Safe Harbor Statement for Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by use of the words "expects," "believes," "anticipates," "intends," "could," "should" and similar expressions. Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, and the Company's business and growth strategies. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to:
the effect of the COVID-19 pandemic, including on the Company's credit quality
and business operations, as well as its impact on general economic and
? financial market conditions and other uncertainties resulting from the COVID-19
pandemic, such as the extent and duration of the impact on public health, the
U.S. and global economies, and consumer and corporate customers, including
economic activity, employment levels and market liquidity;
? changes in economic conditions, either nationally or in our market area;
the risks of lending and investing activities, including changes in the level
? and direction of loan delinquencies and write-offs and changes in estimates of
the adequacy of our allowance for loan losses;
? the possibility of other-than-temporary impairments of securities held in our
? our ability to access cost-effective funding;
fluctuations in the demand for loans, the number of unsold homes, land and
? other properties, and fluctuations in real estate values and both residential
and commercial and multifamily real estate market conditions in our market
? secondary market conditions for loans and our ability to originate loans for
sale and sell loans in the secondary market;
? our ability to attract and retain deposits;
our ability to successfully integrate any assets, liabilities, customers,
? systems and management personnel we may acquire into our operations and our
ability to realize related revenue synergies and expected cost savings and
other benefits within the anticipated time frames or at all;
legislative or regulatory changes that adversely affect our business including
? changes in regulatory policies and principles, or the interpretation of
regulatory capital or other rules;
? monetary and fiscal policies of the Federal Reserve and the U.S. Government and
other governmental initiatives affecting the financial services industry;
results of examinations of Mid-Southern Bancorp and Mid-Southern Savings Bank
by our regulators, including the possibility that the regulators may, among
? other things, require us to increase our allowance for loan losses or to
write-down assets, change Mid-Southern Savings Bank's regulatory capital
position or affect our ability to borrow funds or maintain or increase
deposits, which could adversely affect our liquidity and earnings;
? our ability to control operating costs and expenses;
the use of estimates in determining fair value of certain of our assets, which
? estimates may prove to be incorrect and result in significant declines in
? difficulties in reducing risks associated with the loans on our balance sheet;
staffing fluctuations in response to product demand or the implementation of
? corporate strategies that affect our workforce and potential associated
disruptions, security breaches, or other adverse events, failures or
? interruptions in, or attacks on, our information technology systems or on the
third-party vendors who perform several of our critical processing functions;
? our ability to retain key members of our senior management team;
? costs and effects of litigation, including settlements and judgments;
? our ability to implement our business strategies;
? increased competitive pressures among financial services companies;
? changes in consumer spending, borrowing and savings habits;
? the availability of resources to address changes in laws, rules, or regulations
or to respond to regulatory actions;
? our ability to pay dividends on our common stock;
? adverse changes in the securities markets;
? the inability of key third-party providers to perform their obligations to us;
? statements with respect to our intentions regarding disclosure and other
changes resulting from the JOBS Act;
changes in accounting policies and practices, as may be adopted by the
? financial institution regulatory agencies or the Financial Accounting Standards
Board, including additional guidance and interpretation on accounting issues
and details of the implementation of new accounting methods; and
other economic, competitive, governmental, regulatory, and technological
? factors affecting our operations, pricing, products and services, including the
CARES Act and the other risks described from time to time in our filings with
the SEC, including our 2021 Form 10-K.
Any of the forward-looking statements that we make in this report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Any of the forward-looking statements are based upon management's beliefs and assumptions at the time they are made. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
As used throughout this report, the terms "we," "our," "us," or the "Company" refer to Mid-Southern Bancorp, Inc. and its consolidated subsidiary, Mid-Southern Savings Bank, unless the context otherwise requires.
Significant Developments and the Impact of COVID-19
COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, jurisdictions within and outside the U.S. have imposed economic and social restrictions on the population, in general, and non-essential businesses to slow the spread of COVID-19. These restrictions, in combination with the public's response to them, have disrupted supply chains and effectively suspended or curtailed economic activity for many industries across the U.S. and the world. Industries within the Company's market footprint have been impacted by these supply chain disruptions as well as the corresponding inflationary pressures driven by them in combination with on-going governmental stimulus programs.
