VSB Bancorp, Inc. Fourth Quarter and Full Year 201

STATEN ISLAND, NY--(Marketwired - Jan 13, 2017) - VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $583,259 for the fourth quarter of 2016, or basic income of $0.33 per common share, as compared to net income of $581,651, or $0.34 basic income per common share, for the fourth quarter of 2015. Net income for the year ended December 31, 2016 was $2,259,090 or basic net income of $1.29 per common share, as compared to a net income of $1,630,703, or basic net income of $0.93 per common share, for 2015. The following unaudited figures were released today. Pre-tax income was $897,380 in the fourth quarter of 2016, an increase of $2,251, or 0.3%, compared to $895,129 for the fourth quarter of 2015. For all of 2016, pre-tax income increased to $3,475,623 from $2,783,614 for 2015, a rise of $692,009, or 24.9%. Return on average assets increased from 0.65% in the fourth quarter of 2015 to 0.67% in the fourth quarter of 2016, while return on average equity increased from 7.18% to 7.48%. Return on average assets increased from 0.54% in 2015 to 0.68% in 2016, while return on average equity increased from 5.68% to 7.54%.

The stability in net income was principally due to an increase in net interest income of $183,151 partially offset by an increase in non-interest expense of $81,629, a decrease in non-interest income of $59,271, and by the increase in the provision for loan losses of $40,000.

The $183,151 increase in net interest income for the fourth quarter of 2016 occurred primarily because our interest income increased by $196,426, while our cost of funds increased by $13,275. The rise in interest income resulted from a $215,933 increase in income from loans, due to a $22.1 million increase in average loan balance between the periods, partially offset by a 23 basis point decrease in yield between the periods, as we booked new loans at lower rates due to a more competitive environment. The average balance of loans increased by 21.5% as we continued to implement our strategy to increase our loan portfolio, which helped improve our average asset yields. Income from investment securities decreased by $58,836 due to a $14.8 million decrease in the average balance, as we looked to deploy lower yielding assets into loans. The decline in average balance was partially offset by a 3 basis point increase in the average yield.

Interest income from other interest earning assets (principally overnight investments) increased by $39,329 due to a $14.8 million increase in the average balance, as we kept more cash on hand to fund prospective loan closings and disbursements, and a 28 basis point increase in the average yield. Overall, average interest-earning assets increased by $22.0 million from the fourth quarter of 2015 to the fourth quarter of 2016.

The $13,275 increase in interest expense was principally due to a $9,216 increase in interest on NOW accounts, as the average cost increased by 5 basis points while the average balance between periods increased by $9.4 million. There was also a $6,738 increase in the cost of money market accounts, due to a $3.5 million increase in the average balance. We also experienced a $3,560 increase in interest on time accounts. These increases were partially offset by $6,239 drop in the cost of savings accounts, as the average balance between periods decreased by $1.2 million and the average cost decreased by 9 basis points. Our overall average cost of interest-bearing liabilities was flat even though the Federal Reserve increased the benchmark federal funds rate by 25 basis points in December 2016, which may result in an upward pressure on deposit rates generally in the future.

Average demand deposits, an interest free source of funds for us to invest, increased $10.9 million from the fourth quarter of 2015 and represented approximately 42% of average total deposits for the fourth quarter of 2016. Average interest-bearing deposits increased by $7.9 million, resulting in an overall $19.1 million increase in average total deposits from the fourth quarter of 2015 to the fourth quarter of 2016.

The average yield on earning assets rose by 8 basis points while the average cost of funds was flat. The increase in the yield on assets was principally due to the change in asset mix as we redeployed lower yielding investments into loans. Our interest rate margin increased by 8 basis points from 2.96% to 3.04% when comparing the fourth quarter of 2016 to the same quarter in 2015, while our interest rate spread increased by 8 basis points from 2.73% to 2.81%. The margin increased because of a combination of multiple factors. Loans increased as a percentage of interest-earning assets from 33.4% in the fourth quarter of 2015 to 37.8% in the fourth quarter of 2016. In addition, the yield we were able to obtain on the average balance of our investment securities increased as the increase in the federal funds rate drove an increase in market yields available on such securities. The resulting 8 basis point increase in average yield on earning assets had an enhanced positive effect on margin due to an increase in earnings from assets funded by non-interest bearing demand deposits and capital. However, the effect of the increase in yield on reported spread was restrained by the corresponding rise in the cost of deposits as market expectations of additional increases in the federal funds rate this year increased competition for deposits at current rates before rates increase. 

Non-interest income decreased by $59,271 to $655,570 in the fourth quarter of 2016, compared to $714,841 in the same quarter in 2015. The decrease was a result of a $55,912 reduction in service charges on deposits, which consist mainly of fees on items being presented for payment against insufficient funds, which are inherently volatile. 

