SALEM – Mid-Southern Bancorp, Inc. (the “Company”) (NASDAQ: MSVB), the holding company for Mid-Southern Savings Bank, FSB (the “Bank”), reported net income for the third quarter ended September 30, 2021, of $456,000 or $0.16 per diluted share compared to $264,000 or $0.09 per diluted share for the same period in 2020. For the nine months ended September 30, 2021, the Company reported a net income of $1.2 million or $0.42 per diluted share compared to $991,000 or $0.31 per diluted share for the same period in 2020.
In light of the events surrounding the COVID19 pandemic, the Company is continually assessing the effects of the pandemic on its employees, customers, and communities. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance, and taxation, and the Company supported its customers through the SBA Paycheck Protection Program (“PPP”), loan modifications, and deferrals and fee waivers on early withdrawal of certificates of deposit due to hardship. During the initial round of funding for PPP loans, the Bank-funded 29 PPP loans totaling $474,000. As of September 30, 2021, all loans funded in the initial round had received full forgiveness from the SBA.
In late December 2020, the Emergency Coronavirus Relief Act of 2020 (the “Relief Act”) was enacted. The Relief Act extended certain provisions of the CARES Act and allotted $284 billion to the SBA for a second round of PPP loans. For the nine months ended September 30, 2021, the Bank has funded 43 PPP loans totaling $815,000 as part of this second round, and 16 loans with a principal balance of $307,000 remain outstanding as of September 30, 2021. As of September 30, 2021, 27 loans with a principal balance of $508,000 had received full forgiveness from the SBA. While the ultimate impact of the pandemic is difficult to predict, management believes the Company is well-capitalized and has the financial stability to continue to responsibly serve its customers and communities during this unprecedented time.
Income Statement Review
Net interest income after provision for loan losses increased $162,000, or 10.3%, for the quarter ended September 30, 2021, to $1.7 million as compared to the quarter ended September 30, 2020. Total interest income increased $70,000, or 3.8% when comparing the two periods, due to an increase in the average balance of interest-earning assets partially offset by a decrease in the yield earned on interest-earning assets. The average balance of interest-earning assets increased to $238.7 million for the quarter ended September 30, 2021, from $208.4 million for the quarter ended September 30, 2020, due primarily to increases in investment securities, partially offset by decreases in loans receivable and interest-bearing deposits with banks. The average tax-equivalent yield on interest-earning assets decreased to 3.37% for the quarter ended September 30, 2021, from 3.68% for the quarter ended September 30, 2020, due primarily to a decrease in market interest rates. Total interest expense decreased $62,000, or 27.4%, when comparing the two periods due to a decrease in the average cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities decreased to 0.38% for the quarter ended September 30, 2021, from 0.62% for the same period in 2020. The average balance of interest-bearing liabilities increased to $174.6 million for the quarter ended September 30, 2021, from $145.2 million for the same period in 2020, due primarily to an increase in the number and balance of savings and interest-bearing demand deposit accounts, partially offset by a decrease in time deposits. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased to 2.99% from 3.06% and the net interest margin decreased to 3.09% from 3.25% for the quarters ended September 30, 2021, and 2020, respectively.
Net interest income after provision for loan losses increased $405,000, or 8.5%, for the nine months ended September 30, 2021, to $5.1 million as compared to $4.7 million for the nine-month period ended September 30, 2020. Total interest income increased $66,000, or 1.2% when comparing the two periods, due to an increase in the average balance of interest-earning assets partially offset by a decrease in the yield earned on interest-earning assets. The average balance of interest-earning assets increased to $235.0 million for the nine months ended September 30, 2021, from $204.7 million for the nine months ended September 30, 2020, due primarily to increases in investment securities, partially offset by decreases in loans receivable and interest-bearing deposits with banks. The average tax-equivalent yield on interest-earning assets decreased to 3.38% for the nine months ended September 30, 2021, from 3.78% for the nine months ended September 30, 2020, due primarily to a decrease in market interest rates, driven by decreases in the targeted federal funds rate in response to the COVID19 pandemic. Total interest expense decreased $237,000, or 32.1%, when comparing the two periods due to a decrease in the average cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities decreased to 0.39% for the nine months ended September 30, 2021, from 0.69% for the same period in 2020. The average balance of interest-bearing liabilities increased to $169.9 million for the nine months ended September 30, 2021, from $142.1 million for the same period in 2020, due primarily to an increase in the number and balance of savings and interest-bearing demand deposit accounts, partially offset by a decrease in time deposits. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased to 2.99% from 3.09%, and the net interest margin decreased to 3.09% from 3.29% for the nine-month periods ended September 30, 2021, and 2020, respectively.
