VSB Bancorp, Inc. Fourth Quarter and Year End 2011 Results of Operations

Increases Capital $1.1 Million in 2011; Announces Its Sixth Branch Location

Marketwired

STATEN ISLAND, NY--(Marketwire -01/11/12)- VSB Bancorp, Inc. (NASDAQ: VSBN - News) reported net income of $162,668 for the fourth quarter of 2011, a decrease of $316,502, or 66.1%, from the fourth quarter of 2010. The following unaudited figures were released today. Pre-tax income was $265,668 in the fourth quarter of 2011, compared to $883,317, a decrease of $617,649, or 69.9%, from the fourth quarter of 2010. Net income for the quarter was $162,668, or basic income of $0.09 per common share, compared to net income of $479,170, or $0.27 basic income per common share, for the quarter ended December 31, 2010.

The $316,502 decrease in net income for the fourth quarter of 2011 was due to an increase in the provision for loan loss of $435,000 and a decrease in net interest income of $288,522, partially offset by a decrease in income tax expense of $301,147, a decrease in non-interest expense of $94,159 and an increase in non-interest income of $11,714. The increase in the provision for loan losses was due to increased charge-offs, and write downs in the quarter, due to the reduction in collateral values on some of the non-performing loans. The increase in the provision for loan losses led to an increase in our allowance for loan losses, which reached 1.64% of total loans at December 31, 2011, compared to 1.56% at December 31, 2010.

The $288,522 decrease in net interest income for the fourth quarter of 2011 was primarily caused by a decline in our average yield on investment securities due to the continuation of low market interest rates and an increase in loans in default on which the borrower ceased paying interest. Our interest income decreased by $317,139, while our cost of funds decreased by only $28,617. We experienced a $178,832, or 17.4%, decrease in income from investment securities, due to a 54 basis point decrease in average yield and a $3.2 million, or 2.8%, decrease in average balance between the periods. Interest income from loans decreased by $141,516, or 9.6%, due to a 95 basis point decrease in average yield from the fourth quarter of 2010 to the fourth quarter of 2011 and the reversal of $67,095 of accrued but uncollected interest income on loans that we initially categorized as non-accrual in the fourth quarter.

The decrease in the yield on loans was partially offset by a $3.0 million, or 3.8%, increase in the average balance of loans and by the collection of $59,409 of interest received on non-accrual loans. The average balance of non-accrual loans increased by $1.2 million, from $5.9 million the fourth quarter of 2010 to $7.2 million during the fourth quarter of 2011, while the balance of non-accrual loans for which we received interest and recognized it on a cash basis decreased by $2.4 million in that period. This shift in non-accrual loans was the principal cause of the 95 basis point drop in our average loan yield. Substantially all of the new non-accrual loans are secured by mortgages on real estate located on Staten Island.

Interest income from other interest earning assets (principally overnight investments) increased $3,209 due to a $3.3 million increase in average balance and a 1 basis point increase in yield. Overall, average interest-earning assets increased by $3.1 million, or 1.3%, from the fourth quarter of 2010 to the fourth quarter of 2011.

The most significant component of the decrease in interest expense was a $15,826 decrease in interest on NOW accounts as the average cost declined by 13 basis points due to a continuation of low market interest rates. Average demand deposits, an interest free source of funds for us to invest, increased by $6.0 million, from $69.9 million, or 32.9% of total deposits in the fourth quarter of 2010, to $75.9 million, or 35.3% of total deposits in the fourth quarter of 2011. Average interest-bearing deposits decreased by $3.8 million, resulting in an overall $2.2 million increase in average total deposits from the fourth quarter of 2010 to the fourth quarter of 2011.

The average yield on our interest-earning assets declined by 59 basis points, and our average cost of funds declined by 6 basis points. As a result, our interest rate spread decreased by 53 basis points from 3.60% in the fourth quarter of 2010 to 3.07% in the fourth quarter of 2011. Correspondingly, our interest rate margin also decreased, by 53 basis points, to 3.32% from 3.85% when comparing the fourth quarter of 2011 to the same quarter in 2010. The spread and margin both decreased because of the combined effect of the decline in earnings we were able to obtain on our investments securities and the adverse effect of the decrease in interest received on problem loans. These declines could not be offset by corresponding declines in the cost of deposits because the rates we paid on deposits were already low due to low markets rates so that we could not reduce them as much as the decline in the earnings on investment securities. In addition, we continued to incur interest expense on deposits that funded the non-performing loans that did not earn interest. Non-interest income increased by $11,714 to $638,577 in the fourth quarter of 2011 compared to the same quarter in 2010 due to the recovery of a contingency reserve previously set aside.

Comparing the fourth quarter of 2011 with the same quarter in 2010, non-interest expense decreased by $94,159. This decrease was due to a $53,500 decrease in FDIC and NYSBD assessments due to a lower assessment rate caused by regulatory changes, a $50,500 decrease in salaries and benefits as a result of a reduced incentive pool, and a $28,510 decrease in occupancy expenses due to the retirement of certain fixed assets. This decrease was partially offset by a $14,900 increase in professional fees due to increased costs associated with internal and external auditors, a $14,481 increase in legal fees due to increased collection costs and a $5,575 increase in director fees due to higher per meeting rates paid in 2011 than in 2010.

