UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
|
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 30, 2008
OR
|
o |
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: 001-34051 |
Malvern
Federal Bancorp, Inc.
|
(Exact Name of
Registrant as Specified in Its
Charter)
|
United
States
|
|
38-3783478
|
|
(State or
Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
41 East
Lancaster Avenue
|
|
|
|
Paoli,
Pennsylvania
|
|
19301
|
|
(Address of
Principal Executive Offices)
|
|
(Zip
Code)
|
|
(610)
644-9400
|
(Registrant’s
Telephone Number, Including Area
Code)
|
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 (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
x Yes o
No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check One):
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o Smaller
reporting company
x
(Do not
check if a smaller reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
o Yes
x No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of August 13, 2008,
6,152,500 shares of the Registrant’s common stock were issued and
outstanding.
____________________
PART
I - FINANCIAL INFORMATION
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Page
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Item 1
- |
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Financial Statements
(Unaudited) |
|
1
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|
Item 2 - |
|
Management’s
Discussion and Analysis of Financial Condition |
|
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and Results of
Operations |
|
19
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Item 3
- |
|
Quantitative
and Qualitative Disclosures About Market Risk |
|
32
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|
Item 4T - |
|
Controls
and Procedures |
|
32
|
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|
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|
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PART II - OTHER
INFORMATION
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|
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Item 1
- |
|
Legal
Proceedings |
|
32
|
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|
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|
Item 1A - |
|
Risk
Factors |
|
32
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|
Item 2 - |
|
Unregistered Sales
of Equity Securities and Use of Proceeds |
|
33
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|
|
|
|
|
|
|
Item 3
- |
|
Defaults Upon Senior
Securities |
|
34
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Item 4
- |
|
Submission of
Matters to a Vote of Security Holders |
|
34
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|
|
|
|
|
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|
Item 5 - |
|
Other
Information |
|
34
|
|
|
|
|
|
|
|
Item 6
- |
|
Exhibits |
|
34
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Signatures |
|
35
|
|
Malvern
Federal Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial
Condition (Unaudited)
|
|
June 30,
2008
|
|
|
September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$ |
6,456,525 |
|
|
$ |
2,365,695 |
|
Interest-bearing
deposits
|
|
|
4,287,079 |
|
|
|
16,601,055 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
|
|
10,743,604 |
|
|
|
18,966,750 |
|
Investment securities available
for sale
|
|
|
22,904,060 |
|
|
|
29,098,177 |
|
Investment securities held to
maturity (fair value of $2,833,016
and $1,447,035,
respectively)
|
|
|
2,906,479 |
|
|
|
1,479,085 |
|
Equity
investments
|
|
|
100,000 |
|
|
|
- |
|
Restricted stock, at
cost
|
|
|
5,377,273 |
|
|
|
4,559,873 |
|
Loans held for
sale
|
|
|
- |
|
|
|
9,258,271 |
|
Loans Receivable, net of allowance
for loan losses of $4,768,025
and $4,541,143,
respectively
|
|
|
541,203,904 |
|
|
|
466,192,361 |
|
Accrued interest
receivable
|
|
|
2,178,627 |
|
|
|
2,415,577 |
|
Property and Equipment,
net
|
|
|
9,223,785 |
|
|
|
9,623,326 |
|
Deferred income
taxes
|
|
|
2,336,080 |
|
|
|
1,378,378 |
|
Bank-owned life
insurance
|
|
|
8,047,434 |
|
|
|
7,787,098 |
|
Other
Assets
|
|
|
519,979 |
|
|
|
1,172,931 |
|
Total
Assets
|
|
$ |
605,541,225 |
|
|
$ |
551,931,827 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Deposits
noninterest-bearing
|
|
$ |
24,173,493 |
|
|
$ |
18,646,470 |
|
Deposits
Interest-bearing
|
|
|
414,043,019 |
|
|
|
414,841,177 |
|
|
|
|
|
|
|
|
|
|
Total
Deposits
|
|
|
438,216,512 |
|
|
|
433,487,647 |
|
FHLB line of
credit
|
|
|
11,000,000 |
|
|
|
8,000,000 |
|
FHLB
advances
|
|
|
80,882,302 |
|
|
|
63,386,902 |
|
Advances from borrowers for taxes
and insurance
|
|
|
3,626,012 |
|
|
|
981,812 |
|
Accrued interest
payable
|
|
|
867,215 |
|
|
|
1,098,779 |
|
Income taxes
payable
|
|
|
118,289 |
|
|
|
69,462 |
|
Other
liabilities
|
|
|
975,397 |
|
|
|
868,050 |
|
Total
Liabilities
|
|
|
535,685,730 |
|
|
|
507,892,652 |
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, 10,000,000 shares authorized,
none
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, $0.01 par value, 40,000,000 shares authorized,
issued
and outstanding: 6,152,500 at June 30, 2008; no
shares
outstanding
at September 30, 2007
|
|
|
61,525 |
|
|
|
- |
|
Additional
paid-in-capital
|
|
|
25,924,725 |
|
|
|
- |
|
Retained
earnings
|
|
|
45,196,170 |
|
|
|
44,321,829 |
|
Unallocated
ESOP
|
|
|
(996,176 |
) |
|
|
- |
|
Accumulated other comprehensive
loss
|
|
|
(330,746 |
) |
|
|
(282,654 |
) |
Total Shareholders'
Equity
|
|
|
69,855,498 |
|
|
|
44,039,175 |
|
Total Liabilities and
Shareholders' Equity
|
|
$ |
605,541,225 |
|
|
$ |
551,931,827 |
|
See
notes to unaudited consolidated financial statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
|
|
For The Three Months Ended
June 30,
|
|
|
For The Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Dividend
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$ |
8,023,758 |
|
|
$ |
7,713,172 |
|
|
$ |
23,693,454 |
|
|
$ |
22,840,092 |
|
Investment securities,
taxable
|
|
|
189,623 |
|
|
|
379,893 |
|
|
|
665,549 |
|
|
|
926,996 |
|
Investment securities,
tax-exempt
|
|
|
21,042 |
|
|
|
28,968 |
|
|
|
70,942 |
|
|
|
89,916 |
|
Dividends, restricted
stock
|
|
|
63,941 |
|
|
|
115,971 |
|
|
|
182,056 |
|
|
|
257,076 |
|
Interest-bearing cash
accounts
|
|
|
47,550 |
|
|
|
96,091 |
|
|
|
161,462 |
|
|
|
245,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Dividend
Income
|
|
|
8,345,914 |
|
|
|
8,334,095 |
|
|
|
24,773,463 |
|
|
|
24,359,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,495,575 |
|
|
|
3,911,729 |
|
|
|
11,329,166 |
|
|
|
11,327,233 |
|
Short-term
borrowings
|
|
|
29,154 |
|
|
|
21,211 |
|
|
|
106,528 |
|
|
|
21,211 |
|
Long-term
borrowings
|
|
|
1,071,214 |
|
|
|
925,624 |
|
|
|
3,033,600 |
|
|
|
2,842,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest
Expense
|
|
|
4,595,943 |
|
|
|
4,858,564 |
|
|
|
14,469,294 |
|
|
|
14,190,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income
|
|
|
3,749,971 |
|
|
|
3,475,531 |
|
|
|
10,304,169 |
|
|
|
10,168,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan
Losses
|
|
|
405,506 |
|
|
|
- |
|
|
|
868,506 |
|
|
|
168,000 |
|
Net Interest Income after
Provision for Loan
Losses
|
|
|
3,344,465 |
|
|
|
3,475,531 |
|
|
|
9,435,663 |
|
|
|
10,000,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and other
fees
|
|
|
321,044 |
|
|
|
220,660 |
|
|
|
891,348 |
|
|
|
765,651 |
|
Rental
income
|
|
|
62,377 |
|
|
|
58,853 |
|
|
|
192,115 |
|
|
|
183,444 |
|
Loss on sale of investments,
net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,356 |
) |
Gain on sale of loans,
net
|
|
|
- |
|
|
|
- |
|
|
|
42,788 |
|
|
|
- |
|
Earnings on life
insurance
|
|
|
85,964 |
|
|
|
54,308 |
|
|
|
260,336 |
|
|
|
160,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Income
|
|
|
469,385 |
|
|
|
333,821 |
|
|
|
1,386,587 |
|
|
|
1,101,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
|
1,391,584 |
|
|
|
1,298,818 |
|
|
|
4,155,456 |
|
|
|
3,866,795 |
|
Occupancy
expense
|
|
|
483,306 |
|
|
|
486,397 |
|
|
|
1,468,428 |
|
|
|
1,401,663 |
|
Federal deposit insurance
premium
|
|
|
11,996 |
|
|
|
12,349 |
|
|
|
36,394 |
|
|
|
36,790 |
|
Advertising
|
|
|
195,345 |
|
|
|
164,811 |
|
|
|
495,664 |
|
|
|
393,816 |
|
Data
Processing
|
|
|
217,484 |
|
|
|
233,284 |
|
|
|
700,377 |
|
|
|
674,513 |
|
Professional
fees
|
|
|
137,503 |
|
|
|
79,948 |
|
|
|
386,802 |
|
|
|
258,693 |
|
Other operating
expenses
|
|
|
311,467 |
|
|
|
267,451 |
|
|
|
1,140,520 |
|
|
|
808,892 |
|
Charitable contribution to
foundation
|
|
|
1,229,270 |
|
|
|
- |
|
|
|
1,229,270 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Expenses
|
|
|
3,977,955 |
|
|
|
2,543,058 |
|
|
|
9,612,911 |
|
|
|
7,441,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
Income Taxes
|
|
|
(164,105 |
) |
|
|
1,266,294 |
|
|
|
1,209,339 |
|
|
|
3,660,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
(benefit)
|
|
|
(101,488 |
) |
|
|
461,615 |
|
|
|
334,998 |
|
|
|
1,319,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$ |
(62,617 |
) |
|
$ |
804,679 |
|
|
$ |
874,341 |
|
|
$ |
2,341,943 |
|
See
notes to unaudited consolidated financial statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Nine Months Ended June 30, 2007
and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional Paid- In
Capital
|
|
|
|
|
Unearned ESOP
Shares
|
|
Accumulated
other
Comprehensive
Income
(Loss)
|
|
Total
Shareholders'
Equity
|
|
Balance, September 30,
2006
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
41,910,239 |
|
|
$ |
- |
|
|
$ |
(491,190 |
) |
|
$ |
41,419,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
2,341,943 |
|
|
|
|
|
|
|
- |
|
|
|
2,341,943 |
|
Net change in unrealized
loss on securities available for sale, net of tax
effect
|
|
|
|
|
|
|
76,641 |
|
|
|
76,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2007
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
44,252,182 |
|
|
$ |
- |
|
|
$ |
(414,549 |
) |
|
$ |
43,837,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2007
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
44,321,829 |
|
|
$ |
- |
|
|
$ |
(282,654 |
) |
|
$ |
44,039,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
874,341 |
|
|
|
|
|
|
|
|
|
|
|
874,341 |
|
Net change in unrealized
