MSBF - MSB Financial Corp. Releases Fourth Quarter Earnings

MILLINGTON, N.J., Feb. 05, 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 twelve months ended December 31, 2018.

The Company reported net income of $1.3 million, or $0.24 per diluted common share, for the three months ended December 31, 2018, compared to net income of $0.3 million, or $0.05 per diluted common share, for the three months ended December 31, 2017. Net income for the twelve months ended December 31, 2018 was $4.8 million, or $0.90 per diluted common share, compared to net income of $2.7 million, or $0.48 per diluted common share, for the twelve months ended December 31, 2017.  Both the quarter and year ended December 31, 2017 had been impacted by the revaluation of the Company's deferred tax asset as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

Highlights for the quarter:

• Return on average assets was 0.87% for the three months ended December 31, 2018 compared to 0.20% for the three months ended December 31, 2017 and return on average equity was 7.20% for the three months ended December 31, 2018 compared to 1.48% for the three months ended December 31, 2017.

• Net interest margin decreased 8 basis points to 3.22% for the quarter ended December 31, 2018 from 3.30% for the quarter ended December 31, 2017.

• The efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, was 62.51% for the quarter ended December 31, 2018 as compared to 62.26% for the quarter ended December 31, 2017.

• Non-performing assets represented 0.71% of total assets at December 31, 2018 compared with 0.73% at December 31, 2017. The allowance for loan losses as a percentage of total non-performing loans was 136.83% at December 31, 2018 compared to 130.99% at December 31, 2017.

• The Company’s balance sheet reflected total asset growth of $21.5 million at December 31, 2018, compared to December 31, 2017, improved asset quality, and capital levels that exceeded regulatory standards for a well-capitalized institution.

• The effective tax rate decreased to 28.1% for the quarter ended December 31, 2018 compared to 82.0% for the quarter ended December 31, 2017 primarily due to the revaluation of the Company's deferred tax asset in the 2017 period as a result of the passage of the Tax Cuts and Jobs Act on December 22, 2017.

Net Interest Income

Total interest income for the three months ended December 31, 2018 increased $626,000, or 11.6%, to $6.0 million compared to $5.4 million for the fourth quarter of 2017. Interest income increased in the quarter ended December 31, 2018 compared to the comparable period in 2017, primarily due to a $27.0 million increase in average loan balances. Total interest expense increased by $492,000, or 46.8%, to $1.5 million, for the three months ended December 31, 2018 compared to the same period in 2017 due to a combination of higher deposit rates and an increase in the average balance of borrowings outstanding during the 2018 period.

Net interest income for the three months ended December 31, 2018 increased $134,000, or 3.1%, to $4.5 million compared to $4.3 million for the same three-month period in 2017. The change for the three months ended December 31, 2018 was primarily a result of an increase in average earning assets of $29.7 million partially offset by decreasing margin. The annualized net interest spread was 2.98% and 3.12% for the three months ended December 31, 2018 and 2017, respectively. For the quarter ended December 31, 2018, the Company's annualized net interest margin decreased to 3.22% compared to 3.30% for the corresponding three-month period in 2017.

Total interest income for the twelve months ended December 31, 2018, increased $3.8 million, or 19.8%, to $23.3 million compared to $19.5 million for the twelve months ended December 31, 2017 as average earning assets increased $64.3 million year over year. Total interest expense increased by $2.0 million, or 56.6%, to $5.4 million for the twelve months ended December 31, 2018 compared to December 31, 2017 as average interest-bearing liabilities increased $68.0 million year over year and the average cost of such liabilities increased 30 basis points.

Net interest income grew $1.9 million, or 11.9%, to $17.9 million for the twelve months ended December 31, 2018 compared to $16.0 million for the twelve months ended December 31, 2017. Net interest spread and net interest margin for the twelve months ended December 31, 2018, declined 7 and 5 basis points respectively, to 3.08% and 3.28% compared to 3.15% and 3.33% for the twelve months ended December 31, 2017. Net interest spread and net interest margin decreased as the Company's average borrowings increased in addition to deposit pricing that has continued to become more competitive year over year.

