Mid-Southern Bancorp, Inc. Reports Results Of Operations For The Fourth Quarter And Year Ended December 31, 2018

Salem, Indiana— Mid-Southern Bancorp, Inc. (the “Company”) (NASDAQ: MSVB), the holding
company for Mid-Southern Savings Bank, FSB (the “Bank”), announced the Company’s operating results for the fourth
quarter and year ended December 31, 2018. For the three months ended December 31, 2018, the Company reported net
income of $520,000, or $0.15 per diluted share, compared to net income of $197,000, or $0.06 per diluted share, for the
same period in 2017. On July 11, 2018, the Company completed the “second-step” conversion of Mid-Southern, M.H.C.
and the Company’s related stock offering with the issuance of 2,559,871 shares of common stock at a price of $10.00 per
share for net proceeds of approximately $24.6 million. The shares began trading on the Nasdaq Capital Market on
Thursday, July 12, 2018, under the ticker symbol “MSVB.” Accordingly, the reported results and financial information for
the year ended December 31, 2017 relate solely to the Bank.
The Company reported net income of $1.4 million or $0.41 per diluted share for the year ended December 31, 2018,
compared to $1.2 million or $0.34 per diluted share for the year ended December 31, 2017.
Net income for the three months and year ended December 31, 2018 benefited from the reduction in the federal corporate
income tax rate from 35% to 21% in 2018 due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December
2017. Net income for the three months and year ended December 31, 2017 included a $295,000 charge due to the
revaluation of deferred tax assets as a result of the Tax Act with no comparable charge in 2018. The increase in net income
in the fourth quarter and year ended December 31, 2018 compared to same periods last year is primarily due to an increase
in net interest income after provision for loan losses and decreased income tax expense offsetting an increase in noninterest
expense.
Income Statement Review
Net interest income after provision for loan losses increased $114,000 for the quarter ended December 31, 2018 to $2.0
million as compared to $1.9 million for the quarter ended December 31, 2017. Total interest income increased $336,000, or
20.7%, when comparing the two periods, primarily due to an increase in the average balance of interest-earning assets. The
average balance of interest-earning assets increased to $193.3 million for the quarter ended December 31, 2018 from
$167.9 million for the quarter ended December 31, 2017. Total interest expense increased $22,000 when comparing the
two periods due to increases in the average balance and the cost of interest-bearing liabilities. The average cost of interestbearing
liabilities increased to 0.54% for the quarter ended December 31, 2018 from 0.49% for the quarter ended
December 31, 2017. The average balance of interest-bearing liabilities increased to $139.1 million from $134.4 million,
between the periods. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate
spread increased to 3.62% from 3.48% and the net interest margin increased to 3.77% from 3.57% for the quarters ended
December 31, 2018 and 2017, respectively.
Net interest income after provision for loan losses increased $224,000 for the year ended December 31, 2018 compared to
the same period in 2017. Total interest income increased $798,000, or 12.3%, when comparing the two periods, due to an
increase in both the average balance of and yield earned on interest-earning assets. The average balance of interest-earning
assets increased to $185.7 million for the year ended December 31, 2018 from $170.0 million for the year ended December
31, 2017. The average tax-equivalent yield on interest-earning assets increased to 3.99% for the year ended December 31,
2018 from 3.88% for 2017 primarily due to higher market interest rates. Total interest expense increased $74,000 due to
increases in both the average balance and the cost of interest-bearing liabilities. The average cost of interest-bearing
liabilities increased to 0.51% for the year ended December 31, 2018 from 0.48% for 2017. The average balance of interestbearing
liabilities increased to $142.9 million for the year ended December 31, 2018 from $136.0 million for the year
ended December 31, 2017. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest
rate spread increased to 3.48% for the year ended December 31, 2018 from 3.40% for the year ended December 31, 2017.
Net interest margin increased to 3.60% for the year ended December 31, 2018 from 3.50% for 2017.
Mid-Southern Bancorp, Inc.
