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Malvern Bancorp, Inc. Reports Fourth Fiscal Quarter and Fiscal 2018 Results

Malvern Bancorp, Inc. Reports Fourth Fiscal Quarter and Fiscal 2018 Results

PAOLI, Pa., Nov. 01, 2018 (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 fourth fiscal quarter ended September 30, 2018.   Net income amounted to $2.6 million, or $0.41 per fully diluted common share, for the quarter ended September 30, 2018, compared with net income of $2.0 million, or $0.30 per fully diluted common share, for the quarter ended September 30, 2017. 

For the twelve months ended September 30, 2018, net income amounted to $7.3 million, or $1.13 per fully diluted common share, compared with net income of $5.8 million, or $0.90 per fully diluted common share, for the twelve months ended September 30, 2017. 

Anthony C. Weagley, President and CEO, commented on the financial results: “We continued to see top line revenue climb this quarter, with consistency in the quarterly results. We continue to improve the balance sheet at measured pace with emphasis on maintaining credit quality and controlling operating overhead.  I am also very pleased that on October 9, 2018, we closed an underwritten public offering of shares of our common stock for gross proceeds of $25.0 million and net proceeds of approximately $23.5 million (after deducting the underwriting discount and other estimated offering expenses).  As previously stated, we intend to use the net proceeds of the offering to increase our capital structure, to fund future organic growth and for working capital and other general corporate purposes. We may also use a portion of the net proceeds for future acquisitions, although we have no present commitments or agreements to do so.”   

Highlights for the quarter include:

  • The annualized return on average assets (“ROAA”) was 1.02 percent for the three months ended September 30, 2018, compared to 0.77 percent for the three months ended September 30, 2017, and annualized return on average equity (“ROAE”) was 9.63 percent for the three months ended September 30, 2018, compared with 7.70 percent for the three months ended September 30, 2017. 
  • The Company originated $41.0 million in new loans in the fourth quarter of fiscal 2018, which was offset in part by $32.2 million in participations, payoffs, prepayments and maturities from its portfolio, resulting in net portfolio growth of $8.8 million over the third quarter of fiscal 2018; new loan originations in the fourth quarter of fiscal 2018 consisted of $9.5 million in residential mortgage loans, $21.5 million in commercial loans, $7.7 million in construction and development loans and $2.3 million in consumer loans.  
  • Non-performing assets (“NPAs”) were 0.30 percent of total assets at September 30, 2018, compared to 0.32 percent at June 30, 2018 and 0.12 percent at September 30, 2017. The allowance for loan losses as a percentage of total non-performing loans was 293.7 percent at September 30, 2018, compared to 268.5 percent at June 30, 2018 and 694.1 percent at September 30, 2017.
  • The Company’s ratio of shareholders’ equity to total assets was 10.72 percent at September 30, 2018, compared to 10.25 percent at June 30, 2018, and 9.80 percent at September 30, 2017.
  • Book value per common share amounted to $16.84 at September 30, 2018, compared to $16.42 at June 30, 2018 and $15.60 at September 30, 2017.  The efficiency ratio, a non-GAAP measure, was 58.2 percent for the fourth quarter of fiscal 2018, compared to 52.7 percent in the third quarter of fiscal 2018 and 52.3 percent in the fourth quarter of fiscal 2017.
  • The Company’s total assets decreased by $12.1 million at September 30, 2018, compared to September 30, 2017 and is reflective of an investment of our excess cash holdings into loans and allowing higher costing funding to roll off.
Selected Financial Ratios  (unaudited; annualized where applicable)       
             
As of or for the quarter ended: 9/30/18   6/30/18   3/31/18   12/31/17   9/30/17    
Return on average assets (1) 1.02%   0.85%   0.77%   0.15%   0.77%    
Return on average equity (1) 9.63%   8.40%   7.71%   1.55%   7.70%    
Net interest margin (tax equivalent basis) (2) 2.85%   2.75%   2.58%   2.47%   2.76%    
Loans / deposits ratio 117.62%   114.46%   102.38%   102.19%   106.55%    
Shareholders’ equity / total assets 10.72%   10.25%   9.73%   9.76%   9.80%    
Efficiency ratio (1) 58.2%   52.7%   57.7%   63.6%   52.3%    
Book value per common share $16.84   $16.42   $16.03   $15.70   $15.60    