Our commercial and banking products are offered primarily in the Louisville-Jefferson County Metropolitan Statistical Area ("MSA" consisting of Clark, Floyd, Harrison and Washington counties in Indiana and Bullitt, Henry, Jefferson, Oldham, Shelby and Spencer counties in Kentucky) plus Lawrence and Orange counties in Indiana, where municipal and state-wide responses to the pandemic have led to a broad curtailment of economic activity beginning in March 2020. The Company's operations and the markets its serves have been and will continue to be significantly impacted by the COVID-19 pandemic and the public's response to this pandemic.
In response to the pandemic, several regulatory directives have been enacted at the federal, state and local levels, including the following:
On March 27, 2020, the CARES Act was signed into law. The CARES Act established
a $2 trillion economic stimulus package, providing cash payments to
individuals, supplemental unemployment insurance benefits and a $349 billion
loan program administered through the U.S. Small Business Administration (the
"SBA"), referred to as the Paycheck Protection Program (the "PPP"). Under the
PPP, small businesses, sole proprietorships, independent contractors and
self-employed individuals may apply for loans from existing SBA lenders and
other approved regulated lenders that enroll in the program, subject to
? numerous limitations and eligibility criteria. The Bank participated as a
lender in the PPP, and through the initial round of the program, it issued 29
loans totaling $474,000. As of June 30, 2022, all loans funded in the initial
round had received full forgiveness from the SBA. In late December, the
Emergency Coronavirus Relief Act of 2020 (the "Relief Act") was enacted. The
Relief Act extended certain provisions of the CARES Act, and allotted $284
billion to the SBA for a second round of PPP loans. During the second round,
the Bank funded 43 PPP loans totaling $815,000. As of June 30, 2022, all loans
funded in the second round had received full forgiveness from the SBA.
In addition, the CARES Act and related bank agency regulatory guidance provide
financial institutions the option to temporarily suspend certain requirements
under GAAP related to TDRs for a limited period of time to account for the
effects of COVID-19. Most modifications allowed deferral of principal and
interest payments for 90 days. Through 2020, the Bank modified 89 loans related
to the COVID-19 pandemic, and most modifications allowed deferral of principal
and interest payments for 90 days. All modified loans that remain outstanding
at June 30, 2022 have returned to their pre-modification payment terms. Two of
? these loans with a total principal balance of $120,000 as of June 30, 2022 are
pre-existing TDRs. See Note 4 of the Notes to the Consolidated Financial
Statements for additional disclosure of TDRs as of June 30, 2022. All loans
modified due to COVID-19 will be separately monitored and any request for
continuation of relief beyond the initial modification will be reassessed at
that time to determine if a further modification should be granted and if a
downgrade in risk rating is appropriate. As of June 30, 2022, none of our
customers who received PPP loans were granted some form of COVID-19 related
The COVID-19 pandemic and related economic developments could have an adverse impact on our business. The extent and duration of the COVID-19 economic impact is difficult to quantify, however our financial condition, capital levels and results of operations could be materially adversely affected. While the ultimate impact of the crisis is difficult
to predict, we believe the Company is well-capitalized and has the financial stability to continue to responsibly serve its customers and communities during this unprecedented time.
In response to the pandemic, we have undertaken several actions to address the needs of our employees, our customers and our communities. We continue to follow CDC and state health office guidelines and respond to new developments.
Our principal business consists of attracting retail deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one- to four-family residences (including home equity loans and lines of credit), commercial and multifamily, consumer and commercial business loans and, to a lesser extent, construction and land loans. We offer a wide variety of consumer loan products, including automobile loans, boat loans, manufactured homes not secured by permanent dwellings and recreational vehicle loans. We intend to continue emphasizing our residential mortgage, home equity and consumer lending, while also expanding our emphasis in commercial and multifamily and commercial business lending.
