SOURCE: VSB Bancorp

July 15, 2015 09:30 ET

VSB Bancorp, Inc. Second Quarter 2015 Results of Operations

STATEN ISLAND, NY--(Marketwired - Jul 15, 2015) - VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $295,285 for the second quarter of 2015, relatively stable from the second quarter of 2014. The following unaudited figures were released today. Pre-tax income was $682,452 in the second quarter of 2015, an increase of $135,809 or 24.8%, as compared to $546,643 for the second quarter of 2014. Net income for the quarter was $295,285, or basic income of $0.17 per common share, compared to a net income of $296,535, or $0.17 basic income per common share, for the quarter ended June 30, 2014. Return on average assets remained at 0.41% in the second quarter of 2014 and in the second quarter of 2015, while return on average equity decreased slightly from 4.21% to 4.19%.

VSB Bancorp, Inc. ("Bancorp") 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.

These strategies have begun to bear fruit during the second quarter of 2015, as we experienced a 24.8% increase in pretax income from the first quarter of 2014 to the first quarter of 2015, Unfortunately, this improvement was offset by a one-time change in New York City tax laws, which required a $155,266 allowance against our New York City deferred tax asset.

The $1,250 decrease in net income was due to an increase in non-interest expense of $311,938 and an increase in the provision for income taxes of $137,059 partially offset by an increase in net interest income of $344,078 and an increase in non-interest income of $103,669. The increase in the provision for income taxes was a direct result of a $155,266 valuation allowance recorded against the New York City portion of our existing net deferred tax asset. The valuation allowance was established due to a change in New York City tax laws in April 2015. The change, which provides banks with certain exclusions for qualified loans that they make, makes it likely that we will not be subject to New York City income taxes in future periods. Therefore, we established the valuation allowance to reduce the net carrying value of our deferred tax asset that we had expected to realize based upon prior law. This valuation allowance is reflected as an increase in our provision for income taxes

The $344,078 increase in net interest income for the second quarter of 2015 occurred primarily because our interest income increased by $353,261, while our cost of funds increased by $9,183. The rise in interest income resulted from a $375,499 increase in income from loans, due to a $24.0 million increase in average balance between the periods, $116,681 of which was due to a recovery of interest income on a previously non-performing loan, partially offset by a 50 basis point decrease in yield, as we have booked new loans at lower rates due to the more competitive environment. The rise in interest income on loans was partially offset by a $17,534 decrease in interest income from other earning assets (principally overnight investments) due to a $32.1 million decrease in the average balance partially offset by a 2 basis point increase in yield from the second quarter of 2014 to the second quarter of 2015. Overall, average interest-earning assets increased by $2.3 million from the second quarter of 2014 to the second quarter of 2015.

Interest expense increased by $9,183, or 5.3%, from $173,796 in the 2014 quarter to $182,979 in the 2015 quarter due principally to a slight (3.2%) increase in the average volume of interest bearing liabilities and the fact that the increase was represented entirely by an increase in money market accounts, which are currently our highest cost deposit category. Average demand deposits, an interest free source of funds for us to invest, increased $549,117 from the second quarter of 2014, representing approximately 38% of average total deposits for the second quarter of 2015. Average interest-bearing deposits increased by $5.1 million, resulting in an overall $5.8 million increase in average total deposits from the second quarter of 2014 to the second quarter of 2015.

The average yield on earning assets rose by 34 basis points while the average cost of funds rose by 1 basis point. The increase in the yield on assets was principally due to the change in asset mix from other interest earning assets to loans and investment securities as we actively sought to increase our loan portfolio and reduce our level of low-yielding overnight deposits. The rise in the cost of funds was driven principally by the 4 basis points increase in the cost of money market account deposits partially offset by the 2 basis points drop in the cost of saving deposits. Our interest rate margin increased by 33 basis point from 2.72% to 3.05% when comparing the second quarter of 2015 to the same quarter in 2014, while our interest rate spread increased by 33 basis points from 2.53% to 2.86%. The spread and margin both increased because of the combined effect of the rise in earnings we were able to obtain on the average balance of our loans and investments securities and the decreased average balance of low yielding other interest-earning assets. These increases were supported by the cost of deposits because the rates we paid on deposits were low due to low markets rates.

