Company Quick10K Filing
Quick10K
Mid-Southern Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$12.25 4 $44
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-02-06 Earnings, Exhibits
8-K 2019-01-23 Officers, Exhibits
8-K 2019-01-23 Officers, Exhibits
8-K 2019-01-23 Officers, Exhibits
8-K 2018-11-02 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-07-10 Other Events, Exhibits
8-K 2018-06-28 Other Events, Exhibits
8-K 2018-05-14 Enter Agreement, Exhibits
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MSVB 2018-09-30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Part II
Item 6. Exhibits
EX-31.1 midsouth10q93018exh311.htm
EX-31.2 midsouth10q93018exh312.htm
EX-32.1 midsouth10q93018exh321.htm

Mid-Southern Bancorp Earnings 2018-09-30

MSVB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 midsouth10q93018.htm FORM 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________
 
Commission File No. 001-38491

Mid-Southern Bancorp, Inc.
(Exact name of registrant as specified in its charter)
 
 
                Indiana
82-4821705      
 
 
(State or other jurisdiction of
(I.R.S. Employer
 
 
incorporation or organization)
Identification Number)
 
       
  300 North Water Street, Salem, Indiana 47167        1-812-883-2639  
  (Address of principal executive offices, zip code, telephone number)  
       
  Not applicable  
  (Former name, former address and former fiscal year, if changed since last report)  
                                                

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes           No   X   

Indicate by check mark whether the registrant has submitted electronically  every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit  such files).   Yes       No   X   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

(Check one):                                        Large Accelerated Filer ___                                                                      Accelerated Filer                                    Non-accelerated Filer ___

Smaller Reporting Company    X                                                                   Emerging Growth Company    X     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. _____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ____   No   X   

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of November 6, 2018, there were 3,570,515 shares of the registrant's common stock outstanding.

MID-SOUTHERN BANCORP, INC.


INDEX
 
 
 
Page
Part I
Financial Information
 
 
 
 
 
Item 1. Consolidated Financial Statements
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2018
  and December 31, 2017 (unaudited)
3
 
 
 
 
Consolidated Statements of Income for the three
  and nine months ended September 30, 2018 and 2017 (unaudited)
4
 
 
 
 
Consolidated Statements of Comprehensive Income for the three
  and nine months ended September 30, 2018 and 2017 (unaudited)
5
 
 
 
 
Consolidated Statements of Changes in Stockholders' Equity
  for the nine months ended September 30, 2018 and 2017 (unaudited)
6
 
 
 
 
Consolidated Statements of Cash Flows for the nine months
  ended September 30, 2018 and 2017 (unaudited)
7
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
8-40
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations
41-50
 
 
 
 
Item 3. Quantitative and Qualitative Disclosures About
  Market Risk
51
 
 
 
 
Item 4. Controls and Procedures
52
 
 
 
Part II Other Information  
     
  Item 1. Legal Proceedings 53
     
  Item 1A. Risk Factors 53
     
 
Item 2. Unregistered Sales of Equity Securities and
  Use of Proceeds
53
     
  Item 3. Defaults Upon Senior Securities 53
     
  Item 4. Mine Safety Disclosures 53
     
 
Item 5. Other Information
53
     
  Item 6. Exhibits 54
     
Signatures
55
 
-2-
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
MID-SOUTHERN BANCORP, INC.
 
CONSOLIDATED BALANCE SHEETS
 
(In thousands, except share information) (Unaudited)
 
             
   
September 30,
 
December 31, 
   
2018
   
2017
 
ASSETS
           
  Cash and due from banks
 
$
849
   
$
1,151
 
  Interest-bearing deposits with banks
   
18,295
     
6,313
 
    Cash and cash equivalents
   
19,144
     
7,464
 
                 
  Securities available for sale, at fair value
   
45,210
     
45,716
 
  Securities held to maturity
   
105
     
163
 
                 
  Loans, net
   
126,488
     
114,896
 
                 
  Federal Home Loan Bank stock, at cost
   
778
     
778
 
  Foreclosed real estate
   
102
     
176
 
  Real estate held for sale
   
239
     
270
 
  Premises and equipment
   
1,949
     
2,032
 
  Accrued interest receivable:
               
    Loans
   
442
     
421
 
    Securities
   
257
     
241
 
  Cash value of life insurance
   
3,699
     
3,642
 
  Other assets
   
1,022
     
878
 
                 
      Total Assets
 
$
199,435
   
$
176,677
 
                 
LIABILITIES
               
  Deposits:
               
