SOURCE: VSB Bancorp

October 14, 2015 09:30 ET

VSB Bancorp, Inc. Third Quarter 2015 Results of Operations

STATEN ISLAND, NY--(Marketwired - Oct 14, 2015) -  VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $502,422 for the third quarter of 2015, a decrease of $43,895 from the third quarter of 2014. The following unaudited figures were released today. Pre-tax income was $772,894 in the third quarter of 2015, a decrease of $207,123 or 21.1%, as compared to $980,017 for the third quarter of 2014. Net income for the quarter was $502,422, or basic income of $0.29 per common share, compared to a net income of $546,317, or $0.31 basic income per common share, for the quarter ended September 30, 2014. Return on average assets increased to 0.59% in the third quarter of 2015 as compared to 0.50% in the third quarter of 2014, while return on average equity increased to 6.49% from 5.14%, in the same period.

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 mortgage brokers, and contacting other banks to seek to acquire participating interests in loans that the other banks originate.

These strategies are having a positive effect in 2015, as we experienced growth in our core earnings, after we factor out the effect of $388,405 of past due interest income, which we recovered during the third quarter of 2014 when we sold a non-performing loan.

The $43,895 decrease in net income was due to a decrease in interest income of $99,138, an increase in non-interest expense of $169,450, an increase in interest expense of $12,051 and a decrease in non-interest income of $11,484, partially offset by a decrease in the provision for income taxes of $163,228 and a decrease in the provision for loan losses of $85,000. The decrease in the provision for income taxes was a direct result of a change in New York City tax laws in April 2015 and New York State tax laws in December 2014. 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 State and New York City income taxes in future periods. We had previously established a 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 was reflected as an increase in our provision for income taxes in prior periods.

An $111,189 decrease in net interest income for the third quarter of 2015 occurred primarily because our interest income decreased by $99,138, while our cost of funds increased by $12,051. After adjusting for the $388,405 one-time increase in interest income in the 2014 period, interest income on loans increased by $252,721 in the third quarter of 2015, due to a $28.8 million increase in average balance between the periods. The volume was partially offset by a 122 basis point decrease in yield, as we have booked new loans at lower rates due to the more competitive environment. Interest income on investment securities increased by $44,603, due to the $6.8 million increase in average balance and a 2 basis point increase in yield between the periods, which was partially offset by a $8,057 decrease in interest income from other earning assets (principally overnight investments) due to a $17.0 million decrease in the average balance partially offset by a 3 basis point increase in yield from the third quarter of 2014 to the third quarter of 2015. Overall, average interest-earning assets increased by $18.6 million from the third quarter of 2014 to the third quarter of 2015.

Interest expense increased by $12,051, or 7.0%, from $172,465 in the 2014 quarter to $184,516 in the 2015 quarter due principally to a 5.8% increase in the average volume of interest bearing liabilities. The increase in deposit volume was represented principally by an increase in money market and time accounts, which are currently our highest cost deposit categories. Average demand deposits, an interest free source of funds for us to invest, increased $9.6 million from the third quarter of 2014, representing approximately 42% of average total deposits for the third quarter of 2015. Average interest-bearing deposits increased by $9.1 million, resulting in an overall $18.8 million increase in average total deposits from the third quarter of 2014 to the third quarter of 2015.

The average yield on earning assets rose by 17 basis points while the average cost of funds remained flat. The increase in the yield on assets was principally due to the change in asset mix away from other interest earning assets (principally overnight investments) in favor of higher yielding loans and investment securities as we actively sought to increase our loan portfolio and reduce our level of low-yielding overnight deposits. Our interest rate margin increased by 17 basis point from 2.79% to 2.96% when comparing the third quarter of 2015 to the same quarter in 2014, while our interest rate spread increased by 17 basis points from 2.59% to 2.76%. 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 our low cost of deposits.

Non-interest income decreased to $711,701, in the third quarter of 2015, from $723,185 in the same quarter in 2014. The $11,484 decrease was a result of a $27,268 drop in service charges on deposits, which consist mainly of fees on items being presented for payment against insufficient funds, which are inherently volatile. This decrease was partially offset by an increase of $8,984 in loan fees due to the collection of late fees on a loan that previously went non-accrual and a $7,681 increase in other income due to an increase in ATM surcharge fee income.

Comparing the third quarter of 2015 with the same quarter in 2014, non-interest expense increased by $169,450, totaling $2.2 million for the third quarter of 2015. Non-interest expense increased for various business reasons principally including: (i) a $61,216 increase in salary and benefit costs due to a higher level of staff; (ii) a $42,686 increase in other expenses due to an increase in collection expenses (the paying real estate taxes and insurance on non-performing loans) and loan servicing fees paid on participation loans; (iii) a $39,775 increase in professional fees due to expenses relating to the recruitment of a new loan development officer; (iv) a $16,500 increase in New York State and New York City franchise tax due recent tax law changes.