Non-interest income increased to $765,499 in the second quarter of 2015, from $661,830 in the same quarter in 2014. The increase was a direct result of $68,718 in non-interest income recorded upon the settlement of pending litigation, a $32,826 increase in other income due to the purchase of $5 million in Bank Owned Life Insurance (BOLI) in July 2014 and an $11,613 increase in loan fees due to the reversal of late fees on a loan that went non-accrual in the 2014 period. This was partially offset by a $35,721 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 second quarter of 2015 with the same quarter in 2014, non-interest expense increased by $311,938, totaling $2.3 million for the second quarter of 2015. Non-interest expense increased for various business reasons including: (i) a $261,977 increase in other expenses due to a $167,372 increase in collection expenses, due to the sale of the two non-performing loans in the second quarter of 2015, a $24,750 increase in New York State and New York City franchise tax due to the recent tax law changes, a $14,900 loss on a wire fraud initiated by an unrelated third party, a $11,317 increase in checkbook charges, and (ii) an $63,515 increase in salary and benefit costs due to a higher level of staff. These increases were partially offset by a $43,399 decrease in legal fees as a result of a recovery of a charged-off loan and the litigation settlement referenced above.

Total assets increased to $290.3 million at June 30, 2015, an increase of $9.3 million, or 3.3%, from December 31, 2014. The significant component of this increase was a $27.2 million increase in loans partially offset by a $12.5 million decrease in investment securities and a $5.0 million decrease in cash and other liquid assets. Our non-performing loans decreased from $4.6 million at December 31, 2014 to $3.3 million at June 30, 2015, due primarily to the sale of $1.2 million of non-performing loans and the foreclosure of a $255,000 loan in the second quarter of 2015. Total OREO stood at $536,000 at June 30, 2015. Total deposits, including escrow deposits, increased to $260.3 million, an increase of $8.9 million, or 3.6%. The increase was primarily attributable to $3.2 million in NOW accounts, $2.1 million in demand and checking deposit, a $2.0 million increase in time deposits and a $1.7 million in money market accounts, from year end 2014.

Our total stockholders' equity decreased by $253,704, principally because treasury shares increased by $676,778 as we repurchased 54,636 additional shares of common stock during the first half of 2015, completing our third stock repurchase program. We recently announced our fourth stock repurchase program. This decrease was partially offset principally by a $336,568 growth of retained earnings and the amortization of our ESOP loan. The Bancorp's Tier 1 capital ratio was 9.42% at June 30, 2015. 

For the first six months of 2015, pre-tax income increased to $1.1 million from $997,739 for the first six months of 2014, an improvement of $117,852, or 11.8%. Net income for the six months ended June 30, 2015 was $546,630, or basic net income of $0.31 per common share, as compared to a net income of $541,260, or basic net income of $0.30 per common share, for the six months ended June 30, 2014. The relative equivalence in net income for the six months ended June 30, 2015 compared to the same period in 2014 was attributable principally to a $409,954 increase in net interest income and a $102,615 increase in non-interest income, substantially offset by a $374,717 increase in non-interest expenses, a $20,000 increase in the provision for loan losses and the $155,266 valuation allowance recorded against of our deferred tax asset, as discussed above. 

The increase in non-interest expense of $374,717 was due primarily to (i) a $258,509 increase in other expenses due to a $153,256 increase in collection expenses, due to the sale of the two non-performing loans in 2015, a $33,000 increase in New York State and New York City franchise tax due to the recent tax law changes, and $14,900 loss on a fraud; and (ii) a $151,952 increase in employee salary and benefit costs due to a higher level of staff. These increases were partially offset by a $56,704 decrease in legal fees due to a recovery of a charged-off loan which the legal fees had been expensed and the settlement received on our previous litigation. Income tax expense increased $112,482 due to the valuation allowance recorded against the New York City portion of the net deferred tax asset and the $117,852 increase in pre-tax income. The effective tax rate is expected to drop to approximately 35% in future periods due to the recently enacted tax laws. The net interest margin increased by 27 basis points to 3.02% for the six months ended June 30, 2015 from 2.75% in the same period in 2014, as the average balance of our loans grew by 20%, the average balance on our investment securities rose by 12% and the level of overnight deposits was reduced by 76%. Average interest earning assets for the six months ended June 30, 2015 decreased by $2.9 million, or 1.0%, from the same period in 2014.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "The growth in our loan portfolio is reflected in our net interest income. While the NYC tax law change and the sale of two non-performing loans negatively impacted our company this quarter, we have surmounted the challenge. We are continuing to reduce the level of our non-performing loans." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We reported a 25% increase in pre-tax income from the 2014 period. We paid our thirty-first consecutive dividend to our stockholders, continued buying back our shares, and now our book value per share stands at $15.68. We recently started our fourth stock buyback program as we seek to increase stockholder value while providing the utmost in personal service to our customers."