    Noninterest-bearing
 
$
17,551
   
$
18,008
 
    Interest-bearing
   
133,629
     
133,885
 
      Total deposits
   
151,180
     
151,893
 
                 
  Accrued expenses and other liabilities
   
583
     
630
 
      Total Liabilities
   
151,763
     
152,523
 
                 
STOCKHOLDERS' EQUITY
               
  Preferred stock, 1,000,000 shares authorized, $0.01 par value,
               
    no shares issued and outstanding
   
-
     
-
 
  Common stock, 30,000,000 shares authorized, $0.01 par value at September 30, 2018,
               
    10,000,000 shares authorized, $1 par value at December 31, 2017;  3,570,750 shares issued
               
    and 3,570,515 shares outstanding at September 30, 2018; 3,452,696 shares issued and
   
36
     
1,472
 
    3,447,225 shares outstanding at December 31, 2017 (1)
               
  Additional paid-in capital
   
30,295
     
3,501
 
  Retained earnings-substantially restricted
   
20,219
     
19,326
 
  Accumulated other comprehensive loss
   
(847
)
   
(47
)
  Unearned ESOP shares
   
(2,026
)
   
-
 
  Unearned stock compensation plan
   
(2
)
   
(3
)
  Less treasury stock, at cost - 235 shares (5,471 in 2017) (1)
   
(3
)
   
(95
)
      Total Stockholders' Equity
   
47,672
     
24,154
 
                 
      Total Liabilities and Stockholders' Equity
 
$
199,435
   
$
176,677
 
                 
(1)  Share amounts related to periods prior to the date of completion of the second-step conversion (July 11, 2018) have been
 
       restated to give retroactive recognition to the exchange ratio applied in the second-step conversion (2.3462 to one).
 
 
See accompanying notes to consolidated financial statements.
-3-
MID-SOUTHERN BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
(In thousands, except per share data) (Unaudited)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
INTEREST INCOME
                       
  Loans, including fees
 
$
1,522
   
$
1,360
   
$
4,284
   
$
4,035
 
  Investment securities:
                               
    Mortgage-backed securities
   
81
     
114
     
290
     
374
 
    Municipal tax exempt
   
106
     
45
     
310
     
136
 
    Other debt securities
   
69
     
77
     
209
     
232
 
  Federal Home Loan Bank dividends
   
9
     
8
     
30
     
25
 
  Interest-bearing deposits with banks and time deposits
   
111
     
20
     
191
     
50
 
     Total interest income
   
1,898
     
1,624
     
5,314
     
4,852
 
                                 
INTEREST EXPENSE
                               
  Deposits
   
186
     
161
     
527
     
490
 
  Borrowings
   
-
     
-
     
15
     
-
 
     Total interest expense
   
186
     
161
     
542
     
490
 
      Net interest income
   
1,712
     
1,463
     
4,772
     
4,362
 
                                 
  Recapture of provision for loan losses
   
-
     
-
     
-
     
(300
)
      Net interest income after provision for loan losses
   
1,712
     
1,463
     
4,772
     
4,662
 
                                 
NONINTEREST INCOME
                               
  Deposit account service charges
   
91
     
100
     
273
     
301
 
  Net gain on sales of securities available for sale
   
-
     
4
     
-
     
4
 
  Increase in cash value of life insurance
   
19
     
19
     
55
     
56
 
  ATM and debit card fee income
   
91
     
81
     
264
     
244
 
  Other income
   
9
     
10
     
32
     
32
 
      Total noninterest income
   
210
     
214
     
624
     
637
 
                                 
NONINTEREST EXPENSE
                               
  Compensation and benefits
   
847
     
681
     
2,283
     
1,931
 
  Occupancy and equipment
   
104
     
123
     
335
     
380
 
  Data processing
   
219
     
184
     
597
     
529
 
  Professional fees
   
124
     
106
     
343
     
276
 
  Net loss on foreclosed real estate
   
1
     
20
     
1
     
26
 
  Impairment loss on land
   
32
     
-
     
32
     
33
 
  Directors' fees
   
41
     
39
     
130
     
119
 
  Debit and credit card expense
   
24
     
22
     
69
     
61
 
  Supervisory examinations
   
27
     
20
     
63
     
56
 
  Deposit insurance premiums
   
14
     
10
     
40
     
36
 
  Other expenses
   
156
     
126
     
414
     
398
 
      Total noninterest expense
   
1,589
     
1,331
     
4,307
     
3,845
 
      Income before income taxes
   
333
     
346
     
1,089
     
1,454
 
                                 
Income tax expense
   
57
     
105
     
196
     
478
 
      Net Income
 
$
276
   
$
241
   
$
893
   
$
976
 
                                 
Earnings per common share (1):
                               
      Basic
 
$
0.08
   
$
0.07
   
$
0.26
   
$
0.28
 
      Diluted
 
$
0.08
   
$
0.07
   
$
0.26
   
$
0.28
 
                                 
(1)  Per share amounts related to periods prior to the date of completion of the second-step conversion (July 11, 2018) have
 
       been restated to give retroactive recognition to the exchange ratio applied in the second-step conversion (2.3462 to one).
 