_____________

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

Net Interest Income

Net interest income on a fully tax-equivalent basis, a non-GAAP measure, was $7.2 million for the three months ended September 30, 2018, increasing $443,000, or 6.6 percent, from $6.7 million for the comparable three-month period in fiscal 2017. The change for the three months ended September 30, 2018 primarily was the result of an increase in the average balance of interest earning assets, which increased $31.0 million.  The net interest spread on an annualized tax-equivalent basis was at 2.64 percent and 2.59 percent for the three months ended September 30, 2018 and 2017, respectively.  For the quarter ended September 30, 2018, the Company’s net interest margin on a tax-equivalent basis increased to 2.85 percent as compared to 2.76 percent for the same three-month period in fiscal 2017.

For the three months ended September 30, 2018, total interest income on a fully tax-equivalent basis, a non-GAAP measure, increased $1.1 million, or 11.8 percent, to $10.7 million, compared to the three months ended September 30, 2017.  Interest income rose in the quarter ended September 30, 2018, compared to the comparable period in fiscal 2017, primarily due to a $76.8 million increase in the average balance of our loans.   Total interest expense increased by $685,000, or 24.3 percent, to $3.5 million, for the three months ended September 30, 2018, compared to the same period in fiscal 2017 primarily due to the increase in average rates. 

The average cost of funds was 1.60 percent for the quarter ended September 30, 2018 compared to 1.32 percent for the same three-month period in fiscal 2017 and, on a linked sequential quarter basis, increased 15 basis points compared to the third quarter of fiscal 2018.

For the twelve months ended September 30, 2018, total interest income on a fully tax equivalent basis increased $6.2 million, or 18.4 percent, to $40.2 million, compared to $33.9 million for the twelve months ended September 30, 2017. Total interest expense increased by $3.5 million, or 37.6 percent, to $13.0 million, for the twelve months ended September 30, 2018, compared to the comparable period in fiscal 2017.  Interest income rose for the twelve months ended September 30, 2018, compared to the comparable period in fiscal 2017 primarily due to a $117.6 million increase in average loan balances. Compared to the same period in fiscal 2017, for the twelve months ended September 30, 2018, average interest earning assets increased $121.5 million, the net interest spread decreased on an annualized tax-equivalent basis by 9 basis points and the net interest margin decreased on an annualized tax-equivalent basis by 6 basis points. 

Earnings Summary for the Period Ended September 30, 2018

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

 
(dollars in thousands, except per share data)
           
For the quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Net interest income $   7,109 $   6,976 $   6,568 $   6,382 $   6,707
Provision for loan losses   125   589   240     489
Net interest income after provision for loan losses   6,984   6,387   6,328   6,382   6,218
Other income   429   715   449   1,711   532
Other expense   4,437   4,790   4,105   4,471   3,813
Income before income tax expense   2,976   2,312   2,672   3,622   2,937
Income tax expense   334   69   654   3,219   982
Net income $   2,642 $   2,243 $   2,018 $   403 $   1,955
Earnings per common share          
Basic $   0.41 $   0.35 $   0.31 $   0.06 $   0.30
Diluted $   0.41 $   0.35 $   0.31 $   0.06 $   0.30
Weighted average common shares outstanding:    
Basic   6,464,326   6,453,031   6,448,691   6,445,264   6,441,731
Diluted   6,467,628   6,456,048   6,452,246   6,450,513   6,445,151
                     

Other Income

Other income decreased $103,000, or 19.4 percent, for the fourth quarter of fiscal 2018 compared with the same period in fiscal 2017.  The decrease in total other income was due to a $42,000 decrease in net gains on sale of loans, a decrease of $32,000 in other fees and service charges, a $31,000 decrease in net gains on sales of investment securities, and a $4,000 decrease in earnings on bank-owned insurance partially offset by a $6,000 increase in rental income. 

For the twelve months ended September 30, 2018, total other income increased $963,000 compared to the same period in fiscal 2017, primarily a result of a $1.2 million net gain on the sale of real estate, an increase of $276,000 in other fees and service charges and a $41,000 increase in rental income partially offset by a $463,000 decrease in net gains on sales of investment securities, a $52,000 decrease in net gains on sale of loans, and a $25,000 decrease in earnings on bank-owned insurance.   