Comparing the fourth quarter of 2016 with the same quarter in 2015, non-interest expense increased by $81,629, totaling $2.2 million for the fourth quarter of 2016. Non-interest expense increased for various business reasons principally including: (i) a $67,042 increase in salary and benefit costs due to a higher level of staff; (ii) an increase in legal expenses of $31,524 due to the recovery in the 2015 period of legal fees previously expensed on a charged-off loan; and (iii) a $11,073 increase in computer expenses due to equipment and software upgrades. The increases were partially offset by decrease of $24,000 in FDIC assessments based upon the decrease in our assessment rate and a reduction of $13,153 in occupancy expenses due to a lower level of repairs.

Total assets increased to $333.1 million at December 31, 2016, an increase of $26.7 million, or 8.7%, from December 31, 2015. The largest components of this increase were a $21.9 million increase in loans and a $22.4 million increase in cash and other liquid assets, which were partially offset by a $17.1 million decrease in investment securities. Our non-performing loans decreased from $1.9 million at December 31, 2015 to $1.8 million at December 31, 2016. Total OREO stood at $50,000 at December 31, 2016. Total deposits, including escrow deposits, increased to $300.9 million, an increase of $24.6 million, or 8.9% during 2016. The increase was primarily attributable to increases of $21.9 million in demand and checking deposits, $10.1 million in NOW accounts, and $1.6 million in saving accounts, partially offset by a $5.3 million decrease in money market accounts and a $4.0 million decrease in time deposits. 

Our total stockholders' equity increased by $1.8 million, principally due to $1.7 million in retained earnings, a net decrease in treasury stock of $259,047 (due to the issuance of 50,000 common shares to our Recognition and Retention Plan shares from Treasury Shares and the repurchase of 19,100 shares of common stock during 2016) and $100,125 of amortization of our ESOP loan. These increases were partially offset by a $242,587 decrease in additional paid in capital, due to the net change in treasury shares and a decrease of $92,079 in other comprehensive income. We are currently in our fourth stock repurchase program. VSB Bancorp's Tier 1 capital ratio was 8.98% at December 31, 2016. Book value per common share increased from $16.00 at year end 2015 to $16.72 at December 31, 2016.  

For 2016, as a whole, pre-tax income increased to $3,475,623 from $2,783,614 for 2015, a rise of $692,009, or 24.9%. Net income for 2016 was $2,259,090, or basic net income of $1.29 per common share, as compared to a net income of $1,630,703, or basic net income of $0.93 per common share, for 2015. The $628,387 increase in net income for 2016 over 2015 was principally due to an increase in net interest income of $950,451. The increase in net income was partially offset by a decrease in non-interest income of $137,204, an increase in non-interest expense of $86,238, an increase in the provision for income taxes of $63,622, and an increase in the provision for loan losses of $35,000.

Net interest income increased principally due to an increase in the average balance of interest-earning assets of $27.5 million, or 9.4%, and a shift in the mix of those assets towards higher yielding loans. The average balance of loans increased by $24.3 million from 2015 to 2016, while the yield on average loans dropped 40 basis points in the same period. There was a $9.2 million decrease in the average balance of investment securities. Other interest earning assets, principally low-yielding overnight investments, increased by an average of $12.4 million. This shift in mix resulted in a 6 basis point increase in our average yield on interest earning assets from 2015 to 2016. The net interest margin increased by 3 basis points to 3.09% for the year ended December 31, 2016 from 3.06% in the same period in 2015, as the average balance of our loans grew by 26% and the average balance on our investment securities dropped by 5%.

The increase in non-interest expense of $86,238 was due primarily to a $388,328 increase in salary and benefits due to increased staff. This increase was partially offset by a $137,333 decrease in other expenses (due to $153,256 more collection expenses in the 2015 period principally related to the sale of the two non-performing loans), a $76,000 decrease in FDIC assessments due to a reduction in the rate charged and a $51,093 decrease in occupancy expenses due to a lower level of repairs and the retirement of certain fixed assets, a $37,913 decrease in professional fees due to expenses related to the recruitment of a new loan development officer in the 2015 period, and a $32,453 decrease in legal fees due to lower collection costs.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "2016 was a strong year for us. We grew our assets, loans and net income. We plan on continuing these trends in 2017." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "The growth of our loan portfolio was accomplished while we maintained our underwriting standards. Our fourth quarter ROA and ROE was 0.67% and 7.48%, respectively. We paid our thirty-seventh consecutive dividend to our stockholders and our book value per share stands at $16.72. We are focused on creating stockholder value."