loss
on securities available for sale,
net of tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,092 |
) |
|
|
(48,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
826,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
issuance
of common stock, net of
offering
expenses of
$1,700,000
|
|
|
61,525 |
|
|
|
25,924,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,986,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of stock for ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
(996,176 |
) |
|
|
|
|
|
|
(996,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2008
|
|
$ |
61,525 |
|
|
$ |
25,924,725 |
|
|
$ |
45,196,170 |
|
|
$ |
(996,176 |
) |
|
$ |
(330,746 |
) |
|
$ |
69,855,498 |
|
See
notes to unaudited consolidated financial statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
|
|
Nine Months Ended June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
Net income
|
|
$ |
874,341 |
|
|
$ |
2,341,943 |
|
Adjustments to reconcile net
income to net cash provided by operating
activities:
|
|
Depreciation
expense
|
|
|
690,650 |
|
|
|
672,044 |
|
Provision for loan
losses
|
|
|
868,506 |
|
|
|
168,000 |
|
Deferred income tax
benefit
|
|
|
(927,404 |
) |
|
|
(14,885 |
) |
Amortization of premiums and
discounts on investments securities, net
|
|
|
186,285 |
|
|
|
213,370 |
|
Amortization of mortgage servicing
rights
|
|
|
97,654 |
|
|
|
92,402 |
|
Net (gain) loss on sale of loans
and investments
|
|
|
(42,788 |
) |
|
|
8,356 |
|
(Increase) decrease in accrued
interest receivable
|
|
|
236,950 |
|
|
|
(173,041 |
) |
Increase (decrease) in accrued
interest payable
|
|
|
(231,564 |
) |
|
|
311,332 |
|
Decrease (increase) in other
liabilities
|
|
|
107,350 |
|
|
|
(81,879 |
) |
Earnings on bank-owned life
insurance
|
|
|
(260,336 |
) |
|
|
(160,617 |
) |
(Increase) decrease in other
assets
|
|
|
555,295 |
|
|
|
(403,358 |
) |
Amortization of loan origination
fees and costs
|
|
|
(1,038,826 |
) |
|
|
(250,769 |
) |
Increase (decrease) in income tax
payable
|
|
|
48,827 |
|
|
|
(346,756 |
) |
Net Cash Provided by Operating
Activities
|
|
|
1,164,940 |
|
|
|
2,376,142 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
|
Proceeds from maturities and
principal collections:
|
|
|
|
|
|
|
|
|
Investment securities held to
maturity
|
|
|
190,681 |
|
|
|
185,156 |
|
Investment securities available
for sale
|
|
|
14,946,081 |
|
|
|
(3,432,084 |
) |
Purchase of investment securities
held to maturity
|
|
|
(1,639,244 |
) |
|
|
- |
|
Purchase of investment securities
available for sale
|
|
|
(8,995,470 |
) |
|
|
(1,000,000 |
) |
Proceeds from sale of
loans
|
|
|
9,301,059 |
|
|
|
- |
|
Loan
purchases
|
|
|
(79,359,267 |
) |
|
|
(16,091,189 |
) |
Loan originations and principal
collections, net
|
|
|
4,518,044 |
|
|
|
8,345,184 |
|
Purchase of equity
investment
|
|
|
(100,000 |
) |
|
|
- |
|
Net increase in restricted
stock
|
|
|
(817,400 |
) |
|
|
638,701 |
|
Purchases of property and
equipment
|
|
|
(291,109 |
) |
|
|
(320,449 |
) |
Net Cash Used in Investing
Activities
|
|
|
(62,246,625 |
) |
|
|
(11,674,681 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
|
|
Net increase in
deposits
|
|
|
4,728,865 |
|
|
|
24,531,031 |
|
Net increase (decrease) in
short-term borrowings
|
|
|
3,000,000 |
|
|
|
(7,500,000 |
) |
Increase of long-term
borrowings
|
|
|
17,495,400 |
|
|
|
- |
|
Repayment of long-term
borrowings
|
|
|
- |
|
|
|
(733,049 |
) |
Increase in advances from
borrowers for taxes and insurance
|
|
|
2,644,200 |
|
|
|
1,857,245 |
|
Proceeds from
stock issuance, net of conversion costs
|
|
|
25,986,250 |
|
|
|
- |
|
ESOP shares
Purchased
|
|
|
(996,176 |
) |
|
|
- |
|
Net Cash Provided by Financing
Activities
|
|
|
52,858,539 |
|
|
|
18,155,227 |
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and
Cash Equivalents
|
|
|
(8,223,146 |
) |
|
|
8,856,688 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents -
Beginning
|
|
|
18,966,750 |
|
|
|
7,031,640 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents -
Ending
|
|
$ |
10,743,604 |
|
|
$ |
15,888,328 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flows
Information
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
14,700,858 |
|
|
$ |
13,879,395 |
|
Income
taxes
|
|
$ |
1,271,761 |
|
|
$ |
1,737,527 |
|
See
notes to unaudited consolidated financial statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Financial Statement Presentation
and Significant Accounting Policies
|
|
Organization and Basis of Presentation
On May 19, 2008 Malvern Federal Savings Bank (the
“Bank”) completed its
reorganization to a mid-tier holding company structure and the sale by the
mid-tier company, Malvern
Federal Bancorp, Inc.
(the “Company”)
of shares of its common
stock. In the reorganization and offering, the Company sold 2,645,575
shares of common stock to certain members of the Bank and the public at a
purchase price of $10.00 per share, issued 3,3383,875 shares to Malvern Federal
Mutual Holding Company and contributed 123,050 shares to the Malvern Federal
Charitable Foundation. The offering resulted in approximately $25.9
million in net proceeds. Financial Statements prior to the
reorganization are the financial statements of the Bank.
As a result of the reorganization and
offering, Malvern Federal Mutual Holding Company (the “Holding Company”) owns
55% of the Company’s outstanding common stock, the charitable foundation
owns 2% and the minority public stockholders
own the remaining 43%. The Holding Company is a federally
chartered mutual holding company. The Holding Company and the Company
are subject to regulation and supervision of the
Office of Thrift
Supervision.
The Bank is a community oriented savings
bank headquartered in Paoli, Pennsylvania. The Bank operates a
total of seven banking offices located throughout Chester County,
Pennsylvania. The Bank’s primary business consists of attracting
deposits from the general public and using those funds, together with borrowed
funds, to originate loans to its customers and invest in securities such as
United States (“U.S.”) Government and agency securities, mortgage-backed
securities and municipal obligations.
The accompanying unaudited consolidated
financial statements of Malvern Federal Bancorp, Inc. include the accounts
of the Bank and the
Company. The Bank is
a wholly owned subsidiary of the Company. All insignificant intercompany accounts and transactions
have been eliminated in consolidation.
Basis of
Presentation
The accompanying unaudited
consolidated financial statements of the Company were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include all information
or footnotes necessary for a complete presentation of financial position,
results of operations, and cash flows in conformity with accounting principles
generally accepted in the United States of America. The statement of
financial condition at September 30, 2007, has been derived from audited
financial statements but does not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
consisting of normal recurring adjustments or accruals, which are necessary for
a fair presentation of the consolidated financial statements, have been
included. The results of operations for the three and nine months ended
June 30, 2008 are not necessarily indicative of the results which may be
expected for the year ending September 30, 2008 or any other period. All
significant intercompany accounts and transactions have been eliminated. In the
opinion of management, all adjustments (including normal recurring adjustments)
considered necessary for a fair presentation of the results for the interim
periods have been included. For comparative purposes, prior years’ consolidated
financial statements have been reclassified to conform to report classifications
of the current year. The reclassifications had no effect on net income.
The unaudited consolidated financial statements presented herein should be read
in conjunction with the audited financial statements of the Bank
and the accompanying notes thereto for the year ended September 30, 2007,
included in the Company’s registration statement on Form S-1 (the “Registration
Statement”) filed with the Securities and Exchange Commission (“SEC”) on
December 19, 2007, which was declared effective by the SEC on February 11, 2008
(File No. 333-148169). Post-Effective Amendment No. 1 to the
registration statement, which reflected a revised offering range, was filed with
the SEC on April 3, 2008 and declared effective on April 8,
2008.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note
1
– Financial
Statement Presentation and Significant Accounting Policies (Continued)
|
|
Principles of
Consolidation
|
|
The consolidated financial statements
contained herein include the accounts of Malvern Federal Bancorp Inc.,
Malvern Federal Savings
Bank and its wholly-owned subsidiary, Strategic Asset Management Group, Inc.
(“SAM”). All material intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that
are particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses, the valuation of deferred
tax assets, and the evaluation of other-than-temporary impairment of investment
securities.
Employee Stock Ownership
Plan
The
Company has established an Employee Stock Ownership Plan (“ESOP”) for the
benefit of employees who meet the eligibility requirement as defined in the
ESOP. As of June 30, 2008, 241,178 shares of the Company’s common
stock had been committed to be purchased by the ESOP. As of June 30,
2008, the Bank purchased 90,778 shares of common using proceeds of a loan from
the Company for $996,176. The Bank will make quarterly payments of
principal and interest over a term of 18 years at rate of 5% to the
Company. Shares of the Company’s common stock purchased by the ESOP
are held in a suspense account until released for allocation to
participants. Shares released will be allocated to each eligible
participant based on the ratio of each such participant’s compensation, as
defined in the ESOP, to the total compensation of all eligible plan
participants. As the unearned shares are released from suspense, the
Company will recognize 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 equity as additional paid-in-capital.