For the year ended 2011, pre-tax income decreased to $2,628,511 compared to $3,466,764 for the year 2010, a decrease of $838,253, or 24.2%. Net income for the year ended December 31, 2011 was $1,444,451, or basic net income of $0.80 per common share, as compared to net income of $1,880,629, or basic net income of $1.06 per common share, for the year ended December 31, 2010.

The $436,178 reduction in net income for the year ended December 31, 2011 was attributable to a $553,904 decrease in net interest income due principally to a reduction in the average yield we earned on investment securities as a result of the low interest rate environment, combined with the adverse effects of increased weaknesses in our loan portfolio. We had a $455,000 increase in the provision for loan losses due to increased charge-offs, and write downs in the year, due to the reduction in collateral values on some of the non-performing loans, partially offset by a $184,496 decrease in non-interest expenses. The decrease in non-interest expense was due primarily to a $163,500 decrease in FDIC and NYSBD assessments due to lower assessment rates, a $66,165 decrease in salaries and benefits as a result of lower benefit costs and a $58,748 decrease in legal expenses due to recovery of legal fees previously expensed on a settled lawsuit. This decrease was partially offset by a $38,451 increase in professional fees, due to increased costs associated with internal and external auditors, a $29,254 increase in occupancy expenses due to the remediation costs at a branch that flooded, a $18,016 increase in other non-interest expenses due to higher costs of vendors, and a $15,100 increase in director fees due to higher per meeting rates paid in 2011. Income tax expense decreased $402,075 due to the $838,253 decrease in pre-tax income. The net interest margin decreased by 28 basis points to 3.70% for the year ended December 31, 2011 from 3.98% in the same period in 2010. Average interest earning assets for the year ended December 31, 2011, increased $2.2 million, or 1.0%, from the same period in 2010.

Total assets increased to $241.8 million at December 31, 2011, an increase of $6.6 million, or 2.8%, from December 31, 2010. The principal component of this increase was a $19.3 million increase in cash and other liquid assets, partially offset by a $12.8 million decrease in investment securities and a $372,766 increase in loans receivable. Total deposits, including escrow deposits, increased to $213.2 million, an increase of $5.8 million, or 2.8%. We had a $6.1 million increase in demand and checking accounts, a $2.2 million increase in time and jumbo time deposits and a $2.2 million increase in savings deposits from year end 2010. These increases were partially offset by a decrease of $4.6 million in NOW accounts and $148,412 in money market deposits.

During 2011, we increased stockholders' equity by $1,057,404 to $27.1 million at year end, and Tier 1 regulatory capital at the holding company level increased by $943,684. As a result, our Tier 1 capital ratio was 10.47%. Victory State Bank's Tier 1 capital ratio was 10.30% at December 31, 2011.

We also signed a lease for our sixth branch location, subject to regulatory approval, in the Charleston section of Staten Island, specifically on Tyrellan Avenue across from Home Depot and Target stores. This branch will increase our presence on the south shore of the Island and will provide us the opportunity to attract new customers.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "The rise in our non-performing loans caused further increases in our provision for loan losses. We continue to work with borrowers to restructure loans so that they can be repaid based upon agreed-upon terms, but we simultaneous seek to exercise our legal remedies to avoid delays while negotiating with the borrower. We have been able to cover the increases in the allowance through our current earnings. During the year, our capital base has risen by $1.1 million, a significant increase." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "While this quarter's income was disappointing, we still posted earnings per common share of $0.80 this year and our book value per share increased to $15.08. We paid our seventeenth consecutive dividend to our stockholders and we continue with our third stock buyback program. Our ROA stood at 0.60% and our ROE was 5.35% in year ending 2011. We are pleased to announce our sixth branch is slated for Tyrellan Avenue, across from Target and Home Depot shopping centers. We have continued to increase our customer base and relationships by delivering the highest quality personal service to the professionals and business owners on Staten Island."

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 $27.1 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 announcing our sixth branch location, subject to regulatory approval, on Tyrellan Avenue (Charleston) across from Target and Home Depot shopping centers.

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
                             December 31, 2011
                                (unaudited)

                                                December 31,   December 31,
                                                    2011           2010
                                               -------------  -------------

Assets:

  Cash and cash equivalents                    $  48,107,673  $  28,764,987
  Investment securities, available for sale      108,500,489    121,307,907
  Loans receivable                                81,910,990     81,538,224
    Allowance for loan loss                       (1,343,020)    (1,277,220)
                                               -------------  -------------
      Loans receivable, net                       80,567,970     80,261,004
  Bank premises and equipment, net                 2,332,727      2,732,229
  Accrued interest receivable                        582,942        673,967
  Other assets                                     1,754,654      1,513,605
                                               -------------  -------------
        Total assets                           $ 241,846,455  $ 235,253,699
                                               =============  =============

Liabilities and stockholders' equity:

