SOURCE: VSB Bancorp

January 21, 2015 16:15 ET

VSB Bancorp, Inc. Fourth Quarter 2014 Results of Operations

STATEN ISLAND, NY--(Marketwired - Jan 21, 2015) - VSB Bancorp, Inc. (OTCQB: VSBN) reported net income of $184,917 for the fourth quarter of 2014, or basic income of $0.10 per common share, a decrease of $92,376, or 33.3%, from net income of $277,293, or $0.16 basic income per common share, for the fourth quarter of 2013. The following unaudited figures were released today. Pre-tax income was $537,389 in the fourth quarter of 2014, an increase of 5.1%, compared to $511,099 for the fourth quarter of 2013. Return on average assets decreased from 0.36% in the fourth quarter of 2013 to 0.20% in the fourth quarter of 2014, while return on average equity decreased from 3.87% to 2.11%.

The $92,376 decrease in net income was principally due to an increase in the provision for income taxes of $118,666 partially offset by a decrease in the provision for loan loss of $55,000. The increase in the provision for income taxes was a direct result of a $177,000 valuation allowance recorded against the New York State portion of the net deferred tax asset. The valuation allowance was established due to tax reform passed by New York State in 2014. The tax reform provides banks with certain exclusions on qualified loans that make it likely that we will not be subject to New York State income taxes in future periods. This valuation allowance is reflected as an increase in our provision for income taxes.

VSB Bancorp, Inc. is implementing a strategy to increase interest income while not taking excessive interest rate risk in the event that market interest rates increase. This strategy comprises a number of components. We have redeployed a portion of our overnight and short term investments into higher yielding securities investments. We are also aggressively seeking to increase our loan portfolio through a combination of outreach efforts in our community, hiring new loan business development officers to produce more loans outside of the Staten Island market, seeking prudent loans through high quality mortgage brokers, and contacting other banks to seek to acquire participating interests in loans that the other banks originate. We hired a new business development officer, Vice President Johnny Reyes, as we broaden our lending into the areas outside of Staten Island.

Net interest income decreased $15,494 for the fourth quarter of 2014 compared to the same period in 2013 because our interest income decreased by $46,854, while our cost of funds decreased by $31,360. The decline in interest income resulted from a $199,980 decrease in interest income from loans principally due to a reduction in the average balance of $6.7 million and a decrease of 44 basis points in the yield on loans. Additionally, income from investment securities increased by $172,495 due to a $37.2 million increase in average balance between the periods partially offset by a 19 basis point decrease in yield, as new securities were purchased at market rates at or below the rates on securities repaid or matured, between the periods.

Interest income from other interest earning assets (principally overnight investments) decreased by $19,369 due to a $29.7 million decrease in average balance. Overall, average interest-earning assets increased by $790,079 from the fourth quarter of 2013 to the fourth quarter of 2014.

The decrease in interest expense was principally due to a $36,368 decrease in interest on time accounts, as the average cost declined by 9 basis points and the average balance between periods decreased by $15.1 million. Average demand deposits, an interest free source of funds for us to invest, increased $18.6 million, or 19.6%, from the fourth quarter of 2013, representing approximately 42% of average total deposits for the fourth quarter of 2014. Average interest-bearing deposits decreased by $15.0 million, resulting in an overall $3.5 million increase in average total deposits from the fourth quarter of 2013 to the fourth quarter of 2014.

The average yield on earning assets decreased by 15 basis points and the average cost of funds declined by 4 basis points, from the fourth quarter of 2013 to the fourth quarter of 2014. The decline in the cost of funds was driven principally by the decline in the rate we paid on time accounts and a decline in the balance of time accounts as a percentage of total interest-bearing deposits from 42.4% during the fourth quarter of 2013 to 36.7% during the fourth quarter of 2014. Time accounts are our highest cost deposit category. These factors that reduced our cost of funds were partially offset by the 8 basis point increase in the cost of saving account deposits. Our interest rate spread decreased by 11 basis points from 2.56% to 2.45% when comparing the fourth quarter of 2014 to the same quarter in 2013, while our interest rate margin decreased by 11 basis points from 2.75% to 2.64%. The spread and margin both decreased because of the decreased average balance and yield of the loan portfolio, and the adverse effect of the non-receipt of interest received on non-performing loans which was partially offset by the rise in earnings we were able to obtain on our investments securities and the corresponding declines in the cost of deposits because the rates we paid on deposits were low due to low markets rates.