Earnings Per Share
Earnings per share (“EPS”) consists of two
separate components, basic ESP and diluted EPS. Basic EPS is computed
by dividing net income by the weighted average number of common shares
outstanding for each period presented. Diluted EPS will
be calculated by dividing net income by the weighted average number of
common shares outstanding plus dilutive common stock equivalents
(“CSEs”). At June 30, 2008 there were no common stock
equivalents. Due to the timing of the Bank’s reorganization into the
mutual holding company form and the completion of the Company’s initial public
offering on May 19, 2008, earnings per share for the period from May 19, 2008 to
June 30, 2008 is not considered meaningful and is not shown.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note
1
– Financial
Statement Presentation and Significant Accounting Policies (Continued)
|
|
Segment
Information
The Company has one reportable segment,
“Community Banking.” All of the Company’s activities are interrelated, and
each activity is dependent and assessed based on how each of the activities of
the Company supports the others. For example, lending is dependent upon
the ability of the Company to fund itself with deposits and other borrowings and
manage interest rate and credit risk. Accordingly, all significant
operating decisions are based upon analysis of the Company as one segment or
unit.
Comprehensive
Income
Accounting principles generally require
that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale investment securities, are
reported as a separate component of the equity section of the statement of
financial condition, such items, along with net income, are components of
comprehensive income
(loss).
The components of other comprehensive
income (loss) and related tax effects are as
follows:
|
|
Three Months
Ended
June 30,
|
|
|
Nine Months
Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
on
available for
sale securities
|
|
$ |
(337,540 |
) |
|
$ |
(114,871 |
) |
|
$ |
(78,390 |
) |
|
$ |
172,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment
for
losses included
in net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
(expense)
|
|
|
130,459 |
|
|
|
37,558 |
|
|
|
30,298 |
|
|
|
(104,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Tax
Amount
|
|
$ |
(207,081 |
) |
|
$ |
(77,313 |
) |
|
$ |
(48,092 |
) |
|
$ |
76,641 |
|
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Financial Statement Presentation
and Significant Accounting
Policies (Continued)
Recent Accounting
Pronouncements
FASB
Statement No. 141(R)
FASB Statement No. 141 (R) “Business
Combinations,” was issued in December of 2007. This
Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The Statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. This new pronouncement will impact the Company’s accounting
for business combinations completed after October 1, 2009.
FASB Statement No. 160 “Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51,” was issued in December of 2007. This
Statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective as of the beginning of a company’s fiscal year
beginning after December 15, 2008. The Company is currently evaluating the
potential impact the new pronouncement will have on its consolidated financial
statements.
SAB 109
Staff Accounting Bulletin No. 109 (SAB
109), "Written Loan Commitments Recorded at Fair Value Through
Earnings," expresses the views of the staff
regarding written loan commitments that are accounted for at fair value through
earnings under generally accepted accounting principles. To make the staff's
views consistent with current authoritative accounting guidance, the SAB revises
and rescinds portions of SAB No. 105, "Application of Accounting Principles to
Loan Commitments." Specifically, the SAB revises the SEC staff's
views on incorporating expected net future cash flows related to loan servicing
activities in the fair value measurement of a written loan commitment. The SAB
retains the staff's views on incorporating expected net future cash flows
related to internally-developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views
in Question 1 of SAB 109 on a prospective basis to derivative loan commitments
issued or modified in fiscal quarters beginning after December 15, 2007. The
Company adopted
Statement SAB 109
on April 1, 2008, SAB 109
did not have a material
impact on its financial statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Financial Statement Presentation
and Significant Accounting
Policies (Continued)
FASB Statement No.
157
In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements,” which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value
measurements. FASB Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measurements. The
new guidance is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and for interim periods within those
fiscal years. The Company is currently evaluating the
potential impact, if any, of the adoption of FASB Statement No. 157 on our
consolidated financial position, results of operations and cash
flows.
FSP 157-2
In December 2007, the FASB issued FASB
Staff Position (FSP) 157-2, “Effective Date of FASB Statement
No. 157,” that permits a one-year deferral in applying the
measurement provisions of Statement No. 157 to non-financial assets and
non-financial liabilities (non-financial items) that are not recognized or
disclosed at fair value in an entity’s financial statements on a recurring basis
(at least annually). Therefore, if the change in fair value of a non-financial
item is not required to be recognized or disclosed in the financial statements
on an annual basis or more frequently, the effective date of application of
Statement 157 to that item is deferred until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal
years. The Company does not expect FSP 157-2 to have a material impact on its
financial statements.
FASB Statement No.
159
In
February 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No.
115”. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair
value. Unrealized gains and losses on items for which the fair value
option has been elected will be recognized in earnings at each subsequent
reporting date. SFAS No. 159 is effective for the Company on October
1, 2008. The Company is evaluating the impact that the adoption of
SFAS No. 159 will have on our consolidated financial position and results of
operations.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Financial Statement Presentation
and Significant Accounting
Policies (Continued)
EITF 06-10
In March 2007, the FASB ratified EITF
Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life
Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for
determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for
fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of
EITF 06-10 on its consolidated financial position and results of
operations.
EITF 06-5
In September 7, 2006, the EITF
reached a conclusion on EITF Issue No. 06-5, “Accounting for Purchases of
Life Insurance – Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance” (“EITF 06-5”). The scope of EITF 06-5 consists of six
separate issues relating to accounting for life insurance policies purchased by
entities protecting against the loss of “key persons.” The six issues
are clarifications of previously issued guidance on FASB Technical Bulletin
No. 85-4. EITF 06-5 is effective for fiscal years beginning
after December 15, 2006. The adoption of EITF 06-5 did not have a
material effect on the Company’s consolidated statements of financial condition
or results of operations.
EITF 06-4
In September 2006, FASB ratified the
consensus reached by the EITF in Issue 06-4, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements”. EITF 06-4 applies to life
insurance arrangements that provide an employee with a specified benefit that is
not limited to the employee’s active service period, including certain
bank-owned life insurance (“BOLI”) policies. EITF 06-4 requires an
employer to recognize a liability and related compensation costs for future
benefits that extend to postretirement periods. EITF 06-4 is
effective for fiscal years beginning after December 31, 2007, with earlier
application permitted. The Company is continuing to evaluate the impact of
this consensus, which may require it to recognize an additional liability and
compensation expense related to its BOLI policies.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Financial Statement Presentation
and Significant Accounting
Policies (Continued)
FASB
Statement No. 162
In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting
Principles.” This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. This Statement is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles.” The Company is currently evaluating the
potential impact the new pronouncement will have on its consolidated financial
statements.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 2 - Investment
Securities
|
|
Investment securities available for sale
at June 30, 2008 and September 30, 2007 consisted of the
following:
|
|
June 30,
2008
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
securities
|
|
$ |
998,383 |
|
|
$ |
- |
|
|
$ |
(5,570 |
) |
|
$ |
992,813 |
|
FHLB notes
|
|
|
7,982,115 |
|
|
|
26,586 |
|
|
|
(24,639 |
) |
|
|
7,984,062 |
|
Tax-exempt
securities
|
|
|
2,320,963 |
|
|
|
4,783 |
|
|
|
(3,430 |
) |
|
|
2,322,316 |
|
Trust preferred
securities
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
(271,177 |
) |
|
|
728,823 |
|
|
|
|
12,301,461 |
|
|
|
31,369 |
|
|
|
(304,816 |
) |
|
|
12,028,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
|
|
4,645,817 |
|
|
|
2,255 |
|
|
|
(64,322 |
) |
|
|
4,583,750 |
|
Fixed
|
|
|
3,110,133 |
|
|
|
- |
|
|
|
(137,273 |
) |
|
|
2,972,860 |
|
Balloon
|
|
|
794,536 |
|
|
|
- |
|
|
|
(10,179 |
) |
|
|
784,357 |
|
FHLMC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
|
|
1,653,732 |
|
|
|
775 |
|
|
|
(39,810 |
) |
|
|
1,614,697 |
|
Fixed
|
|
|
633,603 |
|
|
|
- |
|
|
|
(12,516 |
) |
|
|
621,087 |
|
GNMA,
adjustable
|
|
|
303,891 |
|
|
|
120 |
|
|
|
(4,716 |
) |
|
|
299,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,141,712 |
|
|
|
3,150 |
|
|
|
(268,816 |
) |
|
|
10,876,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,443,173 |
|
|
$ |
34,519 |
|
|
$ |
(573,632 |
) |
|
$ |
22,904,060 |
|
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 2 - Investment Securities
(Continued)
|
|
September 30,
2007
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
securities
|
|
$ |
4,997,159 |
|
|
$ |
8,561 |
|
|
$ |
(5,208 |
) |
|
$ |
5,000,512 |
|
Federal Farm Credit
Banks
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
(1,250 |
) |
|
|
998,750 |
|
FHLB notes
|
|
|
6,995,806 |
|
|
|
14,507 |
|
|
|
(3,438 |
) |
|
|
7,006,875 |
|
Tax-exempt
securities
|
|
|
2,975,899 |
|
|
|
1,779 |
|
|
|
(32,699 |
) |
|
|
2,944,979 |
|
Trust preferred
securities
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
(87,105 |
) |
|
|
912,895 |
|
|
|
|
16,968,864 |
|
|
|
24,847 |
|
|
|
(129,700 |
) |
|
|
16,864,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
|
|
4,839,144 |
|
|
|
3,820 |
|
|
|
(77,401 |
) |
|
|
4,765,563 |
|
Fixed
|
|
|
3,627,557 |
|
|
|
- |
|
|
|
(182,177 |
) |
|
|
3,445,380 |
|
Balloon
|
|
|
893,624 |
|
|
|
- |
|
|
|
(31,111 |
) |
|
|
862,513 |
|
FHLMC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Adjustable
|
|
|
2,107,149 |
|
|
|
1,573 |
|
|
|
(45,246 |
) |
|
|
2,063,476 |
|
Fixed
|
|
|
723,904 |
|
|
|
|
|
|
|
(20,618 |
) |
|
|
703,286 |
|
GNMA,
adjustable