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

(in thousands, unaudited)          
For the quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Service charges and other fees $   230 $   530 $   237 $   271 $   262
Rental income – other   72   63   67   66   66
Net gains on sales of investments           31
Net gains on sale of real estate         1,186  
Net gains on sale of loans   6   3   26   67   48
Bank-owned life insurance   121   119   119   121   125
Total other income $   429 $   715 $   449 $   1,711 $   532

Other Expense

Total other expense for the three months ended September 30, 2018, increased $624,000, or 16.4 percent, when compared to the quarter ended September 30, 2017. The increase primarily reflected increases in salaries and employee benefits of $453,000, a $53,000 increase in other operating expense, a $92,000 increase in professional fees, a $27,000 increase in occupancy expense, and a $5,000 increase in advertising expense. The increase was partially offset by a $6,000 decrease in data processing expense. The increase in salaries and employee benefits primarily reflects higher compensation to officers and employees to support overall franchise growth. The increase in occupancy expense was mainly due to increased rental expense at branch locations.

For the twelve months ended September 30, 2018, total other expense increased $2.7 million, or 17.5 percent, compared to the same period in fiscal 2017. The increase primarily reflected increases in salaries and employee benefits of $1.1 million, a $997,000 increase in professional fees, a $476,000 increase in other operating expense, a $211,000 increase in occupancy expense, and a $54,000 increase in the federal deposit insurance premium. The increase was partially offset by a $97,000 decrease in data processing expense and a $64,000 decrease in advertising expense. Professional fees reflect increased legal and accounting fees for the period related to prior period restatements, which the Company does not expect to continue into future periods. The increase in occupancy expense was mainly due to increased rental expense at branch locations.

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

(in thousands, unaudited)          
For the quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Salaries and employee benefits $   2,178 $   2,024 $   2,001 $   1,990 $   1,725
Occupancy expense   570   577   586   562   543
Federal deposit insurance premium   71   76   75   76   71
Advertising   30   30   38   54   25
Data processing   279   274   267   278   285
Professional fees   565   1,088   450   788   473
Other operating expenses   744   721   688   723   691
Total other expense $   4,437 $   4,790 $   4,105 $   4,471 $   3,813

Income Taxes

The Company recorded $334,000 in income tax expense during the three months ended September 30, 2018 compared to $982,000 in income tax expense during the three months ended September 30, 2017. The effective tax rates for the Company for the three months ended September 30, 2018 and 2017 were 11.2 percent and 33.4 percent, respectively.

The Company recorded $4.3 million in income tax expense in fiscal 2018 compared to $2.9 million in income tax expense in fiscal 2017. The effective tax rates for the Company for the years ended September 30, 2018 and 2017 were 36.9 percent and 33.4 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 35% to 21%, resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017. The rate change was administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for the fiscal year is 24.5%. Net deferred income taxes decreased $3.5 million to $3.2 million at September 30, 2018 compared to $6.7 million at September 30, 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. As a result, income tax expense reported for the first three months was adjusted to reflect 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 amount is 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 from the application of the newly enacted rates to existing deferred tax assets balances.

Statement of Condition Highlights at September 30, 2018

Highlights as of September 30, 2018, included:

  • Balance sheet strength, with total assets amounting to $1.0 billion at September 30, 2018, decreasing $12.1 million, or 1.0 percent, compared to September 30, 2017 is reflective of an investment of our excess cash holdings into loans and allowing higher costing funding to roll off.

  • The Company’s gross loans were $910.6 million at September 30, 2018, increasing $68.4 million, or 8.1 percent, from September 30, 2017.

  • Total investments were $54.4 million at September 30, 2018, an increase of $4.9 million, or 9.9 percent, compared to September 30, 2017.
  • Deposits totaled $774.2 million at September 30, 2018, a decrease of $16.2 million, or 2.1 percent, compared to September 30, 2017. 

  • Federal Home Loan Bank (FHLB) advances totaled $118.0 million at September 30, 2018 and September 30, 2017.

  • Subordinated debt totaled $24.5 million at September 30, 2018 and $24.3 million at September 30, 2017, respectively. 

