UNITED
STATES
SECURITY
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20849
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
FOR THE
QUARTER ENDED JUNE 30,
2011
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD
|
COMMISSION
FILE NUMBER 0-50237
VSB
Bancorp, Inc.
|
(Exact
name of registrant as specified in its
charter)
|
|
New York
|
(State
or other jurisdiction of incorporation or
organization)
|
|
11 - 3680128
|
(I.
R. S. Employer Identification No.)
|
|
4142 Hylan Boulevard,
Staten Island, New York 10308
|
(Address
of principal executive offices)
|
|
(718)
979-1100
|
Registrant’s
telephone number
|
|
Common Stock
|
(Title
of Class)
|
Indicate
by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
o No
o
Indicate
by check mark whether the registrant is a large accelerated
filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated
filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large
Accelerated Filer o
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
|
Smaller
Reporting Company x
|
Indicate
by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act):
Yes
o No
x
Par
Value: $0.0001 Class of Common Stock
The
Registrant had 1,825,009 common shares outstanding as of
August 2, 2011.
CROSS
REFERENCE INDEX
|
|
|
Page
|
|
|
|
|
PART
I
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
7
|
|
|
|
8
to 24
|
|
|
|
25
to 38
|
|
|
|
38
to 39
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
40
|
|
|
|
|
Exhibit
31.1, 31.2, 32.1, 32.2
|
|
41
to 44
|
Forward-Looking
Statements
When used in
this periodic report , or in any written or oral statement
made by us or our officers, directors or employees, the
words and phrases “will result,”
“expect,” “will continue,”
“anticipate,” “estimate,”
“project,” or similar terms are intended to
identify “forward-looking statements.” A
variety of factors could cause our actual results and
experiences to differ materially from the anticipated
results or other expectations expressed in any
forward-looking statements. Some of the risks and
uncertainties that may affect our operations, performance,
development and results, the interest rate sensitivity of
our assets and liabilities, and the adequacy of our loan
loss allowance, include, but are not limited to:
|
●
|
deterioration
in local, regional, national or global economic
conditions which could result in, among other
things, an increase in loan delinquencies, a
decrease in property values, or a change in the
real estate turnover rate;
|
|
●
|
changes
in market interest rates or changes in the speed at
which market interest rates change;
|
|
●
|
increases
in inflation;
|
|
●
|
technology
changes requiring additional capital
investment;
|
|
●
|
breaches
of security or other criminal acts affecting our
operations;
|
|
●
|
changes
in laws and regulations affecting the financial
service industry;
|
|
●
|
changes
in accounting rules;
|
|
●
|
changes
in the public’s perception of financial
institutions in general and banks in
particular;
|
|
●
|
changes
in borrowers’ attitudes towards their moral
and legal obligations to repay their debts;
|
|
●
|
the
health and soundness of other financial
institutions;
|
|
●
|
changes
in the securities or real estate markets;
|
|
●
|
weather,
geologic or climatic conditions;
|
|
●
|
changes
in government monetary or fiscal policy or other
government political changes;
|
|
●
|
changes
in competition; and
|
|
●
|
changes
in consumer preferences by our customers or the
customers of our business borrowers.
|
Please do not
place undue reliance on any forward-looking statement,
which speaks only as of the date made. There are many
factors, including those described above, that could affect
our future business activities or financial performance and
could cause our actual future results or circumstances to
differ materially from those we anticipate or project. We
do not undertake any obligation to update any
forward-looking statement after it is made.
VSB
Bancorp, Inc.
(unaudited)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
38,622,272
|
|
|
$
|
28,764,987
|
|
Investment
securities, available for sale
|
|
|
120,282,630
|
|
|
|
121,307,907
|
|
Loans
receivable
|
|
|
82,727,855
|
|
|
|
81,538,224
|
|
Allowance
for loan loss
|
|
|
(1,192,630
|
)
|
|
|
(1,277,220
|
)
|
Loans
receivable, net
|
|
|
81,535,225
|
|
|
|
80,261,004
|
|
Bank
premises and equipment, net
|
|
|
2,518,610
|
|
|
|
2,732,229
|
|
Accrued
interest receivable
|
|
|
627,905
|
|
|
|
673,967
|
|
Other
assets
|
|
|
1,319,457
|
|
|
|
1,513,605
|
|
Total
assets
|
|
$
|
244,906,099
|
|
|
$
|
235,253,699
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
and checking
|
|
$
|
75,204,955
|
|
|
$
|
66,407,225
|
|
NOW
|
|
|
31,092,654
|
|
|
|
35,138,867
|
|
Money
market
|
|
|
28,978,292
|
|
|
|
27,057,632
|
|
Savings
|
|
|
17,482,082
|
|
|
|
14,938,440
|
|
Time
|
|
|
63,085,310
|
|
|
|
63,644,963
|
|
Total
deposits
|
|
|
215,843,293
|
|
|
|
207,187,127
|
|
Escrow
deposits
|
|
|
207,219
|
|
|
|
219,530
|
|
Accounts
payable and accrued expenses
|
|
|
1,824,726
|
|
|
|
1,802,186
|
|
Total
liabilities
|
|
|
217,875,238
|
|
|
|
209,208,843
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock ($.0001 par value, 10,000,000 shares
authorized, 1,989,509 issued, 1,825,009 outstanding
at June 30, 2011 and at December 31, 2010)
|
|
|
199
|
|
|
|
199
|
|
Additional
paid in capital
|
|
|
9,265,716
|
|
|
|
9,249,600
|
|
Retained
earnings
|
|
|
18,205,496
|
|
|
|
17,563,435
|
|
Treasury
stock, at cost (164,500 shares at June 30, 2011and
at December 31, 2010)
|
|
|
(1,643,797
|
)
|
|
|
(1,643,797
|
)
|
Unearned
Employee Stock Ownership Plan shares
|
|
|
(479,055
|
)
|
|
|
(563,594
|
)
|
Accumulated
other comprehensive income, net of taxes of
$1,418,716 and $1,213,545, respectively
|
|
|
1,682,302
|
|
|
|
1,439,013
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
27,030,861
|
|
|
|
26,044,856
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
244,906,099
|
|
|
$
|
235,253,699
|
|
See
notes to consolidated financial statements.
VSB
Bancorp, Inc.
(unaudited)
|
|
Three
months
|
|
|
Three
months
|
|
|
Six
months
|
|
|
Six
months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$
|
1,366,027
|
|
|
$
|
1,451,191
|
|
|
$
|
2,820,319
|
|
|
$
|
2,841,487
|
|
Investment
securities
|
|
|
997,887
|
|
|
|
1,124,032
|
|
|
|
2,010,439
|
|
|
|
2,286,254
|
|
Other
interest earning assets
|
|
|
13,603
|
|
|
|
13,683
|
|
|
|
24,741
|
|
|
|
22,890
|
|
Total
interest income
|
|
|
2,377,517
|
|
|
|
2,588,906
|
|
|
|
4,855,499
|
|
|
|
5,150,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
|
23,183
|
|
|
|
41,348
|
|
|
|
56,272
|
|
|
|
80,600
|
|
Money
market
|
|
|
61,101
|
|
|
|
63,018
|
|
|
|
120,480
|
|
|
|
125,504
|
|
Savings
|
|
|
13,278
|
|
|
|
12,129
|
|
|
|
25,974
|
|
|
|
23,589
|
|
Time
|
|
|
118,885
|
|
|
|
147,893
|
|
|
|
240,391
|
|
|
|
308,010
|
|
Total
interest expense
|
|
|
216,447
|
|
|
|
264,388
|
|
|
|
443,117
|
|
|
|
537,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
2,161,070
|
|
|
|
2,324,518
|
|
|
|
4,412,382
|
|
|
|
4,612,928
|
|
Provision
for loan loss
|
|
|
25,000
|
|
|
|
20,000
|
|
|
|
55,000
|
|
|
|
110,000
|
|
Net
interest income after provision for loan
loss
|
|
|
2,136,070
|
|
|
|
2,304,518
|
|
|
|
4,357,382
|
|
|
|
4,502,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
fees
|
|
|
13,036
|
|
|
|
16,551
|
|
|
|
40,606
|
|
|
|
18,855
|
|
Service
charges on deposits
|
|
|
536,148
|
|
|
|
551,019
|
|
|
|
1,058,385
|
|
|
|
1,091,720
|
|
Net
rental income
|
|
|
10,105
|
|
|
|
14,266
|
|
|
|
21,718
|
|
|
|
26,249
|
|
Other
income
|
|
|
64,004
|
|
|
|
39,675
|
|
|
|
110,287
|
|
|
|
86,361
|
|
Total
non-interest income
|
|
|
623,293
|
|
|
|
621,511
|
|
|
|
1,230,996
|
|
|
|
1,223,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
988,835
|
|
|
|
990,642
|
|
|
|
1,968,838
|
|
|
|
1,954,258
|
|
Occupancy
expenses
|
|
|
361,665
|
|
|
|
361,606
|
|
|
|
738,228
|
|
|
|
725,396
|
|
Legal
expense
|
|
|
34,974
|
|
|
|
87,260
|
|
|
|
99,960
|
|
|
|
176,781
|
|
Professional
fees
|
|
|
72,050
|
|
|
|
60,650
|
|
|
|
152,501
|
|
|
|
126,850
|
|
Computer
expense
|
|
|
73,247
|
|
|
|
65,597
|
|
|
|
138,569
|
|
|
|
132,552
|
|
Directors’
fees
|
|
|
62,925
|
|
|
|
60,575
|
|
|
|
125,375
|
|
|
|
119,525
|
|
FDIC
and NYSBD assessments
|
|
|
45,500
|
|
|
|
105,000
|
|
|
|
139,500
|
|
|
|
199,000
|
|
Other
expenses
|
|
|
331,822
|
|
|
|
342,350
|
|
|
|
641,097
|
|
|
|
642,694
|
|
Total
non-interest expenses
|
|
|
1,971,018
|
|
|
|
2,073,680
|
|
|
|
4,004,068
|
|
|
|
4,077,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
788,345
|
|
|
|
852,349
|
|
|
|
1,584,310
|
|
|
|
1,649,057
|
|
Provision/(benefit)
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
565,691
|
|
|
|
344,800
|
|
|
|
980,381
|
|
|
|
787,110
|
|
Deferred
|
|
|
(205,050
|
)
|
|
|
45,173
|
|
|
|
(255,566
|
)
|
|
|
(32,651
|
)
|
Total
provision for income taxes
|
|
|
360,641
|
|
|
|
389,973
|
|
|
|
724,815
|
|
|
|
754,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
427,704
|
|
|
$
|
462,376
|
|
|
$
|
859,495
|
|
|
$
|
894,598
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
$
|
0.48
|
|
|
$
|
0.51
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
$
|
0.48
|
|
|
$
|
0.51
|
|
Comprehensive
income
|
|
$
|
952,959
|
|
|
$
|
644,867
|
|
|
$
|
1,102,784
|
|
|
$
|
1,299,835
|
|
Book
value per common share
|
|
$
|
14.81
|
|
|
$
|
14.08
|
|
|
$
|
14.81
|
|
|
$
|
14.08
|
|
See
notes to consolidated financial statements.
VSB
Bancorp, Inc.
Year
Ended December 31, 2010 and Six Months Ended June 30,
2011
(unaudited)
|
|
Number
of
Common
Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock,
at
cost
|
|
|
Unearned
ESOP
Shares
|
|
|
Accumulated
Other
Comprehensive
Gain
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2010
|
|
|
1,762,191
|
|
|
$
|
195
|
|
|
$
|
9,317,719
|
|
|
$
|
16,112,741
|
|
|
$
|
(1,840,249
|
)
|
|
$
|
(732,672
|
)
|
|
$
|
1,626,215
|
|
|
$
|
24,483,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock option, including tax benefit
|
|
|
44,375
|
|
|
|
4
|
|
|
|
292,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,211
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
70,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,811
|
|
Amortization
of earned portion of ESOP common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,078
|
|
|
|
|
|
|
|
169,078
|
|
Amortization
of cost over fair value - ESOP
|
|
|
|
|
|
|
|
|
|
|
(35,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,551
|
)
|
Cash
dividends declared ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(429,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(429,935
|
)
|
Purchase
of treasury stock, at cost
|
|
|
(17,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,134
|
)
|
|
|
|
|
|
|
|
|
|
|
(199,134
|
)
|
Contribution
to RRP Trust from treasury shares
|
|
|
35,500
|
|
|
|
|
|
|
|
(395,586
|
)
|
|
|
|
|
|
|
395,586
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880,629
|
|
Other
comprehensive income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities available for
sale, net of tax effects
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(187,202
|
)
|
|
|
(187,202
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,693,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2010
|
|
|
1,825,009
|
|
|
$
|
199
|
|
|
$
|
9,249,600
|
|
|
$
|
17,563,435
|
|
|
$
|
(1,643,797
|
)
|
|
$
|
(563,594
|
)
|
|
$
|
1,439,013
|
|
|
$
|
26,044,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
23,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,390
|
|
Amortization
of earned portion of ESOP common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,270
|
|
|
|
|
|
|
|
42,270
|
|
Amortization
of cost over fair value - ESOP
|
|
|
|
|
|
|
|
|
|
|
(16,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,753
|
)
|
Cash
dividends declared ($0.06 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,716
|
)
|
Purchase
of treasury stock, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431,791
|
|
Other
comprehensive income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities available
for sale, net of tax effects
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(281,966
|
)
|
|
|
(281,966
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2011
|
|
|
1,825,009
|
|
|
$
|
199
|
|
|
$
|
9,256,237
|
|
|
$
|
17,886,510
|
|
|
$
|
(1,643,797
|
)
|
|
$
|
(521,324
|
)
|
|
$
|
1,157,047
|
|
|
$
|
26,134,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
25,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,671
|
|
Amortization
of earned portion of ESOP common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,269
|
|
|
|
|
|
|
|
42,269
|
|
Amortization
of cost over fair value - ESOP
|
|
|
|
|
|
|
|
|
|
|
(16,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,192
|
)
|
Cash
dividends declared ($0.06 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,718
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,704
|
|
Other
comprehensive income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities available for
sale, net of tax effects
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
525,255
|
|
|
|
525,255
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
952,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2011
|
|
|
1,825,009
|
|
|
$
|
199
|
|
|
$
|
9,265,716
|
|
|
$
|
18,205,496
|
|
|
$
|
(1,643,797
|
)
|
|
$
|
(479,055
|
)
|
|
$
|
1,682,302
|
|
|
$
|
27,030,861
|
|
See
notes to consolidated financial statements.
VSB
Bancorp, Inc.
