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.

Selected Financial Ratios

          
(unaudited; annualized where applicable)          
           
As of or for the quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Return on average assets 0.92% 0.87% 0.74% 0.20% 0.90%
Return on average equity 7.56% 7.17% 5.65% 1.48% 6.31%
Net interest margin 3.44% 3.24% 3.24% 3.30% 3.37%
Net loans / deposit ratio 113.08% 113.64% 110.85% 105.46% 116.04%
Shareholders' equity / total assets 11.86% 11.39% 12.37% 12.97% 13.39%
Efficiency ratio 61.96% 62.49% 66.29% 62.26% 64.21%
Book value per common share $12.70  $12.43  $12.63  $12.66  $12.57 


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.

Condensed Consolidated Statements of Income (unaudited)      
           
(dollars in thousands, except for per share data)
 		          
For the quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Net interest income $4,755  $4,431  $4,302  $4,325  $4,190 
Provision for loan losses 60  90  90  200  490 
Net interest income after provision for loan losses 4,695  4,341  4,212  4,125  3,700 
Other income 190  208  204  211  205 
Other expense 3,064  2,899  2,987  2,824  2,822 
Income before income taxes 1,821  1,650  1,429  1,512  1,083 
Income taxes (benefit) 506  407  407  1,240  (86)
Net income $1,315  $1,243  $1,022  $272  $1,169 
Earnings per common share:          
    Basic $0.25  $0.23  $0.19  $0.05  $0.21 
    Diluted $0.24  $0.23  $0.19  $0.05  $0.21 
Weighted average common shares outstanding:          
    Basic 5,330,029  5,331,090  5,470,349  5,577,314  5,563,938 
    Diluted 5,388,577  5,375,090  5,507,443  5,588,598  5,574,535 


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.

Condensed Consolidated Statements of Condition (unaudited)      
           
(in thousands)
 		          
At: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Cash and due from banks $1,254  $1,654  $1,871  $2,030  $1,800 
Interest-earning demand deposits with banks 20,817  14,660  15,484  20,279  6,971 
Securities held to maturity 43,009  44,770  36,375  38,482  40,752 
Loans receivable, net of allowance 494,848  509,689  480,916  473,405  461,285 
Premises and equipment 8,323  8,461  8,580  8,698  8,804 
Federal home Loan Bank of New York stock, at cost 4,117  4,212  3,049  2,131  3,512 
Bank owned life insurance 14,489  14,392  14,294  14,197  14,097 
Accrued interest receivable 1,734  1,754  1,642  1,607  1,548 
Other assets 1,803  1,657  1,816  2,211  2,988 
    Total assets $590,394  $601,249  $564,027  $563,040  $541,757 
Deposits $437,597  $448,512  $433,843  $448,913  $397,510 
Borrowings 80,075  82,175  58,075  37,675  68,375 
Other liabilities 2,714  2,056  2,350  3,427  3,332 
Shareholders' equity 70,008  68,506  69,759  73,025  72,540 
    Total liabilities and shareholders' equity $590,394  $601,249  $564,027  $563,040  $541,757 


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.

Loans (unaudited)          
           
(dollars in thousands)
 		          
At quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Residential mortgage:         
    One-to-four family $147,127  $151,372  $154,576  $157,876  $161,679 
    Home equity 25,494  26,174  27,051  26,803  27,409 
Total residential mortgage 172,621  177,546  181,627  184,679  189,088 
Commercial and multi-family real estate 209,283  214,653  195,951  196,681  184,791 
Construction 28,788  48,423  49,397  43,718  36,002 
Commercial and industrial 101,849  94,140  82,712  73,465  73,409 
Total commercial loans 339,920  357,216  328,060  313,864  294,202 
Consumer loans 580  608  595  618  659 
Total loans receivable 513,121  535,370  510,282  499,161  483,949 
Less:          
    Loans in process 12,142  19,594  23,398  19,868  16,864 
    Deferred loan fees 475  491  462  474  525 
    Allowance 5,656  5,596  5,506  5,414  5,275 
Total loans receivable, net $494,848  $509,689  $480,916  $473,405  $461,285 


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.

