VSB Bancorp, Inc.Second Quarter 2017 Results of Op
Post# of 617763
STATEN ISLAND, NY--(Marketwired - Jul 12, 2017) - VSB Bancorp, Inc. (
The $333,285 increase in net income was due to an increase in net interest income of $627,889 and a decrease in the provision for loan loss of $145,000. We did not record a provision for loan loss in the second quarter as we recovered over $160,000 on three loans that were previously charged off. The increase in net income was partially offset by a $179,580 increase in the provision for income taxes, due to the increase in pre-tax income, a $147,340 increase in non-interest expense, and a decrease in non-interest income of $112,684.
The $627,889 increase in net interest income for the second quarter of 2017 occurred primarily because our interest income increased by $625,044, while our cost of funds decreased by $2,845. The rise in interest income resulted from a $366,558 increase in income from loans. The 2017 period included $187,143 in interest we received in 2017 on loans that were non-performing or charged-off in prior periods. In addition, we had a $15.0 million increase in average loan balance between the periods, partially offset by a 2 basis point decrease in yield between the periods, as we booked new loans at lower rates due to a more competitive environment. The average balance of loans increased by 13.0% as we implemented our strategy to increase our loan portfolio, which helped improve our earnings. Income from investment securities increased by $167,002, as approximately half of a 15 basis point increase in the average yield resulted from $139,622 of interest included in the 2017 period due to prepayment of interest on a FNMA security that paid off prior to its maturity.
Interest income from other interest earning assets (principally overnight investments) increased by $91,484 due to a $21.0 million increase in the average balance and a 53 basis point increase in the average yield. This average yield increase corresponded to the Federal Reserve's increase in the target federal funds rate between the periods. Overall, average interest-earning assets increased by $35.3 million from the second quarter of 2016 to the second quarter of 2017.
The modest decrease in interest expense was principally due to a $14,757 decrease in the cost of time accounts, due to a 5 basis point decrease in average cost and to a $5.8 million decrease in the average balance. There was a $11,586 increase in interest on NOW accounts, as the average cost increased by 4 basis points while the average balance between periods increased by $11.7 million. Our overall average cost of interest-bearing liabilities decreased by 3 basis points. The Federal Reserve increased the benchmark federal funds rate by 25 basis points in June 2017, which may result in an upward pressure on deposit rates generally.
Average demand deposits, an interest free source of funds for us to invest, increased $23.7 million from the second quarter of 2016 and represented approximately 43% of average total deposits for the second quarter of 2017. Average interest-bearing deposits increased by $10.0 million, resulting in an overall $33.8 million increase in average total deposits from the second quarter of 2016 to the second quarter of 2017.
The average yield on earning assets rose by 8 basis points while the average cost of funds fell by 3 basis points. The increase in the yield on assets was principally due to the receipt of $326,765 in non-recurring interest income from loans and investment securities in the second quarter of 2017, as discussed above. Without the non-recurring income, our average yield increased by 3 basis points. Our interest rate margin increased by 12 basis points from 3.09% to 3.21% when comparing the second quarter of 2017 to the same quarter in 2016, while our interest rate spread increased by 11 basis points from 2.86% to 2.97% in the same period. We estimate that without the non-recurring income, the spread would have increased by 2 basis points and the margin would have increased by 3 basis points. The margin increased because of a combination of factors. We received $326,765 in non-recurring interest income in the second quarter of 2017, our average loan balance increased by $15.0 million and we continue to have an increase in earnings from assets funded by non-interest bearing demand deposits and capital. However, while our current cost of deposits has not risen, additional increases in the federal funds rate this year has increased competition for deposits, as more banks raise their interest rates to attract new deposits, and may necessitate an increase in future deposit rates.