 
See accompanying notes to consolidated financial statements.
-4-
                         
MID-SOUTHERN BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(In thousands) (Unaudited)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Net Income
 
$
276
   
$
241
   
$
893
   
$
976
 
                                 
Other Comprehensive (Loss) Income, net of tax
                               
  Change in net unrealized loss on securities available for sale:
                               
     Net unrealized holding (losses) gains arising during the period
   
(236
)
   
(134
)
   
(1,065
)
   
349
 
     Income tax  benefit (expense)
   
59
     
52
     
265
     
(135
)
        Net of tax amount
   
(177
)
   
(82
)
   
(800
)
   
214
 
                                 
Less: Reclassification adjustment for realized gains included                                 
   in net income during the period      -        -        -        4  
Income tax expense       -        -        -        (2
    Net of tax amount       -        -        -        2  
                                 
Other Comprehensive (Loss) Income, net of tax
   
(177
)
   
(82
)
   
(800
)
   
212
 
                                 
Total Comprehensive Income
 
$
99
   
$
159
   
$
93
   
$
1,188
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
-5-
MID-SOUTHERN BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
(In thousands, except share information) (Unaudited)
 
                                                 
                     
Accumulated
                         
         
Additional
         
Other
   
Unearned
   
Unearned
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
ESOP
   
Stock
   
Treasury
       
(In thousands, except share data)
 
Stock
   
Capital
   
Earnings
   
(Loss) Income
   
Shares
   
Compensation
   
Stock
   
Total
 
                                                 
Balances at January 1, 2017
 
$
1,472
   
$
3,499
   
$
18,232
   
$
(180
)
 
$
-
   
$
(5
)
 
$
(93
)
 
$
22,925
 
                                                                 
Net income
   
-
     
-
     
976
     
-
     
-
     
-
     
-
     
976
 
                                                                 
Other comprehensive income
   
-
     
-
     
-
     
212
     
-
     
-
     
-
     
212
 
                                                                 
Cash dividends to Mid-Southern,
                                                               
M.H.C. ($0.03 per share) (1)
   
-
     
-
     
(62
)
   
-
     
-
     
-
     
-
     
(62
)
                                                                 
Cash dividends to minority
                                                               
stockholders ($0.03 per share) (1)
   
-
     
-
     
(26
)
   
-
     
-
     
-
     
-
     
(26
)
                                                                 
Forfeiture of unearned stock awards
   
-
     
-
     
-
     
-
     
-
     
2
     
(2
)
   
-
 
                                                                 
Grant of common stock for
                                                               
stock compensation - 100 shares
   
-
     
2
     
-
     
-
     
-
     
(2
)
   
-
     
-
 
                                                                 
Balances at September 30, 2017
   
1,472
     
3,501
     
19,120
     
32
     
-
     
(5
)
   
(95
)
   
24,025
 
                                                                 
Balances at January 1, 2018
 
$
1,472
   
$
3,501
   
$
19,326
   
$
(47
)
 
$
-
   
$
(3
)
 
$
(95
)
 
$
24,154
 
                                                                 
Net income
   
-
     
-
     
893
     
-
     
-
     
-
     
-
     
893
 
                                                                 
Other comprehensive loss
   
-
     
-
     
-
     
(800
)
   
-
     
-
     
-
     
(800
)
                                                                 
Corporate reorganization:
                                                               
Conversion and stock issuance
   
(1,438
)
   
23,812
     
-
     
-
     
-
     
-
     
-
     
22,374
 
Purchase by ESOP trust
   
2
     
2,046
     
-
     
-
     
(2,048
)
   
-
     
-
     
-
 
Treasury stock retired
   
-
     
(95
)
   
-
     
-
     
-
     
-
     
95
     
-
 
Contribution of Mid-Southern, MHC
   
-
     
1,023
     
-
     
-
     
-
     
-
     
-
     
1,023
 
                                                                 
ESOP shares committed to be released  
-
     
6
     
-
     
-
     
22
     
-
     
-
     
28
 
                                                                 
Forfeiture of unearned stock awards
   
-
     
-
     
-
     
-
     
-
     
3
     
(3
)
   
-
 
                                                                 
Grant of common stock for
                                                               
   stock compensation - 100 shares
   
-
     
2
     
-
     
-
     
-
     
(2
)
   
-
     
-
 
                                                                 
Balances at September 30, 2018
 
$
36
   
$
30,295
   
$
20,219
   
$
(847
)
 
$
(2,026
)
 
$
(2
)
 
$
(3
)
 
$
47,672
 
                                                                 
(1) Per share amounts related to periods prior to the date of completion of the second-step conversion (July 11, 2018) have been         
      restated to give retroactive recognition to the exchange ratio applied in the second-step conversion (2.3462 to one).
                 
