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Malvern Bancorp, Inc. Reports First Fiscal Quarter 2019 Results

Malvern Bancorp, Inc. Reports First Fiscal Quarter 2019 Results

PAOLI, Pa., Jan. 31, 2019 (GLOBE NEWSWIRE) -- Malvern Bancorp, Inc. (MLVF) (the "Company"), parent company of Malvern Bank, National Association (“Malvern” or the “Bank”), today reported operating results for the first fiscal quarter ended December 31, 2018.   Net income amounted to $2.0 million, or $0.27 per fully diluted common share, for the quarter ended December 31, 2018, compared with net income of $403,000, or $0.06 per fully diluted common share, for the quarter ended December 31, 2017. 

Net income for the first quarter of 2019 included additional provision for loan losses expense of $967,000, net of tax, related to the write-down of one commercial loan that was moved from troubled debt restructured (‘TDR’) to other real estate owned (“OREO”), and non-core items, as discussed in detail on page 12. Excluding the additional provision expense and non-core items, net income was $3.2 million, or $0.42 diluted earnings per share, for the three months ended December 31, 2018, as compared to $2.7 million, or $0.41 diluted earnings per share, for the three months ended September 30, 2018, and $1.7 million, or $0.26 diluted earnings per share, for the three months ended December 31, 2017.

The Company recognized a tax expense in our tax provision for the quarter ended December 31, 2017 related to adjusting our deferred tax balance to reflect a change in the federal statutory rate from 35% to 21%, resulting from the Tax Cuts and Jobs Act (“Tax Act”) that was enacted on December 22, 2017. Income tax expense reported for the first three months of the Company’s prior fiscal year gave effect to the change in the tax law which resulted in an increase in income tax expense of $2.0 million during the quarter ended December 31, 2017.

Management believes that core net income, a non-GAAP measure, is important in evaluating the Company’s performance on a more comparable basis between periods. A reconciliation of this and other non-GAAP to GAAP performance measures is included in this earnings release.

Excluding the additional provision expense, first quarter 2019 adjusted annualized return on average assets was 1.10% and adjusted annualized return on average equity was 8.89%. For the quarter ended December 31, 2018, annualized return on average assets was 0.74% and annualized return on average equity was 6.00%.

Anthony C. Weagley, President and CEO, commented on the financial results: “We are pleased with this quarter’s results and the continued success in achieving our strategic plan.  We continue to deliver results consistent with our strategic plan. Despite the hurdles experienced during the quarter, Malvern continued to strengthen its balance sheet, grow top line revenue and improve credit quality.  While we took on an REO property during the quarter, we see this as a positive step in securing our interest through the deed in lieu process. Acting quickly and gaining control of the asset was critical and should aid in the quick disposal of the asset.  Our board and management have the necessary real estate expertise and sense of urgency to effect a quick disposal and are in the process of marketing the property.” 

“Our credit quality continues to improve and loan growth remains strong with gross new originations of approximately $65 million during the quarter. As a result of delays, due to the holiday season, approximately $25.0 million of new originations approved in December were pushed into the second fiscal quarter with an additional $50.0 million in new originations currently approved and pending settlement, also expected to close during the second fiscal quarter.  Our pipelines remain strong and are actively growing, consistent with prior periods.”

Joseph Gangemi, Chief Financial Officer of Malvern Bancorp, Inc., added, "We experienced strong deposit growth during the quarter, reflective of our funding strategies and business development efforts.  We anticipate these funds being deployed into loans during the second fiscal quarter but will note that carrying the excess cash on our balance sheet had an 11 basis point dampening effect on the margin for the first quarter.” 

Highlights for the quarter include:

  • The annualized return on average assets (“ROAA”) was 0.74 percent for the three months ended December 31, 2018, compared to 0.15 percent for the three months ended December 31, 2017, and annualized return on average equity (“ROAE”) was 6.00 percent for the three months ended December 31, 2018, compared with 1.55 percent for the three months ended December 31, 2017. Excluding the additional provision expense, first quarter 2019 adjusted annualized return on average assets was 1.10% and adjusted annualized return on average equity was 8.89%.

