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MSB Financial Corp. Releases First Quarter Earnings

MILLINGTON, N.J., April 30, 2019 (GLOBE NEWSWIRE) -- MSB Financial Corp. (MSBF) (the “Company”), parent company of Millington Bank, reported today the results of its operations for the three months ended March 31, 2019.

The Company reported net income of $514,000, or $0.10 per diluted common share, for the three months ended March 31, 2019, compared to net income of $1,022,000, or $0.19 per diluted common share, for the three months ended March 31, 2018.  The reduction in the current period was due to an $862,000 increase in 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 would have been $1.1 million or $0.21 per diluted share.

Michael A. Shriner, President and Chief Executive Officer, stated "We believe we have addressed the weaknesses and will continue to closely monitor compliance with the new procedures we have established.  We are very hopeful that, going forward, the expense associated with the audits of our financial statements and internal control over financial reporting will be reduced."

Mr Shriner commented, "While many of these procedures are more common in larger, more complex institutions, I believe the Company as a whole, and consequently shareholders, will more than benefit in the long run from the comprehensive review of our loans and deposits, as well as the efficiencies we will pick up from the implementation of these enhancements to our internal controls.  Apart from this expense, I was pleased with our quarterly results.  Net income, adjusted for the additional expense, would have been $1.1 million, or $0.21 per diluted share, as compared to $1.0 million, or $0.19 per diluted share, for the first quarter of 2018. Asset quality continues to improve as well."

Highlights for the quarter:

  • Return on average assets was 0.36% for the three months ended March 31, 2019 compared to 0.74% for the three months ended March 31, 2018 and return on average equity was 3.05% for the three months ended March 31, 2019 compared to 5.65% for the three months ended March 31, 2018.

  • Net interest margin decreased five basis points to 3.19% for the quarter ended March 31, 2019 from 3.24% for the quarter ended March 31, 2018.

  • The efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, was 83.83% for the quarter ended March 31, 2019 as compared to 66.29% for the quarter ended March 31, 2018.

  • Non-performing assets represented 0.68% of total assets at March 31, 2019 compared with 0.71% at December 31, 2018. The allowance for loan losses as a percentage of total non-performing loans was 147.38% at March 31, 2019 compared to 136.83% at December 31, 2018.

  • The Company’s balance sheet at March 31, 2019 reflected a decline in total assets of $16.4 million compared to December 31, 2018, improved asset quality, and capital levels that exceeded regulatory standards for a well-capitalized institution.

  • The effective tax rate increased to 31.1% for the quarter ended March 31, 2019 compared to 28.5% for the quarter ended March 31, 2018.
Selected Financial Ratios                    
(unaudited; annualized where applicable)                    
                     
As of or for the quarter ended:     3/31/2019       12/31/2018       9/30/2018       6/30/2018       3/31/2018  
Return on average assets   0.36 %   0.87 %   0.92 %   0.87 %   0.74 %
Return on average equity   3.05 %   7.20 %   7.56 %   7.17 %   5.65 %
Net interest margin   3.19 %   3.22 %   3.44 %   3.24 %   3.24 %
Net loans / deposit ratio   113.10 %   119.43 %   113.08 %   113.64 %   110.85 %
Shareholders' equity / total assets   11.77 %   11.40 %   11.86 %   11.39 %   12.37 %
Efficiency ratio   83.83 %   62.51 %   61.96 %   62.49 %   66.29 %
Book value per common share   $ 12.46     $ 12.37     $ 12.70     $ 12.43     $ 12.63  
                                         

Net Interest Income

Total interest income for the three months ended March 31, 2019 increased $679,000, or 12.5%, to $6.1 million compared to $5.4 million for the first quarter of 2018. Interest income increased in the quarter ended March 31, 2019 compared to the comparable period in 2018, primarily due to a $18.9 million increase in average loan balances. Total interest expense increased by $558,000, or 49.5%, to $1.7 million, for the three months ended March 31, 2019 compared to the same period in 2018 due to a combination of higher deposit rates and an increase in the average balance of borrowings outstanding during the 2019 period.

Net interest income for the three months ended March 31, 2019 increased $121,000, or 2.8%, to $4.4 million compared to $4.3 million for the same three-month period in 2018. The change for the three months ended March 31, 2019 was primarily a result of an increase in average earning assets of $23.8 million partially offset by decreasing margin. The annualized net interest spread was 2.94% and 3.07% for the three months ended March 31, 2019 and 2018, respectively. For the quarter ended March 31, 2019, the Company's annualized net interest margin decreased to 3.19% compared to 3.24% for the corresponding three-month period in 2018.