           
(dollars in thousands, unaudited)
 		          
As of or for the quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Non-accrual loans $2,746  $3,430  $3,548  $3,975  $4,071 
Loans 90 days or more past due and still accruing 101  699  1,266  158  374 
    Total non-performing loans $2,847  $4,129  $4,814  $4,133  $4,445 
           
Non-performing assets / total assets 0.48% 0.69% 0.85% 0.73% 0.82%
Non-performing loans / total loans 0.57% 0.80% 0.99% 0.86% 0.95%
Net charge-offs (recoveries) $—  $—  $(2) $61  $140 
Net charge-offs (recoveries) / average loans (annualized) —% —% —% 0.05% 0.13%
Allowance for loan loss / total loans 1.13% 1.09% 1.13% 1.13% 1.13%
Allowance for loan losses / non-performing loans 198.67% 135.53% 114.37% 130.99% 118.67%
           
Total assets $590,394  $601,249  $564,027  $563,040  $541,757 
Gross loans, excluding ALLL $500,504  $515,285  $486,422  $478,819  $466,560 
Average loans $499,082  $500,959  $483,255  $472,388  $446,383 
Allowance for loan losses $5,656  $5,596  $5,506  $5,414  $5,275 


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.

Deposits (unaudited)          
           
(dollars in thousands)
 		          
At quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Demand:                    
    Non-interest bearing $45,501  $42,687  $36,751  $36,919  $40,504 
    Interest-bearing 150,248  153,968  148,888  155,199  107,419 
Savings 102,434  109,254  109,215  105,106  108,249 
Money market 12,822  14,381  20,251  27,350  16,517 
Time 126,592  128,222  118,738  124,339  124,821 
    Total deposits $437,597  $448,512  $433,843  $448,913  $397,510 


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.

Condensed Consolidated Average Statements of Condition (unaudited)    
           
(dollars in thousands)          
For the quarter ended: 9/30/2018
  6/30/2018
  3/31/2018
  12/31/2017
  9/30/2017
 
Loans $499,082  $500,959  $483,255  $472,388  $446,383 
Securities held to maturity 43,871  36,494  37,661  39,899  41,423 
Allowance for loan losses (5,624) (5,538) (5,461) (5,376) (4,922)
All other assets 37,466  38,053  38,851  41,886  38,545 
    Total assets $574,795  $569,968  $554,306  $548,797  $521,429 
Non-interest bearing deposits $43,495  $38,903  $36,211  $43,336  $44,970 
Interest-bearing deposits 386,364  385,047  390,522  375,098  350,589 
Borrowings 73,077  74,192  53,191  53,844  47,788 
Other liabilities 2,320  2,495  1,972  3,104  3,964 
Stockholders' Equity 69,539  69,331  72,410  73,415  74,118 
    Total liabilities and shareholders' equity $574,795  $569,968  $554,306  $548,797  $521,429 
           


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.

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


   
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Financial Condition
 At
September 30,
2018		At
December 31,
2017
(Dollars in thousands, except per share amounts)
Cash and due from banks$1,254 $2,030 
Interest-earning demand deposits with banks20,817 20,279 
  Cash and Cash Equivalents22,071 22,309 
Securities held to maturity (fair value of $41,765 and $38,255, respectively)43,009 38,482 
Loans receivable, net of allowance for loan losses of $5,656 and $5,414, respectively494,848 473,405 
Premises and equipment8,323 8,698 
Federal Home Loan Bank of New York stock, at cost4,117 2,131 
Bank owned life insurance14,489 14,197 
Accrued interest receivable1,734 1,607 
Other assets1,803 2,211 
Total Assets$590,394 $563,040 
  Liabilities and Stockholders' Equity  
Liabilities  
Deposits:  
Non-interest bearing$45,501 $36,919 
Interest bearing392,096 411,994 
Total Deposits437,597 448,913 
Advances from Federal Home Loan Bank of New York80,075 37,675 
Advance payments by borrowers for taxes and insurance704 686 
Other liabilities2,010 2,741 
Total Liabilities520,386 490,015 
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; 5,513,165 and 5,768,632 issued and
outstanding at September 30, 2018 and December 31, 2017, respectively		55 58 
Paid-in capital46,848 51,068 
Retained earnings24,765 23,641 
Unearned common stock held by ESOP (182,218 and 190,390 shares, respectively)(1,660)(1,742)
Total Stockholders' Equity70,008 73,025 
  Total Liabilities and Stockholders' Equity$590,394 $563,040 
   