  • The Company originated $64.7 million in new loans in the first quarter of fiscal 2019, which was offset in part by $41.9 million in participations, payoffs, prepayments and maturities from its portfolio, resulting in net portfolio growth of $22.8 million over the fourth quarter of fiscal 2018; new loan originations in the first quarter of fiscal 2019 consisted of $51.3 million in commercial loans, $5.6 million in residential mortgage loans, $5.4 million in construction and development loans and $2.4 million in consumer loans. 
  • Non-performing assets (“NPAs”) were 0.81 percent of total assets at December 31, 2018, compared to 0.30 percent at September 30, 2018 and 0.24 percent at December 31, 2017. The allowance for loan losses as a percentage of total non-performing loans was 278.4 percent at December 31, 2018, compared to 294.7 percent at September 30, 2018 and 326.1 percent at December 31, 2017.

  • The Company’s ratio of shareholders’ equity to total assets was 12.02 percent at December 31, 2018, compared to 10.72 percent at September 30, 2018, and 9.76 percent at December 31, 2017.  

  • Book value per common share amounted to $17.45 at December 31, 2018, compared to $16.84 at September 30, 2018 and $15.70 at December 31, 2017.  The efficiency ratio, a non-GAAP measure, was 48.1 percent for the first quarter of fiscal 2019, compared to 58.3 percent for the fourth quarter of fiscal 2018 and 64.0 percent in the first quarter of fiscal 2018.  

  • The Company’s total assets increased by $94.5 million at December 31, 2018, compared to September 30, 2018 coupled with stable asset quality, and capital levels that exceeded regulatory standards for a well-capitalized institution.

  • As previously disclosed in the Company’s Form 8-K filed on October 9, 2018, the Company closed an underwritten public offering of shares of our common stock for gross proceeds of $25.0 million and net proceeds of approximately $23.4 million (after deducting the underwriting discount and other estimated offering expenses).

  • The effective tax rate for the first quarter of 2019 decreased to 21.0% from 88.9% for the first quarter of 2018. In the first quarter of fiscal 2018, the Company revised its estimated annual effective rate to reflect a change in the federal statutory rate from 35% to 21%, resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017. In addition, we recognized a tax expense in our tax provision for the quarter ended December 31, 2017 related to adjusting our deferred tax balance to reflect the new corporate tax rate. Income tax expense reported for the first three months of fiscal 2018 reflected the effects of the change in the tax law and resulted in an increase in income tax expense of $2.0 million during the quarter ended December 31, 2017. This $2.0 million amount was the result of a reduction of $323,000 in income tax expense for the three-month period ended December 31, 2017 related to the lower corporate rate and a $2.3 million increase related to the application of the newly enacted rates to existing deferred tax assets balances.
 Selected Financial Ratios          
  (unaudited; annualized where applicable)          
           
As of or for the quarter ended : 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Return on average assets (1) 0.74% 1.02% 0.85% 0.77% 0.15%
Return on average equity (1) 6.00% 9.63% 8.40% 7.71% 1.55%
Net interest margin (tax equivalent basis) (2) 2.65% 2.85% 2.75% 2.58% 2.47%
Loans / deposits ratio 110.70% 117.62% 114.46% 102.38% 102.19%
Shareholders’ equity / total assets 12.02% 10.72% 10.25% 9.73% 9.76%
Efficiency ratio (1) 48.1% 58.3% 52.9% 57.9% 64.0%
Book value per common share $17.45 $16.84 $16.42 $16.03 $15.70

_____________

(1) Annualized.

(2) Information reconciling non-GAAP measures to GAAP measures is presented elsewhere in this press release.

