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MALVERN BANCORP, INC. - Quarter Report: 2021 June (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

Commission File Number:  000-54835

 

MALVERN BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

45-5307782

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

42 East Lancaster Avenue, Paoli, Pennsylvania 19301

(Address of Principal Executive Offices) (Zip Code)

(610) 644-9400

(Registrant’s Telephone Number, Including Area Code)

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report:  N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MLVF

Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

Common Stock, par value $0.01:

7,622,316 shares

(Title of Class)

(Outstanding as of August 13, 2021)

 

 

 


 

 

Table of Contents

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

3

 

 

 

Item  1.

Financial Statements

4

 

Consolidated Statements of Financial Condition at June 30, 2021 (unaudited) and September 30, 2020

4

 

Consolidated Statements of Operations for the three and nine months ended June 30, 2021 and 2020 (unaudited)

5

 

Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2021 and 2020 (unaudited)

6

 

Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended June 30, 2021 and 2020 (unaudited)

7

 

Consolidated Statements of Cash Flows for the nine months ended June 30, 2021 and 2020 (unaudited)

8

 

Notes to Unaudited Consolidated Financial Statements

9

 

 

 

Item  2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

48

 

 

 

Item  3.

Qualitative and Quantitative Disclosures about Market Risk

65

 

 

 

Item  4.

Controls and Procedures

65

 

 

 

PART II – OTHER INFORMATION.

66

 

 

 

Item  1.

Legal Proceedings

66

 

 

 

Item  1A.

Risk Factors

66

 

 

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

 

Item  3.

Default Upon Senior Securities

66

 

 

 

Item  4.

Mine Safety Disclosure

66

 

 

 

Item  5.

Other Information

66

 

 

 

Item  6.

Exhibits

66

 

 

 

SIGNATURES

67

 

 

 


 

 

PART I – FINANCIAL INFORMATION

The following (a) consolidated statement of financial condition as of September 30, 2020, which has been derived from audited financial statements, and (b) unaudited consolidated financial statements, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal and recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2021, or for any interim period. The Malvern Bancorp, Inc. Annual Report on Form 10-K/A for the fiscal year ended September 30, 2020, as amended on February 26, 2021 (the “2020 Annual Report”), should be read in conjunction with these financial statements.

 

-3-


 

 

Item 1. Financial Statements

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from depository institutions

 

$

90,441

 

 

$

16,386

 

Interest bearing deposits in depository institutions

 

 

14,513

 

 

 

45,053

 

Cash and Cash Equivalents

 

 

104,954

 

 

 

61,439

 

Investment securities available for sale, at fair value (amortized cost of

   $34,261 and $31,658, respectively)

 

 

34,502

 

 

 

31,541

 

Investment securities held to maturity (fair value of $32,360 and $15,608,

   respectively)

 

 

31,795

 

 

 

14,970

 

Restricted stock, at cost

 

 

7,896

 

 

 

9,622

 

Loans receivable, net of allowance for loan losses of $11,600 and $12,433,

   respectively

 

 

940,735

 

 

 

1,026,894

 

Other real estate owned

 

 

4,961

 

 

 

5,796

 

Accrued interest receivable

 

 

3,370

 

 

 

3,677

 

Operating lease right-of-use assets

 

 

2,168

 

 

 

2,638

 

Property and equipment, net

 

 

5,902

 

 

 

6,274

 

Deferred income taxes

 

 

3,389

 

 

 

3,680

 

Bank-owned life insurance

 

 

25,889

 

 

 

25,400

 

Other assets

 

 

20,183

 

 

 

16,344

 

Total Assets

 

$

1,185,744

 

 

$

1,208,275

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Deposits-non-interest-bearing

 

 

53,365

 

 

 

50,422

 

Deposits-interest-bearing

 

 

854,339

 

 

 

840,484

 

Total Deposits

 

 

907,704

 

 

 

890,906

 

FHLB advances

 

 

90,000

 

 

 

130,000

 

Secured borrowing

 

 

-

 

 

 

4,225

 

Subordinated debt

 

 

24,895

 

 

 

24,776

 

Advances from borrowers for taxes and insurance

 

 

2,502

 

 

 

1,741

 

Accrued interest payable

 

 

946

 

 

 

728

 

Operating lease liabilities

 

 

2,204

 

 

 

2,671

 

Other liabilities

 

 

9,301

 

 

 

12,635

 

Total Liabilities

 

 

1,037,552

 

 

 

1,067,682

 

Commitments and Contingencies

 

 

-

 

 

 

-

 

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; 7,816,832 and

   7,622,316 shares issued and outstanding, respectively, at June 30, 2021

   and 7,804,469 and 7,609,953 shares issued and outstanding, respectively, at September 30, 2020

 

 

76

 

 

 

76

 

Additional paid-in-capital

 

 

85,424

 

 

 

85,127

 

Retained earnings

 

 

66,486

 

 

 

60,388

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

 

(937

)

 

 

(1,047

)

Accumulated other comprehensive income (loss)

 

 

6

 

 

 

(1,088

)

    Treasury stock, at cost: 194,516 shares at June 30, 2021 and September 30, 2020

 

 

(2,863

)

 

 

(2,863

)

Total Shareholders’ Equity

 

 

148,192

 

 

 

140,593

 

Total Liabilities and Shareholders’ Equity

 

$

1,185,744

 

 

$

1,208,275

 

 

See accompanying notes to unaudited consolidated financial statements.

-4-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share data)

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

8,895

 

 

$

10,068

 

 

$

28,040

 

 

$

31,626

 

Investment securities, taxable

 

 

378

 

 

 

253

 

 

 

1,046

 

 

 

699

 

Investment securities, tax-exempt

 

 

30

 

 

 

27

 

 

 

77

 

 

 

100

 

Dividends, restricted stock

 

 

110

 

 

 

124

 

 

 

370

 

 

 

494

 

Interest-bearing cash accounts

 

 

6

 

 

 

26

 

 

 

21

 

 

 

1,048

 

Total Interest and Dividend Income

 

 

9,419

 

 

 

10,498

 

 

 

29,554

 

 

 

33,967

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,446

 

 

 

2,876

 

 

 

5,508

 

 

 

10,236

 

Short-term borrowings

 

 

-

 

 

 

-

 

 

 

48

 

 

 

-

 

Long-term borrowings

 

 

461

 

 

 

608

 

 

 

1,614

 

 

 

2,270

 

Subordinated debt

 

 

383

 

 

 

383

 

 

 

1,149

 

 

 

1,149

 

Total Interest Expense

 

 

2,290

 

 

 

3,867

 

 

 

8,319

 

 

 

13,655

 

Net Interest Income

 

 

7,129

 

 

 

6,631

 

 

 

21,235

 

 

 

20,312

 

Provision for Loan Losses

 

 

-

 

 

 

435

 

 

 

550

 

 

 

3,210

 

Net Interest Income after Provision for Loan losses

 

 

7,129

 

 

 

6,196

 

 

 

20,685

 

 

 

17,102

 

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and other fees

 

 

344

 

 

 

195

 

 

 

1,010

 

 

 

1,058

 

Rental income

 

 

55

 

 

 

54

 

 

 

163

 

 

 

163

 

Net gains on sale and call of investments

 

 

165

 

 

 

1

 

 

 

779

 

 

 

181

 

Net gains on sale of loans

 

 

65

 

 

 

11

 

 

 

743

 

 

 

14

 

Earnings on bank-owned life insurance

 

 

164

 

 

 

128

 

 

 

489

 

 

 

380

 

Total Other Income

 

 

793

 

 

 

389

 

 

 

3,184

 

 

 

1,796

 

Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,259

 

 

 

2,279

 

 

 

6,806

 

 

 

6,675

 

Occupancy expense

 

 

546

 

 

 

576

 

 

 

1,656

 

 

 

1,749

 

Federal deposit insurance premium

 

 

77

 

 

 

79

 

 

 

236

 

 

 

79

 

Advertising

 

 

12

 

 

 

33

 

 

 

76

 

 

 

87

 

Data processing

 

 

301

 

 

 

275

 

 

 

935

 

 

 

825

 

Professional fees

 

 

841

 

 

 

524

 

 

 

2,388

 

 

 

1,467

 

Other real estate owned expense, net

 

 

835

 

 

 

29

 

 

 

866

 

 

 

99

 

Pennsylvania shares tax

 

 

170

 

 

 

169

 

 

 

509

 

 

 

509

 

Other operating expenses

 

 

791

 

 

 

720

 

 

 

2,395

 

 

 

2,254

 

Total Other Expenses

 

 

5,832

 

 

 

4,684

 

 

 

15,867

 

 

 

13,744

 

Income before income tax expense

 

 

2,090

 

 

 

1,901

 

 

 

8,002

 

 

 

5,154

 

Income tax expense

 

 

489

 

 

 

447

 

 

 

1,904

 

 

 

1,007

 

Net Income

 

$

1,601

 

 

$

1,454

 

 

$

6,098

 

 

$

4,147

 

Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

0.19

 

 

$

0.81

 

 

$

0.54

 

Diluted

 

$

0.21

 

 

$

0.19

 

 

$

0.81

 

 

$

0.54

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,545,371

 

 

 

7,538,375

 

 

 

7,533,516

 

 

 

7,622,820

 

Diluted

 

 

7,546,200

 

 

 

7,538,375

 

 

 

7,534,068

 

 

 

7,622,820

 

 

See accompanying notes to unaudited consolidated financial statements.

-5-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Net Income

 

$

1,601

 

 

$

1,454

 

 

$

6,098

 

 

$

4,147

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available-for-sale securities

 

 

671

 

 

 

(302

)

 

 

1,135

 

 

 

(169

)

Tax effect

 

 

(141

)

 

 

62

 

 

 

(238

)

 

 

34

 

Net of tax amount

 

 

530

 

 

 

(240

)

 

 

897

 

 

 

(135

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for net gains arising during the period (1)

 

 

(165

)

 

 

(1

)

 

 

(779

)

 

 

(181

)

Tax effect

 

 

34

 

 

 

-

 

 

 

163

 

 

 

38

 

Net of tax amount

 

 

(131

)

 

 

(1

)

 

 

(616

)

 

 

(143

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Adjustment for loss recorded on replacement of derivative

 

 

(3

)

 

 

23

 

 

 

(7

)

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity (2)

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

Tax effect

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

Net of tax amount

 

 

1

 

 

 

1

 

 

 

2

 

 

 

3

 

Fair value adjustments on derivatives

 

 

194

 

 

 

(336

)

 

 

1,034

 

 

 

(927

)

Tax effect

 

 

(41

)

 

 

66

 

 

 

(216

)

 

 

190

 

Net of tax amount

 

 

153

 

 

 

(270

)

 

 

818

 

 

 

(737

)

Total other comprehensive income (loss)

 

 

550

 

 

 

(487

)

 

 

1,094

 

 

 

(989

)

Total comprehensive income

 

$

2,151

 

 

$

967

 

 

$

7,192

 

 

$

3,158

 

 

 

(1)

Amounts are included in net gains on sale and call of investments on the Consolidated Statements of Operations in total other income.

 

(2)

Amounts are included in interest and dividends on investment securities on the Consolidated Statements of Operations.

See accompanying notes to unaudited consolidated financial statements.

-6-


 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Unearned

ESOP

Shares

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury Stock

 

 

Total

Shareholders'

Equity

 

 

 

(In thousands, except share data)

 

Balance, April 1, 2020

 

 

77

 

 

 

84,939

 

 

 

62,437

 

 

 

(1,120

)

 

 

(1,071

)

 

 

(2,112

)

 

 

143,150

 

Net Income

 

 

-

 

 

 

-

 

 

 

1,454

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,454

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(487

)

 

 

-

 

 

 

(487

)

Treasury stock activity

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(751

)

 

 

(752

)

Committed to be released ESOP

   shares (3,600 shares)

 

 

-

 

 

 

5

 

 

 

-

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

42

 

Stock based compensation

 

 

-

 

 

 

124

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

124

 

Balance, June 30, 2020

 

 

76

 

 

 

85,068

 

 

 

63,891

 

 

 

(1,083

)

 

 

(1,558

)

 

 

(2,863

)

 

 

143,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, April 1, 2021

 

 

76

 

 

 

85,271

 

 

 

64,885

 

 

 

(974

)

 

 

(544

)

 

 

(2,863

)

 

 

145,851

 

Net Income

 

 

-

 

 

 

-

 

 

 

1,601

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,601

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

550

 

 

 

-

 

 

 

550

 

Stock issuance

 

 

-

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72

 

Committed to be released ESOP

   shares (3,600 shares)

 

 

-

 

 

 

31

 

 

 

-

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

68

 

Stock based compensation

 

 

-

 

 

 

50

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50

 

Balance, June 30, 2021

 

$

76

 

 

$

85,424

 

 

$

66,486

 

 

$

(937

)

 

$

6

 

 

$

(2,863

)

 

$

148,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Unearned

ESOP

Shares

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury Stock

 

 

Total

Shareholders'

Equity

 

 

 

(In thousands, except share data)

 

Balance, October 1, 2019

 

 

78

 

 

 

84,783

 

 

 

59,744

 

 

 

(1,192

)

 

 

(569

)

 

 

(336

)

 

 

142,508

 

Net Income

 

 

-

 

 

 

-

 

 

 

4,147

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,147

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(989

)

 

 

-

 

 

 

(989

)

Treasury stock activity

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,527

)

 

 

(2,529

)

Committed to be released ESOP

   shares (10,800 shares)

 

 

-

 

 

 

83

 

 

 

-

 

 

 

109

 

 

 

-

 

 

 

-

 

 

 

192

 

Stock based compensation

 

 

-

 

 

 

202

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

202

 

Balance, June 30, 2020

 

 

76

 

 

 

85,068

 

 

 

63,891

 

 

 

(1,083

)

 

 

(1,558

)

 

 

(2,863

)

 

 

143,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2020

 

 

76

 

 

 

85,127

 

 

 

60,388

 

 

 

(1,047

)

 

 

(1,088

)

 

 

(2,863

)

 

 

140,593

 

Net Income

 

 

-

 

 

 

-

 

 

 

6,098

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,098

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,094

 

 

 

-

 

 

 

1,094

 

Stock issuance

 

 

-

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72

 

Committed to be released ESOP

   shares (10,800 shares)

 

 

-

 

 

 

73

 

 

 

-

 

 

 

110

 

 

 

-

 

 

 

-

 

 

 

183

 

Stock based compensation

 

 

-

 

 

 

152

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

152

 

Balance, June 30, 2021

 

$

76

 

 

$

85,424

 

 

$

66,486

 

 

$

(937

)

 

$

6

 

 

$

(2,863

)

 

$

148,192

 

 

See accompanying notes to unaudited consolidated financial statements.

 

-7-


 

 

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

6,098

 

 

$

4,147

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

502

 

 

 

563

 

Provision for loan losses

 

 

550

 

 

 

3,210

 

Deferred income tax expense (benefit)

 

 

291

 

 

 

(263

)

ESOP expense

 

 

183

 

 

 

192

 

Stock based compensation

 

 

152

 

 

 

202

 

Amortization of premiums and discounts on investments securities, net

 

 

145

 

 

 

163

 

Amortization of loan origination fees and costs

 

 

1,044

 

 

 

531

 

Amortization of mortgage servicing rights

 

 

28

 

 

 

58

 

Net gain on sale and call of investments securities available-for-sale

 

 

(779

)

 

 

(181

)

Net loss on sale of fixed assets

 

 

-

 

 

 

4

 

Net gain on sale of secondary market loans

 

 

(743

)

 

 

(14

)

Proceeds from sale of secondary market loans

 

 

20,900

 

 

 

449

 

Originations of  secondary market loans

 

 

(20,157

)

 

 

(435

)

Valuation write down of other real estate owned

 

 

835

 

 

 

-

 

Earnings on bank-owned life insurance

 

 

(489

)

 

 

(380

)

Decrease (increase) in accrued interest receivable

 

 

307

 

 

 

(1,427

)

Increase  in accrued interest payable

 

 

218

 

 

 

118

 

Operating lease liability payments

 

 

(492

)

 

 

(499

)

(Decrease) increase in other liabilities

 

 

(3,802

)

 

 

7,862

 

Increase in other assets

 

 

(2,167

)

 

 

(4,389

)

Amortization of subordinated debt

 

 

119

 

 

 

118

 

Net Cash Provided by Operating Activities

 

 

2,743

 

 

 

10,029

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(21,325

)

 

 

(28,188

)

Sales

 

 

17,297

 

 

 

5,297

 

Maturities, calls and principal repayments

 

 

2,174

 

 

 

7,844

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

Purchase

 

 

(24,337

)

 

 

-

 

Maturities, calls and principal repayments

 

 

7,397

 

 

 

6,447

 

Net decrease (increase) in loans

 

 

84,564

 

 

 

(24,120

)

Net decrease in restricted stock

 

 

1,726

 

 

 

1,363

 

Purchase of property and equipment

 

 

(130

)

 

 

(244

)

Net Cash Provided by (Used in) Investing Activities

 

 

67,366

 

 

 

(31,601

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

16,798

 

 

 

(69,367

)

Proceeds for long-term borrowings

 

 

230,000

 

 

 

25,000

 

Repayment of long-term borrowings

 

 

(270,000

)

 

 

(28,000

)

Repayment of secured borrowings

 

 

(4,225

)

 

 

-

 

Increase in advances from borrowers for taxes and insurance

 

 

761

 

 

 

1,869

 

Net proceeds from issuance of common stock

 

 

72

 

 

 

-

 

Acquisition of treasury stock

 

 

-

 

 

 

(2,529

)

Net Cash Used in Financing Activities

 

 

(26,594

)

 

 

(73,027

)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

43,515

 

 

 

(94,599

)

Cash and Cash Equivalents - Beginning

 

 

61,439

 

 

 

153,543

 

Cash and Cash Equivalents - Ending

 

$

104,954

 

 

$

58,944

 

Supplemental Cash Flows Information

 

 

 

 

 

 

 

 

Interest paid

 

$

8,101

 

 

$

13,403

 

Income taxes paid

 

$

2,072

 

 

$

1,077

 

   Impact of ASC 842 adoption (ASU 2016-02):

 

 

 

 

 

 

 

 

      Right-of-use asset

 

$

-

 

 

$

3,279

 

      Operating lease liability

 

$

-

 

 

$

(3,279

)

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

-8-


 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company

Malvern Bancorp, Inc. (the “Company” or “Malvern Bancorp”), a Pennsylvania corporation, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”).  Malvern Bancorp is the holding company for Malvern Bank, National Association (“Malvern Bank” or the “Bank”), a national bank that was originally organized in 1887 as a federally-chartered savings bank.

The Company’s primary business is the ownership and operation of the Bank.  The Bank’s principal business consists of attracting deposits from businesses and the general public and investing those deposits, together with borrowings and funds generated from operations, in commercial and multi-family real estate loans, one- to four-family residential real estate loans, construction and development loans, commercial business loans, home equity loans, lines of credit, and other consumer loans. The Company also invests in and maintains a portfolio of investment securities, primarily comprised of corporate debt securities, U.S. government agencies, mortgage-backed securities, and state and municipal obligations. Malvern Bank is one of the oldest banks headquartered on the Philadelphia Main Line.  For more than a century, the Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect, and integrity. The Bank’s primary market niche is providing personalized service to its client base.  

The Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia, and through its nine other banking locations in Chester and Delaware counties, Pennsylvania, Morristown, New Jersey, its New Jersey regional headquarters, and Palm Beach, Florida. The Bank also maintains representative offices in Wellington, Florida and Allentown, Pennsylvania.  

In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the unaudited consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other real estate owned, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of derivative positions.  The unaudited consolidated financial statements have been prepared in conformity with GAAP.

As used in this Quarterly Report on Form 10-Q, the terms “Malvern”, “the Company”, “registrant”, “we”, “us”, and “our” mean Malvern Bancorp, Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

Note 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation. The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The accompanying unaudited condensed consolidated financial statements present the Company’s financial condition at June 30, 2021 and September 30, 2020 and the results of operations for the three and nine months ended June 30, 2021 and 2020, and cash flows for the nine months ended June 30, 2021 and 2020. In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments, which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of the dates and for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the 2020 Annual Report filed with the Securities and Exchange Commission (“SEC”). The consolidated statements of operations for the three and nine months ended June 30, 2021 and the consolidated statements of cash flows for the nine months ended June 30, 2021 are not necessarily indicative of the results of operations or cash flows for the full year ending September 30, 2021 or any interim period. Subsequent events have been evaluated through the date of the issuance of the unaudited consolidated financial statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

 

Operating, Accounting and Reporting Considerations related to COVID-19

 

The COVID-19 pandemic has and continues to negatively impact the global economy.  In response to the crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020.  The CARES Act, as expanded by the Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act, enacted December 27, 2020 and the American Rescue Plan Act, enacted March 11, 2021, provides more than $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief.  Under Section 4013 of the CARES Act, as amended, and based upon regulatory guidance promulgated by federal banking regulators, qualifying

-9-


 

short-term loan modifications resulting in payment deferrals that are attributable to the adverse impact of COVID-19 are not considered to be troubled debt restructurings (“TDRs”).  Some of the provisions applicable to the Company include, but are not limited to:

 

 

Accounting for Loan Modifications – The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.  The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic.