Non-interest income increased by $6,021 to $666,178 in the fourth quarter of 2014, from $660,157 in the same quarter in 2013. The most significant component of the increase was a $33,367 increase in other income due to the purchase of $5 million in Bank Owned Life Insurance (BOLI) in July 2014. This was partially offset by a $17,986 reduction in loan fees as we reversed late fees on a loan that went non-accrual and a $14,548 drop in service charges on deposits, which consist mainly of fees on items being presented for payment against insufficient funds, which are inherently volatile.

Comparing the fourth quarter of 2014 with the same quarter in 2013, non-interest expense increased by $19,237, totaling $2.1 million for the fourth quarter of 2014. Non-interest expense increased for various business reasons including a $66,176 increase in salary and benefit costs due to new hires and the higher cost of some benefits, a $33,517 increase in professional fees due primarily to a placement fee for a new employee and a $9,857 increase in computer expenses as we expanded our electronic product offerings in 2014. These were partially offset by: i.) a decrease of $37,763 in loan costs due to reduced expenses on other real estate owned; ii.) a $23,627 decrease in legal fees due to a recovery of legal fees previously expensed; iii.) a decrease of $11,352 in occupancy costs due to lower repairs and maintenance; and iv.) a drop of $10,043 in costs of regulatory filings and associated costs, as we completed the deregistering of our Bancorp in 2014.

Total assets decreased to $281.0 million at December 31, 2014, a decrease of $16.1 million, or 5.4%, from December 31, 2013. The significant components were a $47.4 million decrease in cash and other liquid assets, and a $5.6 million decrease in loans, partially offset by a $32.0 million increase in investment securities and a $5.1 million increase in BOLI. Our non-performing loans increased from $4.5 million at December 31, 2013 to $4.6 million at December 31, 2014, due primarily to one delinquent loan, which is expected to be refinanced or repaid upon the sale of the underlying collateral in the first quarter of 2015. Total deposits, including escrow deposits, decreased to $251.4 million, a decrease of $17.2 million, or 6.4%. The decrease was primarily attributed to large withdrawals from two customers that re-deployed deposits into non-bank investments. These withdrawals primarily contributed the decrease of $14.6 million in time deposits. NOW accounts decreased $5.7 million as attorney escrow accounts were depleted due to loan closings. This was partially offset by the increase of $3.2 million in money market accounts and $529,553 in savings deposits. Demand and checking deposits were relatively flat from year end 2013. Our total stockholders' equity increased by $981,742 as the growth of retained earnings, the positive valuation of our available for sale portfolio, and the amortization of our ESOP loan were partially offset by the increase in treasury shares. The Bancorp's Tier 1 capital ratio was 9.34% at December 31, 2014. 