Non-interest income decreased to $641,841 in the second quarter of 2017, compared to $754,525 in the same quarter in 2016. The decrease was a result of a $122,192 decrease in other income, as we had a $120,751 gain on the sale of REO property in the 2016 period, and a $31,386 reduction in service charges on deposits, which consist mainly of fees on items being presented for payment against insufficient funds, which are inherently volatile. This was partially offset by a $47,353 increase in loan fees as we collected prepayment income and exit fees on loans that were repaid ahead of maturity.
Comparing the second quarter of 2017 with the same quarter in 2016, non-interest expense increased by $147,340, totaling $2.3 million for the second quarter of 2017. Non-interest expense increased for various business reasons including: (i) a $58,620 increase in salary and benefit costs due to a higher level of staff; (ii) a $37,625 increase in occupancy expenses due principally to the commencement of rent payments on a proposed new branch; (iii) a $36,310 increase in legal fees due to higher litigation and collection costs; and (iv) a $22,647 increase in professional fees due to higher recruitment fees and the engagement of a third party review firm for bank secrecy act compliance. The increases were partially offset by a $20,728 decrease in other expenses for various reasons.
Total assets increased to $355.7 million at June 30, 2017, an increase of $22.7 million, or 6.8%, from December 31, 2016. The latest components of this increase were a $15.2 million increase in investment securities, as we redeployed cash, and a $9.2 million increase in loans, partially offset by a $1.5 million decrease in cash and other liquid assets. Our non-performing loans decreased from $1.8 million at December 31, 2016 to $1.2 million at June 30, 2017, due primarily to the payoff of $580,370 in non-performing loans in 2017. Total OREO stood at $51,000 at June 30, 2017. Total deposits, including escrow deposits, increased to $322.1 million, an increase of $21.2 million, or 7.1% during 2017. The increase was primarily attributable to increases of $13.3 million in NOW accounts, $8.3 million in demand and checking deposits, and $3.2 million in saving accounts, partially offset by a $4.0 million decrease in time deposits.
Our total stockholders' equity increased by $1.5 million, principally due to $1.2 million in retained earnings, $200,311 in additional paid in capital, $50,062 of amortization of our ESOP loan, and $31,847 in other comprehensive income. VSB Bancorp's Tier 1 capital ratio was 8.81% at June 30, 2017. Book value per common share increased from $16.72 at year end 2016 to $17.51 at June 30, 2017.
For the first six months of 2017, pre-tax income increased to $2.3 million from $1.7 million for the first six months of 2017, an improvement of $621,178, or 36.4%. Net income for the six months ended June 30, 2017 was $1.5 million, or basic net income of $0.85 per common share, as compared to net income of $1.1 million, or basic net income of $0.64 per common share, for the six months ended June 30, 2016. The increase in net income for the six months ended June 30, 2017 compared to the same period in 2016 was attributable principally to a $854,512 increase in net interest income (due to the non-recurring interest income in the second quarter and the higher average loan balance), a $180,000 reduction in the provision for loan loss, and a $217,469 increase in the provision for income taxes. These increases were partially offset by a $328,208 increase in non-interest expenses and an $85,126 decrease in other income.
The increase in non-interest expense of $328,208 was due primarily to (i) a $176,962 increase in salary and benefit costs due to the acceleration of stock option expenses as a result of a director resignation, severance paid to a departing employee and a higher level of staff; (ii) a $83,818 increase in legal expenses due to an increase in collection and litigation; (iii) a $61,695 increase in professionals fees because we hired our new human resource manager through a recruitment agency and we retained a third party to review some of our bank secrecy act compliance systems; and (iv) a $37,108 increase in occupancy expenses due principally to the payment of partial rent on a proposed new branch. The increases were partially offset by a $40,347 decrease in other expenses for various reasons. The net interest margin increased by 11 basis points to 3.21% for the six months ended June 30, 2017 from 3.10% in the same period in 2016, as the average balance of our loans grew by 15%. Without the effect of the non-interest income, the net interest margin increased by 3 basis points. Average interest earning assets for the six months ended June 30, 2017 increased by $34.7 million, or 11.1%, from the same period in 2016.
Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "Our earnings results demonstrate solid core earnings growth. We have reduced our non-performing loans and we have increased our loan portfolio. This is expected to translate into higher income in the future." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We are continuing to implement our strategic plan, which has added more value to our stockholders. We paid our thirtieth-ninth consecutive cash dividend and our book value per share has now reached $17.51 by delivering the best in personal service, we have set ourselves apart from our competitors."
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 $32.1 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). We are planning to open a sixth branch in Meiers Corners section of Staten Island, subject to regulatory and building department approvals.
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, 2017 | |||||||||||
| (unaudited) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2017 | 2016 | ||||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | 35,730,575 | $ | 37,240,361 | |||||||
| Investment securities, available for sale | 46,057,792 | 42,588,960 | |||||||||
| Investment securities, held to maturity | 130,737,343 | 118,979,809 | |||||||||
| Loans receivable | 135,370,082 | 126,196,441 | |||||||||
| Allowance for loan loss | (1,570,520 | ) | (1,374,567 | ) | |||||||
| Loans receivable, net | 133,799,562 | 124,821,874 | |||||||||
| Bank premises and equipment, net | 1,260,193 | 1,418,054 | |||||||||
| Accrued interest receivable | 815,067 | 756,277 | |||||||||
| Bank owned life insurance | 5,376,112 | 5,316,199 | |||||||||
| Other assets | 1,951,823 | 1,951,425 | |||||||||
| Total assets | $ | 355,728,467 | $ | 333,072,959 | |||||||
| Liabilities and stockholders' equity: | |||||||||||
| Liabilities: | |||||||||||
| Deposits: | |||||||||||
| Demand and checking | $ | 131,836,329 | $ | 123,572,468 | |||||||
| NOW | 54,813,278 | 41,489,564 | |||||||||
| Money market | 56,035,291 | 55,644,761 | |||||||||
| Savings | 26,006,269 | 22,774,931 | |||||||||
| Time | 53,149,489 | 57,146,886 | |||||||||
| Total Deposits | 321,840,656 | 300,628,610 | |||||||||
| Escrow deposits | 266,948 | 244,784 | |||||||||
| Accounts payable and accrued expenses | 1,538,718 | 1,627,210 | |||||||||
| Total liabilities | 323,646,322 | 302,500,604 | |||||||||
| Stockholders' equity: | |||||||||||
| Common stock, ($.0001 par value, 10,000,000 shares authorized 2,090,676 issued, 1,832,465 outstanding at June 30, 2017 and 2,086,509 issued, 1,828,298 outstanding at December 31, 2016) | 209 | 209 | |||||||||
| Additional paid in capital | 10,469,765 | 10,269,454 | |||||||||
| Retained earnings | 24,997,134 | 23,769,564 | |||||||||
| Treasury stock, at cost (258,211 shares at June 30, 2017 and at December 31, 2016) | (2,717,128 | ) | (2,717,128 | ) | |||||||
| Unearned ESOP shares | (684,188 | ) | (734,250 | ) | |||||||
| Accumulated other comprehensive gain (loss), net of taxes of $8,805 and ($8,343), respectively | 16,353 | (15,494 | ) | ||||||||
| Total stockholders' equity | 32,082,145 | 30,572,355 | |||||||||
| Total liabilities and stockholders' equity | $ | 355,728,467 | $ | 333,072,959 | |||||||
| VSB Bancorp, Inc. | ||||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||||