 

Paycheck Protection Program – The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the Small Business Administration (“SBA”).

 

Mortgage Forbearance – Under the CARES Act, certain mortgage customers experiencing financial hardship due to COVID-19 may request forbearance on a loan for up to 30 days, with up to two additional 30-day periods at the borrower’s request. In addition, the Company was permitted to temporarily suspend collection and foreclosure efforts on past due loans in accordance with CARES Act and related regulatory guidance.

 

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020).  Some of the provisions applicable to the Company include, but are not limited to:

 

 

Accounting for Loan Modifications – Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR.  The agencies confirmed with the Financial Accounting Standards Board (“FASB”) staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who are current prior to any relief are not TDRs.  This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payments.  Loan modifications were made in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions working with customers affected by COVID-19 and therefore were not classified as TDRs.

 

Past Due Reporting – With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.  A loan’s payment date is governed by the due date stipulated in the legal agreements.  If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

 

Nonaccrual Status and Charge-offs – During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

 

 

Recent Accounting Pronouncements Yet to Be Adopted

 

Reference Rate Reform. In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848). The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption effective immediately, or as of January 1, 2020 or any date thereafter for the Company, and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time after March 12, 2020. The Company anticipates adopting this ASU and will continue to analyze the provisions of the ASU in connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate. It is too early to predict a new rate index replacement, but we anticipate that it will be the Secured Overnight Financing Rate (“SOFR”). The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position, or cash flows of the Company. ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 was issued to clarify certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transition. In addition, the ASU clarifies

-10-


 

that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered eligible as a hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of the reference rate reform. ASU 2021-01 became effective January 7, 2021.

Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). This ASU identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position, or cash flows of the Company.

 

Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied currently will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, this ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.  In April 2019, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. This ASU will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.  The Bank has a software system in place to assist with the calculation of Current Expected Credit Losses (“CECL”).  In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) making this ASU effective for interim and annual periods beginning after December 15, 2022. As such, the Company would be required to implement the ASU on October 1, 2023. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which provides guidance on stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13.  The Company formed a cross functional implementation team to review the requirements of ASU 2016-13 and contracted with a third-party provider to assist in the development and implementation of the revised credit loss methodology. The impact on the consolidated earnings, financial position, and cash flows of the Company upon adoption of this ASU are currently unknown. 

   

 

 

 


-11-


 

 

Note 3 – Risks and Uncertainties

 

On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic as a result of the global spread of the coronavirus illness. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing. The Company activated its “Pandemic Plan” to protect the health of employees and clients, which included temporarily limiting lobby hours and transitioning some of the Company’s workforce to remote work.

 

While significant progress is being made in the U.S. in connection with vaccine distribution efforts, and the macro-economic forecasts are generally more positive, uncertainty continues to exist regarding the speed of the economic recovery, COVID-19’s variants (including the “Delta” variant), the effectiveness of the vaccines against COVID-19 variants, and generally the full impact of COVID-19 is unknown and rapidly and continuously evolving. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak has had, and may continue to have, a significant adverse impact on certain industries the Company serves, especially with respect to its loan portfolio. Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its potential effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Company, including the Company’s loan portfolio. The Company will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed, in particular as it relates to clients impacted by the COVID-19 pandemic. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios.

 

To work with clients impacted by COVID-19, the Company began providing financial hardship relief in the form of payment deferrals and forbearances to consumers and business customers across several lending products, as well as suspension of home foreclosures.  The initial payment deferrals and forbearances were expected to cover a period of three months. The Company subsequently approved a second forbearance period for a maximum of 90 additional days.  These offers are not classified as TDRs, will not be reported as past due during the deferral period, and do not result in loans being placed on nonaccrual status.

 

         As disclosed above, on March 27, 2020, the CARES Act was signed into law. The CARES Act, as expanded by the Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act, enacted December 27, 2020 and the American Rescue Plan Act, enacted March 11, 2021, provides a $2.2 trillion stimulus package to provide relief to U.S. businesses and consumers struggling as a result of the COVID-19 pandemic. A provision in the CARES Act initially included a $349.0 billion fund for the creation of the PPP through the SBA and Treasury Department, which amount has since been increased to over $659.0 billion. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven, conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Company participated in the initial PPP when the program was officially launched by the SBA and Treasury Department under the CARES Act. Recognizing the significance of operational risk that this portfolio of loans poses, and the continued complexity and uncertainty surrounding evolving regulatory pronouncements regarding various aspects of the PPP, management reviewed several options for continued servicing of the PPP loan portfolio through forgiveness and beyond. After thoughtful consideration, the Company concluded that it was in the best interests of both the Bank and our PPP borrowers that the loans be serviced by an organization that has the servicing infrastructure in place to support the significant volume and short timeframe involved in the complex and evolving PPP forgiveness process. In that regard, in mid-December 2020, the Bank sold substantially all of its PPP loans to a seasoned and experienced non-bank lender and servicer of SBA loans. In connection with the sale, the Company recognized a $202,000 net gain on the sale of approximately $19.7 million of PPP loans, which was recorded as non-interest income for the period ended December 31, 2020. We are currently working with the same third party in order for its customers to be able to participate in the updated PPP loan program adopted as part of the COVID-19 stimulus bill enacted in December 2020 as part of the 2021 Consolidated Appropriations Act.

 

 

 

 


-12-


 

 

Note 4 – Non-Interest Income

On October 1, 2018, the Company adopted the amendments of ASU 2014-09 – Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. A significant amount of the Company’s revenue is derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. Some sources of revenue included within non-interest income fall within the scope of Topic 606, while other sources do not. The Company recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of the contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. Revenue is recognized as the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. When consideration includes a variable component, the amount of consideration attributable to variability is included in the transaction price only to the extent it is probable that significant revenue recognized will not be reversed when uncertainty associated with the variable consideration is subsequently resolved. The Company’s contracts generally do not contain terms that require significant judgement to determine the variability impacting the transaction price. The Company has included the following table regarding the Company’s non-interest income for the periods presented:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Rental income

 

$

55

 

 

$

54

 

 

$

163

 

 

$

163

 

Net gains on sale and call of investments

 

 

165

 

 

 

1

 

 

 

779

 

 

 

181

 

Net gains on sale of loans

 

 

65

 

 

 

11

 

 

 

743

 

 

 

14

 

Earnings on bank-owned life insurance

 

 

164

 

 

 

128

 

 

 

489

 

 

 

380

 

Non-interest income within the scope of other GAAP topics

 

$

449

 

 

$

194

 

 

$

2,174

 

 

$

738

 

ATM fees

 

$

3

 

 

$

2

 

 

$

9

 

 

$

5

 

Credit card fee income

 

 

6

 

 

 

5

 

 

 

16

 

 

 

16

 

DDA fee income

 

 

22

 

 

 

9

 

 

 

64

 

 

 

65

 

DDA service fees

 

 

23

 

 

 

16

 

 

 

68

 

 

 

54

 

Debit card fees

 

 

76

 

 

 

53

 

 

 

205

 

 

 

180

 

Other loan fee income

 

 

147

 

 

 

53

 

 

 

467

 

 

 

559

 

Other fee income

 

 

65

 

 

 

55

 

 

 

175

 

 

 

173

 

Other non-interest income

 

 

2

 

 

 

2

 

 

 

6

 

 

 

6

 

Non-interest income from contracts with customers

 

$

344

 

 

$

195

 

 

$

1,010

 

 

$

1,058

 

Total Non-interest Income

 

$

793

 

 

$

389

 

 

$

3,184

 

 

$

1,796

 

 

 

 


-13-


 

 

 

Note 5 – Earnings Per Share

Basic earnings per common share is computed based on the weighted average number of shares outstanding reduced by unearned Employee Stock Ownership Plan (“ESOP”) shares. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common stock equivalents (“CSEs”) that would arise from the exercise of dilutive securities, reduced by unearned ESOP shares.  During the three and nine months ended June 30, 2021, the Company granted a total of 12,363 restricted shares, which are considered CSEs. During the three and nine months ended June 30, 2021, options to acquire a total of 7,000 shares of common stock were granted.  During the three and nine months ended June 30, 2020, the Company granted 5,700 and 23,821 restricted shares, respectively, which are considered CSEs. During the nine months ended June 30, 2020, options to acquire a total of 7,000 shares of common stock were granted. 

The following table sets forth the composition of the weighted average shares (denominator) used in the earnings per share computations:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands, except share and per share data)

 

Net Income

 

$

1,601

 

 

$

1,454

 

 

$

6,098

 

 

$

4,147

 

Weighted average shares outstanding

 

 

7,622,316

 

 

 

7,629,722

 

 

 

7,614,074

 

 

 

7,717,778

 

Average unearned ESOP shares

 

 

(76,945

)

 

 

(91,347

)

 

 

(80,558

)

 

 

(94,958

)

Basic weighted average shares outstanding

 

 

7,545,371

 

 

 

7,538,375

 

 

 

7,533,516

 

 

 

7,622,820

 

Plus: effect of potential dilutive common stock equivalents - stock options

 

 

829

 

 

 

-

 

 

 

552

 

 

 

-

 

Diluted weighted average common shares outstanding

 

 

7,546,200

 

 

 

7,538,375

 

 

 

7,534,068

 

 

 

7,622,820

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

0.19

 

 

$

0.81

 

 

$

0.54

 

Diluted

 

$

0.21

 

 

$

0.19

 

 

$

0.81

 

 

$

0.54

 

 

Note 6 – Employee Stock Ownership Plan

The Company maintains an ESOP for substantially all of its full-time employees. The current ESOP trustee is Pentegra. Shares of the Company’s common stock purchased by the ESOP are held until released for allocation to participants. Shares released are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of all eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to additional paid-in capital. During the period from May 20, 2008 to September 30, 2008, the ESOP purchased 241,178 shares of Company common stock for approximately $2.6 million, at an average price of $10.86 per share, which was funded by a loan from Malvern Federal Bancorp, Inc. (the Company’s predecessor). The ESOP loan, which bears an interest rate of 5%, is being repaid in quarterly installments through 2026 principally from the Bank’s contributions to the ESOP.  Shares are released to participants proportionately as the ESOP loan is repaid. During each of the three and nine months ended June 30, 2021 and 2020, there were 3,600 shares and 10,800 shares, respectively, committed to be released. At June 30, 2021, there were 79,830 unallocated shares and 103,723 allocated shares held by the ESOP. The unallocated shares had an aggregate fair value of approximately $1.5 million at June 30, 2021.

Note 7 - Investment Securities

The Company’s investment securities are classified as available-for-sale or held-to-maturity at June 30, 2021 and at September 30, 2020. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. Held-to-maturity securities, which are carried at amortized cost, are investments where there is positive intent and ability to hold to maturity.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive loss and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted

-14-


 

using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive loss are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

The following tables present information related to the Company’s investment securities at June 30, 2021 and September 30, 2020:

 

 

 

June 30, 2021

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(In thousands)

 

Investment Securities Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

5,000

 

 

$

-

 

 

$

(5

)

 

$

4,995

 

State and municipal obligations

 

 

2,769

 

 

 

19

 

 

 

-

 

 

 

2,788

 

Single issuer trust preferred security

 

 

1,000

 

 

 

-

 

 

 

(121

)

 

 

879

 

Corporate debt securities

 

 

23,988

 

 

 

351

 

 

 

(3

)

 

 

24,336

 

Mutual funds

 

 

1,504

 

 

 

-

 

 

 

-

 

 

 

1,504

 

Total

 

$

34,261

 

 

$

370

 

 

$

(129

)

 

$

34,502

 

Investment Securities Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

12,500

 

 

$

23

 

 

$

-

 

 

$

12,523

 

State and municipal obligations

 

 

6,091

 

 

 

121

 

 

 

-

 

 

 

6,212

 

Corporate debt securities

 

 

3,412

 

 

 

257

 

 

 

-

 

 

 

3,669

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

2,492

 

 

 

-

 

 

 

-

 

 

 

2,492

 

Collateralized mortgage obligations (“CMO”), fixed-rate

 

 

7,300

 

 

 

164

 

 

 

-

 

 

 

7,464

 

        Total

 

$

31,795

 

 

$

565

 

 

$

-

 

 

$

32,360

 

Total investment securities

 

$

66,056

 

 

$

935

 

 

$

(129

)

 

$

66,862

 

 

 

 

September 30, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(In thousands)

 

Investment Securities Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

5,025

 

 

$

15

 

 

$

-

 

 

$

5,040

 

State and municipal obligations

 

 

3,101

 

 

 

4

 

 

 

-

 

 

 

3,105

 

Single issuer trust preferred security

 

 

1,000

 

 

 

-

 

 

 

(75

)

 

 

925

 

Corporate debt securities

 

 

21,009

 

 

 

182

 

 

 

(243

)

 

 

20,948

 

Mutual fund

 

 

1,523

 

 

 

-

 

 

 

-

 

 

 

1,523

 

Total

 

$

31,658

 

 

$

201

 

 

$

(318

)

 

$

31,541

 

Investment Securities Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

1,794

 

 

$

129

 

 

$

-

 

 

$

1,923

 

Corporate debt securities

 

 

3,498

 

 

 

260

 

 

 

-

 

 

 

3,758

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO, fixed-rate

 

 

9,678

 

 

 

249

 

 

 

-

 

 

 

9,927

 

        Total

 

$

14,970

 

 

$

638

 

 

$

-

 

 

$

15,608

 

Total investment securities

 

$

46,628

 

 

$

839

 

 

$

(318

)

 

$

47,149

 

 

  For the nine months ended June 30, 2021, proceeds of available-for-sale investment securities sold amounted to approximately $17.3 million. During the same period, $1.7 million of available-for-sale investment securities and $5.0 million of held-to-maturity investment securities were called. There were gains of approximately $779,000 associated with these sales and calls. For the nine months ended June 30, 2020, proceeds of available-for-sale investment securities sold amounted to approximately $5.3 million. During the same period, $7.8 million of available-for-sale investment securities and $3.7 million of held-to-maturity securities were called. There were gains of approximately $181,000 associated with these sales and calls. 

-15-


 

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category, and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2021 and September 30, 2020:

 

 

 

June 30, 2021

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

(In thousands)

 

Investment Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

4,995

 

 

$

(5

)

 

$

-

 

 

$

-

 

 

$

4,995

 

 

$

(5

)

Single issuer trust preferred security

 

 

-

 

 

 

-

 

 

 

879

 

 

 

(121

)

 

 

879

 

 

 

(121

)

Corporate debt securities

 

 

2,000

 

 

 

-

 

 

 

1,498

 

 

 

(3

)

 

 

3,498

 

 

 

(3

)

Total investment securities

 

$

6,995

 

 

$

(5

)

 

$

2,377

 

 

$

(124

)

 

$

9,372

 

 

$

(129

)

 

 

 

September 30, 2020

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

(In thousands)

 

Investment Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single issuer trust preferred security

 

$

-

 

 

$

-

 

 

$

925

 

 

$

(75

)

 

$

925

 

 

$

(75

)

Corporate debt securities

 

 

4,426

 

 

 

(74

)

 

 

3,330

 

 

 

(169

)

 

 

7,756

 

 

 

(243

)

Total investment securities

 

$

4,426

 

 

$

(74

)

 

$

4,255

 

 

$

(244

)

 

$

8,681

 

 

$

(318

)

 

As of June 30, 2021, the estimated fair value of the securities disclosed above was primarily dependent upon the movement in market interest rates, particularly given the inherent credit risk associated with these securities. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service. Although the fair value will fluctuate as market interest rates move, management believes that these fair values will recover as the underlying portfolios mature and are reinvested in market rate yielding investments. As of June 30, 2021, the Company held two corporate debt securities, one U.S. government agency, and one single issuer trust preferred security which were in an unrealized loss position. The Company does not intend to sell, and expects that it is unlikely that it will be required to sell, these securities until such time as the value recovers or the securities mature. Management does not believe any individual unrealized loss as of June 30, 2021 represents an other-than-temporary impairment.

Investment securities having a carrying value of approximately $3.3 million and $4.6 million at June 30, 2021 and September 30, 2020, respectively, were pledged to secure deposits. No investment securities were pledged to secure hedges at June 30, 2021 or September 30, 2020. No investment securities were pledged to secure short-term borrowings at June 30, 2021 and September 30, 2020.  

-16-


 

The following table presents information for investment securities at June 30, 2021, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

 

 

 

June 30, 2021

 

 

 

Amortized Cost

 

 

Fair Value

 

 

 

(In thousands)

 

Available-for-Sale:

 

 

 

 

 

 

 

 

Within 1 year

 

$

500

 

 

$

500

 

Over 1 year through five years

 

 

4,445

 

 

 

4,444

 

After 5 years through ten years

 

 

20,992

 

 

 

21,212

 

Over 10 years

 

 

8,324

 

 

 

8,346

 

Total

 

$

34,261

 

 

$

34,502

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

Over 1 year through five years

 

$

4,511

 

 

$

4,839

 

After 5 years through ten years

 

 

13,168

 

 

 

13,235

 

Over 10 years

 

 

4,324

 

 

 

4,330

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

2,492

 

 

 

2,492

 

CMO, fixed-rate

 

 

7,300

 

 

 

7,464

 

Total

 

$

31,795

 

 

$

32,360

 

 

 

 

 

 

 

 

 

 

Total investment securities

 

$

66,056

 

 

$

66,862

 

 

Note 8 - Loans Receivable and Related Allowance for Loan Losses  

Loans receivable in the Company’s portfolio consisted of the following at the dates indicated below:

 

 

 

June 30, 2021

 

 

September 30, 2020

 

 

 

(In thousands)

 

Residential mortgage

 

$

201,737

 

 

$

242,090

 

Construction and Development:

 

 

 

 

 

 

 

 

Residential and commercial

 

 

61,484

 

 

 

65,703

 

Land

 

 

2,253

 

 

 

3,110

 

Total Construction and Development

 

 

63,737

 

 

 

68,813

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

478,032

 

 

 

495,398

 

Farmland

 

 

10,335

 

 

 

7,517

 

Multi-family

 

 

66,725

 

 

 

67,767

 

   Commercial and industrial

 

 

97,955

 

 

 

116,584

 

Other

 

 

10,896

 

 

 

10,142

 

Total Commercial

 

 

663,943

 

 

 

697,408

 

Consumer:

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

12,822

 

 

 

17,128

 

Second mortgages

 

 

7,039

 

 

 

10,711

 

Other

 

 

2,372

 

 

 

2,851

 

Total Consumer

 

 

22,233

 

 

 

30,690

 

Total loans

 

 

951,650

 

 

 

1,039,001

 

Deferred loan costs, net

 

 

685

 

 

 

326

 

Allowance for loan losses

 

 

(11,600

)

 

 

(12,433

)

Total loans receivable, net

 

$

940,735

 

 

$

1,026,894

 

 

 

             

 

 

-17-


 

 

The following tables summarize the primary classes of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment, as of June 30, 2021 and September 30, 2020.  Activity in the ALLL is presented for the three and nine months ended June 30, 2021 and 2020 and the fiscal year ended September 30, 2020:

 

 

 

 

 

 

 

Construction and

Development

 

 

Commercial

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Residential

and

Commercial

 

 

Land

 

 

Commercial

Real Estate

 

 

Farmland

 

 

Multi-

Family

 

 

Commercial and Industrial

 

 

Other

 

 

Home Equity

Lines of Credit

 

 

Second

Mortgages

 

 

Other

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

(In thousands)

 

Three Months Ended June 30,

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,428

 

 

$

532

 

 

$

24

 

 

$

8,377

 

 

$

35

 

 

$

506

 

 

$

557

 

 

$

49

 

 

$

119

 

 

$

114

 

 

$

25

 

 

$

835

 

 

$

12,601

 

Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(645

)

 

 

-

 

 

 

-

 

 

 

(379

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,024

)

Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

15

 

 

 

6

 

 

 

1

 

 

 

-

 

 

 

23

 

Provisions

 

 

(111

)

 

 

(97

)

 

 

(9

)

 

 

607

 

 

 

21

 

 

 

(3

)

 

 

471

 

 

 

5

 

 

 

(41

)

 

 

(16

)

 

 

(4

)

 

 

(823

)

 

 

-

 

Ending balance

 

$

1,317

 

 

$

435

 

 