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: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Cash and due from depository institutions $   1,563 $   1,447 $   1,566 $   1,636 $   1,615
Interest bearing deposits in depository institutions   29,271   45,934   120,144   127,006   115,521
Investment securities, available for sale, at fair value   24,298   34,348   44,341   44,503   14,587
Investment securities held to maturity   30,092   31,004   33,052   33,893   34,915
Restricted stock, at cost   8,537   8,781   8,583   5,930   5,559
Loans receivable, net of allowance for loan losses   902,136   893,355   837,314   806,764   834,331
Accrued interest receivable   3,800   3,571   3,583   3,344   3,139
Property and equipment, net   7,181   7,240   7,357   7,374   7,507
Deferred income taxes, net   3,195   3,920   3,713   3,791   6,671
Bank-owned life insurance   19,403   19,282   19,163   19,045   18,923
Other assets   4,475   4,693   4,500   3,872   3,244
Total assets $ 1,033,951 $ 1,053,575 $ 1,083,316 $ 1,057,158 $ 1,046,012
Deposits $   774,163 $   787,932 $    825,569 $   797,099 $   790,396
FHLB advances   118,000   123,000   118,000   118,000   118,000
Other short-term borrowings   2,500   2,500   2,500   5,000   5,000
Subordinated debt   24,461   24,421   24,382   24,342   24,303
Other liabilities   4,004   7,749   7,503   9,521   5,793
Shareholders' equity   110,823   107,973   105,362   103,196   102,520
Total liabilities and shareholders’ equity $ 1,033,951 $ 1,053,575 $ 1,083,316 $ 1,057,158 $ 1,046,012
                     

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

Deposits (unaudited)            
(in thousands)          
At quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Demand:          
Non-interest bearing $   41,677 $   48,296 $   38,444 $   45,756 $   42,121
Interest-bearing   184,073   198,410   190,602   161,278   155,579
Savings   44,642   44,629   44,716   41,631   44,526
Money market   270,834   276,807   293,813   293,674   276,404
Time   232,937   219,790   257,994   254,760   271,766
Total deposits $   774,163 $ 787,932 $ 825,569 $ 797,099 $   790,396
                     

Loans

Total net loans amounted to $902.1 million at September 30, 2018 compared to $834.3 million at September 30, 2017, for a net increase of $67.8 million or 8.1 percent for the period.  The allowance for loan losses amounted to $9.0 million and $8.4 million at September 30, 2018 and September 30, 2017, respectively.  Average loans during the fourth quarter of fiscal 2018 totaled $909.0 million as compared to $832.2 million during the fourth quarter of fiscal 2017, representing a 9.2 percent increase. 

At the end of the fourth quarter of fiscal 2018, the loan portfolio remained weighted toward two primary components: commercial and the core residential portfolio, with commercial real estate accounting for 69.3 percent and single-family residential real estate loans accounting for 21.7 percent of the loan portfolio.  Construction and development loans amounted to 5.1 percent and consumer loans represented 3.9 percent of the loan portfolio at such date.   Total gross loans increased $68.4 million, to $910.6 million at September 30, 2018 compared to $842.1 million at September 30, 2017.  The increase in the loan portfolio at September 30, 2018 compared to September 30, 2017, primarily reflected an increase of $77.0 million in commercial loans and a $4.7 million increase in residential mortgage loans. These increases were partially offset by a $7.3 million decrease in construction and development loans and a $6.0 million reduction in consumer loans at September 30, 2018 as compared to September 30, 2017. 

For the quarter ended September 30, 2018, the Company originated total new loan volume of $41.0 million, which was offset by loan payoffs of $17.3 million, prepayments totaling $8.7 million, and amortization of $6.2 million.

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

           
Loans (unaudited)          
(in thousands)          
At quarter ended:   9/30/18     6/30/18     3/31/18     12/31/17     9/30/17  
Residential mortgage $ 197,219   $ 192,901   $ 184,318   $ 186,831   $ 192,500  
Construction and Development:          
Residential and commercial   37,433     39,845     35,213     34,627     35,622  
Land   9,221     15,565     21,727     18,599     18,377  
Total construction and development   46,654     55,410     56,940     53,226     53,999  
Commercial:          
Commercial real estate   493,929     477,584     445,995     427,610     437,760  
Farmland   12,066     12,058     12,069     1,711     1,723  
Multi-family   45,102     45,204     32,608     32,716     39,768  
Other   80,059     82,856     75,368     71,933     74,837  
Total commercial   631,156     617,702     566,040     533,970     554,088  
Consumer:          
Home equity lines of credit   14,884     14,446     15,538     16,811     16,509  
Second mortgages   18,363     19,063     19,960     21,304     22,480  
Other   2,315     2,311     2,404     2,435     2,570  
Total consumer   35,562     35,820     37,902     40,550     41,559  
Total loans   910,591     901,833     845,200     814,577     842,146  
Deferred loan costs, net   566     546     579     624     590  
Allowance for loan losses   (9,021 )   (9,024 )   (8,465 )   (8,437 )   (8,405 )
Loans Receivable, net $ 902,136   $ 893,355   $ 837,314   $ 806,764   $ 834,331  
                               

At September 30, 2018, the Company had $124.3 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, includes approximately $49.9 million in commercial and construction loans and $2.5 million in residential mortgage loans expected to fund over the next 90 days.