  Liabilities:
    Deposits:
      Demand and checking                      $  72,507,555  $  66,407,225
      NOW                                         30,553,003     35,138,867
      Money market                                26,909,220     27,057,632
      Savings                                     17,178,525     14,938,440
      Time                                        65,894,536     63,644,963
                                               -------------  -------------
        Total Deposits                           213,042,839    207,187,127
    Escrow deposits                                  180,066        219,530
    Accounts payable and accrued expenses          1,521,290      1,802,186
                                               -------------  -------------
        Total liabilities                        214,744,195    209,208,843
                                               -------------  -------------


  Stockholders' equity:
    Common stock, ($.0001 par value,
     10,000,000 shares authorized 1,989,509
     issued, 1,797,809 outstanding at December
     31, 2011 and 1,825,009 outstanding at
     December 31, 2010)                                  199            199
    Additional paid in capital                     9,304,789      9,249,600
    Retained earnings                             18,574,651     17,563,435
    Treasury stock, at cost (191,700 shares at
     December 31, 2011 and 164,500 at December
     31, 2010)                                    (1,935,596)    (1,643,797)
    Unearned ESOP shares                            (394,516)      (563,594)
    Accumulated other comprehensive gain, net
     of taxes of $1,309,447 and $1,213,545,
     respectively                                  1,552,733      1,439,013
                                               -------------  -------------

        Total stockholders' equity                27,102,260     26,044,856
                                               -------------  -------------

        Total liabilities and stockholders'
         equity                                $ 241,846,455  $ 235,253,699
                                               =============  =============





 
                             VSB Bancorp, Inc.
                   Consolidated Statements of Operations
                             December 31, 2011
                                (unaudited)

                               Three       Three
                              months      months       Year         Year
                               ended       ended       ended       ended
                             Dec. 31,    Dec. 31,    Dec. 31,     Dec. 31,
                               2011        2010        2011         2010
                            ----------  ----------  ----------  -----------
Interest and dividend
 income:
  Loans receivable          $1,325,482  $1,466,998  $5,683,399  $ 5,800,691
  Investment securities        847,360   1,026,192   3,797,049    4,401,547
  Other interest earning
   assets                       24,734      21,525      66,713       61,124
                            ----------  ----------  ----------  -----------
    Total interest income    2,197,576   2,514,715   9,547,161   10,263,362

Interest expense:
  NOW                           21,524      37,350      96,761      160,865
  Money market                  55,861      56,707     235,581      240,461
  Savings                        9,237      11,878      46,719       47,445
  Time                         118,645     127,949     479,705      572,292
                            ----------  ----------  ----------  -----------
    Total interest expense     205,267     233,884     858,766    1,021,063

Net interest income          1,992,309   2,280,831   8,688,395    9,242,299
Provision for loan loss        450,000      15,000     595,000      140,000
                            ----------  ----------  ----------  -----------
    Net interest income
     after provision for
     loan loss               1,542,309   2,265,831   8,093,395    9,102,299

Non-interest income:
  Loan fees                      8,481      17,255      58,144       54,493
  Service charges on
   deposits                    530,626     538,949   2,122,267    2,190,397
  Net rental income              5,779      14,791      38,292       55,990
  Other income                  93,691      55,868     253,375      185,043
                            ----------  ----------  ----------  -----------
    Total non-interest
     income                    638,577     626,863   2,472,078    2,485,923

Non-interest expenses:
  Salaries and benefits        945,236     995,736   3,902,334    3,968,499
  Occupancy expenses           332,914     361,424   1,474,792    1,445,538
  Legal expense                 58,524      44,043     215,519      274,267
  Professional fees             72,900      58,000     291,301      252,850
  Computer expense              64,652      65,851     267,519      264,423
  Director fees                 66,175      60,600     254,700      239,600
  FDIC and NYSBD
   assessments                  41,500      95,000     235,500      399,000
  Other expenses               333,317     328,723   1,295,297    1,277,281
                            ----------  ----------  ----------  -----------
    Total non-interest
     expenses                1,915,218   2,009,377   7,936,962    8,121,458

      Income before income
       taxes                   265,668     883,317   2,628,511    3,466,764
                            ----------  ----------  ----------  -----------

Provision (benefit) for
 income taxes:
  Current                      207,781     429,167   1,610,151    1,670,259
  Deferred                    (104,781)    (25,020)   (426,091)     (84,124)
                            ----------  ----------  ----------  -----------
    Total provision for
     income taxes              103,000     404,147   1,184,060    1,586,135

        Net income          $  162,668  $  479,170  $1,444,451  $ 1,880,629
                            ==========  ==========  ==========  ===========

Basic income per common
 share                      $     0.09  $     0.27  $     0.80  $      1.06
                            ==========  ==========  ==========  ===========

Diluted net income per
 share                      $     0.09  $     0.27  $     0.80  $      1.06
                            ==========  ==========  ==========  ===========

Book value per common share $    15.08  $    14.27  $    15.08  $     14.27
                            ==========  ==========  ==========  ===========
Contact:
Contact Name:
Ralph M. Branca
President & CEO
(718) 979-1100

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