Noninterest income increased $99,000, or 49.0%, for the quarter ended September 30, 2021, as compared to the same
the period in 2020, due primarily to increases of $42,000, $28,000, and $28,000 in deposit account service charges, brokered loan fees, and ATM and debit card fee income, respectively.
Noninterest income increased $243,000, or 37.0%, for the nine months ended September 30, 2021, as compared to the same period in 2020, due primarily to increases of $164,000, $100,000, and $80,000 in brokered loan fees, ATM, and debit card fee income and deposit account service charges, respectively, partially offset by a reduction of $104,000 in net gain on sales of securities available for sale. Proceeds from sales of securities available for sale were $4.5 million for the nine months ended September 30, 2020. No available for sale securities have been sold during the nine months ended September 30, 2021.
Noninterest expense increased $25,000, or 1.6%, for the quarter ended September 30, 2021, as compared to the same period in 2020. The increase was due primarily to increases in data processing fees of $23,000, compensation and benefits of $20,000, occupancy and equipment expenses of $15,000, and other expenses of $11,000, partially offset by a reduction in the impairment loss on real estate held for sale of $37,000. An impairment of $37,000 was recorded during the three months ended September 30, 2020, whereas no impairment was recorded during the three months ended September 30, 2021.
Noninterest expense increased $426,000, or 9.8%, for the nine months ended September 30, 2021, as compared to the same period in 2020. The increase was due primarily to increases in compensation and benefits of $265,000, occupancy and equipment expenses of $65,000, data processing fees of $40,000, deposit insurance premiums of $27,000, directors’ compensation expense of $19,000, and other expenses of $55,000, partially offset by decreases in professional fees of $17,000 and a reduction in the impairment loss on real estate held for sale of $37,000. An impairment of $37,000 was recorded during the nine months ended September 30, 2020, whereas no impairment was recorded during the nine months ended September 30, 2021.
The Company recorded an income tax expense of $33,000 for the quarter ended September 30, 2021, compared to an income tax benefit of $11,000 for the same period in 2020. Income tax expense for the nine months ended September 30, 2021, was $56,000 compared to $74,000 for the same period in 2020 resulting from a reduction in our effective tax rate to 4.4% for 2021 compared to 6.9% for 2020. The decrease in the effective tax rate is due largely to increased tax-exempt investment income proportionate to overall pre-tax income.
Balance Sheet Review
Total assets as of September 30, 2021, were $252.3 million compared to $235.4 million on December 31, 2020. The increase in total assets was primarily due to increases in cash and cash equivalents and investment securities of $8.2 million, net loans of $4.9 million, and investment securities of $3.8 million. Investment securities increased due primarily to $14.1 million in purchases of available for sale investment securities, partially offset by $8.4 million in scheduled principal payments and maturities of mortgage-backed and tax-exempt securities. The increase in net loans was due primarily to increases of $4.9 million in commercial business loans and $3.1 million in commercial real estate loans, partially offset by a decrease of $2.5 million in one-to-four family residential loans. Total liabilities, comprised mostly of deposits, increased $19.7 million to $206.0 million as of September 30, 2021. The increase was due primarily to a $19.6 million increase in interest-bearing deposits and a $1.5 million increase in noninterest-bearing deposits, partially offset by a decrease of $1.0 million in borrowings from the Federal Home Loan Bank of Indianapolis.