Provision for Loan Losses

The loan loss provision for the three months ended March 31, 2019 was zero compared to $90,000 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 Expense

Non-interest income for the three months ended March 31, 2019 was $190,000, as compared to $204,000 for the same period in 2018 primarily due to a decrease in fees and service charges.  Non-interest expense, which consists of salaries and employee benefits, occupancy expense, professional services and other non-interest expenses totaled $3.9 million for the quarter ended March 31, 2019 as compared to $3.0 million for the same period in 2018. The increase in non-interest expense was primarily related to an increase professional service expense. As the Company previously disclosed, in connection with the audit, management and outside auditors identified certain material weaknesses in internal control.

Taxes

For the three months ended March 31, 2019, the Company recorded a $232,000 tax provision compared to $407,000 for the three months ended March 31, 2018. The effective tax rate increased to 31.1% for the quarter ended March 31, 2019 compared to 28.5% for the quarter ended March 31, 2018.

Quarterly Earnings Summary

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

Condensed Consolidated Statements of Income (unaudited)

(dollars in thousands, except for per share data)

For the quarter ended:   3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Net interest income   $ 4,423   $ 4,459   $ 4,755   $ 4,431   $ 4,302
Provision for loan losses       60   90   90
Net interest income after provision for loan losses   4,423   4,459   4,695   4,341   4,212
Other income   190   198   190   208   204
Other expense   3,867   2,911   3,064   2,899   2,987
Income before income taxes   746   1,746   1,821   1,650   1,429
Income taxes (benefit)   232   491   506   407   407
Net income   $ 514   $ 1,255   $ 1,315   $ 1,243   $ 1,022
Earnings per common share:                    
Basic   $ 0.10   $ 0.24   $ 0.25   $ 0.23   $ 0.19
Diluted   $ 0.10   $ 0.24   $ 0.24   $ 0.23   $ 0.19
Weighted average common shares outstanding:                    
Basic   5,198,432   5,276,116   5,330,029   5,331,090   5,470,349
Diluted   5,237,329   5,317,305   5,388,577   5,375,090   5,507,443
                     

Statement of Condition Highlights at March 31, 2019

  • Total assets amounting to $568.1 million at March 31, 2019, a decrease of $16.4 million, or 2.81%, compared to December 31, 2018.

  • The Company’s total gross loans receivable were $495.1 million at March 31, 2019, a decrease of $12.9 million, or 2.5%, from December 31, 2018.

  • Securities held to maturity were $37.0 million at March 31, 2019, a decrease of $2.5 million, or 6.3%, compared to December 31, 2018.

  • Deposits increased $12.2 million or 2.89%, to $432.8 million at March 31, 2019 compared to $420.6 million at December 31, 2018.

  • Borrowings totaled $64.3 million at March 31, 2019, a decrease of $30.0 million, or 31.8%, compared to $94.3 million at December 31, 2018.

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

Condensed Consolidated Statements of Condition (unaudited)

(in thousands)

At:   3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Cash and due from banks   $ 1,040   $ 1,558   $ 1,254   $ 1,654   $ 1,871
Interest-earning demand deposits with banks   9,771   10,242   20,817   14,660   15,484
Securities held to maturity   36,982   39,476   43,009   44,770   36,375
Loans receivable, net of allowance   489,445   502,299   494,848   509,689   480,916
Premises and equipment   9,221   8,180   8,323   8,461   8,580
Federal home Loan Bank of New York stock, at cost   3,406   4,756   4,117   4,212   3,049
Bank owned life insurance   14,679   14,585   14,489   14,392   14,294
Accrued interest receivable   1,772   1,615   1,734   1,754   1,642
Other assets   1,777   1,789   1,803   1,657   1,816
Total assets   $ 568,093   $ 584,500   $ 590,394   $ 601,249   $ 564,027
Deposits   $ 432,754   $ 420,579   $ 437,597   $ 448,512   $ 433,843
Borrowings   64,275   94,275   80,075   82,175   58,075
Other liabilities   4,172   3,000   2,714   2,056   2,350
Shareholders' equity   66,892   66,646   70,008   68,506   69,759
Total liabilities and shareholders' equity   $ 568,093   $ 584,500   $ 590,394   $ 601,249   $ 564,027
                               

Loans

At March 31, 2019, the Company’s net loan portfolio totaled $489.4 million, a decrease of $12.9 million, or 2.6%, compared to $502.3 million at December 31, 2018.  The allowance for loan losses amounted to $5.7 million at March 31, 2019 and December 31, 2018.