Our operating revenues are derived principally from earnings on interest earning assets, service charges and fees. Our primary sources of funds are deposits, Federal Home Loan Bank ("FHLB") advances and other borrowings, and payments received on loans and securities. We offer a variety of deposit accounts that provide a wide range of interest rates and terms, generally including savings, money market, term certificate and checking accounts. Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy and marketing and computer services. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.
Summary of Significant Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The following represent our significant accounting policies:
Allowance for Loan Losses. The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the date of the consolidated balance sheet and it is recorded as a reduction of loans. The allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan and the entire allowance is available to absorb all loan losses.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified 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.
The general component covers pools of loans, by loan class, including commercial loans not considered impaired, as well as smaller balance homogenous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based on historical loss rates for each of these categories of loans, which are adjusted for qualitative factors. The qualitative factors include:
? Lending policies and procedures, including underwriting standards and
collection, charge-off and recovery practices;
? National, regional and local economic and business conditions as well as the
condition of various market segments;
? Nature and volume of the portfolio and terms of the loans;
? Experience, ability and depth of the lending management and staff;
? Changes in the value of underlying collateral for collateral-dependent loans;
? The existence and effect of any concentrations of credit, and changes in the
The effect of other external factors such as competition and legal and
? regulatory requirements on the level of estimated credit losses in the
? Volume and severity of past due, classified and non-accrual loans, as well as
? Quality of our loan review system and the degree of oversight by our board of
Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss analysis and calculation.
In addition, various bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.
Income Taxes. Income taxes are provided for the tax effects of certain transactions reported in the consolidated financial statements. Income taxes consist of taxes currently due plus deferred taxes related primarily to temporary differences between the financial reporting and income tax basis of the allowance for loan losses, premises and equipment, certain state tax credits, and deferred loan origination costs. The deferred tax assets and liabilities represent the future tax return consequences of the temporary differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Estimation of Fair Values. Fair values for securities available-for-sale are obtained from an independent third-party pricing service. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark
securities. Management generally makes no adjustments to the fair value quotes provided by the pricing source. The fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.
Comparison of Financial Condition at June 30, 2022 and December 31, 2021
Total assets increased $12.2 million, or 4.8%, to $266.5 million at June 30, 2022 from $254.3 million at December 31, 2021.
Cash and Cash Equivalents. Cash and cash equivalents decreased $12.0 million, or 73.0%, to $4.4 million at June 30, 2022 from $16.4 million at December 31, 2021 due primarily to an increase in net loans receivable, the net effect of activity in available for sale securities and the repurchase of the Company's common stock, partially offset by increases in borrowings and deposits.
Loans. Our primary lending activity is the origination of loans secured by real estate. We originate one-to-four family residential loans, multifamily residential loans, commercial real estate loans and construction loans, as well as commercial business loans and consumer loans. Net loans receivable increased $15.6 million, or 12.7%, to $138.1 million at June 30, 2022 from $122.6 million at December 31, 2021. The increase in net loans was due primarily to increases in commercial real estate loans, multi-family residential loans and one-to-four family residential loans, partially offset by decreases in residential construction loans commercial real estate construction loans.
Securities Available for Sale. Our available for sale securities portfolio consists primarily of U.S. government agency debt securities, including mortgage-backed securities and collateralized mortgage obligations, and municipal obligations. Securities available for sale increased $3.6 million, or 3.4%, to $110.9 million at June 30, 2022 from $107.3 million at December 31, 2021. The increase was due primarily to purchases of $26.0 million in U.S. Treasury and related agency obligations, municipal obligations and federal agency mortgage-backed securities, partially offset by $7.4 million in principal collections, calls and maturities on mortgage-backed and tax-exempt securities and a $14.7 million decrease in the gross unrealized gain in the portfolio.
Securities Held to Maturity. Our held to maturity securities portfolio consists of U.S. government agency mortgage-backed securities. Securities held to maturity decreased $2,000, or 9.5%, to $19,000 at June 30, 2022 from $21,000 at December 31, 2021 due primarily to principal repayments of mortgage-backed securities.