Net Interest Income

Net interest income was $6.9 million for the three months ended December 31, 2018, increasing $565,000, or 8.9 percent, from $6.4 million for the comparable three-month period in fiscal 2018. Net interest income on a fully tax-equivalent basis, a non-GAAP measure, was $7.0 million for the three months ended December 31, 2018, increasing $565,000, or 8.8 percent, from $6.4 million for the comparable three-month period in fiscal 2018. The change for the three months ended December 31, 2018 primarily was the result of an increase in the average balance of loans, which increased $89.3 million.  The net interest spread on an annualized tax-equivalent basis was at 2.40 percent and 2.31 percent for the three months ended December 31, 2018 and 2017, respectively.  For the quarter ended December 31, 2018, the Company’s net interest margin on a tax-equivalent basis increased to 2.65 percent as compared to 2.47 percent for the same three-month period in fiscal 2018.

For the three months ended December 31, 2018, total interest income both as reported and on a fully tax-equivalent basis, a non-GAAP measure, increased $1.4 million, or 14.7 percent, to $10.9 million, compared to the three months ended December 31, 2017.  Interest income rose in the quarter ended December 31, 2018, compared to the comparable period in fiscal 2017, primarily due to a $89.3 million increase in the average balance of our loans.   Total interest expense increased by $836,000, or 26.7 percent, to $4.0 million, for the three months ended December 31, 2018, compared to the same period in fiscal 2018 primarily due to the increase in average rates. 

The average cost of funds was 1.76 percent for the quarter ended December 31, 2018 compared to 1.37 percent for the same three-month period in fiscal 2018 and, on a linked sequential quarter basis, increased from 1.60 percent or 16 basis points compared to the fourth quarter of fiscal 2018.

Earnings Summary for the Period Ended December 31, 2018

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

   
(dollars in thousands, except share and per share data)          
           
For the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Net interest income $ 6,947 $ 7,109 $ 6,976 $ 6,568 $ 6,382
Provision for loan losses   1,453   125   589   240  
Net interest income after provision for loan losses   5,494   6,984   6,387   6,328   6,382
Other income   1,146   429   715   449   1,711
Other expense   4,094   4,437   4,790   4,105   4,471
Income before income tax expense   2,546   2,976   2,312   2,672   3,622
Income tax expense   535   334   69   654   3,219
Net income $ 2,011 $ 2,642 $ 2,243 $ 2,018 $ 403
Earnings per common share          
Basic $ 0.27 $ 0.41 $ 0.35 $ 0.31 $ 0.06
Diluted $ 0.27 $ 0.41 $ 0.35 $ 0.31 $ 0.06
Weighted average common shares outstanding:    
Basic   7,555,810   6,464,326   6,453,031   6,448,691   6,445,264
Diluted   7,555,969   6,467,628   6,456,048   6,452,246   6,450,513
                     

Other Income

Other income decreased $565,000, or 33.0 percent, during the first quarter of fiscal 2019 compared with the same period in fiscal 2018.  The decrease in total other income was due to a $1.2 million decrease in the net gain on sale of real estate, a $49,000 decrease in net gains on sale of loans, partially offset by a $669,000 increase in service charges and other fees, and a $1,000 increase in rental income. The increase in service charges and other fees is primarily due to the recognition of approximately $708,000 of net swap fees through the Bank’s commercial loan hedging program.  The primary benefit of the loan hedging program is to eliminate the interest rate risk on long term fixed rate loans while allowing Malvern to compete in the market and offer competitive financing to our clients.   

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

(in thousands, unaudited)          
For the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Service charges and other fees $ 940 $ 230 $ 530 $ 237 $ 271
Rental income – other   67   72   63   67   66
Net gains on sale of real estate           1,186
Net gains on sale of loans   18   6   3   26   67
Bank-owned life insurance   121   121   119   119   121
Total other income $ 1,146 $ 429 $ 715 $ 449 $ 1,711

Other Expense

Total other expense for the three months ended December 31, 2018, decreased $377,000, or 8.4 percent, when compared to the quarter ended December 31, 2017. The decrease was primarily due to a $289,000 decrease in professional fees, a $49,000 decrease in other operating expense, a $24,000 decrease in data processing expense, a $24,000 decrease in advertising expense, a $23,000 decrease in occupancy expense, and a $7,000 decrease in federal deposit insurance premium, partially offset by a $18,000 increase in salaries and employee benefits, and a $21,000 increase in net other real estate owned expense. The decrease in professional fees was primarily due to lower legal expense. The increase in salaries and employee benefits primarily reflects higher compensation to officers and employees to support overall franchise growth.

