VSB Bancorp, Inc. Second Quarter 2012 Results of Operations

Marketwired

STATEN ISLAND, NY--(Marketwire -07/10/12)- VSB Bancorp, Inc. (VSBN) reported net income of $371,857 for the second quarter of 2012, a decrease of $55,847, or 13.1%, from the second quarter of 2011. The following unaudited figures were released today. Pre-tax income was $685,495 in the second quarter of 2012, compared to $788,345 for the second quarter of 2011. Net income for the quarter was $371,857, or basic net income of $0.21 per common share, compared to a net income of $427,704, or $0.24 basic net income per common share, for the quarter ended June 30, 2011.

The $55,847 decrease in net income was due to an increase in the provision for loan losses of $40,000, an increase of non-interest expense of $35,761 and a decrease in net interest income of $32,027, partially offset by a decrease in the provision for income taxes of $47,003.

The $32,027 decrease in net interest income for the second quarter of 2012 occurred primarily because our interest income decreased by $55,484, while our cost of funds decreased by $23,457. The decline in interest income resulted from a $208,022 decrease in income from investment securities, due to a 63 basis point decrease in average yield and a $2.5 million decrease in average balance between the periods. The increase in interest income on loans was due to a $3.7 million increase in the average balance of loans and an 18 basis point increase in yield from the second quarter of 2011 to the second quarter of 2012. Our average non-performing loans increased $516,711, from $6.2 million in the quarter ended June 30, 2011, to $6.7 million in the second quarter of 2012, although the level of non-performing loans declined from $10.9 million at December 31, 2011 to $7.2 million at March 31 2012 and to $6.2 million at June 30, 2012.

Interest income from other interest earning assets (principally overnight investments) increased by $10,815 due to a 6 basis point increase in yield, and a $11.5 million increase in average balance from the second quarter of 2011 to the second quarter of 2012.

The most significant component of the decrease in interest expense was a $14,988 decrease in interest on time deposits as the average cost declined by 10 basis points due to a continuation of low market interest rates, partially offset by a $1.1 million increase in the average balance between the periods. Average demand deposits, an interest free source of funds for us to invest, increased $2.0 million, or 2.6%, from the second quarter of 2011, representing approximately 34% of average total deposits for the second quarter of 2012. Average interest-bearing deposits increased by $10.5 million, resulting in an overall $12.5 million increase in average total deposits from the second quarter of 2011 to the second quarter of 2012.

The average yield on interest-earning assets declined by 37 basis points, while the average cost of funds declined by 11 basis points from the second quarter of 2011 to the second quarter of 2012. The reduction in the yield on assets was principally due to the 63 basis point drop in the yield on investment securities, as new securities were purchased at market rates significantly below the rates we had been earning on securities repaid or matured, partially offset by the 18 basis point rise in the yield on loans. The decline in the cost of funds was driven principally by 12 basis point drop in the cost of money market deposits, 10 basis point drop in the cost of time deposits, a 9 basis point drop in the cost of saving account deposits and a 8 basis point drop in the cost of Now account deposits. Our interest rate margin decreased by 31 basis points from 3.69% to 3.38% when comparing the second quarter of 2012 to the same quarter in 2011, while our interest rate spread decreased by 26 basis points from 3.43% to 3.17%. 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 non-receipt of interest received on non-performing 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 to $628,231, or $4,938, in the second quarter of 2012, from $623,293 for the same quarter in 2011.

Comparing the second quarter of 2012 with the same quarter in 2011, non-interest expense increased by $35,761, totaling $2.0 million for the second quarter of 2012. Non-interest expense increased for various business reasons including a $35,302 increase in legal fees due to a higher level of collections, a $24,952 increase in other non-interest expenses due to other real estate owned costs of $15,241 and increased costs of electronic filing fees with SEC, a $14,500 increase in FDIC and NYSDFS assessments because of a lower regulatory assessment rate in the second quarter of 2011, a $14,011 increase in professional fees because of increased costs and a $9,075 increase in director fees because of an increase in the number of meetings in 2012. These increases were partially offset by a $49,683 decrease in salary and employee benefit costs due to reduced staff, an $8,067 decrease in computer expenses due to reduced contract expenses, and a $4,329 decrease in occupancy expenses due to a reduced level of fixed assets.