Asset Quality

Non-accrual loans were $2.7 million at September 30, 2018 an increase of $1.6 million or 158.9 percent, as compared to $1.0 million at September 30, 2017.  Other real estate owned (“OREO”) remained at zero at both September 30, 2018 and September 30, 2017. The increase in non-accrual loans at September 30, 2018 compared to September 30, 2017 was primarily due to eight residential mortgage loans with an aggregate outstanding balance of approximately $1.3 million, ten consumer loans with an aggregate outstanding balance of approximately $306,000, and one legacy commercial loan, with an aggregate outstanding balance of approximately $520,000 moving to non-accrual status during fiscal 2018.   Total performing troubled debt restructured(‘TDR’) loans were $18.6 million at September 30, 2018 and $2.2 million at September 30, 2017. The increase in TDR loans at September 30, 2018 compared to September 30, 2017 was primarily due to two commercial loans with an aggregate outstanding balance of approximately $16.4 million moving to performing TDR status in the second fiscal quarter of 2018.   

At September 30, 2018, non-performing assets totaled $3.1 million, or 0.30 percent of total assets, as compared with $1.2 million, or 0.12 percent of total assets, at September 30, 2017. The increase in non-performing assets at September 30, 2018 compared to September 30, 2017 was primarily due to the addition of eight residential mortgage loans with an aggregate outstanding balance of approximately $1.3 million, one commercial loan with an outstanding balance of approximately $520,000 and ten consumer loans with an aggregate outstanding balance of approximately $306,000 moving into non-accrual status and a $308,000 increase in residential mortgage loans receivable greater than 90 days and accruing.  The portfolio of non-accrual loans at September 30, 2018 was comprised of fifteen 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 twelve consumer loans with an aggregate outstanding balance of approximately $350,000.     

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:   9/30/18     6/30/18     3/31/18     12/31/17     9/30/17  
Non-accrual loans(1) $   2,687   $ 2,023   $ 2,129   $ 2,242   $   1,038  
Loans 90 days or more past due and still accruing   385     1,338     475     345     173  
Total non-performing loans   3,072     3,361     2,604     2,587     1,211  
Other real estate owned                    
Total non-performing assets $   3,072   $ 3,361   $ 2,604   $ 2,587   $   1,211  
Performing troubled debt restructured loans $   18,640   $ 18,693   $ 18,666   $ 2,222   $   2,238  
           
Non-performing assets / total assets   0.30 %   0.32 %   0.24 %   0.24 %   0.12 %
Non-performing loans / total loans   0.34 %   0.37 %   0.31 %   0.32 %   0.14 %
Net charge-offs (recoveries) $   128   $   30   $   212   $   (32 ) $   1  
Net charge-offs (recoveries) / average loans(2)   0.06 %   0.01 %   0.10 %   (0.02 )%   0.00 %
Allowance for loan losses / total loans   0.99 %   1.00 %   1.00 %   1.04 %   1.00 %
Allowance for loan losses / non-performing loans   293.7 %   268.5 %   325.1 %   326.1 %   694.1 %
           
Total assets $ 1,033,951   $ 1,053,575   $ 1,083,316   $ 1,057,158   $ 1,046,012  
Total gross loans   910,591     901,833     845,200     814,577     842,146  
Average loans    908,962     864,348     827,483     822,941      832,205  
Allowance for loan losses   9,021     9,024     8,465     8,437     8,405  

______________

(1)  22 loans totaling approximately $1.8 million, or 67.1% of the total non-accrual loan balance, were making payments at September 30, 2018.
(2)  Annualized.

