SOURCE: VSB Bancorp

October 15, 2008 09:30 ET

VSB Bancorp, Inc. Third Quarter 2008 Results of Operations

STATEN ISLAND, NY--(Marketwire - October 15, 2008) - VSB Bancorp, Inc. (NASDAQ: VSBN) reported net income of $542,704 for the third quarter of 2008, a 9.4% increase from the third quarter of 2007. The following unaudited figures were released today. Pre-tax income was $1,009,408 in the third quarter of 2008, as compared to $928,968 for the third quarter of 2007, an increase of $80,440, or 8.7%. Net income for the quarter was $542,704, or basic income of $0.29 per common share, as compared to a net income of $496,279, or $0.27 basic income per common share, for the quarter ended September 30, 2007.

The $46,425 increase in net income was attributable to an increase in investment interest income of $153,571, an increase in non-interest income of $64,328, and a decrease in interest expense on time deposits of $254,513. These factors were partially offset by a decrease in interest income on loans of $223,835, a decrease in interest income from other interest earning assets of $248,954, an increase in income tax expense of $34,015 and an increase in the provision for loan losses of $55,000.

The reduction in interest income on loans is attributable to a rapid decline of the prime rate, which negatively affected the yield on our loans. After remaining steady for approximately 15 months, the prime rate declined 3.25% from September 2007 to September 2008. The reductions in the prime rate have caused our prime based loans to reach their interest rate floors. These floors have helped to stabilize the interest income from the loan portfolio. Non-interest expense was stable but the components had some volatility. The reduction in salary and benefits of $70,259 was due, in part to the retirement of the former president and reduced incentive and ESOP compensation expense. This reduction was primarily offset by a $24,402 increase in occupancy expense, mostly due to utility increases, a $24,703 increase in other expenses due to higher advertising expenses, and a $15,555 increase in legal fees due to more collection costs.

Total assets increased to $206.9 million at September 30, 2008, an increase of $3.1 million, or 1.5%, from December 31, 2007. This increase occurred despite our repayment of $5.2 million in subordinated debt during 2008. Total deposits, including escrow deposits, increased to $183.3 million, an increase of $6.9 million, or 3.9%, during the third quarter of 2008. The Bancorp's Tier 1 capital ratio was 10.66% at September 30, 2008. We redeemed our trust preferred securities and repaid the subordinate debt on August 8, 2008, the first available redemption date.

Average interest-earning assets and average loans increased by $3.5 million and $4.7 million, respectively, from the third quarter of 2007 to the third quarter of 2008. Average demand deposits, an interest free source of funds for the Bancorp to invest, increased $4.5 million from the third quarter of 2007 to approximately 35% of average total deposits for the third quarter of 2008. Average interest-bearing deposits decreased by $1.0 million, resulting in an overall $3.5 million increase in total deposits from the third quarter of 2007 to the third quarter of 2008. The Company's interest rate spread and interest rate margin were 3.84% and 4.48%, respectively, for the quarter ended September 30, 2008 as compared to 3.46% and 4.45%, respectively, for the quarter ended September 30, 2007. Non-interest income increased $64,328 to $603,965 in the third quarter of 2008 due in part to the increase in the per item charge for insufficient fund transactions that went into effect in March 2008. Non-interest expense totaled $1.8 million in the third quarter of 2008.