At March 31, 2019, the loan portfolio primarily consisted of commercial real estate loans (40.3%) and residential mortgages (32.2%). Commercial and industrial loans represented 20.2% of the portfolio while construction loans accounted for 7.3% of the portfolio. Total gross loans receivable decreased $6.0 million to $513.1 million at March 31, 2019 compared to $519.1 million at December 31, 2018. The decrease primarily reflects a $10.8 million decrease in commercial and industrial - secured loans and a $6.0 million decrease in commercial real estate loans. Additionally there was a $2.6 million decrease in residential mortgages as the Company continues to focus on commercial lending.  Offsetting these decreases was an increase in the construction loan portfolio of $7.7 million compared to December 31, 2018.

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

Loans (unaudited)

(dollars in thousands)

At quarter ended:   3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Residential mortgage:                    
One-to-four family   $ 140,043   $ 143,391   $ 147,127   $ 151,372   $ 154,576
Home equity   25,160   24,365   25,494   26,174   27,051
Total residential mortgage   165,203   167,756   172,621   177,546   181,627
Commercial and multi-family real estate   206,653   212,606   209,283   214,653   195,951
Construction   37,319   29,628   28,788   48,423   49,397
Commercial and industrial - Secured   49,640   60,426   56,331   52,879   48,662
Commercial and industrial - Unsecured   53,791   48,176   45,518   41,261   34,050
Total commercial loans   347,403   350,836   339,920   357,216   328,060
Consumer loans   470   540   580   608   595
Total loans receivable   513,076   519,132   513,121   535,370   510,282
Less:                    
Loans in process   17,443   10,677   12,142   19,594   23,398
Deferred loan fees   530   501   475   491   462
Allowance   5,658   5,655   5,656   5,596   5,506
Total loans receivable, net   $ 489,445   $ 502,299   $ 494,848   $ 509,689   $ 480,916
                               

Asset Quality

At March 31, 2019 and December 31, 2018 non-performing loans totaled $3.8 million and $4.1 million, or 0.68% and 0.71% of total assets, respectively.  Nonperforming loans decreased slightly since year end as one relationship was resolved in the quarter.  Total delinquent loans (including nonperforming delinquent loans) were $5.8 million at March 31, 2019, a decrease of $476,000 from December 31, 2018 due to a decrease in loans past due 90 days or more.  The allowance for loan losses as a percentage of total loans was 1.14% and 1.11% at March 31, 2019 and at December 31, 2018, respectively, while the allowance for loan losses as a percentage of non-performing loans increased to 147.38% at March 31, 2019 from 136.83% at December 31, 2018. Non-performing loans to total loans decreased to 0.78% at March 31, 2019 from 0.81% at December 31, 2018 primarily due to a decrease in nonperforming loans.

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

(dollars in thousands, unaudited)

As of or for the quarter ended:     3/31/2019       12/31/2018       9/30/2018       6/30/2018       3/31/2018  
Non-accrual loans   $ 3,839     $ 4,131     $ 2,746     $ 3,430     $ 3,548  
Loans 90 days or more past due and still accruing       2     101     699     1,266  
Total non-performing loans   $ 3,839     $ 4,133     $ 2,847     $ 4,129     $ 4,814  
                     
Non-performing assets / total assets   0.68 %   0.71 %   0.48 %   0.69 %   0.85 %
Non-performing loans / total loans   0.78 %   0.81 %   0.57 %   0.8 %   0.99 %
Net charge-offs (recoveries)   $ (3 )   $     $     $     $ (2 )
Net charge-offs (recoveries) / average loans (annualized)   %   %   %   %   %
Allowance for loan loss / total loans   1.14 %   1.11 %   1.13 %   1.09 %   1.13 %
Allowance for loan losses / non-performing loans   147.38 %   136.83 %   198.67 %   135.53 %   114.37 %
                     
Total assets   $ 568,093     $ 584,500     $ 590,394     $ 601,249     $ 564,027  
Gross loans, excluding ALLL   $ 495,103     $ 507,954     $ 500,504     $ 515,285     $ 486,422  
Average loans   $ 502,149     $ 499,368     $ 499,082     $ 500,959     $ 483,255  
Allowance for loan losses   $ 5,658     $ 5,655     $ 5,656     $ 5,596     $ 5,506  
                                         

Deposits

Total deposits at March 31, 2019 increased to $432.8 million from $420.6 million compared to year-end 2018.  Certificates of deposits (including IRAs) and non-interest demand balances increased $18.7 million and $2.7 million, respectively.  Certificates of deposits increased to $139.6 million compared to $120.9 million at year end while non-interest demand deposit account balances increased to $49.4 million compared to $46.7 million.  Additionally, money market balances increased $1.0 million to $17.2 million compared to $16.2 million at year-end 2018.  Offsetting these increases was a decline in interest demand deposit account balances of $10.7 million to $123.4 million at March 31, 2019 from $134.1 million from year end at December 31, 2018.

