Mid-Southern Bancorp, Inc. (NASDAQ:MSVB) is a community bank that has been serving the financial needs of its local market in southern Indiana for decades. With a focus on providing personalized banking solutions, the company has established itself as a trusted partner for both individuals and businesses in the region.
Business Overview
Mid-Southern Bancorp operates through its wholly-owned subsidiary, Mid-Southern Savings Bank, FSB. The bank's primary lending activities include originating one-to-four family residential loans, multi-family residential loans, commercial real estate loans, commercial business loans, and construction loans. The bank also offers a range of consumer loan products, such as automobile loans, boat loans, and home equity loans. On the deposit side, the bank provides a variety of accounts, including savings, money market, term certificate, and checking accounts.Financials
In the latest fiscal year, Mid-Southern Bancorp reported annual net income of $1,456,000 and annual revenue of $11,712,000. The company's annual operating cash flow was $3,219,000, while its annual free cash flow reached $3,093,000. These financial metrics demonstrate the bank's ability to generate consistent earnings and maintain a healthy cash flow position.For the most recent quarter, the company reported net income of $400,000, a decrease from the $526,000 reported in the same quarter of the prior year. This decline was primarily due to an increase in noninterest expenses and a decrease in noninterest income, partially offset by an increase in net interest income after provision for credit losses.
Quarterly Performance Highlights
During the latest quarter, Mid-Southern Bancorp's total assets decreased by $2.9 million, or 1.1%, to $266.3 million. This was driven by a $6.2 million, or 5.9%, decrease in the securities available for sale portfolio, partially offset by a $3.2 million, or 2.2%, increase in net loans receivable.The bank's deposit base decreased by $3.1 million, or 1.5%, to $202.9 million during the quarter. This was primarily due to a decrease in noninterest-bearing deposits, which fell by $2.5 million, or 8.8%, to $25.8 million. Interest-bearing deposits also declined slightly, decreasing by $689,000, or 0.4%, to $177.1 million.
Borrowings decreased by $800,000, or 2.8%, to $28.2 million during the quarter. This was due to a $800,000 decrease in advances from the Federal Reserve, as the company repaid its outstanding balance with the proceeds from a new $28.2 million advance from the Federal Reserve's Bank Term Funding Program (BTFP).
Stockholders' equity increased by $757,000, or 2.3%, to $34.1 million at the end of the quarter. This was primarily driven by net income of $400,000 and a $630,000 increase in accumulated other comprehensive income related to a decrease in unrealized losses on available-for-sale securities, partially offset by $328,000 in dividends paid.
Asset Quality and Allowance for Credit Losses
Mid-Southern Bancorp's asset quality remains strong, with nonperforming loans accounting for just 0.6% of total loans as of the end of the latest quarter. The company's allowance for credit losses on loans increased to $2.3 million, or 1.6% of total loans, up from $1.7 million, or 1.2% of total loans, at the end of the prior fiscal year.The increase in the allowance for credit losses was primarily due to the company's adoption of the Current Expected Credit Loss (CECL) accounting standard on January 1, 2023. Under CECL, the company recorded an increase of $557,000 in the allowance for credit losses on loans and an additional $73,000 for the allowance on unfunded loan commitments, with a corresponding reduction in retained earnings.
Liquidity
Mid-Southern Bancorp maintains a strong liquidity position, with cash and cash equivalents totaling $5.9 million as of the end of the latest quarter. The company also has additional borrowing capacity of $37.8 million with the Federal Home Loan Bank of Indianapolis.The bank's capital ratios remain well above regulatory requirements, with a Community Bank Leverage Ratio of 15.6% as of the end of the latest quarter, compared to the well-capitalized threshold of 9.0%. This solid capital position provides the bank with the flexibility to support future growth and withstand potential economic challenges.
Risks and Challenges
Like any financial institution, Mid-Southern Bancorp faces a variety of risks and challenges, including interest rate risk, credit risk, and regulatory compliance. The company's performance is closely tied to the economic conditions in its local market, and any significant downturn in the regional economy could adversely impact the bank's loan portfolio and profitability.Additionally, the banking industry is undergoing significant technological and regulatory changes, which may require the company to invest in new systems and processes to remain competitive and compliant. Failure to adapt to these changes could pose a risk to the bank's long-term viability.