Total assets increased to $317.5 million at September 30, 2015, an increase of $36.5 million, or 13.0%, from December 31, 2014. The significant component of this increase was a $33.4 million increase in loans and a $12.9 million increase in cash and other liquid assets which are being retained to fund anticipated new loan closings. This was partially offset by a $9.4 million decrease in investment securities. Our non-performing loans decreased from $4.6 million at December 31, 2014 to $2.1 million at September 30, 2015, due primarily to the sale of $1.2 million of non-performing loans, the payoff of $1.1 million in non-performing loans and the foreclosure of a $255,000 loan in the second quarter of 2015. Total OREO stood at $577,000 at September 30, 2015. Total deposits, including escrow deposits, increased to $287.4 million, an increase of $36.0 million, or 14.3%. The increase was primarily attributable to increases of $20.7 million in demand and checking deposit, $7.4 million in NOW accounts, $3.3 million increase in time deposits, $2.8 million in money market accounts, and $1.8 million in saving accounts from year end 2014.

Our total stockholders' equity increased by $123,630 during the first nine months of 2015, principally due to $735,816 in retained earnings and $75,094 of amortization of our ESOP loan. These increases were substantially offset as we repurchased 59,947 shares of common stock during 2015, resulting in an increase in treasury shares of $743,316. We are currently in our fourth stock repurchase program. The Bancorp's Tier 1 capital ratio was 8.99% at September 30, 2015. Book value per common share increased from $15.36 at year end 2014 to $15.94 at September 30, 2015.

For the first nine months of 2015, pre-tax income decreased to $1.9 million from $2.0 million for the first nine months of 2014, a reduction of $89,271, or 4.5%. Net income for the nine months ended September 30, 2015 was $1.0 million, or basic net income of $0.60 per common share, as compared to a net income of $1.1 million, or basic net income of $0.61 per common share, for the nine months ended September 30, 2014. The decrease in net income for the nine months ended September 30, 2015 compared to the same period in 2014 was attributable principally to a $544,167 increase in non-interest expense and the $155,266 valuation allowance recorded against of our deferred tax asset, as discussed above, substantially offset by $298,765 increase in net interest income, a $91,131 increase in non-interest income, and a $65,000 decrease in the provision for loan losses. 

The increase in non-interest expense of $544,167 was due primarily to: (i) a $301,195 increase in other expenses due to recording of $153,256 in expenses related to a non-performing loan sale in the second quarter of 2015, a $49,500 increase in New York State and New York City franchise tax due to the recent tax law changes, $33,575 increase in loan servicing fees paid on participation loans, $28,718 increase in checkbook charges due to increased customer base, and a $14,900 loss on a fraud; (ii) a $213,168 increase in salary and benefits due to increased staff. These increases were partially offset by a $56,161 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 decreased $50,746 due to the reduction of our effective tax rate to 35% partially offset by an increase in the valuation allowance recorded against the New York City portion of the net deferred tax asset, both as a result of the recently enacted tax law changes. The effective tax rate has dropped to approximately 35% and we expect it to remain at that level in the future based upon our current income profile, assuming no further changes in tax laws. The net interest margin increased by 14 basis points to 3.04% for the nine months ended September 30, 2015 from 2.90% in the same period in 2014, as the average balance of our loans grew by 27%, the average balance on our investment securities rose by 9% and the level of overnight deposits was reduced by 65%. Average interest earning assets for the nine months ended September 30, 2015 increased by $4.4 million, or 1.6%, from the same period in 2014.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "Our strategy to increase our loan and investment portfolios has yielded stronger core earnings. We have reduced our non-performing loans to their lowest level in six years." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "Our loan portfolio has grown by 50% from 2014. We have become more competitive with our rates while maintaining our underwriting standards. We paid our thirty-second consecutive dividend to our stockholders, continued buying back our shares, and now our book value per share stands at a record $15.94. We are focused on different methods to increase stockholder value while providing our customers the best in personal service."