The allowance for loan losses at September 30, 2018 amounted to approximately $9.0 million, or 0.99 percent of total loans, compared to $8.4 million, or 1.00 percent of total loans, at September 30, 2017.  The Company had a $125,000 provision for loan losses during the quarter ended September 30, 2018 compared to $489,000 for the quarter ended September 30, 2017.  For the twelve months ended September 30, 2018 and 2017, the Company had a $954,000 and $2.8 million, respectively, provision for loan losses.  Provision expense was lower during fiscal 2018 due to a decrease in loan footings from extraordinary payoffs and paydowns during the first fiscal quarter of 2018.

Capital

At September 30, 2018, our total shareholders' equity amounted to $110.8 million, or 10.72 percent of total assets, compared to $102.5 million at September 30, 2017.  The Company’s book value per common share was $16.84 at September 30, 2018, compared to $15.60 at September 30, 2017.  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 September 30, 2017, the Bank’s common equity tier 1 ratio was 14.75 percent, tier 1 leverage ratio was 12.02 percent, tier 1 risk-based capital ratio was 14.75 percent and the total risk-based capital ratio was 15.78 percent.  At September 30, 2018, the Bank was in compliance with all applicable regulatory capital requirements.

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 other income is presented in the table below including and excluding net investment securities gains. The Company’s management believes that many investors desire to evaluate other income without regard to such gains.

           
(in thousands)          
For the quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Other income as reported under GAAP $   429 $   715 $   449 $   1,711 $   532
Less: Net investment securities gains and gains on sale of real estate         1,186   31
Other income, excluding net investment securities gains and gains on sale of real estate, non-GAAP $   429 $   715 $   449 $   525 $   501
                     

“Efficiency ratio” is a non-GAAP financial measure and is defined as other expense, excluding certain non-core items, as a percentage of net interest income on a tax equivalent basis plus other income, excluding net securities gains, calculated as follows:

           
(dollars in thousands)          
For the quarter ended: 9/30/18
  6/30/18
  3/31/18
  12/31/17
  9/30/17
 
Other expense as reported under GAAP $   4,437   $   4,790   $   4,105   $   4,471   $   3,813  
Less: non-core items(1)   16     713     43     72     29  
Other expense, excluding non-core items, non-GAAP $   4,421   $ 4,077   $ 4,062    $ 4,399    $   3,784  
Net interest income (tax equivalent basis), non-GAAP $   7,172   $ 7,021    $ 6,597    $ 6,393    $   6,729  
Other income, excluding net investment securities gains and gains on sale of real estate, non-GAAP   429     715     449     525     501  
Total $   7,601   $ 7,736    $ 7,046    $ 6,918    $   7,230  
           
Efficiency ratio, non-GAAP   58.2 %   52.7 %   57.7 %   63.6 %   52.3 %
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(1)  Included in non-core items are costs which include expenses related to the Company’s corporate restructuring initiatives, such as professional fees, litigation and settlement costs, severance costs, and external payroll development costs related to such restructuring initiatives. 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. The Company believes these adjustments are necessary to provide the most accurate measure of core operating results as a means to evaluate comparative results.
 

The Company’s efficiency ratio, calculated on a GAAP basis without excluding net investment securities gains and without deducting non-core items from other expense, follows:

For the quarter ended: 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Efficiency ratio on a GAAP basis 58.9 % 62.3 % 58.5 % 55.2 % 52.7 %

Net interest margin, which is non-interest income as a percentage of average interest-earning assets, is presented on a fully tax equivalent (“TE”) basis as we believe this non-GAAP measure is the preferred industry measurement for this item.  The Company revised its estimated annual effective rate to reflect a change in the federal statutory rate from 35% to 21%, resulting from the enactment of the Tax Cuts and Jobs Act of 2017.  The TE basis adjusts GAAP interest income and yields for the tax benefit of income on certain tax-exempt investments using the blended statutory rate of 24.5% for the current period and 34% for each of the prior periods presented.  Below is a reconciliation of GAAP net interest income to the TE basis and the related GAAP basis and TE net interest margins for the periods presented.

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(dollars in thousands)          
For the quarter ended:   9/30/18     6/30/18     3/31/18     12/31/17     9/30/17  
Net interest income (GAAP) $   7,109   $   6,976   $   6,568   $   6,382   $   6,707  
Tax-equivalent adjustment(1)    63     45     29     11     22  
TE net interest income, non-GAAP $   7,172   $   7,021   $   6,597   $   6,393   $   6,729  
           
Net interest income margin (GAAP)   2.82 %   2.73 %   2.57 %   2.46 %   2.75 %
Tax-equivalent effect     0.03       0.02       0.01       0.01       0.01