SALEM— February 24, 2025. Mid-Southern Bancorp, Inc. (the “Company”) (OTC Pink: MSVB), the holding company for Mid-Southern Savings Bank, FSB (the “Bank”), reported a net loss for the quarter ended December 31, 2024, of $8.0 million, or $2.91 per diluted share, compared to net income of $276,000, or $0.10 per diluted share, for the same period in 2023. For the year ended December 31, 2024, the Company reported a net loss of $7.1 million, or $2.61 per diluted share, compared to net income of $1.5 million, or $0.54 per diluted share, for 2023.
Income Statement Review
Net interest income after recapture of credit losses increased $77,000, or 3.8%, for the quarter ended December 31, 2024, to $2.1 million as compared to the quarter ended December 31, 2023. Total interest income decreased $235,000, or 8.3%, when comparing the two periods, due to decreases in the average balances, partially offset by a net increase in the yields of interest-earning assets. The average balance of interest-earning assets decreased to $229.2 million for the 2024 quarter from $270.9 million for the 2023 quarter, due primarily to decreases in loans receivable and investment securities, partially offset by higher interest-bearing deposits with banks.
The average yield on interest-earning assets and the tax-equivalent yield on interest-earning assets ( 1 ) increased to 4.51% and 4.62%, respectively, for the quarter ended December 31, 2024, from 4.16% and 4.32%, respectively, for the quarter ended December 31, 2023, due primarily to higher yields from loans, partially offset by lower yields from investment securities and interest-bearing deposits with banks.
Total interest expense decreased $253,000, or 30.3%, when comparing the two periods due to decreases in the average balance and the average cost of interest-bearing liabilities.
The average balance of interest-bearing liabilities decreased to $167.9 million for the quarter ended December 31, 2024, from $206.2 million for the same period in 2023, due primarily to decreases in deposit accounts and borrowings. The average cost of interest-bearing liabilities decreased to 1.39% for the quarter ended December 31, 2024, from 1.62% for the same period in 2023.
The Company recorded a net recapture of credit losses on loans of $85,000 and a net recapture of credit losses on unfunded loan commitments of $13,000 for the quarter ended December 31, 2024, compared to a net recapture of credit losses on loans of $24,000 and anet recapture of credit losses on unfunded loan commitments of $15,000 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 and net interest rate spread on a tax-equivalent basis (1) increased to 3.12% and 3.23%, respectively, for the quarter ended December 31, 2024, from 2.54% and 2.70%, respectively, for the quarter ended December 31, 2023.
The net interest margin and net interest margin on a tax-equivalent basis (1) increased to 3.49% and 3.60%, respectively, for the quarter ended December 31, 2024, from 2.93% and 3.08% for the quarter ended December 31, 2023.
Net interest income after recapture of credit losses increased $276,000, or 3.5%, for the year ended December 31, 2024 to $8.1 million as compared to the year ended December 31, 2023.
Total interest income decreased $55,000, or 0.5%, between 2024 and 2023 due to decreases in the average balances of interest-earning assets, partially offset by an increase in the yield on interest-earning assets. The average balance of interest-earning assets decreased to $242.2 million for the year ended December 31, 2024, from $269.2 million for the year ended December 31, 2023, due primarily to decreases in loans receivable and investment securities, partially offset by an increase in the average balance of interest-bearing deposits with banks.
The average yield on interest-earning assets and the tax-equivalent yield on interest-earning assets (1) increased to 4.35% and 4.48%, respectively, for 2024 from 3.94% and 4.10%, respectively, for 2023, due primarily to higher yields from loans, investment securities, and interest-bearing deposits with banks.
Total interest expense decreased $195,000, or 6.6%, when comparing 2024 and 2023 due to a decrease in the average balance of interest-bearing liabilities, partially offset by an increase in the average cost of interest-bearing liabilities.
The average balance of interest-bearing liabilities decreased to $179.5 million for the year ended December 31, 2024, from $204.8 million for 2023, due primarily to decreases in deposit accounts and borrowings.
The average cost of interest-bearing liabilities increased to 1.53% for 2024 from 1.43% for 2023. The Company recorded a net recapture of credit (1) Refer to “Non-GAAP Financial Measures” below and to “Reconciliation of Non-GAAP Financial Measures” at the end of this Earnings Release for more information and for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure losses on loans of $254,000 and a net recapture of credit losses on unfunded loan commitments of $2,000 for the year ended December 31, 2024, compared to recapture of credit losses on loans of $55,000 and a net recapture of credit losses on unfunded loan commitments of $65,000 for the year ended December 31, 2023.
As a result of the changes in interest-earning assets and interest-bearing liabilities, the net interest rate spread and net interest rate spread on a tax-equivalent basis (1) increased to 2.82% and 2.95%, respectively, for the year ended December 31, 2024, from 2.51% and 2.67%, respectively, for the year ended December 31, 2023. The net interest margin and net interest margin on a tax-equivalent basis (1) increased to 3.22% and 3.35%, respectively, for 2024 from 2.85% and 3.01% for 2023
A noninterest loss of $10.9 million was recognized for the quarter ended December 31, 2024, a decrease of $11.1 million as compared to the same period in 2023. The noninterest loss was due primarily to an $11.1 million net loss on the sale of available-for-sale investment securities and reductions in brokered loan fees of $16,000 and ATM and debit care fee income of $14,000, partially offset by an increase in deposit account service charges of $4,000.
