October 15, 2014 16:15 ET

VSB Bancorp, Inc. Third Quarter 2014 Results of Operations

STATEN ISLAND, NY--(Marketwired - Oct 15, 2014) - VSB Bancorp, Inc. (OTCQB: VSBN) reported net income of $546,317 for the third quarter of 2014, an increase of $205,079, or 60.1%, from the third quarter of 2013. The following unaudited figures were released today. Pre-tax income was $980,017 in the third quarter of 2014, compared to $629,022 for the third quarter of 2013. Net income for the quarter was $546,317, or basic income of $0.31 per common share, compared to a net income of $341,238, or $0.19 basic income per common share, for the quarter ended September 30, 2013. Return on average assets increased from 0.44% in the third quarter of 2013 to 0.50% in the third quarter of 2014, while return on average equity increased from 4.81% to 5.14%.

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.

The $205,079 increase in net income was due to an increase in interest income of $404,598 partially offset by an increase in the provision for income taxes of $145,916, and an increase in the provision for loan loss of $80,000, due to the increase of delinquent unsecured loans.

Net interest income increased $437,824 for the third quarter of 2014 because our interest income increased by $404,598, while our cost of funds decreased by $33,226. The rise in interest income resulted from a $388,405 increase in interest income from loans due to the receipt of past due interest on a non-performing loan when we sold the loan in July 2014. The receipt of that past due interest had the effect of increasing our reported yield on loans by 80 basis points. Additionally, income from investment securities increased by $31,520 due to a $23.2 million increase in average balance between the periods partially offset by an 18 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 $15,327 due to a $23.5 million decrease in average balance. Overall, average interest-earning assets decreased by $7.1 million from the third quarter of 2013 to the third quarter of 2014.

The decrease in interest expense was principally due to a $40,434 decrease in interest on time accounts, as the average cost declined by 10 basis points and the average balance between periods decreased by $16.7 million. Average demand deposits, an interest free source of funds for us to invest, increased $13.4 million, or 13.9%, from the third quarter of 2013, representing approximately 41% of average total deposits for the third quarter of 2014. Average interest-bearing deposits decreased by $17.2 million, resulting in an overall $3.9 million decrease in average total deposits from the third quarter of 2013 to the third quarter of 2014.

The average yield on earning assets increased by 8 basis points and the average cost of funds declined by 3 basis points, from the third quarter of 2013 to the third 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 43.3% during the third quarter of 2013 to 37.4% during the third 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 margin increased by 12 basis points from 2.67% to 2.79% when comparing the third quarter of 2014 to the same quarter in 2013, while our interest rate spread increased by 11 basis points from 2.48% to 2.59%. The spread and margin both increased because of the combined effect of the rise in earnings we were able to obtain on our investments securities, the interest income recognized on the non-performing loan that we sold, the decreased average balance of low yielding other interest-earning assets, partially offset by the adverse effect of the non-receipt of interest received on non-performing loans. These increases were complemented by corresponding declines in the cost of deposits because the rates we paid on deposits were low due to low markets rates. Interest free demand deposits also increased as a percentage of our total deposits, thereby reducing our overall average cost of funds.

Non-interest income increased by $8,818 to $723,185 in the third quarter of 2014, from $714,367 in the same quarter in 2013. The most significant component of the increase was a $31,183 increase in other income due to the purchase of $5 million in Bank Owned Life Insurance (BOLI) policies in July 2014 partially offset by an $25,065 drop in service charges on deposits, which consist mainly of insufficient fund fees that are inherently volatile, and are based upon the number of items being presented for payment against insufficient funds. The BOLI funds a death benefit payable to certain employees and also provides us with tax-free revenue through the buildup of the cash surrender value of the life insurance policies. We own the insurance policies and the death benefit, representing a portion of the face amount of each insurance policy, is paid under a split dollar life insurance agreement we have with the covered employees.

Comparing the third quarter of 2014 with the same quarter in 2013, non-interest expense increased by $15,647, totaling $2.0 million for the third quarter of 2014. Non-interest expense increased for various business reasons including: (i) a $55,559 increase in salary and benefit costs due to new hires and the higher cost of some benefits; and (ii) an $18,539 increase in computer expenses as we expanded our electronic product offerings in 2014. These were partially offset by (1) a $28,878 decrease in the cost of regulatory filings and associated expenses; (2) a $18,964 decrease in legal fees due to a recovery of legal fees previously expensed; and (3) a decrease of $13,300 in professional fees due to the recent deregistration of the Company.