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

(in thousands, unaudited)          
For the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Salaries and employee benefits $ 2,008 $ 2,178 $ 2,024 $ 2,001 $ 1,990
Occupancy expense   539   570   577   586   562
Federal deposit insurance premium   69   71   76   75   76
Advertising   30   30   30   38   54
Data processing   254   279   274   267   278
Professional fees   499   565   1,088   450   788
Net other real estate owned expense   21        
Other operating expenses   674   744   721   688   723
Total other expense $ 4,094 $ 4,437 $ 4,790 $ 4,105 $ 4,471

Income Taxes

The Company recorded $535,000 in income tax expense during the three months ended December 31, 2018 compared to $3.2 million in income tax expense during the three months ended December 31, 2017. The effective tax rates for the Company for the three months ended December 31, 2018 and 2017 were 21.0 percent and 88.9 percent, respectively. In the first quarter of fiscal 2018, the Company revised its estimated annual effective rate to reflect a change in the federal statutory rate from 34% to 21%, resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017.

Statement of Condition Highlights at December 31, 2018

Highlights as of December 31, 2018, included:

  • Balance sheet strength, with total assets amounting to $1.1 billion at December 31, 2018, increasing $94.5 million, or 9.1 percent, compared to September 30, 2018 coupled with stable asset quality, and capital levels that exceeded regulatory standards for a well-capitalized institution.

  • The Company’s gross loans were $933.4 million at December 31, 2018, increasing $22.8 million, or 2.5 percent, from September 30, 2018.
     
  • Total investments were $48.6 million at December 31, 2018, a decrease of $5.8 million, or 10.7 percent, compared to September 30, 2018.

  • Deposits totaled $843.2 million at December 31, 2018, an increase of $69.0 million, or 8.9 percent, compared to September 30, 2018. 

  • Federal Home Loan Bank (FHLB) advances totaled $118.0 million at December 31, 2018 and September 30, 2018.

  • Subordinated debt totaled $24.5 million at December 31, 2018 and September 30, 2018. 

Condensed Consolidated Statements of Condition

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

Condensed Consolidated Statements of Condition (unaudited)
           
(in thousands)          
At quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Cash and due from depository institutions $ 1,377 $ 1,563 $ 1,447 $ 1,566 $ 1,636
Interest bearing deposits in depository institutions   98,499   29,271   45,934   120,144   127,006
Investment securities, available for sale, at fair value   19,231   24,298   34,348   44,341   44,503
Investment securities held to maturity   29,323   30,092   31,004   33,052   33,893
Restricted stock, at cost   9,493   8,537   8,781   8,583   5,930
Loans receivable, net of allowance for loan losses   924,639   902,136   893,355   837,314   806,764
Other real estate owned   5,796        
Accrued interest receivable   3,724   3,800   3,571   3,583   3,344
Property and equipment, net   7,067   7,181   7,240   7,357   7,374
Deferred income taxes, net   3,367   3,195   3,920   3,713   3,791
Bank-owned life insurance   19,524   19,403   19,282   19,163   19,045
Other assets   6,452   4,475   4,693   4,500   3,872
Total assets $ 1,128,492 $ 1,033,951 $ 1,053,575 $ 1,083,316 $ 1,057,158
Deposits $ 843,200 $ 774,163 $ 787,932 $ 825,569 $ 797,099
FHLB advances   118,000   118,000   123,000   118,000   118,000
Other short-term borrowings     2,500   2,500   2,500   5,000
Subordinated debt   24,500   24,461   24,421   24,382   24,342
Other liabilities   7,113   4,004   7,749   7,503   9,521
Shareholders' equity   135,679   110,823   107,973   105,362   103,196
Total liabilities and shareholders’ equity $ 1,128,492 $ 1,033,951 $ 1,053,575 $ 1,083,316 $ 1,057,158
                     