|
|
|
398,658 |
|
|
|
271 |
|
|
|
(4,981 |
) |
|
|
393,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,590,036 |
|
|
|
5,664 |
|
|
|
(361,534 |
) |
|
|
12,234,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,558,900 |
|
|
$ |
30,511 |
|
|
$ |
(491,234 |
) |
|
$ |
29,098,177 |
|
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 2 - Investment Securities
(Continued)
Investment securities held to maturity
at June 30, 2008 and September 30, 2007 consisted
of the following:
|
|
June 30,
2008
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA,
Adjustable
|
|
$ |
358,958 |
|
|
$ |
2,754 |
|
|
$ |
(1,983 |
) |
|
$ |
359,729 |
|
GNMA,
Fixed
|
|
|
3,333 |
|
|
|
246 |
|
|
|
- |
|
|
|
3,579 |
|
FNMA,
Fixed
|
|
|
2,544,188 |
|
|
|
- |
|
|
|
(74,480 |
) |
|
|
2,469,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,906,479 |
|
|
$ |
3,000 |
|
|
$ |
(76,463 |
) |
|
$ |
2,833,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2007
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA,
Adjustable
|
|
$ |
403,296 |
|
|
$ |
1,842 |
|
|
$ |
(1,737 |
) |
|
$ |
403,401 |
|
GNMA,
Fixed
|
|
|
3,868 |
|
|
|
226 |
|
|
|
- |
|
|
|
4,094 |
|
FNMA,
Fixed
|
|
|
1,071,921 |
|
|
|
- |
|
|
|
(32,381 |
) |
|
|
1,039,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,479,085 |
|
|
$ |
2,068 |
|
|
$ |
(34,118 |
) |
|
$ |
1,447,035 |
|
No impairment charge was recognized on
investment securities during the nine months ended June 30, 2008 and
2007.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 3 - Loans Receivable
Loans receivable consisted of the
following at June
30, 2008 and September 30,
2007:
|
|
At June 30,
|
|
|
At September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Mortgage
Loans:
|
|
|
|
|
|
|
One-to-four-family
|
|
$ |
230,525,560 |
|
|
$ |
184,202,070 |
|
Multi-family
|
|
|
1,914,714 |
|
|
|
2,256,975 |
|
Construction or
development
|
|
|
46,487,249 |
|
|
|
58,869,504 |
|
Land loans
|
|
|
4,514,588 |
|
|
|
6,665,093 |
|
Commercial real
estate
|
|
|
131,166,496 |
|
|
|
108,500,258 |
|
Total Mortgage
Loans
|
|
|
414,608,607 |
|
|
|
360,493,900 |
|
|
|
|
|
|
|
|
|
|
Commercial
Loans
|
|
|
15,996,803 |
|
|
|
15,767,291 |
|
|
|
|
|
|
|
|
|
|
Consumer
Loans:
|
|
|
|
|
|
|
|
|
Home equity line of
credit
|
|
|
12,495,544 |
|
|
|
11,810,610 |
|
Second
mortgages
|
|
|
98,085,138 |
|
|
|
78,732,931 |
|
Other
|
|
|
1,343,010 |
|
|
|
1,524,769 |
|
Total consumer
loans
|
|
|
111,923,692 |
|
|
|
92,068,310 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
542,529,102 |
|
|
|
468,329,501 |
|
|
|
|
|
|
|
|
|
|
Deferred loan costs,
net
|
|
|
3,442,827 |
|
|
|
2,404,003 |
|
Allowance for loan
losses
|
|
|
(4,768,025 |
) |
|
|
(4,541,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
541,203,904 |
|
|
$ |
466,192,361 |
|
|
|
|
|
|
|
|
|
|
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 3 – Loans Receivable
(Continued)
The following is an analysis of the
activity in the allowance for loan losses during the periods ended:
|
|
Nine Months
Ended June
30,
|
|
|
Year Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance at beginning of
period
|
|
$ |
4,541,143 |
|
|
$ |
3,392,607 |
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
|
|
|
868,506 |
|
|
|
1,298,071 |
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(645,524 |
) |
|
|
(159,930 |
) |
Recoveries
|
|
|
3,900 |
|
|
|
10,395 |
|
|
|
|
|
|
|
|
|
|
Net
Charge-offs
|
|
|
(641,624 |
) |
|
|
(149,535 |
) |
|
|
|
|
|
|
|
|
|
Balance at end of
period
|
|
$ |
4,768,025 |
|
|
$ |
4,541,143 |
|
|
|
|
|
|
|
|
|
|
The Company’s loan portfolio is comprised primarily
of mortgage loans secured by real estate. A substantial portion of
these loans, as well as most other loan types, are to borrowers who live in the
vicinity of Chester County, Pennsylvania. While the Company attempts to limit its exposure to
downturns in the real estate market through various underwriting techniques, it
remains heavily dependent on the condition of the local
economy.
Included in loans receivable are
nonaccrual loans past due 90 days or more in the amount of $6.7
million and $2.3 million, at June 30, 2008 and September 30, 2007,
respectively. Interest income that would have been recognized on
these nonaccrual loans had they been current in accordance with their original
terms is $349,000 and $118,000, in the nine months ended June 30, 2008 and the year ended September 30, 2007,
respectively.
As of June 30, 2008 and September 30, 2007, the
Company had impaired loans under SFAS No. 114
“Accounting by Creditors for Impairments of a Loan” with a total recorded
investment of $3.5 million and $3.5 million, respectively. The allowance
for loan losses related to these loans as of June 30, 2008 and September 30, 2007 was $872,000 and $875,000, respectively. The average
recorded investment in impaired loans for the nine months ended June 30, 2008 and the year ended September 30,
2007 was $3.5 million and $4.8 million, respectively. The
Company recognizes income on impaired loans on
a cash basis when the loan is current and the collateral is sufficient to cover
the outstanding obligation to the Company. During the nine months ended June 30, 2008 and the year ended September 30,
2007, cash collected and recognized as interest income on impaired loans was
$22,000 and $47,000, respectively.
No additional funds are committed to be
advanced in connection with impaired loans.
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 4 - Regulatory
Matters
|
|
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 correction 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.
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 assets (as defined) and of
risk-based capital (as defined) to risk-weighted assets (as
defined). Management believes, as of June 30, 2008, that the Bank meets all capital
adequacy requirements to which it is subject.
As of June 30, 2008, the most recent notification from the
regulators categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum tangible, core, and risk-based
ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank’s
category.
The Bank’s actual capital amounts and
ratios are also presented in the table:
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To be Well Capitalized Under
Prompt Corrective Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Capital
|
|
$ |
70,186,241 |
|
|
|
11.58 |
% |
|
$ |
9,088,080 |
|
|
|
1.50 |
% |
|
$ |
- |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Capital
|
|
|
70,186,241 |
|
|
|
11.58 |
% |
|
|
24,234,879 |
|
|
|
4.00 |
% |
|
|
30,293,599 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital
|
|
|
70,186,241 |
|
|
|
14.94 |
% |
|
|
18,786,639 |
|
|
|
4.00 |
% |
|
|
28,179,959 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
Based Capital
|
|
|
74,082,278 |
|
|
|
15.77 |
% |
|
|
37,573,279 |
|
|
|
8.00 |
% |
|
|
46,966,598 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To be Well Capitalized Under
Prompt Corrective Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Capital
|
|
$ |
44,321,829 |
|
|
|
8.03 |
% |
|
$ |
8,282,178 |
|
|
|
1.50 |
% |
|
$ |
- |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Capital
|
|
|
44,321,829 |
|
|
|
8.03 |
% |
|
|
22,085,807 |
|
|
|
4.00 |
% |
|
|
27,607,259 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1
Capital
|
|
|
44,321,829 |
|
|
|
10.36 |
% |
|
|
17,107,318 |
|
|
|
4.00 |
% |
|
|
25,660,977 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Based
Capital
|
|
|
79,987,901 |
|
|
|
11.24 |
% |
|
|
34,214,636 |
|
|
|
8.00 |
% |
|
|
42,768,295 |
|
|
|
10.00 |
% |
Malvern
Federal Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 5 – Reorganization to Mutual Holding
Company
On November 20, 2007, the Board of
Directors approved a plan of reorganization and a plan of stock issuance pursuant to
which Malvern Federal Savings Bank reorganized from a mutual savings bank to
the mutual holding company structure.
Pursuant to the plan of reorganization
and plan of stock issuance, on May 19, 2008, the Bank became a wholly owned stock-form subsidiary
of Malvern Federal Bancorp,
Inc., a newly formed mid-tier holding company, and 3,383,875 shares, or 55%, of the outstanding
common stock of
the Company, were issued to
Malvern Federal Mutual
Holding Company, 2,645,575
shares of common stock of the Company were issued to certain members of the Bank
and the general public at $10 per share, and 123,050 shares of common stock were
issued to the Malvern Federal Charitable Foundation.
Approximately $1.7 million of costs
associated with the stock offering have been incurred at June 30,
2008.
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Statements
This Quarterly Report on Form 10-Q
contains certain forward-looking statements and information relating to Malvern
Federal Bancorp, Inc. (the “Company”) and Malvern Federal Savings Bank (the
“Bank”) that are based on the beliefs of management as well as
assumptions made by and information currently available to
management. In addition, in portions of this document the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “should” and similar
expressions, or the negative thereof, as they relate to the Company or the Bank
or their management, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company
and/or the Bank with respect to forward-looking events and are subject to
certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company
does not intend to update these forward-looking statements.
General
Malvern Federal Bancorp, Inc. (the
“Company”) is a
Pennsylvania corporation, which was organized to be the mid-tier holding company
for Malvern Federal Savings
Bank (the “Bank”), which is
a federally-chartered stock-form savings bank. The Company was organized in connection
with the Bank’s reorganization from the mutual savings bank to a mutual holding
company structure in May 2008. Financial Statements prior to the
reorganization were the financial statements of the Bank. The
Company’s results of operations are primarily dependent on the results of the
Bank, which is a wholly owned subsidiary of the Company. The
Company’s results of operations depend, to a large extent, on net interest
income, which is the difference between the income earned on its loan and
investment portfolios and the cost of funds, consisting of the interest paid on
deposits and borrowings. Results of operations are also affected by
provisions for loan losses, fee income and other non-interest income and
non-interest expense. Non-interest expense principally consists of
compensation and employee benefits, office occupancy and equipment expense, data
processing, advertising and business promotion and other expense. Our
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities. Future changes in
applicable law, regulations or government policies may materially impact our
financial condition and results of operations. The Bank’s main office
is in Paoli, Pennsylvania, with seven banking offices located throughout Chester
County, Pennsylvania. The Bank’s primary business consists of
attracting deposits from the general public and using those funds together with
borrowings to originate loans and to invest primarily in U.S. Government and
agency securities and mortgage-backed securities.
Critical Accounting
Policies
In
reviewing and understanding financial information for the Company, you are
encouraged to read and understand the significant accounting policies used in
preparing our consolidated financial statements. These policies are
described in Note 1 of the notes to our unaudited financial statements included
elsewhere herein.