Total assets increased to $302.5 million at September 30, 2014, an increase of $5.3 million, or 1.8%, from December 31, 2013. The significant components of this increase were a $34.5 million increase in investment securities and a $5 million increase in BOLI, partially offset by a $28.9 million decrease in cash and other liquid assets and a $4.9 million decrease in loans. Our non-performing loans increased from $4.2 million at December 31, 2013 to $4.5 million at September 30, 2014, due primarily to three delinquent loans. We expect that two of these loans will be refinanced by other lenders or repaid on the sale of the underlying collateral during the fourth quarter of 2014. Total deposits, including escrow deposits, increased to $272.9 million, an increase of $4.3 million, or 1.6%. The increase was primarily due to the growth of demand and checking deposits, partially offset by two large withdrawals from two customers that re-deployed their deposits into non-bank investments. We had decreases of $14.7 million in time deposits and $3.2 million in NOW accounts, partially offset by increases of $2.2 million in money market accounts and $1.4 million in savings deposits. Demand and checking deposits grew by $18.4 million from year end 2013. Our total stockholders' equity increased by $883,937 as the growth of retained earnings, the positive re-evaluation 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 9.50% at September 30, 2014. 

For the first nine months of 2014, pre-tax income increased to $1,977,756 from $1,427,136 for the first nine months of 2013, a rise of $550,620, or 38.6%. Net income for the nine months ended September 30, 2014 was $1,087,577, or basic net income of $0.61 per common share, as compared to a net income of $774,178, or basic net income of $0.44 per common share, for the nine months ended September 30, 2013. The $313,399 increase in net income for the nine months ended September 30, 2014 was attributable principally to a $538,159 increase in net interest income, an $80,200 reduction in non-interest expenses and a $47,261 increase in non-interest income, partially offset by an $115,000 increase in the provision for loan losses. The decrease in non-interest expense of $80,200 was due primarily to (i) $92,505 in costs of holding real estate acquired in foreclosure in the 2013 period compared to none in the first nine months of 2014 and a $38,000 reduction in costs of regulatory filings and associated expense. These decreases were partially offset by a $57,316 increase in legal fees due to lawsuits regarding both a potential branch site and loan collection costs, and a 2013 recovery of a past due loan on which the legal fees had been expensed; and a $48,575 increase in occupancy expenses due to higher costs of repairs and maintenance. Income tax expense increased $237,221 due to the $550,620 increase in pre-tax income. The net interest margin increased by 17 basis points to 2.90% for the nine months ended September 30, 2014 from 2.73% in the same period in 2013, due to the recovery of interest on a non-performing loan, and a lower level of overnight deposits. Average interest earning assets, for the nine months ended September 30, 2014, increased by $2.5 million, or 0.9%, from the same period in 2013.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "We continue to hold our expenses in check and we have invested a substantial portion of our cash and cash equivalents in higher yielding assets to help improve our earnings. We are actively seeking new business development officers to help increase our loan portfolio, and subsequently, our net income." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We reported a 60% increase in net income from last year. We are confident that our loan portfolio will start growing as new business development officers drive loan opportunities to us. We paid our twenty-eighth consecutive dividend to our stockholders and now our book value per share stands at $15.26. Our philosophy of delivering the highest quality personal service has increased our asset size and will give us the opportunity to increase stockholder value."

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 $28.4 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).