 
See accompanying notes to consolidated financial statements.
-6-
MID-SOUTHERN BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands) (Unaudited)  
             
   
Nine Months Ended
 
   
September 30,
 
   
2018
   
2017
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
  Net income
 
$
893
   
$
976
 
  Adjustments to reconcile net income to net cash provided by operating activities:
               
      Amortization of premiums and accretion of discounts on securities, net
   
42
     
135
 
      Recapture of provision for loan losses
   
-
     
(300
)
      Depreciation expense
   
98
     
114
 
      ESOP compensation expense
   
28
     
-
 
      Impairment loss on land
   
32
     
33
 
      Deferred income taxes
   
(23
)
   
176
 
      Increase in cash value of life insurance
   
(55
)
   
(56
)
      Net realized and unrealized loss on foreclosed real estate
   
1
     
26
 
      Net gain on sales of securities available for sale
   
-
     
(4
)
      (Increase) decrease in accrued interest receivable
   
(37
)
   
60
 
      Net change in other assets and liabilities
   
1,151
     
(105
)
        Net Cash Provided By Operating Activities
   
2,130
     
1,055
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
  Proceeds from maturities of time deposits
   
-
     
249
 
  Purchases of securities available for sale
   
(5,650
)
   
-
 
  Principal collected on mortgage-backed securities available for sale
   
4,049
     
2,947
 
  Proceeds from maturities of securities available for sale
   
1,000
     
-
 
  Proceeds from sales of securities available for sale
   
-
     
1,002
 
  Principal collected on mortgage-backed securities held to maturity
   
58
     
50
 
  Proceeds from maturities of securities held to maturity
   
-
     
45
 
  Net increase in loans receivable
   
(11,785
)
   
(267
)
  Investment in cash value of life insurance
   
(2
)
   
(2
)
  Proceeds from the sale of foreclosed real estate
   
266
     
295
 
  Purchase of premises and equipment
   
(47
)
   
(4
)
        Net Cash (Used In) Provided By Investing Activities
   
(12,111
)
   
4,315
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
  Net decrease in deposits
   
(713
)
   
(2,735
)
  Proceeds from issuance of common stock
   
22,374
     
-
 
  Cash dividends paid to Mid-Southern, M.H.C.
   
-
     
(62
)
  Cash dividends paid to minority stockholders
   
-
     
(26
)
        Net Cash Provided By (Used In) Financing Activities
   
21,661
     
(2,823
)
                 
Net Increase in Cash and Cash Equivalents
   
11,680
     
2,547
 
                 
Cash and cash equivalents at beginning of period
   
7,464
     
8,311
 
                 
Cash and Cash Equivalents at End of Period
 
$
19,144
   
$
10,858
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
   Cash payments for:
               
      Interest
 
$
542
   
$
490
 
      Taxes
   
112
     
191
 
                 
   Noncash investing activities:
               
      Transfers from loans to real estate acquired through foreclosure
   
184
     
38
 
 
See accompanying notes to consolidated financial statements.
-7-
 
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.                       Presentation of Interim Information

Mid-Southern Bancorp, Inc., (the "Company") was incorporated in January 2018 and became the holding company for Mid-Southern Savings Bank, FSB (the "Bank"), on July 11, 2018, upon the completion of the Bank's conversion from the mutual holding company ownership structure and the Company's related public stock offering.  Please see Note 2 – Conversion and Stock Issuance for more information.  Accordingly, the reported results and financial information for periods ending prior to September 30, 2018 relate solely to the Bank and its wholly-owned subsidiary, Mid-Southern Investments, Inc.  The third quarter results are the first quarter reflecting consolidated Company financial information.

In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of September 30, 2018, and the results of operations for the three months and nine months ended September 30, 2018 and 2017 and the cash flows for the nine months ended September 30, 2018 and 2017.  All of these adjustments are of a normal, recurring nature.  Such adjustments are the only adjustments included in the unaudited consolidated financial statements.  Interim results are not necessarily indicative of results for a full year or any other period.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial statements and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Bank's annual audited consolidated financial statements and related footnotes for the year ended December 31, 2017 included in the Company's prospectus dated May 14, 2018 and filed with the Securities and Exchange Commission (the "SEC") on May 24, 2018.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiary.  All material intercompany balances and transactions have been eliminated in consolidation.  Certain prior period amounts have been reclassified to conform with the current period presentation.  The reclassifications had no effect on net income or stockholders' equity.

As an "emerging growth company," as defined in Title 1 of Jumpstart Our Business Startups ("JOBS") Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of September 30, 2018, the Company does not believe there is a significant difference in the comparability of the financial statements as a result of this extended transition period, however, the Company's assessment of its revenue recognition policies under FASB topic 606 is not yet complete.