Other Assets. Other assets increased $3.8 million to $4.0 million at June 30, 2022 from $243,000 at December 31, 2021 primarily due to a $3.5 million increase in net deferred tax assets, largely attributable to the tax effect on the unrealized loss on available for sale securities.
Deposits. Deposit accounts, primarily obtained from individuals and businesses throughout our local market area, are the primary source of funds for our lending and investments. Our deposit accounts are comprised of noninterest-bearing checking, interest-bearing checking, savings, and money market accounts and certificates of deposit. Deposits increased $8.2 million, or 4.1%, to $205.0 million at June 30, 2022 from $196.9 million at December 31, 2021.
Borrowings. In order to meet daily liquidity needs and to fund growth in earning assets, the Company utilizes short-term advances from the FHLB. On June 27, 2019, the Company borrowed $10.0 million from the FHLB bearing an interest rate of 1.73% with a scheduled maturity date of June 27, 2024. On June 27, 2022, the FHLB exercised its put option on this advance. As of June 30, 2022 total borrowings with the FHLB consisted of $26 million in short-term borrowings bearing a weighted average interest rate of 1.59% and an average term of 29 days. In addition, on April 13, 2022, the Company began utilizing a line of credit from the FHLB. During the three-month period ended June 30, 2022, the Company borrowed an average balance of $1.9 million at an average rate of 1.69%. As of June 30, 2022 the Company did not have an outstanding balance on the line of credit.
Stockholders' Equity. Stockholders' equity decreased $12.1 million to $34.4 million at June 30, 2022 from $46.5 million at December 31, 2021. The decrease was due primarily to a decrease in the accumulated other
comprehensive income, net of tax, of $11.0 million and the repurchase of 152,897 shares of our common stock at a total cost of $2.2 million, partially offset by net income of $993,000, net of dividends of $221,000.
Comparison of Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021
Net Income. Net income was $526,000 ($0.19 per common share diluted) for the three months ended June 30, 2022, compared to net income of $397,000 ($0.13 per common share diluted) for the three months ended June 30, 2021. For the six months ended June 30, 2022, net income was $993,000 ($0.36 per common share diluted) compared to $775,000 ($0.26 per common share diluted) for the same period in 2021. The primary reason for the increase in net income between the periods was increased net interest income after provision for loan losses and noninterest income partially offset by increased noninterest expenses.
Net Interest Income. Net interest income after provision for loan losses increased $222,000, or 13.0%, to $1.9 million for the three months ended June 30, 2022 compared to $1.7 million for the three months ended June 30, 2021 due primarily to an increase in average balances and yields from interest-earning assets, partially offset by higher average interest-bearing liabilities and increased provision for loan losses.
Total interest income increased $278,000, or 14.8%, to $2.2 million for the three months ended June 30, 2022 as compared to $1.9 million the same period in 2021. The increase resulted from an increase in the average balances and yields of interest-earning assets. The average balance of interest-earning assets increased to $262.1 million for the quarter ended June 30, 2022 from $237.5 million for the quarter ended June 30, 2021, due primarily to increases in loans receivable and investment securities, partially offset by lower interest-bearing deposits with banks. The average tax equivalent yield on interest-earning assets increased to 3.46% for the quarter ended June 30, 2022 from 3.33% for the quarter ended June 30, 2021, due primarily to higher proportions in loans receivable and investment securities.
Total interest expense increased $6,000, or 3.6%, to $173,000 for the three months ended June 30, 2022 compared to $167,000 for the three months ended June 30, 2021 due to an increase in the average balance of interest-bearing liabilities, partially offset by a decrease in the average cost of interest-bearing liabilities. The average balance of interest-bearing liabilities increased to $196.7 million for the quarter ended June 30, 2022 from $171.3 million for the same period in 2021, due primarily to increases in savings and interest-bearing demand deposit accounts and FHLB borrowings, partially offset by a decrease in time deposits. The average cost of interest-bearing liabilities decreased to 0.35% for the quarter ended June 30, 2022 from 0.39% for the same period in 2021. The average cost of deposits decreased to 0.24% for the quarter ended June 30, 2022 from 0.30% for the same period in 2021. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread increased to 3.11% from 2.94% and the net interest margin increased to 3.20% from 3.05% for the quarters ended June 30, 2022 and 2021, respectively.