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

Deposits (unaudited)          
           
(in thousands)          
           
At quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Demand:          
Non-interest bearing $ 39,734 $ 41,677 $ 48,296 $ 38,444 $ 45,756
Interest-bearing   261,025   184,073   198,410   190,602   161,278
Savings   44,438   44,642   44,629   44,716   41,631
Money market   253,436   270,834   276,807   293,813   293,674
Time   244,567   232,937   219,790   257,994   254,760
Total deposits $ 843,200 $ 774,163 $ 787,932 $ 825,569 $ 797,099
                     

Loans

Total net loans amounted to $924.6 million at December 31, 2018 compared to $902.1 million at September 30, 2018, for a net increase of $22.5 million or 2.5 percent for the period.  The allowance for loan losses amounted to $9.2 million and $9.0 million at December 31, 2018 and September 30, 2018, respectively.  Average loans during the first quarter of fiscal 2019 totaled $912.3 million as compared to $822.9 million during the first quarter of fiscal 2018, representing a 10.9 percent increase. 

At the end of the first quarter of fiscal 2019, the loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial loans accounting for 69.6 percent and single-family residential real estate loans accounting for 21.7 percent of the loan portfolio.  Construction and development loans amounted to 5.2 percent and consumer loans represented 3.5 percent of the loan portfolio at such date. Total gross loans increased $22.8 million, to $933.4 million at December 31, 2018 compared to $910.6 million at September 30, 2018.  The increase in the loan portfolio at December 31, 2018 compared to September 30, 2018, primarily reflected an increase of $18.6 million in commercial loans, a $5.1 million increase in residential mortgage loans, a $1.6 million increase in construction and development loans partially offset by a $2.5 million reduction in consumer loans at December 31, 2018 as compared to September 30, 2018. 

For the quarter ended December 31, 2018, the Company originated total new loan volume of $64.7 million, which was offset by loan payoffs of $16.8 million, prepayments totaling $13.1 million, and amortization of $12.0 million.

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

Loans (unaudited)          
(in thousands)          
At quarter ended: 12/31/18
9/30/18
6/30/18
3/31/18
12/31/17
Residential mortgage $ 202,306 $ 197,219 $ 192,901 $ 184,318 $ 186,831
Construction and Development:          
Residential and commercial   41,140   37,433   39,845   35,213   34,627
Land   7,180   9,221   15,565   21,727   18,599
Total construction and development   48,320   46,654   55,410   56,940   53,226
Commercial:          
Commercial real estate   508,448   493,929   477,584   445,995   427,610
Farmland   12,054   12,066   12,058   12,069   1,711
Multi-family   44,989   45,102   45,204   32,608   32,716
Other   84,236   80,059   82,856   75,368   71,933
Total commercial   649,727   631,156   617,702   566,040   533,970
Consumer:          
Home equity lines of credit   14,484   14,884   14,446   15,538   16,811
Second mortgages   16,674   18,363   19,063   19,960   21,304
Other   1,915   2,315   2,311   2,404   2,435
Total consumer   33,073   35,562   35,820   37,902   40,550
Total loans   933,426   910,591   901,833   845,200   814,577
Deferred loan costs, net   460   566   546   579   624
Allowance for loan losses   (9,247)   (9,021)   (9,024)   (8,465)   (8,437)
Loans Receivable, net $ 924,639 $ 902,136 $ 893,355 $ 837,314 $ 806,764
                     

At December 31, 2018, the Company had $140.8 million in overall undisbursed loan commitments, which consisted primarily of unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities.   The Company's current "Approved, Accepted but Unfunded" pipeline at December 31, 2018 included approximately $81.0 million in commercial and construction loans and $3.0 million in residential mortgage loans expected to fund over the following the quarter.