(unaudited)
|
|
Three
months
|
|
|
Three
months
|
|
|
Six
months
|
|
|
Six
months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
427,704
|
|
|
$
|
462,376
|
|
|
$
|
859,495
|
|
|
$
|
894,598
|
|
Adjustments
to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
150,377
|
|
|
|
149,560
|
|
|
|
298,918
|
|
|
|
301,766
|
|
Accretion
of income, net of amortization of premium
|
|
|
49,419
|
|
|
|
505
|
|
|
|
82,763
|
|
|
|
9,275
|
|
ESOP
compensation expense
|
|
|
26,077
|
|
|
|
25,799
|
|
|
|
51,594
|
|
|
|
51,487
|
|
Stock-based
compensation expense
|
|
|
25,671
|
|
|
|
21,450
|
|
|
|
49,061
|
|
|
|
23,394
|
|
Provision
for loan losses
|
|
|
25,000
|
|
|
|
20,000
|
|
|
|
55,000
|
|
|
|
110,000
|
|
Decrease
in prepaid and other assets
|
|
|
20,621
|
|
|
|
91,366
|
|
|
|
194,148
|
|
|
|
196,519
|
|
(Increase)/decrease
in accrued interest receivable
|
|
|
(3,666
|
)
|
|
|
39,433
|
|
|
|
46,062
|
|
|
|
102,897
|
|
(Decrease)/increase
in deferred income taxes
|
|
|
(205,050
|
)
|
|
|
45,173
|
|
|
|
(255,566
|
)
|
|
|
(32,651
|
)
|
Increase/(decrease)
in accrued expenses and other liabilities
|
|
|
36,443
|
|
|
|
(290,911
|
)
|
|
|
72,935
|
|
|
|
121,356
|
|
Net
cash provided by operating activities
|
|
|
552,596
|
|
|
|
564,751
|
|
|
|
1,454,410
|
|
|
|
1,778,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in loan receivable
|
|
|
(2,940,099
|
)
|
|
|
738,889
|
|
|
|
(1,272,170
|
)
|
|
|
1,607,758
|
|
Proceeds
from repayment and calls of investment
securities, available for sale
|
|
|
7,517,021
|
|
|
|
8,479,744
|
|
|
|
16,948,321
|
|
|
|
18,721,798
|
|
Purchases
of investment securities, available for
sale
|
|
|
(9,539,269
|
)
|
|
|
(6,524,461
|
)
|
|
|
(15,614,398
|
)
|
|
|
(15,465,622
|
)
|
Purchases
of premises and equipment
|
|
|
(64,857
|
)
|
|
|
(26,677
|
)
|
|
|
(85,299
|
)
|
|
|
(48,271
|
)
|
Net
cash (used in)/provided by investing
activities
|
|
|
(5,027,204
|
)
|
|
|
2,667,495
|
|
|
|
(23,546
|
)
|
|
|
4,815,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
5,544,851
|
|
|
|
13,429,699
|
|
|
|
8,643,855
|
|
|
|
15,094,431
|
|
Exercise
of stock options
|
|
|
—
|
|
|
|
292,211
|
|
|
|
—
|
|
|
|
292,211
|
|
Purchase
of treasury stock, at cost
|
|
|
—
|
|
|
|
(16,346
|
)
|
|
|
—
|
|
|
|
(16,346
|
)
|
Cash
dividends paid
|
|
|
(108,718
|
)
|
|
|
(109,121
|
)
|
|
|
(217,434
|
)
|
|
|
(212,663
|
)
|
Net
cash provided by financing activities
|
|
|
5,436,133
|
|
|
|
13,596,443
|
|
|
|
8,426,421
|
|
|
|
15,157,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
961,525
|
|
|
|
16,828,689
|
|
|
|
9,857,285
|
|
|
|
21,751,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
|
|
|
37,660,747
|
|
|
|
44,640,167
|
|
|
|
28,764,987
|
|
|
|
39,716,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS,
END OF PERIOD
|
|
$
|
38,622,272
|
|
|
$
|
61,468,856
|
|
|
$
|
38,622,272
|
|
|
$
|
61,468,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
216,040
|
|
|
$
|
264,220
|
|
|
$
|
447,107
|
|
|
$
|
567,204
|
|
Taxes
|
|
$
|
680,225
|
|
|
$
|
627,680
|
|
|
$
|
867,125
|
|
|
$
|
714,405
|
|
See
notes to consolidated financial statements.
VSB
BANCORP, INC.
1.
GENERAL
VSB Bancorp,
Inc. (referred to using terms such as “we,”
“us,” or the “Company”) is the
holding company for Victory State Bank (the
“Bank”), a New York chartered commercial bank.
Our primary business is owning all of the issued and
outstanding stock of the Bank. Our common stock is listed
on the NASDAQ Global Market. We trade under the symbol
“VSBN”.
Through
the Bank, the Company is primarily engaged in the business
of commercial banking, and to a lesser extent retail
banking. The Bank gathers deposits from individuals and
businesses primarily in Staten Island, New York and makes
loans throughout that community. Therefore, the
Company’s exposure to credit risk is significantly
affected by changes in the local Staten Island economic and
real estate markets. The Bank invests funds that are not
used for lending primarily in government securities,
mortgage backed securities and collateralized mortgage
obligations. Customer deposits are insured, up to the
applicable limit, by the Federal Deposit Insurance
Corporation (“FDIC”). The Bank is supervised by
the New York State Banking Department and the FDIC.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
following is a description of the significant accounting
and reporting policies followed in preparing and presenting
the accompanying consolidated financial statements. These
policies conform with accounting principles generally
accepted in the United States of America
(“GAAP”).
Principles
of Consolidation - The consolidated financial
statements of the Company include the accounts of the
Company, including its subsidiary Victory State Bank. All
significant inter-company accounts and transactions between
the Company and Bank have been eliminated in
consolidation.
Use
of Estimates - The preparation of financial
statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and
expenses during the reporting period. Actual results can
differ from those estimates. The allowance for loan losses,
prepayment estimates on the mortgage-backed securities and
collateralized mortgage obligation portfolios,
contingencies and fair values of financial instruments are
particularly subject to change.
Reclassifications
– Some items in the prior year financial
statements were reclassified to conform to the current
presentation.
Cash
and Cash Equivalents – Cash and cash
equivalents consist of cash on hand, due from banks and
interest-bearing deposits. Interest-bearing deposits with
original maturities of 90 days or less are included in this
category. Customer loan and deposit transactions are
reported on a net cash basis. Regulation D of the Board of
Governors of the Federal Reserve System requires that
Victory State Bank maintain interest-bearing deposits or
cash on hand as reserves against its demand deposits. The
amount of reserves which Victory State Bank is required to
maintain depends upon its level of transaction accounts.
During the fourteen day period from June 30, 2011 through
July 13, 2011, Victory State Bank was required to maintain
reserves, after deducting vault cash, of $4,356,000.
Reserves are required to be maintained on a fourteen day
basis, so, from time to time, Victory State Bank may use
available cash reserves on a day to day basis, so long as
the fourteen day average reserves satisfy Regulation D
requirements. Victory State Bank is required to report
transaction account levels to the Federal Reserve on a
weekly basis.
Interest-bearing
bank balances – Interest-bearing bank balances
mature overnight and are carried at cost.
Investment
Securities, Available for Sale - Investment
securities, available for sale, are to be held for an
unspecified period of time and include securities that
management intends to use as part of its asset/liability
strategy. These securities may be sold in response to
changes in interest rates, prepayments or other factors and
are carried at estimated fair value. Gains or losses on the
sale of such securities are determined by the specific
identification method. Interest income includes
amortization of purchase premium and accretion of purchase
discount. Premiums and discounts are recognized in interest
income using a method that approximates the level yield
method without anticipating prepayments, except for
mortgage-backed securities where prepayments are estimated.
Unrealized holding gains or losses, net of deferred income
taxes, are excluded from earnings and reported as other
comprehensive income in a separate component of
stockholders’ equity until realized. For debt
securities with other than temporary impairment (OTTI) that
management does not intend to sell or expect to be required
to sell, the amount of impairment is split into two
components as follows: 1) OTTI related to credit loss,
which must be recognized in the income statement and 2)
OTTI related to other factors, which is recognized in other
comprehensive income. The credit loss is defined as the
difference between the present value of the cash flows
expected to be collected and the amortized cost
basis.
The
Company invests primarily in agency collateralized
mortgage-Backed obligations (“CMOs”) with
estimated average lives primarily under 5 years and
mortgage-backed securities. These securities are primarily
issued by the Federal National Mortgage Association
(“FNMA”), the Government National Mortgage
Association (“GNMA”) or the Federal Home Loan
Mortgage Corporation (“FHLMC”) and are
primarily comprised of mortgage pools guaranteed by FNMA,
GNMA or FHLMC. The Company also invests in whole loan CMOs,
all of which are AAA rated. These securities expose the
Company to risks such as interest rate, prepayment and
credit risk and thus pay a higher rate of return than
comparable treasury issues.
Loans
Receivable - Loans receivable, that management has
the intent and ability to hold for the foreseeable future
or until maturity or payoff, are stated at unpaid principal
balances, adjusted for deferred net origination and
commitment fees and the allowance for loan losses. Interest
income on loans is credited as earned.
It
is the policy of the Company to provide a valuation
allowance for probable incurred losses on loans based on
the Company’s past loan loss experience, known and
inherent risks in the portfolio, adverse situations which
may affect the borrower’s ability to repay, estimated
value of underlying collateral and current economic
conditions in the Company’s lending area. The
allowance is increased by provisions for loan losses
charged to earnings and is reduced by charge-offs, net of
recoveries. While management uses available information to
estimate losses on loans, future additions to the allowance
may be necessary based upon the expected growth of the loan
portfolio and any changes in economic conditions beyond
management’s control. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank’s allowance for loan
losses. Such agencies may require the Bank to recognize
additions to the allowance based on judgments different
from those of management. Management believes, based upon
all relevant and available information, that the allowance
for loan losses is appropriate.
The
Company has a policy that all loans 90 days past due are
placed on non-accrual status. It is the Company’s
policy to cease the accrual of interest on loans to
borrowers past due less than 90 days where a probable loss
is estimated and to reverse out of income all interest that
is due but has not been paid. The Company applies payments
received on non-accrual loans to the outstanding principal
balance due before applying any amount to interest, until
the loan is restored to an accruing status. On a limited
basis, the Company may apply a payment to interest on a
non-accrual loan if there is no impairment or no estimated
loss on this asset. The Company continues to accrue
interest on construction loans that are 90 days past
contractual maturity date if the loan is expected to be
paid in full in the next 60 days and all interest is paid
up to date.
Loan
origination fees and certain direct loan origination costs
are deferred and the net amount recognized over the
contractual loan terms using the level-yield method,
adjusted for periodic prepayments in certain
circumstances.
The
Company considers a loan to be impaired when, based on
current information, it is probable that the Company will
be unable to collect all principal and interest payments
due according to the contractual terms of the loan
agreement. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified
as impaired. Impairment is measured on a loan by loan basis
for commercial and construction loans. Impaired loans are
measured based on the present value of expected future cash
flows discounted at the loan’s effective interest
rate or, as a practical expedient, at the loan’s
observable market price or the fair value of the
collateral. The fair value of the collateral, as reduced by
costs to sell, is utilized if a loan is collateral
dependent. The fair value of the collateral is estimated by
obtaining a new appraisal, if the loan amount exceeds
$100,000, or by discounting the most recent appraisal to
reflect the current market if the loan is less than
$100,000 or a more recent appraisal has yet to be received.
Loans with modified terms that the Company would not
normally consider, and for which the borrower is
experiencing financial difficulties, are considered
troubled debt restructurings and classified as impaired.
Large groups of homogeneous loans are collectively
evaluated for impairment.
Long-Lived
Assets - The Company periodically evaluates the
recoverability of long-lived assets, such as premises and
equipment, to ensure the carrying value has not been
impaired. In performing the review for recoverability, the
Company would estimate the future cash flows expected to
result from the use of the asset. If the sum of the
expected future cash flows is less than the carrying
amount, an impairment will be recognized. The Company
reports these assets at the lower of the carrying value or
fair value.
Premises
and Equipment - Premises, leasehold improvements,
and furniture and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are accumulated by the straight-line method
over the estimated useful lives of the respective assets,
which range from three to fifteen years. Leasehold
improvements are amortized at the lesser of their useful
life or the term of the lease.
Federal
Home Loan Bank (FHLB) Stock - The Bank is a member
of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other
factors, and may invest in additional amounts. FHLB stock
is carried at cost, classified as a restricted security,
and periodically evaluated for impairment. Because this
stock is viewed as a long term investment, impairment is
based on ultimate recovery of par value, which is the price
the Bank pays for the FHLB Stock. Both cash and stock
dividends are reported as income.
Income
Taxes - The Company utilizes the liability method to
account for income taxes. Under this method, deferred tax
assets and liabilities are determined on differences
between financial reporting and the tax bases of assets and
liabilities and are measured using the enacted tax rates
and laws expected to be in effect when the differences are
expected to reverse. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. As such, a tax
position is recognized as a benefit only if it is
“more likely than not” that the tax position
would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized
is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax
positions not meeting the “more likely than
not” test, no tax benefit is recorded.
The
Company recognizes interest and/or penalties related to
income tax matters in income tax expense.
Financial
Instruments - In the ordinary course of business,
the Company has entered into off-balance sheet financial
instruments, primarily consisting of commitments to extend
credit.
Basic
and Diluted Net Income Per Common Share - The
Company has stock compensation awards with non-forfeitable
dividend rights which are considered participating
securities. As such, earnings per share is computed using
the two-class method. Basic earnings per common share is
computed by dividing net income allocated to common stock
by the weighted average number of common shares outstanding
during the period which excludes the participating
securities. Diluted earnings per common share includes the
dilutive effect of additional potential common shares from
stock-based compensation plans, but excludes awards
considered participating securities. Earnings and dividends
per share are restated for all stock splits and stock
dividends through the date of issuance of the financial
statements.
Basic
net income per share of common stock is based on 1,768,485
shares and 1,764,793 shares, the weighted average number of
common shares outstanding for the three months ended June
30, 2011 and 2010, respectively. Diluted net income per
share of common stock is based on 1,770,836 and 1,765,111,
the weighted average number of common shares outstanding
plus potentially dilutive common shares for the three
months ended June 30, 2011 and 2010, respectively. The
weighted average number of potentially dilutive common
shares excluded in calculating diluted net income per
common share due to the anti-dilutive effect is 28,223 and
33,399 shares for the three months ended June 30, 2011 and
2010, respectively. Common stock equivalents were
calculated using the treasury stock method.
Basic
net income per share of common stock is based on 1,765,138
shares and 1,745,267 shares, the weighted average number of
common shares outstanding for the six months ended June 30,
2011 and 2010, respectively. Diluted net income per share
of common stock is based on 1,767,043 and 1,745,520, the
weighted average number of common shares outstanding plus
potentially dilutive common shares for the six months ended
June 30, 2011 and 2010, respectively. The weighted average
number of potentially dilutive common shares excluded in
calculating diluted net income per common share due to the
anti-dilutive effect is 29,413 and 33,603 shares for the
six months ended June 30, 2011 and 2010, respectively.
