MILLINGTON, N.J., Oct. 30, 2019 (GLOBE NEWSWIRE) — MSB Financial Corp. (NASDAQ: MSBF) (the “Company”), parent company of Millington Bank, reported today the results of its operations for the three and nine months ended September 30, 2019.
The Company reported net income of $1.1 million, or $0.22 per diluted common share, for the three months ended September 30, 2019, compared to net income of $1.3 million, or $0.24 per diluted common share, for the three months ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $2.9 million, or $0.55 per diluted common share, compared to net income of $3.6 million, or $0.66 per diluted common share, for the nine months ended September 30, 2018. The nine months ended September 30, 2019 were impacted by approximately $862,000 in additional professional expenses year over year in connection with the first audit of the Company’s internal control over financial reporting. As the Company previously disclosed, in connection with the audit, management and outside auditors identified certain material weaknesses in internal control. While none of these material weaknesses resulted in any misstatement or material change to the reported results, they did cause the scope of the audit and consequently the related expense to increase significantly. Adjusting for the expense associated with the change in procedures, net income for the nine months ended September 30, 2019 would have been $3.4 million or $0.67 per diluted share.
Highlights for the quarter:Return on average assets was 0.77% for the three months ended September 30, 2019 compared to 0.92% for the three months ended September 30, 2018 and return on average equity was 6.79% for the three months ended September 30, 2019 compared to 7.56% for the three months ended September 30, 2018.Net interest margin decreased thirty-two basis points to 3.12% for the quarter ended September 30, 2019 from 3.44% for the quarter ended September 30, 2018. Contributing to the decrease in net interest margin was higher interest expense on deposits and borrowings.The efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, was 64.30% for the quarter ended September 30, 2019 as compared to 61.96% for the quarter ended September 30, 2018.Non-performing assets represented 0.58% of total assets at September 30, 2019 compared with 0.71% at December 31, 2018. The allowance for loan losses as a percentage of total non-performing loans was 164.95% at September 30, 2019 compared to 136.83% at December 31, 2018.The Company’s balance sheet at September 30, 2019 reflected an increase in total assets of $6.8 million compared to December 31, 2018, due to increases in interest earning demand deposits with banks and net loans receivable.The effective tax rate increased to 31.2% for the quarter ended September 30, 2019 compared to 27.8% for the quarter ended September 30, 2018. The increase in tax rate was due to the true up of tax expense to the return during the third quarter.
Net Interest IncomeTotal interest income for the three months ended September 30, 2019 was flat at $6.2 million compared to the same three month period in 2018. Interest income was unchanged in the quarter ended September 30, 2019 compared to the comparable period in 2018, as a result of loan yields remaining relatively flat for most of the 2019 quarter. Total interest expense increased by $418,000, or 29.4%, to $1.8 million, for the three months ended September 30, 2019 compared to the same period in 2018 due to higher interest rates on deposits and borrowings during the 2019 period.Net interest income for the three months ended September 30, 2019 decreased $414,000, or 8.71% to $4.3 million compared to the same three month period in 2018. The change for the three months ended September 30, 2019 was primarily the result of higher interest expense on deposits and borrowings. The annualized net interest spread was 2.85% and 3.23% for the three months ended September 30, 2019 and 2018, respectively. For the quarter ended September 30, 2019, the Company’s annualized net interest margin decreased to 3.12% compared to 3.44% for the corresponding three-month period in 2018.Total interest income for the nine months ended September 30, 2019, increased $1.1 million, or 6.41%, to $18.5 million compared to $17.3 million for the nine months ended September 30, 2018, as average earning assets increased $10.0 million year over year. In addition, the average interest earned on such assets increased 19 basis points. Total interest expense increased by $1.4 million, or 36.97%, to $5.3 million for the nine months ended September 30, 2019 