The accounting and financial reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. Accordingly, the consolidated
financial statements require certain estimates, judgments, and assumptions,
which are believed to be reasonable, based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
income and expenses during the periods presented. The following accounting
policies comprise those that management believes are the most critical to aid in
fully understanding and evaluating our reported financial
results. These policies require numerous estimates or economic
assumptions that may prove inaccurate or may be subject to variations which may
affect our reported results and financial condition for the period or in future
periods.
Allowance for Loan
Losses. The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. Subsequent recoveries are added to the allowance. The
allowance is an amount that represents the amount of probable and reasonably
estimable known and inherent losses in the loan portfolio, based on evaluations
of the collectibility of loans. The evaluations take into consideration such
factors as changes in the types and amount of loans in the loan portfolio,
historical loss experience, adverse situations that may affect the borrower’s
ability to repay, estimated value of any underlying collateral, estimated losses
relating to specifically identified loans, and current economic conditions. This
evaluation is inherently subjective as it requires material estimates including,
among others, exposure at default, the amount and timing of expected future cash
flows on impacted loans, value of collateral, estimated losses on our loan
portfolio and general amounts for historical loss experience. All of
these estimates may be susceptible to significant change.
While
management uses the best information available to make loan loss allowance
evaluations, adjustments to the allowance may be necessary based on changes in
economic and other conditions or changes in accounting guidance. Historically,
our estimates of the allowance for loan losses have not required significant
adjustments from management’s initial estimates. In addition, the Office of
Thrift Supervision, as an integral part of its examination processes,
periodically reviews our allowance for loan losses. The Office of Thrift
Supervision may require the recognition of adjustments to the allowance for loan
losses based on their judgment of information available to them at the time of
their examinations. To the extent that actual outcomes differ from management’s
estimates, additional provisions to the allowance for loan losses may be
required that would adversely impact earnings in future periods.
Income Taxes. We
make estimates and judgments to calculate some of our tax liabilities and
determine the recoverability of some of our deferred tax assets, which arise
from temporary differences between the tax and financial statement recognition
of revenues and expenses. We also estimate a reserve for deferred tax
assets if, based on the available evidence, it is more likely than not that some
portion or all of the recorded deferred tax assets will not be realized in
future periods. These estimates and judgments are inherently
subjective. Historically, our estimates and judgments to calculate
our deferred tax accounts have not required significant revision to our initial
estimates.
In
evaluating our ability to recover deferred tax assets, we consider all available
positive and negative evidence, including our past operating results and our
forecast of future taxable income. In determining future taxable
income, we make assumptions for the amount of taxable income, the reversal of
temporary differences and the implementation of feasible and prudent tax
planning strategies. These assumptions require us to make judgments
about our future taxable income and are consistent with the plans and estimates
we use to manage our business. Any reduction in estimated future
taxable income may require us to record a valuation allowance against our
deferred tax assets. An increase in the valuation allowance would
result in additional income tax expense in the period and could have a
significant impact on our future earnings.
Other-Than-Temporary Impairment of
Securities – Securities are evaluated on at least a quarterly basis, and
more frequently when market conditions warrant such an evaluation, to determine
whether a decline in their value is other-than-temporary. To
determine whether a loss in value is other-than-temporary, management utilizes
criteria such as the reasons underlying the decline, the magnitude and duration
of the decline and our intent and ability to retain our investment in the
security for a period of time sufficient to allow for an anticipated recovery in
the fair value. The term “other-than-temporary” is not intended to
indicate that the decline is permanent, but indicates that the prospects for a
near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is
determined to be other-than-temporary, the value of the security is reduced and
a corresponding charge to earnings is recognized.
Comparison
of Financial Condition at June 30, 2008 and September 30,
2007
|
|
Total assets of the Company amounted to
$605.5 million at June 30, 2008 compared to $551.9 million at September 30,
2007, an increase of $53.6 million or 9.7%. Our net loans receivable
increased by $75.0 million, or 16.09%, to $541.2 million at June 30, 2008
compared to $466.2 million at September 30, 2007. We continued to see
moderately strong demand for new loan originations in the first nine months of
fiscal 2008. Total
investment securities (available for sale and held to maturity) decreased $4.8
million, or 15.6%, from September 30, 2007 to June 30,
2008. The decrease in investment securities during the first
nine months of fiscal 2008 was due to normal amortization and re-payments, $15.1
million in maturities and the fact that we only purchased $10.6 million in
additional securities during the period. Cash and cash equivalents decreased $6.2
million, or 21.3%, from September 30, 2007 to June 30,
2008. The decrease in cash and cash equivalents primarily
reflects the use of cash to fund loan demand and deposit outflows.
Our total deposits amounted to $438.2
million at June 30, 2008, a $4.7 million, or 1.09%, increase from total deposits
at September 30, 2007. The change in deposits was due primarily to a
$5.5 million increase in non-interest bearing deposits. The increase was reduced
slightly by a $798,000 decrease in interest bearing
deposits. Borrowings from the Federal Home Loan Bank of Pittsburgh
(the "FHLB") amounted to $91.9 million at June 30, 2008 compared to $71.4
million at September 30, 2007. As of June 30, 2008, FHLB lines of
credit increased by $3.0 million compared to September 30, 2007 and FHLB
advances increased by $17.5 million. We use FHLB borrowings as
an additional source of funds to support our loan growth. Our
shareholders’ equity at June 30, 2008 amounted to $69.9 million, a $25.9 million
increase compared to total equity of $44.0 million at September 30,
2007. The increase in shareholders’ equity was due to the $26.0
million in net proceeds raised in the Company’s recently completed initial stock
offering. The Company issued 2,645,575 shares of common stock
representing 43% of total outstanding shares of the Company to subscribers in
the stock offering. Malvern Federal Mutual Holding Company, the
Company’s parent mutual holding company, was issued 55% of the outstanding
shares, or 3,383,875 shares. The remaining 2% or 123,050 shares were
contributed to the Malvern Federal Charitable Foundation, a charitable
foundation organized by the Bank as a part of the reorganization (“Charitable
Foundation”). Retained earnings increased by $874,000 to $45.2
million as a result of net income for the first nine months of the fiscal
2008. Our ratio of equity to assets was 11.54% at June 30,
2008.
At June 30, 2008, our total
non-performing assets amounted to $6.8 million, or 1.1% of total assets,
compared to $6.3 million in non-performing assets at March 31, 2008,
constituting 1.1% of total assets at such date, and $2.6 million, or 0.47% of
total assets, at September 30, 2007. The $4.2 million increase in
non-performing assets during the first nine months of fiscal 2008 was due
primarily to a $3.5 million mixed-use commercial real estate loan becoming
non-accrual/non-performing during the first quarter of fiscal
2008. At September 30, 2007, this loan was more than 60 days but less
than 90 days delinquent. Management classified this loan as
“substandard” and impaired in September 2007 and received an updated appraisal
on the property securing the loan. Based on the appraisal report, we increased
our allowance for loan losses by $852,000 during fiscal 2007, reflecting the
revised appraised value of the loan and anticipated costs of sale. We
have commenced foreclosure proceedings and anticipate no additional losses with
respect to this loan. We intend to pursue all available remedies to
protect our position. At June 30, 2008, our allowance for loan losses
was 70.4% of non-performing loans and 0.88% of total loans.
The table
below sets forth the amounts and categories of non-performing assets in the
Company’s loan portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest become doubtful.
|
|
June 30,
|
|
|
March 31,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing
loans:
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
1,076 |
|
|
$ |
402 |
|
|
$ |
461 |
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial real
estate
|
|
|
4,261 |
|
|
|
4,261 |
|
|
|
661 |
|
Construction or
development
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Land
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
|
|
|
581 |
|
|
|
823 |
|
|
|
780 |
|
Home equity lines of
credit
|
|
|
195 |
|
|
|
168 |
|
|
|
14 |
|
Second
mortgages
|
|
|
555 |
|
|
|
502 |
|
|
|
351 |
|
Other
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
Total
non-accruing
|
|
|
6,669 |
|
|
|
6,157 |
|
|
|
2,267 |
|
Accruing loans delinquent
more than 90 days past due
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Restructured
loans
|
|
|
109 |
|
|
|
113 |
|
|
|
121 |
|
Total non-performing
loans
|
|
|
6,778 |
|
|
|
6,270 |
|
|
|
2,388 |
|
Real estate owned and other
foreclosed assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to
four-family
|
|
|
- |
|
|
|
51 |
|
|
|
227 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
- |
|
|
|
51 |
|
|
|
227 |
|
Total non-performing
assets
|
|
$ |
6,778 |
|
|
$ |
6,321 |
|
|
$ |
2,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a
percent of gross loans
|
|
|
1.25 |
% |
|
|
1.22 |
% |
|
|
0.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as a
percent of total assets
|
|
|
1.12 |
% |
|
|
1.11 |
% |
|
|
0.47 |
% |
Comparison
of Our Operating Results for the Three and Nine months Ended June 30, 2008 and
2007
General. Our net
loss was $63,000 for the three months ended June 30, 2008 compared to net income
of $805,000 for the three months ended June 30, 2007. The primary
reasons for the $868,000 decrease in net income in the third quarter of fiscal
2008 compared to the third quarter of fiscal 2007 were increases in other
expenses of $1.4 million and in the provision for loan losses of $406,000, which
were partially offset by a $275,000 increase in net interest income, a $136,000
increase in other income and a $563,000 reduction in income tax
expense. The increase in other expenses was the result of a $1.2
million contribution to the Charitable Foundation, which was created in
connection with the Bank’s mutual holding company
reorganization. Like most financial institutions, we continue to
experience the effects of interest rate compression on our results of
operations. Our interest rate spread and net interest margin were
2.18% and 2.65%, respectively, for the quarter ended June 30, 2008 compared to
2.30% and 2.71% for the quarter ended June 30, 2007.
For the
nine months ended June 30, 2008, our net income was $874,000 compared to $2.3
million for the nine months ended June 30, 2007. Again, the primary
reasons for the decline in net income during the first nine months of fiscal
2008 compared to the first nine months of fiscal 2007 were higher provisions for
loan losses and increases in other expenses in the fiscal 2008 period primarily
related to the contribution to the Foundation.