Common stock equivalents were calculated using the treasury
stock method.
The
reconciliation of the numerators and the denominators of
the basic and diluted per share computations for the three
and six months ended June 30, are as follows:
Reconciliation
of EPS
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
Basic
|
|
|
|
|
|
|
Distributed
earnings allocated to common stock
|
|
$
|
106,109
|
|
|
$
|
105,888
|
|
Undistributed
earnings allocated to common sock
|
|
|
314,243
|
|
|
|
350,351
|
|
Net
earnings allocated to common stock
|
|
$
|
420,352
|
|
|
$
|
456,239
|
|
|
|
|
|
|
|
|
|
|
Weighted
common shares outstanding including participating
securities
|
|
|
1,799,414
|
|
|
|
1,788,535
|
|
Less:
Participating securities
|
|
|
(30,929
|
)
|
|
|
(23,742
|
)
|
Weighted
average shares
|
|
|
1,768,485
|
|
|
|
1,764,793
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net
earnings allocated to common stock
|
|
$
|
420,352
|
|
|
$
|
456,239
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares for basic
|
|
|
1,768,485
|
|
|
|
1,764,793
|
|
Dilutive
effects of:
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
2,351
|
|
|
|
318
|
|
Unvested
shares not considered particpating
securtities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,770,836
|
|
|
|
1,765,111
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
Reconciliation
of EPS
|
|
|
|
|
|
|
|
|
Six
months ended
|
|
|
Six
months ended
|
|
|
|
June
30, 2011
|
|
|
June
30, 2010
|
|
Basic
|
|
|
|
|
|
|
Distributed
earnings allocated to common stock
|
|
$
|
211,817
|
|
|
$
|
209,432
|
|
Undistributed
earnings allocated to common sock
|
|
|
631,810
|
|
|
|
679,801
|
|
Net
earnings allocated to common stock
|
|
$
|
843,627
|
|
|
$
|
889,233
|
|
|
|
|
|
|
|
|
|
|
Weighted
common shares outstanding including participating
securities
|
|
|
1,798,340
|
|
|
|
1,757,203
|
|
Less:
Participating securities
|
|
|
(33,202
|
)
|
|
|
(11,936
|
)
|
Weighted
average shares
|
|
|
1,765,138
|
|
|
|
1,745,267
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$
|
0.48
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net
earnings allocated to common stock
|
|
$
|
843,627
|
|
|
$
|
889,233
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares for basic
|
|
|
1,765,138
|
|
|
|
1,745,267
|
|
Dilutive
effects of:
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
1,905
|
|
|
|
253
|
|
Unvested
shares not considered particpating
securtities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,767,043
|
|
|
|
1,745,520
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$
|
0.48
|
|
|
$
|
0.51
|
|
Net
earnings allocated to common stock for the period is
distributed earnings during the period, such as dividends
on common shares outstanding, plus a proportional amount of
retained income for the period based on restricted shares
granted but unvested compared to the total common shares
outstanding.
Stock
Based Compensation - The Company records
compensation expense for stock options provided to
employees in return for employment service. The cost is
measured at the fair value of the options when granted, and
this cost is expensed over the employment service period,
which is normally the vesting period of the options.
Employee
Stock Ownership Plan (“ESOP”) - The
cost of shares issued to the ESOP, but not yet allocated to
participants, is shown as a reduction of
stockholders’ equity. Compensation expense is based
on the market price of shares as they are committed to be
released to participant accounts. Cash dividends on
allocated ESOP shares reduce retained earnings; cash
dividends on unearned ESOP shares reduce debt and accrued
interest.
Stock
Repurchase Programs –
On September 8, 2008, the Company announced that its Board
of Directors had authorized a Rule 10b5-1 stock repurchase
program for the repurchase of up to 100,000 shares of the
Company’s common stock. On April 21, 2009, the
Company announced that its Board of Directors had
authorized a second Rule 10b5-1 stock repurchase program
for the repurchase of up to an additional 100,000 shares of
the Company’s common stock. The Company has
repurchased a total of 200,000 shares of its common stock
under these stock repurchase programs, which was completed
by the end of 2010. Stock repurchases under the program
have been accounted for using the cost method, in which the
Company will reflect the entire cost of repurchased shares
as a separate reduction of stockholders’ equity on
its balance sheet.
Retention
and Recognition Plan – At the April 27, 2010
Annual Meeting, the stockholders of VSB Bancorp, Inc.
approved the adoption of the 2010 Retention and Recognition
Plan (the “RRP”). The RRP authorizes the award
of up to 50,000 shares of its common stock to directors,
officers and employees. In conjunction with the approval
the RRP, stockholders approved the award of 4,000 shares of
stock to each of its eight directors who had at least five
years of service. The director awards will vest over five
years, with 20% vesting annually for each of the first five
years after the award is made, subject to acceleration and
forfeiture. On April 27, 2011, 6,400 shares or 20% of the
32,000 shares of stock awarded to its eight directors who
had at least five years of service had vested. On June 8,
2010, an additional 3,500 shares of stock were awarded to
the President and CEO of the Company, which will vest over
a 65 month period, with 20% vesting annually for each of
the first five years starting in November 2011, subject to
acceleration and forfeiture. The recipient of an award will
not be required to make any payment to receive the award or
the stock covered by the award. The Company recognizes
compensation expense for the shares awarded under the RRP
gradually as the shares vest, based upon the market price
of the shares on the date of the award. For the six months
ended June 30, 2011, the Company recognized $40,371 of
compensation expense related to the shares awarded. The
income tax benefit resulting from this expense was $18,470.
As of June 30, 2011, there was approximately $293,666 of
unrecognized compensation costs related to the shares
awarded. These costs are expected to be recognized over the
next 3.75 years.
A
summary of the status of the Company’s nonvested plan
shares as of June 30, 2011 is as follows:
For
the Six Months Ended June 30, 2011:
|
|
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Grant
Date Share Value
|
|
|
|
|
|
|
|
|
Non
vested at beginning of period
|
|
|
35,500
|
|
|
$
|
11.46
|
|
Granted
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
6,400
|
|
|
$
|
12.22
|
|
Non
vested at end of period
|
|
|
29,100
|
|
|
$
|
11.46
|
|
Comprehensive
Income -
Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes
unrealized gains and losses, net of taxes, on securities
available for sale which are also recognized as separate
components of equity.
Recently-Adopted
Accounting Standards - In July 2010, the
Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No.
2010-20,”Receivables: Disclosure about the Credit
Quality of Financing Receivables and the Allowance for
Credit Losses.” The objective of this ASU is for an
entity to provide disclosures that facilitate financial
statement users’ evaluation of the nature of credit
risk inherent in the entity’s portfolio of financing
receivables, how that risk is analyzed and assessed in
arriving at the allowance for credit losses,and the changes
and reasons for those changes in the allowance for credit
losses. An entity should provide disclosures on a
disaggregated basis on two defined levels: 1) portfolio
segment and 2) class of financing receivable. The ASU makes
changes to existing disclosure requirements and includes
additional disclosure requirements about financing
receivables, including credit quality indicators of
financing receivables at the end of the reporting period by
class of financing receivables, the aging of past due
financing receivables at the end of the reporting period by
class of financing receivables, and the nature and extent
of TDRs that occurred during the period by class of
financing receivables and their effect on the allowance for
credit losses. The Company’s adoption on March 31,
2011 of the disclosures regarding activity in the allowance
for loan losses and its adoption on December 31, 2010 of
the other disclosures in this ASU except for those parts
pertaining to TDRs, being disclosure-related only, had no
impact on its results of operations. At its January 4,
2011, meeting, the FASB affirmed its decision to
temporarily defer the effective date for TDRs.
In
April 2011, the FASB issued ASU No. 2011-02,
“Receivables (Topic 310): A Creditor’s
Determination of Whether a Restructuring Is a Troubled Debt
Restructuring.” This ASU amends Topic 310 and
provides additional guidance to creditors for evaluating
whether a modification or restructuring of a receivable is
a troubled debt restructuring. The amendments in this
update are effective for the first interim or annual period
beginning on or after June 15, 2011 and should be applied
retrospectively to the beginning of the annual period of
adoption. The new guidance will require creditors to
evaluate modifications and restructurings of receivables
using a more principles-based approach, which may result in
more modifications and restructurings being considered
troubled debt restructurings. For purposes of measuring
impairment of these receivables, an entity should apply the
amendments prospectively for the first interim or annual
period beginning on or after June 15, 2011. Early adoption
is permitted. We do not expect that this accounting
standards update will have a material impact on our
financial condition, results of operations or financial
statement disclosures.
In
June 2011, the FASB issued ASU No. 2011-05,
“Comprehensive Income (Topic 22): Presentation of
Comprehensive Income.” The guidance contained in this
ASU is the result of a joint project by the FASB and the
International Accounting Standards Board
(“IASB”) to improve the presentation of
comprehensive income and to increase the consistency
between U.S. GAAP and International Financial Reporting
Standards (“IFRS”). The ASU provides only two
options for presenting other comprehensive income
(“OCI”). The first option is to present the
total of comprehensive income in the statement of income in
one continuous statement. The second option is to present
two separate but consecutive statements. The amendments in
this ASU should be applied retrospectively. For public
entities, the amendments are effective for fiscal years,
and interim periods within those years, beginning after
December 15, 2011. Early adoption is permitted. The
amendments do not require any transition disclosures. We do
not expect that this ASU will have a material impact on our
financial condition, results of operations or financial
statement disclosures.
3.
INVESTMENT SECURITIES, AVAILABLE FOR SALE
The following
table summarizes the amortized cost and fair value of the
available-for-sale investment securities portfolio at June
30, 2011 and December 31, 2010 and the corresponding
amounts of unrealized gains and losses therein:
|
|
June
30, 2011
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS - Residential
|
|
$
|
2,638,262
|
|
|
$
|
113,855
|
|
|
$
|
(188
|
)
|
|
$
|
2,751,929
|
|
GNMA
MBS - Residential
|
|
|
7,400,832
|
|
|
|
121,931
|
|
|
|
—
|
|
|
|
7,522,763
|
|
Whole
Loan MBS - Residential
|
|
|
971,538
|
|
|
|
22,867
|
|
|
|
—
|
|
|
|
994,405
|
|
Collateralized
mortgage obligations
|
|
|
106,170,979
|
|
|
|
2,867,257
|
|
|
|
(24,703
|
)
|
|
|
109,013,533
|
|
|
|
$
|
117,181,611
|
|
|
$
|
3,125,910
|
|
|
$
|
(24,891
|
)
|
|
$
|
120,282,630
|
|
|
|
December
31, 2010
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS - Residential
|
|
$
|
3,428,696
|
|
|
$
|
142,521
|
|
|
$
|
—
|
|
|
$
|
3,571,217
|
|
GNMA
MBS - Residential
|
|
|
4,092,912
|
|
|
|
65,164
|
|
|
|
(76,964
|
)
|
|
|
4,081,112
|
|
Whole
Loan MBS - Residential
|
|
|
1,212,246
|
|
|
|
23,255
|
|
|
|
—
|
|
|
|
1,235,501
|
|
Collateralized
mortgage obligations
|
|
|
109,921,495
|
|
|
|
2,906,359
|
|
|
|
(407,777
|
)
|
|
|
112,420,077
|
|
|
|
$
|
118,655,349
|
|
|
$
|
3,137,299
|
|
|
$
|
(484,741
|
)
|
|
$
|
121,307,907
|
|
There
were no sales of investment securities for the six months
ended June 30, 2011 and the year ended December 31,
2010.
The amortized
cost and fair value of the investment securities portfolio
are shown by expected maturity. Expected maturities may
differ from contractual maturities, especially for
collateralized mortgage obligations, if borrowers have the
right to call or prepay obligations with or without call or
prepayment penalties.
|
|
June
30, 2011
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
Less
than one year
|
|
$
|
23,388
|
|
|
$
|
23,200
|
|
Due
after one year through five years
|
|
|
2,693,201
|
|
|
|
2,829,679
|
|
Due
after five years through ten years
|
|
|
20,917,541
|
|
|
|
21,972,269
|
|
Due
after ten years
|
|
|
93,547,481
|
|
|
|
95,457,482
|
|
|
|
$
|
117,181,611
|
|
|
$
|
120,282,630
|
|
The following
table summarizes the investment securities with unrealized
losses at June 30, 2011 and December 31, 2010 by aggregated
major security type and length of time in a continuous
unrealized loss position:
June
30, 2011
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS
|
|
$
|
23,200
|
|
|
$
|
(188
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,200
|
|
|
$
|
(188
|
)
|
GNMA
MBS
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Whole
Loan MBS
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Collateralized
mortgage obligations
|
|
|
8,852,054
|
|
|
|
(24,703
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,852,054
|
|
|
|
(24,703
|
)
|
|
|
$
|
8,875,254
|
|
|
$
|
(24,891
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,875,254
|
|
|
$
|
(24,891
|
)
|
December
31, 2010
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
GNMA
MBS
|
|
|
2,991,961
|
|
|
|
(76,964
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,991,961
|
|
|
|
(76,964
|
)
|
Whole
Loan MBS
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Collateralized
mortgage obligations
|
|
|
20,223,509
|
|
|
|
(407,777
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
20,223,509
|
|
|
|
(407,777
|
)
|
|
|
$
|
23,215,470
|
|
|
$
|
(484,741
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,215,470
|
|
|
$
|
(484,741
|
)
|
The
Company evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such
evaluation. Consideration is given to the length of time
and the extent to which the fair value has been less than
cost, the financial condition and near-term prospects of
the issuer, and the intent and ability of the Company to
retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair
value. In analyzing an issuer’s financial condition,
the Company may consider whether the securities are issued
by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and the
results of reviews of the issuer’s financial
condition.
At
June 30, 2011, the unrealized loss on investment securities
was caused by interest rate increases. We expect that these
securities, at maturity, will not be settled for less than
the amortized cost of the investment. Because the decline
in fair value is attributable to changes in interest rates
and not credit quality, and because the Company does not
intend to sell the securities and it is not more likely
than not that the Company will be required to sell the
securities before recovery of the amortized cost basis less
any current-period loss, these investments are not
considered other-than-temporarily impaired. At June 30,
2011, there were no debt securities with unrealized losses
with aggregate depreciation of 5% or more from the
Company’s amortized cost basis.
Securities
pledged had a fair value of $52,723,822 and $66,089,701 at
June 30, 2011 and December 31, 2010, respectively and were
pledged to secure public deposits and balances in excess of
the deposit insurance limit on certain customer
accounts.
4.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of FASB ASC 820, “Financial
Instruments”. The estimated fair value amounts have
been determined by the Company using available market
information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value
amounts.
The
following methods and assumptions were used by the Company
in estimating fair values of financial instruments:
Interest-bearing
Bank Balances –
Interest-bearing bank balances mature within one year and
are carried at cost, which are estimated to be reasonably
close to fair value.