For the first six months of 2012, pre-tax income decreased to $1,204,656 from $1,584,310 for the first six months of 2011, a decline of $379,654, or 24.0%. Net income for the six months ended June 30, 2012 was $653,485, or basic net income of $0.37 per common share, as compared to a net income of $859,495, or basic net income of $0.48 per common share, for the six months ended June 30, 2011. The $206,010 reduction in net income for the six months ended June 30, 2012 was attributable principally to a $185,158 decrease in net interest income, an $185,000 increase in the provision for loan losses and a $27,456 increase in non-interest expenses. The increase in non-interest expense of $27,456 was due primarily to a $50,024 increase in legal expenses due to a higher level of collections and a recovery of legal fees in 2011 previously expensed on a settled lawsuit, a $32,173 increase in other non-interest expenses due to OREO costs and increased costs of regulatory filings, a $19,750 increase in director fees due to increased meetings, and a $16,560 increase in professional fees because of increased costs. The increases were partially offset by a $41,403 decrease in employee salary and benefit costs due to reduced staff, an $21,901 decrease in computer expenses due to reduced contract expenses, a $18,000 decrease in FDIC and NYSBD assessments and a $9,747 decrease in occupancy expenses due to reduced level of fixed assets. Income tax expense decreased $173,644 due to the $379,654 decrease in pre-tax income. The net interest margin decreased by 37 basis points from the six months ended June 30, 2012 to 3.45% from 3.82%, in the same period in 2011. Average interest earning assets, for the six months ended June 30, 2012, increased by $10.1 million, or 4.4%, from the same period in 2011.

Total assets increased to $252.3 million at June 30, 2012, an increase of $10.5 million, or 4.3%, from December 31, 2011. The significant components of this increase were an $8.7 million increase in investment securities and a $3.8 million increase in loans, net, partially offset by a $1.9 million decline in cash and other liquid assets. Total deposits, including escrow deposits, increased to $223.7 million, an increase of $10.5 million, or 4.9%. We had increases of $4.5 million in money market accounts, $4.0 million in NOW accounts, $2.5 million in demand and checking deposits, $627,553 in savings deposits, and partially offset by a decrease of $1.2 million in time deposits from year end 2011. VSB Bancorp's Tier 1 capital ratio was 10.21% at June 30, 2012.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "The continuing crisis in Europe has stalled economic growth in second quarter of 2012 and has reduced demand for our loan products. We continue to actively reduce our non-performing loans and we decreased them by $939,000 in this quarter. The limited investment options are putting pressure on our interest rate margin, which declined 7 basis points from the first quarter of 2012." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "Our book value per share stands at $15.30, an increase of $0.49 per share from the second quarter of 2011. We also paid our nineteenth consecutive dividend to our stockholders. Our ROA was 0.55% and our ROE was 5.07% for the second quarter of 2012, which are lower than our FFIEC peer group. Our deposits have grown due to our philosophy of delivering the highest quality personal service to the businesses and professionals on Staten Island."

VSB Bancorp, Inc. ("Company") 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 $27.4 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, 2012
(unaudited)

June 30, December 31,
2012 2011
------------- -------------

Assets:

Cash and cash equivalents $ 46,173,650 $ 48,107,673
Investment securities, available for sale 117,168,156 108,500,489
Loans receivable 85,911,421 81,910,990
Allowance for loan loss (1,582,397) (1,343,020)
------------- -------------
Loans receivable, net 84,329,024 80,567,970
Bank premises and equipment, net 2,161,386 2,332,727
Accrued interest receivable 558,568 582,942
Deferred tax asset 421,087 98,600
Other assets 1,523,085 1,656,054
------------- -------------
Total assets $ 252,334,956 $ 241,846,455
============= =============

Liabilities and stockholders' equity:

Liabilities:
Deposits:
Demand and checking $ 74,967,126 $ 72,507,555
NOW 34,617,600 30,553,003
Money market 31,407,708 26,909,220
Savings 17,806,078 17,178,525
Time 64,730,739 65,894,536
------------- -------------
Total Deposits 223,529,251 213,042,839
Escrow deposits 199,602 180,066
Accounts payable and accrued expenses 1,251,523 1,521,290
------------- -------------
Total liabilities 224,980,376 214,744,195
------------- -------------