Provision for loan losses

The loan loss provision for the three months ended December 31, 2018 was zero compared to $200,000 for the same period in 2017.  The loan loss provision for the year ended December 31, 2018  was $240,000 compared to $1,185,000 for the year ended December 31, 2017.  The decrease in the level of provision for loan loss primarily reflects lower loan growth in addition to the improvement of other credit metrics year over year.

Non-Interest Income and Non-Interest Expense

Non-interest income for the three months ended December 31, 2018 was $198,000, as compared to $211,000 for the same period in 2017.  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 December 31, 2018 as compared to $2.8 million for the same period in 2017. The increase in non-interest expense was related to an increase professional service expense due to the costs associated with our Sarbanes-Oxley implementation which requires additional reporting on internal control over the financial reporting of the Company, offset by decreases in various expense categories. Previously, the Company was not subject to these requirements as its public float was below the applicable threshold.

Non-interest income for the twelve months ended December 31, 2018 was $800,000, as compared to $822,000 for the same period in 2017.  Non-interest expense totaled $11.9 million for the twelve months ended December 31, 2018 as compared to $11.2 million for 2017 with the $680,000 increase primarily attributable to increased professional services expense as a result of costs associated with our Sarbanes-Oxley implementation.  In addition, salaries and employee benefits increased as a result of merit and infrastructure increases while service bureau fees increased as a result of a reduction in the Company's relationship credit that declines every year.

Taxes

For the three months ended December 31, 2018, the Company recorded a $491,000 tax provision compared to $1,240,000 for the three months ended December 31, 2017. The effective tax rate decreased to 28.1% for the quarter ended December 31, 2018 compared to 82.0% for the quarter ended December 31, 2017. As a result of the passage of the Tax Cuts and Jobs Act on December 22, 2017, the federal tax rate for corporations was reduced to 21% during 2018. The decrease in tax provision and effective tax rate is primarily attributable to the revaluation of the Company's deferred tax asset as a result of the law change at December 31, 2017.

For the twelve months ended December 31, 2018 and December 31, 2017, the Company recorded a $1.8 million tax provision. The effective tax rate decreased to 27.2% for the twelve months ended December 31, 2018 compared to 39.4% for the twelve months ended December 31, 2017.  The decrease in the effective tax rate is due to the revaluation of the Company's deferred tax asset as a result of the law change at December 31, 2017.

Earnings Summary for Period Ended December 31, 2018

The following table presents condensed consolidated statements of income data for the periods indicated.

Statement of Condition Highlights at December 31, 2018

• Balance sheet growth, with total assets amounting to $584.5 million at December 31, 2018, an increase of $21.5 million, or 3.81%, compared to December 31, 2017.

• The Company’s total gross loans receivable were $508.0 million at December 31, 2018, an increase of $29.1 million, or 6.1%, from December 31, 2017.

• Securities held to maturity were $39.5 million at December 31, 2018, an increase of $1.0 million, or 2.6%, compared to December 31, 2017.

• Deposits decreased $28.3 million or 6.31%, totaling $420.6 million at December 31, 2018 compared to $448.9 million at December 31, 2017.

• Borrowings totaled $94.3 million at December 31, 2018, an increase of $56.6 million, or 150.2%, compared to $37.7 million at December 31, 2017.
  

The following table presents condensed consolidated statements of condition data as of the dates indicated.

Loans

At December 31, 2018, the Company’s net loan portfolio totaled $502.3 million, an increase of $28.9 million, or 6.1%, compared to $473.4 million at December 31, 2017.  The allowance for loan losses amounted to $5.7 million and $5.4 million at December 31, 2018 and December 31, 2017, respectively.

