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VSB Bancorp, Inc.
Third Quarter 2012 Results of Operations
Ralph M. Branca
President & CEO
Staten Island, N. Y. —October 10, 2012. VSB Bancorp, Inc. (NASDAQ GM: VSBN) reported net income of $357,460 for the third quarter of 2012, a decrease of $64,828, or 15.4%, from the third quarter of 2011. The following unaudited figures were released today. Pre-tax income was $658,888 in the third quarter of 2012, compared to $778,533 for the third quarter of 2011. Net income for the quarter was $357,460, or basic income of $0.20 per common share, compared to a net income of $422,288, or $0.23 basic income per common share, for the quarter ended September 30, 2011.
The $64,828 decrease in net income was due to a decrease in net interest income of $232,433. This decrease was partially offset by a decrease in non-interest expense of $57,465, a decrease in the provision for income taxes of $54,817, and a decrease in the provision for loan losses of $50,000.
The $232,433 decrease in net interest income for the third quarter of 2012 occurred primarily because our interest income decreased by $242,203, while our cost of funds decreased by $9,770. The decline in interest income resulted from a $202,517 decrease in income from investment securities, due to a 63 basis point decrease in average yield and a $2.1 million decrease in average balance between the periods. The $52,707 decrease in interest income on loans was due to a 12 basis point decrease in yield partially offset by a $1.3 million increase in the average balance of loans and from the third quarter of 2011 to the third quarter of 2012. Our average non-performing loans decreased $1.1 million, from $7.2 million in the quarter ended September 30, 2011, to $6.1 million in the third quarter of 2012. The level of non-performing loans declined from $10.9 million at December 31, 2011 to $7.2 million at March 31 2012, to $6.2 million at June 30, 2012 and to $6.1 million at September 30, 2012.
Interest income from other interest earning assets (principally overnight investments) increased by $13,021 due to a 4 basis point increase in yield, and a $16.4 million increase in average balance from the third quarter of 2011 to the third quarter of 2012.
The most significant component of the decrease in interest expense was a $15,151 decrease in interest on time accounts as the average cost declined by 10 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 from $77.1 million, or 36.0% of total deposits in the third quarter of 2011, to $78.8 million, or 34.2% of total deposits in the third quarter of 2012. Average interest-bearing deposits increased by $14.2 million and average non-interest bearing deposits increased by $1.7 million, resulting in an overall $15.9 million increase in average total deposits from the third quarter of 2011 to the third quarter of 2012.
The average yield on interest-earning assets declined by 55 basis points, while the average cost of funds declined by 8 basis points from the third quarter of 2011 to the third 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, and by the 12 basis point drop in the yield on loans. The decline in the cost of funds was driven principally by 10 basis point drop in the cost of time deposits, partially offset by a 5 basis point increase in the cost of saving account deposits. Our interest rate margin decreased by 52 basis points from 3.70% to 3.18% when comparing the third quarter of 2012 to the same quarter in 2011, while our interest rate spread decreased by 47 basis points from 3.44% to 2.97%. 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, the increased average balance of low yielding other interest-earning assets 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 $607,828, or by $5,323, in the third quarter of 2012, from $602,505 for the same quarter in 2011. Service charges on deposits consist mainly of insufficient fund fees, which are inherently volatile, and are based upon the number of items being presented for payment against insufficient funds.
Comparing the third quarter of 2012 with the same quarter in 2011, non-interest expense decreased by $57,465, totaling $2.0 million for the third quarter of 2012. Non-interest expense decreased for various business reasons including a $53,850 decrease in salary and employee benefit costs due to reduced staff and a $36,402 decrease in occupancy expenses due to the one-time remediation costs at a branch damaged in the third quarter of 2011. These decreases were partially offset by a $18,919 increase in professional fees because of increased costs and the hiring of a consultant and a $9,321 increase in other non-interest expenses due to other real estate owned costs.
For the first nine months of 2012, pre-tax income decreased to $1,863,544 from $2,362,843 for the first nine months of 2011, a decline of $499,299, or 21.1%. Net income for the nine months ended September 30, 2012 was $1,010,945, or basic net income of $0.57 per common share, as compared to a net income of $1,281,783, or basic net income of $0.71 per common share, for the nine months ended September 30, 2011. The $270,838 reduction in net income for the nine months ended September 30, 2012 was attributable principally to a $417,591 decrease in net interest income, and a $135,000 increase in the provision for loan losses, partially offset by a $30,009 decrease in non-interest expenses and a $23,283 increase in non-interest income. The decrease in non-interest expense of $30,009 was due primarily to a $95,253 decrease in employee salary and benefit costs due to reduced staff, a $46,149 decrease in occupancy expenses due primarily to 2011 remediation costs at a branch that flooded during Hurricane Irene, a $19,736 decrease in computer expenses due to reduced contract expenses, and a $15,500 decrease in FDIC and NYSBD assessments. These decreases were partially offset by a $52,281 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 $41,494 increase in other non-interest expenses due to OREO costs and increased costs of regulatory filings, a $35,479 increase in professional fees due to higher costs and the hiring of a consultant, a $17,375 increase in director fees due to an increase in the number of meetings. Income tax expense decreased $228,461 due to the $499,299 decrease in pre-tax income. The net interest margin decreased by 42 basis points from the nine months ended September 30, 2012 to 3.39% from 3.81%, in the same period in 2011. Correspondingly, the spread decreased by 39 points from 3.56% to 3.17% between the periods. Average interest earning assets for the nine months ended September 30, 2012, increased by $12.0 million, or 5.1%, from the same period in 2011. However, the increase in average interest earning assets did not result in a corresponding increase in interest income. We elected to maintain a higher level of short term and overnight investments because of the extreme low yields on interest-earning securities that were available to us for purchase.