February 6, 2019
Page 2
Noninterest income decreased $31,000, or 12.6%, for the quarter ended December 31, 2018 as compared to the same
period in 2017. There were no sales of available for sale securities during the fourth quarter of 2018 while the Bank
recognized $35,000 in gain on sale of available for sale securities during the fourth quarter of 2017. The decrease in gain
on sale of securities available for sale and an $8,000 decrease in deposit account service charges were partially offset by a
$12,000 increase in ATM and debit card fee income when comparing the two periods.
Noninterest income decreased $44,000, or 5.0%, for the year ended December 31, 2018 as compared to the year ended
December 31, 2017. There were no sales of available for sale securities during the year ended December 31, 2018 while
the Bank recognized $39,000 in gain on sale of securities available for sale during the year ended December 31, 2017. The
decrease in gain on sale of securities available-for-sale and a $36,000 decrease in deposit account service charges were
partially offset by a $32,000 increase in ATM and debit card fee income when comparing the years ended December 31,
2018 and 2017.
Noninterest expenses increased $165,000 for the quarter ended December 31, 2018 as compared to the same period in
2017. Increases in data processing of $128,000 due primarily to $108,000 of contract termination expenses related to the
Bank’s core processing system conversion and in professional fees of $55,000 reflecting $33,000 of expense related to the
establishment and administration of the Bank’s ESOP were partially offset by decreases of $26,000 in compensation and
benefits due to a decrease in non-elective contributions made to the Bank’s 401(k) plan, $28,000 in occupancy and
equipment expenses and $22,000 in impairment loss on land held for sale as compared to the same quarter last year.
Noninterest expenses increased $627,000 for the year ended December 31, 2018 as compared to the year ended December
31, 2017. Compensation and benefits increased $326,000 due to normal salary adjustments, increased medical insurance
premiums and an increase in the number of full-time equivalent employees. Data processing expense increased $196,000
reflecting higher transactions volume, increased managed information technology services expenses for maintaining
security of servers and firewalls and contract termination costs related to the Bank’s core processing system conversion.
Professional fees increased $122,000 compared to last year due to expenses related to operating as a public company and
establishment and administration of the Bank’s ESOP and include directors’ fees of $21,000. These increases were
partially offset by decreases of $73,000 in occupancy and equipment expense due to decreases in maintenance, property
taxes and depreciation, $13,000 in net loss on foreclosed real estate and $23,000 in impairment loss on land held for sale as
compared to last year.
Income tax expense decreased $405,000 for the quarter ended December 31, 2018 as compared to the same period in 2017
resulting from a reduction in our effective tax rate due primarily to the enactment of the Tax Cuts and Jobs Act in
December 2017. During the quarter ended December 31, 2017, the Company recorded a charge of $295,000 through its
federal income tax provision relating to changes to the Company’s net deferred tax asset valuation as a result of the Tax
Act’s reduction in the federal corporate income tax rate. Income tax expense for the year ended December 31, 2018 was
$295,000 compared to $982,000 for the year ended December 31, 2017.
Balance Sheet Review
Total assets as of December 31, 2018 were $200.7 million compared to $176.7 million at December 31, 2017. Cash and
cash equivalents, investment securities and net loans receivable increased $5.2 million, $7.4 million and $11.4 million,
respectively, which was partially offset by a $176,000 decrease in foreclosed real estate. The increase in net loans
receivable was due primarily to an increase in commercial construction loans originated during the year ended December
31, 2018. Cash and cash equivalents increased primarily from excess funds provided by maturities of available for sale
securities and proceeds from the issuance of common stock. Investment securities increased due primarily to the purchase
of non-taxable municipal and mortgage-backed securities available for sale of $7.3 million and $9.9 million, respectively,
which were partially offset by the maturity of a $1.0 million federal agency security available for sale and $8.4 million in
principal payments on mortgage-backed securities available for sale. Total liabilities are comprised almost entirely of
deposits, which decreased $784,000 during the year ended December 31, 2018.
Credit Quality
Non-performing loans were $1.3 million, or 1.0% of total loans, at December 31, 2018 compared to $1.9 million, or 1.6%
of total loans at December 31, 2017. At December 31, 2018, $250,000 or 19.3% of nonperforming loans were current on
their loan payments. There was no foreclosed real estate owned at December 31, 2018 compared to $176,000 at December
31, 2017.
Mid-Southern Bancorp, Inc.
February 6,