The transaction consisted of loans that had a book value of $20.4 million, which were sold at a loss of approximately $10 million.
The loans sold included $11.2 million of nonaccruing loans, $3.4 million of performing troubled debt restructurings and $5.8 million of classified and other loans.
“The loan sale is a major and necessary step in formulating a stronger company, and it will allow management to shift its core focus from credit resolution to the continued implementation of our business plan,” said Ronald Anderson, president and chief executive officer of Malvern Bancorp.
Due to this transaction, the Paoli, Pa.-based bank improved its asset quality ratios. The ratio of Malvern Bancorp’s total nonaccrual loans to gross loans enhanced to 0.47% upon completion of the loan sale, compared to 3.40% at the end of June.
Meanwhile, its ratio of nonperforming assets to total assets also got better to 0.97% compared to 2.96% through the same month.
In a separate action, Malvern Bancorp also prepaid $20 million in advances from the Federal Home Loan Bank of Pittsburgh during September. According to the bank, the prepayment of the FHLB advances, which had an average cost of 3.84% with maturity dates in mid-to-late 2018, was completed in order to reduce its average cost of funds and improve its net interest spread and net interest margin in future periods.
The bank incurred a $1.5 million prepayment penalty during the prepayment transaction, which will be reflected in the institution’s third quarter financial earnings. Between the losses recorded on the loan sale and the FHLB prepayment penalty, Malvern Bancorp is expecting that it will take a charge-off ranging from $6 million to $7 million to its third-quarter results related to its deferred tax asset valuation allowance.
Malvern Bancorp said its prepayment was funded with cash and equivalents currently yielding 0.25%.
“We believe the loan sale coupled with the prepayment of FHLB advances positions Malvern Bancorp to return to profitability and to grow earnings in future periods,” Anderson said.