For the year ended of 2014, pre-tax income increased to $2,515,145 from $1,938,235 for the year ended of 2013, a rise of $576,910, or 29.8%. Net income for the year ended December 31, 2014 was $1,272,494 or basic net income of $0.72 per common share, as compared to a net income of $1,051,471, or basic net income of $0.59 per common share, for the year ended December 31, 2013. The $221,023 increase in net income for the year ended December 31, 2014 was attributable principally to a $522,665 increase in net interest income, a $60,963 reduction in non-interest expenses and a $53,282 increase in non-interest income, partially offset by a $60,000 increase in the provision for loan losses and a $355,887 increase in the provision for income taxes due to higher pre-tax income and the $177,000 valuation allowance recorded against of our deferred tax asset as discussed above. The decrease in non-interest expense of $60,963 was due primarily to $130,268 in costs of holding real estate acquired in foreclosure in 2013 compared to none in 2014 and a $48,000 decrease in the costs of regulatory filings and related matters. These decreases were partially offset by a $64,164 increase in salary and benefit costs due to new hires, a $45,996 increase in computer expenses as we expanded our electronic product offerings in 2014, a $37,223 increase in occupancy expenses due to higher costs of repairs and maintenance and a $33,689 increase in legal fees due to ongoing litigation, collection costs and a 2013 recovery of a past due loan on which the legal fees had been expensed and a $29,881 increase in professional fees due primarily to a placement fee for a new employee. Income tax expense increased $355,887 due to the $576,910 increase in pre-tax income and the valuation allowance recorded against the New York State portion of the net deferred tax asset. The net interest margin increased by 16 basis points to 2.91% for the year ended December 31, 2014 from 2.75% in the same period in 2013, as we recovered interest on a non-performing loan, and we redeployed low yielding overnight deposits into higher yielding securities investments. Average interest earning assets for the year ended December 31, 2014, increased by $2.0 million, or 0.7%, from the same period in 2013.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "We increased our net income in 2014, even with the negative effects of recording a valuation allowance on a portion of our deferred tax asset. The addition of our new business development officer and new loan participants are critical in our plan to increase our loan portfolio." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We are expecting our loan portfolio to grow as we have successfully purchased $10 million in new loans in 2015 and we have seen an increase in new loan opportunities as we adjusted our rates to better reflect the market. We paid our twenty-ninth consecutive dividend to our stockholders and now our book value per share stands at $15.36. We are dedicated to increasing stockholder value and we believe that 2015 will show greater results than last year."

VSB Bancorp, Inc. is the one-bank holding company for Victory State Bank. Victory State Bank, a Staten Island based commercial bank, which commenced operations on November 17, 1997. The Bank's initial capitalization of $7.0 million was primarily raised in the Staten Island community. The Bancorp's total equity has increased to $28.5 million primarily through the retention of earnings. The Bank operates five full service locations in Staten Island: the main office in Great Kills, and branches on Forest Avenue (West Brighton), Hyatt Street (St. George), Hylan Boulevard (Dongan Hills) and on Bay Street (Rosebank).

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to adverse changes in local, regional or national economic conditions, fluctuations in market interest rates, changes in laws or government regulations, weaknesses of other financial institutions, changes in customer preferences, and changes in competition within our market area. When used in this release or in any other written or oral statements by the Company or its directors, officers or employees, words or phrases such as "will result in," "management expects that," "will continue," "is anticipated," "estimate," "projected," or similar expressions, and other terms used to describe future events, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date of the statement. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. This statement is included for the express purpose of protecting the Company under the PSLRA's safe harbor provisions.

   
VSB Bancorp, Inc.  
Consolidated Statements of Financial Condition  
December 31, 2014  
(unaudited)  
             
    December 31,     December 31,  
    2014     2013  
                 
Assets:                
                 
Cash and cash equivalents   $ 18,129,166     $ 65,562,635  
Investment securities, available for sale     64,759,836       57,517,211  
Investment securities, held to maturity     121,929,954       97,146,039  
Loans receivable     67,432,775       73,081,310  
Allowance for loan loss     (958,966 )     (1,093,788 )
  Loans receivable, net     66,473,809       71,987,522  
Bank premises and equipment, net     1,839,292       1,992,527  
Accrued interest receivable     668,631       539,092  
Bank owned life insurance     5,068,719       -  
Other assets     2,169,514       2,391,082  
    Total assets   $ 281,038,921     $ 297,136,108  
                 
Liabilities and stockholders' equity:                
                 
Liabilities:                
Deposits:                
  Demand and checking   $ 96,170,194     $ 96,640,569  
  NOW     27,240,106       32,989,791  
  Money market     45,245,094       42,075,301  
  Savings     24,604,737       24,075,184  
  Time     57,908,195       72,538,100  
    Total Deposits     251,168,326       268,318,945  
Escrow deposits     208,803       235,633  
Accounts payable and accrued expenses     1,147,302       1,048,782  
    Total liabilities     252,524,431       269,603,360  
                 