At December 31, 2018, the loan portfolio primarily consisted of commercial real estate loans (41.0%) and residential mortgages (32.3%). Commercial and industrial loans represented 20.9% of the portfolio while construction loans accounted for 5.7% of the portfolio. Total loans receivable increased $20.0 million to $519.1 million at December 31, 2018 compared to $499.2 million at December 31, 2017. The increase primarily reflects a $35.1 million increase in commercial and industrial loans and a $15.9 million increase in commercial real estate loans. These increases were partially offset by a $16.9 million decrease in residential mortgages as the Company continues to focus on commercial lending as well as a $14.1 million decrease in construction due to the completion of projects.

The following table shows the composition of the Company's loan portfolio as of the dates indicated.

Asset Quality

At December 31, 2018 and December 31, 2017, non-performing loans totaled $4.1 million, or 0.71% and 0.73% of total assets, respectively. Nonperforming loans remained relatively flat year over year as three new relationships were added, offset by the resolution of eight relationships throughout the year.  Total delinquent loans (including nonperforming delinquent loans) were $6.3 million at December 31, 2018, an increase of $900,000 from December 31, 2017 due to an increase in loans past due 30-59 days.  The allowance for loan losses as a percentage of total loans was 1.11% at December 31, 2018 and at December 31, 2017, respectively, while the allowance for loan losses as a percentage of non-performing loans increased to 136.83% at December 31, 2018 from 130.99% at December 31, 2017. Non-performing loans to total loans decreased to 0.81% at December 31, 2018 from 0.86% at December 31, 2017 primarily due to an increase in loan growth.

The following table presents the components of non-performing assets and other asset quality data for the periods indicated.

Deposits

Total deposits at December 31, 2018 decreased to $420.6 million from $448.9 million compared to year-end 2017.  Interest demand and money market balances declined $21.1 million and $11.2 million, respectively.  Interest demand deposit account balances declined to $134.1 million compared to $155.2 million the year prior while money market balances declined to $16.2 million compared to $27.4 million at the prior year-end.  In addition, certificates of deposit (including IRAs) and savings balances decreased $3.4 million and $2.4 million, respectively year over year.  Certificates of deposits declined to $120.9 million compared to $124.3 million while savings balances declined to $102.7 million from $105.1 million from prior year end.  Offsetting these decreases was an increase in non-interest demand balances of $9.8 million to $46.7 million at December 31, 2018 from $36.9 million from year end at December 31, 2017.

The following table shows the composition of the Company's deposits as of the dates indicated.

Capital

At December 31, 2018, the Company's total stockholders' equity amounted to $66.6 million, or 11.40% of total assets, compared to $73.0 million at December 31, 2017.  The Company’s book value per common share was $12.37 at December 31, 2018, compared to $12.66 at December 31, 2017. The decline in shareholders' equity was primarily due to the repurchase of 373,948 shares of common stock at a total cost of $6.7 million and the payment of two special dividends in the aggregate amount of $5.0 million, partially offset by net income of $4.8 million.

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 December 31, 2017, the Bank’s common equity tier 1 ratio was 11.98%, tier 1 leverage ratio was 10.72%, tier 1 capital ratio was 11.98% and the total capital ratio was 13.10%.  At December 31, 2018, Company and the Bank were 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.

CEO outlook:

"2018 was a challenging year for the Company due to intense competition for both loans and deposits in a rising interest rate environment," stated Michael Shriner, President and Chief Executive Officer.  Mr. Shriner added "However, I am very proud of our team for remaining focused on the bigger picture of growing the Company in a safe and sound manner, and still creating value for our shareholder through the combination of stock repurchases and the distribution of two special dividends."

Mr. Shriner further commented, “From the top down, we are committed to the overall improvement of the Company in 2019.  Our management team continues to seek ways to become more efficient, improve the overall risk profile of the Company, and to create even more value for our shareholders, customers, employees and the community."

Forward Looking Statement Disclaimer

The 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 and our continued ability to manage cybersecurity risks.