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 
September 30, 2014 
    September 30,     December 31,  
    2014     2013  
  Cash and cash equivalents   $ 36,678,799     $ 65,562,635  
  Investment securities, available for sale     64,587,403       57,517,211  
  Investment securities, held to maturity     124,619,628       97,146,039  
  Loans receivable     68,222,074       73,081,310  
  Allowance for loan loss     (1,144,413 )     (1,093,788 )
    Loans receivable, net     67,077,661       71,987,522  
  Bank premises and equipment, net     1,879,022       1,992,527  
  Accrued interest receivable     552,811       539,092  
  Bank owned life insurance     5,035,352       -  
  Other assets     2,046,587       2,391,082  
      Total assets   $ 302,477,263     $ 297,136,108  
Liabilities and stockholders' equity:                
    Demand and checking   $ 115,089,161     $ 96,640,569  
    NOW     29,787,908       32,989,791  
    Money market     44,271,411       42,075,301  
    Savings     25,497,896       24,075,184  
    Time     57,832,844       72,538,100  
      Total Deposits     272,479,220       268,318,945  
Escrow deposits     376,316       235,633  
Accounts payable and accrued expenses     1,205,042       1,048,782  
      Total liabilities     274,060,578       269,603,360  
Stockholders' equity:                
  Common stock, ($.0001 par value, 10,000,000 shares authorized 2,078,509 issued, 1,862,545 outstanding at September 30, 2014 and 1,780,109 at December 31, 2013)     208       199  
  Additional paid in capital     10,446,432       9,364,950  
  Retained earnings     20,728,168       19,960,933  
  Treasury stock, at cost (215,964 shares at September 30, 2014 and 209,400 at December 31, 2013)     (2,197,285 )     (2,123,546 )
  Unearned ESOP shares     (959,531 )     (56,360 )
  Accumulated other comprehensive gain, net of taxes of $336,225 and $326,003, respectively     398,693       386,572  
      Total stockholders' equity     28,416,685       27,532,748  
      Total liabilities and stockholders' equity   $ 302,477,263     $ 297,136,108  
VSB Bancorp, Inc.
Consolidated Statements of Operations
September 30, 2014
    Three months   Three months     Nine months   Nine months
    ended   ended     ended   ended
    Sept. 30, 2014   Sept. 30, 2013     Sept. 30, 2014   Sept. 30, 2013
Interest and dividend income:                          
  Loans receivable   $ 1,700,514   $ 1,312,109     $ 4,155,345   $ 4,137,806
  Investment securities     849,171     817,651       2,570,970     2,093,702
  Other interest earning assets     24,395     39,722       79,752     123,781
    Total interest income     2,574,080     2,169,482       6,806,067     6,355,289
Interest expense:                          
  NOW     12,245     15,110       38,551     47,303
  Money market     58,762     57,048       174,755     157,163
  Savings     28,389     20,030       81,967     57,963
  Time     73,069     113,503       239,101     359,326
    Total interest expense     172,465     205,691       534,374     621,755
Net interest income     2,401,615     1,963,791       6,271,693     5,733,534
Provision for loan loss     125,000     45,000       295,000     180,000
    Net interest income after provision for loan loss     2,276,615     1,918,791       5,976,693     5,553,534
Non-interest income:                          
  Loan fees     17,441     13,399       33,873     37,132
  Service charges on deposits     605,546     630,611       1,751,513     1,651,242
  Net rental income     16,325     17,667       43,970     52,903
  Other income     83,873     52,690       183,811     224,629
    Total non-interest income     723,185     714,367       2,013,167     1,965,906
Non-interest expenses:                          
  Salaries and benefits     1,003,388     947,829       2,896,901     2,898,913
  Occupancy expenses     344,294     340,003       1,042,923     994,348
  Legal expense     66,513     85,477       255,953     198,637
  Professional fees     92,675     105,975       273,311     276,947
  Computer expense     89,263     70,724       259,686     223,547
  Director fees     55,275     53,375       178,075     177,625
  FDIC and NYSBD assessments     57,000     60,500       179,500     175,500
  Other expenses     311,375     340,253       925,755     1,146,787
    Total non-interest expenses     2,019,783     2,004,136       6,012,104     6,092,304
    Income before income taxes     980,017     629,022       1,977,756     1,427,136
Provision (benefit) for income taxes:                          
  Current     354,485     323,092       852,927     424,715
  Deferred     79,215     (35,308 )     37,252     228,243
    Total provision for income taxes     433,700     287,784       890,179     652,958
      Net income   $ 546,317   $ 341,238     $ 1,087,577   $ 774,178
Basic net income per common share   $ 0.31   $ 0.19     $ 0.61   $ 0.44
Diluted net income per share   $ 0.31   $ 0.19     $ 0.61   $ 0.44
Book value per common share   $ 15.26   $ 15.42     $ 15.26   $ 15.42

Contact Information

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