2.                       Conversion and Stock Issuance

The Company, an Indiana corporation, was organized by Mid-Southern, M.H.C. ("the MHC") and the Bank in connection with the MHC's plan of conversion from mutual to stock form of ownership (the "Conversion").  Upon consummation of the Conversion, which occurred on July 11, 2018, the Company became the holding company for the Bank and now owns all of the issued and outstanding shares of the Bank's common stock.

-8-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)






In connection with the Conversion, the Company sold a total of 2,559,871 shares of common stock in offering to certain depositors of the Bank and others, including 204,789 shares purchased by the Bank's employee stock ownership plan ("ESOP") funded by a loan from the Company (see Note 6).  All shares were sold at a purchase price of $10.00 per share.  Costs to complete the stock offering were deducted from the gross proceeds of the offering. The Bank had $143,000 in deferred conversion costs as of December 31, 2017.

Proceeds from the offering, net of $1.2 million in expenses, totaled $24.4 million, including $2.0 million of proceeds funded by the Company for the purchase by the Bank's ESOP.  The Company made a $10.2 million capital contribution to the Bank.  In addition, concurrent with the offering, shares of Bank common stock owned by public stockholders were exchanged for 2.3462 shares of the Company's common stock, with cash being paid in lieu of issuing any fractional shares.  As a result of the offering, exchange and cash in lieu of fractional shares, the Company issued 3,570,750 shares.

The Company has established a liquidation account in an amount equal to the MHC's ownership interest in the stockholders' equity of the Bank as reflected in the latest consolidated balance sheet contained in the final prospectus plus the value of the net assets of the MHC as reflected in the latest balance sheet of the MHC prior to the effective date of the conversion (excluding its ownership of Bank common stock). The liquidation account will be maintained for the benefit of eligible account holders who maintain deposit accounts with the Bank after conversion.

The conversion has been accounted for as a change in corporate form with the historic basis of the Bank's assets, liabilities and equity unchanged as a result.

3.                        Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management's intent.  Debt securities held by the Company include mortgage-backed securities and other debt securities issued by the Government National Mortgage Association ("GNMA"), a U.S. government agency, and mortgage-backed securities and collateralized mortgage obligations issued by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), which are government-sponsored enterprises. Mortgage-backed securities ("MBS") represent participating interests in pools of long-term first mortgage loans originated and serviced by the issuers of the securities.  Collateralized mortgage obligations ("CMO") are complex mortgage-backed securities that restructure the cash flows and risks of the underlying mortgage collateral.  The Company also holds debt securities issued by municipalities and political subdivisions of state and local governments.



-9-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Investment securities at September 30, 2018 and December 31, 2017 are summarized as follows:

         
Gross
   
Gross
       
(In thousands)
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
September 30, 2018:
 
Cost
   
Gains
   
Losses
   
Value
 
                         
Securities available for sale:
                       
    Agency MBS
 
$
11,863
   
$
-
   
$
434
   
$
11,429
 
    Agency CMO
   
9,476
     
-
     
197
     
9,279
 
     
21,339
     
-
     
631
     
20,708
 
                                 
  Other debt securities:
                               
    Municipal obligations
   
24,997
     
86
     
581
     
24,502
 
                                 
Total securities available
                               
  for sale
 
$
46,336
   
$
86
   
$
1,212
   
$
45,210
 
                                 
Securities held to maturity:
                               
    Agency MBS
 
$
60
   
$
2
   
$
-
   
$
62
 
    Municipal obligations
   
45
     
-
     
-
     
45
 
                                 
Total securities held to
                               
  maturity
 
$
105
   
$
2
   
$
-
   
$
107
 
                                 
December 31, 2017:
                               
                                 
Securities available for sale:
                               
    Agency MBS
 
$
14,604
   
$
-
   
$
208
   
$
14,396
 
    Agency CMO
   
8,700
     
-
     
121
     
8,579
 
     
23,304
     
-
     
329
     
22,975
 
                                 
  Other debt securities:
                               
    Federal agency
   
1,000
     
-
     
1
     
999
 
    Municipal obligations
   
21,474
     
343
     
75
     
21,742
 
                                 
Total securities available
                               
  for sale
 
$
45,778
   
$
343
   
$
405
   
$
45,716
 
                                 
Securities held to maturity:
                               
    Agency MBS
 
$
78
   
$
2
   
$
-
   
$
80
 
    Municipal obligations
   
85
     
2
     
-
     
87
 
                                 
Total securities held to
                               
  maturity
 
$
163
   
$
4
   
$
-
   
$
167
 
 
 
The amortized cost and fair value of debt securities as of September 30, 2018, by contractual maturity, are shown below.  Expected maturities of MBS and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

-10-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
   
Available for Sale
   
Held to Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
(In thousands)
 
