SALEM — Mid-Southern Bancorp Inc., the holding company for Mid-Southern Savings Bank FSB, reported net income for the first quarter ended March 31 of $467,000, or $0.17 per diluted share, compared to $378,000, or $0.13 per diluted share, for the same period in 2021.
Income statement review
Net interest income after provision for loan losses increased $38,000, or 2.2%, for the quarter ended March 31 to $1.7 million as compared to the quarter ended March 31, 2021. Total interest income increased $18,000, or 1.0%, 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 $250.9 million for the quarter ended March 31 from $228.8 million for the quarter ended March 31, 2021, due primarily to increases in loans receivable, investment securities and interest-bearing deposits with banks. The average tax equivalent yield on interest-earning assets decreased to 3.17% for the quarter ended March 31 from 3.43% for the quarter ended March 31, 2021, due primarily to a decrease in market interest rates. Total interest expense decreased $20,000, or 11.8%, 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 0.32% for the quarter ended March 31 from 0.42% for the same period in 2021. The average balance of interest-bearing liabilities increased to $184.8 million for the quarter ended March 31 from $163.0 million for the same period in 2021, due primarily to an increase in 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 2.85% from 3.01% and the net interest margin decreased to 2.93% from 3.13% for the quarters ended March 31, 2022 and 2021, respectively.
Non-interest income increased $11,000, or 4.0%, for the quarter ended March 31 as compared to the same period in 2021, due primarily to increases of $31,000 and $7,000 in deposit account service charges and ATM and debit card fee income, respectively, partially offset by a reduction in brokered loans fees of $25,000.
Non-interest expense decreased $57,000, or 3.6%, for the quarter ended March 31 as compared to the same period in 2021. The decrease was due primarily to decreases in compensation and benefits of $64,000, directors’ compensation of $19,000 and professional fees of $11,000, partially offset by higher data processing expenses of $23,000 and occupancy and equipment expenses of $9,000.
The company recorded an income tax expense of $34,000 for the quarter ended March 31 compared to an income tax expense of $17,000 for the same period in 2021 resulting from an increase in our effective tax rate to 6.8% for 2022 compared to 4.3% for 2021.
Balance sheet review
Total assets as of March 31 were $261.5 million compared to $254.3 million at Dec. 31, 2021. The increase in total assets was primarily due to increases in investment securities of $10.1 million, net loans of $4.7 million and other assets of $2.1 million, partially offset by a decrease in cash and cash equivalents of $9.6 million. Investment securities increased due primarily to $23.1 million in purchases of available for sale investment securities, partially offset by $5.0 million in scheduled principal payments, calls and maturities of mortgage-backed and tax-exempt securities and a $7.8 million unrealized loss on available for sale securities. The increase in net loans was due primarily to increases of $4.2 million in commercial real estate loans and $1.6 million in one-to-four family residential loans, partially offset by a decrease of $367,000 in multifamily residential loans and a decrease of $319,000 in residential construction loans. The increase in other assets was due primarily to a $2.0 million increase in net deferred tax assets, largely attributable to the tax effect on the unrealized loss on available for sale securities. Total liabilities, comprised mostly of deposits, increased $12.8 million to $220.5 million as of March 31, 2022. The increase was due primarily to a $10.2 million increase in interest-bearing deposits and a $2.6 million increase in non-interest-bearing deposits.
Credit quality
Non-performing loans decreased to $594,000 at March 31 compared to $753,000 at Dec. 31, 2021, or 0.5% and 0.6% of total loans, respectively. At March 31, $101,000 or 17.0% of non-performing loans were current on their loan payments. At March 31, non-performing troubled debt restructured loans totaled $97,000. There was no foreclosed real estate owned at either March 31 or Dec. 31, 2021.
Based on management’s analysis of the allowance for loan losses, the company did not record a provision for loan losses for the quarters ended March 31, 2022, and 2021. The company recognized net charge-offs of $1,000 for the quarter ended March 31 compared to net recoveries of $1,000 for the same period in 2021. The allowance for loan losses totaled $1.5 million at both March 31 and Dec. 31, 2021, representing 1.2% of total loans at both March 31 and December 31, 2021, respectively. The allowance for loan losses represented 256.2% of non-performing loans at March 31, compared to 202.3% at Dec. 31, 2021.
Capital
Effective Jan. 1, 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 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. The bank elected to use the CBLR effective Jan. 1, 2020.
At March 31, the bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 16.2%.
The company’s stockholders’ equity decreased to $41.0 million at March 31 from $46.5 million at Dec. 31, 2021. The decrease was due primarily to a decrease in the accumulated other comprehensive income, net of tax, of $5.9 million and the repurchase of 16,117 shares of our common stock at a total cost of $241,000, partially offset by net income of $467,000. At March 31, a total of 169,466 shares remain authorized for future purchases under the current stock repurchase plan.
Dividend declared
Mid-Southern Bancorp also announced that its board of directors declared a quarterly cash dividend of $0.04 per share on the company’s outstanding common stock. The cash dividend will be payable on May 27 to shareholders of record as of the close of business on May 13,. The declaration and payment of future dividends to holders of the company’s common stock will be at the discretion of the board of directors, and will depend upon many factors, including the company’s financial condition, earnings, capital requirements of its businesses, legal requirements, regulatory constraints, industry practice, and other factors that the board of directors deems relevant.
About Mid-Southern Bancorp Inc.
Mid-Southern Savings Bank FSB is a federally chartered savings bank headquartered in Salem. The bank conducts business from its main office in Salem and through its branch offices located in Mitchell and Orleans and loan production offices located in New Albany and Louisville, Kentucky. The company’s stock trades under the NASDAQ symbol MSVB.