VSB Bancorp, Inc. Third Quarter 2015 Results of Operations
STATEN ISLAND, NY -- (Marketwired) -- 10/14/15 -- 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 Three months months Nine months Nine months ended ended ended ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2015 2014 2015 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 Name: Ralph M. Branca President & CEO (718) 979-1100
Source: VSB Bancorp
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