Money
Market Investments –
The fair value of these securities approximates their
carrying value due to the relatively short time to
maturity
Investment
Securities, Available For Sale –
The estimated fair value of these securities is determined
by using available market information and appropriate
valuation methodologies. The estimates presented herein are
not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
Loans
Receivable -
The fair value of commercial and construction loans is
approximated by the carrying value as the loans are tied
directly to the Prime Rate and are subject to change on a
daily basis, subject to the applicable interest rate
floors. The fair value of the remainder of the portfolio
is determined by discounting the future cash flows of the
loans using the appropriate discount rate.
Other
Financial Assets -
The fair value of these assets, principally accrued
interest receivable, approximates their carrying value
due to their short maturity.
Non-Interest
Bearing and Interest Bearing Deposits - The fair
value disclosed for non-interest bearing deposits is equal
to the amount payable on demand at the reporting date. The
fair value of interest bearing deposits is based upon the
current rates for instruments of the same remaining
maturity. Interest bearing deposits with a maturity of
greater than one year are estimated using a discounted cash
flow approach that applies interest rates currently being
offered.
Other
Liabilities - The estimated fair value of other
liabilities, which primarily include accrued interest
payable, approximates their carrying amount.
The carrying
amounts and estimated fair values of financial instruments,
at June 30, 2011 and December 31, 2010 are as
follows:
|
|
June
30, 2011
|
|
|
December
31, 2010
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
38,622,272
|
|
|
$
|
38,622,272
|
|
|
$
|
28,764,987
|
|
|
$
|
28,764,987
|
|
Investment
securities, available for sale
|
|
|
120,282,630
|
|
|
|
120,282,630
|
|
|
|
121,307,907
|
|
|
|
121,307,907
|
|
Loans
receivable
|
|
|
81,535,225
|
|
|
|
82,576,575
|
|
|
|
80,261,004
|
|
|
|
81,526,941
|
|
Other
financial assets
|
|
|
627,905
|
|
|
|
627,905
|
|
|
|
673,967
|
|
|
|
673,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Financial Assets
|
|
$
|
241,068,032
|
|
|
$
|
242,109,382
|
|
|
$
|
231,007,865
|
|
|
$
|
232,273,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
$
|
75,412,174
|
|
|
$
|
75,412,174
|
|
|
$
|
66,626,755
|
|
|
$
|
66,626,755
|
|
Interest
bearing deposits
|
|
|
140,638,338
|
|
|
|
140,624,104
|
|
|
|
140,779,902
|
|
|
|
140,634,427
|
|
Other
liabilities
|
|
|
17,212
|
|
|
|
17,212
|
|
|
|
19,039
|
|
|
|
19,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Financial Liabilities
|
|
$
|
216,067,724
|
|
|
$
|
216,053,490
|
|
|
$
|
207,425,696
|
|
|
$
|
207,280,221
|
|
ASC 825
establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used
to measure fair value:
Level
1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the entity has the
ability to access as of the measurement date.
Level
2: Significant other observable inputs other than Level 1
prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated
by observable market data.
Level
3: Significant unobservable inputs that reflect a reporting
entity’s own assumptions about the assumptions that
market participants would use in pricing and asset or
liability.
The fair value
of securities available for sale is determined by obtaining
quoted prices on nationally recognized securities exchanges
(Level 1 inputs) or using matrix pricing, which is a
mathematical technique widely used in the industry to value
debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on
the securities’ relationship to other benchmark
quoted securities (Level 2 inputs).
|
|
Fair
Value Measurements at June 30, 2011 Using
|
|
|
|
Total
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant
Other Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS - Residential
|
|
$
|
2,751,929
|
|
|
$
|
—
|
|
|
$
|
2,751,929
|
|
|
$
|
—
|
|
GNMA
MBS - Residential
|
|
|
7,522,763
|
|
|
|
—
|
|
|
|
7,522,763
|
|
|
|
—
|
|
Whole
Loan MBS - Residential
|
|
|
994,405
|
|
|
|
—
|
|
|
|
994,405
|
|
|
|
—
|
|
Collateralized
mortgage obligations
|
|
|
109,013,533
|
|
|
|
—
|
|
|
|
109,013,533
|
|
|
|
—
|
|
Total
Available for sale Securities
|
|
$
|
120,282,630
|
|
|
$
|
—
|
|
|
$
|
120,282,630
|
|
|
$
|
—
|
|
|
|
Fair
Value Measurements at December 31, 2010
Using
|
|
|
|
Total
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant
Other Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
MBS - Residential
|
|
$
|
3,571,217
|
|
|
$
|
—
|
|
|
$
|
3,571,217
|
|
|
$
|
—
|
|
GNMA
MBS - Residential
|
|
|
4,081,112
|
|
|
|
—
|
|
|
|
4,081,112
|
|
|
|
—
|
|
Whole
Loan MBS -Residential
|
|
|
1,235,501
|
|
|
|
—
|
|
|
|
1,235,501
|
|
|
|
—
|
|
Collateralized
mortgage obligations
|
|
|
112,420,077
|
|
|
|
—
|
|
|
|
112,420,077
|
|
|
|
—
|
|
Total
Available for sale Securities
|
|
$
|
121,307,907
|
|
|
$
|
—
|
|
|
$
|
121,307,907
|
|
|
$
|
—
|
|
Certain
financial assets and financial liabilities are measured at
fair value on a nonrecurring basis, that is, the
instruments are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment).
Assets
and Liabilities Measured on a Non-Recurring
Basis
Assets
and liabilities measured at fair value on a non-recurring
basis are summarized below:
Impaired
loans are reported at the fair value of the underlying
collateral if repayment is expected solely from the
collateral. Collateral values are estimated using Level 3
inputs based on internally customized discounting criteria
and updated appraisals when received.
|
|
Fair
Value Measurements at June 30, 2011 Using
|
|
|
Total
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
Assets:
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
273,095
|
|
—
|
|
—
|
|
$
|
273,095
|
|
|
Fair
Value Measurements at December 31, 2010 Using
|
|
|
Total
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable
Inputs
(Level
3)
|
Assets:
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
643,758
|
|
—
|
|
—
|
|
$
|
643,758
|
As
of June 30, 2011, we had one impaired loan with a specific
reserve that was collateral dependent. Collateral dependent
impaired loans, which are measured for impairment using the
fair value of the collateral, had a carrying amount of
$330,220, with a valuation allowance of $57,125 at that
date.
As
of December 31, 2010, we had two impaired loans with
specific reserves that were collateral dependent.
Collateral dependent impaired loans, which are measured for
impairment using the fair value of the collateral, had a
carrying amount of $727,217, with a valuation allowance of
$83,459 at that date.
5.
LOANS RECEIVABLE, NET
Loans
receivable, net at June 30, 2011 and December 31, 2010 are
summarized as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
Commercial
loans (principally variable rate):
|
|
|
|
|
|
|
Secured
|
|
$
|
1,399,742
|
|
|
$
|
1,393,532
|
|
Unsecured
|
|
|
12,906,384
|
|
|
|
12,924,378
|
|
Total
commercial loans
|
|
|
14,306,126
|
|
|
|
14,317,910
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
59,856,278
|
|
|
|
58,204,596
|
|
Residential
|
|
|
2,375,190
|
|
|
|
2,460,114
|
|
Total
real estate loans
|
|
|
62,231,468
|
|
|
|
60,664,710
|
|
|
|
|
|
|
|
|
|
|
Construction
loans (net of undisbursed funds of $2,107,500 and
$2,672,000, respectively)
|
|
|
5,527,500
|
|
|
|
5,874,500
|
|
|
|
|
|
|
|
|
|
|
Consumer
loans
|
|
|
464,536
|
|
|
|
533,860
|
|
Other
loans
|
|
|
448,942
|
|
|
|
386,750
|
|
|
|
|
913,478
|
|
|
|
920,610
|
|
Total
loans receivable
|
|
|
82,978,572
|
|
|
|
81,777,730
|
|
Less:
|
|
|
|
|
|
|
|
|
Unearned
loans fees, net
|
|
|
(250,717
|
)
|
|
|
(239,506
|
)
|
Allowance
for loan losses
|
|
|
(1,192,630
|
)
|
|
|
(1,277,220
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,535,225
|
|
|
$
|
80,261,004
|
|
Nonaccrual
loans outstanding at June 30, 2011 and December 31, 2010
are summarized as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
Nonaccrual
loans:
|
|
|
|
|
|
|
Unsecured
commercial loans
|
|
$
|
—
|
|
|
$
|
37,706
|
|
Commercial
real estate
|
|
|
4,210,130
|
|
|
|
4,064,281
|
|
Residential
real estate
|
|
|
2,263,027
|
|
|
|
2,276,306
|
|
Construction
|
|
|
397,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
nonaccrual loans
|
|
$
|
6,870,657
|
|
|
$
|
6,378,293
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
Interest
income that would have been recorded during the
period on nonaccrual loans outstanding in
accordance with original terms
|
|
$
|
234,258
|
|
|
$
|
469,484
|
|
At
June 30, 2011 and December 31, 2010, there were no loans 90
days past due and still accruing interest.
The
following table presents the aging of the past due loan
balances as of June 30, 2011 and December 31, 2010 by class
of loans:
June
30, 2011
|
|
|
|
|
30-59
Days
|
|
|
60-89
Days
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
12,906,384
|
|
|
$
|
—
|
|
|
$
|
240,107
|
|
|
$
|
—
|
|
|
$
|
240,107
|
|
|
$
|
12,666,277
|
|
Secured
|
|
|
1,399,742
|
|
|
|
999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
999
|
|
|
|
1,398,743
|
|
Real
Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
59,856,278
|
|
|
|
1,784,526
|
|
|
|
827,250
|
|
|
|
4,210,130
|
|
|
|
6,821,906
|
|
|
|
53,034,372
|
|
Residential
|
|
|
2,375,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,263,027
|
|
|
|
2,263,027
|
|
|
|
112,163
|
|
Construction
loans
|
|
|
5,527,500
|
|
|
|
400,000
|
|
|
|
—
|
|
|
|
397,500
|
|
|
|
797,500
|
|
|
|
4,730,000
|
|
Consumer
loans
|
|
|
464,536
|
|
|
|
1,129
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,129
|
|
|
|
463,407
|
|
Other
loans
|
|
|
448,942
|
|
|
|
8,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,490
|
|
|
|
440,452
|
|
Total
loans
|
|
$
|
82,978,572
|
|
|
$
|
2,195,144
|
|
|
$
|
1,067,357
|
|
|
$
|
6,870,657
|
|
|
$
|
10,133,158
|
|
|
$
|
72,845,414
|
|
December
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
12,924,378
|
|
|
$
|
46,562
|
|
|
$
|
42,708
|
|
|
$
|
37,706
|
|
|
$
|
126,976
|
|
|
$
|
12,797,402
|
|
Secured
|
|
|
1,393,532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,393,532
|
|
Real
Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
58,204,596
|
|
|
|
3,103,589
|
|
|
|
277,960
|
|
|
|
4,064,281
|
|
|
|
7,445,830
|
|
|
|
50,758,766
|
|
Residential
|
|
|
2,460,114
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,276,306
|
|
|
|
2,276,306
|
|
|
|
183,808
|
|
Construction
loans
|
|
|
5,874,500
|
|
|
|
795,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
795,000
|
|
|
|
5,079,500
|
|
Consumer
loans
|
|
|
533,860
|
|
|
|
11,277
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,277
|
|
|
|
522,583
|
|
Other
loans
|
|
|
386,750
|
|
|
|
2,279
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,279
|
|
|
|
384,471
|
|
Total
loans
|
|
$
|
81,777,730
|
|
|
$
|
3,958,707
|
|
|
$
|
320,668
|
|
|
$
|
6,378,293
|
|
|
$
|
10,657,668
|
|
|
$
|
71,120,062
|
|
Nonaccrual
loans include smaller balance homogeneous loans that are
collectively evaluated for impairment and individually
classified impaired loans.
Loans
individually evaluated for impairment were as
follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Loans
with no allocated allowance for loan losses:
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
37,533
|
|
|
$
|
39,377
|
|
Residential
real estate
|
|
|
2,200,000
|
|
|
|
—
|
|
Loans
with allocated allowance for loan losses:
|
|
|
|
|
|
|
|
|
Commercial
and financial
|
|
|
39,140
|
|
|
|
36,837
|
|
Commercial
real estate
|
|
|
682,640
|
|
|
|
3,448,695
|
|
|
|
$
|
2,959,313
|
|
|
$
|
3,524,909
|
|
|
|
|
|
|
|
|
|
|
Amount
of the allowance for loan losses allocated:
|
|
|
|
|
|
|
|
|
Commercial
and financial
|
|
$
|
3,914
|
|
|
$
|
7,367
|
|
Commercial
real estate
|
|
|
57,125
|
|
|
|
83,459
|
|
|
|
$
|
61,039
|
|
|
$
|
90,826
|
|
The
following table sets forth certain information about
impaired loans with a measured impairment:
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Average
of individually impaired loans during period
|
|
$
|
2,988,624
|
|
|
$
|
813,419
|
|
|
|
|
|
|
|
|
|
|
Interest
income recognized during time period that loans
were impaired, using accrual or cash-basis method
of accounting
|
|
$
|
—
|
|
|
$
|
—
|
|
Credit Quality
Indicators:
The
Company categorizes loans into risk categories based on
relevant information about the ability of borrowers to
service their debts such as: current financial
information, historical payment experience, credit
documentation, public information and current economic
trends, among other factors. The Company analyzes loans
individually by classifying the loans as to credit risk.
This analysis is performed on a quarterly basis. The
Company uses the following definitions for risk
ratings:
Special
Mention. Loans categorized as special mention
have a potential weakness that deserves
management’s close attention. If left
uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan
or of the institution’s credit position as some
future date.
Substandard.
Loans classified as substandard are inadequately
protected by the current net worth and paying capacity
of the obligor or of the collateral pledged, if any.
Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that
the institution will sustain some loss if the
deficiencies are not corrected.
Doubtful.
Loans classified as doubtful have all the weaknesses
inherent in those classified as substandard, with the
added characteristics that the weaknesses make
collection or liquidation in full, on the basis of
currently existing facts, conditions and vales, highly
questionable and improbable.
