Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule
or Standard; Transfer of Listing.
On January 14, 2021, Malvern Bancorp, Inc. (the "Company") received a letter
from The Nasdaq Stock Market ("Nasdaq"), dated January 14, 2021, indicating that
the Company is not in compliance with the filing requirements for continued
listing under Nasdaq Marketplace Rule 5250(c)(1) (the "Listing Rules"), which
requires timely filing of periodic financial statements. The Nasdaq letter,
which the Company expected, was issued in accordance with standard Nasdaq
procedures due to the delayed filing with the U.S. Securities and Exchange
Commission ("SEC") of the Company's Annual Report on Form 10-K for the Company's
fiscal year ended September 30, 2020 (the "Form 10-K").
Under the Listing Rules, the Company is required to submit a plan to regain
compliance with Nasdaq's filing requirements for continued listing within 60
calendar days of the date of the Nasdaq notification letter, or March 15,
2021. Upon acceptance of the Company's compliance plan, Nasdaq is permitted to
grant an extension of up to 180 days from the prescribed 10-K filing date, or
until July 12, 2021, for the Company to regain compliance. The Company plans to
file the Form 10-K with the SEC as soon as practicable and believes it will meet
all requirements for continued listing prior to March 15, 2021. The notification
of noncompliance from Nasdaq has no immediate effect on the listing or trading
of the Company's common stock on Nasdaq.
As previously disclosed on December 29, 2020 on the Company's Form 12b-25 filed
with the SEC, the Company requires additional time to file its Form 10-K because
the Company and its auditor were evaluating the impairment of a single $13.5
million commercial real estate credit as collateral dependent based on
information that was received from the borrower in December 2020. The provided
information is considered a recognized subsequent event per the Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
855-10-20. The Company also evaluated certain loan participation agreements for
compliance with FASB ASC 860-10-40, which relates to sale accounting treatment
of participation interests, and the related balance sheet adjustment for
treating such participation interests as secured borrowing arrangements. The
items noted above will affect the consolidated financial statements to be
included in the Form 10-K. The Company also evaluated an internal control
deficiency primarily relating to documentation of loan participation
agreements. The Company believes that it has taken steps necessary to correct
the internal control deficiency associated with the documentation of
participation agreements.
On January 20, 2021, the Company issued a press release regarding the matters
set forth in this Current Report on Form 8-K. A copy of the press release is
attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
In connection with the matters set forth in Item 3.01 above, which are hereby
incorporated by reference, the Company's audit committee has determined that the
Company's audited annual consolidated financial statements for the fiscal year
ended September 30, 2019 and the unaudited interim consolidated financial
statements for the quarterly periods ended December 31, 2019, March 31, 2020 and
June 30, 2020 (together, the "Restated Periods"), should not be relied upon due
to errors identified in such consolidated financial statements. Specifically,
the Company has determined that participation interests relating to two
commercial loans totaling approximately $4.2 million should be treated as
secured borrowings rather than sold loans as of the Restated Periods.
In addition, investors should no longer rely upon the preliminary earnings
release, dated November 9, 2020, for the fourth fiscal quarter and fiscal year
ended September 30, 2020 due to the impairment of a single $13.5 million
commercial credit as collateral dependent, based on information that was
received from the borrower in December 2020. Specifically, the Company has
determined that based on information received in December 2020 an adjustment to
the allowance for loan losses is required as of September 30, 2020. Unless
otherwise noted herein, all monetary amounts in this report, other than share
and per share amounts, are stated in thousands.
The prior period restatement referenced above is related to two commercial loan
participation agreements that were partial participation sales, originated by
the Company and sold to another financial institution. Upon further review of
the two agreements for compliance with FASB ASC 860-10-40, which relates to sale
accounting treatment of participation interests, it was determined that the two
agreements should have been recorded as secured borrowing arrangements. The
related balance sheet adjustment for treating such participation interests as
secured borrowing arrangements as of September 30, 2020 is gross up "Loan
Receivable" by approximately $4.2 million and to record a "Secured Borrowing
Liability" of approximately $4.2 million. The balance sheet reclassification did
not have any impact on the Company's previously reported provision for loan
losses, net income or basic or diluted earnings per share (EPS).
Subsequent to the Company's release on November 9, 2020 of its preliminary
earnings release for the fourth fiscal quarter and fiscal year ended September
30, 2020, additional information was received concerning the $13.5 million
commercial loan relationship ("the Loan"), which was classified as an accruing
COVID-19 deferred loan as of September 30, 2020. The Loan is a retail property
located in a major metropolitan area that was directly affected by the COVID-19
pandemic, and the borrower under the Loan was provided temporary payment relief
under the CARES Act. As per FASB ASC 855-10-20 this new information received in
December 2020,
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constituted a subsequent event type 1, providing additional evidence about
conditions that existed at the balance sheet date and as such management is
recording the adjustment at September 30, 2020.
In determining the allowance for loan loss and impairment on the Loan as of
September 30, 2020, the Company followed guidance under ASC 310-10-35. When
measuring impairment on an individual basis under ASC 310-10-35, the Company
considered the fair value of the Loan's collateral, given that, based on
available information received in December 2020, the Loan was collateral
dependent. The Company has estimated the fair value of the collateral and will
record a partial charge down of approximately $2.9 million and a specific
reserve of approximately $581,000, and has placed the Loan on non-accrual status
during the three months ended September 30, 2020, pending the receipt of a third
party appraisal. The Company will record an additional $3.45 million provision
for loan losses for the three months ended September 30, 2020 and will reverse
approximately $266,000 of interest income (related to the September 30, 2020
principal and interest accrual). The increase in the provision for loan losses
and reversal of interest income, as well as adjustments to income tax expense,
reduced the Company's net income for the quarter ended September 30, 2020 from
$2.2 million, or $0.30 per diluted share, to a net loss of $546,000, or $0.07
per diluted share, and for the fiscal year ended September 30, 2020 from $6.4
million, or $0.84 per fully diluted share, to $3.6 million, or $0.47 per fully
diluted share.
The Company will present all of the information regarding the Restated Periods
in its Form 10-K for the Company's fiscal year ended September 30, 2020, which
will allow investors to review all pertinent data in a single presentation. The
Company does not intend to file amendments to its annual or quarterly reports
for the fiscal year ended September 30, 2019 or quarterly reports for the
quarterly periods ended December 31, 2019, March 31, 2020 and June 30, 2020 or
the preliminary earnings release for the quarterly period ended September 30,
2020 furnished on a Form 8-K filed on November 9, 2020 (collectively, the
"Affected Reports"). Accordingly, investors should rely only on the financial
information and other disclosures regarding the Restated Periods that will be
contained in the Form 10-K, and not on the Affected Reports or any reports,
earnings releases or similar communications relating to those periods.
Forward-Looking Statements
When used in this Form 8-K, in future filings with the SEC, in press releases or
other public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expect to," "will continue," "is anticipated," "estimate,"
"project," "believe," "should," "may," "will," "plan," or variations of such
terms or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause our actual results to be
materially different from those indicated. Such statements are subject to
certain risks and uncertainties, including changes in economic conditions in the
market areas we conduct business, which could materially impact credit quality
trends; changes in laws, regulations or policies of regulatory agencies;
fluctuations in interest rates; demand for loans in the market areas we conduct
business; and competition, that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. We
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. We undertake no obligation to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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