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

Deposits (unaudited)

(dollars in thousands)

At quarter ended:   3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Demand:                    
Non-interest bearing   $ 49,429   $ 46,690   $ 45,501   $ 42,687   $ 36,751
Interest-bearing   123,420   134,123   150,248   153,968   148,888
Savings   103,109   102,740   102,434   109,254   109,215
Money market   17,182   16,171   12,822   14,381   20,251
Time   139,614   120,855   126,592   128,222   118,738
Total deposits   $ 432,754   $ 420,579   $ 437,597   $ 448,512   $ 433,843
                               

Capital

At March 31, 2019, the Company's total stockholders' equity amounted to $66.9 million, or 11.77% of total assets, compared to $66.6 million at December 31, 2018.  The Company’s book value per common share was $12.46 at March 31, 2019, compared to $12.37 at December 31, 2018. The increase in shareholders' equity was primarily due to net income of $514,000, offset by the repurchase of 22,200 shares common stock during the quarter at a total cost of $398,000, with the remaining difference related to ESOP, restricted stock and stock option accounting activity.

At March 31, 2019, the Bank’s common equity tier 1 ratio was 12.25%, tier 1 leverage ratio was 10.86%, tier 1 capital ratio was 12.25% and the total capital ratio was 13.38%. 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 March 31, 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.

Condensed Consolidated Average Statements of Condition (unaudited)

(dollars in thousands)

For the quarter ended:     3/31/2019       12/31/2018       9/30/2018       6/30/2018       3/31/2018  
Loans   $ 502,149     $ 499,368     $ 499,082     $ 500,959     $ 483,255  
Securities held to maturity   37,899     41,460     43,871     36,494     37,661  
Allowance for loan losses   (5,656 )   (5,686 )   (5,624 )   (5,538 )   (5,461 )
All other assets   42,778     41,211     37,466     38,053     38,851  
Total assets   $ 577,170     $ 576,353     $ 574,795     $ 569,968     $ 554,306  
Non-interest bearing deposits   $ 46,962     $ 48,172     $ 43,495     $ 38,903     $ 36,211  
Interest-bearing deposits   367,434     372,474     386,364     385,047     390,522  
Borrowings   92,780     83,440     73,077     74,192     53,191  
Other liabilities   2,623     2,585     2,320     2,495     1,972  
Stockholders' Equity   67,371     69,682     69,539     69,331     72,410  
Total liabilities and shareholders' equity   $ 577,170     $ 576,353     $ 574,795     $ 569,968     $ 554,306  
                                         

Non-GAAP Financial Measures

This 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 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:

  Three months ended March 31,
  2019   2018
(dollars in thousands)      
Net income $ 514     $ 1,022  
Professional expenses associated with increased audit scope and identification of material weaknesses 862      
Tax adjustment using an assumed tax rate of 31% (267 )    
Adjusted net income $ 1,109     $ 1,022  
               


  Three Months Ended
  March 31,
(In Thousands, Except Per Share Data) 2019   2018
Numerator:      
Net income $ 1,109     $ 1,022  
       
Denominator:      
Weighted average common shares 5,198     5,470  
Dilutive potential common shares 39     37  
Weighted average fully diluted shares 5,237     5,507  
       
Earnings per share:      
Dilutive $ 0.21     $ 0.19  
               

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, our continued ability to manage cybersecurity risks and our continued ability to successfully remediate our identified internal control weaknesses.

  Michael A. Shriner, President & CEO
Contact: (908) 647-4000
  mshriner@millingtonbank.com
   