$

15

 

 

$

8,339

 

 

$

56

 

 

$

503

 

 

$

650

 

 

$

54

 

 

$

93

 

 

$

104

 

 

$

22

 

 

$

12

 

 

$

11,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and

Development

 

 

Commercial

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Residential

and

Commercial

 

 

Land

 

 

Commercial

Real Estate

 

 

Farmland

 

 

Multi-

Family

 

 

Commercial and Industrial

 

 

Other

 

 

Home Equity

Lines of Credit

 

 

Second

Mortgages

 

 

Other

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

(In thousands)

 

Three Months Ended June 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,492

 

 

$

354

 

 

$

24

 

 

$

7,282

 

 

$

42

 

 

$

444

 

 

$

516

 

 

$

35

 

 

$

127

 

 

$

212

 

 

$

21

 

 

$

7

 

 

$

10,556

 

Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

71

 

 

 

-

 

 

 

-

 

 

 

76

 

Provisions

 

 

203

 

 

 

51

 

 

 

2

 

 

 

(67

)

 

 

5

 

 

 

203

 

 

 

75

 

 

 

8

 

 

 

9

 

 

 

(60

)

 

 

1

 

 

 

5

 

 

 

435

 

Ending balance

 

$

1,696

 

 

$

405

 

 

$

26

 

 

$

7,217

 

 

$

47

 

 

$

647

 

 

$

592

 

 

$

43

 

 

$

137

 

 

$

223

 

 

$

22

 

 

$

12

 

 

$

11,067

 

-18-


 

 

 

 

 

 

 

 

 

 

Construction and

Development

 

 

Commercial

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Residential

and

Commercial

 

 

Land

 

 

Commercial

Real Estate

 

 

Farmland

 

 

Multi-

Family

 

 

Commercial and Industrial

 

 

Other

 

 

Home Equity

Lines of Credit

 

 

Second

Mortgages

 

 

Other

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

(In thousands)

 

Nine Months Ended June 30,

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,667

 

 

$

465

 

 

$

23

 

 

$

8,682

 

 

$

47

 

 

$

511

 

 

$

578

 

 

$

51

 

 

$

130

 

 

$

196

 

 

$

29

 

 

$

54

 

 

$

12,433

 

Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,128

)

 

 

-

 

 

 

-

 

 

 

(379

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

(1,508

)

Recoveries

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

16

 

 

 

103

 

 

 

2

 

 

 

-

 

 

 

125

 

Provisions

 

 

(351

)

 

 

(30

)

 

 

(8

)

 

 

784

 

 

 

9

 

 

 

(8

)

 

 

449

 

 

 

3

 

 

 

(53

)

 

 

(195

)

 

 

(8

)

 

 

(42

)

 

 

550

 

Ending balance

 

$

1,317

 

 

$

435

 

 

$

15

 

 

$

8,339

 

 

$

56

 

 

$

503

 

 

$

650

 

 

$

54

 

 

$

93

 

 

$

104

 

 

$

22

 

 

$

12

 

 

$

11,600

 

Ending balance: individually evaluated

   for impairment

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,287

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

37

 

 

$

-

 

 

$

-

 

 

$

1,324

 

Ending balance: collectively evaluated

   for impairment

 

$

1,317

 

 

$

435

 

 

$

15

 

 

$

7,052

 

 

$

56

 

 

$

503

 

 

$

650

 

 

$

54

 

 

$

93

 

 

$

67

 

 

$

22

 

 

$

12

 

 

$

10,276

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

201,737

 

 

$

61,484

 

 

$

2,253

 

 

$

478,032

 

 

$

10,335

 

 

$

66,725

 

 

$

97,955

 

 

$

10,896

 

 

$

12,822

 

 

$

7,039

 

 

$

2,372

 

 

 

 

 

 

$

951,650

 

Ending balance: individually evaluated

   for impairment

 

$

3,561

 

 

$

-

 

 

$

-

 

 

$

38,219

 

 

$

2,265

 

 

$

-

 

 

$

3,124

 

 

$

-

 

 

$

24

 

 

$

458

 

 

$

-

 

 

 

 

 

 

$

47,651

 

Ending balance: collectively evaluated

   for impairment

 

$

198,176

 

 

$

61,484

 

 

$

2,253

 

 

$

439,813

 

 

$

8,070

 

 

$

66,725

 

 

$

94,831

 

 

$

10,896

 

 

$

12,798

 

 

$

6,581

 

 

$

2,372

 

 

 

 

 

 

$

903,999

 

 

 

 

 

 

 


-19-


 

 

 

 

 

 

 

 

Construction and

Development

 

 

Commercial

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Residential

and

Commercial

 

 

Land

 

 

Commercial

Real Estate

 

 

Farmland

 

 

Multi-

Family

 

 

Commercial and Industrial

 

 

Other

 

 

Home Equity

Lines of Credit

 

 

Second

Mortgages

 

 

Other

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

(In thousands)

 

Nine Months Ended June 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,364

 

 

$

523

 

 

$

20

 

 

$

5,903

 

 

$

49

 

 

$

369

 

 

$

615

 

 

$

21

 

 

$

122

 

 

$

267

 

 

$

23

 

 

$

819

 

 

$

10,095

 

Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,288

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(62

)

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

(2,353

)

Recoveries

 

 

24

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

1

 

 

 

83

 

 

 

1

 

 

 

-

 

 

 

115

 

Provisions

 

 

308

 

 

 

(118

)

 

 

6

 

 

 

3,598

 

 

 

(2

)

 

 

278

 

 

 

(25

)

 

 

22

 

 

 

76

 

 

 

(124

)

 

 

(2

)

 

 

(807

)

 

 

3,210

 

Ending balance

 

$

1,696

 

 

$

405

 

 

$

26

 

 

$

7,217

 

 

$

47

 

 

$

647

 

 

$

592

 

 

$

43

 

 

$

137

 

 

$

223

 

 

$

22

 

 

$

12

 

 

$

11,067

 

Ending balance: individually evaluated

   for impairment

 

$

2

 

 

$

-

 

 

$

-

 

 

$

109

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

99

 

 

$

1

 

 

$

-

 

 

$

211

 

Ending balance: collectively evaluated

   for impairment

 

$

1,694

 

 

$

405

 

 

$

26

 

 

$

7,108

 

 

$

47

 

 

$

647

 

 

$

592

 

 

$

43

 

 

$

137

 

 

$

124

 

 

$

21

 

 

$

12

 

 

$

10,856

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

246,215

 

 

$

56,999

 

 

$

3,535

 

 

$

506,180

 

 

$

7,531

 

 

$

66,416

 

 

$

115,899

 

 

$

8,397

 

 

$

18,097

 

 

$

11,704

 

 

$

2,074

 

 

 

 

 

 

$

1,043,047

 

Ending balance: individually evaluated

   for impairment

 

$

3,435

 

 

$

-

 

 

$

-

 

 

$

18,187

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

28

 

 

$

861

 

 

$

1

 

 

 

 

 

 

$

22,512

 

Ending balance: collectively evaluated

   for impairment

 

$

242,780

 

 

$

56,999

 

 

$

3,535

 

 

$

487,993

 

 

$

7,531

 

 

$

66,416

 

 

$

115,899

 

 

$

8,397

 

 

$

18,069

 

 

$

10,843

 

 

$

2,073

 

 

 

 

 

 

$

1,020,535

 

-20-


 

 

 

 

 

 

 

 

 

Construction and

Development

 

 

Commercial

 

 

Consumer

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Residential

and

Commercial

 

 

Land

 

 

Commercial

Real Estate

 

 

Farmland

 

 

Multi-

Family

 

 

Commercial and Industrial

 

 

Other

 

 

Home Equity

Lines of Credit

 

 

Second

Mortgages

 

 

Other

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

(In thousands)

 

Year Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,364

 

 

$

523

 

 

$

20

 

 

$

5,903

 

 

$

49

 

 

$

369

 

 

$

615

 

 

$

21

 

 

$

122

 

 

$

267

 

 

$

23

 

 

$

819

 

 

$

10,095

 

Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,330

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(62

)

 

 

(3

)

 

 

(1

)

 

 

-

 

 

 

(8,396

)

Recoveries

 

 

25

 

 

 

-

 

 

 

-

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

1

 

 

 

88

 

 

 

2

 

 

 

-

 

 

 

124

 

Provisions

 

 

278

 

 

 

(58

)

 

 

3

 

 

 

11,103

 

 

 

(2

)

 

 

142

 

 

 

(39

)

 

 

30

 

 

 

69

 

 

 

(156

)

 

 

5

 

 

 

(765

)

 

 

10,610

 

Ending balance

 

$

1,667

 

 

$

465

 

 

$

23

 

 

$

8,682

 

 

$

47

 

 

$

511

 

 

$

578

 

 

$

51

 

 

$

130

 

 

$

196

 

 

$

29

 

 

$

54

 

 

$

12,433

 

Ending balance: individually evaluated

   for impairment

 

$

-

 

 

$

-

 

 

$

-

 

 

$

227

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

81

 

 

$

-

 

 

$

-

 

 

$

308

 

Ending balance: collectively evaluated

   for impairment

 

$

1,667

 

 

$

465

 

 

$

23

 

 

$

8,455

 

 

$

47

 

 

$

511

 

 

$

578

 

 

$

51

 

 

$

130

 

 

$

115

 

 

$

29

 

 

$

54

 

 

$

12,125

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

242,090

 

 

$

65,703

 

 

$

3,110

 

 

$

495,398

 

 

$

7,517

 

 

$

67,767

 

 

$

116,584

 

 

$

10,142

 

 

$

17,128

 

 

$

10,711

 

 

$

2,851

 

 

 

 

 

 

$

1,039,001

 

Ending balance: individually evaluated

   for impairment

 

$

3,388

 

 

$

-

 

 

$

-

 

 

$

25,926

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

26

 

 

$

882

 

 

$

-

 

 

 

 

 

 

$

30,222

 

Ending balance: collectively evaluated

   for impairment

 

$

238,702

 

 

$

65,703

 

 

$

3,110

 

 

$

469,472

 

 

$

7,517

 

 

$

67,767

 

 

$

116,584

 

 

$

10,142

 

 

$

17,102

 

 

$

9,829

 

 

$

2,851

 

 

 

 

 

 

$

1,008,779

 

 

In assessing the adequacy of the ALLL, it is recognized that the process, methodology and underlying assumptions require a significant degree of judgment. The estimation of loan losses is not precise; the range of factors considered is wide and is significantly dependent upon management’s judgment, including the outlook and potential changes in the economic environment. Any unallocated portion of the ALLL in conjunction with the quarterly review and changes to the qualitative factors to adjust for the risk due to current economic conditions reflects management’s estimate of probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, regulatory requirements, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors.

 

During the three and nine months ended June 30, 2021, the Company recorded net charge-offs of $1.0 million and $1.4 million, respectively, compared to a net recovery of $76,000 for the three months ended June 30, 2020 and a net charge-off of $2.2 million for the nine months ended June 30, 2020. Net loan charge-offs increased during the three months ended June 30, 2021 due to two individual commercial real estate loan partial charge-offs totaling $645,000 and one commercial and industrial loan partial charge-off totaling $379,000. The partial charge-offs were primarily the result of the ongoing monitoring and evaluation of classified loan values and is reflective of changes in current economic conditions.

 

-21-


 

 

The increase in impaired loans with no specific allowance from $29.4 million at September 30, 2020  to $40.8 million at June 30, 2021 is primarily due to the additions of one commercial real estate loan of approximately $12.4 million, two commercial and industrial loans of approximately $3.1 million, one commercial farmland loan of approximately $2.3 million, offset by the removal of one commercial real estate loan of approximately $6.5 million. The following table presents impaired loans in the portfolio by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary, as of June 30, 2021 and September 30, 2020:

 

 

 

Impaired Loans with

Specific Allowance

 

 

Impaired

Loans

with No

Specific

Allowance

 

 

Total Impaired Loans

 

 

 

Recorded

Investment

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

 

(In thousands)

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

-

 

 

$

-

 

 

$

3,561

 

 

$

3,561

 

 

$

3,753

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

6,764

 

 

 

1,287

 

 

 

31,455

 

 

 

38,219

 

 

 

51,560

 

Farmland

 

 

-

 

 

 

-

 

 

 

2,265

 

 

 

2,265

 

 

 

2,265

 

   Commercial and industrial

 

 

-

 

 

 

-

 

 

 

3,124

 

 

 

3,124

 

 

 

3,503

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

24

 

 

 

24

 

 

 

28

 

Second mortgages

 

 

104

 

 

 

37

 

 

 

354

 

 

 

458

 

 

 

502

 

Total impaired loans

 

$

6,868

 

 

$

1,324

 

 

$

40,783

 

 

$

47,651

 

 

$

61,611

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

-

 

 

$

-

 

 

$

3,388

 

 

$

3,388

 

 

$

3,598

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

676

 

 

 

227

 

 

 

25,250

 

 

 

25,926

 

 

 

36,945

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

26

 

 

 

26

 

 

 

30

 

Second mortgages

 

 

101

 

 

 

81

 

 

 

781

 

 

 

882

 

 

 

949

 

Total impaired loans

 

$

777

 

 

$

308

 

 

$

29,445

 

 

$

30,222

 

 

$

41,522

 

 

The following table presents the average recorded investment in impaired loans in the loan portfolio and related interest income recognized for the three and nine months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended June 30, 2021

 

 

Nine Months Ended June 30, 2021

 

 

 

Average

Impaired Loans

 

 

Interest Income

Recognized on

Impaired Loans

 

 

Average

Impaired Loans

 

 

Interest Income

Recognized on

Impaired Loans

 

 

 

(In thousands)

 

Residential mortgage

 

$

3,280

 

 

$

22

 

 

$

3,383

 

 

$

56

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

38,243

 

 

 

153

 

 

 

32,701

 

 

 

403

 

Farmland

 

 

2,265

 

 

 

31

 

 

 

1,766

 

 

 

50

 

Commercial and industrial

 

 

1,398

 

 

 

5

 

 

 

709

 

 

 

12

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

24

 

 

 

-

 

 

 

51

 

 

 

-

 

Second mortgages

 

 

776

 

 

 

2

 

 

 

711

 

 

 

5

 

Total

 

$

45,986

 

 

$

213

 

 

$

39,321

 

 

$

526

 

 

-22-


 

 

 

 

Three Months Ended June 30, 2020

 

 

Nine Months Ended June 30, 2020

 

 

 

Average

Impaired Loans

 

 

Interest Income

Recognized on

Impaired Loans

 

 

Average

Impaired Loans

 

 

Interest Income

Recognized on

Impaired Loans

 

 

 

(In thousands)

 

Residential mortgage

 

$

3,448

 

 

$

24

 

 

$

3,487

 

 

$

71

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

18,190

 

 

 

109

 

 

 

12,822

 

 

 

129

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

28

 

 

 

-

 

 

 

29

 

 

 

-

 

Second mortgages

 

 

844

 

 

 

2

 

 

 

856

 

 

 

14

 

Total

 

$

22,510

 

 

$

135

 

 

$

17,194

 

 

$

214

 

 

The following table presents the classes of the loan portfolio categorized as pass, special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2021 and September 30, 2020:

 

 

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

 

 

(In thousands)

 

June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

198,548

 

 

$

-

 

 

$

3,189

 

 

$

-

 

 

$

201,737

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

 

61,484

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61,484

 

Land

 

 

2,253

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,253

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

391,046

 

 

 

48,754

 

 

 

38,232

 

 

 

-

 

 

 

478,032

 

Farmland

 

 

8,070

 

 

 

-

 

 

 

2,265

 

 

 

-

 

 

 

10,335

 

Multi-family

 

 

57,395

 

 

 

9,330

 

 

 

-

 

 

 

-

 

 

 

66,725

 

Commercial and industrial

 

 

89,473

 

 

 

-

 

 

 

8,482

 

 

 

-

 

 

 

97,955

 

Other

 

 

10,896

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,896

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

12,718

 

 

 

-

 

 

 

104

 

 

 

-

 

 

 

12,822

 

Second mortgages

 

 

5,939

 

 

 

70

 

 

 

1,030

 

 

 

-

 

 

 

7,039

 

Other

 

 

2,372

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,372

 

Total

 

$

840,194

 

 

$

58,154

 

 

$

53,302

 

 

$

-

 

 

$

951,650

 

 

 

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

 

 

(In thousands)

 

September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

238,610

 

 

$

-

 

 

$

3,480

 

 

$

-

 

 

$

242,090

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

 

65,703

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65,703

 

Land

 

 

3,110

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,110

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

422,143

 

 

 

46,892

 

 

 

26,363

 

 

 

-

 

 

 

495,398

 

Farmland

 

 

7,517

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,517

 

Multi-family

 

 

58,285

 

 

 

9,482

 

 

 

-

 

 

 

-

 

 

 

67,767

 

Commercial and industrial

 

 

110,099

 

 

 

6,368

 

 

 

117

 

 

 

-

 

 

 

116,584

 

Other

 

 

10,142

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,142

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

16,969

 

 

 

-

 

 

 

159

 

 

 

-

 

 

 

17,128

 

Second mortgages

 

 

9,573

 

 

 

76

 

 

 

1,062

 

 

 

-

 

 

 

10,711

 

Other

 

 

2,851

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,851

 

Total

 

$

945,002

 

 

$

62,818

 

 

$

31,181

 

 

$

-

 

 

$

1,039,001

 

 

-23-


 

 

The following table presents loans that are no longer accruing interest as of June 30, 2021 and September 30, 2020, by portfolio class:

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

(In thousands)

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Residential mortgage

 

$

1,063

 

 

$

2,036

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

19,572

 

 

 

14,414

 

Commercial and industrial

 

 

2,575

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

24

 

 

 

26

 

Second mortgages

 

 

313

 

 

 

254

 

Total non-accrual loans

 

$

23,547

 

 

$

16,730

 

 

Under the Bank’s loan policy, once a loan has been placed on non-accrual status, we do not resume interest accruals until the loan has been brought current and has maintained a current payment status for not less than six consecutive months. Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms was approximately $300,000 and $845,000 for the three and nine months ended June 30, 2021, respectively, and approximately $49,000 and $63,000 for the three and nine months ended June 30, 2020, respectively.  At June 30, 2021 and September 30, 2020, there were approximately $212,000 and $58,000, respectively, of loans past due 90 days or more and still accruing interest.    

Management monitors the performance and credit quality of the loan portfolio by analyzing the age of the loan portfolio and categorizing each loan as “current”, meaning payment is received from a borrower by the scheduled due date, or by the length of time a scheduled payment is past due. The following table presents the classes of the loan portfolio categorized by the following aging categories as of June 30, 2021 and September 30, 2020:

 

 

 

Current

 

 

30-59 Days

Past Due

 

 

60-89 Days

Past Due

 

 

90 Days

and More

Past Due

 

 

Total Past

Due

 

 

Total

Loans

Receivable

 

 

Loans Receivable >

90 Days and

Accruing

 

 

 

(In thousands)

 

June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

200,791

 

 

$

42

 

 

$

186

 

 

$

718

 

 

$

946

 

 

$

201,737

 

 

$

-

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

 

61,484

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61,484

 

 

 

-

 

Land

 

 

2,253

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,253

 

 

 

-

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

470,554

 

 

 

-

 

 

 

-

 

 

 

7,478

 

 

 

7,478

 

 

 

478,032

 

 

 

212

 

Farmland

 

 

10,335

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,335

 

 

 

-

 

Multi-family

 

 

66,725

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

66,725

 

 

 

-

 

Commercial and industrial

 

 

95,380

 

 

 

-

 

 

 

-

 

 

 

2,575

 

 

 

2,575

 

 

 

97,955

 

 

 

-

 

Other

 

 

10,896

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,896

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

12,822

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,822

 

 

 

-

 

Second mortgages

 

 

6,883

 

 

 

-

 

 

 

-

 

 

 

156

 

 

 

156

 

 

 

7,039

 

 

 

-

 

Other

 

 

2,369

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

2,372

 

 

 

-

 

Total

 

$

940,492

 

 

$

45

 

 

$

186

 

 

$

10,927

 

 

$

11,158

 

 

$

951,650

 

 

$

212

 

-24-


 

 

 

 

 

Current

 

 

30-59 Days

Past Due

 

 

60-89 Days

Past Due

 

 

Greater than

90 Days

Past Due

 

 

Total Past

Due

 

 

Total

Loans

Receivable

 

 

Loans Receivable >

90 Days and

Accruing

 

 

 

(In thousands)

 

September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

239,623

 

 

$

68

 

 

$

694

 

 

$

1,705

 

 

$

2,467

 

 

$

242,090

 

 

$

-

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

 

65,703

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65,703

 

 

 

-

 

Land

 

 

3,110

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,110

 

 

 

-

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

495,087

 

 

 

-

 

 

 

-

 

 

 

311

 

 

 

311

 

 

 

495,398

 

 

 

-

 

Farmland

 

 

7,517

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,517

 

 

 

-

 

Multi-family

 

 

67,767

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,767

 

 

 

-

 

Commercial and industrial

 

 

116,584

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

116,584

 

 

 

-

 

Other

 

 

10,142

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,142

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

17,080

 

 

 

-

 

 

 

-

 

 

 

48

 

 

 

48

 

 

 

17,128

 

 

 

48

 

Second mortgages

 

 

10,325

 

 

 

157

 

 

 

33

 

 

 

196

 

 

 

386

 

 

 

10,711

 

 

 

10

 

Other

 

 

2,850

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

2,851

 

 

 

-

 

Total

 

$

1,035,788

 

 

$

225

 

 

$

728

 

 

$

2,260

 

 

$

3,213

 

 

$

1,039,001

 

 

$

58

 

 

Restructured loans deemed to be TDRs are typically the result of an extension of the loan maturity date or a reduction of the interest rate of the loan to a rate that is below market, a combination of rate and maturity extension, or by other means, including covenant modifications, forbearance and other concessions. However, the Bank generally restructures loans by modifying the payment structure to require payments of interest only for a specified period or by reducing the actual interest rate. Once a loan becomes a TDR, it will continue to be reported as a TDR during the term of the restructuring.