The
following table sets forth at June 30, 2011 and
December 31, 2010, the aggregate carrying value of our
assets categorized as Special Mention, Substandard and
Doubtful according to asset type:
|
|
At
June 30, 2011
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
Not
|
|
|
|
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Classified
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,399,742
|
|
|
$
|
1,399,742
|
|
Unsecured
|
|
|
47,695
|
|
|
|
258,662
|
|
|
|
—
|
|
|
|
12,600,027
|
|
|
|
12,906,384
|
|
Commercial
Real Estate
|
|
|
3,193,387
|
|
|
|
6,234,495
|
|
|
|
—
|
|
|
|
50,428,396
|
|
|
|
59,856,278
|
|
Residential
Real Estate
|
|
|
—
|
|
|
|
2,263,027
|
|
|
|
—
|
|
|
|
112,163
|
|
|
|
2,375,190
|
|
Construction
|
|
|
—
|
|
|
|
397,500
|
|
|
|
—
|
|
|
|
5,130,000
|
|
|
|
5,527,500
|
|
Consumer
|
|
|
16,138
|
|
|
|
—
|
|
|
|
—
|
|
|
|
448,398
|
|
|
|
464,536
|
|
Other
|
|
|
8,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
440,452
|
|
|
|
448,942
|
|
Total
loans
|
|
$
|
3,265,710
|
|
|
$
|
9,153,684
|
|
|
$
|
—
|
|
|
$
|
70,559,178
|
|
|
$
|
82,978,572
|
|
|
|
At
December 31, 2010
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
Not
|
|
|
|
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Classified
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,393,532
|
|
|
$
|
1,393,532
|
|
Unsecured
|
|
|
459,160
|
|
|
|
37,706
|
|
|
|
—
|
|
|
|
12,427,512
|
|
|
|
12,924,378
|
|
Commercial
Real Estate
|
|
|
4,250,511
|
|
|
|
5,623,816
|
|
|
|
—
|
|
|
|
48,330,269
|
|
|
|
58,204,596
|
|
Residential
Real Estate
|
|
|
—
|
|
|
|
2,276,306
|
|
|
|
—
|
|
|
|
183,808
|
|
|
|
2,460,114
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,874,500
|
|
|
|
5,874,500
|
|
Consumer
|
|
|
18,117
|
|
|
|
—
|
|
|
|
—
|
|
|
|
515,743
|
|
|
|
533,860
|
|
Other
|
|
|
12,096
|
|
|
|
—
|
|
|
|
—
|
|
|
|
374,654
|
|
|
|
386,750
|
|
Total
loans
|
|
$
|
4,739,884
|
|
|
$
|
7,937,828
|
|
|
$
|
—
|
|
|
$
|
69,100,018
|
|
|
$
|
81,777,730
|
|
The
activity in the allowance for loan losses, for the three
and six months ended June 30, 2011:
|
|
Three
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30, 2011
|
|
|
June
30, 2011
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,301,598
|
|
|
$
|
1,277,220
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Commercial
Loans:
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
(147,257
|
)
|
|
|
(185,054
|
)
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
Total
charge-offs
|
|
|
(147,257
|
)
|
|
|
(185,054
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
Commercial
Loans:
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
12,625
|
|
|
|
36,300
|
|
Commercial
Real Estate
|
|
|
500
|
|
|
|
5,500
|
|
Consumer
|
|
|
164
|
|
|
|
164
|
|
Other
|
|
|
—
|
|
|
|
3,500
|
|
Total
recoveries
|
|
|
13,289
|
|
|
|
45,464
|
|
Provision
|
|
|
25,000
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
1,192,630
|
|
|
$
|
1,192,630
|
|
The
following table presents the balance in the allowance for
loan losses and the recorded balance in loans, by portfolio
segment, and based on impairment method as of June 30, 2011
and December 31, 2010:
June
30, 2 011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
|
|
|
Commerical
|
|
|
Residential
|
|
|
Other
|
|
|
|
|
|
|
Unsecured
|
|
|
Secured
|
|
|
Construction
|
|
|
Real
Estate
|
|
|
Real
Estate
|
|
|
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
allowance balance attributable to
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
49,877
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105,131
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155,008
|
|
Collectively
evaluated for impairment
|
|
|
492,681
|
|
|
|
11,701
|
|
|
|
37,517
|
|
|
|
459,821
|
|
|
|
5,173
|
|
|
|
30,729
|
|
|
|
1,037,622
|
|
Total
en ding allowance balance
|
|
$
|
542,558
|
|
|
$
|
11,701
|
|
|
$
|
37,517
|
|
|
$
|
564,952
|
|
|
$
|
5,173
|
|
|
$
|
30,729
|
|
|
$
|
1,192,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
279,247
|
|
|
$
|
—
|
|
|
$
|
397,500
|
|
|
$
|
6,213,910
|
|
|
$
|
2,2
63,027
|
|
|
$
|
—
|
|
|
$
|
9,153,684
|
|
Collectively
evaluated for impairment
|
|
|
12,627,137
|
|
|
|
1,399,742
|
|
|
|
5,130,000
|
|
|
|
53,642,368
|
|
|
|
1
12,163
|
|
|
|
913,478
|
|
|
|
73,824,888
|
|
Total
ending loans balance
|
|
$
|
12,906,384
|
|
|
$
|
1,399,742
|
|
|
$
|
5,527,500
|
|
|
$
|
59,856,278
|
|
|
$
|
2,3
75,190
|
|
|
$
|
913,478
|
|
|
$
|
82,978,572
|
|
December
31, 2 010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
|
|
|
Commerical
|
|
|
Residential
|
|
|
Other
|
|
|
|
|
|
|
Un
secured
|
|
|
Secured
|
|
|
Construction
|
|
|
Real
Estate
|
|
|
Real
Estate
|
|
|
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
allowance balance attributable to
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
7,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
132,511
|
|
|
$
|
1,717
|
|
|
$
|
—
|
|
|
$
|
141,769
|
|
Collectively
evaluated for impairment
|
|
|
513,412
|
|
|
|
13,486
|
|
|
|
52,138
|
|
|
|
520,851
|
|
|
|
5,457
|
|
|
|
30,107
|
|
|
|
1,135,451
|
|
Total
ending allowance balance
|
|
$
|
520,953
|
|
|
$
|
13,486
|
|
|
$
|
52,138
|
|
|
$
|
653,362
|
|
|
$
|
7,174
|
|
|
$
|
30,107
|
|
|
$
|
1,277,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
37,706
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,623,816
|
|
|
$
|
2,276,306
|
|
|
$
|
—
|
|
|
$
|
7,937,828
|
|
Collectively
evaluated for impairment
|
|
|
12,886,672
|
|
|
|
1,393,532
|
|
|
|
5,874,500
|
|
|
|
52,580,780
|
|
|
|
183,808
|
|
|
|
920,610
|
|
|
|
73,839,902
|
|
Total
ending loans balance
|
|
$
|
12,924,378
|
|
|
$
|
1,393,532
|
|
|
$
|
5,874,500
|
|
|
$
|
58,204,596
|
|
|
$
|
2,460,114
|
|
|
$
|
920,610
|
|
|
$
|
81,777,730
|
|
Item
2
Financial
Condition at June 30, 2011
Total assets
were $244,906,099 at June 30, 2011, an increase of
$9,652,400, or 4.1%, from December 31, 2010. The increase
resulted from the investment of funds available to us as
the result of an increase in deposits and retained
earnings. The deposit increase was caused generally by our
efforts to grow our franchise and specifically by the
deposit increases at our branch offices. We invested these
funds primarily in cash and cash equivalents. The principal
changes resulting in the net increase in assets can be
summarized as follows:
|
●
|
a
$9,857,285 net increase in cash and cash
equivalents
|
|
●
|
a
$1,274,221 net increase in net loans receivable,
partially offset by
|
|
●
|
a
$1,025,277 net decrease in investment securities
available for sale.
|
In addition to
these changes in major asset categories, we also
experienced changes in other asset categories due to normal
fluctuations in operations.
Our deposits
(including escrow deposits) were $216,050,512 at June 30,
2011, an increase of $8,643,855 or 4.17%, from December 31,
2010 as a result of our active solicitation of retail
deposits to increase funds for investment. The increase in
deposits resulted from increases of $8,797,730 in
non-interest demand deposits, $2,543,642 in savings
accounts and $1,920,660 in money market accounts, partially
offset by a decrease of $4,046,213 in NOW accounts,
$559,653 in time deposits and $12,311 in escrow
deposits.
Total
stockholders’ equity was $27,030,861 at June 30,
2011, an increase of $986,005, or 3.79%, from December 31,
2010. The increase reflected: (i) $642,061 net increase in
retained earnings due to net income of $859,495 for the six
months ended June 30, 2011 partially offset by $217,434 of
dividends paid in 2011; (ii) an increase in the net
unrealized gain on securities available for sale of
$243,289; and (iii) a reduction of $84,539 in Unearned ESOP
shares reflecting the gradual payment of the loan we made
to fund the ESOP’s purchase of our stock.
The
unrealized gain on securities available for sale is
excluded from the calculation of regulatory capital.
Management does not anticipate selling securities in this
portfolio, but changes in market interest rates or in the
demand for funds may change management’s plans with
respect to the securities portfolio. If there is a material
increase in interest rates, the market value of the
available for sale portfolio may decline. Management
believes that the principal and interest payments on this
portfolio, combined with the existing liquidity, will be
sufficient to fund loan growth and potential deposit
outflow.
The
Dodd-Frank Wall Street Reform and Consumer Protection
Law
On July 21,
2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Law was adopted. It has been described as the
greatest legislative change in the supervision of financial
institutions since the 1930s. Its effect on Victory State
Bank and VSB Bancorp, Inc. cannot now be judged with
certainty because the interpretation and implementation of
the law, as well as the numerous regulations and studies
required or permitted by it, are still evolving. However,
we believe that the following areas, among others, will be
or may be significant to our future operations:
|
1.
|
The
law exempts smaller reporting companies filing
with the Securities and Exchange Commission, such
as our company, from the internal controls
attestation rules of Section 404(b) of the
Sarbanes-Oxley Act. Thus far, we have incurred
expenses to prepare for compliance but we have
not been governed by Section 404(b) due to
temporary SEC extensions of the compliance
deadline. The permanent exemption means that we
will not be required to incur the expense of
actual compliance as long as we continue to
qualify as a smaller reporting company.
|
|
2.
|
Securities
brokers may not vote shares held in “street
name” unless they receive instructions from
their customers on the election of directors,
executive compensation or any other significant
matter, as determined by the SEC. This may
increase our costs of holding annual stockholder
meetings if it becomes necessary for us to retain
the services of a proxy solicitor to increase
shareholder participation in our meetings or to
obtain approval of matters that the Board
presents to stockholders.
|
|
|
|
|
3.
|
At
least every three years, we will be required to
submit to our stockholders, for a non-binding
vote, our executive compensation. This
requirement may increase the cost of holding some
stockholder meetings. The law also requires that
the SEC implement other requirements for enhanced
compensation disclosures. The SEC adopted a
temporary exemption for smaller reporting
companies, such as our company, until annual
meetings occurring on or after January 21,
2013.
|
|
|
|
|
4.
|
The
law includes a number of changes to expand FDIC
insurance coverage, as well as changes to the
premiums banks must pay for insurance coverage,
and the requirements applicable to the reserve
ratio (the ratio of the deposit insurance fund to
the amount of insured deposits). One important
change is that, in the future, deposit insurance
premiums we pay will be based upon total assets
minus tangible capital, rather than based upon
deposits. Since we do not use material borrowings
to provide funds for asset growth, and we do not
have material intangible assets that are excluded
from capital such as goodwill, we anticipate that
our share of the total deposit premiums to be
collected may decrease as the result of this
change. However, other factors, such as required
replenishment of the current reserve fund, which
has a negative reserve ratio and which must be
increased to 1.35% of total insured deposits by
September 30, 2020, as well as future failures of
banks that may further deplete the fund, may
result in an increase in our future deposit
insurance premium. The FDIC must provide an
offset for smaller banks negating the adverse
effect of requiring a reserve ratio in excess of
1.15%, but reaching even the 1.15% ratio may
require additional burdens on smaller banks. The
FDIC approved final regulations implementing
these changes on February 25, 2011, effective
April 1, 2011. According to the FDIC, the
substantial majority of banks will see reduced
deposit insurance premiums as a result of the new
rules. We believe that will be the case for us as
long as all other relevant factors remain
unchanged.
|
|
|
|
|
5.
|
The
law increases the amount of each customer’s
deposits that are subject to FDIC insurance. The
general limit has been permanently increased from
$100,000 to $250,000. In addition, non-interest
bearing transaction accounts will be fully
insured, without limit, from December 31, 2010 to
December 31, 2012.
|
|
|
|
|
6.
|
The
law repeals the prohibition on paying interest on
demand deposit accounts, effective in July 2011.
Interest-free demand deposits represent a
substantial portion of our deposit base. We are
not currently offering a demand deposit product
that pays interest. If other banks offer
interest-bearing demand deposits in our
community, that competitive pressure may require
that we offer interest checking accounts to
businesses in order to retain deposits. That
could have a direct adverse effect on our cost of
funds. Although current market interest rates are
very low, and such deposits are unlikely to carry
high rates of interest, an increase in market
interest rates could result in significant
additional costs in order to maintain the level
of such deposits.
|
|
|
|
|
7.
|
The
law makes interstate branching by banks much
easier than in the past. We have no plans to
branch outside New York State, but the law
facilitates out of state banks branching into our
market area, thus potentially increasing
competition.
|
|
|
|
|
8.
|
The
law creates a new federal agency – the
Consumer Financial Protection Bureau
(“Bureau”)– which has
substantial authority to regulate consumer
financial transactions, effective July 21, 2011.
Our loans are primarily made to businesses rather
than individual consumers, so the Bureau will not
have a direct effect on many of our loan
transactions. However, the Bureau also has
authority to regulate other non-loan consumer
transactions, such as deposits and electronic
banking transactions. The implementation of new
consumer regulations may increase our operating
costs in a manner we cannot predict until
regulations are adopted.
|
The
Current Economic Turmoil
The economy in
the United States, including the economy in Staten Island,
was and may still be in a recession. Although some analysts
report that the economy is recovering, the extent and speed
of the recovery is far from clear and some analysts predict
a darker road ahead. There is substantial stress on many
financial institutions and financial products. The federal
government has intervened by making hundreds of billions of
dollars in capital contributions to the banking industry.
We draw a substantial portion of our customer base from
local businesses, especially those in the building trades
and related industries. Our customers have been adversely
affected by the economic downturn, and if adverse
conditions in the local economy continue, it will become
more difficult for us to conduct prudent and profitable
business in our community.
Making
permanent residential mortgage loans is not a material part
of our business, and our investments in mortgage-backed
securities and collateralized mortgage obligations have
been made with a view towards avoiding the types of
securities that are backed by low quality mortgage-related
assets. However, one of the primary focuses of our local
business is receiving deposits from, and making loans to,
businesses involved in the construction and building trades
industry on Staten Island. Construction loans represented a
significant component of our loan portfolio, reaching 39.8%
of total loans at year end 2005. As we monitored the
economy and the strength of the local construction
industry, we elected to reduce our portfolio of
construction loans. By June 30, 2011, the percentage had
declined to 6.7%. However, developers and builders provide
not only a source of loans, but they also provide us with
deposits and other business. If the weakness in the economy
continues or worsens, then that could have a substantial
adverse effect on our customers and potential customers,
making it more difficult for us to find satisfactory loan
opportunities and low-cost deposits. This could compel us
to invest in lower yielding securities instead of
higher-yielding loans and could also reduce low cost
funding sources such as checking accounts and require that
we replace them with higher cost deposits such as time
deposits. Either or both of those shifts could reduce our
net income.