Average Balances, Net Interest
Income, and Yields Earned and Rates Paid. The following tables
show 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 net interest margin. Tax-exempt income and yields have
not been adjusted to a tax-equivalent basis. 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.
|
|
|
Three Months Ended June
30,
|
|
|
|
|
(Dollars in
thousands)
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate(1)
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate(1)
|
|
Interest-earning
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1)
|
|
$ |
529,537 |
|
|
|
8,024 |
|
|
|
6.06 |
% |
|
$ |
464,903 |
|
|
|
7,713 |
|
|
|
6.64 |
% |
Investment
securities
|
|
|
20,411 |
|
|
|
211 |
|
|
|
4.14 |
% |
|
|
33,600 |
|
|
|
409 |
|
|
|
4.87 |
% |
Restricted
stock
|
|
|
4,932 |
|
|
|
64 |
|
|
|
5.19 |
% |
|
|
4,124 |
|
|
|
116 |
|
|
|
11.25 |
% |
Other interest-earning
assets
|
|
|
11,631 |
|
|
|
47 |
|
|
|
1.62 |
% |
|
|
10,561 |
|
|
|
96 |
|
|
|
3.64 |
% |
Total interest-earning
assets
|
|
|
566,511 |
|
|
|
8,346 |
|
|
|
5.89 |
% |
|
|
513,188 |
|
|
|
8,334 |
|
|
|
6.50 |
% |
Non-interest-earning
assets |
|
|
19,724 |
|
|
|
|
|
|
|
|
|
|
|
17,927 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
586,235 |
|
|
|
|
|
|
|
|
|
|
$ |
531,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and NOW
accounts
|
|
|
37,409 |
|
|
|
87 |
|
|
|
0.93 |
% |
|
|
34,740 |
|
|
|
68 |
|
|
|
0.78 |
% |
Money market
accounts
|
|
|
75,235 |
|
|
|
477 |
|
|
|
2.54 |
% |
|
|
64,247 |
|
|
|
638 |
|
|
|
3.97 |
% |
Savings
accounts
|
|
|
39,981 |
|
|
|
75 |
|
|
|
0.75 |
% |
|
|
41,548 |
|
|
|
105 |
|
|
|
1.01 |
% |
Time
deposits
|
|
|
260,879 |
|
|
|
2,857 |
|
|
|
4.38 |
% |
|
|
259,082 |
|
|
|
3,101 |
|
|
|
4.79 |
% |
Total
deposits
|
|
|
413,504 |
|
|
|
3,496 |
|
|
|
3.38 |
% |
|
|
399,617 |
|
|
|
3,912 |
|
|
|
3.92 |
% |
FHLB advances |
|
|
82,349 |
|
|
|
1,100 |
|
|
|
5.34 |
% |
|
|
62,867 |
|
|
|
947 |
|
|
|
6.03 |
% |
Total interest-bearing
liabilities
|
|
|
495,853 |
|
|
|
4,596 |
|
|
|
3.71 |
% |
|
|
462,484 |
|
|
|
4,859 |
|
|
|
4.20 |
% |
Non-interest-bearing
liabilities |
|
|
34,847 |
|
|
|
|
|
|
|
|
|
|
|
26,351 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
530,700 |
|
|
|
|
|
|
|
|
|
|
|
488,835 |
|
|
|
|
|
|
|
|
|
Stockholders’
Equity |
|
|
55,535 |
|
|
|
|
|
|
|
|
|
|
|
42,280 |
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders’ equity
|
|
$ |
586,235 |
|
|
|
|
|
|
|
|
|
|
$ |
531,115 |
|
|
|
|
|
|
|
|
|
Net interest-earning
assets
|
|
$ |
70,658 |
|
|
|
|
|
|
|
|
|
|
$ |
50,704 |
|
|
|
|
|
|
|
|
|
Net interest income; average
interest rate
spread
|
|
|
$ |
3,750 |
|
|
|
2.18 |
% |
|
|
|
|
|
$ |
3,475 |
|
|
|
2.30 |
% |
Net interest margin(2)
|
|
|
|
|
|
|
|
|
|
|
2.65 |
% |
|
|
|
|
|
|
|
|
|
|
2.71 |
% |
Average interest-earning assets
to
average interest-bearing
liabilities
|
|
|
|
114.25 |
% |
|
|
|
|
|
|
|
|
|
|
110.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes nonaccrual loans
during the respective periods. Calculated net of deferred fees and
discounts and allowance for loan losses.
|
|
|
(2) Equals net interest income
divided by average interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June
30,
|
|
|
|
|
|
(Dollars in
thousands)
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Average Yield/Rate(1)
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate(1)
|
|
Interest-earning
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1)
|
|
$ |
504,621 |
|
|
$ |
23,694 |
|
|
|
6.26 |
% |
|
$ |
460,414 |
|
|
|
22,840 |
|
|
|
6.61 |
% |
|
Investment
securities
|
|
|
22,569 |
|
|
|
737 |
|
|
|
4.35 |
% |
|
|
32,116 |
|
|
|
1,017 |
|
|
|
4.22 |
% |
|
Restricted
stock
|
|
|
4,685 |
|
|
|
182 |
|
|
|
5.18 |
% |
|
|
4,199 |
|
|
|
257 |
|
|
|
8.16 |
% |
|
Other interest-earning
assets
|
|
|
8,259 |
|
|
|
161 |
|
|
|
2.60 |
% |
|
|
10,093 |
|
|
|
246 |
|
|
|
3.25 |
% |
|
|
Total interest-earning
assets
|
|
|
540,134 |
|
|
|
24,774 |
|
|
|
6.12 |
% |
|
|
506,822 |
|
|
|
24,360 |
|
|
|
6.41 |
% |
Non-interest-earning
assets
|
|
|
18,952 |
|
|
|
|
|
|
|
|
|
|
|
17,147 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
559,086 |
|
|
|
|
|
|
|
|
|
|
$ |
523,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and NOW
accounts
|
|
|
35,414 |
|
|
|
210 |
|
|
|
0.79 |
% |
|
|
33,676 |
|
|
|
176 |
|
|
|
0.70 |
% |
|
Money market
accounts
|
|
|
70,664 |
|
|
|
1,736 |
|
|
|
3.28 |
% |
|
|
57,690 |
|
|
|
1,651 |
|
|
|
3.82 |
% |
|
Savings
accounts
|
|
|
39,058 |
|
|
|
247 |
|
|
|
0.84 |
% |
|
|
42,311 |
|
|
|
321 |
|
|
|
1.01 |
% |
|
Time
deposits
|
|
|
264,059 |
|
|
|
9,137 |
|
|
|
4.61 |
% |
|
|
260,191 |
|
|
|
9,179 |
|
|
|
4.70 |
% |
|
Total
deposits
|
|
|
409,195 |
|
|
|
11,330 |
|
|
|
3.69 |
% |
|
|
393,868 |
|
|
|
11,327 |
|
|
|
4.70 |
% |
FHLB
advances
|
|
|
74,091 |
|
|
|
3,140 |
|
|
|
5.65 |
% |
|
|
63,466 |
|
|
|
2,864 |
|
|
|
6.02 |
% |
|
Total interest-bearing
liabilities
|
|
|
483,286 |
|
|
|
14,470 |
|
|
|
3.99 |
% |
|
|
457,334 |
|
|
|
14,191 |
|
|
|
4.14 |
% |
Non-interest-bearing
liabilities
|
|
|
27,834 |
|
|
|
|
|
|
|
|
|
|
|
24,837 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
511,120 |
|
|
|
|
|
|
|
|
|
|
|
482,171 |
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
47,966 |
|
|
|
|
|
|
|
|
|
|
|
41,798 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders’ equity
|
|
$ |
559,086 |
|
|
|
|
|
|
|
|
|
|
|
523,969 |
|
|
|
|
|
|
|
|
|
Net interest-earning
assets
|
|
$ |
56,848 |
|
|
|
|
|
|
|
|
|
|
$ |
49,488 |
|
|
|
|
|
|
|
|
|
Net interest income; average
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
spread |
|
|
$ |
10,304 |
|
|
|
2.13 |
% |
|
|
|
|
|
$ |
10,169 |
|
|
|
2.27 |
% |
Net interest margin(2)
|
|
|
|
|
|
|
|
|
|
|
2.54 |
% |
|
|
|
|
|
|
|
|
|
|
2.68 |
% |
Average interest-earning assets
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing
liabilities |
|
|
|
111.76 |
% |
|
|
|
|
|
|
|
|
|
|
110.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes nonaccrual loans
during the respective periods. Calculated net of deferred fees and
discounts and allowance for loan losses.
|
|
|
|
(2) Equals net interest income
divided by average interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities for the indicated periods. It distinguishes between
the increase related to higher outstanding balances and that due to the
unprecedented levels and volatility of interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of these
tables, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
the change due to rate.
|
|
|
|
Three Months Ended June
30,
|
|
|
|
|
|
2008 vs.
2007
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net Change
|
|
|
|
|
|
(Dollars in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$ |
4,289 |
|
|
$ |
(3,978 |
) |
|
$ |
311 |
|
|
Investment
securities
|
|
|
(642 |
) |
|
|
444 |
|
|
|
(198 |
) |
|
Restricted
stock
|
|
|
91 |
|
|
|
(143 |
) |
|
|
(52 |
) |
|
Other interest-earning
assets
|
|
|
39 |
|
|
|
(88 |
) |
|
|
(49 |
) |
|
|
Total interest-earning
assets
|
|
$ |
3,777 |
|
|
$ |
(3,765 |
) |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and NOW
accounts
|
|
$ |
21 |
|
|
$ |
(2 |
) |
|
$ |
19 |
|
|
Money market
accounts
|
|
|
436 |
|
|
|
(597 |
) |
|
|
(161 |
) |
|
Savings
accounts
|
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(30 |
) |
|
Time
|
|
|
86 |
|
|
|
(330 |
) |
|
|
(244 |
) |
|
|
Total
deposits
|
|
|
527 |
|
|
|
(944 |
) |
|
|
(416 |
) |
Borrowed funds |
|
|
1,174 |
|
|
|
(1,021 |
) |
|
|
153 |
|
|
|
Total interest-bearing
liabilities
|
|
$ |
1,701 |
|
|
$ |
(1,965 |
) |
|
$ |
(263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
$ |
2,076 |
|
|
$ |
(1,800 |
) |
|
$ |
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June
30,
|
|
|
|
|
|
2008 vs.