The Company had 28 and 26 loans classified as TDRs at June 30, 2021 and September 30, 2020, respectively, with an aggregate outstanding balance of $24.2 million and $21.7 million, respectively. At June 30, 2021, these loans were also classified as impaired. 23 of the TDR loans continue to perform under the restructured terms through June 30, 2021 and the Company continued to accrue interest on such loans through such date.   

 

Loans that have been classified as TDRs have modified payment terms and in some cases modified interest rates from the original agreements, which allow the borrowers, who were experiencing financial difficulty, to make interest only payments for a period of time in order to relieve some of their overall cash flow burden. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and could result in potential incremental losses. These potential incremental losses have been factored into our overall estimate of the ALLL. The level of any defaults will likely be affected by future economic conditions. A default on a TDR loan for purposes of this disclosure occurs when the borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred.  

-25-


 

TDRs may arise in cases where, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to other real estate owned (“OREO”), which is included within other assets in the Consolidated Statements of Financial Condition. For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. Excluding OREO, the Company had $398,000 and $175,000 of residential real estate properties in the process of foreclosure at June 30, 2021 and September 30, 2020, respectively. Although the Company temporarily suspended collection and foreclosure efforts on past due loans in accordance with the CARES Act and related regulatory guidance, the Company has resumed, and will continue to resume, collection and foreclosure actions as courts and counties re-open processes for such actions. The following table presents total TDRs as of June 30, 2021 and September 30, 2020:

 

 

 

Total Troubled Debt

Restructurings

 

 

Troubled Debt Restructured

Loans That Have Defaulted on

Modified Terms Within The Past

12 Months

 

 

 

Number of

Loans

 

 

Recorded

Investment

 

 

Number of

Loans

 

 

Recorded

Investment

 

 

 

(Dollars in thousands)

 

June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

17

 

 

$

3,321

 

 

 

5

 

 

$

823

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

5

 

 

 

17,895

 

 

 

-

 

 

 

-

 

Farmland

 

 

1

 

 

 

2,265

 

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

1

 

 

 

549

 

 

 

-

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second mortgages

 

 

4

 

 

 

145

 

 

 

-

 

 

 

-

 

Total

 

 

28

 

 

$

24,175

 

 

 

5

 

 

$

823

 

September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

17

 

 

$

3,435

 

 

 

7

 

 

$

1,617

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

5

 

 

 

18,091

 

 

 

1

 

 

 

6,652

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second mortgages

 

 

4

 

 

 

161

 

 

 

-

 

 

 

-

 

Total

 

 

26

 

 

$

21,687

 

 

 

8

 

 

$

8,269

 

 

The following table reports the performing status of all TDR loans. The performing status is determined by a loan’s compliance with the modified terms:

 

 

 

June 30, 2021

 

 

September 30, 2020

 

 

 

Performing

 

 

Non-Performing

 

 

Performing

 

 

Non-Performing

 

 

 

(In thousands)

 

Residential mortgage

 

$

2,498

 

 

$

823

 

 

$

1,818

 

 

$

1,617

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

17,895

 

 

 

-

 

 

 

11,439

 

 

 

6,652

 

Farmland

 

 

2,265

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

549

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second mortgages

 

 

145

 

 

 

-

 

 

 

161

 

 

 

-

 

Total

 

$

23,352

 

 

$

823

 

 

$

13,418

 

 

$

8,269

 

-26-


 

 

 

There were no new TDRs for the three months ended June 30, 2021. The following tables show the new TDRs for the three and nine months ended June 30, 2021 and 2020:

 

 

 

 

For the Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Number of

Contracts

 

 

Pre-

Modifications

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

Number of

Contracts

 

 

Pre-

Modifications

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

 

(In thousands)

 

Troubled Debt Restructurings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

-

 

 

$

-

 

 

$

-

 

 

 

1

 

 

$

10,635

 

 

$

10,635

 

Total troubled debt restructurings

 

 

-

 

 

$

-

 

 

$

-

 

 

 

1

 

 

$

10,635

 

 

$

10,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Number of Contracts

 

 

Pre-

Modifications

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

Number of Contracts

 

 

Pre-

Modifications

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

 

(Dollars in thousands)

 

Troubled Debt Restructurings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

-

 

 

$

-

 

 

$

-

 

 

 

1

 

 

$

207

 

 

$

207

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

-

 

 

$

-

 

 

$

-

 

 

 

2

 

 

$

10,930

 

 

$

10,926

 

Farmland

 

 

1

 

 

$

2,287

 

 

$

2,287

 

 

 

-

 

 

$

-

 

 

$

-

 

Commercial and industrial

 

 

1

 

 

$

549

 

 

$

549

 

 

 

-

 

 

$

-

 

 

$

-

 

Total troubled debt restructurings

 

 

2

 

 

$

2,836

 

 

$

2,836

 

 

 

3

 

 

$

11,137

 

 

$

11,133

 

 

Under Section 4013 of the CARES Act, and separately based upon regulatory guidance promulgated by federal banking regulators (collectively, “Interagency Statement”), qualifying short-term loan modifications resulting in payment deferrals that are attributable to the adverse impact of COVID-19 are not considered to be TDRs. As such, the applicable loans are reported as current with regard to payment status and continue to accrue interest during the payment deferral period. At June 30, 2021, the Company had 8 COVID-19 modified loan deferrals totaling approximately $61.3 million. Of the $61.3 million of COVID-19 modified loans at June 30, 2021, $13.1 million were rated “pass” and $48.2 million were rated “special mention”. At September 30, 2020, the Company had 43 COVID-19 modified loan deferrals totaling approximately $144.8 million. 


-27-


 

 

The following tables set forth the composition of these loans by loan segments as of June 30, 2021 and September 30, 2020:

 

 

June 30, 2021

 

 

Number of Loans

 

 

Loan Deferment Exposure

 

 

Gross Loans        June 30, 2021

 

 

Percentage of Gross Loans on Deferral

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Residential mortgage

 

2

 

 

$

669

 

 

$

201,737

 

 

 

0.07

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

-

 

 

 

-

 

 

 

61,484

 

 

 

0.00

%

Land loans

 

-

 

 

 

-

 

 

 

2,253

 

 

 

0.00

%

Total Construction and Development

 

-

 

 

 

-

 

 

 

63,737

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

6

 

 

 

60,612

 

 

 

478,032

 

 

 

6.37

%

Farmland

 

-

 

 

 

-

 

 

 

10,335

 

 

 

0.00

%

Multi-family

 

-

 

 

 

-

 

 

 

66,725

 

 

 

0.00

%

Commercial and industrial

 

-

 

 

 

-

 

 

 

97,955

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

10,896

 

 

 

0.00

%

Total Commercial

 

6

 

 

 

60,612

 

 

 

663,943

 

 

 

6.37

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

-

 

 

 

-

 

 

 

12,822

 

 

 

0.00

%

Second mortgages

 

-

 

 

 

-

 

 

 

7,039

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

2,372

 

 

 

0.00

%

Total Consumer

 

-

 

 

 

-

 

 

 

22,233

 

 

 

0.00

%

Total loans

 

8

 

 

$

61,281

 

 

$

951,650

 

 

 

6.44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

Number of Loans

 

 

Loan Deferment Exposure

 

 

Gross Loans September 30, 2020

 

 

Percentage of Gross Loans on Deferral

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Residential mortgage

 

5

 

 

$

1,288

 

 

$

242,090

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

-

 

 

 

-

 

 

 

65,703

 

 

 

0.00

%

Land loans

 

-

 

 

 

-

 

 

 

3,110

 

 

 

0.00

%

Total Construction and Development

 

-

 

 

 

-

 

 

 

68,813

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

21

 

 

 

131,348

 

 

 

495,398

 

 

 

12.64

%

Farmland

 

1

 

 

 

2,288

 

 

 

7,517

 

 

 

0.22

%

Multi-family

 

2

 

 

 

3,718

 

 

 

67,767

 

 

 

0.36

%

Commercial and industrial

 

10

 

 

 

5,547

 

 

 

116,584

 

 

 

0.53

%

Other

 

-

 

 

 

-

 

 

 

10,142

 

 

 

0.00

%

Total Commercial

 

34

 

 

 

142,901

 

 

 

697,408

 

 

 

13.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

3

 

 

 

579

 

 

 

17,128

 

 

 

0.06

%

Second mortgages

 

1

 

 

 

17

 

 

 

10,711

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

2,851

 

 

 

0.00

%

Total Consumer

 

4

 

 

 

596

 

 

 

30,690

 

 

 

0.06

%

Total loans

 

43

 

 

$

144,785

 

 

$

1,039,001

 

 

 

13.94

%

 

 

-28-


 

 

Note 9 - Regulatory Matters

 

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

In July 2013, the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully phased in on a global basis on January 1, 2019. The regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality predominantly composed of retained earnings and common stock instruments. For community banks, such as the Bank, a common equity Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. The rules also establish a capital conservation buffer of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets and increased by that amount each year until it became fully implemented at 2.5% on January 1, 2019. An institution is also subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted tangible assets (as defined in the regulations) and of risk-based capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations).  

As of June 30, 2021 and as of September 30, 2020, the Company’s and the Bank’s current capital levels exceeded the required capital amounts to be considered “well capitalized” and they also met the fully-phased in minimum capital requirements, including the related capital conservation buffers, as required by the Basel III capital rules.   

-29-


 

The following table summarizes the Company’s compliance with applicable regulatory capital requirements as of June 30, 2021 and September 30, 2020:

 

 

 

Actual

 

 

For Capital

Adequacy Purposes

 

 

To be Well

Capitalized

Under Prompt

Corrective Action

Provisions

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

Ratio

 

 

(Dollars in thousands)

As of June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (Core) Capital (to

   adjusted assets)

 

$

148,186

 

 

 

12.27

%

 

$

48,321

 

 

 

4.00

%

 

N/A

 

N/A

Common Equity Tier 1 Capital (to risk

   weighted assets)

 

 

148,186

 

 

 

15.07

%

 

 

44,259

 

 

 

4.50

%

 

N/A

 

N/A

Tier 1 Capital (to risk weighted assets)

 

 

148,186

 

 

 

15.07

%

 

 

59,012

 

 

 

6.00

%

 

N/A

 

N/A

Total Risk Based Capital (to risk

   weighted assets)

 

 

185,375

 

 

 

18.85

%

 

 

78,682

 

 

 

8.00

%

 

N/A

 

N/A

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (Core) Capital (to

   adjusted assets)

 

$

141,681

 

 

 

11.63

%

 

$

48,473

 

 

 

4.00

%

 

N/A

 

N/A

Common Equity Tier 1 Capital (to risk

   weighted assets)

 

 

141,681

 

 

 

14.00

%

 

 

45,528

 

 

 

4.50

%

 

N/A

 

N/A

Tier 1 Capital (to risk weighted assets)

 

 

141,681

 

 

 

14.00

%

 

 

60,704

 

 

 

6.00

%

 

N/A

 

N/A

Total Risk Based Capital (to risk

   weighted assets)

 

 

178,972

 

 

 

17.69

%

 

 

80,939

 

 

 

8.00

%

 

N/A

 

N/A

 

The following table summarizes the Bank’s compliance with applicable regulatory capital requirements as of June 30, 2021 and September 30, 2020:

 

 

 

Actual

 

 

For Capital

Adequacy Purposes

 

 

To be Well

Capitalized

Under Prompt

Corrective

Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(Dollars in thousands)

 

As of June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (Core) Capital (to

   adjusted assets)

 

$

163,187

 

 

 

13.53

%

 

$

48,251

 

 

 

4.00

%

 

$

60,314

 

 

 

5.00

%

Common Equity Tier 1 Capital (to risk

   weighted assets)

 

 

163,187

 

 

 

16.61

%

 

 

44,214

 

 

 

4.50

%

 

 

63,865

 

 

 

6.50

%

Tier 1 Capital (to risk weighted assets)

 

 

163,187

 

 

 

16.61

%

 

 

58,953

 

 

 

6.00

%

 

 

78,604

 

 

 

8.00

%

Total Risk Based Capital (to risk

   weighted assets)

 

 

174,869

 

 

 

17.80

%

 

 

78,604

 

 

 

8.00

%

 

 

98,254

 

 

 

10.00

%

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (Core) Capital (to

   adjusted assets)

 

$

155,575

 

 

 

12.78

%

 

$

48,685

 

 

 

4.00

%

 

$

60,856

 

 

 

5.00

%

Common Equity Tier 1 Capital (to risk

   weighted assets)

 

 

155,575

 

 

 

15.40

%

 

 

45,459

 

 

 

4.50

%

 

 

65,663

 

 

 

6.50

%

Tier 1 Capital (to risk weighted assets)

 

 

155,575

 

 

 

15.40

%

 

 

60,612

 

 

 

6.00

%

 

 

80,816

 

 

 

8.00

%

Total Risk Based Capital (to risk

   weighted assets)

 

 

168,090

 

 

 

16.64

%

 

 

80,816

 

 

 

8.00

%

 

 

101,020

 

 

 

10.00

%

 

 

-30-


 

 

Note 10 – Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  At June 30, 2021, such derivatives were used to hedge the variable cash flows associated with advances from the Federal Home Loan Bank of Pittsburgh (“FHLB Pittsburgh”), which is one of 12 regional Federal Home Loan Banks (“FHLB”).  

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates approximately $379,000 to be reclassified to earnings as an increase to interest expense. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of twenty months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.  These derivatives are not designated as hedges and are not speculative.  Rather, these derivatives result from a service the Company provides to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. 

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of June 30, 2021 and September 30, 2020:

 

`

 

June 30, 2021

 

 

Asset derivatives

 

Liability derivatives

 

 

Notional Amount

 

 

Fair Value

 

 

Statement of Financial Condition Location

 

Notional Amount

 

 

Fair Value

 

 

Statement of Financial Condition Location

 

 

(In thousands)

Derivatives designated as a hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

-

 

 

$

-

 

 

Other assets

 

$

70,000

 

 

$

257

 

 

Other liabilities

Derivatives not designated as a hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

44,853

 

 

$

5,148

 

 

Other assets

 

$

44,853

 

 

$

5,151

 

 

Other liabilities

-31-


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

Asset derivatives

 

Liability derivatives

 

 

Notional Amount

 

 

Fair Value

 

 

Statement of Financial Condition Location

 

Notional Amount

 

 

Fair Value

 

 

Statement of Financial Condition Location

 

 

(In thousands)

Derivatives designated as a hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

-

 

 

$

-

 

 

Other assets

 

$

90,000

 

 

$

1,291

 

 

Other liabilities

Derivatives not designated as a hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

45,162

 

 

$

8,752

 

 

Other assets

 

$

45,162

 

 

$

8,756

 

 

Other liabilities

 

 

 

-32-


 

 

The tables below present the derivative assets and liabilities offsetting as of June 30, 2021 and September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Assets

(In thousands)

 

as of June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Statements of Financial Condition

 

 

Gross Amounts of Recognized Assets

 

Gross Amounts Offset in the Statement of Financial Condition

 

Net Amounts of Assets presented in the Statement of Financial Condition

 

Financial Instruments

 

Cash Collateral Received

 

Net Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

5,148

 

$

-

 

$

5,148

 

$

-

 

$

-

 

$

5,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

(In thousands)

 

as of June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Statements of Financial Condition

 

 

Gross Amounts of Recognized Liabilities

 

Gross Amounts Offset in the Statement of Financial Condition

 

Net Amounts of Liabilities presented in the Statement of Financial Condition

 

Financial Instruments

 

Cash Collateral Posted

 

Net Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

5,408

 

$

-

 

$

5,408

 

$

436

 

$

7,857

 

$

(2,885

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Assets

(In thousands)

 

as of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Statements of Financial Condition

 

 

Gross Amounts of Recognized Assets

 

Gross Amounts Offset in the Statement of Financial Condition

 

Net Amounts of Assets presented in the Statement of Financial Condition

 

Financial Instruments

 

Cash Collateral Received

 

Net Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

8,752

 

$

-

 

$

8,752

 

$

-

 

$

-

 

$

8,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

(In thousands)

 

as of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Statements of Financial Condition

 

 

Gross Amounts of Recognized Liabilities

 

Gross Amounts Offset in the Statement of Financial Condition

 

Net Amounts of Liabilities presented in the Statement of Financial Condition

 

Financial Instruments

 

Cash Collateral Posted

 

Net Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

10,047

 

$

-

 

$

10,047

 

$

1,498

 

$

12,857

 

$

(4,308

)

 

 

-33-


 

 

The tables below present the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Operations relating to the cash flow derivative instruments for the three and nine months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended June 30, 2021

 

 

 

 

Amount of Loss  Recognized

in OCI on Derivative

 

 

Amount of Loss

Reclassified

from OCI to

Interest Expense

 

 

 

 

(In thousands)

 

 

Interest rate swap agreements

 

$

(40

)

 

$

(231

)

 

Total derivatives

 

 

(40

)

 

 

(231

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2021

 

 

 

 

Amount of Gain  Recognized

in OCI on Derivative

 

 

Amount of Loss

Reclassified

from OCI to

Interest Expense

 

 

 

 

(In thousands)

 

 

Interest rate swap agreements

 

$

274

 

 

$

(754

)

 

Total derivatives

 

 

274

 

 

 

(754

)

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

 

Amount of Loss

Recognized

in OCI on Derivative

 

 

Amount of Loss

Reclassified

from OCI to

Interest Expense

 

 

 

 

(In thousands)

 

 

Interest rate swap agreements

 

$

(433

)

 

$

(122

)

 

Total derivatives

 

 

(433

)

 

 

(122

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2020

 

 

 

 

Amount of Loss

Recognized

in OCI on Derivative

 

 

Amount of Loss

Reclassified

from OCI to

Interest Expense

 

 

 

 

(In thousands)

 

 

Interest rate swap agreements

 

$

(1,086

)

 

$

(183

)

 

Total derivatives

 

 

(1,086

)

 

 

(183

)

 

 

    

          

 

 

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended June 30, 2021 and 2020:

 

-34-


 

 

 

 

 

Three Months Ended June 30, 2021

 

 

 

 

Consolidated Statements of Operations

 

Amount of Loss Recognized in Income on derivatives

 

 

 

 

(In thousands)

 

Derivatives not designated as a hedging instrument:

 

 

 

Interest rate swap agreement

 

 

Other income

 

$

(1

)

Total

 

 

 

 

$

(1

)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2021

 

 

 

 

Consolidated Statements of Operations

 

Amount of Gain Recognized in Income on derivatives

 

 

 

 

(In thousands)

 

Derivatives not designated as a hedging instrument:

 

 

 

Interest rate swap agreement

 

 

Other income

 

$

2

 

Total

 

 

 

 

$

2

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

 

Consolidated Statements of Operations

 

Amount of Loss Recognized in Income on derivatives

 

 

 

 

(In thousands)

 

Derivatives not designated as a hedging instrument:

 

 

 

Interest rate swap agreement

 

 

Other income

 

$

-

 

Total

 

 

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2020

 

 

 

 

Consolidated Statements of Operations

 

Amount of Loss Recognized in Income on derivatives

 

 

 

 

(In thousands)

 

Derivatives not designated as a hedging instrument:

 

 

 

Interest rate swap agreement

 

 

Other income

 

$

(6

)

Total

 

 

 

 

$

(6

)

 

The Company has agreements with each of its derivative counterparties that contain a provision providing that if the Company defaults on any of its indebtedness, including defaults where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

 

At June 30, 2021 and September 30, 2020, the fair value of derivatives was in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. There were no adjustments for nonperformance risk at June 30, 2021 and September 30, 2020. At June 30, 2021 and September 30, 2020, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $7.9 million and $12.9 million, respectively, against its obligations under these agreements.  If the Company had breached any of these provisions at June 30, 2021, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

-35-


 

Note 11 - Fair Value Measurements

The Company follows FASB ASC Topic 820 Fair Value Measurement to record fair value adjustments to certain assets and to determine fair value disclosures for the Company’s financial instruments. Investment and mortgage-backed securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, real estate owned and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

The Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1— valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2—valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3—valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy.

Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the Company’s or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment, and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

The Company monitors and evaluates available data to perform fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date event or a change in circumstances that affects the valuation method chosen. There were no changes in valuation technique or transfers between levels at June 30, 2021 or September 30, 2020.

The tables below present the balances of assets measured at fair value on a recurring basis as of June 30, 2021 and September 30, 2020:

 

 

 

June 30, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

4,995

 

 

$

-

 

 

$

4,995

 

 

$

-

 

State and municipal obligations

 

 

2,788

 

 

 

-

 

 

 

2,788

 

 

 

-

 

Single issuer trust preferred security

 

 

879

 

 

 

-

 

 

 

879

 

 

 

-

 

Corporate debt securities

 

 

24,336

 

 

 

-

 

 

 

24,336

 

 

 

-

 

Mutual funds

 

 

1,504

 

 

 

1,004

 

 

 

-

 

 

 

500

 

Total investment securities available for sale

 

$

34,502

 

 

$

1,004

 

 

$

32,998

 

 

$

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

5,148

 

 

$

-

 

 

$

5,148

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

5,408

 

 

$

-

 

 

$

5,408

 

 

$

-

 

-36-


 

 

 

 

 

September 30, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

5,040

 

 

$

-

 

 

$

5,040

 

 

$

-

 

State and municipal obligations

 

 

3,105

 

 

 

-

 

 

 

3,105

 

 

 

-

 

Single issuer trust preferred security

 

 

925

 

 

 

-

 

 

 

925

 

 

 

-

 

Corporate debt securities

 

 

20,948

 

 

 

-

 

 

 

20,948

 

 

 

-

 

Mutual fund

 

 

1,523

 

 

 

1,023

 

 

 

-

 

 

 

500

 

Total investment securities available for sale

 

$

31,541

 

 

$

1,023

 

 

$

30,018

 

 

$

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

8,752

 

 

$

-

 

 

$

8,752

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

10,047

 

 

$

-

 

 

$

10,047

 

 

$

-

 

 

The following tables present additional information about the securities available-for-sale measured at fair value on a recurring basis and for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value for the nine months ended June 30, 2021 and June 30, 2020

 

 

Fair value measurements

 

 

 

using significant

 

 

 

unobservable inputs

 

 

 

(Level 3)

 

 

 

(In thousands)

    Balance, October 1, 2020

$

500

 

 

Payments received

 

-

 

 

Total gains or losses (realized/unrealized)

 

 

 

 

Included in earnings

 

-

 

 

Included in other comprehensive income

 

-

 

 

Purchases

 

-

 

 

Transfers in and/or out of Level 3

 

-

 

 

    Balance, June 30, 2021

$

500

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements

 

 

 

using significant

 

 

 

unobservable inputs

 

 

 

(Level 3)

 

 

 

(In thousands)

    Balance, October 1, 2019

$

250

 

 

Payments received

 

-

 

 

Total gains or losses (realized/unrealized)

 

 

 

 

Included in earnings

 

-

 

 

Included in other comprehensive income

 

-

 

 

Purchases

 

250

 

 

Transfers in and/or out of Level 3

 

-

 

 

    Balance, June 30, 2020

$

500

 

 

The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other

-37-


 

things.  From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.

 

For assets measured at fair value on a nonrecurring basis that were still held at the end of the period, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at June 30, 2021 and September 30, 2020:

 

 

 

June 30, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Other real estate owned

 

$

4,961

 

 

$

-

 

 

$

-

 

 

$

4,961

 

Impaired loans(1)

 

 

27,691

 

 

 

-

 

 

 

-

 

 

 

27,691

 

Total

 

$

32,652

 

 

$

-

 

 

$

-

 

 

$

32,652

 

 

 

 

 

June 30, 2021

 

 

Fair Value at

June 30, 2021

 

 

Valuation Technique

 

Unobservable Input

 

Range/(Weighted

Average)

 

 

(Dollars in thousands)

Other real estate owned

 

$

4,961

 

 

Appraisal of Collateral(2)

 

Collateral discount(3)

 

4%/(4%)

Impaired loans(1)

 

 

27,691

 

 

Appraisal of Collateral(2)

 

Collateral discount(3)

 

0% - 15.2%/(10.8%)

Total

 

$

32,652

 

 

 

 

 

 

 

 

(1)

Consisted of four loans with an aggregate balance of $6.9 million and with $1.3 million in specific loan loss allowance and three loans with an aggregate balance of $22.1 million that were partially charged-off.

(2)

Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.

(3)

Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.

 

 

 

September 30, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Other real estate owned

 

$

5,796

 

 

$

-

 

 

$

-

 

 

$

5,796

 

Impaired loans(1)

 

 

7,920

 

 

 

-

 

 

 

-

 

 

 

7,920

 

Total

 

$

13,716

 

 

$

-

 

 

$

-

 

 

$

13,716

 

 

 

 

September 30, 2020

 

 

Fair Value at

September 30, 2020

 

 

Valuation Technique

 

Unobservable Input

 

Range/(Weighted

Average)

 

 

(Dollars in thousands)

Other real estate owned

 

$

5,796

 

 

Appraisal of Collateral(2)

 

Collateral discount(3)

 

0%/(0%)

Impaired loans(1)

 

 

7,920

 

 

Appraisal of Collateral(2)

 

Collateral discount(3)

 

(2.0%) - 20.0%/(1.4%)

Total

 

$

13,716

 

 

 

 

 

 

 

 

(1)

Consisted of seven loans with an aggregate balance of $8.2 million and with $308,000 in specific loan loss allowance.

(2)

Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.

(3)

Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.

At June 30, 2021 and September 30, 2020, the Company did not have any additions to our mortgage servicing assets.  At June 30, 2021 and September 30, 2020, the Company only sold loans with servicing released.  

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB ASC 825.  The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methods. However, considerable judgment is necessarily required to interpret market data to develop the

-38-


 

estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. FASB ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2021 and September 30, 2020. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since June 30, 2021 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following assumptions were used to estimate the fair value of the Company’s financial instruments:

Cash and Cash Equivalents—These assets are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Investment Securities—Investment and mortgage-backed securities available for sale (carried at fair value), and equity securities (carried at fair value) are measured at fair value on a recurring basis. Fair value measurements for these securities are typically obtained from independent pricing services that the Company has engaged for this purpose. When available, the Company, or its independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, our independent pricing service’s applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. For each asset class, pricing applications and models are based on information from market sources and integrate relevant credit information. All of our securities available for sale are valued using either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements.    

Loans Receivable—The Company does not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for FASB ASC 825 disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments to loans to reflect partial write-downs for impairment or the full charge-off of the loan carrying value. The valuation of impaired loans is discussed below. The fair value estimate for FASB ASC 825 purposes differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by loan type and rate. The fair value of loans is estimated by discounting contractual cash flows using discount rates based on current industry pricing, adjusted for prepayment and credit loss estimates.

Impaired Loans—Impaired loans are valued utilizing independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. The appraisals are adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date and are considered Level 3 inputs.

Accrued Interest Receivable—This asset is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Restricted Stock—Although restricted stock is an equity interest in the FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.

Other Real Estate Owned—Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at estimated fair value less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the ALLL. If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of, among other factors, changes in the economic conditions.

-39-


 

DepositsDeposit liabilities are carried at cost. As such, valuation techniques discussed herein for deposits are primarily for estimating fair value for FASB ASC 825 disclosure purposes. The fair value of deposits is discounted based on rates available for borrowings of similar maturities. A decay rate is estimated for non-time deposits. The discount rate for non-time deposits is adjusted for servicing costs based on industry estimates.

Borrowings—Advances from the FHLB are carried at amortized cost. However, the Company is required to estimate the fair value of long-term debt under FASB ASC 825. The fair value is based on the contractual cash flows discounted using rates currently offered for new notes with similar remaining maturities.

Subordinated Debt—The calculation of fair value in Level 2 is based on observable market values where available.

Derivatives—The fair value of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs is actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Accrued Interest Payable—This liability is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Commitments to Extend Credit and Letters of Credit— The majority of the Company’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans and are not included in the table below. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Company and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

Mortgage Servicing Rights—The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available. Assumptions, such as loan default rates, costs to service, and prepayment speeds significantly affect the estimate of future cash flows. Mortgage servicing rights are carried at the lower of cost or fair value.  

-40-


 

The carrying amount and estimated fair value of the Company’s financial instruments as of June 30, 2021 and September 30, 2020 are presented below:

 

 

 

June 30, 2021

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,954

 

 

$

104,954

 

 

$

104,954

 

 

$

-

 

 

$

-

 

Investment securities available-for-sale

 

 

34,502

 

 

 

34,502

 

 

 

1,004

 

 

 

32,998

 

 

 

500

 

Investment securities held-to-maturity

 

 

31,795

 

 

 

32,360

 

 

 

-

 

 

 

32,360

 

 

 

-

 

Loans receivable, net (including impaired loans)

 

 

940,735

 

 

 

939,454

 

 

 

-

 

 

 

-

 

 

 

939,454

 

Accrued interest receivable

 

 

3,370

 

 

 

3,370

 

 

 

-

 

 

 

3,370

 

 

 

-

 

Restricted stock

 

 

7,896

 

 

 

7,896

 

 

 

-

 

 

 

7,896

 

 

 

-

 

Mortgage servicing rights (included in Other Assets)

 

 

83

 

 

 

83

 

 

 

-

 

 

 

83

 

 

 

-

 

Derivatives (included in Other Assets)

 

 

5,148

 

 

 

5,148

 

 

 

-

 

 

 

5,148

 

 

 

-

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

51,011

 

 

 

51,011

 

 

 

-

 

 

 

51,011

 

 

 

-

 

Checking and NOW accounts

 

 

382,737

 

 

 

382,737

 

 

 

-

 

 

 

382,737

 

 

 

-

 

Money market accounts

 

 

359,040

 

 

 

359,040

 

 

 

-

 

 

 

359,040

 

 

 

-

 

Certificates of deposit

 

 

114,916

 

 

 

116,767

 

 

 

-

 

 

 

116,767

 

 

 

-

 

Borrowings (excluding sub debt)

 

 

90,000

 

 

 

90,260

 

 

 

-

 

 

 

90,260

 

 

 

-

 

Subordinated debt

 

 

24,895

 

 

 

25,027

 

 

 

-

 

 

 

25,027

 

 

 

-

 

Derivatives (included in Other Liabilities)

 

 

5,408

 

 

 

5,408

 

 

 

-

 

 

 

5,408

 

 

 

-

 

Accrued interest payable

 

 

946

 

 

 

946

 

 

 

-

 

 

 

946

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,439

 

 

$

61,439

 

 

$

61,439

 

 

$

-

 

 

$

-

 

Investment securities available-for-sale

 

 

31,541

 

 

 

31,541

 

 

 

1,023

 

 

 

30,018

 

 

 

500

 

Investment securities held-to-maturity

 

 

14,970

 

 

 

15,608

 

 

 

-

 

 

 

15,608

 

 

 

-

 

Loans receivable, net (including impaired loans)

 

 

1,031,392

 

 

 

1,039,981

 

 

 

-

 

 

 

-

 

 

 

1,039,981

 

Accrued interest receivable

 

 

3,677

 

 

 

3,677

 

 

 

-

 

 

 

3,677

 

 

 

-

 

Restricted stock

 

 

9,622

 

 

 

9,622

 

 

 

-

 

 

 

9,622

 

 

 

-

 

Mortgage servicing rights (included in Other Assets)

 

 

111

 

 

 

111

 

 

 

-

 

 

 

111

 

 

 

-

 

Derivatives (included in Other Assets)

 

 

8,752

 

 

 

8,752

 

 

 

-

 

 

 

8,752

 

 

 

-

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

45,072

 

 

 

45,072

 

 

 

-

 

 

 

45,072

 

 

 

-

 

Checking and NOW accounts

 

 

354,104

 

 

 

354,104

 

 

 

-

 

 

 

354,104

 

 

 

-

 

Money market accounts

 

 

277,711

 

 

 

277,711

 

 

 

-

 

 

 

277,711

 

 

 

-

 

Certificates of deposit

 

 

214,019

 

 

 

217,212

 

 

 

-

 

 

 

217,212

 

 

 

-

 

Borrowings (excluding sub debt)

 

 

134,225

 

 

 

135,101

 

 

 

-

 

 

 

135,101

 

 

 

-

 

Subordinated debt

 

 

24,776

 

 

 

25,030

 

 

 

-

 

 

 

25,030

 

 

 

-

 

Derivatives (included in Other Liabilities)

 

 

10,047

 

 

 

10,047

 

 

 

-

 

 

 

10,047

 

 

 

-

 

Accrued interest payable

 

 

728

 

 

 

728

 

 

 

-

 

 

 

728

 

 

 

-

 

 

-41-


 

 

Note 12 – Comprehensive Income

The components of accumulated other comprehensive income (loss) included in shareholders’ equity are as follows:

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

(In thousands)

 

Net unrealized holding gains (losses) on available-for-sale securities

 

$

241

 

 

$

(118

)

Tax effect

 

 

(51

)

 

 

25

 

Net of tax amount

 

 

190

 

 

 

(93

)

Fair value adjustments on derivatives

 

 

(233

)

 

 

(1,260

)

Tax effect

 

 

49

 

 

 

265

 

Net of tax amount

 

 

(184

)

 

 

(995

)

Total accumulated other comprehensive income (loss)

 

$

6

 

 

$

(1,088

)

 

Other comprehensive income (loss) and related tax effects are presented in the following table:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Net unrealized holding gains (losses) on available-for-sale securities

 

$

671

 

 

$

(302

)

 

$

1,135

 

 

$

(169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain on securities available-for-sale

 

 

(165

)

 

 

(1

)

 

 

(779

)

 

 

(181

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on securities transferred

   from available-for-sale to held-to-maturity

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for loss recorded on replacement of derivative

 

 

(3

)

 

 

23

 

 

 

(7

)

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value adjustments on derivatives

 

 

194

 

 

 

(336

)

 

 

1,034

 

 

 

(927

)

Other comprehensive income (loss) before taxes

 

 

698

 

 

 

(615

)

 

 

1,386

 

 

 

(1,251

)

Tax effect

 

 

(148

)

 

 

128

 

 

 

(292

)

 

 

262

 

Total other comprehensive income (loss)

 

$

550

 

 

$

(487

)

 

$

1,094

 

 

$

(989

)

 

Note 13 – Equity Based Incentive Compensation Plan

The Company maintains the Malvern Bancorp, Inc. 2014 Long-Term Incentive Compensation Plan (the “2014 Plan”), which permits the grant of long-term incentive and other stock and cash awards. The purpose of the 2014 Plan is to promote the success of the Company and the Bank by providing incentives to officers, employees and directors of the Company and the Bank that will link their personal interests to the financial success of the Company and to growth in shareholder value.  The maximum total number of shares of the Company’s common stock available for grants under the 2014 Plan is 400,000.  As of June 30, 2021, there were 299,288 remaining shares available for future grants.

Restricted stock and option awards granted vest annually in 20% increments beginning on the one year anniversary of the grant date, and accelerate upon a change in control of the Company.  The options generally expire ten years from the date of grant.  All issuances are subject to forfeiture if the recipient leaves the Company or is terminated prior to the award’s vesting.  Shares of restricted stock have the same dividend and voting rights as common stock, while stock options do not have such rights.

All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant.

 During the three months ended June 30, 2021, stock options covering a total of 7,000 shares of common stock were granted. During the nine months ended June 30, 2021, stock options covering a total of 7,000 shares of common stock were granted. Total compensation expense related to stock options granted under the 2014 Plan was approximately $7,000 and $23,000 for the three and nine months ended June 30, 2021, respectively. During the three months ended June 30, 2020, no stock options were granted. During the nine months ended June 30, 2020, stock options to acquire a total of 7,000 shares of common stock were granted. Total

-42-


 

compensation expense related to stock options granted under the 2014 Plan was approximately $9,000 and $21,000 for the three and nine months ended June 30, 2020, respectively.    

During the three months ended June 30, 2021 a total of 12,363 shares of restricted stock were awarded. During the nine months ended June 30, 2021 a total of 12,363 shares of restricted stock were awarded. The compensation expense related to restricted stock awards was approximately $43,000 and $129,000 during the three and nine months ended June 30, 2021, respectively.  During the three and nine months ended June 30, 2020, a total of 5,700 and 23,821 shares of restricted stock were awarded, respectively. During the nine months ended June 30, 2020, 1,610 shares of restricted stock were forfeited. The compensation expense related to restricted stock awards was approximately $115,000 and $181,000 during the three and nine months ended June 30, 2020, respectively.        

Stock-based compensation expense for the cost of the restricted stock awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options.

Stock Options

 

There were 7,000 stock options granted for the nine months ended June 30, 2021. The assumptions used in determining the fair value of stock option grants for the nine months ended June 30, 2021 are as follows:

 

Weighted Average Fair Value of Awards

 

$

6.06

 

Risk Free Rate

 

 

 

1.25

%

Dividend Yield

 

 

-%

 

Volatility

 

 

 

29.72

%

Expected Life

 

 

6.5 years

 

 

The assumptions used in determining the fair value of stock option grants for the nine months ended June 30, 2020 are as follows:

 

Weighted Average Fair Value of Awards

 

$

4.72

 

Risk Free Rate

 

 

 

1.22

%

Dividend Yield

 

 

-%

 

Volatility

 

 

 

19.86

%

Expected Life

 

 

6.5 years

 

 

The following is a summary of stock option activity for the nine months ended June 30, 2021:

 

 

 

Shares

 

 

Weighted Average

Exercise Price

 

 

Weighted Average Remaining Contractual Term (In Years)

 

 

Aggregate Intrinsic

Value

 

Outstanding, beginning of year

 

 

25,830

 

 

$

21.57

 

 

 

 

 

 

$

-

 

Granted

 

 

7,000

 

 

$

18.69

 

 

 

 

 

 

$

-

 

Exercised

 

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Forfeited/cancelled/expired

 

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Outstanding, at June 30, 2021

 

 

32,830

 

 

$

20.96

 

 

 

6.445

 

 

$

4,860

 

Exercisable, at June 30, 2021

 

 

13,310

 

 

$

21.53

 

 

 

8.461

 

 

$

4,860

 

Nonvested, at June 30, 2021

 

 

19,520

 

 

$

20.56

 

 

 

 

 

 

 

 

 

-43-


 

 

The following is a summary of stock option activity for the nine months ended June 30, 2020:

 

 

 

Shares

 

 

Weighted Average

Exercise Price

 

 

Weighted Average Remaining Contractual Term (In Years)

 

 

Aggregate Intrinsic

Value

 

Outstanding, beginning of year

 

 

18,830

 

 

$

22.05

 

 

 

 

 

 

$

21,350

 

Granted

 

 

7,000

 

 

$

20.28

 

 

 

 

 

 

$

-

 

Exercised

 

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Forfeited/cancelled/expired

 

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Outstanding, at June 30, 2020

 

 

25,830

 

 

$

21.57

 

 

 

8.071

 

 

$

-

 

Exercisable, at June 30, 2020

 

 

8,140

 

 

$

21.50

 

 

 

7.043

 

 

$

-

 

Nonvested, at June 30, 2020

 

 

17,690

 

 

$

21.60

 

 

 

 

 

 

 

 

 

 

As of June 30, 2021, there was approximately $104,000 of total unrecognized compensation cost related to unvested stock options under the 2014 Plan.  The cost is expected to be recognized over a weighted average period of 3.48 years.