A noninterest loss of $10.2 million was recognized for the year ended December 31, 2024, a decrease of $11.3 million as compared to the same period in 2023. The noninterest loss was due primarily to an $11.3 million net loss on the sale of available-for-sale securities and a reduction in deposit account service charges of $2,000, brokered loan fees of $27,000, and ATM and debit card fee income of $34,000.
Noninterest expense decreased $242,000, or 11.8%, for the quarter ended December 31, 2024, as compared to the year ended December 31, 2023.
The decrease was due primarily to decreases in compensation and benefits of $95,000, occupancy and equipment expenses of $25,000, professional fees of $88,000, directors’ compensation of $24,000, deposit insurance premiums of $5,000, marketing and business development expenses of $3,000 and other expenses of $23,000, partially offset by an increase in data processing expenses of $22,000.
Noninterest expense increased $110,000, or 1.5%, for the year ended December 31, 2024 as compared to the same period in 2023. The increase was due primarily to increases in data processing expenses of $84,000 and professional fees of $442,000, partially offset by decreases in compensation and benefits of $145,000, occupancy and equipment expenses of $22,000, directors’ compensation of $99,000, stockholders’ meeting expenses of $67,000, deposit insurance premiums of $14,000, marketing and business development expenses of $12,000 and other expenses of $53,000.
The Company recorded an income tax benefit of $2.6 million for the quarter ended December 31, 2024, compared to an income tax benefit of $14,000 for the same period in 2023. For the year ended December 31, 2024, the Company recorded an income tax benefit of $2.6 million compared to an income tax benefit of $25,000 for the year ended December 31, 2023.
Balance Sheet Review
Total assets as of December 31, 2024, were $226.0 million compared to $269.0 million on December 31, 2023. The decrease in total assets was primarily due to decreases in investment securities of $90.9 million, net loans of $11.5 million and Federal Home Loan Bank stock of $479,000, premises and equipment of $184,000, accrued interest receivable from investment securities of $707,000 and other assets of $162,000, partially offset by an increase in cash and cash equivalents of $60.9 million, accrued interest receivable from loans of $30,000, and the cash value of life insurance of $60,000. Investment securities decreased due primarily to the sale of $80.3 million of available-for-sale investment securities and $10.2 million in scheduled principal payments, calls, and maturities of available-for-sale investment securities.
Net loans decreased $11.5 million, due primarily to decreases of $5.5 million in one-to-four family residential loans, $2.6 million in construction loans, $1.1 million in commercial real estate loans, $2.6 million in commercial business loans and $369,000 in consumer loans, partially offset by an increase of $279,000 in multi-family residential loans and a $257,000 decrease in the credit allowance for credit losses on loans. Total liabilities, comprised mostly of deposits, decreased $43.8 million to $189.1 million as of December 31, 2024.
The decrease was due primarily to a $2.5 million decrease in noninterest-bearing deposits, an $11.9 million decrease in interest-bearing deposits, a $28.2 million decrease in borrowings, a $863,000 decrease in accrued interest payable on deposits, and a $339,000 decrease in accrued expenses and other liabilities.
Credit Quality
Non-performing loans decreased to $298,000 on December 31, 2024, compared to $591,000 on December 31, 2023, or 0.2% and 0.4% of total loans on December 31, 2024, and December 31, 2023, respectively. On December 31, 2024, $167,000, or 56.2% of non-performing loans, were current on their loan payments. No foreclosed real estate was owned on December 31, 2024, and 2023. During the year ended December 31, 2023, the Company sold foreclosed real estate with a book value of $68,000 and recorded a net gain of $8,000.
Based on management’s analysis of the allowance for credit losses, the Company recorded a net recapture of credit losses on loans of $85,000 for the quarter that ended December 31, 2024, compared to a net recapture of $24,000 for the year-earlier quarter in 2023. The recapture for the 2024 quarter was due primarily to a decrease in loan balances and a shift in the loan portfolio mix during the quarter. The Company recorded a net recapture of credit losses on unfunded loan commitments of $13,000 for the 2024 quarter compared to a recapture of $15,000 recorded for the 2023 quarter. The recapture is due primarily to a decrease in unfunded loan commitments during the current quarter. The Company recognized net charge-offs of $1,000 for the quarter ended December 31, 2024, compared to net charge-offs of $24,000 for the same period in 2023.
