SALEM – On April 22, 2024. Mid-Southern Bancorp, Inc. (the “Company”) (OTCQX: MSVB), the holding
company for Mid-Southern Savings Bank, FSB (the “Bank”), reported a net loss for the quarter ended March 31, 2024 of $33,000, or $0.01 per diluted share, compared to net income of $340,000, or $0.13 per diluted share, for the same period in 2023.
Income Statement Review
Net interest income after provision for credit losses increased $181,000, or 10.0%, for the quarter ending March 31, 2024, to $2.0 million compared to the quarter ending March 31, 2023. Total interest income increased by $310,000, or 12.5%, when comparing the two periods due to increases in the yields of interest-earning assets, partially offset by decreases in the average balances of those assets. The average yield on interest-earning assets and the tax-equivalent yield on interest-earning assets ( 1 ) increased to 4.21% and 4.35%, respectively, for the quarter ended March 31, 2024, from 3.69% and 3.85%, for the quarter ended March 31, 2023, due primarily to higher yields from loans, investment securities, and interest-bearing deposits with banks. The average balance of interest-earning assets decreased to $265.2 million for the 2024 quarter from $269.5 million for the 2023 quarter, due primarily to decreases in lower loans receivable and investment securities, partially offset by increases in interest-bearing deposits with banks. Total interest expense increased by $247,000, or 39.6%, when comparing the two periods due to a rise in the average cost of interest-bearing liabilities, partially offset by a lower average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities increased to 1.73% for the quarter ended March 31, 2024, from 1.21% for the same period in 2023. The average balance of interest-bearing liabilities decreased to $200.8 million for the quarter ended March 31, 2024, from $205.2 million for the same period in 2023, due primarily to decreases in average deposit accounts, partially offset by average borrowings. The Company recorded a net recapture of credit losses on loans of $63,000 and a net recapture of credit losses on unfunded loan commitments of $3,000 for the quarter ended March 31, 2024, compared to a net provision for credit losses on loans of $78,000 and a net recapture of credit losses on unfunded loan commitments of $26,000 for the same period in 2023. As a result of the changes in interest-earning assets and interest-bearing liabilities, the net interest rate spread remained flat at 2.48%. In comparison, the net interest rate spread on a tax-equivalent basis (1) decreased to 2.62% for the quarter ended March 31, 2024, from 2.48% and 2.64%, respectively, for the quarter ended March 31, 2023. The net interest margin and net interest margin on a tax-equivalent basis (1) increased to 2.90% and 3.04%, respectively, for the quarter ending March 31, 2024, from 2.76% to 2.93% for the quarter ending March 31, 2023.
Noninterest income decreased $156,000, or 63.9%, for the quarter that ended March 31, 2024, compared to the same period in 2023. This was due primarily to an increase in the net loss on the sale of investment securities available for sale of $149,000, reductions in ATM and debit card fee income of $4,000, and brokered loan fees of $3,000.
Noninterest expense increased $456,000, or 26.1%, for the quarter ending March 31, 2024, compared to the quarter ending March 31, 2023. The increase was due primarily to increases in professional fees of $470,000, data processing expenses of $35,000, deposit insurance premiums of $10,000 and occupancy and equipment costs of $6,000, partially offset by lower directors’ compensation of $22,000, stockholders’ meeting expenses of $17,000 and compensation and benefits of $12,000.
The Company recorded an income tax benefit of $95,000 for the quarter ended March 31, 2024, compared to an income tax benefit of $37,000 for the same period in 2023. The income tax benefit is primarily due to increased tax-exempt income in proportion to income before income taxes.
As of March 31, 2024, total assets were $240.8 million compared to $269.0 million on December 31, 2023. The decrease in total assets was primarily due to decreases in investment securities of $21.6 million, cash and cash equivalents of $5.4 million, and net loans of $2.7 million, partially offset by an increase in other assets of $1.9 million. Investment securities decreased due primarily to selling $16.2 million of available-for-sale investment securities, $4.0 million in scheduled principal payments, call and maturities of available-for-sale investment securities, and a $1.2 million unrealized loss on available-for-sale investment securities. Net loans decreased $2.7 million, due primarily to decreases of $2.0 million in commercial business loans, $725,000 in one-to-four family residential loans, and $558,000 commercial real estate loans, partially offset by increases of $625,000 in multi-family residential loans and a $62,000 decrease in the allowance for credit losses on loans. Total liabilities, comprised chiefly of deposits, decreased $27.1 million to $205.9 million as of March 31, 2024. The decrease was due primarily to a $25.0 million decrease in borrowings, a $1.6 million decrease in interest-bearing deposits, and a $792,000 decrease in accrued interest, partially offset by a $450,000 increase in noninterest-bearing deposits.
Credit Quality
Non-performing loans decreased to $293,000 at March 31, 2024, compared to $591,000 at December 31, 2023, or 0.2% and 0.4% of total loans at March 31, 2024 and December 31, 2023, respectively. On March 31, 2024, $53,000, or 18.3% of non-performing loans, were current on their loan payments. No foreclosed real estate was owned on March 31, 2024, and December 31, 2023.
Based on management’s analysis of the allowance for credit losses, the Company recorded a net recapture of credit losses on loans of $63,000 for the quarter that ended March 31, 2024, compared to a net provision of $78,000 recorded for the year-earlier quarter in 2023. The recapture for the 2024 quarter was primarily due to a decrease in the overall loan portfolio balance and a change in the loan portfolio mix during the quarter.
Capital
The Bank elected to use the Community Bank Leverage Ratio (“CBLR”). A bank or savings institution electing to utilize the CBLR is generally 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%. 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.
As permitted by the interim final rule issued on March 27, 2020, by the federal banking regulatory agencies, the Company elected the option to delay the impact on regulatory capital related to the adoption of ASC 326, which the Company implemented on January 1, 2023. The initial effect of adopting ASC 326 will be phased out of the regulatory capital calculations over three years, with 75% recognized in year one, 50% recognized in year two, and 25% identified in year three.
On March 31, 2024, 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 $34.9 million on March 31, 2024, from $36.0 million at
December 31, 2023. The decrease was due primarily to accumulated other comprehensive loss, net of tax, of $936,000 during the quarter related to unrealized losses on available-for-sale securities and a net loss of $33,000 and $165,000 in dividends. There were no share repurchases during the March 31, 2024 quarter, and 173,097 shares remain authorized for future purchases under the current stock repurchase plan.