     
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Financial Condition
  At At
  March 31,  December 31, 
  2019 2018
(Dollars in thousands, except per share amounts)    
Cash and due from banks $ 1,040   $ 1,558  
Interest-earning demand deposits with banks 9,771   10,242  
Cash and Cash Equivalents 10,811   11,800  
Securities held to maturity (fair value of $36,444 and $38,569, respectively) 36,982   39,476  
Loans receivable, net of allowance for loan losses of $5,658 and $5,655, respectively 489,445   502,299  
Premises and equipment 8,088   8,180  
Federal Home Loan Bank of New York stock, at cost 3,406   4,756  
Bank owned life insurance 14,679   14,585  
Accrued interest receivable 1,772   1,615  
Other assets 2,910   1,789  
Total Assets $ 568,093   $ 584,500  
Liabilities and Stockholders' Equity    
Liabilities    
Deposits:    
Non-interest bearing $ 49,429   $ 46,690  
Interest bearing 383,325   373,889  
Total Deposits 432,754   420,579  
Advances from Federal Home Loan Bank of New York 64,275   94,275  
Advance payments by borrowers for taxes and insurance 719   749  
Other liabilities 3,453   2,251  
Total Liabilities 501,201   517,854  
Stockholders' Equity    
Preferred stock, par value $0.01; 1,000,000 shares authorized; no shares issued or outstanding    
Common stock, par value $0.01; 49,000,000 shares authorized; 5,366,854 and 5,389,054 issued and outstanding at March 31, 2019 and December 31, 2018, respectively 54   54  
Paid-in capital 44,431   44,726  
Retained earnings 24,012   23,498  
Unearned common stock held by ESOP (176,740 and 179,464 shares, respectively) (1,605 ) (1,632  
Total Stockholders' Equity 66,892   66,646  
Total Liabilities and Stockholders' Equity $ 568,093   $ 584,500  
             
             


       
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Income
  Three months ended March 31,
  2019   2018
(in thousands except per share amounts)      
Interest Income      
Loans receivable, including fees $ 5,691     $ 5,136  
Securities held to maturity 285     219  
Other 132     74  
Total Interest Income 6,108     5,429  
Interest Expense      
Deposits 1,126     846  
Borrowings 559     281  
Total Interest Expense 1,685     1,127  
Net Interest Income 4,423     4,302  
Provision for Loan Losses     90  
Net Interest Income after Provision for Loan Losses 4,423     4,212  
Non-Interest Income      
Fees and service charges 72     83  
Income from bank owned life insurance 94     97  
Other 24     24  
Total Non-Interest Income 190     204  
Non-Interest Expenses      
Salaries and employee benefits 1,728     1,805  
Directors compensation 129     122  
Occupancy and equipment 375     386  
Service bureau fees 95     66  
Advertising 7     4  
FDIC assessment 46     54  
Professional services 1,278     353  
Other 209     197  
Total Non-Interest Expenses 3,867     2,987  
Income before Income Taxes 746     1,429  
Income Tax Expense 232     407  
Net Income $ 514     $ 1,022  
Earnings per share:      
Basic $ 0.10     $ 0.19  
Diluted $ 0.10     $ 0.19  
       
 


           
MSB Financial Corp. and Subsidiaries    
           
Selected Quarterly Financial and Statistical Data          
  Three Months Ended
(in thousands, except for share and per share data) (annualized where applicable) 3/31/2019   12/31/2018   3/31/2018
(unaudited)          
Statements of Operations Data          
           
Interest income $ 6,108     $ 6,003     $ 5,429  
Interest expense 1,685     1,544     1,127  
Net interest income 4,423     4,459     4,302  
Provision for loan losses         90  
Net interest income after provision for loan losses 4,423     4,459     4,212  
Other income 190     198     204  
Other expense 3,867     2,911     2,987  
Income before income taxes 746     1,746     1,429  
Income tax expense (benefit) 232     491     407  
Net Income $ 514     $ 1,255     $ 1,022  
Earnings (per Common Share)          
Basic $ 0.10     $ 0.24     $ 0.19  
Diluted $ 0.10     $ 0.24     $ 0.19  
Statements of Condition Data (Period-End)          
Investment securities held to maturity (fair value of $36,444, $38,569, and $35,561) $ 36,982     $ 39,476     $ 36,375  
Loans receivable, net of allowance for loan losses 489,445     502,299     480,916  
Total assets 568,093     584,500     564,027  
Deposits 432,754     420,579     433,843  
Borrowings 64,275     94,275     58,075  
Stockholders' equity 66,892     66,646     69,759  
Common Shares Dividend Data          
Cash dividends $     $ 2,522     $  
Weighted Average Common Shares Outstanding          
Basic 5,198,432     5,276,116     5,470,349  
Diluted 5,237,329     5,317,305     5,507,443  
Operating Ratios          
Return on average assets 0.36 %   0.87 %   0.74 %
Return on average equity 3.05 %   7.20 %   5.65 %
Average equity / average assets 11.67 %   12.09 %   13.06 %
Book value per common share (period-end) $ 12.46     $ 12.37     $ 12.63