SALEM – Mid-Southern Bancorp, Inc. (the “Company”) (NASDAQ: MSVB), the holding company for Mid-Southern Savings Bank, FSB (the “Bank”), reported net income for the first quarter ended March 31, 2021, of $378,000 or $0.13 per diluted share compared to $385,000 or $0.12 per diluted share for the same period in 2020.
In light of the events surrounding the COVID-19 pandemic, the Company is continually assessing the effects of the pandemic on its employees, customers, and communities. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance, and taxation, and the Company supported its customers through the SBA Paycheck Protection Program (“PPP”), loan modifications and deferrals, and fee waivers on early withdrawal of certificates of deposit due to hardship. The deadline for PPP loan applications for the first round was extended to August 8, 2020, and during this round in 2020, the Bank-funded 29 PPP loans totaling $474,000. As of March 31, 2021, 25 loans with a total principal balance of $395,000 received full forgiveness from the SBA, and one PPP loan totaling approximately $21,000 was charged off during 2020 due to the death of the borrower but is expected to be recovered in full. The remaining three loans had an outstanding principal balance of $58,000 as of March 31, 2021.
In late December 2020, the Emergency Coronavirus Relief Act of 2020 (the “Relief Act”) was enacted. The Relief Act extended certain provisions of the CARES Act and allotted $284 billion to the SBA for a second round of PPP loans. The deadline for PPP loan applications for the second round has been extended from March 31, 2021, to May 31, 2021. For the three months ended March 31, 2021, the Bank has funded 24 PPP loans totaling $459,000 as part of this second round, and these 24 loans remain outstanding as of March 31, 2021.
While the ultimate impact of the crisis is difficult to predict, management believes the Company is well-capitalized and has the financial stability to continue to responsibly serve its customers and communities during this unprecedented time.
Income Statement Review
Net interest income after provision for loan losses increased $82,000, or 5.1%, for the quarter ended March 31, 2021, to $1.7 million. Total interest income decreased $68,000, or 3.5% when comparing the two periods, due to a decrease in the yield earned on interest-earning assets partially offset by an increase in the average balance of interest-earning assets.
The average tax-equivalent yield on interest-earning assets decreased to 3.43% for the quarter ended March 31, 2021, from 3.98% for the quarter ended March 31, 2020, due primarily to a decrease in market interest rates, driven by decreases in the targeted federal funds rate in response to the COVID-19 pandemic. The average balance of interest-earning assets increased to $228.8 million for the quarter ended March 31, 2021 from $200.4 million for the quarter ended March 31, 2020, due primarily to increases in investment securities, partially offset by decreases in loans
receivable and cash and cash equivalents. Total interest expense decreased $93,000, or 35.4%, 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 0.42% for the quarter ended March 31, 2021 from 0.76% for the same period in 2020. The average balance of interest-bearing liabilities increased to $163.0 million for the quarter ended March 31, 2021 from $139.0 million for the same period in 2020, due primarily to an increase in the number and balance of 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 3.01% from 3.22% and the net interest margin decreased to 3.13% from 3.46% for the quarters ended March 31, 2021 and 2020, respectively.
Noninterest income increased $102,000, or 59.3%, for the quarter ended March 31, 2021, as compared to the same period in 2020, due primarily to increases of $61,000 and $38,000 in brokered loan fees and ATM and debit card fee income, respectively.
Noninterest expense increased $226,000, or 16.8%, for the quarter ended March 31, 2021, as compared to the same period in 2020. The increase was due primarily to increases in compensation and benefits of $135,000, directors’ compensation expense of $26,000, occupancy and equipment expenses of $25,000, professional fees of $18,000, and deposit insurance premiums of $15,000, partially offset by decreases in data processing expenses of $15,000.
The Company recorded an income tax expense of $17,000 for the quarter ended March 31, 2021, compared to an expense of $52,000 for the same period in 2020 resulting from a reduction in our effective tax rate to 4.3% for 2021 compared to 11.9% for 2020. The decrease in the effective tax rate is due largely to increased tax-exempt investment income proportionate to overall pre-tax income.
Balance Sheet Review
Total assets as of March 31, 2021, were $244.9 million compared to $235.4 million on December 31, 2020. Increases in cash and cash equivalents of $14.1 million were partially offset by decreases in investment securities and net loans. Investment securities decreased $3.4 million due primarily to $2.4 million in scheduled principal payments and maturities of mortgage-backed and tax-exempt securities and a $2.0 million increase in the unrealized loss on available for sale securities, partially offset by the purchase of $1.1 million in available for sale securities. The decrease in net loans was due primarily to decreases of $1.7 million in multi-family residential loans and $1.5 million in commercial real estate loans, partially offset by increases of $1.9 million in commercial business loans. Total liabilities, comprised mostly of deposits, increased $10.6 million to $197.0 million as of March 31, 2021. The increase was due primarily to increases of $9.1 million and $3.0 million in interest-bearing deposits and noninterest-bearing deposits, respectively, partially offset by a decrease of $1.0 million in borrowings from the Federal Home Loan Bank of Indianapolis.
Credit Quality
Non-performing loans decreased to $971,000 on March 31, 2021, compared to $1.3 million on December 31, 2020, or 0.9% and 1.1% of total loans, respectively. At March 31, 2021, $573,000 or 59.0% of non-performing loans were current on their loan payments. On March 31, 2021, non-performing troubled debt restructured loans totaled $206,000. There was no foreclosed real estate owned on either March 31, 2021, or December 31, 2020.
Based on management’s analysis of the allowance for loan losses, the Company did not record a provision for loan losses for the quarter ended March 31, 2021, compared to a $57,000 provision for loan losses for the same period in 2020. The provision for the current quarter reflects expected credit losses based upon the conditions that existed as of March 31, 2021. The Company recognized net recoveries of $1,000 for the quarter ended March 31, 2021 compared to net charge-offs of $14,000 for the same period in 2020. The allowance for loan losses totaled $1.6 million, representing
1.4% of total loans at both March 31, 2021 and December 31, 2020. The allowance for loan losses represented 163.7% of non-performing loans on March 31, 2021, compared to 126.5% at December 31, 2020.
Capital
On May 23, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress (the “Act”). The Act contains a number of provisions extending regulatory relief to banks and savings institutions and their holding companies. Effective January 1, 2020, 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% (adjusted to
8.0% effective April 1, 2020 and 8.5% effective January 1, 2021). On October 9, 2020, the Office of the Comptroller of the Currency along with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, published a final rule, effective November 9, 2020, implementing a temporary change to the CBLR framework pursuant to the CARES Act, providing a graduated increase to the 9.0% requirement as established under the final rule published in 2019. 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 January 1, 2020.
On March 31, 2021, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 16.8%.
The Company’s stockholders’ equity decreased to $47.9 million on March 31, 2021, from $49.0 million on December 31, 2020. The decrease was due primarily to a decrease in the accumulated other comprehensive income, net of tax, of $1.5 million, partially offset by net income of $378,000. At March 31, 2021, a total of 69,362 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.
