SALEM – Mid-Southern Bancorp, Inc. (the “Company”) (NASDAQ: MSVB), the holding company for Mid-Southern Savings Bank, FSB (the “Bank”), reported a net income for the second quarter ended June 30, 2022, of $526,000 or $0.19 per diluted share compared to $397,000 or $0.13 per diluted share for the same period in 2021.
For the six months ended June 30, 2022, the Company reported a net income of $993,000 or $0.36 per diluted share compared to $775,000 or $0.26 per diluted share for the same period in 2021.
Income Statement Review
Net interest income after provision for loan losses increased by $222,000, or 13.0%, for the quarter ended June 30, 2022, to $1.9 million as compared to the quarter ended June 30, 2021. Total interest income increased by $278,000, or 14.8% when comparing the two periods, due to an increase in the average balances and yields of interest-earning assets.
The average balance of interest-earning assets increased to $262.1 million for the quarter ended June 30, 2022, from $237.5 million for the quarter ended June 30, 2021, due primarily to increases in loans receivable and investment securities, partially offset by lower interest-bearing deposits with banks.
The average tax equivalent yield on interest-earning assets increased to 3.46% for the quarter ended June 30, 2022, from 3.33% for the quarter ended June 30, 2021, due primarily to higher proportions in loans receivable and investment securities.
Total interest expense increased $6,000, or 3.6%, when comparing the two periods due to an increase in the average balance of interest-bearing liabilities, partially offset by a decrease in the average cost of interest-bearing liabilities. The average balance of interest-bearing liabilities increased to $196.7 million for the quarter ended June 30, 2022, from $171.3 million for the same period in 2021, due primarily to increases in savings and interest-bearing demand deposit accounts and FHLB borrowings, partially offset by a decrease in time deposits.
The average cost of interest-bearing liabilities decreased to 0.35% for the quarter ended June 30, 2022, from 0.39% for the same period in 2021. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread increased to 3.11% from 2.94% and the net interest margin increased to 3.20% from 3.05% for the quarters ended June 30, 2022, and 2021, respectively.
Net interest income after provision for loan losses increased $260,000, or 7.6%, for the six months ended June 30, 2022, to $3.7 million as compared to the six months ended June 30, 2021.
Total interest income increased $296,000, or 7.9% 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 $256.5 million for the six months ended June 30, 2022, from $233.2 million for the six months ended June 30, 2021, due primarily to increases in loans receivable and investment securities, partially offset by lower interest-bearing deposits with banks.
The average tax equivalent yield on interest-earning assets decreased to 3.32% for the six months ended June 30, 2022, from 3.38% for the six months ended June 30, 2021, due primarily to a shift in the investment asset mix.
Total interest expense decreased $14,000, or 4.2%, 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 0.34% for the six months ended June 30, 2022, from 0.40% for the same period in 2021. The average balance of interest-bearing liabilities increased to $190.8 million for the six months ended June 30, 2022, from $167.2 million for the same period in 2021, due primarily to an increase in savings and interest-bearing demand deposit accounts and higher FHLB borrowings, 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 remained at
2.98% and the net interest margin decreased to 3.06% from 3.09% for the six-month periods ended June 30, 2022, and
2021, respectively.
Noninterest income increased by $39,000, or 12.0%, for the quarter ended June 30, 2022, as compared to the same period in 2021, due primarily to increases of $20,000 and $7,000 in deposit account service charges and ATM and debit card fee income, respectively, and a $36,000 gain on life insurance, partially offset by a reduction in brokered loans fees of $25,000.
Noninterest income increased by $50,000, or 8.3%, for the six months ended June 30, 2022, as compared to the same period in 2021, due primarily to increases of $51,000 and $14,000 in deposit account service charges and ATM and debit card fee income, respectively, and a $36,000 gain on life insurance, partially offset by a reduction in brokered loans fees of $50,000.
Noninterest expense increased $114,000, or 7.0%, for the quarter ended June 30, 2022, as compared to the same period in 2021. The increase was due primarily to increases in compensation and benefits of $39,000, professional fees of $35,000, directors’ compensation of $17,000, and other expenses of $24,000.