Changes
in FDIC Assessment Rates
The Bank is a
member of the FDIC. As insurer, the FDIC is authorized to
conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any
FDIC–insured institution from engaging in any
activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC.
In the past
three years, there have been many failures and
near-failures among financial institutions. The number of
FDIC-insured banks that have failed has increased, and the
FDIC insurance fund reserve ratio, representing the ratio
of the fund to the level of insured deposits, has declined
due to losses caused by bank failures. As a result, the
FDIC has increased its deposit insurance premiums on
remaining institutions, including well-capitalized
institutions like Victory State Bank, in order to replenish
the insurance fund. If bank failures continue to occur, and
more so if the level of failures increases, the FDIC
insurance fund may further decline, and the FDIC would be
required to continue to impose higher premiums on healthy
banks. Thus, despite the prudent steps we may take to avoid
the mistakes made by other banks, our costs of operations
may increase as a result of those mistakes by
others.
Our FDIC
regular insurance premium was $69,275 in the second quarter
of 2011 compared to $88,472 in the second quarter of 2010,
a decrease of 21.7%. As required by The Dodd –Frank
Wall Street Reform and Consumer Protection Law (the
“Dodd-Frank” Act), the FDIC has recently
revised its deposit insurance premium assessment rates. Our
Bank, even though we are in the lowest regulatory risk
category, will be subject to an assessment rate between
five (5) and nine (9) basis points per annum. In general,
the rates are applied to our bank’s total assets less
tangible capital, in contrast to the former rule which
applied the assessment rate to our level of
deposits.
Despite the
deposit insurance premium change and the special
assessment, the fund created to pay the cost of resolving
failed banks currently has a negative balance. The
Dodd-Frank Act requires that the FDIC must increase the
ratio of the FDIC insurance fund to estimated total insured
deposits to 1.35% by September 30, 2020. The FDIC believes
that most banks will pay a lower total assessment under the
new system than under the former system, and it appears
likely that will apply to Victory State Bank. However, if
bank failures in the future exceed FDIC estimates, or other
estimates that the FDIC makes turn out to be incorrect, and
the losses to the insurance fund increase, the FDIC could
be forced to increase insurance premiums. Such an increase
would increase our non-interest expense.
As a result of
the Dodd-Frank Act, non-interest bearing demand deposits,
together with certain attorney trust account deposits
commonly known in New York as IOLA accounts, will have the
benefit of unlimited federal deposit insurance until
December 31, 2012. Since the Dodd-Frank Act also authorized
banks to pay interest on commercial demand deposits
beginning in July 2011, commercial depositors will have to
choose between earning interest on their demand deposits or
having the benefit of unlimited deposit insurance coverage.
In addition, the increase in the general FDIC insurance
limit from $100,000 to $250,000 was made permanent.
The FDIC may
terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines, after a
hearing, that the institution has engaged or is engaging in
unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed
by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the
permanent termination of insurance, if the institution has
no tangible capital. If insurance of accounts is
terminated, the accounts at the institution at the time of
the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no
existing circumstances that would result in termination of
the Bank’s deposit insurance.
Possible
Adverse Effects on Our Net Income Due to Fluctuations in
Market Rates
Our
principal source of income is the difference between the
interest income we earn on interest-earning assets, such as
loans and securities, and our cost of funds, principally
interest paid on deposits. These rates of interest change
from time to time, depending upon a number of factors,
including general market interest rates. However, the
frequency of the changes varies among different types of
assets and liabilities. For example, for a five-year loan
with an interest rate based upon the prime rate, the
interest rate may change every time the prime rate changes.
In contrast, the rate of interest we pay on a five-year
certificate of deposit adjusts only every five years, based
upon changes in market interest rates.
In
general, the interest rates we pay on deposits adjust more
slowly than the interest rates we earn on loans because our
loan portfolio consists primarily of loans with interest
rates that fluctuate based upon the prime rate. In
contrast, although many of our deposit categories have
interest rates that could adjust immediately, such as
interest checking accounts and savings accounts, changes in
the interest rates on those accounts are at our discretion.
Thus, the rates on those accounts, as well as the rates we
pay on certificates of deposit, tend to adjust more slowly.
As a result, the declines in market interest rates that
occurred through the end of 2008 initially had an adverse
effect on our net income because the yields we earn on our
loans declined more rapidly than our cost of funds.
However, many of our prime-based loans have minimum
interest rates, or floors, below which the interest rate
does not decline despite further decreases in the prime
rate. As our loans reached their interest rate floors, our
loan yields stabilized while our deposit costs continued to
decline. This had a positive effect on our net interest
income.
When
market interest rates begin increasing, which we expect
will occur at some point in the future, we anticipate an
initial adverse effect on our net income. We anticipate
that this will occur because our deposit rates should begin
to rise, while loan yields remain relatively steady until
the prime rate increases sufficiently that our loans begin
to reprice above their interest rate floors. For most of
our prime-rate based loans, this will not occur until the
prime rate increases above 6%. Once our loan rates exceed
the interest rate floors, increases in market interest
rates should increase our net interest income because our
cost of deposits should probably increase more slowly than
the yields on our loans. However, customer preferences and
competitive pressures may negate this positive effect
because customers may choose to move funds into
higher-earning deposit types as higher interest rates make
them more attractive, or competitors offer premium rates to
attract deposits. We also have a substantial portfolio of
investment securities with fixed rates of interest, most of
which are mortgage-backed securities with an estimated
average life of not more than 5 years.
Results
of Operations for the Three Months Ended June 30, 2011 and
June 30, 2010
Our
results of operations depend primarily on net interest
income, which is the difference between the income we earn
on our loan and investment portfolios and our cost of
funds, consisting primarily of interest we pay on customer
deposits. Our operating expenses principally consist of
employee compensation and benefits, occupancy expenses,
professional fees, advertising and marketing expenses and
other general and administrative expenses. Our results of
operations are significantly affected by general economic
and competitive conditions, particularly changes in market
interest rates, government policies and actions of
regulatory authorities.
General.
We had net income of $427,704 for the quarter ended June
30, 2011, compared to net income of $462,376 for the
comparable quarter in 2010. The principal categories which
make up the 2011 net income are:
|
●
|
Interest
income of $2,377,517
|
|
●
|
Reduced
by interest expense of $216,447
|
|
●
|
Reduced
by a provision for loan losses of $25,000
|
|
●
|
Increased
by non-interest income of $623,293
|
|
●
|
Reduced
by non-interest expense of $1,971,018
|
|
●
|
Reduced
by income tax expense of $360,641
|
We
discuss each of these categories individually and the
reasons for the differences between the quarters ended June
30, 2011 and 2010 in the following paragraphs.
Interest
Income. Interest income was $2,377,517 for the
quarter ended June 30, 2011, compared to $2,588,906 for the
quarter ended June 30, 2010, a decrease of $211,389, or
8.2%. The main reason for the decline was a 63 basis point
decrease in the yield on investment securities, partially
offset by a $6,131,599 increase in average balance of
investment securities between the periods, which combined
to cause a $126,145 decline in interest income on
investment securities. Interest income on loans decreased
by $85,164, caused principally by a decline in average loan
yield, but partially offset by an increase in the average
balance of loans.
We
had a $2,706,781 increase in average balance of loans,
which partially offset a 66 basis point decrease in the
average yield, on loans, from 7.41% to 6.75%, from the
quarter ended June 30, 2010 to the quarter ended June 30,
2011. The increase in the average balance was the result of
our efforts to increase our loan portfolio. Although the
average balance of non-accrual loans decreased by $372,956
from the second quarter of 2010 to the second quarter of
2011, the balance of non-accrual loans for which we
received interest and recognized it on a cash basis
decreased by $2.8 million in that period, while the balance
of non-accrual loans for which we did not receive interest
increased by $2.5 million in the second quarter of 2011.
This shift in non-accrual loans was a principal reason for
the 66 basis point drop in our average loan yield.
Substantially all of the new non-accrual loans are secured
by mortgages on real estate located in Staten Island.
Interest rate floors on most of our loans have helped to
stabilize interest income from the loan portfolio, but
these floors will have the effect of limiting increases in
our income until the prime rate rises above 6%.
We
experienced a 63 basis point decrease in the average yield
on our investment securities portfolio, from 3.97% to
3.34%, due to the purchase of new investment securities at
lower market rates than the yields on the principal
paydowns we received. The average balance of our investment
portfolio increased by $6,131,599, or 5.4%, between the
periods. The investment securities portfolio represented
77.9% of average non-loan interest earning assets in the
2011 period compared to 73.5% in the 2010 period as we were
able to purchase additional investment securities with
available cash.
The average
yield on other interest earning assets (principally
overnight investments) increased 3 basis points from 0.13%
for the quarter ended June 30, 2010 to 0.16% for the
quarter ended June 30, 2011, partially offset by a decrease
in average balance of other interest earning assets of
$6,896,224 from the quarter ended June 30, 2010 to the
quarter ended June 30, 2011 as we elected to invest a
higher percentage of available funds in loans and
investment securities with higher yields than the yields
available on overnight investments.
Interest
Expense. Interest expense was $216,447 for the
quarter ended June 30, 2011, compared to $264,388 for the
quarter ended June 30, 2010, a decrease of $47,941 or
18.1%. The decrease was primarily the result of a reduction
in the rates we paid on deposits, principally on time
deposits, reflecting a 25 basis point decrease in the cost
of time deposits between the periods, due to the continuing
low market interest rates. With market rates remaining at
very low levels, customer time deposits continue to be
renewed or replaced with new deposits at lower rates. As a
result, our average cost of funds, excluding the effect of
interest-free demand deposits, decreased to 0.63% from
0.73% between the periods.
Net Interest
Income Before Provision for Loan Losses. Net
interest income before the provision for loan losses was
$2,161,070 for the quarter ended June 30, 2011, compared to
$2,324,518 for the quarter ended June 30, 2010, a decrease
of $163,448, or 7.0%. The decrease was primarily because
the reduction in our interest income was greater than the
reduction in our cost of funds when comparing the quarter
ended June 30, 2011 to the same period ended 2010. The
average yield on interest earning assets declined by 39
basis points, while the average cost of funds declined by
10 basis points. 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 on securities
repaid or matured, and a 66 basis point drop in the yield
on loans. The decline in the cost of funds was driven
principally by the 25 basis point drop in the cost of time
deposits. Overall, our interest rate spread declined 29
basis points, from 3.72% to 3.43% between the
periods.
Our
net interest margin decreased to 3.69% for the quarter
ended June 30, 2011 from 3.99% in the same period of 2010.
The interest rate margin decreased for substantially the
same reasons as the decrease in our interest rate spread.
The margin is higher than the spread because it takes into
account the effect of interest free demand deposits and
capital.
Provision for
Loan Losses. We took a provision for loan losses of
$25,000 for the quarter ended June 30, 2011 compared to a
provision for loan losses of $20,000 for the quarter ended
June 30, 2010. The $5,000 increase in the provision was a
result of our evaluation of our loan portfolio. We use the
following framework to evaluate the appropriateness of our
allowance for loan losses. We conduct a loan by loan
evaluation of inherent losses in all non-performing or
classified loans and we conduct a collective analysis of
homogenous groups of performing loans to estimate inherent
losses in those loans on a group by group basis. Our
individual evaluation of non-performing mortgage loans,
which represent most of our non-performing loans, is based
primarily upon updated appraisals. Our evaluation of
homogenous groups of performing loans takes into account
historical charge off rates we have experienced, as
adjusted for pertinent current factors that may affect the
extent to which we should rely upon our charge off
history.
We experienced
an increase of $798,741 in non-performing loans from
$6,071,916 at June 30, 2010 to $6,870,652 at June 30, 2011.
Most of those loans are secured by real estate. We
individually evaluated the non-performing mortgage loans
based primarily upon updated appraisals and we determined
that the level of our allowance was appropriate to address
inherent losses. In addition, we had charge-offs of
$147,257 for the quarter ended June 30, 2011 as compared to
no charge-offs for the quarter ended June 30, 2010. We also
had recoveries (which are added back to the allowance for
loan losses) of $13,289 for the quarter ended June 30, 2011
as compared to $32,625 in the second quarter of 2010. We
are aggressively collecting charged-off loans in an effort
to recover the amounts charged off whenever we believe that
collection efforts are likely to be fruitful.
The provision
for loan losses in any period depends upon the amount
necessary to bring the allowance for loan losses to the
level management believes is appropriate, after taking into
account charge offs and recoveries. Our allowance for loan
losses is based on management’s evaluation of the
risks inherent in our loan portfolio and the general
economy. Management periodically evaluates both broad
categories of performing loans and problem loans
individually to assess the appropriate level of the
allowance.
Although
management uses available information to assess the
appropriateness of the allowance on a quarterly basis in
consultation with outside advisors and the board of
directors, changes in national or local economic
conditions, the circumstances of individual borrowers, or
other factors, may change, increasing the level of problem
loans and requiring an increase in the level of the
allowance. Overall, our allowance for loan losses decreased
from $1,214,187 or 1.57% of total loans, at June 30, 2010
to $1,192,630 or 1.44% of total loans, at June 30, 2011.
There can be no assurance that a higher level, or a higher
provision for loan losses, will not be necessary in the
future.
Non-interest
Income. Non-interest income was $623,293 for the
quarter ended June 30, 2011, compared to $621,511 during
the same period last year. The $1,782, or 0.3%, increase in
non-interest income was a result of an increase in other
income, which was partially offset by $14,871 decrease in
service charges on deposits due to normal fluctuation in
non-sufficient fund fees.
Non-interest
Expense. Non-interest expense was $1,971,018 for the
quarter ended June 30, 2011, compared to $2,073,680 for the
quarter ended June 30, 2010, a decrease of $102,662 or
5.0%. The principal shifts in the individual categories
were:
|
●
|
a
$59,500 decrease in FDIC and NYSBD assessments due
to the reduction in the FDIC assessment
rate;
|
|
●
|
a
$52,286 decrease in legal expense due to a lower
level of collections and a recovery of legal fees
previously expensed on a settled lawsuit; partially
offset by;
|
|
●
|
a
$7,650 increase in computer expense due to a
one-time conversion.
|
In
addition to these changes, we also experienced changes in
the various other non-interest expenses categories due to
normal fluctuations in operations.
Income Tax
Expense. Income tax expense was $360,641 for the
quarter ended June 30, 2011, compared to income tax expense
of $389,973 for the same period ended 2010. Our effective
tax rate for the quarter ended June 30, 2011 was 45.7% and
for the quarter ended June 30, 2010 was 45.8%.