Cost
   
Value
   
Cost
   
Value
 
Due in one year or less
 
$
386
   
$
388
   
$
-
   
$
-
 
Due after one year through five years
   
850
     
874
     
45
     
45
 
Due after five years through ten years
   
6,095
     
5,945
     
-
     
-
 
Due after ten years
   
17,666
     
17,295
     
-
     
-
 
     
24,997
     
24,502
     
45
     
45
 
MBS and CMO
   
21,339
     
20,708
     
60
     
62
 
                                 
   
$
46,336
   
$
45,210
   
$
105
   
$
107
 
 
 
Information pertaining to investment securities available for sale with gross unrealized losses at September 30, 2018, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.  At September 30, 2018, the Company did not have any securities held to maturity with an unrealized loss.
  
   
Number of
         
Gross
 
(Dollars in thousands)
 
Investment
   
Fair
   
Unrealized
 
September 30, 2018:
 
Positions
   
Value
   
Losses
 
                   
Securities available for sale:
                 
Continuous loss position less than 12 months:
                 
   Agency MBS
   
1
   
$
991
   
$
9
 
   Agency CMO
   
2
     
2,445
     
11
 
   Municipal obligations
   
32
     
14,544
     
398
 
     Total less than 12 months
   
35
     
17,980
     
418
 
                         
Continuous loss position more than 12 months:
                       
   Agency MBS
   
12
     
10,437
     
425
 
   Agency CMO
   
5
     
4,811
     
187
 
   Municipal obligations
   
5
     
3,267
     
182
 
     Total more than 12 months
   
22
     
18,515
     
794
 
                         
     Total securities available for sale
   
57
   
$
36,495
   
$
1,212
 

 
Information pertaining to investment securities available for sale with gross unrealized losses at December 31, 2017, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.  At December 31, 2017, the Company did not have any securities held to maturity with an unrealized loss.

 

-11-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

   
Number of
         
Gross
 
(Dollars in thousands)
 
Investment
   
Fair
   
Unrealized
 
December 31, 2017:
 
Positions
   
Value
   
Losses
 
                   
Securities available for sale:
                 
Continuous loss position less than 12 months:
                 
   Federal agency
   
1
   
$
999
   
$
1
 
   Agency MBS
   
3
     
2,543
     
13
 
   Agency CMO
   
4
     
4,777
     
12
 
   Municipal obligations
   
4
     
2,539
     
13
 
     Total less than 12 months
   
12
     
10,858
     
39
 
                         
Continuous loss position more than 12 months:
                       
   Agency MBS
   
12
     
11,848
     
195
 
   Agency CMO
   
3
     
3,802
     
109
 
   Municipal obligations
   
3
     
1,949
     
62
 
     Total more than 12 months
   
18
     
17,599
     
366
 
                         
     Total securities available for sale
   
30
   
$
28,457
   
$
405
 

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair value.

At September 30, 2018, the debt securities in the available for sale classification in a loss position had depreciated approximately 3.2% from the amortized cost basis.  All of the debt securities in a loss position at September 30, 2018 were backed by residential first mortgage loans or were obligations issued by federal or local government-sponsored enterprises.  These unrealized losses relate principally to current interest rates for similar types of securities.  In analyzing an issuer's financial condition for purposes of evaluating whether declines in value are other-than-temporary, management considers whether the securities are issued by the federal government, its agencies or sponsored enterprises or local governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition.  As the Company has the ability to hold the debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

While management does not anticipate any credit-related impairment losses at September 30, 2018, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future.

During the three and nine months ended September 30, 2018 the Company did not have any security sales.  During the three and nine months ended September 30, 2017 the Company recognized gross gains of $6,000 and gross losses of $2,000, respectively, on the sale of securities available for sale.
 
-12-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


4.                       Loans and Allowance for Loan Losses

The Company's loan and allowance for loan loss policies are as follows:

Loans Held for Investment. Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. The Company grants real estate mortgage, commercial business and consumer loans.  A substantial portion of the loan portfolio is represented by mortgage loans to customers in southern Indiana.  The ability of the Company's customers to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method.  Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

Nonaccrual Loans. The recognition of income on a loan is discontinued and previously accrued interest is reversed when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible.  Past due status is determined based on contractual terms.  Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status.  The cash receipts method is used when the likelihood of further loss on the loan is remote.  Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status.  Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote.

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are individually evaluated for impairment or loans otherwise classified as doubtful or substandard. For such loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan.


-13-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The general component covers non-classified loans and classified loans that are found, upon individual evaluation, to not be impaired.  Such loans are pooled by portfolio segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors.  The historical loss experience is determined by portfolio segment and is based on the Company's actual loss history over the most recent twenty calendar quarters unless the historical loss experience is not considered indicative of the level of risk in the remaining balance of a particular portfolio segment, in which case an adjustment is determined by management.  The Company's historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis.

