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VSB Bancorp, Inc. First Quarter 2011 Results of Operations

April 13, 2011 - Staten Island, NY

VSB Bancorp, Inc. (NASDAQ: VSBN) reportednet income of $431,791 for the first quarter of 2011, relatively stablefrom the first quarter of 2010. The following unaudited figures werereleased today. Pre-tax income was $795,965 in the first quarter of 2011,compared to $796,708 for the first quarter of 2010. Net income for thequarter was $431,791, or basic income of $0.24 per common share, comparedto a net income of $432,222, or $0.25 basic income per common share, forthe quarter ended March 31, 2010.

The $431 decrease in net income was due to a decrease in net interestincome of $37,098 and an increase in non-interest expense of $29,674,partially offset by a decrease in the provision for loan loss of $60,000and an increase in non-interest income of $6,029.

The $37,098 decrease in net interest income for the first quarter of 2011occurred primarily because our interest income decreased by $83,743, whileour cost of funds decreased by $46,645. The decline in interest incomeresulted from a $149,670 decrease in income from investment securities, dueto a 61 basis point decrease in yield, partially offset by a $2.7 millionincrease in average balance between the periods. The decrease in interestincome from investment securities was partially offset by a $63,996increase in interest income from loans. The increase in interest income onloans was due to a $2.3 million increase in the average balance of loansand a 4 basis point increase in yield from the first quarter of 2010 to thefirst quarter of 2011. A major contributor to the 4 basis point rise inour loan yield was a $2.5 million decrease in our average non-performingloans.

Interest income from other interest earning assets (principally overnightinvestments) increased by $1,931 due to a 4 basis point increase in yieldpartially offset by a $2.8 million decrease in average balance. Overall,average interest-earning assets increased by $2.2 million from the firstquarter of 2010 to the first quarter of 2011.

The most significant component of the decrease in interest expense was a$38,611 decrease in interest on time deposits as the average cost declinedby 24 basis points due to a continuation of low market interest rates.Average demand deposits, an interest free source of funds for us to invest,was relatively flat from the first quarter of 2010, representingapproximately 32% of average total deposits for the first quarter of 2011.Average interest-bearing deposits decreased by $792,014, resulting in anoverall $843,474 decrease in average total deposits from the first quarterof 2010 to the first quarter of 2011.

The average yield on earning assets declined by 22 basis points while theaverage cost of funds declined by 14 basis points. The reduction in theyield on assets was principally due to the 61 basis point drop in the yieldon investment securities, as new securities were purchased at market ratessignificantly below the rates on securities repaid or matured. The declinein the cost of funds was driven principally by the 24 basis point drop inthe cost of time deposits. Our interest rate margin decreased by 13 basispoints from 4.09% to 3.96% when comparing the first quarter of 2011 to thesame quarter in 2010, while our interest rate spread decreased by 8 basispoints from 3.79% to 3.71%. These declines resulted when we were requiredto reinvest the proceeds from payments on investment securities at lowerrates because of the continuation of low market interest rates. Thedeclines were partially offset by the 4 basis point increase in the averageyield on loans, our highest earning asset. The margin decreased more thanthe spread because it reflects the effect of non-interest bearing fundingsources such as checking accounts and capital, which are less valuable inlower interest rate environments because they fund interest-earning assetswith lower average yields. The interest rate floors on our loans havehelped to stabilize interest income from the loan portfolio, but thesefloors also have the effect of limiting increases in our income as marketrates increase until the prime rate rises above 6%. Non-interest incomeincreased by $6,029 to $607,703 in the first quarter of 2011 compared tothe same quarter in 2010.

Comparing the first quarter of 2011 with the same quarter in 2010,non-interest expense increased by $29,674, totaling $2.0 million for thefirst quarter of 2011. Non-interest expense increased for various businessreasons including $16,387 in higher employee benefit costs and increasedsalary due to normal raises, a $14,251 increase in professional fees due toincreased use of independent contractors and $12,773 increase in occupancyexpenses because of the larger amount of snowfall in the first quarter of2011. The increases were partially offset by the $24,535 decrease in legalfees due to a lower level of collections and a recovery of legal feespreviously expensed on an unsecured loan.

Total assets increased to $238.2 million at March 31, 2011, an increase of$2.9 million, or 1.2%, from December 31, 2010. The significant componentsof this increase were an $8.9 million increase in cash and other liquidassets, partially offset by a $1.7 million decrease in loans, net and a$3.9 million decline in investment securities. Total deposits, includingescrow deposits, increased to $210.5 million, an increase of $3.1 million,or 1.5%. We had increases in demand and checking deposits of $4.2 million,$1.0 million in savings deposits, $858,319 in time deposits and $679,458 inmoney market accounts, partially offset by a decrease in NOW accountsdeposits of $3.8 million from year end 2010. The Bancorp's Tier 1 capitalratio was 10.58% at March 31, 2011.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated,"The first quarter of 2011 has shown signs of relief from the currenteconomic crisis but the current crisis in the Middle East has sharplyincreased oil prices, which could slow the recovery and could lead tohigher inflation. Through our aggressive efforts to collect and seekpositive resolutions on our delinquent loans, we have reduced ournon-performing loans by $2.5 million. Once interest rates begin to rise,we expect to face additional interest rate margin pressure as the rates onour prime based loan portfolio probably will not rise until the prime rateexceeds 6%, which would represent a 275 basis point increase from today."Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "The currenteconomy presents many challenges, and we are still able to post goodearnings and increase capital. We paid our fourteenth consecutive dividendto our stockholders. Our ROA of 0.73% and our ROE of 6.56% for the firstquarter of 2011 compare favorably to our peers. Our book value per sharestands at $14.32. By delivering the highest quality personal service tothe professionals and business owners on Staten Island, we have establishedVictory as the premier business bank."