Total assets increased to $259.8 million at September 30, 2012, an increase of $18.0 million, or 7.4%, from December 31, 2011. The significant components of this increase were a $14.7 million increase in cash and other liquid assets and a $3.8 million increase in investment securities. Total deposits, including escrow deposits, increased to $231.0 million, an increase of $17.7 million, or 8.3%. We had increases in demand and checking deposits of $7.0 million, $5.7 million in money market accounts, $3.6 million in savings deposits, and $3.3 million in NOW accounts, partially offset by a decrease of $2.0 million in time deposits from year end 2011. The Bancorp’s Tier 1 capital ratio was 10.09% at September 30, 2012.
Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.’s President and CEO, stated, “The weak economy and the Federal Reserve’s action to keep rates near historic lows has limited our investment alternatives. Our margin has dropped in 2012 due to our larger holding of overnight investments and weak loan demand.” Joseph J. LiBassi, VSB Bancorp, Inc.’s Chairman, stated, “We have just paid our twentieth consecutive dividend to our stockholders. We have increased our deposit base by over $17.7 million in 2012 and our book value per share has increased to $15.61. We have repurchased an additional 12,000 shares of our common stock in this quarter. We have maintained our standards throughout this prolonged economic crisis and we firmly believe that our success is driven by delivering the highest quality personal service 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 $27.7 million primarily through the retention of earnings. The Bank operates five full service locations in Staten Island: the main office in Great Kills, and branches on Forest Avenue (West Brighton), Hyatt Street (St. George), Hylan Boulevard (Dongan Hills) and on Bay Street (Rosebank). We announced our sixth branch location in Charleston/Tottenville section of Staten Island, subject to regulatory approval.
This release contains forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to adverse changes in local, regional or national economic conditions, fluctuations in market interest rates, changes in laws or government regulations, weaknesses of other financial institutions, changes in customer preferences, and changes in competition within our market area. When used in this release or in any other written or oral statements by the Company or its directors, officers or employees, words or phrases such as “will result in,” “management expects that,” “will continue,” “is anticipated,” “estimate,” “projected,” or similar expressions, and other terms used to describe future events, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date of the statement. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. This statement is included for the express purpose of protecting the Company under the PSLRA’s safe harbor provisions.
VSB Bancorp, Inc.
Consolidated Statements of Financial Condition
September 30, 2012
|September 30,||December 31,|
|Cash and cash equivalents||$||62,823,176||$||48,107,673|
|Investment securities, available for sale||112,293,648||108,500,489|
|Allowance for loan loss||(1,666,916||)||(1,343,020||)|
|Loans receivable, net||80,298,337||80,567,970|
|Bank premises and equipment, net||2,183,842||2,332,727|
|Accrued interest receivable||556,014||582,942|
|Liabilities and stockholders’ equity:|
|Demand and checking||$||79,534,085||$||72,507,555|
|Accounts payable and accrued expenses||1,178,733||1,521,290|
|Common stock, ($.0001 par value, 10,000,000 shares authorized 1,989,509 issued, 1,775,809 outstanding at September 30, 2012 and 1,797,809 outstanding at December 31, 2011)||199||199|
|Additional paid in capital||9,313,979||9,304,789|
|Treasury stock, at cost (213,700 shares at September 30, 2012 and 191,700 at December 31, 2011)||(2,170,073||)||(1,935,596||)|
|Unearned ESOP shares||(267,707||)||(394,516||)|
|Accumulated other comprehensive gain, net of taxes of $1,324,645 and $1,309,447, respectively||1,570,754||1,552,733|
|Total stockholders’ equity||27,712,459||27,102,260|
|Total liabilities and stockholders’ equity||$||259,846,039||$||241,846,455|
VSB Bancorp, Inc.
Consolidated Statements of Operations
September 30, 2012
|Three months||Three months||Nine months||Nine months|
|Sept. 30, 2012||Sept. 30, 2011||Sept. 30, 2012||Sept. 30, 2011|
|Interest and dividend income:|
|Other interest earning assets||30,259||17,238||78,331||41,979|
|Total interest income||2,251,883||2,494,086||6,886,588||7,349,585|
|Total interest expense||200,612||210,382||608,093||653,499|
|Net interest income||2,051,271||2,283,704||6,278,495||6,696,086|
|Provision for loan loss||40,000||90,000||280,000||145,000|
|Net interest income after provision for loan loss||2,011,271||2,193,704||5,998,495||6,551,086|
|Service charges on deposits||524,766||533,256||1,626,041||1,591,641|
|Net rental income||18,327||10,795||42,605||32,513|
|Total non-interest income||607,828||602,505||1,856,784||1,833,501|
|Salaries and benefits||934,410||988,260||2,861,845||2,957,098|
|FDIC and NYSBD assessments||57,000||54,500||178,500||194,000|
|Total non-interest expenses||1,960,211||2,017,676||5,991,735||6,021,744|
|Income before income taxes||658,888||778,533||1,863,544||2,362,843|
|Provision (benefit) for income taxes:|
|Total provision for income taxes||301,428||356,245||852,599||1,081,060|
|Basic income per common share||$||0.20||$||0.23||$||0.57||$||0.71|
|Diluted net income per share||$||0.20||$||0.23||$||0.57||$||0.71|
|Book value per common share||$||15.61||$||15.15||$||15.61||$||15.15|
The following information was filed by Vsb Bancorp Inc (VSBN) on Wednesday, October 10, 2012 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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