| June 30, 2017 | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Three months | Three months | Six months | Six months | |||||||||||||||||
| ended | ended | ended | ended | |||||||||||||||||
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||
| Interest and dividend income: | ||||||||||||||||||||
| Loans receivable | $ | 2,117,568 | $ | 1,751,010 | $ | 3,998,314 | $ | 3,448,605 | ||||||||||||
| Investment securities | 1,051,338 | 884,336 | 1,922,849 | 1,783,522 | ||||||||||||||||
| Other interest earning assets | 127,635 | 36,151 | 221,171 | 65,512 | ||||||||||||||||
| Total interest income | 3,296,541 | 2,671,497 | 6,142,334 | 5,297,639 | ||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| NOW | 31,693 | 20,107 | 55,022 | 34,162 | ||||||||||||||||
| Money market | 113,736 | 115,136 | 225,812 | 239,809 | ||||||||||||||||
| Savings | 13,698 | 11,972 | 26,424 | 23,513 | ||||||||||||||||
| Time | 71,693 | 86,450 | 153,247 | 172,838 | ||||||||||||||||
| Total interest expense | 230,820 | 233,665 | 460,505 | 470,322 | ||||||||||||||||
| Net interest income | 3,065,721 | 2,437,832 | 5,681,829 | 4,827,317 | ||||||||||||||||
| Provision for loan loss | - | 145,000 | 15,000 | 195,000 | ||||||||||||||||
| Net interest income after provision for loan loss | 3,065,721 | 2,292,832 | 5,666,829 | 4,632,317 | ||||||||||||||||
| Non-interest income: | ||||||||||||||||||||
| Loan fees | 59,077 | 11,724 | 123,044 | 24,590 | ||||||||||||||||
| Service charges on deposits | 479,575 | 510,961 | 986,585 | 1,027,917 | ||||||||||||||||
| Net rental income | 18,016 | 24,475 | 28,817 | 38,029 | ||||||||||||||||
| Other income | 85,173 | 207,365 | 172,579 | 305,615 | ||||||||||||||||
| Total non-interest income | 641,841 | 754,525 | 1,311,025 | 1,396,151 | ||||||||||||||||
| Non-interest expenses: | ||||||||||||||||||||
| Salaries and benefits | 1,191,668 | 1,133,048 | 2,433,641 | 2,256,679 | ||||||||||||||||
| Occupancy expenses | 349,967 | 312,342 | 685,266 | 648,158 | ||||||||||||||||
| Legal expense | 80,298 | 43,988 | 170,093 | 86,275 | ||||||||||||||||
| Professional fees | 114,972 | 92,325 | 242,351 | 180,656 | ||||||||||||||||
| Computer expense | 106,476 | 98,223 | 210,305 | 193,675 | ||||||||||||||||
| Director fees | 61,888 | 61,275 | 120,067 | 118,725 | ||||||||||||||||
| FDIC and NYSBD assessments | 51,000 | 47,000 | 80,000 | 89,000 | ||||||||||||||||
| Other expenses | 377,972 | 398,700 | 709,235 | 749,582 | ||||||||||||||||
| Total non-interest expenses | 2,334,241 | 2,186,901 | 4,650,958 | 4,322,750 | ||||||||||||||||
| Income before income taxes | 1,373,321 | 860,456 | 2,326,896 | 1,705,718 | ||||||||||||||||
| Provision (benefit) for income taxes: | ||||||||||||||||||||
| Current | 477,281 | 337,266 | 845,636 | 679,752 | ||||||||||||||||
| Deferred | 3,487 | (36,078 | ) | (31,113 | ) | (82,698 | ) | |||||||||||||
| Total provision for income taxes | 480,768 | 301,188 | 814,523 | 597,054 | ||||||||||||||||
| Net income | $ | 892,553 | $ | 559,268 | $ | 1,512,373 | $ | 1,108,664 | ||||||||||||
| Basic net income per common share | $ | 0.50 | $ | 0.32 | $ | 0.85 | $ | 0.64 | ||||||||||||
| Diluted net income per share | $ | 0.50 | $ | 0.32 | $ | 0.85 | $ | 0.64 | ||||||||||||
| Book value per common share | $ | 17.51 | $ | 16.37 | $ | 17.51 | $ | 16.37 | ||||||||||||
Contact Name: Ralph M. Branca President & CEO (718) 979-1100
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