2007
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net Change
|
|
|
|
|
|
(Dollars in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$ |
2,924 |
|
|
$ |
(2,070 |
) |
|
$ |
854 |
|
|
Investment
securities
|
|
|
(403 |
) |
|
|
123 |
|
|
|
(280 |
) |
|
Restricted
stock
|
|
|
40 |
|
|
|
(115 |
) |
|
|
(75 |
) |
|
Other interest-earning
assets
|
|
|
(60 |
) |
|
|
(25 |
) |
|
|
(85 |
) |
|
|
Total interest-earning
assets
|
|
$ |
2,501 |
|
|
$ |
(2,087 |
) |
|
$ |
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and NOW
accounts
|
|
$ |
12 |
|
|
$ |
22 |
|
|
$ |
34 |
|
|
Money market
accounts
|
|
|
495 |
|
|
|
(410 |
) |
|
|
85 |
|
|
Savings
accounts
|
|
|
(33 |
) |
|
|
(41 |
) |
|
|
(74 |
) |
|
Time
|
|
|
182 |
|
|
|
(224 |
) |
|
|
(42 |
) |
|
|
Total
deposits
|
|
|
656 |
|
|
|
(653 |
) |
|
|
3 |
|
Borrowed
funds
|
|
|
639 |
|
|
|
(363 |
) |
|
|
276 |
|
|
|
Total interest-bearing
liabilities
|
|
$ |
1,295 |
|
|
$ |
(1,016 |
) |
|
$ |
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
$ |
1,206 |
|
|
$ |
(1,071 |
) |
|
$ |
135 |
|
Interest
Income. Our total interest and dividend income was $8.3
million for the three months ended June 30, 2008 and 2007. Interest
and dividend income increased slightly, as a result of a $311,000
increase in interest earned on loans which was partially offset by a $250,000
decrease in interest earned on other investments. The increase in
interest income earned on loans in the third quarter of fiscal 2008 compared to
the third quarter of fiscal 2007 was due to a $64.6 million, or 13.9%, increase
in the average balance of our loan portfolio. The average balance of our
investment securities declined by $13.2 million, or 39.3%, in the third quarter
of fiscal 2008 compared to the third quarter of fiscal 2007, reflecting in part,
the relatively strong demand for new loan originations in the fiscal 2008
period.
For the nine months ended June 30,
2008, our total interest and dividend income was $24.8 million compared to $24.4
million for the nine months ended June 30, 2007, an increase of $414,000, or
1.7%. During the first nine months of fiscal 2008, the primary reason for the
increase in interest income was higher interest earned on our loan portfolio in
the fiscal 2008 period. Interest earned on loans increased by
$853,000 in the nine months ended June 30, 2008 compared to the nine months
ended June 30, 2007 due primarily to a $44.4 million, or 9.6%, increase in the
average balance of the loan portfolio. The average yield on our total
interest-earning assets was 5.89% for the three months ended June 30, 2008
compared to 6.50% for the three months ended June 30, 2007. The
average yield on our total interest-earning assets was 6.12% for the nine months
ended June 30, 2008 compared to 6.41% for the nine months ended June 30,
2007.
Interest
Expense. Our total interest expense was $4.6 million for the
three months ended June 30, 2008 compared to $4.9 million for the three months
ended June 30, 2007. The $262,000 decrease in the fiscal 2008 period
was due to $416,000 decrease in interest expense on deposits , which was
partially offset by an $8,000 increase in expense on short-term FHLB advances,
and a $146,000 increase in expenses on FHLB advances. The increases
in interest expense on FHLB advances and short-term borrowings primarily reflect
an increase of the average balances of such liabilities in the fiscal 2008
period, reflecting our increased use of borrowings as a source of funds for new
loan originations. The decrease in our deposit expense in the fiscal
2008 period was primarily due to the rates decreasing from 3.97% in June 30,
2007 to 2.54% on June 30, 2008 in our money market accounts. The average rate
paid on our total interest-bearing liabilities was 3.71% for the three months
ended June 30, 2008 compared to 4.20% for the three months ended June 30,
2007.
For the
nine months ended June 30, 2008, our total interest expense was $14.5 million, a
$278,000, or 2.0%, increase over total interest expense of $14.2 million for the
nine months ended June 30, 2007. The increase in interest expense in
the nine month period was due to an $85,000 increase in interest expense on
short-term borrowings as a result of increases in the outstanding salaries/rates
and $191,000 increase in interest expense on long-term borrowings as a result of
increases in the outstanding salaries/rates. For the nine months
ended June 30, 2008 the average rate on deposits was 3.69% compared to 4.70% for
the nine months ended June 30, 2007.
Provision for Loan
Losses. We have identified the evaluation of the allowance for
loan losses as a critical accounting policy where amounts are sensitive to
material variation. This policy is significantly affected by our
judgment and uncertainties and there is likelihood that materially different
amounts would be reported under different, but reasonably plausible, conditions
or assumptions. Our activity in the provision for loan losses is
undertaken in order to maintain a level of total allowance for losses that
management believes covers all known and inherent losses that are both probable
and reasonably estimable at each reporting date. Our evaluation process
typically includes, among other things, an analysis of delinquency trends,
non-performing loan trends, the level of charge-offs and recoveries, prior loss
experience, total loans outstanding, the volume of loan originations, the type,
size and geographic concentration of our loans, the value of collateral securing
the loan, the borrower’s ability to repay and repayment performance, the number
of loans requiring heightened management oversight, local economic conditions
and industry experience. The establishment of the allowance for loan
losses is significantly affected by management judgment and uncertainties and
there is likelihood that different amounts would be reported under different
conditions or assumptions. Various regulatory agencies, as an
integral part of their examination process, periodically review our allowance
for loan losses. Such agencies may require us to make additional
provisions for estimated loan losses based upon judgments different from those
of management.
The provision for loan losses was
$406,000 for the three months ended June 30, 2008 compared to no provision for
the three months ended June 30, 2007. The Company had approximately
$270,000 of net charge-offs to the allowance for loan losses for the three
months ended June 30, 2008 compared to $61,000 of net charge-offs for the three
months ended June 30, 2007. During the three months ended June 30,
2008 our charge-offs included three commercial real estate loans with an
aggregate carrying value of $94,000 and two residential second mortgages with an
aggregate balances of $176,000. While we have no sub-prime mortgage
loans in our portfolio, the charge-offs during the three months ended June 30,
2008, reflect, in part, the softening of the economy.
For the nine months ended June 30,
2008, our provision for loan losses amounted to $869,000 compared to $168,000
for the nine months ended June 30, 2007. Net charge-offs amounted to
$642,000 for the nine months ended June 30, 2008 compared to $150,000 for the
nine months ended June 30, 2007.
We will continue to monitor and modify
our allowances for loan losses as conditions dictate. No assurances
can be given that our level of allowance for loan losses will cover all of the
inherent losses on our loans or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses.
The
following table sets forth an analysis of our allowance for loan losses for the
periods indicated.
|
|
For the nine months ended June
30,
|
|
|
For the year
ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period
|
|
$ |
4,541 |
|
|
$ |
3,393 |
|
|
$ |
3,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
|
|
|
869 |
|
|
|
168 |
|
|
|
1,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
144 |
|
|
|
135 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
|
90 |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
mortgages
|
|
|
393 |
|
|
|
- |
|
|
|
135 |
|
Other
|
|
|
15 |
|
|
|
22 |
|
|
|
25 |
|
Total
charge-offs
|
|
|
646 |
|
|
|
157 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
Total
recoveries
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
mortgages
|
|
|
2 |
|
|
|
- |
|
|
|
3 |
|
Other
|
|
|
2 |
|
|
|
6 |
|
|
|
7 |
|
Total
recoveries
|
|
|
4 |
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
|
642 |
|
|
|
149 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of
period
|
|
$ |
4,768 |
|
|
$ |
3,412 |
|
|
$ |
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of
allowance for loan losses
to
non-performing loans
|
|
|
70.35 |
% |
|
|
290.63 |
% |
|
|
69.56 |
% |
Other Income. Our
total other, or non-interest, income was $469,000 for the three months ended
June 30, 2008 compared to $334,000 for the three months ended June 30,
2007. The $136,000 increase in other income was due primarily to a
$100,000 increase in service charges and other fees and a $32,000 increase in
earnings on bank owned life insurance ("BOLI").
For the nine months ended June 30,
2008, total other income was $1.4 million, a $285,000 increase over total other
income for the nine months ended June 30, 2007. The primary reasons
for the increase in other income in the nine months ended June 30, 2008 were a
$100,000 increase in BOLI earnings, a $43,000 gain on mortgage loans sold in the
fiscal 2008 period compared to no such gains in the fiscal 2007 period and a
$126,000 increase in service charges and other fees.
Other Expenses. Our
total other, or non-interest, expenses were $4.0 million for the three months
ended June 30, 2008 compared to $2.5 million for the three months ended June 30,
2007. The primary reasons for the $1.4 million increase in other
expenses in the fiscal 2008 period were due to a $93,000 increase in salaries
and employee benefits expenses, due primarily to an increase in the number of
our employees as well as normal salary adjustments, a $44,000 increase in other
operating expenses, due to increases in personnel agency fees, loan expenses,
contributions, and amortization of mortgage servicing rights, and $1.2 million
increase for the contribution to the Charitable Foundation.
For the
nine months ended June 30, 2008, our total other expenses were $9.6 million, a
$2.2 million, or 29.2%, increase over total other expenses for the
nine months ended June 30, 2007. Again, the primary reasons for the
increase in total other expenses in the nine month periods were increases in
salaries and benefits expenses, other operating expenses and the contribution to
the Foundation.
Income Tax
Benefit/Expense. Our income tax benefit was $101,000 for the
three months ended June 30, 2008 compared to $462,000 in expense for
the three months ended June 30, 2007. The change in tax expense for
the third quarter in fiscal 2008 was due to the Company’s net loss for the three
months ended June 30, 2008. The loss primarily was the result of the
non-recurring charge of $1.2 million for the contribution made to the Charitable
Foundation. Our effective tax rate was 61.8% for the three months
ended June 30, 2008 compared to 36.5% for the three months ended June 30,
2007. The reason for the decrease of the
effective tax rate from 2007 to 2008 was due the Company’s quarterly accrual of the Pennsylvania
Educational Improvement Tax Credit and the donation to the Charitable Foundation.
Income tax expense was $335,000 for the
first nine months of fiscal 2008 compared to $1.3 million for the first nine
months of fiscal 2007. Again, the primary reason for the difference
was the lower amount of pre-tax income in the fiscal 2008 period.