Asset Quality

Non-accrual loans were $2.6 million at December 31, 2018 a decrease of $125,000 or 4.7 percent, as compared to $2.7 million at September 30, 2018.  OREO was $5.8 million at December 31, 2018 and zero at September 30, 2018. TDR loans were $12.2 million at December 31, 2018 and $18.6 million at September 30, 2018. As previously disclosed in the Company’s Annual Report on Form 10-K filed on December 14, 2018, one TDR with an aggregate outstanding balance of approximately $7.0 million ceased to perform under modified terms and as a result the Company accepted a deed in lieu.   

At December 31, 2018, $718,000 of loans past due greater than 90 days and still accruing is attributed to one residential mortgage.  Malvern Bank had a promise of repayment at quarter end December 31, 2018 for the beginning of January.  On January 4, 2019 the Bank received three payments for the loan bringing the loan under 30 days delinquent for principal and interest due.   Net of this loan, non-performing loans would have been $2.6 million or a reduction of approximately 15 percent. 

At December 31, 2018, non-performing assets totaled $9.1 million, or 0.81 percent of total assets, as compared with $3.1 million, or 0.30 percent of total assets, at September 30, 2018. The increase in non-performing assets at December 31, 2018 compared to September 30, 2018 was primarily due to the transfer to OREO of one commercial real estate loan in the amount of $5.8 million.  The portfolio of non-accrual loans at December 31, 2018 was comprised of fourteen residential real estate loans with an aggregate outstanding balance of approximately $1.8 million, one commercial real estate loan with an outstanding balance of $520,000, and eleven consumer loans with an aggregate outstanding balance of approximately $260,000.     

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

 (dollars in thousands, unaudited)          
As of or for the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Non-accrual loans(1) $ 2,562 $ 2,687 $ 2,023 $ 2,129 $ 2,242
Loans 90 days or more past due and still accruing   759   374   1,338   475   345
Total non-performing loans   3,321   3,061   3,361   2,604   2,587
Other real estate owned   5,796        
Total non-performing assets $ 9,117 $ 3,061 $ 3,361 $ 2,604 $ 2,587
Performing troubled debt restructured loans $ 12,164 $ 18,640 $ 18,693 $ 18,666 $ 2,222
           
Non-performing assets / total assets   0.81%   0.30%   0.32%   0.24%   0.24%
Non-performing loans / total loans   0.36%   0.34%   0.37%   0.31%   0.32%
Net charge-offs (recoveries) $ 1,227 $ 128 $ 30 $ 212 $ (32)
Net charge-offs (recoveries) / average loans(2)   0.54%   0.06%   0.01%   0.10%   (0.02)%
Allowance for loan losses / total loans   0.99%   0.99%   1.00%   1.00%   1.04%
Allowance for loan losses / non-performing loans   278.4%   294.7%   268.5%   325.1%   326.1%
           
Total assets $ 1,128,492 $ 1,033,951 $ 1,053,575 $ 1,083,316 $ 1,057,158
Total gross loans   933,426   910,591   901,833   845,200   814,577
Average loans   912,259   908,962   864,348   827,483   822,941
Allowance for loan losses   9,247   9,021   9,024   8,465   8,437

______________

(1) 23 loans totaling approximately $2.0 million, or 78.3% of the total non-accrual loan balance, were making payments at December 31, 2018. 

(2) Annualized.

The allowance for loan losses at December 31, 2018 amounted to approximately $9.2 million, or 0.99 percent of total loans, compared to $9.0 million, or 0.99 percent of total loans, at September 30, 2018.  The Company had a $1.5 million provision for loan losses during the quarter ended December 31, 2018 compared to $125,000 for the quarter ended September 30, 2018. Provision expense was higher during the first quarter fiscal 2019 due primarily to the write-down of one commercial loan that was moved from TDR to OREO and continued growth in the loan portfolio during the quarter. At the same time the Company added a new qualitative factor, defined as Regulatory Oversight, to its allowance methodology to address the difference in the required allowance based on asset quality and the directionally consistent level of the allowance. Unique to the other factors, this is a single calculation figure which is subsequently applied to the loan portfolio by loan type (Commercial, Residential and Consumer) based upon the percent of each to total loans. It is derived from a review of a peer group consisting of 10 banks with similar asset size within the same general geographic area of Malvern Bank. This new factor amounted for an additional $390,000 added to the provision for the period.

