Southern Indiana Business Report
SALEM – Mid-Southern Bancorp Inc.(NASDAQ: MSVB), the holding company for Mid-Southern Savings Bank, FSB, reported net income for the first quarter ended March 31, 2023 of $340,000 or $0.13 per diluted share compared to $467,000 or $0.17 per diluted share for the same period in 2022.
Income statement review
Net interest income after provision for credit losses increased $75,000, or 4.3%, for the quarter ended March 31, 2023 to $1.8 million as compared to the quarter ended March 31, 2022. Total interest income increased $600,000, or 31.9%, when comparing the two periods, due to increases in the average balances and yields of interest-earning assets.
The average balance of interest-earning assets increased to $269.5 million for the quarter ended March 31, 2023 from $250.9 million for the quarter ended March 31, 2022, due primarily to increases in loans receivable and investment securities, partially offset by lower interest-bearing deposits with banks. The average yield on interest-earning assets and tax-equivalent yield on interest-earning assets(1) increased to 3.69% and 3.85%, respectively, for the quarter ended March 31, 2023 from 3.00% and 3.17%, respectively, for the quarter ended March 31, 2022, due primarily to higher yields from loans and investment securities.
Total interest expense increased $473,000, or 315.3%, when comparing the two periods due to an increase in the average balance of interest-bearing liabilities and in the average cost of interest-bearing liabilities. The average balance of interest-bearing liabilities increased to $205.2 million for the quarter ended March 31, 2023 from $184.8 million for the same period in 2022, due primarily to increases in deposit accounts and borrowings.
The average cost of interest-bearing liabilities increased to 1.21% for the quarter ended March 31, 2023 from 0.32% for the same period in 2022. 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) decreased to 2.48% and 2.64%, respectively for the quarter ended March 31, 2023 from 2.68% and 2.85%, respectively, for the quarter ended March 31, 2022. The net interest margin and net interest margin on a tax-equivalent basis(1) remained at 2.76% and 2.93%, respectively, for the quarters ended March 31, 2023 and March 31, 2022.
Noninterest income decreased $41,000, or 14.4%, for the quarter ended March 31, 2023 as compared to the same period in 2022, due primarily to a reduction in brokered loan fees of $28,000 and a $27,000 net loss on the sale of available for sale investment securities, partially offset by increases of $10,000 in deposit account service charges and $3,000 in ATM and debit card fee income.
Noninterest expense increased $232,000, or 15.3%, for the quarter ended March 31, 2023 as compared to the same period in 2022. The increase was due primarily to increases in data processing expenses of $93,000, compensation and benefits expenses of $58,000, professional fees of $25,000, occupancy and equipment expenses of $23,000 and other expenses of $20,000.
The Company recorded an income tax benefit of $37,000 for the quarter ended March 31, 2023, compared to an income tax expense of $34,000 for the same period in 2022. The income tax benefit for the quarter ended March 31, 2023 is primarily due to an increase in tax-exempt income in proportion to income before income taxes.
Balance sheet review
Total assets as of March 31, 2023 were $266.4 million compared to $269.2 million at December 31, 2022. The decrease in total assets was primarily due to decreases in investment securities of $3.8 million and cash and cash equivalents of $1.2 million, partially offset by an increase in net loans of $2.8 million. Investment securities decreased due primarily to the sale of $4.1 million of available for sale investment securities, $2.0 million in scheduled principal payments, call and maturities of available for sale investment securities, partially offset by a $2.4 million unrealized gain on available for sale investment securities. The increase in net loans was due primarily to increases of $5.8 million in commercial real estate loans and $1.4 million in one-to-four family residential loans, partially offset by a $2.6 million decrease in commercial real estate construction loans, a $654,000 decrease in residential construction loans and a $532,000 decrease in commercial business loans. Total liabilities, comprised mostly of deposits, decreased $4.5 million to $231.4 million as of March 31, 2023. The decrease was due primarily to a $4.0 million decrease in borrowings, a $296,000 decrease in noninterest-bearing deposits and a $131,000 decrease in interest-bearing deposits.
Credit quality
Non-performing loans decreased to $612,000 at March 31, 2023 compared to $732,000 at December 31, 2022, or 0.4% and 0.5% of total loans at March 31, 2023 and December 31, 2022, respectively. At March 31, 2023, $399,000 or 65.1% of non-performing loans were current on their loan payments. Foreclosed real estate owned at March 31, 2023 totaled $16,000. There was no foreclosed real estate owned at Dec. 31, 2022.
Based on management’s analysis of the allowance for credit losses, the Company recorded a net provision for credit losses of $52,000 for the quarter ended March 31, 2023 compared to no provision recorded for the same period in 2022. The Company recognized net charge-offs of $3,000 for the quarter ended March 31, 2023 compared to net charge-offs of $1,000 for the same period in 2022. The allowance for credit losses on loans totaled $2.3 million at March 31, 2023 and $1.7 million at December 31, 2022, representing 1.6% and 1.2% of total loans at March 31, 2023 and December 31, 2022, respectively. The allowance for credit losses on loans represented 379.7% of non-performing loans at March 31, 2023, compared to 231.1% at December 31, 2022.
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.
The Company’s stockholders’ equity increased to $34.9 million at March 31, 2023, from $33.3 million at December 31, 2022. The increase was due primarily to an increase in the accumulated other comprehensive income of $1.8 million related to unrealized losses on available-for-sale securities and net income of $340,000, partially offset by a $481,000 reduction related to the implementation of ASC 326 and $164,000 in dividends. There were no share repurchases during the quarter ended March 31, 2023, and a total of 173,097 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. 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.