                 
Stockholders' equity:                
Common stock, ($.0001 par value, 10,000,000 shares authorized 2,078,509 issued, 1,856,845 outstanding at December 31, 2014 and 1,780,109 at December 31, 2013)     208       199  
Additional paid in capital     10,487,210       9,364,950  
Retained earnings     20,806,715       19,960,933  
Treasury stock, at cost (221,664 shares at December 31, 2014 and 209,400 at December 31, 2013)     (2,263,984 )     (2,123,546 )
Unearned ESOP shares     (934,500 )     (56,360 )
Accumulated other comprehensive gain, net of taxes of $353,216 and $326,003, respectively     418,841       386,572  
                 
  Total stockholders' equity     28,514,490       27,532,748  
                 
    Total liabilities and stockholders' equity   $ 281,038,921     $ 297,136,108  
                     
                     
                   
VSB Bancorp, Inc.
Consolidated Statements of Operations
December 31, 2014
(unaudited)
                   
    Three months     Three months   Year   Year
    ended     ended   ended   ended
    Dec. 31, 2014     Dec. 31, 2013   Dec. 31, 2014   Dec. 31, 2013
Interest and dividend income:                          
  Loans receivable   $ 1,117,463     $ 1,317,443   $ 5,272,808   $ 5,455,249
  Investment securities     1,031,139       858,644     3,602,109     2,952,346
  Other interest earning assets     14,781       34,150     94,533     157,931
    Total interest income     2,163,383       2,210,237     8,969,450     8,565,526
                           
Interest expense:                          
  NOW     11,182       15,348     49,733     62,651
  Money market     63,024       61,315     237,779     218,478
  Savings     26,747       19,282     108,714     77,245
  Time     70,907       107,275     310,008     466,601
    Total interest expense     171,860       203,220     706,234     824,975
                           
Net interest income     1,991,523       2,007,017     8,263,216     7,740,551
Provision for loan loss     50,000       105,000     345,000     285,000
    Net interest income after provision for loan loss     1,941,523       1,902,017     7,918,216     7,455,551
                           
Non-interest income:                          
  Loan fees     (6,384 )     11,602     27,489     48,734
  Service charges on deposits     568,225       582,773     2,319,738     2,234,015
  Net rental income     16,320       16,844     60,290     69,747
  Other income     88,017       48,938     271,828     273,567
    Total non-interest income     666,178       660,157     2,679,345     2,626,063
                           
Non-interest expenses:                          
  Salaries and benefits     996,657       930,481     3,893,558     3,829,394
  Occupancy expenses     327,583       338,935     1,370,506     1,333,283
  Legal expense     74,075       97,702     330,028     296,339
  Professional fees     116,311       82,794     389,622     359,741
  Computer expense     95,120       85,263     354,806     308,810
  Director fees     54,675       60,600     232,750     238,225
  FDIC and NYSBD assessments     66,000       62,500     245,500     238,000
  Other expenses     339,891       392,800     1,265,646     1,539,587
    Total non-interest expenses     2,070,312       2,051,075     8,082,416     8,143,379
                           
      Income before income taxes     537,389       511,099     2,515,145     1,938,235
                           
Provision (benefit) for income taxes:                          
  Current     (42,883 )     149,974     810,044     574,689
  Deferred     395,355       83,832     432,607     312,075
    Total provision for income taxes     352,472       233,806     1,242,651     886,764
                             
        Net income   $ 184,917     $ 277,293   $ 1,272,494   $ 1,051,471
                           
Basic net income per common share   $ 0.10     $ 0.16   $ 0.72   $ 0.59
                           
Diluted net income per share   $ 0.10     $ 0.16   $ 0.72   $ 0.59
                           
Book value per common share   $ 15.36     $ 15.47   $ 15.36   $ 15.47
                           
                           

Contact Information

  • Contact Name:
    Ralph M. Branca
    President & CEO
    (718) 979-1100