Management's determination of the allowance for loan losses considers changes and trends in the following qualitative loss factors:  loan administration, national and local economic conditions, new loan trends, past due and nonaccrual loans, collateral values, credit concentrations and other internal and external factors such as competition, legal and regulatory changes.  Each qualitative factor is assigned a rating and a factor weight in determining the adjusted loss factors used in management's allowance for loan losses adequacy calculation.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors.  Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

The following portfolio segments are considered in the allowance for loan loss analysis:  one-to-four family residential real estate, multi-family residential real estate, construction, commercial real estate, commercial business, and consumer loans.

Residential real estate loans primarily consist of loans to individuals for the purchase or refinance of their primary residence, with a smaller portion of the segment secured by non-owner-occupied residential investment properties and multi-family residential investment properties.  The risks associated with residential real estate loans are closely correlated to the local housing market and general economic conditions, as repayment of the loans is primarily dependent on the borrower's or tenant's personal cash flow and employment status.

The Company's construction loan portfolio consists of single-family residential properties, multi-family properties and commercial projects, and includes both owner-occupied and speculative investment properties.  Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, the borrower's ability to use funds generated by a project to service a loan until a project is completed, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing.

Commercial real estate loans are comprised of loans secured by various types of collateral including farmland, office buildings, warehouses, retail space and mixed-use buildings located in the Company's primary lending area.  Risks related to commercial real estate lending are related to the market value of the property taken as collateral, the underlying cash flows and general economic condition of the local real estate market.  Repayment of these loans is generally dependent on the ability of the borrower to attract tenants at lease rates or general business operating cash flows that provide for adequate debt service and can be impacted by local economic conditions which impact vacancy rates and the general level of business activity.  The Company generally obtains loan guarantees from financially capable parties for commercial real estate loans.

-14-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Commercial business loans include lines of credit to businesses, term loans and letters of credit secured by business assets such as equipment, accounts receivable, inventory, or other assets excluding real estate and are generally made to finance capital expenditures or fund operations.  Commercial loans contain risks related to the value of the collateral securing the loan and the repayment is primarily dependent upon the financial success and viability of the borrower.  As with commercial real estate loans, the Company generally obtains loan guarantees from financially capable parties for commercial business loans.

Consumer loans consist primarily of home equity lines of credit and other loans secured by junior liens on the borrower's personal residence, home improvement loans, automobile and truck loans, boat loans, mobile home loans, loans secured by savings deposits, and other personal loans.  The risks associated with these loans are related to the local housing market and local economic conditions including the unemployment level.

Loan Charge-Offs. For portfolio segments other than consumer loans, the Company's practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower's failure to meet repayment terms, the borrower's deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan's classification as a loss by regulatory examiners, or for other reasons.  A partial charge-off is recorded on a loan when the collectability of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid.  A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment.  Partial charge-offs on nonperforming and impaired loans are included in the Company's historical loss experience used to estimate the general component of the allowance for loan losses as discussed above.  Specific reserves are not considered charge-offs in management's evaluation of the general component of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined.  At September 30, 2018, the Company had 10 loans for which partial charge-offs in the aggregate of $236,000 had been recorded.

Consumer loans not secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection.  Overdrafts are charged off after 60 days past due.  A charge-off is typically recorded on a loan secured by real estate when the property is foreclosed upon when the carrying value of the loan exceeds the property's fair value less the estimated costs to sell.

Impaired Loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

-15-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors.  New appraisals or valuations are generally obtained for all significant properties (if the value is estimated to exceed $100,000) when a loan is identified as impaired.  Subsequent appraisals are obtained or an internal evaluation is prepared annually, or more frequently if management believes there has been a significant change in the market value of a collateral property securing a collateral dependent impaired loan.  In instances where it is not deemed necessary to obtain a new appraisal, management bases its impairment evaluation on the original appraisal with adjustments for current conditions based on management's assessment of market factors and inspection of the property.

At September 30, 2018 and December 31, 2017, the recorded investments in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $26,000 and $290,000, respectively.

