended March 31, 2017, and return on average equity (“ROAE”) was 7.71 percent for the three months ended March 31, 2018, compared with 4.77 percent for the three months ended March 31, 2017. 

• The Company originated $74.6 million in new loans in the second quarter of fiscal 2018, which was offset by $44.0 million in payoffs, prepayments and amortization from its portfolio, resulting in a net portfolio increase of $30.6 million over the first quarter of fiscal 2018.  New loan originations in the second quarter of fiscal 2018 consisted of $6.6 million in residential mortgage loans, $62.4 million in commercial loans, $4.8 million in construction and development loans and $0.8 million in consumer loans.  
  
  
• Non-performing assets (“NPAs”) were 0.24 percent of total assets at March 31, 2018, compared to 0.18 percent at March 31, 2017 and 0.12 percent at September 30, 2017. The allowance for loan losses as a percentage of total non-performing loans was 325.2 percent at March 31, 2018, compared to 425.4 percent at March 31, 2017 and 694.1 percent at September 30, 2017.
  
  
• The Company’s ratio of shareholders’ equity to total assets was 9.73 percent at March 31, 2018, compared to 10.25 percent at March 31, 2017, and 9.80 percent at September 30, 2017.
  
  
• Book value per common share amounted to $16.03 at March 31, 2018, compared to $15.00 at March 31, 2017 and $15.60 at September 30, 2017. 
  
  
• The efficiency ratio, a non-GAAP measure, was 57.7 percent for the second quarter of fiscal 2018 on an annualized basis, compared to 57.4 percent in the second quarter of fiscal 2017 and 55.4 percent in the fourth quarter of fiscal 2017.
  
  
• The Company’s balance sheet reflected total asset growth of $37.3 million at March 31, 2018, compared to September 30, 2017, coupled with stable asset quality, and capital levels that exceeded regulatory standards for a well-capitalized institution.

1. Information reconciling non-GAAP measures to GAAP measures is presented elsewhere in this press release.

Net Interest Income

Net interest income on a fully tax-equivalent basis, a non-GAAP measure, was $6.6 million for the three months ended March 31, 2018, increasing $0.6 million, or 9.2 percent, from $6.0 million for the comparable three-month period in fiscal 2017. The change for the three months ended March 31, 2018 primarily was the result of an increase in the average balance of interest earning assets, which increased $143.8 million.  For the quarter ended March 31, 2018, the Company’s net interest margin on a tax-equivalent basis, a non-GAAP measure, decreased to 2.58 percent as compared to 2.75 percent for the same three-month period in fiscal 2017.

For the three months ended March 31, 2018, total interest income on a fully tax-equivalent basis, a non-GAAP measure, increased $1.5 million, or 18.3 percent, to $9.7 million, compared to the three months ended March 31, 2017.  Interest income rose in the quarter ended March 31, 2018, compared to the comparable period in fiscal 2017, primarily due to a $110.1 million increase in the average balance of our loans.   Total interest expense increased by $0.9 million, or 43.6 percent, to $3.1 million, for the three months ended March 31, 2018, compared to the same period in fiscal 2017 due to the increase of $130.0 million in average funding sources. 

The 43.6 percent increase in interest expense for the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017 was primarily due to an increase in deposits, as well as the interest expense associated with the Company’s subordinated debt.  The average cost of funds was 1.39 percent for the quarter ended March 31, 2018 compared to 1.13 percent for the same three-month period in fiscal 2017 and, on a linked sequential quarter basis, increased two basis points compared to the first quarter of fiscal 2018.  The increase in cost was primarily related to the increase in average volume, coupled with the increased expense related to the issuance of subordinated debt.

For the six months ended March 31, 2018, total interest income on a fully tax equivalent basis increased $3.9 million, or 25.2 percent, to $19.3 million, compared to $15.4 million for the six months ended March 31, 2017. Total interest expense increased by $2.2 million, or 54.7 percent, to $6.3 million, for the six months ended March 31, 2018, compared to the comparable period in fiscal 2017.  Interest income rose for the six months ended March 31, 2018, compared to the comparable period in fiscal 2017 primarily due to a $160.9 million increase in average loan balances. Compared to the same period in fiscal 2017, for the six months ended March 31, 2018, average interest earning assets increased $189.5 million, the net interest spread decreased on an annualized tax-equivalent basis by twenty basis points and the net interest margin decreased on an annualized tax-equivalent basis by eighteen basis points.

Joseph Gangemi, Chief Financial Officer of Malvern Bancorp, Inc., added, "Despite our asset growth this period, we continue to maintain a high liquidity position, which has a dampening effect on our margin. While we anticipate robust growth in loans this year, we continue to replenish the liquidity pool at a commensurate rate, therefore the traction to increase margin has been more gradual."

Earnings Summary for the Period Ended March 31, 2018

The following table presents condensed consolidated statements of income data for the periods indicated.

Other Income

Other income decreased $0.1 million, or 17.2 percent, for the second quarter of fiscal 2018 compared with the same period in fiscal 2017.  The decrease in other income was primarily due to a decrease of $37,000 in service charges and other fees, a $58,000 decrease in net gains on sales of investment securities, a $4,000 decrease in net gains on sale of loans, and a $6,000 decrease in earnings on bank-owned insurance offset by an $12,000 increase in rental income.