Noninterest expense increased $57,000, or 1.8%, for the six months ended June 30, 2022, as compared to the same period in 2021. The increase was due primarily to increases in professional fees of $24,000, data processing expenses of
$16,000, occupancy and equipment expenses of $10,000, and other expenses of $27,000, partially offset by lower
compensation and benefits expenses of $25,000.
The Company recorded an income tax expense of $24,000 for the quarter ended June 30, 2022, compared to an income tax expense of $6,000 for the same period in 2021. Income tax expense for the six months ended June 30, 2022, was $58,000 compared to an expense of $23,000 for the same period in 2021 resulting from an increase in our effective tax rate to 5.5% for 2022 compared to 2.9% for 2021. The increase in the effective tax rate is primarily due to an increase in pre-tax income generated from core banking activities.
Balance Sheet Review
Total assets as of June 30, 2022, were $266.5 million compared to $254.3 million on December 31, 2021. The increase in total assets was primarily due to increases in net loans of $15.6 million, other assets of $3.8 million, and investment securities of $3.6 million, partially offset by a decrease in cash and cash equivalents of $12.0 million.
The increase in net loans was due primarily to increases of $13.4 million in commercial real estate loans, $2.3 million in multi-family residential loans, and $1.4 million in one-to-four family residential loans, partially offset by a decrease of $960,000 in residential construction loans and a decrease of $387,000 in commercial real estate construction loans. The increase in other assets was due primarily to a $3.5 million increase in net deferred tax assets, largely attributable to the tax effect on the unrealized loss on available for sale securities. Investment securities increased due primarily to $26.0 million in purchases of available for sale investment securities, partially offset by $7.4 million in scheduled principal payments, calls, and maturities of mortgage-backed and tax-exempt securities and a $14.7 million unrealized loss on available for sale securities. Total liabilities, comprised mostly of deposits, increased from $24.3 million to $232.1 million as of June 30, 2021.
The increase was due primarily to a $16.0 million increase in FHLB borrowings and an $8.9 million increase in interest-bearing deposits, partially offset by a $702,000 decrease in noninterest-bearing deposits.
Credit Quality
Non-performing loans increased to $822,000 on June 30, 2022, compared to $753,000 on December 31, 2021, or 0.6% of total loans for both periods. On June 30, 2022, $459,000 or 55.9% of non-performing loans were current on their loan payments. On June 30, 2022, non-performing troubled debt restructured loans totaled $94,000. There was no foreclosed real estate owned on either June 30, 2022, or December 31, 2021.
Based on management’s analysis of the allowance for loan losses, the Company recorded a provision for loan losses of
$50,000 for the quarter ended June 30, 2022, compared to no provision for the same period in 2021. The Company
recognized net charge-offs of $1,000 for the quarter ended June 30, 2022, compared to net recoveries of $22,000 for the same period in 2021.
The Company recorded a provision for loan losses of $50,000 for the six-month period ended June 30, 2022, compared to no provision for the same periods in 2021. The Company recognized net charge-offs of $2,000 for the six months ended June 30, 2022, compared to net recoveries of $23,000 for the same period in 2021. The allowance for loan losses totaled $1.6 million on June 30, 2022, and $1.5 million on December 31, 2021, representing 1.1% and 1.2% of total loans on June 30, 2022, and December 31, 2021, respectively. The allowance for loan losses represented 191.1% of non-performing loans on June 30, 2022, compared to 202.3% on December 31, 2021.
Capital
The Bank elected to use the CBLR effective January 1, 2020. Effective January 1, 2022, 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%, an increase from the 8.5% or higher ratio requirement for the fiscal year 2021.
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.
On June 30, 2022, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 15.7%. The Company’s stockholders’ equity decreased to $34.4 million on June 30, 2022, from $46.5 million on December 31, 2021.
The decrease was due primarily to a decrease in the accumulated other comprehensive income, net of tax, of $11.0 million and the repurchase of 152,897 shares of our common stock at a total cost of $2.2 million, partially offset by net income of $993,000, net of dividends of $221,000. On June 30, 2022, a total of 174,686 shares remain authorized for future purchases under the current stock repurchase plan.
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.
