MSBF - MSB Financial Corp. Releases Third Quarter Earnings

MILLINGTON, N.J., Oct. 18, 2018 (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, 2018.

The Company reported net income of $1.3 million, or $0.24 per diluted common share, for the three months ended September 30, 2018, compared to net income of $1.2 million, or $0.21 per diluted common share, for the three months ended September 30, 2017. Net income for the nine months ended September 30, 2018 was $3.6 million, or $0.66 per diluted common share, compared to net income of $2.5 million, or 0.44 per diluted common share, for the nine months ended September 30, 2017.

Highlights for the quarter:

• Return on average assets was 0.92% for the three months ended September 30, 2018 compared to 0.90% for the three months ended September 30, 2017 and return on average equity was 7.56% for the three months ended September 30, 2018 compared to 6.31% for the three months ended September 30, 2017.
  
  
• Net interest margin increased 7 basis points to 3.44% for the quarter ended September 30, 2018 from 3.37% for the quarter ended September 30, 2017 due to the recognition of $280,000 in commercial prepayment penalties resulting from four large loan payoffs.
  
  
• The efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, improved to 61.96% for the quarter ended September 30, 2018 from 64.21% for the quarter ended September 30, 2017 driven by an increase in net interest income year over year.
  
  
• Non-performing assets represented 0.48% of total assets at September 30, 2018 compared with 0.73% at December 31, 2017. The allowance for loan losses as a percentage of total non-performing loans was 198.67% at September 30, 2018 compared to 130.99% at December 31, 2017.
  
  
• The Company’s balance sheet reflected total asset growth of $27.4 million at September 30, 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 increased to 27.8% for the quarter ended September 30, 2018 compared to (7.9)% for the quarter ended September 30, 2017 primarily due to a permanent tax deduction for the 2017 period due to non-qualified stock options that were exercised during the prior year quarter.
  
  

Net Interest Income

Total interest income for the three months ended September 30, 2018 increased $1.1 million, or 21.5%, to $6.2 million compared to $5.1 million for the third quarter of 2017. Interest income increased in the quarter ended September 30, 2018 compared to the comparable period in 2017, primarily due to a $52.7 million increase in average loan balances. In addition, $280,000 was recorded in interest income due to commercial prepayment penalties on four large loan payoffs. Total interest expense increased by $527,000, or 59.0%, to $1.4 million, for the three months ended September 30, 2018 compared to the same period in 2017 due to a combination of higher deposit rates and average deposit balances and an increase in the average balance of borrowings outstanding during the 2018 period.

Net interest income for the three months ended September 30, 2018 increased $565,000, or 13.5%, to $4.8 million compared to $4.2 million for the same three-month period in 2017. The change for the three months ended September 30, 2018 was primarily a result of an increase in average earning assets of $55.2 million. The annualized net interest spread was 3.23% and 3.19% for the three months ended September 30, 2018 and 2017, respectively. For the quarter ended September 30, 2018, the Company's annualized net interest margin increased to 3.44% compared to 3.37% for the corresponding three-month period in 2017.

Total interest income for the nine months ended September 30, 2018, increased $3.2 million, or 23.0%, to $17.3 million compared to $14.1 million for the nine months ended September 30, 2017 as average earning assets increased $76.0 million year over year. Total interest expense increased by $1.5 million, or 61.0%, to $3.9 million for the nine months ended September 30, 2018 compared to September 30, 2017 as average interest-bearing liabilities increased $81.9 million year over year and the average cost of such liabilities increased 27 basis points.

Net interest income grew $1.8 million, or 15.2%, to $13.5 million for the nine months ended September 30, 2018 compared to $11.7 million for the nine months ended September 30, 2017. Net interest spread and net interest margin for the nine months ended September 30, 2018, declined 4 and 3 basis points respectively, to 3.12% and 3.31% compared to 3.16% and 3.34% for the nine months ended September 30, 2017. Net interest income and net interest margin decreased as the Company's deposit pricing has become more competitive year over year.

Non-Interest Income and Non-Interest Expense

Non-interest income for the three months ended September 30, 2018 was $190,000, as compared to $205,000 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 $3.1 million for the quarter ended September 30, 2018 as compared to $2.8 million for the same period in 2017. The increase in non-interest expense was primarily related to professional service expense for the costs associated with our Sarbanes-Oxley implementation which requires additional reporting on internal control over the financial reporting of the Company. Previously, the Company was not subject to these requirements as its public float was below the applicable  threshold.

Non-interest income for the nine months ended September 30, 2018 was $602,000, as compared to $611,000 for the same period in 2017.  Non-interest expense, totaled $9.0 million for the nine months ended September 30, 2018 as compared to $8.4 million for the same period in 2017 with the $593,000 increase primarily attributable to salaries and employee benefits as a result of merit and infrastructure increases. In addition, professional services expense increased as a result of costs associated with our SOX implementation offset by a decrease in director's compensation due to the termination of the director retirement plan last year.

Taxes

For the three months ended September 30, 2018, the Company recorded a $506,000 tax provision compared to a benefit of $86,000 for the three months ended September 30, 2017. The effective tax rate increased to 27.8% for the quarter ended September 30, 2018 compared to (7.9)% for the quarter ended September 30, 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 increase in tax provision is attributable to an increase in pre-tax income offset by a decrease in the applicable tax rate. The increase in the effective tax rate is due to a permanent tax deduction that was taken in the 2017 period due to non-qualified options that were exercised during the 2017 period.