Net interest income after provision for loan losses increased $260,000, or 7.6%, to $3.7 million for the six months ended June 30, 2022 compared to $3.4 million for the six months ended June 30, 2021 due primarily to an increase in the average balance of interest-earning assets and a decrease in the cost of interest-bearing liabilities, partially offset by a decrease in the yield earned on interest-earning assets, an increase in the average balance of interest-earning liabilities and increased provision for loan losses.
Total interest income was $4.0 million for the six months ended June 30, 2022 compared to $3.7 million for the six months ended June 30, 2021. Interest income from loans receivable increased $200,000, while interest income from investment securities increased $90,000 and interest income from interest-bearing deposits with banks increased $6,000. The average balance of interest-earning assets increased to $256.5 million for the six months ended June 30, 2022 from $233.2 million for the six months ended June 30, 2021, due primarily to increases in loans receivable and investment securities, partially offset by decreases in interest-bearing deposits with banks. The average tax equivalent yield on interest-earning assets declined slightly to 3.32% for the six months ended June 30, 2022 from 3.38% for the six months ended June 30, 2021, due primarily to shift in the investment asset mix.
Total interest expense decreased $14,000, or 4.2%, to $323,000 for the six months ended June 30, 2022 compared to $337,000 for the six months ended June 30, 2021 due to a decrease in the average cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities. The average cost of interest-bearing
liabilities decreased to 0.34% for the six months ended June 30, 2022 from 0.40% for the same period in 2021. The average balance of interest-bearing liabilities increased to $190.8 million for the six months ended June 30, 2022 from $167.2 million for the same period in 2021, due primarily to an increase in savings and interest-bearing demand deposit accounts and higher FHLB borrowings, partially offset by a decrease in time deposits. The average cost of deposits decreased to 0.24% for the six months ended June 30, 2022 from 0.32% for the same period in 2021. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread remained at 2.98% and the net interest margin decreased to 3.06% from 3.09% for the six-month periods ended June 30, 2022 and 2021, respectively.
Provision for Loan Losses. Non-performing loans increased to $822,000, at June 30, 2022 compared to $753,000 at December 31, 2021, or 0.6% of total loans for both periods. At June 30, 2022, $459,000 or 55.9% of nonperforming loans were current on their loan payments. Based on an analysis of the factors described in "Summary of Significant Accounting Policies - Allowance for Loan Losses," the Company recorded a provision for loan losses of $50,000 for the three and six months ended June 30, 2022, compared to no provision for the same periods of 2021.
Noninterest Income. Noninterest income increased $39,000, or 12.0%, for the quarter ended June 30, 2022 as compared to the same period in 2021, due primarily to increases of $20,000 and $7,000 in deposit account service charges and ATM and debit card fee income, respectively, and a $36,000 gain on life insurance, partially offset by a reduction in brokered loans fees of $25,000.
Noninterest income increased $50,000, or 8.3%, for the six months ended June 30, 2022 as compared to the same period in 2021, due primarily to increases of $51,000 and $14,000 in deposit account service charges and ATM and debit card fee income, respectively, and a $36,000 gain on life insurance, partially offset by a reduction in brokered loans fees of $50,000.
Noninterest Expense. Noninterest expense increased $114,000, or 7.0%, for the quarter ended June 30, 2022 as compared to the same period in 2021. The increase was due primarily to increases in compensation and benefits of $39,000, professional fees of $35,000, directors' compensation of $17,000 and other expenses of $24,000.