Credit Quality
Non-performing loans decreased to $650,000 on September 30, 2021, compared to $1.3 million on December 31, 2020, or 0.5% and 1.1% of total loans, respectively. At September 30, 2021, $422,000 or 65.0% of non-performing loans were current on their loan payments. On September 30, 2021, non-performing troubled debt restructured loans totaled $118,000. There was no foreclosed real estate owned on either September 30, 2021, or December 31, 2020. Based on management’s analysis of the allowance for loan losses, the Company did not record a provision for loan losses for the quarter ended September 30, 2021, compared to a $30,000 provision for loan losses for the same period in 2020. The provision for the current quarter reflects expected credit losses based upon the conditions that existed as of September 30, 2021. The Company recognized net recoveries of $39,000 for the quarter ended September 30, 2021, compared to net charge-offs of $4,000 for the same period in 2020. The Company did not record a provision for loan losses for the nine months ended September 30, 2021, compared to a $102,000 provision for loan losses for the same period in 2020. The Company recognized net recoveries of $62,000 for the nine months ended September 30, 2021, compared to net charge-offs of $18,000 for the same period in 2020. The allowance for loan losses totaled $1.7 million and $1.6 million on September 30, 2021, and December 31, 2020, respectively, representing 1.4% of total loans on both September 30, 2021, and December 31, 2020. The allowance for loan losses represented 254.0% of non-performing loans on September 30, 2021, compared to 126.5% on December 31, 2020.
Capital
On May 23, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress (the “Act”). The Act contains a number of provisions extending regulatory relief to banks and savings institutions and their holding companies. Effective January 1, 2020, a bank or savings institution electing to use the Community Bank Leverage Ratio (“CBLR”) will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0% (adjusted to 8.0% effective April 1, 2020, and 8.5% effective January 1, 2021). On October 9, 2020, the Office of the Comptroller of the Currency, along with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, published a final rule, effective November 9, 2020, implementing a temporary change to the CBLR framework pursuant to the CARES Act, providing a graduated increase to the 9.0% requirement as established under the final rule published in 2019. To be eligible to elect to use the CBLR, the bank or savings institution also must have total consolidated assets of less than $10 billion, off-balance sheet exposures of 25.0% or less of its total consolidated assets, and trading assets and trading liabilities of 5.0% or less of its total consolidated assets, all as of the end of the most recent quarter. The Bank elected to use the CBLR effective January 1, 2020.
On September 30, 2021, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 16.5%. The Company’s stockholders’ equity decreased to $46.2 million at September 30, 2021, from $49.0 million on December 31, 2020. The decrease was due primarily to the repurchase of 156,602 shares of our common stock at a total cost of $2.8 million and a decrease in the accumulated other comprehensive income, net of tax, of $1.3 million, partially offset by net income of $1.2 million. On September 30, 2021, a total of 51,605 shares remain authorized for future
About Mid-Southern Bancorp, Inc.
Mid-Southern Savings Bank, FSB is a federally chartered savings bank headquartered in Salem, Indiana, approximately
40 miles northwest of Louisville, Kentucky. The Bank conducts business from its main office in Salem and through its branch offices located in Mitchell and Orleans, Indiana, and loan production offices located in New Albany, Indiana, and Louisville, Kentucky.
Cautionary Note Regarding Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminologies, such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include the effect of the COVID19 pandemic, including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels, and market liquidity; increased competitive pressures; changes in the interest rate environment; general economic conditions or conditions within the securities markets; and legislative and regulatory changes affecting financial institutions, including regulatory compliance costs and capital
requirements that could adversely affect the business in which the Company and the Bank are engaged; and other factors described in the Company’s latest Annual Report on Form 10K and Quarterly Reports on Form 10Q and other filings with the Securities and Exchange Commission that are available on our website at mid-southern.com and on the SEC’s website at www.sec.gov. The factors listed above could materially affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by applicable law, the Company does not undertake and specifically declines any obligation to publicly release the result of any revisions which 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. When considering forward-looking statements, you should keep in mind these risks and uncertainties. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made.