compared to September 30, 2018, as average interest bearing liabilities increased $4.5 million year over year and the average cost of such liabilities increased -40 basis points.Net interest income decreased $314,000, or 2.3%, to $13.2 million for the nine months ended September 30, 2019, compared to $13.5 million for the nine months ended September 30, 2018. Net interest spread and net interest margin for the nine months ended September 30, 2019, decreased 21 and 14 basis points, respectively, to 2.91% and 3.17%, compared to 3.12% and 3.31% for the nine months ended September 30, 2018. Net interest income and net interest margin decreased as the Company’s deposit pricing has become more competitive year over year.Provision for Loan LossesThe loan loss provision for the three months ended September 30, 2019 was zero compared to $60,000 for the same period in 2018. The loan loss provision for the nine months ended September 30, 2019 was zero compared to $240,000 for the same period in 2018. The decrease in the level of provision for loan loss primarily reflects lower loan growth in the current period in addition to the improvement of other credit metrics year over year.Non-Interest Income and Non-Interest ExpenseNon-interest income for the three months ended September 30, 2019 was $199,000, as compared to $190,000 for the same period in 2018. Non-interest expense, which consists of salaries and employee benefits, occupancy expense, professional services and other non-interest expenses totaled $2.9 million for the quarter ended September 30, 2019 compared to $3.1 million the same period in 2018.Non-interest income for the nine months ended September 30, 2019 was $593,000, as compared to $602,000 for the same period in 2018. Non-interest expense totaled $9.7 million for the nine months ended September 30, 2019, as compared to $9.0 million for the same period in 2018. The increase in non-interest expense was primarily related to an increase in professional services expense.TaxesFor the three months ended September 30, 2019, the Company recorded a $505,000 tax provision compared to $506,000 for the three months ended September 30, 2018. The effective tax rate increased to 31.2% for the quarter ended September 30, 2019, compared to 27.8% for the quarter ended September 30, 2018.For the nine months ended September 30, 2019, the Company recorded a $1.2 million tax provision compared to a provision of $1.3 million for the nine months ended September 30, 2018. The effective tax rate increased to 30.0% for the nine months ended September 30, 2019, compared to 26.9% for the nine months ended September 30, 2018.
Quarterly Earnings SummaryThe following table presents condensed consolidated statements of income data for the periods indicated.
Statement of Condition Highlights at September 30, 2019Total assets amounted to $591.3 million at September 30, 2019, an increase of $6.8 million, or 1.16%, compared to December 31, 2018.The Company’s total loans receivable, excluding the ALLL, were $512.9 million at September 30, 2019, an increase of $5.0 million, or 1.0%, from December 31, 2018.Securities held to maturity were $38.1 million at September 30, 2019, a decrease of $1.4 million, or 3.6% compared to December 31, 2018.Deposits increased $55.5 million, or 13.19%, to $476.1 million at September 30, 2019 compared to $420.6 million at December 31, 2018.Borrowings totaled $47.3 million at September 30, 2019, a decrease of $47.0 million, or 49.85%, compared to $94.3 million at December 31, 2018.
The following table presents condensed consolidated statements of condition data as of the dates indicated.
LoansAt September 30, 2019, the Company’s net loan portfolio totaled $507.3 million, an increase of $5.0 million, or 1.0%, compared to $502.3 million at December 31, 2018. The allowance for loan losses amounted to $5.7 million at September 30, 2019 and December 31, 2018.At September 30, 2019, the loan portfolio primarily consisted of commercial real estate loans (40.6%) and residential mortgages (29.9%). Commercial and industrial loans represented 20.9% of the portfolio, while construction loans accounted for 8.5% of the portfolio. Total gross loans receivable increased $12.9 million to $532.0 million at September 30, 2019, compared to $519.1 million at December 31, 2018. The increase primarily reflects an increase in commercial loans of $21.7 million and a decrease of $8.7 million in residential mortgages, as the Company continues to focus on commercial lending.The following table shows the composition of the Company’s loan portfolio as of the dates indicated.