For the six months ended March 31, 2018, total other income increased $1.2 million compared to the same period in fiscal 2017, primarily as a result of a $1.2 million net gain on the sale of real estate, an increase of $11,000 in service charges, a $23,000 increase in rental income, and an $18,000 increase in net gains on sale of loans offset by a $58,000 decrease in net gains on sales of investment securities and a $15,000 decrease in earnings on bank-owned insurance.

The following table presents the components of other income for the periods indicated.

Other Expense

Total other expense for the three months ended March 31, 2018, increased $0.3 million, or 8.7 percent, when compared to the quarter ended March 31, 2017. The increase primarily reflected increases in salaries and employee benefits of $0.2 million, a $0.1 million increase in occupancy expense, a $0.1 million increase in professional fees, and a $0.1 million increase in other operating expense. The increase was offset by a $16,000 decrease in the federal deposit insurance premium, a $35,000 decrease in advertising expense, and a $34,000 decrease in data processing expense. The increase in salaries and employee benefits primarily reflects higher compensation and related costs due to added staff to support overall franchise growth. The increase in occupancy expense was mainly due to expanded locations.  Professional fees increased for the period as a result of expense related to increased legal and accounting fees.

For the six months ended March 31, 2018, total other expense increased $1.2 million, or 16.7 percent, compared to the same period in fiscal 2017. The increase primarily reflected increases in salaries and employee benefits of $0.5 million, a $0.1 million increase in occupancy expense, a $0.1 million increase in the federal deposit insurance premium, a $0.4 million increase in professional fees, and a $0.2 million increase in other operating expense. The increase was offset by a $0.1 million decrease in data processing expense and a $32,000 decrease in advertising expense. 

The following table presents the components of other expense for the periods indicated.

Statement of Condition Highlights at March 31, 2018

Highlights as of March 31, 2018, included:

• Balance sheet strength, with total assets amounting to $1.1 billion at March 31, 2018, an increase of $37.3 million, or 3.6 percent, compared to September 30, 2017.
• The Company’s gross loans were $845.2 million at March 31, 2018, an increase of $3.1 million, or 0.36 percent, from September 30, 2017.    
• Total investments were $77.4 million at March 31, 2018, an increase of $27.9 million, or 56.3 percent, compared to September 30, 2017.
• Deposits totaled $825.6 million at March 31, 2018, an increase of $35.2 million, or 4.5 percent, compared to September 30, 2017. 
• Federal Home Loan Bank (FHLB) advances totaled $118.0 million at March 31, 2018 and at September 30, 2017.
• Subordinated debt totaled $24.4 million and $24.3 million at March 31, 2018 and at September 30, 2017, respectively.

Condensed Consolidated Statements of Condition

The following table presents condensed consolidated statements of condition data as of the dates indicated.

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

Loans

Total net loans amounted to $837.3 million at March 31, 2018 compared to $834.3 million at September 30, 2017, for a net increase of $3.0 million or 0.36 percent for the period.  The allowance for loan losses amounted to $8.5 million and $8.4 million at March 31, 2018 and September 30, 2017, respectively. Average loans during the second quarter of fiscal 2018 totaled $827.5 million as compared to $717.4 million during the second quarter of fiscal 2017, representing a 15.3 percent increase. 

At the end of the second quarter of fiscal 2018 the loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial real estate accounting for 52.8 percent and single-family residential real estate loans accounting for 21.8 percent of the loan portfolio.  Construction and development loans amounted to 6.7 percent and consumer loans represented 4.5 percent of the loan portfolio at such date.   Total gross loans increased $3.1 million, to $845.2 million at March 31, 2018 compared to $842.1 million at September 30, 2017.  The increase in the loan portfolio at March 31, 2018 compared to September 30, 2017, primarily reflected an increase of $12.0 million in commercial loans, a $3.0 million increase in construction and development loans, a $8.2 million decrease in residential mortgage loans and a $3.7 million reduction in consumer loans at March 31, 2018 as compared to September 30, 2017. 

For the quarter ended March 31, 2018, the Company originated new loan volume of $74.6 million, which was offset by loan payoffs of $14.5 million, prepayments totaling $16.0 million, and amortization of $13.5 million.

The following reflects the composition of the Company’s loan portfolio as of the dates indicated.

At March 31, 2018, the Company had $122.7 million in overall undisbursed loan commitments, which consisted primarily of unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities.   The Company's current "Approved, Accepted but Unfunded" pipeline, includes approximately $54.0 million in commercial and construction loans and $15.7 million in residential mortgage loans expected to fund over the next 90 days.

Asset Quality

Mr. Weagley noted that “asset quality remained stable, and we are well positioned from an asset quality perspective, with continued improving trends and a low ratio of non-performing assets to total assets of 0.24 percent.”

