Malvern Bancorp (MLVF) in Paoli, Pa., took an $18.8 million loss in the quarter that ended Sept. 30 after selling a batch of bad loans for a loss.

The $602 million-asset company earned $217,000 in the same period of 2012.

Malvern sold a batch of loans with book value of $20.4 million at a $10.1 million loss, and incurred a $1.5 million penalty for prepaying about $20 million in Federal Home Loan Bank advances.

Aside from these one-time losses, Malvern's net interest income fell 12%, to $5.4 million, as its net interest margin tightened by 8 basis points, to 2.54%. Its total loans receivable also dropped 12%, to $402 million. Malvern's provision for loan losses was $10 million, up from $450,000.

Malvern's income tax expense rose to $6.6 million, from $800,000 in the same period last year, as it recorded a $6.7 million reduction in its deferred tax allowance after it sold the batch of bad loans.

Noninterest income was flat, at $485,000, while noninterest expense jumped by 64%, to $6.6 million. The rise was due to the FHLB prepayments, higher real estate costs and an increase in employee compensation, the company said.

In October, Malvern reached an agreement with activist investor Joseph Stilwell that ended a contentious proxy battle. The agreement gave Stilwell a board seat and would require the company to hire an investment bank to explore a merger if it fails to provide above-average returns in 2015 and 2016.

Pressure from Stilwell, who controls about 10% of Malvern's stock, and PL Capital, another activist investor with roughly the same stake, led Malvern to undergo a second-step conversion last year.

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