Pre-tax income decreased to $2,475,516 for the first nine months of 2008, as compared to $2,872,068 for 2007, a decrease of $396,552, or 13.8%. Net income for the nine months ended September 30, 2008 was $1,330,924, or basic net income of $0.72 per common share, as compared to a net income of $1,534,071, or basic net income of $0.84 per common share, for the nine months ended September 30, 2007. The $203,147 reduction in net income for the nine months ended September 30, 2008 was attributable to an increase in the provision for loan loss of $170,000, and a decrease in interest income of $1,088,987. The yield on average loans dropped 221 basis points, which caused an 84 basis point drop in our overall average yield on interest-earning assets. The drop in loan yield was due to the 3.25% reduction in the prime rate from September 2007. The decrease in loan income, which totaled $880,000 when comparing the two periods, was combined with a $584,000 decrease in income on short term investments. These two declines were partially offset by a decrease in interest expense of $756,116 due to a 126 basis point drop in the average cost of time deposits, an increase in interest income from investments securities of $375,072 due to the increase in average investment security balance of $12.4 million and an increase in non-interest income of $177,908. The $71,589 increase in non-interest expense is directly attributable to (i) an increase in legal fees of $136,975 because in 2007 we received reimbursement from our insurance company of legal fees previously expensed, (ii) an increase of $104,452 in other expenses, due to introduction of our online ATMs and debit cards, and (iii) a $60,867 increase in occupancy expenses due to higher utility bills and real estate taxes. These increases were partially offset by a decrease in salary and benefit expense of $246,906, due to reduced salary, incentive and ESOP compensation expense. Income tax expense also decreased $193,405 between the periods as pre-tax income decreased.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "The recent turmoil in the financial markets has further damaged the economy and will make our future earning prospects more challenging. Despite the current economic environment, we were able to increase our interest margin and spread from the second to the third quarter of 2008. By redeeming our trust preferred securities, we reduced our overall interest expense. Both of these factors were instrumental in our quarter vs. quarter increase in net income." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated "We recently announced our first stock buyback program where we have authorized the repurchase of up to 100,000 shares of our common stock. We paid our fourth quarterly dividend of $0.06 per common share for stockholders of record on September 19, 2008. We are able to institute these capital strategies because of the financial strength of our Company. Our motto of 'making the Bank fit your business,' and our capacity to lend in this tough environment demonstrate the philosophy that has made Victory the premier business bank on the 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 $22.1 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).

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, 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, 2008
                               (unaudited)

                                              September 30,   December 31,
                                                  2008           2007
                                              -------------  -------------
Assets:

 Cash and cash equivalents                    $  15,609,220  $  17,696,879
 Investment securities, available for sale      120,743,189    117,814,117
 Loans receivable                                64,925,020     62,373,078
   Allowance for loan loss                         (942,550)      (927,161)
                                              -------------  -------------
     Loans receivable, net                       63,982,470     61,445,917
 Bank premises and equipment, net                 3,787,631      3,931,679
 Accrued interest receivable                        765,340        799,249
 Deferred taxes                                   1,296,799        991,297
 Other assets                                       722,401      1,114,431
                                              -------------  -------------
       Total assets                           $ 206,907,050  $ 203,793,569
                                              =============  =============

Liabilities and stockholders' equity:

Liabilities:
 Deposits:
    Demand and checking                       $  60,884,999  $  62,525,053
    NOW                                          17,961,859     16,931,113
    Money market                                 19,987,754     20,534,721
    Savings                                      13,128,463     11,349,111
    Time                                         70,910,856     64,738,564
                                              -------------  -------------
      Total Deposits                            182,873,931    176,078,562
 Escrow deposits                                    399,486        255,881
 Subordinated debt                                        -      5,155,000
 Accounts payable and accrued expenses            1,457,802      1,420,321
                                              -------------  -------------
      Total liabilities                         184,731,219    182,909,764
                                              -------------  -------------

Stockholders' equity:
 Common stock, ($.0001 par value, 3,000,000
  shares authorized, 1,923,884 issued and
  outstanding at September 30, 2008 and
  1,900,509 issued and outstanding
  December 31, 2007)                                    192            190
 Additional paid in capital                       9,219,384      9,107,119
 Retained earnings                               14,213,337     13,226,395
 Unallocated ESOP shares                           (944,019)    (1,070,827)
 Accumulated other comprehensive loss, net
  of taxes of $269,271 and $330,668,
  respectively                                     (313,063)      (379,072)
                                              -------------  -------------