Results
of Operations for the Six Months Ended June 30, 2011 and
June 30, 2010
Our
results of operations depend primarily on net interest
income, which is the difference between the income we earn
on our loan and investment portfolios and our cost of
funds, consisting primarily of interest we pay on customer
deposits. Our operating expenses principally consist of
employee compensation and benefits, occupancy expenses,
professional fees, advertising and marketing expenses and
other general and administrative expenses. Our results of
operations are significantly affected by general economic
and competitive conditions, particularly changes in market
interest rates, government policies and actions of
regulatory authorities.
General.
We had net income of $859,495 for the six months ended June
30, 2011, compared to net income of $894,598 for the
comparable period in 2010. The principal categories which
make up the 2011 net income are:
|
●
|
Interest
income of $4,855,499
|
|
●
|
Reduced
by interest expense of $443,117
|
|
●
|
Reduced
by a provision for loan losses of $55,000
|
|
●
|
Increased
by non-interest income of $1,230,996
|
|
●
|
Reduced
by non-interest expense of $4,004,068
|
|
●
|
Reduced
by income tax expense of $724,815
|
We
discuss each of these categories individually and the
reasons for the differences between the six months ended
June 30, 2011 and 2010 in the following paragraphs.
Interest
Income. Interest income was $4,855,499 for the six
months ended June 30, 2011, compared to $5,150,631 for the
six months ended June 30, 2010, a decrease of $295,132, or
5.7%. The main reason for the decline was a 62 basis point
decrease in the yield on investment securities, partially
offset by a $4,421,317 increase in average balance between
the periods, which combined to cause a $275,815 decline in
interest income on investment securities. Interest income
on loans decreased by $21,168, caused principally by a
decline in average loan yield, but partially offset by an
increase in average balance of loans.
A
decrease in average loan yields, coupled with a decline in
interest collected on a cash basis, were the principal
reasons for the $21,168 decrease in interest income from
the six months ended June 30, 2010 to the six months ended
June 30, 2011. The effect of the decline in yield and the
reduction in cash basis interest was partially offset by a
$2,502,968 increase in the average balance of loans. The
increase in the average balance was the result of our
efforts to increase our loan portfolio. The interest rate
floors on our loans have helped to stabilize interest
income from the loan portfolio, but these floors will have
the effect of limiting increases in our income until the
prime rate rises above 6%.
We
experienced a 62 basis point decrease in the average yield
on our investment securities portfolio, from 4.03% to
3.41%, due to the purchase of new investment securities at
lower market rates than the yields on the principal
paydowns we received. The average balance of our investment
portfolio increased by $4,421,317, or 3.9%, between the
periods. The investment securities portfolio represented
79.0% of average non-loan interest earning assets in the
2011 period compared to 75.9% in the 2010 period as we were
able to purchase additional investment securities with
available cash.
The average
yield on other interest earning assets (principally
overnight investments) increased 3 basis points from 0.13%
for the six months ended June 30, 2010 to 0.16% for the six
months ended June 30, 2011, partially offset by a decrease
in average balance of other interest earning assets of
$4,842,884 from the six months ended June 30, 2010 to the
six months ended June 30, 2011 as we elected to invest
available funds in higher yielding loans and investment
securities.
Interest
Expense. Interest expense was $443,117 for the six
months ended June 30, 2011, compared to $537,703 for the
six months ended June 30, 2010, a decrease of $94,586 or
17.6%. The decrease was primarily the result of a reduction
in the rates we paid on deposits, principally on time
deposits, reflecting a 19 basis point decrease in the cost
of time deposits between the periods, due to the continuing
low market interest rates. With market rates remaining at
very low levels, customer time deposits continue to be
renewed or replaced with new deposits at lower rates. As a
result, our average cost of funds, excluding the effect of
interest-free demand deposits, decreased to 0.64% from
0.76% between the periods.
Net Interest
Income Before Provision for Loan Losses. Net
interest income before the provision for loan losses was
$4,412,382 for the six months ended June 30, 2011, compared
to $4,612,928 for the six months ended June 30, 2010, a
decrease of $200,546, or 4.4%. The decrease was primarily
because the reduction in our interest income was greater
than the reduction in our cost of funds when comparing the
six months ended June 30, 2011 to the same period ended
2010. The average yield on interest earning assets declined
by 30 basis points, while the average cost of funds
declined by 12 basis points. The reduction in the yield on
assets was principally due to the 62 basis point drop in
the yield on investment securities, as new securities were
purchased at market rates significantly below the rates on
securities repaid or matured. The decline in the cost of
funds was driven principally by the 19 basis point drop in
the cost of time deposits. Overall, our interest rate
spread declined 18 basis points, from 3.75% to 3.57%
between the periods.
Our
net interest margin decreased to 3.82% for the six months
ended June 30, 2011 from 4.04% in the same period of 2010.
The interest rate margin decreased when we reinvested the
proceeds from payments on investment securities at lower
rates because of the continued decline in market interest
rates. The margin is higher than the spread because it
takes into account the effect of interest free demand
deposits and capital.
Provision for
Loan Losses. We took a provision for loan losses of
$55,000 for the six months ended June 30, 2011 compared to
a provision for loan losses of $110,000 for the six months
ended June 30, 2010. The $55,000 decrease in the provision
was a result of our evaluation of our loan portfolio. We
use the following framework to evaluate the appropriateness
of our allowance for loan losses. We conduct a loan by loan
evaluation of inherent losses in all non-performing or
classified loans and we conduct a collective analysis of
homogenous groups of performing loans to estimate inherent
losses in those loans on a group by group basis. Our
individual evaluation of non-performing mortgage loans,
which represent most of our non-performing loans, is based
primarily upon updated appraisals. Our evaluation of
homogenous groups of performing loans takes into account
historical charge off rates we have experienced, as
adjusted for pertinent current factors that may affect the
extent to which we should rely upon our charge off
history.
We experienced
an increase of $798,741 in non-performing loans from
$6,071,916 at June 30, 2010 to $6,870,652 at June 30, 2011.
Most of those loans are secured by real estate. We
individually evaluated the non-performing mortgage loans
based primarily upon updated appraisals and we determined
that the level of our allowance was appropriate to address
inherent losses. In addition, we had charge-offs of
$185,054 for the six months ended June 30, 2011 as compared
to charge-offs of $16,286 for the six months ended June 30,
2010. In addition, we also had recoveries (which are added
back to the allowance for loan losses) of $45,464 for the
six months ended June 30, 2011 as compared to $57,019 in
the same period of 2010. We are aggressively collecting
charged-off loans in an effort to recover the amounts
charged off whenever we believe that collection efforts are
likely to be fruitful.
The provision
for loan losses in any period depends upon the amount
necessary to bring the allowance for loan losses to the
level management believes is appropriate, after taking into
account charge offs and recoveries. Our allowance for loan
losses is based on management’s evaluation of the
risks inherent in our loan portfolio and the general
economy. Management periodically evaluates both broad
categories of performing loans and problem loans
individually to assess the appropriate level of the
allowance.
Although
management uses available information to assess the
appropriateness of the allowance on a quarterly basis in
consultation with outside advisors and the board of
directors, changes in national or local economic
conditions, the circumstances of individual borrowers, or
other factors, may change, increasing the level of problem
loans and requiring an increase in the level of the
allowance. Overall, our allowance for loan losses decreased
from $1,214,187 or 1.57% of total loans, at June 30, 2010
to $1,192,630 or 1.44% of total loans, at June 30, 2011.
There can be no assurance that a higher level, or a higher
provision for loan losses, will not be necessary in the
future.
Non-interest
Income. Non-interest income was $1,230,996 for the
six months ended June 30, 2011, compared to $1,223,185
during the same period last year. The $7,811, or 0.6%,
increase in non-interest income was a direct result of a a
$21,751 increase in loan fees, as we collected late fees on
loans that were previously non-accrual, which was partially
offset by a $33,335 decrease in service charges on deposits
due to normal fluctuation in non-sufficient fund
fees.
Non-interest
Expense. Non-interest expense was $4,004,068 for the
six months ended June 30, 2011, compared to $4,077,056 for
the six months ended June 30, 2010, a decrease of $72,988
or 1.8%. The principal shifts in the individual categories
were:
|
●
|
a
$76,821 decrease in legal expense due to a lower
level of collections and a recovery of legal fees
previously expensed on a settled lawsuit
|
|
●
|
a
$59,500 decrease in FDIC and NYSBD assessments due
to the reduction in the FDIC assessment rate;
partially offset by
|
|
●
|
a
$25,651 increase in professional fees due to use of
an independent contractor and
|
|
●
|
a
$14,580 increase in salaries and benefits as a
result of higher benefit costs and normal raises
for existing employees.
|
In
addition to these changes, we also experienced changes in
the various other non-interest expenses categories due to
normal fluctuations in operations.
Income Tax
Expense. Income tax expense was $724,815 for the six
months ended June 30, 2011, compared to income tax expense
of $754,459 for the same period ended 2010. Our effective
tax rate for the six months ended June 30, 2011 was 45.7%
and for the six months ended June 30, 2010 was
45.8%.
VSB
Bancorp, Inc.
Consolidated
Average Balance Sheets
(unaudited)
|
|
Three
Months Ended
June 30, 2011
|
|
|
Three
Months Ended
June 30, 2010
|
|
|
Six
Months Ended
June 30, 2011
|
|
|
Six
Months Ended
June 30, 2010
|
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$
|
81,033,439
|
|
$
|
1,366,027
|
|
|
6.75
|
%
|
|
$
|
78,326,658
|
|
$
|
1,451,191
|
|
|
7.41
|
%
|
|
$
|
81,491,744
|
|
$
|
2,820,319
|
|
|
6.95
|
%
|
|
$
|
78,988,776
|
|
$
|
2,841,487
|
|
|
7.08
|
%
|
Investment
securities, afs
|
|
|
119,835,363
|
|
|
997,887
|
|
|
3.34
|
|
|
|
113,703,764
|
|
|
1,124,032
|
|
|
3.97
|
|
|
|
118,916,691
|
|
|
2,010,439
|
|
|
3.41
|
|
|
|
114,495,374
|
|
|
2,286,254
|
|
|
4.03
|
|
Other
interest-earning assets
|
|
|
34,037,827
|
|
|
13,603
|
|
|
0.16
|
|
|
|
40,934,051
|
|
|
13,683
|
|
|
0.13
|
|
|
|
31,605,943
|
|
|
24,741
|
|
|
0.16
|
|
|
|
36,448,827
|
|
|
22,890
|
|
|
0.13
|
|
Total
interest-earning assets
|
|
|
234,906,629
|
|
|
2,377,517
|
|
|
4.06
|
|
|
|
232,964,473
|
|
|
2,588,906
|
|
|
4.45
|
|
|
|
232,014,378
|
|
|
4,855,499
|
|
|
4.21
|
|
|
|
229,932,977
|
|
|
5,150,631
|
|
|
4.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
earning assets
|
|
|
6,866,466
|
|
|
|
|
|
|
|
|
|
8,744,393
|
|
|
|
|
|
|
|
|
|
6,955,598
|
|
|
|
|
|
|
|
|
|
8,944,806
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
241,773,095
|
|
|
|
|
|
|
|
|
$
|
241,708,866
|
|
|
|
|
|
|
|
|
$
|
238,969,976
|
|
|
|
|
|
|
|
|
$
|
238,877,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$
|
17,091,175
|
|
|
13,278
|
|
|
0.31
|
|
|
$
|
15,664,965
|
|
|
12,129
|
|
|
0.31
|
|
|
$
|
16,572,161
|
|
|
25,974
|
|
|
0.32
|
|
|
$
|
15,315,629
|
|
|
23,589
|
|
|
0.31
|
|
Time
accounts
|
|
|
63,501,639
|
|
|
118,885
|
|
|
0.75
|
|
|
|
65,911,614
|
|
|
147,893
|
|
|
0.90
|
|
|
|
63,581,610
|
|
|
240,391
|
|
|
0.76
|
|
|
|
65,195,585
|
|
|
308,010
|
|
|
0.95
|
|
Money
market accounts
|
|
|
28,532,598
|
|
|
61,101
|
|
|
0.86
|
|
|
|
28,833,948
|
|
|
63,018
|
|
|
0.88
|
|
|
|
28,296,113
|
|
|
120,480
|
|
|
0.86
|
|
|
|
28,918,039
|
|
|
125,504
|
|
|
0.88
|
|
Now
accounts
|
|
|
28,419,262
|
|
|
23,183
|
|
|
0.33
|
|
|
|
35,563,678
|
|
|
41,348
|
|
|
0.47
|
|
|
|
30,492,021
|
|
|
56,272
|
|
|
0.37
|
|
|
|
34,139,385
|
|
|
80,600
|
|
|
0.48
|
|
Total
interest-bearing liabilities
|
|
|
137,544,674
|
|
|
216,447
|
|
|
0.63
|
|
|
|
145,974,205
|
|
|
264,388
|
|
|
0.73
|
|
|
|
138,941,905
|
|
|
443,117
|
|
|
0.64
|
|
|
|
143,568,638
|
|
|
537,703
|
|
|
0.76
|
|
Checking
accounts
|
|
|
75,218,675
|
|
|
|
|
|
|
|
|
|
67,605,548
|
|
|
|
|
|
|
|
|
|
71,418,435
|
|
|
|
|
|
|
|
|
|
67,569,281
|
|
|
|
|
|
|
|
Escrow
deposits
|
|
|
426,759
|
|
|
|
|
|
|
|
|
|
479,199
|
|
|
|
|
|
|
|
|
|
386,939
|
|
|
|
|
|
|
|
|
|
449,315
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
213,190,108
|
|
|
|
|
|
|
|
|
|
214,058,952
|
|
|
|
|
|
|
|
|
|
210,747,279
|
|
|
|
|
|
|
|
|
|
211,587,234
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,937,696
|
|
|
|
|
|
|
|
|
|
2,004,555
|
|
|
|
|
|
|
|
|
|
1,811,345
|
|
|
|
|
|
|
|
|
|
1,966,557
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
215,127,804
|
|
|
|
|
|
|
|
|
|
216,063,507
|
|
|
|
|
|
|
|
|
|
212,558,624
|
|
|
|
|
|
|
|
|
|
213,553,791
|
|
|
|
|
|
|
|
Equity
|
|
|
26,645,291
|
|
|
|
|
|
|
|
|
|
25,645,359
|
|
|
|
|
|
|
|
|
|
26,411,352
|
|
|
|
|
|
|
|
|
|
25,323,992
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
241,773,095
|
|
|
|
|
|
|
|
|
$
|
241,708,866
|
|
|
|
|
|
|
|
|
$
|
238,969,976
|
|
|
|
|
|
|
|
|
$
|
238,877,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest rate spread
|
|
|
|
|
$
|
2,161,070
|
|
|
3.43
|
%
|
|
|
|
|
$
|
2,324,518
|
|
|
3.72
|
%
|
|
|
|
|
$
|
4,412,382
|
|
|
3.57
|
%
|
|
|
|
|
$
|
4,612,928
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest
margin
|
|
$
|
97,361,955
|
|
|
|
|
|
3.69
|
%
|
|
$
|
86,990,268
|
|
|
|
|
|
3.99
|
%
|
|
$
|
93,072,473
|
|
|
|
|
|
3.82
|
%
|
|
$
|
86,364,339
|
|
|
|
|
|
4.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to interest-bearing
liabilities
|
|
|
1.71
|
x
|
|
|
|
|
|
|
|
|
1.60
|
x
|
|
|
|
|
|
|
|
|
1.67
|
x
|
|
|
|
|
|
|
|
|
1.60
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on Average Assets (1)
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
0.76
|
%
|
|
|
|
|
|
|
|
|
0.72
|
%
|
|
|
|
|
|
|
|
|
0.75
|
%
|
|
|
|
|
|
|
Return
on Average Equity (1)
|
|
|
6.42
|
%
|
|
|
|
|
|
|
|
|
7.19
|
%
|
|
|
|
|
|
|
|
|
6.51
|
%
|
|
|
|
|
|
|
|
|
7.11
|
%
|
|
|
|
|
|
|
Tangible
Equity to Total Assets
|
|
|
11.04
|
%
|
|
|
|
|
|
|
|
|
10.21
|
%
|
|
|
|
|
|
|
|
|
11.04
|
%
|
|
|
|
|
|
|
|
|
10.21
|
%
|
|
|
|
|
|
|
(1)
Ratios have been annualized.