Restricted Stock Awards

The table below summarizes the activity for the Company’s restricted stock outstanding during the nine months ended June 30, 2021:

 

 

 

Shares

 

 

Weighted Average

Fair Value

 

Outstanding, beginning of year

 

 

30,653

 

 

$

21.98

 

Granted

 

 

12,363

 

 

$

18.69

 

Vested

 

 

(11,851

)

 

$

20.87

 

Forfeited/cancelled/expired

 

 

-

 

 

$

-

 

Outstanding, at June 30, 2021

 

 

31,165

 

 

$

21.09

 

 

The table below summarizes the activity for the Company’s restricted stock outstanding during the nine months ended June 30, 2020:

 

 

 

Shares

 

 

Weighted Average

Fair Value

 

Outstanding, beginning of year

 

 

18,493

 

 

$

21.78

 

Granted

 

 

23,821

 

 

$

19.62

 

Vested

 

 

(10,051

)

 

$

16.62

 

Forfeited/cancelled/expired

 

 

(1,610

)

 

$

21.43

 

Outstanding, at June 30, 2020

 

 

30,653

 

 

$

21.98

 

 

As of June 30, 2021, there was approximately $573,000 of total unrecognized compensation cost related to unvested shares of restricted stock granted under the 2014 Plan.  The cost is expected to be recognized over a weighted average period of 3.45 years.

        

 

-44-


 

 

Note 14 – Deposits

Deposits classified by type with percentages to total deposits at June 30, 2021 and September 30, 2020 consisted of the following:

 

 

 

June 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances by types of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

$

51,011

 

 

 

5.62

%

 

$

45,072

 

 

 

5.06

%

Money market accounts

 

 

359,040

 

 

 

39.55

 

 

 

277,711

 

 

 

31.17

 

Interest-bearing demand

 

 

329,372

 

 

 

36.29

 

 

 

303,682

 

 

 

34.09

 

Non-interest-bearing demand

 

 

53,365

 

 

 

5.88

 

 

 

50,422

 

 

 

5.66

 

 

 

 

792,788

 

 

 

87.34

%

 

 

676,887

 

 

 

75.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

114,916

 

 

 

12.66

%

 

 

214,019

 

 

 

24.02

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Deposits

 

$

907,704

 

 

 

100.00

%

 

$

890,906

 

 

 

100.00

%

 

The total amount of certificates of deposit greater than or equal to $250,000 at June 30, 2021 and September 30, 2020 was $16.5 million and $48.4 million, respectively.  The Company had brokered deposits totaling $6.1 million and $31.1 million at June 30, 2021 and September 30, 2020, respectively.

 

Interest expense on deposits consisted of the following:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Savings accounts

 

$

13

 

 

$

11

 

 

$

47

 

 

$

35

 

Money market accounts

 

 

586

 

 

 

902

 

 

 

2,053

 

 

 

3,122

 

Interest-bearing demand

 

 

431

 

 

 

661

 

 

 

1,457

 

 

 

2,920

 

Certificates of deposit

 

 

416

 

 

 

1,302

 

 

 

1,951

 

 

 

4,159

 

Total

 

$

1,446

 

 

$

2,876

 

 

$

5,508

 

 

$

10,236

 

 

As of June 30, 2021, the scheduled maturities of certificates of deposits are as follows:

 

 

 

Scheduled Maturities

 

 

 

(In thousands)

 

Period Ending June 30,

 

 

 

 

2021

 

$

59,302

 

2022

 

 

21,923

 

2023

 

 

19,789

 

2024

 

 

6,730

 

2025

 

 

6,455

 

Thereafter

 

 

717

 

Total

 

$

114,916

 

 

 

 

 

 

 


-45-


 

 

As of June 30, 2021, the scheduled maturities of certificates of deposits in amounts greater than $100,000 are as follows:

 

 

Scheduled Maturities

 

 

 

(In thousands)

 

 

 

 

 

 

Three months or less

 

$

7,969

 

Over three through six months

 

 

7,156

 

Over six through twelve months

 

 

17,581

 

Over twelve months

 

 

29,044

 

Total

 

$

61,750

 

 

 

 

 

 

 

Note 15 – Leases

          The Company determines if an arrangement is a lease at inception. The Company adopted the guidance of ASC 842 Leases and recorded right of use (“ROU”) assets and related lease liabilities of $3.3 million at October 1, 2019. Operating leases are included in operating lease ROU assets and operating lease liabilities on our consolidated statements of financial condition. ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, in order to determine the present value of future payments for office leases we used our incremental borrowing rate based on the FHLB liquidity and funding rates. The Company’s lease terms may include options to extend when it is reasonably certain that we will exercise an option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

           The Company currently leases one financial center in Glen Mills, Pennsylvania; one private banking office located in Villanova, Pennsylvania; one private banking office located in Morristown, New Jersey; one private banking office located in Palm Beach, Florida; one representative office located in Wellington, Florida; and one representative office located in Allentown, Pennsylvania. The Company has elected not to recognize ROU assets and lease liabilities for two private banking office leases and two representative office leases whose terms are twelve months or less and are considered short-term leases. All of the financial center leases and two private banking office leases include options to extend for terms of five years. These options have not been recognized as part of our ROU assets and lease liabilities as the Company is not reasonably certain to exercise these options. The Company has also entered into three leases for office equipment for which ROU assets and lease liabilities have been recognized. All the aforementioned leases have been accounted for as operating leases.

The components of lease expense were as follows:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

 

(In thousands)

 

Operating lease cost

 

$

167

 

 

$

175

 

 

$

507

 

 

$

523

 

Finance lease cost

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Short-term lease cost

 

 

24

 

 

 

26

 

 

 

71

 

 

 

79

 

Total

 

$

191

 

 

$

201

 

 

$

578

 

 

$

602

 

 


-46-


 

 

Supplemental information at and for June 30, 2021 and the nine months ended June 30, 2021 related to leases was as follows:

 

 

 

June 30, 2021

 

 

September 30, 2020

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Supplemental balance sheet information

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

2,168

 

 

$

2,638

 

Operating lease liabilities

 

$

2,204

 

 

$

2,671

 

Weighted average remaining lease term

 

4.82 years

 

 

5.40 years

 

Weighted average discount rate

 

 

2.00

%

 

 

1.99

%

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2021

 

 

Nine Months Ended June 30, 2020

 

 

 

(In thousands)

 

 

(In thousands)

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

492

 

 

$

499

 

ROU assets obtained in exchange for lease obligations

 

$

3,279

 

 

$

3,279

 

 

 

 

 

 

 

 

 

 

Maturities of lease liabilities were as follows:

 

 

 

Operating Leases

 

 

 

(In thousands)

 

Period Ending September 30,

 

 

 

 

Remainder of 2021

 

$

139

 

2022

 

 

492

 

2023

 

 

474

 

2024

 

 

474

 

2025

 

 

477

 

Thereafter

 

 

269

 

Total lease payments

 

$

2,325

 

    Less: imputed interest

 

 

(121

)

Total

 

$

2,204

 

 

 

 

 

 

 

             

 

-47-


 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for the periods presented herein and financial condition as of June 30, 2021 and September 30, 2020. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Forward-Looking Statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. 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 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 SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters; possible other-than-temporary impairment of securities held by the Company; 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 and banks; 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 2020 Annual Report 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 and continuing impact of the COVID-19 outbreak, including the outbreak of its variants, on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus and its variants can be controlled and abated and when and how the economy may be fully reopened, and for how long it will remain as such. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are subject to 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 there are high levels of unemployment 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 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%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income; 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.   

 

Critical Accounting Policies

The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of

-48-


 

assets and liabilities as of the dates of the consolidated statements of condition and for the periods indicated in the statements of operations. Actual results could differ significantly from those estimates.

The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. The Company has identified the determination of the ALLL, OREO, fair value measurements, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of our derivative positions to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found in the Company’s 2020 Annual Report.

There have been no significant changes to the Company’s Critical Accounting Policies as described in its 2020 Annual Report. 

 

Impact of COVID-19

 

The Company continues to take the following significant steps to protect the health and well-being of its employees and clients and to assist clients who have been impacted by the COVID-19 pandemic.

 

 

Prioritizing drive-thru and appointment banking.  

 

Continuing to assist existing and new customers in the PPP.

 

Continuing to provide payment deferrals and forbearances to business customers and mortgage customers that are experiencing hardship because of the COVID-19 pandemic.

 

Paycheck Protection Program

 

The Company participated in the initial PPP when the program was officially launched by the SBA and Treasury Department under the CARES Act. Recognizing the significance of operational risk that this portfolio of loans poses, and the continued complexity and uncertainty surrounding evolving regulatory pronouncements regarding various aspects of the PPP, management reviewed several options for continued servicing of the PPP loan portfolio through forgiveness and beyond. After thoughtful consideration, the Company concluded that it was in the best interests of both the Bank and our PPP borrowers that the loans be serviced by an organization that has the servicing infrastructure in place to support the significant volume and short timeframe involved in the complex and evolving PPP forgiveness process. In that regard, in mid-December 2020, the Bank sold substantially all of its PPP loans to a seasoned and experienced non-bank lender and servicer of SBA loans. In connection with the sale, the Company recognized a $202,000 net gain on the sale of approximately $19.7 million of PPP loans, which was recorded as non-interest income for the period ended December 31, 2020. We are currently working with the same third party in order for our customers to be able to participate in the updated PPP loan program adopted as part of the COVID-19 stimulus bill enacted in December 2020 as part of the 2021 Consolidated Appropriations Act.

 

Liquidity Sources

 

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized such sources based on available capacity, term flexibility, and cost. As of June 30, 2021, the Company had adequate sources of liquidity.

 

Capital Strength

The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels. As of June 30, 2021, common equity Tier 1 capital ratio was 15.07 percent, Tier 1 leverage ratio was 12.27 percent, Tier 1 risk-based capital ratio was 15.07 percent and the total risk-based capital ratio was 18.85 percent.  

 

Modifications

 

As of June 30, 2021, the Company had eight COVID-19 modified loans totaling $61.3 million, representing 6.44 percent of loans outstanding. The COVID-19 loan modifications do not classify as TDRs as they fall under Section 4013 of the CARES Act, as amended, and further details regarding these modifications are provided in the table below. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term.

 

Of the $61.3 million of COVID-19 modified loans at June 30, 2021, $13.1 million were rated pass and $48.2 million were rated special mention. These loans are currently performing under their modified terms. These modifications are not currently reported as

-49-


 

TDRs as they fall under Section 4013 of the CARES Act, as amended. On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2020, which both funds the federal government until September 30, 2021 and broadly addresses additional COVID-19 responses and relief. Among the additional relief measures included are certain extensions to elements of the CARES Act, including extensions of temporary relief from TDRs established under Section 4013 of the CARES Act to the earlier of a) January 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. Management will continue to monitor the performance of these loans, and evaluate the impact on the Company’s risk rating process and the allowance for loan loss.

 

 

-50-


 

 

 

June 30, 2021

 

 

Number of Loans

 

 

Loan Deferment Exposure

 

 

Gross Loans        June 30, 2021

 

 

Percentage of Gross Loans on Deferral

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Residential mortgage

 

2

 

 

$

669

 

 

$

201,737

 

 

 

0.07

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

-

 

 

 

-

 

 

 

61,484

 

 

 

0.00

%

Land loans

 

-

 

 

 

-

 

 

 

2,253

 

 

 

0.00

%

Total Construction and Development

 

-

 

 

 

-

 

 

 

63,737

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

6

 

 

 

60,612

 

 

 

478,032

 

 

 

6.37

%

Farmland

 

-

 

 

 

-

 

 

 

10,335

 

 

 

0.00

%

Multi-family

 

-

 

 

 

-

 

 

 

66,725

 

 

 

0.00

%

Commercial and industrial

 

-

 

 

 

-

 

 

 

97,955

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

10,896

 

 

 

0.00

%

Total Commercial

 

6

 

 

 

60,612

 

 

 

663,943

 

 

 

6.37

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

-

 

 

 

-

 

 

 

12,822

 

 

 

0.00

%

Second mortgages

 

-

 

 

 

-

 

 

 

7,039

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

2,372

 

 

 

0.00

%

Total Consumer

 

-

 

 

 

-

 

 

 

22,233

 

 

 

0.00

%

Total loans

 

8

 

 

$

61,281

 

 

$

951,650

 

 

 

6.44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

Number of Loans

 

 

Loan Deferment Exposure

 

 

Gross Loans September 30, 2020

 

 

Percentage of Gross Loans on Deferral

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Residential mortgage

 

5

 

 

$

1,288

 

 

$

242,090

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial

 

-

 

 

 

-

 

 

 

65,703

 

 

 

0.00

%

Land loans

 

-

 

 

 

-

 

 

 

3,110

 

 

 

0.00

%

Total Construction and Development

 

-

 

 

 

-

 

 

 

68,813

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

21

 

 

 

131,348

 

 

 

495,398

 

 

 

12.64

%

Farmland

 

1

 

 

 

2,288

 

 

 

7,517

 

 

 

0.22

%

Multi-family

 

2

 

 

 

3,718

 

 

 

67,767

 

 

 

0.36

%

Commercial and industrial

 

10

 

 

 

5,547

 

 

 

116,584

 

 

 

0.53

%

Other

 

-

 

 

 

-

 

 

 

10,142

 

 

 

0.00

%

Total Commercial

 

34

 

 

 

142,901

 

 

 

697,408

 

 

 

13.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

3

 

 

 

579

 

 

 

17,128

 

 

 

0.06

%

Second mortgages

 

1

 

 

 

17

 

 

 

10,711

 

 

 

0.00

%

Other

 

-

 

 

 

-

 

 

 

2,851

 

 

 

0.00

%

Total Consumer

 

4

 

 

 

596

 

 

 

30,690

 

 

 

0.06

%

Total loans

 

43

 

 

$

144,785

 

 

$

1,039,001

 

 

 

13.94

%

 

 


-51-


 

 

Certain industries included within commercial real estate loans are widely expected to be particularly impacted by social distancing, quarantines, and the economic impact   of the COVID-19 pandemic, including the following:

 

 

June 30, 2021

 

 

September 30, 2020

 

 

Number of Loans

 

 

Loan Deferment Exposure

 

 

Percentage of Gross Loans on Deferral

 

 

Number of Loans

 

Loan Deferment Exposure

 

 

Percentage of Gross Loans on Deferral

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

(Dollars in thousands)

 

Industries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Hotel

 

6

 

 

$

60,612

 

 

 

6.37

%

 

6

 

$

58,640

 

 

 

5.64

%

     Retail

 

-

 

 

 

-

 

 

 

0.00

%

 

9

 

 

28,315

 

 

 

2.73

%

     Office/Medical Office

 

-

 

 

 

-

 

 

 

0.00

%

 

1

 

 

6,927

 

 

 

0.67

%

     Fitness Centers

 

-

 

 

 

-

 

 

 

0.00

%

 

1

 

 

11,400

 

 

 

1.10

%

     Restaurants and food service

 

-

 

 

 

-

 

 

 

0.00

%

 

1

 

 

1,191

 

 

 

0.11

%

     Other

 

-

 

 

 

-

 

 

 

0.00

%

 

3

 

 

24,875

 

 

 

2.39

%

         Total Outstanding Exposure

 

6

 

 

$

60,612

 

 

 

6.37

%

 

21

 

$

131,348

 

 

 

12.64

%

 

 

Results of Operations

Net income available to common shareholders for the three months ended June 30, 2021 amounted to $1.6 million, or $0.21 per fully diluted common share, an increase of $147,000, or 10.1 percent, as compared with net income of $1.5 million, or $0.19 per common share, for the three months ended June 30, 2020. This increase in net income and diluted earnings per share was primarily due to an increase in net interest income of $498,000, a decrease in provision for loan losses of $435,000, and an increase in total other income of $404,000, offset by increases in total other expenses of $1.1 million. The increase in net interest income was primarily due to a decrease of interest expense on deposits as a result of a lowered interest rate environment. The increase in total other income was primarily due to the increases of net gains on sale and call of investments of $164,000 and service charges and other fees of $149,000 for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase in total other expenses was primarily due to the Company’s $835,000 adjustment to the value of one commercial real estate OREO property held by the Company, which adjustment was based on the ongoing monitoring and evaluation of current economic and market conditions affecting the property, and an increase in professional fees of $317,000 for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The annualized return on average assets was 0.53 percent for the three months ended June 30, 2021, compared to annualized return on average assets of 0.47 percent for three months ended June 30, 2020. The annualized return on average shareholders’ equity was 4.35 percent for the three month period ended June 30, 2021, compared to 4.06 percent in annualized return on average shareholders’ equity for the three months ended June 30, 2020.    

Net income available to common shareholders for the nine months ended June 30, 2021 amounted to $6.1 million, or $0.81 per fully diluted common share, an increase of $2.0 million, or 47.0 percent, as compared with net income of $4.1 million, or $0.54 per common share, for the nine months ended June 30, 2020. This increase in net income and diluted earnings per share was primarily due to a decrease in provision for loan losses of $2.7 million, an increase in total other income of $1.4 million, and an increase in net interest income of $923,000, offset by increases in total other expenses of $2.1 million and income tax expense of $897,000.  The increase in total other income was primarily due to the increases in net gains on sale of loans of $729,000 and net gains on sale and call of investments of $598,000 for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The increase in total other expenses was primarily due to increases in professional fees of $921,000, the Company’s $835,000 adjustment to the value of one commercial real estate OREO property, a Federal deposit insurance premium of $157,000, and salaries and employee benefits of $131,000 for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The annualized return on average assets was 0.67 percent for the nine months ended June 30, 2021, compared to annualized return on average assets of 0.45 percent for the nine months ended June 30, 2020. The annualized return on average shareholders’ equity was 5.61 percent for the nine months ended June 30, 2021, compared to 3.85 percent in annualized return on average shareholders’ equity for the nine months ended June 30, 2020.

Net Interest Income and Margin

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets.

-52-


 

The following table presents the components of net interest income for the periods indicated:

Net Interest Income

 

 

 

For the Three Months Ended June 30,

 

 

For the Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

2021

 

 

2020

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

(Dollars in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

8,895

 

 

$

10,068

 

 

$

(1,173

)

 

 

(11.65

)%

 

$

28,040

 

 

$

31,626

 

 

$

(3,586

)

 

 

(11.34

)%

Investment securities

 

 

408

 

 

 

280

 

 

 

128

 

 

 

45.71

 

 

 

1,123

 

 

 

799

 

 

 

324

 

 

 

40.55

 

Interest-bearing cash accounts

 

 

6

 

 

 

26

 

 

 

(20

)

 

 

(76.92

)

 

 

21

 

 

 

1,048

 

 

 

(1,027

)

 

 

(98.00

)

Dividends, restricted stock

 

 

110

 

 

 

124

 

 

 

(14

)

 

 

(11.29

)

 

 

370

 

 

 

494

 

 

 

(124

)

 

 

(25.10

)

Total interest income

 

 

9,419

 

 

 

10,498

 

 

 

(1,079

)

 

 

(10.28

)

 

 

29,554

 

 

 

33,967

 

 

 

(4,413

)

 

 

(12.99

)

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,446

 

 

 

2,876

 

 

 

(1,430

)

 

 

(49.72

)

 

 

5,508

 

 

 

10,236

 

 

 

(4,728

)

 

 

(46.19

)

Short-term borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100.00

 

 

 

48

 

 

 

-

 

 

 

48

 

 

 

100.00

 

Long-term borrowings

 

 

461

 

 

 

608

 

 

 

(147

)

 

 

(24.18

)

 

 

1,614

 

 

 

2,270

 

 

 

(656

)

 

 

(28.90

)

Subordinated debt

 

 

383

 

 

 

383

 

 

 

-

 

 

 

-

 

 

 

1,149

 

 

 

1,149

 

 

 

-

 

 

 

-

 

Total interest expense

 

 

2,290

 

 

 

3,867

 

 

 

(1,577

)

 

 

(40.78

)

 

 

8,319

 

 

 

13,655

 

 

 

(5,336

)

 

 

(39.08

)

Net interest income

 

$

7,129

 

 

$

6,631

 

 

$

498

 

 

 

7.51

%

 

$

21,235

 

 

$

20,312

 

 

$

923

 

 

 

4.54

%

 

 

Net interest income was $7.1 million for the three months ended June 30, 2021, an increase of $498,000 or 7.5 percent, from $6.6 million for the three months ended June 30, 2020. The net interest margin (“NIM”) on an annualized basis increased by 42 basis points from 2.28 for the quarter ended June 30, 2020 to 2.70 percent for the quarter ended June 30, 2021. This increase in NIM was primarily driven by the decrease in the cost of interest-bearing deposits, which decreased by 68 basis points for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The cost of interest-bearing liabilities decreased by 60 basis points for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Net interest income was $21.2 million for the nine months ended June 30, 2021, an increase of $923,000, or 4.5 percent, from $20.3 million for the nine months ended June 30, 2020. The NIM on an annualized basis increased by 34 basis points from 2.28 for the nine months ended June 30, 2020 to 2.62 percent for the nine months ended June 30, 2021. This increase in NIM was primarily driven by the decrease in the cost of interest-bearing deposits, which decreased by 72 basis points for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The cost of borrowings decreased by 18 basis points for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The cost of interest-bearing liabilities decreased 66 basis points compared to the nine months ended June 30, 2020.

