STATEN ISLAND, NY--(Marketwired - Oct 14, 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 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