Noninterest expense increased $57,000, or 1.8%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase was due primarily to increases in professional fees of $24,000, data processing expenses of $16,000, occupancy and equipment expenses of $10,000 and other expenses of $27,000, partially offset by lower compensation and benefits expenses of $25,000.
Income Tax Expense. The Company recorded an income tax expense of $24,000 for the quarter ended June 30, 2022, compared to an expense of $6,000 for the same period in 2021. Income tax expense increased $35,000 to $58,000 for the six months ended June 30, 2022 as compared to $23,000 for the same period in 2021, resulting from an increase in our effective tax rate to 5.5% for 2022 compared to 2.9% for 2021. The increase in the effective tax rate is primarily due to an increase in pre-tax income generated from core banking activities.
Liquidity management is both a daily and longer-term function of management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer-term basis, we maintain a strategy of investing in various lending products and investment securities, including municipal and mortgage-backed securities. We use our sources of funds primarily to meet ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan commitments.
We maintain cash and investments that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operation and meet demands for customer funds (particularly withdrawals of deposits). At June 30, 2022, we had $115.4 million in cash and investment securities available for sale generally available for our cash needs. If we require funds beyond our ability to generate them internally, we have additional borrowing capacity with the FHLB of Indianapolis and additional collateral eligible for repurchase agreements. We are required to have enough cash and investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on
loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.
Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and our ability to manage those requirements. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance we have in short-term investments at any given time will cover adequately any reasonably anticipated, immediate need for funds. Additionally, we maintain relationships with correspondent banks, which could provide funds on short-term notice if needed. Our liquidity, represented by cash and cash-equivalents, is a product of our operating, investing and financing activities.
We believe that the COVID-19 pandemic could place potential stresses on our liquidity management. As our customers manage their liquidity issues, we could experience an increase in the utilization of existing lines of credit and or deposit outflows. We continually monitor our liquidity for signs of stress resulting from the COVID-19 pandemic and intend to respond consistent with our asset/liability objectives.
The Company is a separate legal entity from Mid-Southern Savings Bank and must provide for its own liquidity. Sources of capital and liquidity for the Company include any distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. On a stand-alone basis, the Company had liquid assets of $682,000 at June 30, 2022.
Our liquidity, represented by cash and cash equivalents and investment securities, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize FHLB advances to leverage our capital base and provide funds for our lending and investment activities, and to enhance our interest rate risk management.
We use our sources of funds primarily to meet ongoing commitments, to pay maturing deposits and fund withdrawals, and to fund loan commitments. At June 30, 2022, the approved outstanding loan commitments, including unused lines and letters of credit, amounted to $20.8 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2022, totaled $22.2 million. It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with us.
The Bank is subject to minimum capital requirements imposed by the Office of the Comptroller of the Currency ("OCC"). Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a "well-capitalized" status under the capital categories of the OCC. Based on capital levels at June 30, 2022, the Bank exceeded all regulatory capital requirements and met the requirements to be deemed "well-capitalized" under applicable OCC regulatory guidelines.
The Bank elected to use the Community Bank Leverage Ratio ("CBLR") effective January 1, 2020. Effective January 1, 2022, a bank or savings institution electing to use the CBLR will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0%, an increase from the 8.5% or higher ratio requirement for fiscal year 2021. To be eligible to elect to use the CBLR, the bank or savings institution also must have total consolidated assets of less than $10 billion, off-balance sheet exposures of 25.0% or less of its total consolidated assets, and trading assets and trading liabilities of 5.0% or less of its total consolidated assets, all as of the end of the most recent quarter.
The Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 15.7% at June 30, 2022 and 16.3% at December 31, 2021.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well capitalized under the prompt corrective action regulations. If Mid-Southern Bancorp, Inc. was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at June 30, 2022, Mid-Southern Bancorp, Inc. would have exceeded all regulatory capital requirements.
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company's financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are primarily used to manage customers' requests for funding and take the form of loan commitments and letters of credit.
For the three and six months ended June 30, 2022, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company's financial condition, results of operations or cash flows.
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