Stockholders' equity:
Common stock, ($.0001 par value, 10,000,000
shares authorized 1,989,509 issued,
1,787,809 outstanding at June 30, 2012 and
1,797,809 outstanding at December 31, 2011) 199 199
Additional paid in capital 9,310,790 9,304,789
Retained earnings 19,014,130 18,574,651
Treasury stock, at cost (201,700 shares at
June 30, 2012 and 191,700 shares at
December 31, 2011) (2,041,664) (1,935,596)
Unearned ESOP shares (309,977) (394,516)
Accumulated other comprehensive gain, net of
taxes of $1,164,708 and $1,309,447,
respectively 1,381,102 1,552,733
------------- -------------

Total stockholders' equity 27,354,580 27,102,260
------------- -------------

Total liabilities and stockholders' equity $ 252,334,956 $ 241,846,455
============= =============



VSB Bancorp, Inc.
Consolidated Statements of Operations
June 30, 2012
(unaudited)

Three Three
months months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
----------- ----------- ----------- -----------
Interest and dividend
income:
Loans receivable $ 1,507,750 $ 1,366,027 $ 3,004,198 $ 2,820,319
Investment securities 789,865 997,887 1,582,435 2,010,439
Other interest earning
assets 24,418 13,603 48,072 24,741
----------- ----------- ----------- -----------
Total interest
income 2,322,033 2,377,517 4,634,705 4,855,499

Interest expense:
NOW 21,342 23,183 43,558 56,272
Money market 58,159 61,101 114,871 120,480
Savings 9,592 13,278 19,200 25,974
Time 103,897 118,885 229,852 240,391
----------- ----------- ----------- -----------
Total interest
expense 192,990 216,447 407,481 443,117

Net interest income 2,129,043 2,161,070 4,227,224 4,412,382
Provision for loan loss 65,000 25,000 240,000 55,000
----------- ----------- ----------- -----------
Net interest income
after provision for
loan loss 2,064,043 2,136,070 3,987,224 4,357,382

Non-interest income:
Loan fees 10,582 13,036 19,592 40,606
Service charges on
deposits 548,557 536,148 1,101,275 1,058,385
Net rental income 14,219 10,105 24,278 21,718
Other income 54,873 64,004 103,811 110,287
----------- ----------- ----------- -----------
Total non-interest
income 628,231 623,293 1,248,956 1,230,996

Non-interest expenses:
Salaries and benefits 939,152 988,835 1,927,435 1,968,838
Occupancy expenses 357,336 361,665 728,481 738,228
Legal expense 70,276 34,974 149,984 99,960
Professional fees 86,061 72,050 169,061 152,501
Computer expense 65,180 73,247 116,668 138,569
Director fees 72,000 62,925 145,125 125,375
FDIC and NYSBD
assessments 60,000 45,500 121,500 139,500
Other expenses 356,774 331,822 673,270 641,097
----------- ----------- ----------- -----------
Total non-interest
expenses 2,006,779 1,971,018 4,031,524 4,004,068

Income before
income taxes 685,495 788,345 1,204,656 1,584,310
----------- ----------- ----------- -----------

Provision (benefit) for
income taxes:
Current 431,673 565,691 728,919 980,381
Deferred (118,035) (205,050) (177,748) (255,566)
----------- ----------- ----------- -----------
Total provision for
income taxes 313,638 360,641 551,171 724,815

Net income $ 371,857 $ 427,704 $ 653,485 $ 859,495
=========== =========== =========== ===========

Basic net income per
common share $ 0.21 $ 0.24 $ 0.37 $ 0.48
=========== =========== =========== ===========

Diluted net income per
share $ 0.21 $ 0.24 $ 0.37 $ 0.48
=========== =========== =========== ===========

Book value per common
share $ 15.30 $ 14.81 $ 15.30 $ 14.81
=========== =========== =========== ===========


Contact:
Contact Name:
Ralph M. Branca
President & CEO
(718) 979-1100

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