Non-accrual loans were $2.1 million at March 31, 2018 an increase of $1.1 million or 105.1 percent, as compared to $1.0 million at September 30, 2017. Non-accrual loans were $1.6 million at March 31, 2017.  Other real estate owned (“OREO”) remained at zero at March 31, 2018, September 30, 2017 and March 31, 2017. The increase in non-performing loans at March 31, 2018 compared to September 30, 2017 was primarily due to one legacy commercial loan, with an aggregate outstanding balance of approximately $0.6 million moving to non-accrual status.  Total performing troubled debt restructured loans were $18.7 million at March 31, 2018, $2.2 million at September 30, 2017 and $1.6 million at March 31, 2017. The increase in troubled debt restructured loans at March 31, 2018 compared to September 30, 2017 was primarily due to two commercial loans with an aggregate outstanding balance of approximately $16.4 million.

At March 31, 2018, non-performing assets totaled $2.6 million, or 0.24 percent of total assets, as compared with $1.2 million, or 0.12 percent, at September 30, 2017 and $1.7 million, or 0.18 percent, at March 31, 2017.  The portfolio of non-accrual loans at March 31, 2018 was comprised of thirteen residential real estate loans with an aggregate outstanding balance of approximately $1.1 million, one commercial real estate loan with an outstanding balance of $0.6 million, and fourteen consumer loans with an aggregate outstanding balance of approximately $0.4 million.   

The following table presents the components of non-performing assets and other asset quality data for the periods indicated.

1. 18 loans, totaling approximately $0.8 million or 38.8% of the total non-accrual loan balance, were making payments at March 31, 2018. 
2. Annualized.

The allowance for loan losses at March 31, 2018 amounted to approximately $8.5 million, or 1.00 percent of total loans, compared to $8.4 million, or 1.00 percent of total loans, at September 30, 2017 and $7.2 million, or 0.95 percent of total loans, at March 31, 2017.  The Company had a $0.2 million provision for loan losses during the quarter ended March 31, 2018 compared to $1.0 million for the quarter ended March 31, 2017.   

Capital

At March 31, 2018, our total shareholders' equity amounted to $105.4 million, or 9.73 percent of total assets, compared to $102.5 million at September 30, 2017.  The Company’s book value per common share was $16.03 at March 31, 2018, compared to $15.60 at September 30, 2017. 
At March 31, 2018, the Bank’s common equity tier 1 ratio was 15.20 percent, tier 1 leverage ratio was 11.96 percent, tier 1 risk-based capital ratio was 15.20 percent and the total risk-based capital ratio was 16.23 percent.  At September 30, 2017, the Bank’s common equity tier 1 ratio was 14.75 percent, tier 1 leverage ratio was 12.02 percent, tier 1 risk-based capital ratio was 14.75 percent and the total risk-based capital ratio was 15.78 percent.  At March 31, 2018, the Bank was in compliance with all applicable regulatory capital requirements.

Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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 other income is presented in the table below including and excluding net investment securities gains. The Company’s management believes that many investors desire to evaluate other income without regard to such gains.

“Efficiency ratio” is a non-GAAP financial measure and is defined as other expense, excluding certain non-core items, as a percentage of net interest income on a tax equivalent basis plus other income, excluding net securities gains, calculated as follows:

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

Net interest margin, which is non-interest income as a percentage of average interest-earning assets, is presented on a fully tax equivalent (“TE”) basis as we believe this non-GAAP measure is the preferred industry measurement for this item.  The Company revised its estimated annual effective rate to reflect a change in the federal statutory rate from 35% to 21%, resulting from the enactment of the Tax Cuts and Jobs Act of 2017.  The TE basis adjusts GAAP interest income and yields for the tax benefit of income on certain tax-exempt investments using the blended statutory rate of 24.5% for the current period and 34% for each of the prior periods presented.  Below is a reconciliation of GAAP net interest income to the TE basis and the related GAAP basis and TE net interest margins for the periods presented.

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

About Malvern Bancorp, Inc.

Malvern Bancorp, Inc. is the holding company for Malvern Bank, National Association, a national bank that was originally organized in 1887 as a federally-chartered savings bank. Malvern Bank, National Association now serves as one of the oldest banks headquartered on the Philadelphia Main Line. For more than a century, Malvern Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect and integrity.

Malvern Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia and through its nine other banking locations in Chester, Delaware and Bucks counties, Pennsylvania and Morristown, New Jersey, its New Jersey regional headquarters.  The Bank also recently announced new representative offices in Palm Beach, Florida and Montchanin, Delaware.  Its primary market niche is providing personalized service to its client base.  

Malvern Bank, through its Private Banking division and strategic partnership with Bell Rock Capital in Rehoboth Beach, Delaware, provides personalized wealth management and advisory services to high net worth individuals and families. Bel Rock Capital’s 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

This press release contains certain forward looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate" and "intend" or future or conditional verbs such as "will," "would," "should," "could" or "may." Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business of Malvern Bancorp, Inc., and changes in the securities markets. Except as required by law, the Company does not undertake any obligation to update any forward-looking statements to reflect changes in beliefs, expectations or events.
                              

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

Investor Contact:
Ronald Morales
(610) 695-3646