    Total stockholders' equity                   22,175,831     20,883,805
                                              -------------  -------------

     Total liabilities and stockholders'
      equity                                  $ 206,907,050  $ 203,793,569
                                              =============  =============






                            VSB Bancorp, Inc.
                  Consolidated Statements of Operations
                            September 30, 2008
                                (unaudited)


                Three months   Three months    Nine months    Nine months
                    ended          ended          ended          ended
                  Sept. 30,      Sept. 30,      Sept. 30,      Sept. 30,
                     2008           2007           2008           2007
                -------------  -------------  -------------  -------------
Interest and
 dividend
 income:
  Loans
   receivable   $   1,276,288  $   1,500,123  $   3,693,696  $   4,573,820
  Investment
   securities       1,474,099      1,320,528      4,289,758      3,914,686
  Other
   interest
   earning
   assets              48,314        297,268        225,159        809,094
                -------------  -------------  -------------  -------------
    Total
     interest
     income         2,798,701      3,117,919      8,208,613      9,297,600

Interest
 expense:
  NOW                  31,612         37,940         96,545         96,689
  Money market         64,094        137,741        232,695        321,150
  Savings              19,754         24,531         56,927         74,314
  Subordinated
   debt                36,606         89,040        214,685        267,119
  Time                365,462        619,975      1,265,289      1,862,985
                -------------  -------------  -------------  -------------
    Total
     interest
     expense          517,528        909,227      1,866,141      2,622,257

Net interest
 income             2,281,173      2,208,692      6,342,472      6,675,343
Provision
 (benefit) for
 loan loss             40,000        (15,000)       125,000        (45,000)
                -------------  -------------  -------------  -------------
   Net
    interest
    income
    after
    provision
    for loan
    loss            2,241,173      2,223,692      6,217,472      6,720,343

Non-interest
 income:
  Loan fees            11,778         15,658         55,286         63,658
  Service
   charges on
   deposits           544,686        457,023      1,570,203      1,319,422
  Net rental
   income              13,796         (2,568)        23,888           (876)
  Other income         33,705         69,524        144,724        233,989
                -------------  -------------  -------------  -------------
    Total
     non-
     interest
     income           603,965        539,637      1,794,101      1,616,193
Non-interest
 expenses:
  Salaries and
   benefits           866,644        936,903      2,645,315      2,892,221
  Occupancy
   expenses           376,699        352,297      1,092,889      1,032,022
  Legal expense        67,939         52,384        187,725         50,750
  Professional
   fees                62,900         56,700        186,400        153,000
  Computer
   expense             63,772         64,604        176,076        201,975
  Director fees        54,200         52,600        169,150        160,450
  Other
   expenses           343,576        318,873      1,078,502        974,050
                -------------  -------------  -------------  -------------
    Total
     non-
     interest
     expenses       1,835,730      1,834,361      5,536,057      5,464,468

      Income
       before
       income
       taxes        1,009,408        928,968      2,475,516      2,872,068
                -------------  -------------  -------------  -------------
Provision
 (benefit) for
 income taxes:
  Current             777,900        381,296      1,511,490      1,229,835
  Deferred           (311,196)        51,393       (366,898)       108,162
                -------------  -------------  -------------  -------------
   Total
    provision
    for income
    taxes             466,704        432,689      1,144,592      1,337,997

     Net
      income    $     542,704  $     496,279  $   1,330,924  $   1,534,071
                =============  =============  =============  =============

Basic income
 per common
 share          $        0.29  $        0.27  $        0.72  $        0.84
                =============  =============  =============  =============

Diluted net
 income per
 share          $        0.29  $        0.26  $        0.71  $        0.82
                =============  =============  =============  =============

Book value per
 common share   $       11.53  $       10.52  $       11.53  $       10.52
                =============  =============  =============  =============

Contact Information

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