The Company recorded a net recapture of credit losses on loans of $254,000 for the year ended December 31, 2024, compared to a recapture of $55,000 for 2023. The net recapture for the year ended December 31, 2024, is due primarily to a decrease in loan balances and a shift in the loan portfolio mix. The Company recorded a net recapture of credit losses on unfunded loan commitments of $2,000 for the year ended December 31, 2024, compared to a net recapture of $65,000 for 2023. The net recapture for the year ended December 31, 2024, is due primarily to a decrease in unfunded loan commitments during the current year. The allowance for credit losses on loans totaled $1.9 million on December 31, 2024, and $2.2 million on December 31, 2023, representing 1.4% and 1.5% of total loans on December 31, 2024 and December 31, 2023, respectively. The allowance for credit losses on loans represented 646.6% of non-performing loans at December 31, 2024, compared to 369.5% at December 31, 2023.
Capital
The Bank elected to use the Community Bank Leverage Ratio (“CBLR”) effective January 1, 2020. Effective January 1, 2022, a bank or savings institution electing to use the CBLR is generally considered to be 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 was implemented by the Company on January 1, 2023. The initial impact of the adoption of ASC 326 will be phased out of the regulatory capital calculations over a three-year period, with 75% recognized in year one, 50% recognized in year two, and 25% recognized in year three. On December 31, 2024, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 14.8%.
The Company’s stockholders’ equity increased to $36.9 million on December 31, 2024, from $36.0 million on December 31, 2023. The increase was due primarily to an increase in the accumulated other comprehensive income of $8.3 million related to unrealized gains on available-for-sale securities, partially offset by a net loss of $7.1 million, net of $660,000 in dividends. There were no share repurchases during the quarter ended December 31, 2024, and a total of 173,097 shares remain authorized for future purchases under the current stock repurchase plan.
Update on P&A Agreement with Beacon Credit Union
The Company and the Bank are continuing to move forward actively on the proposed purchase and assumption transaction (the “P&A Transaction”) with Beacon Credit Union, which was announced on January 25, 2024, and all parties remain committed to the deal. The parties are currently working diligently with the banking regulators to obtain regulatory approval for the P&A Transaction, which is expected to close in the late first quarter or second quarter of 2025, subject to customary closing conditions, including regulatory approvals. As was previously disclosed, on January 28, 2025, the parties extended the P&A Agreement until June 30, 2025
Based on the Company’s financial condition on December 31, 2024, the Company has adjusted its previous estimate that shareholders are currently estimated to receive in the dissolution of the Company between $16.00 and $17.25 in cash in exchange for each share of the Company’s common stock owned (the “per share consideration”), but, as previously disclosed, the per share consideration is subject to significant variation based on various factors including the Bank’s equity at the closing of the P&A Transaction; the amount of corporate taxation to be paid by the Company in the P&A Transaction; the regulatory treatment of and costs associated with the liquidation accounts; the amount of cash held by the Company at the closing of the dissolution; costs related to the liquidation and the distribution of the Bank’s remaining assets to the Company; costs related to the dissolution and the distribution of the Company’s remaining assets to its shareholders; and the Bank’s future operating results. Based on these factors, investors should not assume that the ultimate per-share consideration distributed to shareholders will be within the range set forth above.
Non-GAAP Financial Measures the Company’s accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. Whenever a non-GAAP financial measure is presented, the differences between the non-GAAP financial measure and the most directly comparable financial measure by GAAP are presented and reconciled. The following non-GAAP financial measures presented are defined below.
Net interest income (tax-equivalent basis), yield on interest-earning assets (tax-equivalent basis), net interest rate spread (tax-equivalent basis), and net interest margin (tax-equivalent basis). These measures include the effects of taxable-equivalent adjustments using a federal income tax rate effective during the relevant year to increase tax-exempt interest income to a tax-equivalent basis. Interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments.
Net interest income (tax-equivalent basis) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is net interest income. Yield on interest-earning assets (tax-equivalent basis) is the ratio of interest income earned from interest-earning assets, adjusted on a tax-equivalent basis, and average interest-earning assets. The yield for investment securities is based on amortized cost and does not give effect to changes in fair value that are reflected in Accumulated Other Comprehensive Income / Loss (“AOCI”). The most directly comparable financial measure following GAAP is the yield on interest-earning assets. Net interest rate spread (tax-equivalent basis) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest-bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is the net interest rate spread. Net interest margin (tax-equivalent basis) is the ratio of net interest income (tax-equivalent basis) to average earning assets. The most directly comparable financial measure in accordance with GAAP is net interest margin.
Book value per share excluding Accumulated Other Comprehensive Income / Loss. We calculate book value per share excluding AOCI as total stockholders’ equity at the end of the relevant period, less AOCI, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We provide the book value per share excluding AOCI in addition to those defined by banking regulators because we believe it is important to evaluate the balance sheet both before and after the effects of unrealized amounts associated with mark-to-market adjustments on available-for-sale investment securities.
Tangible book value per share. Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total stockholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each date indicated. We provide the tangible book value per share in addition to those defined by banking regulators because of its widespread use by investors as a means to evaluate capital adequacy.
These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements, and other bank holding companies may define these non-GAAP measures or similar measures differently.
About Mid-Southern Bancorp, Inc. and Mid-Southern Savings Bank, FSB
Mid-Southern Bancorp, Inc. is the holding company of Mid-Southern Savings Bank, FSB, which 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
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