Asset QualityAt September 30, 2019 and December 31, 2018 non-performing loans totaled $3.4 million and $4.1 million, or 0.58% and 0.71% of total assets, respectively. Nonperforming loans decreased slightly since year end 2018, as two relationships were resolved in the second and third quarters, while one new relationship was added in the third quarter. Total delinquent loans (including nonperforming delinquent loans) were $4.5 million at September 30, 2019, a decrease of $1.8 million from December 31, 2018. The allowance for loan losses as a percentage of total loans was 1.10% and 1.11% at September 30, 2019 and at December 31, 2018, respectively, while the allowance for loan losses as a percentage of non-performing loans increased to 164.95% at September 30, 2019 from 136.83% at December 31, 2018. The ratio of non-performing loans to total loans was 0.67% at September 30, 2019 compared to 0.81% at December 31, 2018.The following table presents the components of non-performing assets and other asset quality data for the periods indicated.
DepositsTotal deposits increased to $476.1 million from $420.6 million compared to year-end 2018. Certificates of deposit and interest bearing deposits increased $41.0 million and $17.5 million, respectively. Certificates of deposit increased to $161.8 million as compared to $120.9 million at December 31, 2018, while interest bearing deposits increased to $151.7 million as compared to $134.1 million at December 31, 2018. In addition, money market deposits increased $1.6 million to $17.8 million as compared to $16.2 million at December 31, 2018. Offsetting the increases was a decrease in savings deposits of $5.0 million. Savings deposits decreased to $97.8 million compared to $102.7 million at December 31, 2018.
The following table shows the composition of the Company’s deposits as of the dates indicated.
CapitalAt September 30, 2019, the Company’s total stockholders’ equity amounted to $64.2 million, or 10.86% of total assets, compared to $66.6 million at December 31, 2018. The Company’s book value per common share was $12.35 at September 30, 2019, compared to $12.46 at December 31, 2018. The decrease in stockholders’ equity was primarily due to the repurchase of 183,100 shares for a total of $3.0 million and the declaration of a $2.6 million dividend, with the remaining difference related to ESOP, restricted stock and stock option accounting activity, partially offset by net income of $2.9 million from the period.At September 30, 2019, the Bank’s common equity tier 1 ratio was 11.47%, tier 1 leverage ratio was 10.47%, tier 1 capital ratio was 11.47% and the total capital ratio was 12.56%. At December 31, 2018, the Bank’s common equity tier 1 ratio was 11.90%, tier 1 leverage ratio was 10.71%, tier 1 capital ratio was 11.90% and the total capital ratio was 13.00%. At September 30, 2019, the Bank was in compliance with all applicable regulatory capital requirements.
The following table sets forth the Company’s consolidated average statements of condition for the periods presented.
Non-GAAP Financial MeasuresThis release references adjusted net income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure. Adjusted net income is derived from GAAP net income less the $862,000 in additional expenses associated with the expanded audit scope and identification of material weaknesses and tax effected at a rate of 31%. We believe the presentation of adjusted net income is appropriate as it better enables an investor to analyze the performance of our core business year over year without the impact of unusual items.The following tables reconcile adjusted net income to net income and adjusted diluted earnings per share to diluted earnings per share:
CEO Outlook“The Company continues to consider additional ways to offset recent interest rate cuts by the Federal Reserve Board that are impacting our interest rate sensitive assets in a segment of our loan portfolio,” stated Michael Shriner, President and Chief Executive Officer. Mr. Shriner added, “through the use of untapped funding sources like short-term brokered deposits and other funding products, the Company has been able to reduce funding rates.”Mr. Shriner further stated “the Company has also begun reducing interest rates on some of the deposit products that were instrumental in helping us grow over the past several years. When taking all of these measures into account, we believe that our cost of funds appears to have peaked during the third quarter and we should begin seeing a decrease in our funding costs as we approach year end.”Forward Looking Statement DisclaimerThe foregoing release may contain forward-looking statements concerning the financial condition, results of operations and business of the Company. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and, therefore, readers should not place undue reliance on any forward-looking statements. Factors that may cause actual results to differ from those contemplated include our continued ability to grow the loan portfolio, the impact of the passage of the Tax Cuts and Jobs Act, our continued ability to manage cybersecurity risks and our continued ability to successfully remediate our identified internal control weaknesses.
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