Mid-Southern Bancorp Inc. (MSVB) is a bank holding company that serves the southern Indiana region through its subsidiary, Mid-Southern Savings Bank, FSB. With a focus on providing personalized banking services to individuals and businesses, the company has built a reputation for stability and innovation within its local community.
Company History and Business Overview Mid-Southern Bancorp was incorporated in January 2018 and became the holding company for Mid-Southern Savings Bank, FSB in July 2018 upon the completion of the bank's conversion from a mutual holding company ownership structure. The company's roots, however, can be traced back to 1890 when the bank was originally founded as Salem Building & Loan Association.
The bank operated as a mutual savings and loan association until 1992 when it converted to a federally chartered savings bank. In 2008, the bank formed a mutual holding company structure, with the bank as the wholly-owned subsidiary. The 2018 conversion to a stock-based holding company was a significant milestone, allowing the bank to raise additional capital through a public offering of its common stock. This provided resources to support the bank's growth and strategic initiatives.
Throughout its history, Mid-Southern has faced challenges common to many community banks, including navigating changes in the regulatory environment and managing interest rate risk in fluctuating markets. However, the bank has maintained a strong capital position and conservative underwriting standards, which have allowed it to weather economic downturns. The company has also adapted to technological changes in the banking industry, investing in digital capabilities such as enhanced online and mobile banking platforms to meet evolving customer preferences.
Today, the bank operates 10 full-service branch locations throughout southern Indiana, providing a comprehensive suite of deposit accounts, loan products, and ancillary services to its customer base.
The company's loan portfolio is primarily composed of real estate loans, including one-to-four family residential, multi-family residential, commercial real estate, and construction loans. To a lesser extent, Mid-Southern also originates commercial business and consumer loans. As of June 30, 2023, the bank's total loan portfolio stood at $150.05 million, representing a 2.6% increase from the $146.21 million reported at the end of 2022.
Financials and Performance Mid-Southern Bancorp's financial performance has been relatively stable in recent years, though the company has faced some headwinds amidst a challenging economic environment. For the fiscal year ended December 31, 2022, the company reported revenue of $8.91 million and net income of $1.88 million, or $0.69 per diluted share, compared to $1.61 million, or $0.55 per diluted share, in the prior year. The company's operating cash flow (OCF) for 2022 was $2.55 million, with free cash flow (FCF) of $2.11 million.
In the most recent quarter (Q2 2023), Mid-Southern reported revenue of $2.86 million and net income of $460,000. The company's OCF for the quarter was $675,000, with FCF of $656,000. The increase in revenue, net income, OCF, and FCF from the prior year quarter was due to growth in the loan portfolio and higher yields on interest-earning assets, partially offset by increased interest expense on deposits and borrowings.
The company's net interest income increased from $6.91 million in 2021 to $7.64 million in 2022, driven by growth in the loan portfolio and higher yields on interest-earning assets. However, this was offset by a rise in interest expense, which increased from $651,000 in 2021 to $1.12 million in 2022 due to higher costs of deposits and borrowings.
Mid-Southern's asset quality metrics have remained relatively stable, with nonperforming loans accounting for 0.5% of total loans as of December 31, 2022, compared to 0.3% at the end of 2021. The company's allowance for credit losses stood at $1.69 million, or 1.2% of total loans, at the end of 2022.
Liquidity In terms of liquidity and capital, Mid-Southern Bancorp remains well-positioned. As of June 30, 2023, the company's cash and cash equivalents totaled $5.87 million, and its bank subsidiary, Mid-Southern Savings Bank, maintained a Community Bank Leverage Ratio (CBLR) of 15.6%, well above the regulatory minimum required to be considered "well-capitalized."
The company's debt-to-equity ratio stood at 0.08594 as of June 30, 2023, indicating a conservative capital structure. Mid-Southern also had $37.8 million in additional borrowing capacity with the Federal Home Loan Bank (FHLB) as of the same date, providing a substantial liquidity cushion. The company's current ratio and quick ratio both stood at 0.475 as of June 30, 2023, reflecting its ability to meet short-term obligations.
Challenges and Outlook Like many financial institutions, Mid-Southern Bancorp has faced headwinds in the form of rising interest rates, increased competition, and regulatory changes in recent years. The company has worked diligently to navigate these challenges, focusing on prudent risk management, cost control, and strategic growth initiatives.
One notable challenge for the company was the COVID-19 pandemic, which led to increased loan loss provisioning and a temporary slowdown in lending activity. However, Mid-Southern was able to weather the storm and resume its growth trajectory in the subsequent quarters.
Looking ahead, the company remains cautiously optimistic about its future prospects. Mid-Southern has continued to invest in technology and digital banking capabilities to enhance the customer experience and improve operational efficiency. Additionally, the company is exploring opportunities for strategic acquisitions or partnerships that could further strengthen its market position and diversify its revenue streams.
Risks and Considerations As with any financial institution, Mid-Southern Bancorp is subject to a variety of risks, including interest rate risk, credit risk, and regulatory risk. The company's performance is heavily dependent on the economic conditions in its southern Indiana market, and any downturn in the regional or national economy could adversely impact its loan portfolio and profitability.
Additionally, the banking industry is highly competitive, with Mid-Southern facing intense rivalry from larger regional and national banks, as well as from smaller community banks and credit unions. The company's ability to maintain its market share and continue its growth trajectory will depend on its ability to adapt to changing customer preferences, technological advancements, and regulatory changes.
Business Activities and Product Segments Mid-Southern Bancorp's main business activities and product segments are centered around traditional community banking services:
Lending Activities: The company primarily originates and services loans secured by real estate, including one-to-four family residential loans, multi-family residential loans, commercial real estate loans, and construction loans. As of June 30, 2023, the company's net loans receivable totaled $147.6 million, up 2.2% from $144.4 million at the end of 2022. This increase was driven by growth in commercial real estate loans ($3.3 million increase), multi-family residential loans ($1.3 million increase), and construction loans ($459,000 increase), partially offset by decreases in commercial business loans ($666,000 decrease) and one-to-four family residential loans ($458,000 decrease).
Deposit and Funding Activities: Mid-Southern's primary source of funding is customer deposits, which totaled $202.9 million as of June 30, 2023, down 1.5% from $206.1 million at the end of 2022. The company's deposit base consists primarily of noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, and certificates of deposit. To supplement its deposit funding, Mid-Southern also utilizes borrowings, including $28.2 million in advances from the Federal Reserve as of June 30, 2023.
Investment Activities: The company maintains an investment securities portfolio, primarily comprised of U.S. government securities, U.S. government agency debt securities (including mortgage-backed securities and collateralized mortgage obligations), and municipal obligations. The available-for-sale securities portfolio totaled $99.1 million as of June 30, 2023, down 5.9% from $105.4 million at the end of 2022, due to sales, principal payments, and maturities, partially offset by an increase in unrealized gains.
Conclusion Mid-Southern Bancorp has a long and storied history of serving the banking needs of its local community in southern Indiana. Despite the challenges faced in recent years, the company has demonstrated its resilience and ability to navigate a complex operating environment. With a focus on prudent risk management, strategic growth, and technological innovation, Mid-Southern appears well-positioned to continue delivering consistent performance and value for its shareholders in the years to come. The company's diverse product offerings, strong capital position, and conservative approach to risk management provide a solid foundation for future growth and stability in the competitive banking landscape.