Capital

At December 31, 2018, our total shareholders' equity amounted to $135.7 million, or 12.02 percent of total assets, compared to $110.8 million at September 30, 2018.  The Company’s book value per common share increased to $17.45 at December 31, 2018, compared to $16.84 at September 30, 2018.  At December 31, 2018, the Bank’s common equity tier 1 ratio was 15.54 percent, tier 1 leverage ratio was 13.35 percent, tier 1 risk-based capital ratio was 15.54 percent and the total risk-based capital ratio was 16.55 percent.  At September 30, 2018, the Bank’s common equity tier 1 ratio was 15.09 percent, tier 1 leverage ratio was 12.71 percent, tier 1 risk-based capital ratio was 15.09 percent and the total risk-based capital ratio was 16.13 percent.  At December 31, 2018, the Bank was in compliance with all applicable regulatory capital requirements.

As previously disclosed in the Company’s Form 8-K filed on October 9, 2018, the Company closed an underwritten public offering of shares of our common stock for gross proceeds of $25.0 million and net proceeds of approximately $23.4 million (after deducting the underwriting discount and other estimated offering expenses).

Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company's management believes that the supplemental non-GAAP information provided in this press release is utilized by market analysts and others to evaluate a company's financial condition and, therefore, that such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures presented by other companies.

The Company’s net income is presented in the table below including non-core income and expense items.

           
(in thousands)          
For the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Net income as reported under GAAP $ 2,011 $ 2,642 $ 2,243 $ 2,018 $ 403
Non-core items, net of tax:          
Tax Act related expenses(1)           2,000
Prior period restatement costs(2)       667    
Audit expenses(3)   110        
Net gains on sale of real estate(4)           (787)
Other(5)   100   15   24   32   48
Core net income, non-GAAP $ 2,221 $ 2,657 $ 2,934 $ 2,050 $ 1,664
Earnings per common share:          
Diluted $ 0.29 $ 0.41 $ 0.45 $ 0.32 $ 0.26
Weighted average common shares outstanding:          
Diluted   7,555,969   6,467,628   6,456,048   6,452,246   6,450,513
                     


(1)   The Company recognized a tax expense in our tax provision for the quarter ended December 31, 2017 related to adjusting our deferred tax balance to reflect a change in the federal statutory rate from 35% to 21%, resulting from the Tax Act that was enacted on December 22, 2017. Income tax expense reported for the first three months of the Company’s prior fiscal year gave effect to the change in the tax law which resulted in an increase in income tax expense of $2.0 million during the quarter ended December 31, 2017.
(2)   Non-core items for the quarter ended June 30, 2018 consisted of additional legal and accounting fees arising out of matters pertaining to prior period restatements.
(3)   Non-core items for the quarter ended December 31, 2018 consisted of expenses arising out of the dismissal of the Company’s Certifying Accountant, as previously announced in the Company’s Form 8-K filed on July 9, 2018, which required issuance of consent on previously audited consolidated financial statements.
(4)   Sale of Exton, PA branch.
(5)   Included in non-core items such as accelerated payoff and non-accrual interest amounts.
     

The Company’s other income is presented in the table below excluding net gains on sale of real estate. The Company’s management believes that many investors desire to evaluate other income without regard to such gains.

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(in thousands)          
For the quarter ended: 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Other income as reported under GAAP $ 1,146 $ 429 $ 715 $ 449 $ 1,711
Less: Net gains on sale of real estate           1,186
Other income, excluding net gains on sale of real estate, non-GAAP $ 1,146