Liquidity
and Capital Resources
Our
primary sources of funds are from deposits, amortization of loans, loan
prepayments and the maturity of loans, mortgage-backed securities and other
investments, and other funds provided from operations. While scheduled payments
from the amortization of loans and mortgage-backed securities and maturing
investment securities are relatively predictable sources of funds, deposit flows
and loan prepayments can be greatly influenced by general interest rates,
economic conditions and competition. We also maintain excess funds in
short-term, interest-bearing assets that provide additional
liquidity. At June 30, 2008, our cash and cash equivalents amounted
to $10.7 million. In addition, at such date our available for sale
investment securities amounted to $22.9 million.
We use
our liquidity to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, and to meet operating expenses. At June 30,
2008, we had certificates of deposit maturing within the next 12 months
amounting to $164.5 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us. For the nine months ended June 30, 2008, the
average balance of our outstanding FHLB advances was $74.1
million. At June 30, 2008, we had $80.9 million in outstanding FHLB
advances and we had $215.5 million in FHLB advances available to
us. In addition, at June 30, 2008, we had a $50.0 million in line of
credit with the FHLB, of which we had $11.0 million outstanding at such date and
$39.0 million was available.
In
addition to cash flow from loan and securities payments and prepayments as well
as from sales of available for sale securities, we have significant borrowing
capacity available to fund liquidity needs. In recent years we have
utilized borrowings as a cost efficient addition to deposits as a source of
funds. Our borrowings consist primarily of advances from the Federal
Home Loan Bank of Pittsburgh, of which we are a member. Under terms
of the collateral agreement with the Federal Home Loan Bank, we pledge
residential mortgage loans and mortgage-backed securities as well as our stock
in the Federal Home Loan Bank as collateral for such advances.
The
following table summarizes our contractual cash obligations at June 30,
2008.
|
|
|
|
|
Payments Due By
Period
|
|
|
|
|
|
|
To
|
|
|
|
1-3
|
|
|
|
3-5
|
|
|
After 5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In
Thousands)
|
|
Certificates of
deposit
|
|
$ |
259,399 |
|
|
$ |
164,450 |
|
|
$ |
80,766 |
|
|
$ |
9,119 |
|
|
$ |
5,064 |
|
FHLB
advances
|
|
|
91,882 |
|
|
|
15,618 |
|
|
|
58,264 |
|
|
|
- |
|
|
|
18,000 |
|
Total long-term
debt
|
|
|
351,281 |
|
|
|
180,068 |
|
|
|
139,030 |
|
|
|
9,119 |
|
|
|
23,064 |
|
Operating lease
obligations
|
|
|
483 |
|
|
|
84 |
|
|
|
168 |
|
|
|
168 |
|
|
|
63 |
|
Total
contractual obligations
|
|
$ |
351,764 |
|
|
$ |
180,152 |
|
|
$ |
139,198 |
|
|
$ |
9,287 |
|
|
$ |
23,127 |
|
We
anticipate that we will continue to have sufficient funds and alternative
funding sources to meet our current commitments.
Impact
of Inflation and Changing Prices
The
financial statements, accompanying notes, and related financial data of the
Company presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in purchasing power of money over time due to
inflation. The impact of inflation is reflected in the increased cost
of operations. Most of our assets and liabilities are monetary in nature;
therefore, the impact of interest rates has a greater impact on our performance
than 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.
Item
3 - Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of the Company’s asset
and liability management policies as well as the methods used to manage its
exposure to the risk of loss from adverse changes in market prices and rates
market, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – How We Manage
Market Risk” in the Company’s prospectus dated February 11,
2008. There has been no material change in the Company’s asset and
liability position since September 30, 2007.
Item
4T - Controls and Procedures.
Our
management evaluated, with the participation of our President and Chief
Executive Officer and our Senior Vice President and Chief Financial Officer 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. Based on such evaluation, our President and
Chief Executive Officer and our Senior Vice President and Chief Financial
Officer concluded that 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 are operating in an effective manner.
No change in our internal control over
financial reporting (as defined in Rules 13a-15(f) or 15(d)-15(f) under the
Securities Exchange Act of 1934) occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1 - Legal Proceedings.
There are
no matters required to be reported under this item.
Item
1A - Risk Factors.
See "Risk Factors" at pages 16-21 in
the prospectus included in the Company’s registration statement on Form S-1
(File No. 333-148169) and "Additional Risk Factors" at page 1 of the prospectus
supplement, dated April 8, 2008 and filed with the SEC (File No. 333-148169) on
April 11, 2008, which are incorporated herein by reference thereto. There have
been no material changes from the risk factors previously disclosed in the
Company’s prospectus and prospectus supplement.
Item 2 - Unregistered Sales of Equity
Securities and Use of Proceeds.
|
(b)
The Company’s Registration Statement on Form S-1 (Commission File
No. 333-148169) for the initial public offering of the Company’s common
stock in connection with the conversion and
mutual holding reorganization of Malvern Federal Savings Bank (the “Bank”)
to certain members of the Bank and the public (the “offering”) was
declared effective on February 11, 2008. Post-effective
Amendment No. 1 to the Form S-1, which revised the range of the common
stock in the offering, was declared effective by the Commission on April
8, 2008.
|
|
The offering
commenced on February 11, 2008 and on May 19, 2008, a total of 2,645,575
shares of common stock, par value $.01 per share, were sold in the
offering at $10 per share. In addition,
3,383,875 shares of common stock were issued to Malvern Federal Mutual
Holding Company, the mutual holding company of the Company (the “MHC”), at
no cost to the MHC and 123,050 shares were contributed to the Malvern
Federal Charitable Foundation. Stifel, Nicholas &
Company, Incorporated served as placement agent in the offering and
received total fees and expenses of
$425,611.
|
|
The
gross proceeds from the offering were $26,455,750 and the net proceeds
from the offering were $24,855,750. The Company contributed $17,329,025 of
the net proceeds of the offering to the Bank
in exchange for the outstanding capital stock of the Bank, $100,000 of the
net proceeds were contributed to the MHC, $2,637,760 of the net proceeds
were used for the loan to fund the Company’s Employee Stock Ownership
Plan, with the reminder of the net proceeds retained by the Company to be
used for general corporate
purposes.
|
|
(c) The following table
sets forth information with respect to purchases made by or on behalf of
the Company and any “affiliated purchaser,” as defined in Rule 10b18(a)(3)
under the Securities
Exchange Act of 1934, of shares of common stock of the Company during the
indicated periods. Repurchases of common stock made during the
quarter consisted solely of purchases by the Company’s Employee Stock
Ownership Plan (the “ESOP”), an affiliated
purchaser.
|
|
|
|
|
|
|
|
|
|
Total Number
of
|
|
|
Maximum
Number
|
|
|
|
|
Total
|
|
|
|
|
|
Shares
Purchased
|
|
|
of Shares that
May
|
|
|
|
|
Number of
|
|
|
|
|
|
as Part of
Publicly
|
|
|
Yet be
Purchased
|
|
|
|
|
Shares
|
|
Average
Price
|
|
|
Announced
Plans
|
|
|
Under the Plan
or
|
|
Period
|
|
|
Purchased
|
|
Paid per
Share
|
|
|
or
Programs
|
|
|
Programs(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 – April 30,
2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
241,178 |
|
May 1 –May 31,
2008
|
|
|
32,000 |
|
|
|
10.97 |
|
|
|
32,000 |
|
|
|
209,178 |
|
June 1 – June 30,
2008
|
|
|
58,778 |
|
|
|
10.97 |
|
|
|
58,778 |
|
|
|
150,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
90,778 |
|
|
$ |
10.97 |
|
|
|
90,778 |
|
|
|
150,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) On May 14, 2008, the Company
announced its intention to purchase up to 241,178 shares of common stock
of the Company to fund its
ESOP. Purchases of common stock to fund
the ESOP are expected to continue
until the plan is fully
funded.
|
|
Item
3 - Defaults Upon Senior Securities.
There are
no matters required to be reported under this item.
Item
4 - Submission of Matters to a Vote of Security Holders.
There are
no matters required to be reported under this item.
Item
5 - Other Information.
There are
no matters required to be reported under this item.
Item
6 - Exhibits.
(a) List
of exhibits: (filed herewith unless otherwise noted)
2.1 |
Plan
of Reorganization(1) |
2.2 |
Plan
of Stock Issuance(1) |
3.1 |
Charter
of Malvern Federal Bancorp, Inc.(1) |
3.2 |
Bylaws
of Malvern Federal Bancorp, Inc.(1) |
4.0 |
Form
of Stock Certificate of Malvern Federal Bancorp, Inc. (1) |
10.1
|
Form
of Supplemental Executive Retirement
Plan(1)
|
10.2
|
Form
of First Amendment to Supplemental Executive Retirement Plan
Agreement(1)
|
10.3
|
Form
of Director's Retirement Plan
Agreement(1)
|
10.4
|
Form
of First Amendment to Director's Retirement Plan
Agreement(1)
|
10.5
|
Employment
Agreement Among Malvern Federal Bancorp, Inc., Malvern Federal Savings
Bank and Ronald Anderson(2)
|
10.6
|
Employment
Agreement Among Malvern Federal Bancorp, Inc., Malvern Federal Savings
Bank and Dennis Boyle (2)
|
10.7
|
Employment
Agreement Among Malvern Federal Bancorp, Inc., Malvern Federal Savings
Bank and Gerard M. McTear, Jr.(2)
|
10.8
|
Employment
Agreement Among Malvern Federal Bancorp, Inc., Malvern Federal Savings
Bank and William E. Hughes, Jr..(2)
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer
|
31.2
|
Rule
13a-14(a)/15d-14(a) Section 302 Certification of the Chief Financial
Officer
|
32.1
|
Section
1350 Certification
|
_____________
(1)
|
Incorporated
by reference from the identically numbered exhibit included in the
Company’s Registration Statement on Form S-1, filed on December 19, 2007,
as amended, and declared effective on February 11, 2008 (File No.
333-148169).
|
(2)
|
Incorporated
by reference for the Company’s Current Report on Form 8-K filed with the
Commission on August 11, 2008.
|
SIGNATURES
Pursuant
to the requirements 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 FEDERAL BANCORP,
INC. |
|
|
|
|
|
Date:
August
13, 2008
|
By:
|
/s/ Ronald
Anderson |
|
|
|
Ronald
Anderson |
|
|
|
President
and Chief Executive Officer |
|
|
|
|
|