Liquidity
and Capital Resources
Our
primary sources of funds are increases in deposits,
proceeds from the repayment of investment securities, and
the repayment of loans. We use these funds to purchase new
investment securities and to fund new and renewing loans in
our loan portfolio. Remaining funds are invested in
short-term liquid assets such as overnight federal funds
loans and bank deposits.
During the six
months ended June 30, 2011, we had a net increase in total
deposits of $8,643,855 due to increases of $8,797,730 in
non-interest demand deposits, $2,543,642 in savings
accounts and $1,920,660 in money market accounts, partially
offset by a decrease of $4,046,213 in NOW accounts,
$559,653 in time deposits and $12,311 in escrow deposits.
These are all what are commonly known as
“retail” deposits that we obtain through the
efforts of our branch network rather than
“wholesale” deposits that some banks obtain
from deposit brokers. We also received proceeds from
repayment of investment securities of $16,948,321. We used
$15,614,398 of available funds to purchase new investment
securities and we had a net loan increase of $1,272,170.
These changes resulted in an overall increase in cash and
cash equivalents of $9,857,285.
In
contrast, during the six months ended June 30, 2010, we had
a net increase in total deposits of $15,094,431 due to
increases of $10,675,750 in NOW accounts, $1,834,307 in
non-interest demand deposits, $1,205,544 in time deposits,
$1,019,900 in savings accounts and $413,890 in money market
accounts, partially offset by a decrease of $54,960 in
escrow deposits. These are all what are commonly known as
“retail” deposits that we obtain through the
efforts of our branch network rather than
“wholesale” deposits that some banks obtain
from deposit brokers. We also received proceeds from
repayment of investment securities of $18,721,798. We used
$15,465,622 of available funds to purchase new investment
securities and we had a net loan decrease of $1,607,758.
These changes resulted in an overall increase in cash and
cash equivalents of $21,751,937.
At
June 30, 2011, cash and cash equivalents represented 15.8%
of total assets. We have increased our cash and cash
equivalents to help buffer the adverse effects of
potential, future rising interest rates. We anticipate,
based upon historical experience that these funds, combined
with cash inflows we anticipate from payments on our loan
and investment securities portfolios, will be sufficient to
fund loan growth and unanticipated deposit outflows. As
noted above, the federal legal prohibition on paying
interest on demand deposit accounts has been repealed
effective July 2011. Depending upon competitive pressures,
we may need to implement interest-paying business checking
in order to maintain demand deposits at historical levels
or to increase such deposits.
As
a secondary source of liquidity, at June 30, 2011 we had
$120.3 million of investment securities classified
available for sale. The disposition of these securities
prior to maturity is an option available to us in the
event, which we believe is unlikely, that our primary
sources of liquidity and expected cash flows are
insufficient to meet our need for funds. Additionally, we
have the ability to borrow funds at the Federal Home Loan
Bank of New York and the Federal Reserve Bank of New York
using securities in our investment portfolio as collateral
if the need arises. Based upon our assets size and the
amount of our securities portfolio that qualifies as
eligible collateral, we had more than $81.8 million of
unused borrowing capability from the FHLBNY at June 30,
2011. Victory State Bank also has a $2 million unsecured
credit facility with Atlantic Central Bankers Bank, which
the Bank has not drawn upon. We do not anticipate a need
for additional capital resources and do not expect to raise
funds through a stock offering in the near future. We have
sufficient resources to allow us to continue to make loans
as appropriate opportunities arise without having to rely
on government funds to support our lending
activities.
Victory State
Bank satisfied all capital ratio requirements of the
Federal Deposit Insurance Corporation at June 30, 2011,
with a Tier I Leverage Capital ratio of 10.34%, a Tier I
Capital to Risk-Weighted Assets ratio of 25.64%, and a
Total Capital to Risk-Weighted Assets ratio of
26.86%.
VSB
Bancorp, Inc. satisfied all capital ratio requirements of
the Federal Reserve at June 30, 2011, with a Tier I
Leverage Capital ratio of 10.48%, a Tier I Capital to
Risk-Weighted Assets ratio of 26.04%, and a Total Capital
to Risk-Weighted Assets ratio of 27.26%.
The following
table sets forth our contractual obligations and
commitments for future lease payments, time deposit
maturities and loan commitments.
Contractual
Obligations and Commitments at J une 30,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations
|
|
Payment
due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
annual rental payments under non-cancelable
operating leases
|
|
$
|
416,878
|
|
|
$
|
831,224
|
|
|
$
|
741,891
|
|
|
$
|
8
55,256
|
|
|
$
|
2,845,249
|
|
Remaining
contractual maturities of time deposits
|
|
|
56,868,126
|
|
|
|
2,053,872
|
|
|
|
4,163,312
|
|
|
|
—
|
|
|
|
63,085,310
|
|
Total
contractual cash obligations
|
|
$
|
57,285,004
|
|
|
$
|
2,885,096
|
|
|
$
|
4,905,203
|
|
|
$
|
8
55,256
|
|
|
$
|
65,930,559
|
|
Other
commitments
|
|
Amount
of Commitment
Expiration by
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
commitments
|
|
$
|
17,041,917
|
|
|
$
|
4,731,230
|
|
|
$
|
75,000
|
|
|
$
|
—
|
|
|
$
|
21,848,147
|
|
Our
loan commitments shown in the above table represent both
commitments to make new loans and obligations to make
additional advances on existing loans, such as construction
loans in process and lines of credit. Substantially all of
these commitments involve loans with fluctuating interest
rates, so the outstanding commitments do not expose us to
interest rate risk upon fluctuation in market rates.
Non-Performing
Loans
Management
closely monitors non-performing loans and other assets with
potential problems on a regular basis. We had nineteen
non-performing loans, totaling $6,870,657 at June 30, 2011,
compared to seventeen non-performing loans, totaling
$6,378,293 at December 31, 2010. The following is
information about the eleven largest non-performing loans,
totaling $6,056,802, or 88.2% of our non-performing loans,
in outstanding principal balance at June 30, 2011.
Management believes it has taken appropriate steps with a
view towards maximizing recovery and minimizing loss, if
any, on these loans.
|
●
|
$2,200,000
in two residential mortgage loans that are
secured. We previously had a modified repayment
arrangements with the borrowers, which expired,
and we have confessions of judgment. The loan is
secured by a first mortgage and second mortgage
on a residential property and first mortgages on
two commercial properties. We have commenced
foreclosure proceedings.
|
|
●
|
$1,800,000
in two construction loans to a local borrower,
which are secured by a first mortgage and a
second mortgage on the related real estate
collateral that is substantially completed. The
loans are also secured by the personal guaranty
of the principal. The loans are past maturity and
the borrower is in the process of obtaining the
certificate of occupancy for the mortgaged
property, after which we expect to convert the
loans into performing term loans. The borrower is
continuing to pay interest, and we are recording
the interest on a cash basis, but the loans are
considered non-performing because they are past
maturity and we will not convert the loans into
term loans until there is further substantial
progress in obtaining a certificate of occupancy
is received before we term out these two
loans.
|
|
●
|
$672,500
in two commercial real estate loans and a
construction loan to a local business. The loans
are secured by a first, second and third mortgage
on real estate collateral. The loans are
guaranteed by the principal and a security
interest in the business. The loans have been
sent to our attorneys for collection and to begin
foreclosure proceedings.
|
|
●
|
$499,000
in a loan to a local business, which is secured
by a first mortgage and a second mortgage on
commercial real estate collateral. The loan is
also secured by the personal guaranties of the
principals and we have a security interest in the
business. We have commenced foreclosure
proceedings.
|
|
●
|
$352,420
in a loan to a local business in which we are a
participant in the loan with another bank. We are
not the lead lender. The loan is in arrears and
the lead lender has commenced a foreclosure
action. The loan is secured by a first mortgage
on a commercial building, a security interest in
the business, and the personal guaranties of the
principals. We have entered into a temporary
forbearance agreement with modified payment terms
with the borrower, for which we have received a
significant upfront payment.
|
|
●
|
$273,095
in a net loan to a local business, which is
secured by a first mortgage on two parcels of
commercial real estate. We also have a security
interest in the business as well as the personal
guaranty of the principal. We have commenced
foreclosure proceedings.
|
|
●
|
$259,787
in a loan to a local business, which is secured
by a first mortgage on commercial real estate
collateral. We have entered into modified
repayment arrangements with the borrower and we
have obtained confessions of judgment. We
maintain a security interest in the business as
well as the personal guaranty of the principal.
The borrower is current under the modified
payments terms.
|
From time to
time, the Bank will enter into agreements with borrowers to
modify the terms of their loans when we believe that a
modification will maximize our recovery. In most cases, we
do not agree to reduce the rate of interest or forgive the
repayment of principal when we agree to loan modification,
and we did not do so in any of the modifications described
above. Instead, we seek to modify terms on an interim basis
to allow the borrower to reduce payments for a short
duration and thus give the borrower an opportunity to get
back on its feet.
If loans with
modifications are on non-accrual status when they are
modified, we do not immediately restore them to accruing
status. For those loans, as well as other loans on
non-accrual status when the borrower makes payments, we
initially record payments received either as a reduction of
principal or as interest received on a cash basis. The
choice between those alternatives depends upon the
magnitude of the concessions, if any, we have given to the
borrower, the nature of the collateral and the related loan
to value ratio, and other factors affecting the likelihood
that we will continue to receive regular payments. After a
period of consistent on-time performance, the loan may be
restored to accruing status. The length of on-time
performance required to restore a loan to accruing status
varies from a minimum of six months on loans with minor
modifications or less-severe weaknesses to as long as a
year or more on loans for which we have granted more
significant concessions to the borrower or which otherwise
have more significant weaknesses.
Critical
Accounting Policies and Judgments
We are required
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and
expenses during the reporting period. The allowance for
loan losses, prepayment estimates on the mortgage-backed
securities and Collateralized Mortgage Obligation
portfolios, contingencies and fair values of financial
instruments are particularly subject to change and to
management’s estimates. Actual results can differ
from those estimates and may have an impact on our
financial statements.
Evaluation
of Disclosure Controls and Procedures: As of June
30, 2011, we undertook an evaluation of our disclosure
controls and procedures under the supervision and with the
participation of Raffaele M. Branca, President and CEO and
Jonathan B. Lipschitz, Vice President and Controller.
Disclosure controls are the systems and procedures we use
that are designed to ensure that information we are
required to disclose in the reports we file or submit under
the Securities Exchange Act of 1934 (such as annual reports
on Form 10-K and quarterly periodic reports on Form 10-Q)
is recorded, processed, summarized and reported, in a
manner which will allow senior management to make timely
decisions on the public disclosure of that information. Mr.
Branca and Mr. Lipschitz concluded that our current
disclosure controls and procedures are effective in
ensuring that such information is (i) collected and
communicated to senior management in a timely manner, and
(ii) recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and
forms. Since our last evaluation of our disclosure
controls, we have not made any significant changes in, or
taken corrective actions regarding, either our internal
controls or other factors that could significantly affect
those controls.
We
intend to continually review and evaluate the design and
effectiveness of our disclosure controls and procedures and
to correct any deficiencies that we may discover. Our goal
is to ensure that senior management has timely access to
all material financial and non-financial information
concerning our business so that they can evaluate that
information and make determinations as to the nature and
timing of disclosure of that information. While we believe
the present design of our disclosure controls and
procedures is effective to achieve this goal, future events
may cause us to modify our disclosure controls and
procedures.
VSB Bancorp,
Inc. is not involved in any pending legal proceedings. The
Bank, from time to time, is involved in routine collection
proceedings in the ordinary course of business on loans in
default. Management believes that such other routine legal
proceedings in the aggregate are immaterial to our
financial condition or results of operations.
In
accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
|
VSB
Bancorp, Inc.
|
|
|
|
Date:
August 10, 2011
|
|
/s/
Raffaele M. Branca
|
|
|
Raffaele
M. Branca
|
|
|
President,
CEO and Principal Executive Officer
|
|
|
|
Date:
August 10, 2011
|
|
/s/
Jonathan B. Lipschitz
|
|
|
Jonathan
B. Lipschitz,
|
|
|
Vice
President, Controller and Principal
|
|
|
Accounting
Officer
|
EXHIBIT
INDEX
Exhibit
|
|
|
Number
|
|
Description of
Exhibit
|
|
|
|
31.1
|
|
Rule
13A-14(a)/15D-14(a) Certification of Chief
Executive Officer
|
31.2
|
|
Rule
13A-14(a)/15D-14(a) Certification of Principal
Accounting Officer
|
32.1
|
|
Certification
by CEO pursuant to 18 U.S.C. 1350.
|
32.2
|
|
Certification
by Principal Accounting Officer pursuant to 18
U.S.C. 1350.
|
101.INS
|
|
XBRL
Instance Document (furnished
herewith)
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document (furnished
herewith)
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
(furnished herewith)
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
(furnished herewith)
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
(furnished herewith)
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
(furnished herewith)
|
--------------------------------------------
Item
6 - Exhibits
Exhibit
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Number
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Description of
Exhibit
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|
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31.1
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Rule
13A-14(a)/15D-14(a) Certification of Chief
Executive Officer
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31.2
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Rule
13A-14(a)/15D-14(a) Certification of Principal
Accounting Officer
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32.1
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Certification
by CEO pursuant to 18 U.S.C. 1350.
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32.2
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Certification
by Principal Accounting Officer pursuant to 18
U.S.C. 1350.
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101.INS
|
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XBRL
Instance Document (furnished
herewith)
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document (furnished
herewith)
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
(furnished herewith)
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
(furnished herewith)
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
(furnished herewith)
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
(furnished herewith)
|