For the nine months ended September 30, 2018, the Company recorded a $1,320,000 tax provision compared to a provision of $528,000 for the nine months ended September 30, 2017. The effective tax rate increased to 26.9% for the nine months ended September 30, 2018 compared to 17.7% for the nine months ended September 30, 2017. The increase in tax provision is attributable to an increase in pre-tax income offset by a decrease in the applicable tax rate. The increase in the effective tax rate is due to a permanent tax deduction that was taken in the 2017 period due to non-qualified options that were exercised during the 2017 period.

Earnings Summary for Period Ended September 30, 2018

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

Statement of Condition Highlights at September 30, 2018

• Balance sheet growth, with total assets amounting to $590.4 million at September 30, 2018, an increase of $27.4 million, or 4.86%, compared to December 31, 2017.
  
  
• The Company’s total gross loans receivable were $500.5 million at September 30, 2018, an increase of $21.7 million, or 4.5%, from December 31, 2017.
  
  
• Securities held to maturity were $43.0 million at September 30, 2018, an increase of $4.5 million, or 11.8%, compared to December 31, 2017.
  
  
• Deposits decreased $11.3 million totaling $437.6 million at September 30, 2018 compared to $448.9 million at December 31, 2017.
  
  
• Borrowings totaled $80.1 million at September 30, 2018, an increase of $42.4 million, or 112.5%, 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 September 30, 2018, the Company’s net loan portfolio totaled $494.8 million, an increase of $21.4 million, or 4.5%, compared to $473.4 million at December 31, 2017. The allowance for loan losses amounted to $5.7 million and $5.4 million at September 30, 2018 and December 31, 2017, respectively.

At September 30, 2018, the loan portfolio primarily consisted of commercial real estate loans (40.8%) and residential mortgages (33.6%). Commercial and industrial loans represented 19.8% of the portfolio while construction loans accounted for 5.6% of the portfolio. Total loans receivable increased $14.0 million to $513.1 million at September 30, 2018 compared to $499.2 million at December 31, 2017. The increase primarily reflects a $28.4 million increase in commercial and industrial loans and a $12.6 million increase in commercial real estate loans. These increases were partially offset by a $12.1 million decrease in residential mortgages  as the Company continues to focus on commercial lending as well as a $14.9 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 September 30, 2018, non-performing loans totaled $2.8 million, or 0.48% of total assets, compared with $4.1 million, or 0.73% of total assets, at December 31, 2017. Of the fifteen loans classified as non-performing, only two are currently in the foreclosure process. All other loans are chronic slow payers that continue to make payments, but are unable to maintain a current status for six consecutive months. Total delinquent loans (including nonperforming delinquent loans) were $6.6 million at September 30, 2018, an increase of $1.2 million 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 1.13% at September 30, 2018 and at December 31, 2017, respectively, while the allowance for loan losses as a percentage of non-performing loans increased to 198.67% at September 30, 2018 from 130.99% at December 31, 2017. Non-performing loans to total loans decreased to 0.57% at September 30, 2018 from 0.86% at December 31, 2017 primarily due to loans previously on non-accrual moving to an accrual status due to at least six consecutive months of performance.

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

Deposits

Total deposits at September 30, 2018 were $437.6 million compared with $448.9 million at December 31, 2017.  Overall, deposits decreased $11.3 million. Money market and interest demand balances declined $14.6 million and $5.0 million, respectively. Money market balances declined to $12.8 million compared to $27.4 million while interest demand balances declined to $150.2 million compared to $155.2 million from the prior year end. In addition, savings balances decreased $2.7 million to $102.4 million from $105.1 million from year end. Offsetting the decreases were increases in non-interest demand and certificates of deposit (including IRA) balances of $8.6 million and $2.3 million, respectively. Non-interest demand balances increased to $45.5 million from $36.9 million from year end while certificates of deposit balances increased to $126.6 million compared to $124.3 million from year end.

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

Capital

At September 30, 2018, the Company's total stockholders' equity amounted to $70.0 million, or 11.86% of total assets, compared to $73.0 million at December 31, 2017. The Company’s book value per common share was $12.70 at September 30, 2018, compared to $12.66 at December 31, 2017. The decline in shareholders' equity was primarily due to the repurchase of 249,837 shares of common stock for a total of $4.5 million and the payment of a special dividend in the aggregate amount of $2.5 million, partially offset by net income of $3.6 million.

At September 30, 2018, the Bank’s common equity tier 1 ratio was 11.72%, tier 1 leverage ratio was 10.50%, tier 1 capital ratio was 11.72% and the total capital ratio was 12.83%. 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 September 30, 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:

“I’m very pleased with our third quarter results.  Our staff remains focused on improving asset quality and strengthening our origination process.  As a result, the Company experienced a lower loan loss provision and increased interest income from loan prepayment penalties associated with several payoffs,” stated Michael Shriner, President and Chief Executive Officer.

Mr. Shriner further commented, “The Company is committed to originating safe and sound loans at competitive terms and interest rates.  The Company will not chase rates and terms, or lower underwriting standards during this period of intense competition for loans.”

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.