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 $28.6 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  
September 30, 2015  
(unaudited)  
   
    September 30,     December 31,  
    2015     2014  
                 
Assets:                
                 
Cash and cash equivalents   $ 31,021,747     $ 18,129,166  
Investment securities, available for sale     53,720,418       64,759,836  
Investment securities, held to maturity     123,601,547       121,929,954  
Loans receivable     100,869,367       67,432,775  
  Allowance for loan loss     (1,230,790 )     (958,966 )
    Loans receivable, net     99,638,577       66,473,809  
Bank premises and equipment, net     1,612,353       1,839,292  
Accrued interest receivable     692,385       668,631  
Bank owned life insurance     5,164,288       5,068,719  
Other assets     2,079,188       2,169,514  
      Total assets   $ 317,530,503     $ 281,038,921  
                 
Liabilities and stockholders' equity:                
                 
Liabilities:                
  Deposits:                
    Demand and checking   $ 116,903,476     $ 96,170,194  
    NOW     34,666,676       27,240,106  
    Money market     48,003,924       45,245,094  
    Savings     26,359,362       24,604,737  
    Time     61,165,804       57,908,195  
      Total Deposits     287,099,242       251,168,326  
Escrow deposits     267,912       208,803  
Accounts payable and accrued expenses     1,525,229       1,147,302  
      Total liabilities     288,892,383       252,524,431  
                 
                 
Stockholders' equity:                
  Common stock, ($.0001 par value, 10,000,000 shares authorized 2,078,509 issued, 1,796,898 outstanding at September 30, 2015 and 1,856,845 at December 31, 2014)     208       208  
  Additional paid in capital     10,535,249       10,487,210  
  Retained earnings     21,542,531       20,806,715  
  Treasury stock, at cost (281,611 shares at September 30, 2015 and 221,664 at December 31, 2014)     (3,007,300 )     (2,263,984 )
  Unearned ESOP shares     (859,406 )     (934,500 )
  Accumulated other comprehensive gain, net of taxes of $229,836 and $353,216, respectively     426,838       418,841  
                 
    Total stockholders' equity     28,638,120       28,514,490  
      Total liabilities and stockholders' equity   $ 317,530,503     $ 281,038,921  
                 
                 
                 
VSB Bancorp, Inc.
Consolidated Statements of Operations
September 30, 2015
(unaudited)
 
    Three months     Three months   Nine months   Nine months
    ended     ended   ended   ended
    Sept. 30, 2015     Sept. 30, 2014   Sept. 30, 2015   Sept. 30, 2014
Interest and dividend income:                          
  Loans receivable   $ 1,564,830     $ 1,700,514   $ 4,412,202   $ 4,155,345
  Investment securities     893,774       849,171     2,666,037     2,570,970
  Other interest earning assets     16,338       24,395     31,091     79,752
    Total interest income     2,474,942       2,574,080     7,109,330     6,806,067
                           
Interest expense:                          
  NOW     14,278       12,245     35,999     38,551
  Money market     70,461       58,762     214,969     174,755
  Savings     23,851       28,389     71,773     81,967
  Time     75,926       73,069     216,131     239,101
    Total interest expense     184,516       172,465     538,872     534,374
                           
Net interest income     2,290,426       2,401,615     6,570,458     6,271,693
Provision for loan loss     40,000       125,000     230,000     295,000
    Net interest income after provision for loan loss     2,250,426       2,276,615     6,340,458     5,976,693
                           
Non-interest income:                          
  Loan fees     26,425       17,441     47,762     33,873
  Service charges on deposits     578,278       605,546     1,664,139     1,751,513
  Net rental income     15,444       16,325     56,546     43,970
  Other income     91,554       83,873     335,851     183,811
    Total non-interest income     711,701       723,185     2,104,298     2,013,167
                           
Non-interest expenses:                          
  Salaries and benefits     1,064,604       1,003,388     3,110,069     2,896,901
  Occupancy expenses     359,968       344,294     1,046,149     1,042,923
  Legal expense     67,056       66,513     199,792     255,953
  Professional fees     132,450       92,675     314,078     273,311
  Computer expense     88,919       89,263     279,583     259,686
  Director fees     56,175       55,275     181,650     178,075
  FDIC and NYSBD assessments     66,000       57,000     198,000     179,500
  Other expenses     354,061       311,375     1,226,950     925,755
    Total non-interest expenses     2,189,233       2,019,783     6,556,271     6,012,104
                               
      Income before income taxes     772,894       980,017     1,888,485     1,977,756
                           
Provision (benefit) for income taxes:                          
  Current     292,457       354,485     606,527     852,927
  Deferred     (21,985 )     79,215     232,906     37,252
    Total provision for income taxes     270,472       433,700     839,433     890,179
                           
        Net income   $ 502,422     $ 546,317   $ 1,049,052   $ 1,087,577
                           
Basic net income per common share   $ 0.29     $ 0.31   $ 0.60   $ 0.61
                           
Diluted net income per share   $ 0.29     $ 0.31   $ 0.60   $ 0.61
                           
Book value per common share   $ 15.94     $ 15.26   $ 15.94   $ 15.26

Contact Information

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