         
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Income
  Three months ended
September 30,		 Nine months ended
September 30,
  2018 2017 2018 2017
(in thousands except per share amounts)        
Interest Income        
Loans receivable, including fees $5,788  $4,769  $16,360  $13,213 
Securities held to maturity 304  264  763  762 
Other 83  50  219  128 
Total Interest Income 6,175  5,083  17,342  14,103 
Interest Expense        
Deposits 1,014  622  2,795  1,703 
Borrowings 406  271  1,059  691 
Total Interest Expense 1,420  893  3,854  2,394 
Net Interest Income 4,755  4,190  13,488  11,709 
Provision for Loan Losses 60  490  240  985 
Net Interest Income after Provision for Loan Losses 4,695  3,700  13,248  10,724 
Non-Interest Income        
Fees and service charges 78  87  252  256 
Income from bank owned life insurance 97  101  292  313 
Other 15  17  58  42 
Total Non-Interest Income 190  205  602  611 
Non-Interest Expenses        
Salaries and employee benefits 1,625  1,577  5,107  4,661 
Directors compensation 121  188  365  551 
Occupancy and equipment 390  394  1,172  1,217 
Service bureau fees 107  67  251  164 
Advertising 18  4  31  12 
FDIC assessment 71  61  194  131 
Professional services 528  342  1,217  1,050 
Other 204  189  613  571 
Total Non-Interest Expenses 3,064  2,822  8,950  8,357 
Income before Income Taxes 1,821  1,083  4,900  2,978 
Income Tax Expense 506  (86) 1,320  528 
Net Income $1,315  $1,169  $3,580  $2,450 
Earnings per share:        
Basic $0.25  $0.21  $0.67  $0.44 
Diluted $0.24  $0.21  $0.66  $0.44 
         


      
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)9/30/2018 6/30/2018 9/30/2017
(unaudited)     
Statements of Operations Data     
      
Interest income$6,175  $5,738  $5,083 
Interest expense1,420  1,307  893 
  Net interest income4,755  4,431  4,190 
Provision for loan losses60  90  490 
  Net interest income after provision for loan losses4,695  4,341  3,700 
Other income190  208  205 
Other expense3,064  2,899  2,822 
Income before income taxes1,821  1,650  1,083 
Income tax expense (benefit)506  407  (86)
  Net Income$1,315  $1,243  $1,169 
Earnings (per Common Share)     
Basic$0.25  $0.23  $0.21 
Diluted$0.24  $0.23  $0.21 
Statements of Condition Data (Period-End)     
Investment securities held to maturity (fair value of $41,765, $43,749, and $40,794)$43,009  $44,770  $40,752 
Loans receivable, net of allowance for loan losses494,848  509,689  461,285 
Total assets590,394  601,249  541,757 
Deposits437,597  448,512  397,510 
Borrowings80,075  82,175  68,375 
Stockholders' equity70,008  68,506  72,540 
Common Shares Dividend Data     
Cash dividends$—  $2,456  $— 
Weighted Average Common Shares Outstanding     
Basic5,330,029  5,331,090  5,563,938 
Diluted5,388,577  5,375,090  5,574,535 
Operating Ratios     
Return on average assets0.92% 0.87% 0.90%
Return on average equity7.56% 7.17% 6.31%
Average equity / average assets12.10% 12.16% 14.21%
Book value per common share (period-end)$12.70  $12.43  $12.57