 

Interest Income

For the quarters ended June 30, 2021 and June 30, 2020, total interest income was $9.4 million and $10.5 million, respectively. The average yield on interest-earning assets declined four basis points for the three months ended June 30, 2021 when compared to the same period in 2020. Total interest income fell for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, due to the decrease in loan balances and the overall average yield on loans.

For the nine months ended June 30, 2021, total interest income was $29.6 million, a decrease of $4.4 million or 13.0 percent, from $34.0 million for the nine months ended June 30, 2020. The average yield on interest-earning assets declined 16 basis points for the nine months ended June 30, 2021 when compared to the same period in 2020. Total interest income fell for the nine months ended June 30, 2021, compared to the nine months ended June 30, 2020, primarily due to an overall decrease in rates.

Interest Expense

For the three months ended June 30, 2021, interest expense decreased $1.6 million, or 40.8 percent, to $2.3 million, compared to $3.9 million for the same three month period in fiscal year 2020. The decrease in interest expense is primarily attributable to rate related factors, as the average rate on interest-bearing liabilities fell 60 basis points for the three months ended June 30, 2021 compared to the same period in 2020. This decline is reflected in a 68 basis point decrease in the average rate on interest-bearing deposits for the three months ended June 30, 2021 compared to the same period in 2020.

For the nine months ended June 30, 2021, interest expense decreased $5.3 million, or 39.1 percent, to $8.3 million, compared to $13.7 million for the same nine month period in fiscal year 2020. The decrease in interest expense on deposits is primarily attributable

-53-


 

to rate related factors. The average annualized rate of total interest-bearing liabilities decreased to 1.10 percent for the nine months ended June 30, 2021, from 1.76 percent for the nine months ended June 30, 2020. This decrease primarily reflects a decrease in the average rate of interest-bearing deposits of 0.72 percent for the nine months ended June 30, 2021 compared to the same period in 2020, and a decrease in the average rate of borrowings of 0.18 percent for the nine months ended June 30, 2021 compared to the same period in 2020. The decrease in the average rate of interest-bearing deposits for this period consisted of a 0.72 percent decrease in the average rate of certificates of deposit, a 0.68 percent decrease in the average rate of money market accounts, and a 0.66 percent decrease in average rate of other interest-bearing deposit accounts.

 

Variance in Net Interest Income

The following table quantifies the impact on net interest income resulting from changes in average balances and average rates during the periods presented. Any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated in proportion to the relationship of the absolute dollar amount of change in each category.

Analysis of Variance in Net Interest Income Due to Changes in Volume and Rates

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021 and 2020

 

 

2021 and 2020

 

 

 

Increase (Decrease) Due to Change in:

 

 

Increase (Decrease) Due to Change in:

 

 

 

Average Volume

 

 

Average Rate

 

 

Net

Change

 

 

Average Volume

 

 

Average Rate

 

 

Net

Change

 

 

 

(In thousands)

 

Interest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

(640

)

 

$

(533

)

 

$

(1,173

)

 

$

(700

)

 

$

(2,886

)

 

$

(3,586

)

Investment securities

 

 

131

 

 

 

(3

)

 

 

128

 

 

 

249

 

 

 

75

 

 

 

324

 

Interest-bearing cash accounts

 

 

(20

)

 

 

-

 

 

 

(20

)

 

 

(870

)

 

 

(157

)

 

 

(1,027

)

Dividends, restricted stock

 

 

(25

)

 

 

11

 

 

 

(14

)

 

 

(74

)

 

 

(50

)

 

 

(124

)

Total interest-earning assets

 

$

(554

)

 

$

(525

)

 

$

(1,079

)

 

$

(1,395

)

 

$

(3,018

)

 

$

(4,413

)

Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market deposits

 

$

274

 

 

$

(590

)

 

$

(316

)

 

$

651

 

 

$

(1,719

)

 

$

(1,068

)

Savings deposits

 

 

1

 

 

 

1

 

 

 

2

 

 

 

4

 

 

 

8

 

 

 

12

 

Certificates of deposits

 

 

(642

)

 

 

(244

)

 

 

(886

)

 

 

(1,267

)

 

 

(941

)

 

 

(2,208

)

Other interest-bearing deposits

 

 

113

 

 

 

(343

)

 

 

(230

)

 

 

67

 

 

 

(1,531

)

 

 

(1,464

)

Total interest-bearing deposits

 

 

(254

)

 

 

(1,176

)

 

$

(1,430

)

 

 

(545

)

 

 

(4,183

)

 

$

(4,728

)

Borrowings

 

 

(246

)

 

 

99

 

 

 

(147

)

 

 

(414

)

 

 

(194

)

 

 

(608

)

Total interest-bearing liabilities

 

$

(500

)

 

$

(1,077

)

 

$

(1,577

)

 

$

(959

)

 

$

(4,377

)

 

$

(5,336

)

Change in net interest income

 

$

(54

)

 

$

552

 

 

$

498

 

 

$

(436

)

 

$

1,359

 

 

$

923

 

 

-54-


 

 

Average Balances, Net Interest Income, and Yields Earned and Rates Paid.  The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the NIM (net interest income as a percentage of average interest-earning assets). All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be. Quarterly rates, yields, spreads, and margins throughout this MD&A are calculated on an annualized basis where appropriate.

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Average Outstanding Balance

 

 

Interest

Earned/

Paid

 

 

Yield/

Rate

 

 

Average Outstanding Balance

 

 

Interest

Earned/

Paid

 

 

Yield/

Rate

 

 

 

(Dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees(1)

 

$

967,615

 

 

$

8,895

 

 

 

3.68

%

 

$

1,033,246

 

 

$

10,068

 

 

 

3.90

%

Investment securities

 

 

63,693

 

 

 

408

 

 

 

2.56

%

 

 

43,349

 

 

 

280

 

 

 

2.58

%

Interest-bearing cash accounts

 

 

16,914

 

 

 

6

 

 

 

0.14

%

 

 

76,828

 

 

 

26

 

 

 

0.14

%

Dividends, restricted stock

 

 

8,118

 

 

 

110

 

 

 

5.42

%

 

 

10,128

 

 

 

124

 

 

 

4.90

%

Total interest-earning assets(1)

 

 

1,056,340

 

 

 

9,419

 

 

 

3.57

%

 

 

1,163,551

 

 

 

10,498

 

 

 

3.61

%

Non-interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

105,792

 

 

 

 

 

 

 

 

 

 

 

18,497

 

 

 

 

 

 

 

 

 

Bank-owned life insurance

 

 

25,793

 

 

 

 

 

 

 

 

 

 

 

20,215

 

 

 

 

 

 

 

 

 

Other assets

 

 

26,925

 

 

 

 

 

 

 

 

 

 

 

30,533

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

5,778

 

 

 

 

 

 

 

 

 

 

 

5,796

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(12,603

)

 

 

 

 

 

 

 

 

 

 

(10,618

)

 

 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

151,685

 

 

 

 

 

 

 

 

 

 

 

64,423

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,208,025

 

 

 

 

 

 

 

 

 

 

$

1,227,974

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market deposits

 

$

367,290

 

 

 

586

 

 

 

0.64

%

 

$

281,821

 

 

 

902

 

 

 

1.28

%

Savings deposits

 

 

49,487

 

 

 

13

 

 

 

0.11

%

 

 

43,720

 

 

 

11

 

 

 

0.10

%

Certificates of deposits

 

 

126,240

 

 

 

416

 

 

 

1.32

%

 

 

249,007

 

 

 

1,302

 

 

 

2.09

%

Other interest-bearing deposits

 

 

325,082

 

 

 

431

 

 

 

0.53

%

 

 

277,782

 

 

 

661

 

 

 

0.95

%

Total interest-bearing deposits

 

 

868,099

 

 

 

1,446

 

 

 

0.67

%

 

 

852,330

 

 

 

2,876

 

 

 

1.35

%

Borrowings

 

 

124,382

 

 

 

844

 

 

 

2.71

%

 

 

165,366

 

 

 

991

 

 

 

2.40

%

Total interest-bearing liabilities

 

 

992,481

 

 

 

2,290

 

 

 

0.92

%

 

 

1,017,696

 

 

 

3,867

 

 

 

1.52

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

52,799

 

 

 

 

 

 

 

 

 

 

 

46,450

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

15,399

 

 

 

 

 

 

 

 

 

 

 

20,509

 

 

 

 

 

 

 

 

 

Total non-interest liabilities

 

 

68,198

 

 

 

 

 

 

 

 

 

 

 

66,959

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

147,346

 

 

 

 

 

 

 

 

 

 

 

143,319

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

1,208,025

 

 

 

 

 

 

 

 

 

 

$

1,227,974

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

2.65

%

 

 

 

 

 

 

 

 

 

 

2.09

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.70

%

 

 

 

 

 

 

 

 

 

 

2.28

%

Net interest income

 

 

 

 

 

$

7,129

 

 

 

 

 

 

 

 

 

 

$

6,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

 

 

-55-


 

 

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Average Outstanding Balance

 

 

Interest

Earned/

Paid

 

 

Yield/

Rate

 

 

Average Outstanding Balance

 

 

Interest

Earned/

Paid

 

 

Yield/

Rate

 

 

 

(Dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees(1)

 

$

997,156

 

 

$

28,040

 

 

 

3.75

%

 

$

1,019,716

 

 

$

31,626

 

 

 

4.14

%

Investment securities

 

 

54,379

 

 

 

1,123

 

 

 

2.75

%

 

 

41,454

 

 

 

799

 

 

 

2.57

%

Interest-bearing cash accounts

 

 

20,037

 

 

 

21

 

 

 

0.14

%

 

 

115,904

 

 

 

1,048

 

 

 

1.21

%

Dividends, restricted stock

 

 

8,791

 

 

 

370

 

 

 

5.61

%

 

 

10,335

 

 

 

494

 

 

 

6.37

%

Total interest-earning assets(1)

 

 

1,080,363

 

 

 

29,554

 

 

 

3.65

%

 

 

1,187,409

 

 

 

33,967

 

 

 

3.81

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

90,740

 

 

 

 

 

 

 

 

 

 

 

7,076

 

 

 

 

 

 

 

 

 

Bank-owned life insurance

 

 

25,630

 

 

 

 

 

 

 

 

 

 

 

20,090

 

 

 

 

 

 

 

 

 

Other assets

 

 

29,069

 

 

 

 

 

 

 

 

 

 

 

26,988

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

5,790

 

 

 

 

 

 

 

 

 

 

 

5,796

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(12,698

)

 

 

 

 

 

 

 

 

 

 

(10,156

)

 

 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

138,531

 

 

 

 

 

 

 

 

 

 

 

49,794

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,218,894

 

 

 

 

 

 

 

 

 

 

$

1,237,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market deposits

 

$

334,779

 

 

 

2,053

 

 

 

0.82

%

 

$

276,887

 

 

 

3,122

 

 

 

1.50

%

Savings deposits

 

 

47,657

 

 

 

47

 

 

 

0.13

%

 

 

42,742

 

 

 

35

 

 

 

0.11

%

Certificates of deposits

 

 

174,998

 

 

 

1,951

 

 

 

1.49

%

 

 

251,449

 

 

 

4,159

 

 

 

2.21

%

Other interest-bearing deposits

 

 

305,491

 

 

 

1,457

 

 

 

0.64

%

 

 

298,645

 

 

 

2,920

 

 

 

1.30

%

Total interest-bearing deposits

 

 

862,925

 

 

 

5,508

 

 

 

0.85

%

 

 

869,723

 

 

 

10,236

 

 

 

1.57

%

Borrowings

 

 

143,368

 

 

 

2,811

 

 

 

2.61

%

 

 

163,149

 

 

 

3,419

 

 

 

2.79

%

Total interest-bearing liabilities

 

 

1,006,293

 

 

 

8,319

 

 

 

1.10

%

 

 

1,032,872

 

 

 

13,655

 

 

 

1.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

50,418

 

 

 

 

 

 

 

 

 

 

 

43,355

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

17,283

 

 

 

 

 

 

 

 

 

 

 

17,243

 

 

 

 

 

 

 

 

 

Total non-interest liabilities

 

 

67,701

 

 

 

 

 

 

 

 

 

 

 

60,598

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

144,900

 

 

 

 

 

 

 

 

 

 

 

143,733

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

1,218,894

 

 

 

 

 

 

 

 

 

 

$

1,237,203

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

2.55

%

 

 

 

 

 

 

 

 

 

 

2.05

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.62

%

 

 

 

 

 

 

 

 

 

 

2.28

%

Net interest income

 

 

 

 

 

$

21,235

 

 

 

 

 

 

 

 

 

 

$

20,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

 


-56-


 

 

 

Other Income

The following table presents the principal categories of other income for the periods indicated:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Percent

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Percent

 

 

 

2021

 

 

2020

 

 

(Decrease)

 

 

Change

 

 

2021

 

 

2020

 

 

(Decrease)

 

 

Change

 

 

 

(Dollars in thousands)

 

Service charges and other fees

 

$

344

 

 

$

195

 

 

$

149

 

 

 

76.41

%

 

$

1,010

 

 

$

1,058

 

 

$

(48

)

 

 

(4.54

)%

Rental income-other

 

 

55

 

 

 

54

 

 

 

1

 

 

 

1.85

 

 

 

163

 

 

 

163

 

 

 

-

 

 

 

-

 

Net gains on sale and call of investments

 

 

165

 

 

 

1

 

 

 

164

 

 

 

16,400.00

 

 

 

779

 

 

 

181

 

 

 

598

 

 

 

330.39

 

Net gains on sale of loans

 

 

65

 

 

 

11

 

 

 

54

 

 

 

490.91

 

 

 

743

 

 

 

14

 

 

 

729

 

 

 

5,207.14

 

Earnings on bank-owned life insurance

 

 

164

 

 

 

128

 

 

 

36

 

 

 

28.13

 

 

 

489

 

 

 

380

 

 

 

109

 

 

 

28.68

 

Total other income

 

$

793

 

 

$

389

 

 

$

404

 

 

 

103.86

%

 

$

3,184

 

 

$

1,796

 

 

$

1,388

 

 

 

77.28

%

 

For the three months ended June 30, 2021, total other income amounted to $793,000, compared to total other income of $389,000 for the three months ended June 30, 2020. This increase in total other income was primarily due to increases of $164,000 in net gains on sale of investments, $149,000 in service charges and other fees, and $54,000 in net gains on sale of loans.  The net gain on sale of investments resulted from managing and optimizing portfolio activity in the ordinary course of business, and the net gain on sale of loans was a result of a strategic effort to originate and sell residential loans in the current low interest rate environment .The increase in service charges and other fees was primarily due to approximately $75,000 in prepayment penalties and $54,000 of increased service charges.

 

For the nine months ended June 30, 2021, total other income amounted to $3.2 million, compared to total other income of $1.8 million for the same period in fiscal year 2020. This increase was primarily a result of a $729,000 increase in net gains on sale of loans and a $598,000 increase in net gains on sale of investments. The net gain on sale of loans was a result of a strategic effort to originate and sell residential loans in the current low interest rate environment, and the net gain on sale of investments resulted from managing and optimizing portfolio activity in the ordinary course of business.

Other Expense

The following table presents the principal categories of other expense for the periods indicated:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Percent

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Percent

 

 

 

2021

 

 

2020

 

 

(Decrease)

 

 

Change

 

 

2021

 

 

2020

 

 

(Decrease)

 

 

Change

 

 

 

(Dollars in thousands)

 

Salaries and employee benefits

 

$

2,259

 

 

$

2,279

 

 

$

(20

)

 

 

(0.88

)%

 

$

6,806

 

 

$

6,675

 

 

$

131

 

 

 

1.96

%

Occupancy expense

 

 

546

 

 

 

576

 

 

 

(30

)

 

 

(5.21

)

 

 

1,656

 

 

 

1,749

 

 

 

(93

)

 

 

(5.32

)

Federal deposit insurance premium

 

 

77

 

 

 

79

 

 

 

(2

)

 

 

(2.53

)

 

 

236

 

 

 

79

 

 

 

157

 

 

 

198.73

 

Advertising

 

 

12

 

 

 

33

 

 

 

(21

)

 

 

(63.64

)

 

 

76

 

 

 

87

 

 

 

(11

)

 

 

(12.64

)

Data processing

 

 

301

 

 

 

275

 

 

 

26

 

 

 

9.45

 

 

 

935

 

 

 

825

 

 

 

110

 

 

 

13.33

 

Professional fees

 

 

841

 

 

 

524

 

 

 

317

 

 

 

60.50

 

 

 

2,388

 

 

 

1,467

 

 

 

921

 

 

 

62.78

 

Other real estate owned expense, net

 

 

835

 

 

 

29

 

 

 

806

 

 

 

2,779.31

 

 

 

866

 

 

 

99

 

 

 

767

 

 

 

774.75

 

Pennsylvania shares tax

 

 

170

 

 

 

169

 

 

 

1

 

 

 

0.59

 

 

 

509

 

 

 

509

 

 

 

-

 

 

 

-

 

Other operating expenses

 

 

791

 

 

 

720

 

 

 

71

 

 

 

9.86

 

 

 

2,395

 

 

 

2,254

 

 

 

141

 

 

 

6.26

 

Total other expense

 

$

5,832

 

 

$

4,684

 

 

$

1,148

 

 

 

24.51

%

 

$

15,867

 

 

$

13,744

 

 

$

2,123

 

 

 

15.45

%

 

For the three months ended June 30, 2021, total other expense increased $1.1 million, or 24.5 percent, from the comparable three months ended June 30, 2020. This increase was primarily due to increases of $806,000 in net OREO expense. This increase was the result of an adjustment to the value of one commercial OREO property based on ongoing monitoring and evaluation of current economic and market conditions affecting the property. In addition, professional fees increased $317,000 mainly due to costs associated with legal, accounting, and audit expenses related to the Company’s periodic and annual filings including matters arising out of the Company’s prior restatements.

 

-57-


 

 

For the nine months ended June 30, 2021, total other expense increased $2.1 million, or 15.5 percent, from the comparable nine months ended June 30, 2020. This increase was primarily due to increases of $921,000 in professional fees associated with legal, accounting, and audit expenses related to the Company’s periodic and annual filings including matters arising out of the Company’s prior restatements, as well as a $767,000 increase in net OREO expense.

Income Taxes

 

The Company recorded a provision for income taxes of $489,000 and $1.9 million in income tax expense during the three and nine months ended June 30, 2021, respectively, reflecting an effective tax rate of 23.4 percent and 23.8 percent, respectively. The Company recorded a provision for income taxes of $447,000 and $1.0 million for the three and nine months ended June 30, 2020, respectively, reflecting an effective tax rate of 23.5 percent and 19.5 percent, respectively. During the nine months ended June 30, 2020, the Company recorded discrete items that reduced the effective tax rate.

Investment Portfolio

 

For the three months ended June 30, 2021, the average volume of investment securities increased by $20.3 million to approximately $63.7 million, or 6.0 percent of average earning assets, from $43.3 million on average, or 3.7 percent of average earning assets, for the three months ended June 30, 2020. During the nine months ended June 30, 2021, the average volume of investment securities increased by $12.9 million to approximately $54.4 million, or 5.0 percent of average earning assets, from $41.5 million, or 3.5 percent of average earning assets, for the nine months ended June 30, 2020. At June 30, 2021, the total investment portfolio amounted to $66.3 million, an increase of $19.8 million or 42.5 percent from September 30, 2020. This increase in the investment portfolio was primarily due to purchases of $45.7 million of investment securities, partially offset by payments, maturities, calls, and sales of $26.9 million of investment securities. At June 30, 2021, the principal components of the investment portfolio were government agency obligations, federal agency obligations, including mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, a trust preferred security, and taxable mutual funds.

 

During the three month period ended June 30, 2021, rate-related factors decreased investment revenue by approximately $3,000, while volume-related factors increased investment revenue by approximately $131,000 from the three month period ended June 30, 2020. The yield on investments decreased by two basis points to 2.56 percent for the three month period ended June 30, 2021, as compared to 2.58 percent for the three month period ended June 30, 2020. 

 

During the nine month period ended June 30, 2021, rate-related factors increased investment revenue by approximately $75,000, while volume-related factors increased investment revenue by approximately $249,000 from the nine month period ended June 30, 2020. The yield on investments increased by 18 basis points to 2.75 percent for the nine month period ended June 30, 2021 as compared to 2.57 percent for the nine month period ended June 30, 2020. The yield on the portfolio increased primarily due to the purchase of higher yielding investments.

 

Loan Portfolio

The Company’s loan portfolio consists of residential, construction and development, commercial, and consumer loans, serving the diverse customer base in its market area. The composition of the Company’s portfolio continues to change due to local competition. Factors such as the economic climate, interest rates, real estate values and employment all contribute to changes in the composition of the Company’s portfolio. Growth is generated through business development efforts, repeat customer requests for new financings, penetration into existing markets, and entry into new markets.