Loans at September 30, 2018 and December 31, 2017 consisted of the following:

   
September 30, 
 
December 31, 
(In thousands)
 
2018
   
2017
 
Real estate mortgage loans:
           
  One-to-four family residential
 
$
81,101
   
$
79,899
 
  Multi-family residential
   
6,937
     
6,352
 
  Residential construction
   
-
     
108
 
  Commercial real estate
   
26,593
     
22,315
 
  Commercial real estate construction
   
6,392
     
2,061
 
  Commercial business loans
   
4,874
     
3,875
 
  Consumer loans
   
2,322
     
1,978
 
    Total loans
   
128,219
     
116,588
 
                 
  Deferred loan origination fees and costs, net
   
32
     
31
 
  Allowance for loan losses
   
(1,763
)
   
(1,723
)
                 
    Loans, net
 
$
126,488
   
$
114,896
 
 
 


-16-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table provides the components of the Company's recorded investment in loans at September 30, 2018:

   
One-to-Four
Family
Residential
   
Multi-Family
Residential
   
Construction
   
Commercial
Real Estate
   
Commercial
Business
   
Consumer
   
Total
 
   
(In thousands)
 
Recorded Investment in Loans:
                                     
Principal loan balance
 
$
81,101
   
$
6,937
   
$
6,392
   
$
26,593
   
$
4,874
   
$
2,322
   
$
128,219
 
                                                         
Accrued interest
  receivable
   
297
     
17
     
10
     
91
     
19
     
8
     
442
 
                                                         
Net deferred loan
  fees/costs
   
16
     
(8
)
   
(32
)
   
(4
)
   
10
     
50
     
32
 
                                                         
Recorded investment in
  loans
$
81,414
   
$
6,946
   
$
6,370
   
$
26,680
   
$
4,903
   
$
2,380
   
$
128,693
 
                                                         
Recorded Investment in Loans as Evaluated for Impairment:
                                 
Individually evaluated
  for impairment
 
$
2,680
   
$
-
   
$
-
   
$
927
   
$
485
   
$
-
   
$
4,092
 
                                                         
Collectively evaluated
   for impairment
   
78,734
     
6,946
     
6,370
     
25,753
     
4,418
     
2,380
     
124,601
 
                                                         
Ending balance
                                                       
   
$
81,414
   
$
6,946
   
$
6,370
   
$
26,680
   
$
4,903
   
$
2,380
   
$
128,693
 
 
 
 






-17-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table provides the components of the Company's recorded investment in loans at December 31, 2017:
 
   
One-to-Four
Family
Residential
   
Multi-Family
Residential
   
Construction
   
Commercial
Real Estate
   
Commercial
Business
   
Consumer
   
Total
 
   
(In thousands)
 
Recorded Investment in Loans:
                                     
Principal loan balance
 
$
79,899
   
$
6,352
   
$
2,169
   
$
22,315
   
$
3,875
   
$
1,978
   
$
116,588
 
                                                         
Accrued interest
  receivable
   
301
     
15
     
6
     
81
     
13
     
5
     
421
 
                                                         
Net deferred loan
   fees/costs
   
-
     
(8
)
   
(6
)
   
(5
)
   
7
     
43
     
31
 
                                                         
Recorded investment
   in loans
 
$
80,200
   
$
6,359
   
$
2,169
   
$
22,391
   
$
3,895
   
$
2,026
   
$
117,040
 
                                                         
Recorded Investment in Loans as Evaluated for Impairment:
                                 
Individually evaluated
   for impairment
 
$
4,416
   
$
-
   
$
-
   
$
1,628
   
$
524
   
$
-
   
$
6,568
 
                                                         
Collectively evaluated
   for impairment
   
75,784
     
6,359
     
2,169
     
20,763
     
3,371
     
2,026
     
110,472
 
                                                         
Ending balance
                                                       
   
$
80,200
   
$
6,359
   
$
2,169
   
$
22,391
   
$
3,895
   
$
2,026
   
$
117,040
 






-18-
MID-SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

An analysis of the allowance for loan losses as of September 30, 2018 is as follows:
 
   
One-to-Four
Family
Residential
   
Multi-Family
Residential
   
Construction
   
Commercial
Real Estate
   
Commercial
Business
   
Consumer
   
Total
 
   
(In thousands)
 
Ending allowance balance attributable to loans:
                               
                                           
Individually evaluated
   for impairment
 
$
34
   
$
-
   
$
-
   
$
22
   
$
45
   
$
-
   
$
101
 
                                                         
Collectively evaluated
   for impairment
   
1,077
     
196
     
57
     
249
     
10
     
73
     
1,662
 
                                                         
Ending balance
 
$
1,111
   
$
196
   
$
57
   
$
271
   
$
55
   
$
73
   
$
1,763
 
 
 
An analysis of the allowance for loan losses as of December 31, 2017 is as follows:

   
One-to-Four
Family
Residential
   
Multi-Family
Residential
   
Construction
   
Commercial
Real Estate
   
Commercial
Business
   
Consumer
   
Total
 
   
(In thousands)
 
Ending allowance balance attributable to loans:
                               
                                           
Individually evaluated
   for impairment
 
$
56
   
$
-
   
$
-
   
$
28
   
$
58
   
$
-
   
$
142
 
                                                         
Collectively evaluated
   for impairment
   
1,014
     
220
     
20
     
241
     
53
     
33
     
1,581