VSB Bancorp, Inc. is the one-bank holding company for Victory State Bank.Victory State Bank, a Staten Island based commercial bank, which commencedoperations on November 17, 1997. The Bank's initial capitalization of $7.0million was primarily raised in the Staten Island community. The Bancorp'stotal equity has increased to $26.1 million primarily through the retentionof earnings. The Bank operates five full service locations in StatenIsland: the main office in Great Kills, and branches on Forest Avenue (WestBrighton), Hyatt Street (St. George), Hylan Boulevard (Dongan Hills) and onBay Street (Rosebank).


This release contains forward-looking statements that are subject to risksand uncertainties. Such risks and uncertainties may include but are notnecessarily limited to adverse changes in local, regional or nationaleconomic conditions, fluctuations in market interest rates, changes in lawsor government regulations, weaknesses of other financial institutions,changes in customer preferences, and changes in competition within ourmarket area. When used in this release or in any other written or oralstatements by the Company or its directors, officers or employees, words orphrases such as "will result in," "management expects that," "willcontinue," "is anticipated," "estimate," "projected," or similarexpressions, and other terms used to describe future events, are intendedto identify "forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995 ("PSLRA"). Readers should notplace undue reliance on the forward-looking statements, which reflectmanagement's view only as of the date of the statement. The Companyundertakes no obligation to publicly revise these forward-lookingstatements to reflect subsequent events or circumstances. This statement isincluded for the express purpose of protecting the Company under thePSLRA's safe harbor provisions.

VSB Bancorp, Inc.
Consolidated Statements of Financial Condition
March 31, 2011

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

Cash and cash equivalents $ 37,660,747 $ 28,764,987
Investment securities, available for sale 117,364,785 121,307,907
Loans receivable 79,898,528 81,538,224
Allowance for loan loss (1,301,598) (1,277,220)
------------- -------------
Loans receivable, net 78,596,930 80,261,004
Bank premises and equipment, net 2,604,130 2,732,229
Accrued interest receivable 624,239 673,967
Other assets 1,340,078 1,513,605
------------- -------------
Total assets $ 238,190,909 $ 235,253,699
============= =============

Liabilities and stockholders' equity:

Demand and checking $ 70,621,956 $ 66,407,225
NOW 31,369,855 35,138,867
Money market 27,737,090 27,057,632
Savings 15,952,574 14,938,440
Time 64,503,282 63,644,963
------------- -------------
Total Deposits 210,184,757 207,187,127
Escrow deposits 320,904 219,530
Accounts payable and accrued expenses 1,550,376 1,802,186
------------- -------------
Total liabilities 212,056,037 209,208,843
------------- -------------

Stockholders' equity:
Common stock, ($.0001 par value, 3,000,000
shares authorized 1,989,509 issued,
1,825,009 outstanding at March 31, 2011
and December 31, 2010) 199 199
Additional paid in capital 9,256,237 9,249,600
Retained earnings 17,886,510 17,563,435
Treasury stock, at cost (164,500 shares at
March 31, 2011 and December 31, 2010) (1,643,797) (1,643,797)
Unearned ESOP shares (521,324) (563,594)
Accumulated other comprehensive gain, net
of taxes of $975,759 and $1,213,545,
respectively 1,157,047 1,439,013
------------- -------------
Total stockholders' equity 26,134,872 26,044,856
------------- -------------
Total liabilities and stockholders'
equity $ 238,190,909 $ 235,253,699
============= =============

VSB Bancorp, Inc.
Consolidated Statements of Operations
March 31, 2011

Three months Three months
ended ended
March 31, 2011 March 31, 2010
-------------- --------------
Interest and dividend income:
Loans receivable $ 1,454,292 $ 1,390,296
Investment securities 1,012,552 1,162,222
Other interest earning assets 11,138 9,207
-------------- --------------
Total interest income 2,477,982 2,561,725

Interest expense:
NOW 33,089 39,252
Money market 59,379 62,486
Savings 12,696 11,460
Time 121,506 160,117
-------------- --------------
Total interest expense 226,670 273,315
Net interest income 2,251,312 2,288,410
Provision for loan loss 30,000 90,000
-------------- --------------
Net interest income after provision
for loan loss 2,221,312 2,198,410
Non-interest income:
Loan fees 27,570 2,304
Service charges on deposits 522,237 540,701
Net rental income 11,613 11,983
Other income 46,283 46,686
-------------- --------------
Total non-interest income 607,703 601,674
Non-interest expenses:
Salaries and benefits 980,003 963,616
Occupancy expenses 376,563 363,790
Legal expense 64,986 89,521
Professional fees 80,451 66,200
Computer expense 65,322 66,955
Director fees 62,450 58,950
FDIC and NYSBD assessments 94,000 94,000
Other expenses 309,275 300,344
-------------- --------------
Total non-interest expenses 2,033,050 2,003,376

Income before income taxes 795,965 796,708
-------------- --------------
Provision (benefit) for income taxes:
Current 414,690 442,310
Deferred (50,516) (77,824)
-------------- --------------
Total provision for income taxes 364,174 364,486

Net income $ 431,791 $ 432,222
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Basic income per common share $ 0.24 $ 0.25
============== ==============

Diluted net income per share $ 0.24 $ 0.25
============== ==============

Book value per common share $ 14.32 $ 14.22
============== ==============

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


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