The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, farmland, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Company’s customers. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio and limit concentrations in any single industry.

Total gross loans amounted to $951.7 million at June 30, 2021 and $1.039 billion at September 30, 2020. The $87.4 million decrease in the gross loan portfolio at June 30, 2021 compared to September 30, 2020 primarily reflected decreases of $13.8 million in commercial loans net of the sale of $19.7 million of PPP loans, $40.4 million in residential mortgage loans, $8.5 million in consumer loans, and $5.1 million in construction and development loans.

At June 30, 2021, the Company had $128.5 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.

-58-


 

The average balance of our total loans decreased $65.6 million, or 6.4 percent, for the three months ended June 30, 2021 as compared to the same period in fiscal year 2020, while the average yield on loans decreased by 22 basis points for the three months ended June 30, 2021 compared with the same period in fiscal year 2020. The decrease in average total loan volume was primarily due to increased paydowns. During the third quarter of fiscal year 2021, compared to the same period in fiscal year 2020, the volume-related factors during the period contributed to a decrease of interest income on loans of $640,000, while the rate-related factors decreased interest income on loans by $533,000.

The average balance of total loans decreased $22.6 million, or 2.2 percent, for the nine months ended June 30, 2021 as compared to the same period in fiscal year 2020, while the average yield on loans decreased by 39 basis points for the nine months ended June 30, 2021 compared with the same period in fiscal year 2020. The decrease in average total loan volume was primarily due to increased paydowns. During the nine months ended June 30, 2021 compared to the same period in fiscal year 2020, the volume-related factors during the period contributed to a decrease of interest income on loans of $700,000, while the rate-related factors decreased interest income on loans by $2.9 million.

Allowance for Loan Losses and Related Provision

The purpose of the ALLL is to absorb the impact of losses inherent in the loan portfolio. Additions to the ALLL are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The ALLL is maintained at an amount considered adequate by management to provide for probable loan losses inherent in the loan portfolio based upon a periodic evaluation of the portfolio’s risk characteristics. In establishing an appropriate ALLL, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. Given the economic volatility impacting national, regional, and local markets, the Company’s analysis of its ALLL takes into consideration the potential impact that current trends may have on the Company’s borrower base.

Although management uses the best information available, the level of the ALLL remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALLL. Such agencies may require the Company to increase the ALLL based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and the State of Pennsylvania. Future adjustments to the ALLL may be necessary due to economic factors impacting New Jersey and Pennsylvania real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Company’s control.

 

At June 30, 2021, the ALLL amounted to approximately $11.6 million, or 1.22 percent of total loans. At September 30, 2020, the ALLL amounted to approximately $12.4 million, or 1.22 percent of total loans, excluding approximately $20.8 million of PPP loans. The Company did not record a provision for loan losses during the quarter ended June 30, 2021 compared to $435,000 for the quarter ended June 30, 2020. For the nine months ended June 30, 2021, the Company recorded $550,000 in provision for loan losses compared to $3.2 million for the nine months ended June 30, 2020.

The net charge-offs were $1.0 million and $1.4 million for the three and nine months ended June 30, 2021, respectively, compared to a net recovery of $76,000 for the three months ended June 30, 2020 and a net charge-off of $2.2 million for the nine months ended June 30, 2020. Net loan charge-offs increased during the three months ended June 30, 2021 due to two commercial real estate loan partial charge-offs totaling $645,000 and one commercial and industrial loan partial charge-off totaling $379,000.

 

We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed, in

particular as it relates to our clients impacted by the COVID-19 pandemic. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios.

The level of the ALLL for the respective periods of fiscal year 2021 and fiscal year 2020 reflects the credit quality within the loan portfolio, the loan volume recorded during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management’s view, the level of the ALLL at June 30, 2021 was adequate to cover losses inherent in the loan portfolio. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the ALLL.

-59-


 

Changes in the ALLL are presented in the following table for the periods indicated:

 

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Average loans outstanding

 

$

997,156

 

 

$

1,019,716

 

Total gross loans at end of period

 

$

951,650

 

 

$

1,043,047

 

Analysis of the Allowance of Loan Losses:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

12,433

 

 

$

10,095

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

Residential Mortgage

 

 

-

 

 

 

-

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

1,128

 

 

 

2,288

 

Commercial and industrial

 

 

379

 

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

-

 

 

 

62

 

Second mortgages

 

 

-

 

 

 

3

 

Other

 

 

1

 

 

 

-

 

Total charge-offs

 

 

1,508

 

 

 

2,353

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Mortgage

 

 

1

 

 

 

24

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

1

 

 

 

4

 

Commercial and industrial

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

16

 

 

 

1

 

Second mortgages

 

 

103

 

 

 

83

 

Other

 

 

2

 

 

 

1

 

Total recoveries

 

 

125

 

 

 

115

 

Net charge-offs

 

 

1,383

 

 

 

2,238

 

Provision for loan losses

 

 

550

 

 

 

3,210

 

Balance at end of period

 

$

11,600

 

 

$

11,067

 

Ratios:

 

 

 

 

 

 

 

 

Ratio of allowance for loan losses to non-performing loans

 

 

48.82

%

 

 

121.14

%

Ratio of net charge-offs to average loans outstanding (1)

 

 

0.18

%

 

 

0.29

%

Ratio of net charge-offs to total allowance for loan losses

 

 

11.92

%

 

 

20.22

%

 

(1)

Annualized

Asset Quality

The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to the loan portfolio’s dynamics and mix of assets. The Company endeavors to identify loans experiencing difficulty early in the process in an attempt to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate ALLL at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of 90 days. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may be restored to an accruing basis when it again becomes well-secured, all past due amounts have been collected and the borrower continues to make payments for the next six months on a timely basis. Accruing loans past due 90 days or more are generally well-

-60-


 

secured and in the process of collection. For additional information regarding loans, see Note 8 of the Notes to the Unaudited Consolidated Financial Statements.

Non-Performing Assets and Troubled Debt Restructured Loans

Non-performing loans include non-accrual loans and accruing loans that are contractually past due 90 days or more. Non-accrual loans represent loans on which interest accruals have been suspended. In general, it is the policy of management to consider the charge-off of loans at the point they become past due in excess of 90 days, with the exception of loans that are both well-secured and in the process of collection. Non-performing assets include non-performing loans and OREO. TDR loans represent loans to borrowers experiencing financial difficulties on which a concession was granted, such as a reduction in interest rate which is lower than the current market rate for new debt with similar risks, or modified repayment terms, and are performing under the restructured terms. Such loans, as long as they are performing in accordance with their restructured terms, are not included within the Company’s non-performing loans. For additional information regarding loans, see Note 8 of the Notes to the Unaudited Consolidated Financial Statements.

The following table sets forth, as of the dates indicated, the amount of the Company’s non-accrual loans, accruing loans past due 90 days or more, OREO and performing TDR loans:

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

(In thousands)

 

Non-accruing loans:

 

 

 

 

 

 

 

 

Non-accrual loans

 

$

23,547

 

 

$

16,730

 

Accruing loans more than 90 days past due

 

 

212

 

 

 

58

 

Total non-performing loans

 

 

23,759

 

 

 

16,788

 

OREO

 

 

4,961

 

 

 

5,796

 

Total non-performing assets

 

$

28,720

 

 

$

22,584

 

TDR loans - performing

 

$

23,352

 

 

$

13,418

 

 

Non-accrual loans were $23.5 million at June 30, 2021 and $16.7 million at September 30, 2020.  OREO was $5.0 million at June 30, 2021 and $5.8 million at September 30, 2020. The increase in non-accrual loans was primarily due to one $12.3 million commercial real estate loan and one $2.6 million commercial and industrial loan both classified as substandard and non-accruing as of June 30, 2021. 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 as of June 30, 2021. Total performing TDR loans were $23.4 million at June 30, 2021 and $13.4 million at September 30, 2020. This increase of performing TDR loans is primarily due to one commercial real estate loan of approximately $6.5 million returning to accrual status as of June 30, 2021. See discussion in Note 8 of the Notes to the Unaudited Consolidated Financial Statements for further information. 

At June 30, 2021, non-performing assets totaled $28.7 million, or 2.42 percent of total assets, as compared with $22.6 million, or 1.87 percent, at September 30, 2020.  

Credit quality risk ratings include categories of “pass,” “special mention,” “substandard” and “doubtful.” Assets classified as “pass” are those protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. Assets which do not currently expose the Company to sufficient risk to warrant classification as substandard or doubtful but possess certain identified weaknesses are required to be designated as “special mention.” If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”

At June 30, 2021, special mention loans were $58.2 million compared to $62.8 million at September 30, 2020. Substandard loans were $53.3 million and $31.2 million at June 30, 2021 and September 30, 2020, respectively. This increase in substandard loans is primarily due to one commercial real estate loan in the amount of $13.4 million, previously classified as pass and moved to substandard during the first fiscal quarter (and subsequently partially charged-off by $484,000 in the second fiscal quarter and $459,000 in the third fiscal quarter), two commercial and industrial loans in the amount of $5.3 million, previously classified as special mention and moved to substandard during the second fiscal quarter, one commercial and industrial loan in the amount of $2.6

-61-


 

million, previously classified as pass and moved to substandard during the third fiscal quarter, and one commercial farmland loan in the amount of $2.3 million, previously classified as pass and moved to substandard during the first fiscal quarter. Our loans that have been identified as special mention or substandard are considered potential problem loans due to a variety of changing conditions affecting the credits, including general economic conditions and/or conditions applicable to the specific borrowers.  

          

Recent Accounting Pronouncements

Note 2 discusses the expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

Asset and Liability Management

Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Company’s statement of condition is planned and monitored by the Company’s Asset and Liability Committee (“ALCO”). In general, management’s objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring the components of the statement of condition and the interaction of interest rates.

Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Company utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning asset matures or when its interest rate changes in a time period different than that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different than that of an earning asset that it supports. While the Company matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest-sensitive assets and interest-sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Company may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending in part on management’s judgment as to projected interest rate trends.

The Company’s interest rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets (“RSA”) and rate sensitive liabilities (“RSL”). For example, a short-funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, an RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset-sensitive position and a ratio less than 1 indicates a liability-sensitive position.

A negative gap and/or a rate sensitivity ratio less than 1 tends to expand NIMs in a falling rate environment and reduce NIMs in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Company may elect to deliberately mismatch liabilities and assets in a strategic gap position.

At June 30, 2021, the Company reflected a positive interest sensitivity gap with an interest sensitivity ratio of 1.20:1.00 at the cumulative one-year position.

Estimates of Fair Value

The estimation of fair value is significant to a number of the Company’s assets, including investment securities available-for-sale. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impact of Inflation and Changing Prices

The financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations; unlike

-62-


 

most industrial companies, nearly all of the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity

The liquidity position of the Company is dependent primarily on successful management of the Bank’s assets and liabilities so as to meet the needs of both deposit and credit customers. Liquidity needs arise principally to accommodate possible deposit outflows and to meet customers’ requests for loans. Scheduled principal loan repayments, maturing investments, short-term liquid assets, and deposit inflows can satisfy such needs. The objective of liquidity management is to enable the Company to maintain sufficient liquidity to meet its obligations in a timely and cost-effective manner.

Management monitors current and projected cash flows, and adjusts positions as necessary to maintain adequate levels of liquidity. Under its liquidity risk management program, the Company regularly monitors correspondent bank funding exposure and credit exposure in accordance with guidelines issued by the banking regulatory authorities. Management uses a variety of potential funding sources and staggering maturities to reduce the risk of potential funding pressure. Management also maintains a detailed contingency funding plan designed to respond adequately to situations which could lead to stresses on liquidity. Management believes that the Company has the funding capacity to meet the liquidity needs arising from potential events.

The Company’s primary sources of short-term liquidity consist of cash and cash equivalents, interest bearing deposits with banks (including the FHLB Pittsburgh), investment securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities available-for-sale, loans held for sale, and from time to time federal funds sold and receivables related to unsettled securities transactions.

Additionally, liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received. As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtailment of lending activities. At June 30, 2021, the Company had $105.0 million in cash and cash equivalent compared to $61.4 million at September 30, 2020. In addition, our available for sale investment securities amounted to $34.5 million at June 30, 2021 and $31.5 million at September 30, 2020.

Additional funding may be provided through deposit gathering networks and in the form of federal funds purchased through our well established relationships with numerous correspondent banks. While these lending lines are uncommitted, management believes that the Bank could borrow approximately $413.0 million from these banks on a collective basis.

The Company maintains borrowing capacity through FHLB Pittsburgh, secured with loans and marketable securities and has the ability to borrow from FHLB Pittsburgh in the form of FHLB advances secured by pledges of certain eligible collateral. Additionally, the Company’s collateral pledges to the FHLB Pittsburgh may be used to obtain Municipal Letters of Credit (“MULOC”) to collateralize certain municipal deposits held by Malvern. At June 30, 2021, Malvern had $71.1 million of MULOCs outstanding for this purpose. Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of Philadelphia by way of the discount window as a contingency for additional liquidity.

Deposits

Total deposits increased $16.8 million, or 1.9 percent, from $890.9 million at September 30, 2020 to $907.7 million at June 30, 2021. Total interest-bearing deposits increased $13.9 million from $840.5 million at September 30, 2020 to $854.3 million at June 30, 2021. Interest-bearing demand, savings, and time deposits under $100,000 increased $96.9 million to a total of $793.5 million at June 30, 2021 as compared to $696.6 million at September 30, 2020. Time deposits $100,000 and over decreased $83.0 million as compared to September 30, 2020. Time deposits $100,000 and over represented 6.7 percent of total deposits at June 30, 2021 compared to 16.2 percent at September 30, 2020. We had brokered deposits totaling $6.1 million at June 30, 2021 compared to $31.1 million at September 30, 2020.

The Company continues to focus on the maintenance, development, and expansion of its deposit base. Management believes that the emphasis on serving the needs of our communities will provide a long-term relationship base which in turn will allow the Company to efficiently compete for and retain deposits in its market.

-63-


 

The following table depicts the Company’s deposits classified by type, with percentages to total deposits, at June 30, 2021 and September 30, 2020:

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

Dollar

 

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

Change

 

Balances by types of deposit:

 

(Dollars in thousands)

 

        Savings

 

$

51,011

 

 

 

5.62

%

 

$

45,072

 

 

 

5.06

%

 

$

5,939

 

        Money market accounts

 

 

359,040

 

 

 

39.55

 

 

 

277,711

 

 

 

31.17

 

 

 

81,329

 

        Interest bearing demand

 

 

329,372

 

 

 

36.29

 

 

 

303,682

 

 

 

34.09

 

 

 

25,690

 

        Non-interest bearing demand

 

 

53,365

 

 

 

5.88

 

 

 

50,422

 

 

 

5.66

 

 

 

2,943

 

 

 

$

792,788

 

 

 

87.34

 

 

$

676,887

 

 

 

75.98

 

 

$

115,901

 

Certificates of deposit

 

 

114,916

 

 

 

12.66

 

 

 

214,019

 

 

 

24.02

 

 

 

(99,103

)

Total

 

$

907,704

 

 

 

100.00

%

 

$

890,906

 

 

 

100.00

%

 

$

16,798

 

 

Borrowings

Advances from FHLB Pittsburgh are available to supplement the Company’s liquidity position and, to the extent that maturing deposits do not remain with the Company, management may replace such funds with these advances. As of June 30, 2021 and September 30, 2020, the Company’s outstanding balance of FHLB Pittsburgh advances totaled $90.0 million and $130.0 million, respectively.  Of the $90.0 million in advances, all are short-term fixed-rate advances, with $50.0 million maturing in fiscal year 2022 and $40.0 million having a rolling 90 day maturity.

The Company did not purchase any securities sold under agreements to repurchase as a short-term funding source during the third fiscal quarters of 2021 or 2020. 

 

Cash Flows

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents resulting from the Company’s operating, investing, and financing activities. During the nine months ended June 30, 2021, cash and cash equivalents increased by $43.5 million from the balance at September 30, 2020. Net cash of $2.7 million was provided by operating activities primarily due to net income of $6.1 million, partially offset by a decrease of $3.8 million in other liabilities. Net cash provided by investing activities amounted to approximately $67.4 million primarily due to a net decrease in loans of $84.6 million and payments, maturities, calls, and sales of $26.9 million of investment securities, partially offset by purchases of $45.7 million of investment securities. The decrease in net cash from financing activities of $26.6 million was primarily from the net decrease of $40.0 million in long term borrowings and $4.2 million in secured borrowings, partially offset by the increase in deposits of $16.8 million.

Shareholders’ Equity

Total shareholders’ equity amounted to $148.2 million, or 12.5 percent of total assets, at June 30, 2021, compared to $140.6 million, or 11.6 percent of total assets, at September 30, 2020. Book value per common share was $19.44 at June 30, 2021, compared to $18.47 at September 30, 2020.

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

(In thousands, except for per share data)

 

Shareholders’ equity

 

 

148,192

 

 

 

140,593

 

Book value per common share

 

$

19.44

 

 

$

18.47

 

 

Capital

At June 30, 2021, the Bank’s common equity Tier 1 capital ratio was 16.61 percent, Tier 1 leverage ratio was 13.53 percent, Tier 1 risk-based capital ratio was 16.61 percent and the total risk-based capital ratio was 17.80 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. At June 30, 2021, the Bank was in compliance with all applicable regulatory capital requirements.

-64-


 

At June 30, 2021, the Company’s common equity Tier 1 capital ratio was 15.07 percent, Tier 1 leverage ratio was 12.27 percent, Tier 1 risk-based capital ratio was 15.07 percent and the total risk-based capital ratio was 18.85 percent.  At September 30, 2020, the Company’s common equity Tier 1 capital ratio was 14.00 percent, Tier 1 leverage ratio was 11.63 percent, Tier 1 risk-based capital ratio was 14.00 percent and the total risk-based capital ratio was 17.69 percent.  At June 30, 2021, the Company was in compliance with all applicable regulatory capital requirements.

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II. Other Information, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds” herein.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

This Item has been omitted based on the Company’s status as a smaller reporting company.

Item 4.  Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Item 9A – Controls and Procedures of the Company’s 2020 Annual Report set forth management’s conclusion that because of the material weakness and related matters described in Item 9A of the 2020 Annual Report, the Company’s internal control over financial reporting was not effective as of September 30, 2020. The matters described in Item 9A of the 2020 Annual Report related to the Company’s review of certain loan participation contracts, and changes to recourse provisions therein. Management implemented additional control procedures, including redesigning and enhancing control activities related to preparation and review of existing and new loan participation agreements, and any amendments thereto. In addition, we have developed enhanced financial reporting procedures for assessing significant subsequent events related to loan modifications, including a quarterly identification and review of significant loan modifications occurring subsequent to quarter end but prior to the financial statements being issued, to ensure that the relevant accounting implications are identified and considered, including the market value impact and potential material information that may impact credit quality of loans. During the quarter ended June 30, 2021, the Company completed the remediation efforts described in Item 9A of the 2020 Annual Report.

Changes in Internal Controls

Other than as disclosed in the Amendment No. 1 to 2020 Annual Report, there were no changes in the Company’s internal controls over financial reporting during the nine months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

-65-


 

PART II - OTHER INFORMATION

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.  

Item 1A - Risk Factors

There are no material changes to the risk factors as previously disclosed under the section titled “Risk Factors” in Part I, Item 1A of our 2020 Annual Report.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

           There were no repurchases or unregistered sales of the Company’s stock during the quarter.

Item 3 - Defaults Upon Senior Securities

None.

Item 4 - Mine Safety Disclosure

Not applicable.

Item 5 - Other Information

None.

Item 6 - Exhibits

 

3.1

 

Amended and Restated Articles of Incorporation of Malvern Bancorp, Inc.(1)

3.2

 

Amended and Restated Bylaws of Malvern Bancorp, Inc.(2)

31.1

 

Rule 13a-14(a)/15d-14(a) Section 302 Certification

31.2

 

Rule 13a-14(a)/15d-14(a) Section 302 Certification

32.0

 

Section 1350 Certification

 

101.INS

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definitions Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

(1)

Incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K of Malvern Bancorp, Inc. filed with the SEC on February 17, 2017.

(2)

Incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K of Malvern Bancorp, Inc. filed with the SEC on February 17, 2017.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

MALVERN BANCORP, INC.

 

 

 

 

 

 

 

 

 

August 13, 2021

By:

/s/ Anthony C. Weagley

 

 

 

Anthony C. Weagley

 

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

August 13, 2021

By:

/s/ Joseph D. Gangemi

 

 

 

Joseph D. Gangemi

 

 

 

Executive Vice President and Chief Financial  

 

 

 

Officer

 

 

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