STATEN ISLAND, NY--(Marketwired - Jul 15, 2015) - VSB Bancorp, Inc. (
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