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 $28.3 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  
June 30, 2015  
 (unaudited)  
             
    June 30,     December 31,  
    2015     2014  
                 
Assets:                
                 
  Cash and cash equivalents   $ 13,079,188     $ 18,129,166  
  Investment securities, available for sale     56,706,181       64,759,836  
  Investment securities, held to maturity     117,440,422       121,929,954  
  Loans receivable     94,591,412       67,432,775  
    Allowance for loan loss     (1,184,217 )     (958,966 )
      Loans receivable, net     93,407,195       66,473,809  
  Bank premises and equipment, net     1,689,742       1,839,292  
  Accrued interest receivable     696,093       668,631  
  Bank owned life insurance     5,133,861       5,068,719  
  Other assets     2,139,489       2,169,514  
        Total assets   $ 290,292,171     $ 281,038,921  
                 
Liabilities and stockholders' equity:                
                 
  Liabilities:                
    Deposits:                
      Demand and checking   $ 98,288,330     $ 96,170,194  
      NOW     30,406,897       27,240,106  
      Money market     46,941,214       45,245,094  
      Savings     24,612,560       24,604,737  
      Time     59,956,310       57,908,195  
        Total Deposits     260,205,311       251,168,326  
    Escrow deposits     86,412       208,803  
    Accounts payable and accrued expenses     1,739,662       1,147,302  
        Total liabilities     262,031,385       252,524,431  
                 
                 
Stockholders' equity:                
  Common stock, ($.0001 par value, 10,000,000 shares authorized 2,078,509 issued, 1,802,209 outstanding at June 30, 2015 and 1,856,845 at December 31, 2014)     208       208  
  Additional paid in capital     10,525,204       10,487,210  
  Retained earnings     21,143,283       20,806,715  
  Treasury stock, at cost (276,300 shares at June 30, 2015 and 221,664 at December 31, 2014)     (2,940,762 )     (2,263,984 )
  Unearned ESOP shares     (884,438 )     (934,500 )
  Accumulated other comprehensive gain, net of taxes of $224,695 and $353,216, respectively     417,291       418,841  
                   
      Total stockholders' equity     28,260,786       28,514,490  
                   
        Total liabilities and stockholders' equity   $ 290,292,171     $ 281,038,921  
                 
   
   
VSB Bancorp, Inc.  
Consolidated Statements of Operations  
June 30, 2015  
(unaudited)  
                     
    Three months   Three months     Six months   Six months  
    ended   ended     ended   ended  
    June 30, 2015   June 30, 2014     June 30, 2015   June 30, 2014  
Interest and dividend income:                            
  Loans receivable   $ 1,567,490   $ 1,191,991     $ 2,847,372   $ 2,454,831  
  Investment securities     866,143     870,847       1,772,263     1,721,799  
  Other interest earning assets     7,380     24,914       14,753     55,357  
    Total interest income     2,441,013     2,087,752       4,634,388     4,231,987  
                             
Interest expense:                            
  NOW     11,245     12,538       21,721     26,306  
  Money market     73,236     59,596       144,508     115,993  
  Savings     24,209     27,502       47,922     53,578  
  Time     74,289     74,160       140,205     166,032  
    Total interest expense     182,979     173,796       354,356     361,909  
                             
Net interest income     2,258,034     1,913,956       4,280,032     3,870,078  
Provision for loan loss     30,000     30,000       190,000     170,000  
  Net interest income                            
    after provision for loan loss     2,228,034     1,883,956       4,090,032     3,700,078  
                             
Non-interest income:                            
  Loan fees     10,671     (942 )     21,337     16,432  
  Service charges on deposits     557,340     593,061       1,085,861     1,145,967  
  Net rental income     37,263     17,203       41,102     27,645  
  Other income     160,225     52,508       244,297     99,938  
    Total non-interest income     765,499     661,830       1,392,597     1,289,982  
                             
Non-interest expenses:                            
  Salaries and benefits     1,020,963     957,448       2,045,465     1,893,513  
  Occupancy expenses     343,225     338,316       686,181     698,629  
  Legal expense     50,977     94,376       132,736     189,440  
  Professional fees     87,300     79,419       181,628     180,636  
  Computer expense     95,822     92,267       190,664     170,423  
  Director fees     63,000     57,500       125,475     122,800  
  FDIC and NYSBD assessments     66,000     58,000       132,000     122,500  
  Other expenses     583,794     321,817       872,889     614,380  
    Total non-interest expenses     2,311,081     1,999,143       4,367,038     3,992,321  
                             
      Income before income taxes     682,452     546,643       1,115,591     997,739  
                             
Provision (benefit) for income taxes:                            
  Current     64,484     253,513       314,070     498,442  
  Deferred     322,683     (3,405 )     254,891     (41,963 )
    Total provision for income taxes     387,167     250,108       568,961     456,479  
                                 
      Net income   $ 295,285   $ 296,535     $ 546,630   $ 541,260  
                             
Basic net income per common share   $ 0.17   $ 0.17     $ 0.31   $ 0.30  
                             
Diluted net income per share   $ 0.17   $ 0.17     $ 0.31   $ 0.30  
                             
Book value per common share   $ 15.68   $ 15.08     $ 15.68   $ 15.08  

Contact Information

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