VSB Bancorp, Inc. is the one-bank holding company for Victory State Bank. Victory State Bank, a Staten Island based commercial bank, which commenced operations on November 17, 1997. The Bank's initial capitalization of $7.0 million was primarily raised in the Staten Island community. The Bancorp's total equity has increased to $30.6 million primarily through the retention of earnings. The Bank operates five full service locations in Staten Island: the main office in Great Kills, and branches on Forest Avenue (West Brighton), Hyatt Street (St. George), Hylan Boulevard (Dongan Hills) and on Bay Street (Rosebank). We are planning to open a sixth branch in Meiers Corners section of Staten Island, subject to regulatory and building department approvals.

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to adverse changes in local, regional or national economic conditions, fluctuations in market interest rates, changes in laws or government regulations, weaknesses of other financial institutions, changes in customer preferences, and changes in competition within our market area. When used in this release or in any other written or oral statements by the Company or its directors, officers or employees, words or phrases such as "will result in," "management expects that," "will continue," "is anticipated," "estimate," "projected," or similar expressions, and other terms used to describe future events, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date of the statement. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. This statement is included for the express purpose of protecting the Company under the PSLRA's safe harbor provisions.

VSB Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2016
(unaudited)
						December 31,				December 31,
						2016				2015
Assets:
	Cash and cash equivalents					$	37,240,361			$	14,845,096
	Investment securities, available for sale						42,588,960				58,096,583
	Investment securities, held to maturity						118,979,809				120,585,784
	Loans receivable						126,196,441				104,341,670
		Allowance for loan loss					(1,374,567	)			(1,290,563	)
			Loans receivable, net				124,821,874				103,051,107
	Bank premises and equipment, net						1,418,054				1,528,914
	Accrued interest receivable						756,277				743,375
	Deferred taxes						1,012,295				761,465
	Bank owned life insurance						5,316,199				5,194,945
	Other assets						939,130				1,599,860
				Total assets		$	333,072,959			$	306,407,129
Liabilities and stockholders' equity:
Liabilities:
	Deposits:
			Demand and checking			$	123,572,468			$	101,659,731
			NOW				41,489,564				31,428,768
			Money market				55,644,761				60,912,775
			Savings				22,774,931				21,136,015
			Time				57,146,886				61,110,374
				Total Deposits			300,628,610				276,247,663
Escrow deposits							244,784				56,600
Accounts payable and accrued expenses							1,627,210				1,303,575
				Total liabilities			302,500,604				277,607,838
Stockholders' equity:
	Common stock, ($.0001 par value, 10,000,000 shares authorized 2,086,509 issued, 1,828,298 outstanding at December 31, 2016 and 2,078,509 issued, 1,799,398 outstanding at December 31, 2015)						209				208
	Additional paid in capital						10,269,454				10,512,041
	Retained earnings						23,769,564				22,021,007
	Treasury stock, at cost (258,211 shares at December 31, 2016 and 279,111 at December 31, 2015)						(2,717,128	)			(2,976,175	)
	Unearned ESOP shares						(734,250	)			(834,375	)
	Accumulated other comprehensive income (loss), net of taxes (benefit) of ($8,343) and $41,238, respectively						(15,494	)			76,585
			Total stockholders' equity				30,572,355				28,799,291
			Total liabilities and stockholders' equity			$	333,072,959			$	306,407,129

VSB Bancorp, Inc.
Consolidated Statements of Operations
December 31, 2016
(unaudited)
					Three months				Three months			Year				Year
					ended				ended			ended				ended
					Dec. 31, 2016				Dec. 31, 2015			Dec. 31, 2016				Dec. 31, 2015
Interest and dividend income:
	Loans receivable				$	1,854,308			$	1,638,375		$	7,146,195			$	6,050,577
	Investment securities					838,144				896,980			3,479,511				3,563,017
	Other interest earning assets					57,953				18,624			164,910				49,715
		Total interest income				2,750,405				2,553,979			10,790,616				9,663,309
Interest expense:
	NOW					23,791				14,575			79,190				50,574
	Money market					112,969				106,231			468,283				321,200
	Savings					12,160				18,399			47,930				90,172
	Time					82,679				79,119			338,649				295,250
		Total interest expense				231,599				218,324			934,052				757,196
Net interest income						2,518,806				2,335,655			9,856,564				8,906,113
Provision for loan loss						40,000				-			265,000				230,000
		Net interest income after provision for loan loss				2,478,806				2,335,655			9,591,564				8,676,113
Non-interest income:
	Loan fees					45,724				8,489			106,600				56,251
	Service charges on deposits					504,884				560,796			2,030,673				2,224,935
	Net rental income					12,666				15,742			63,807				72,288
	Other income					92,296				129,814			489,665				474,475
		Total non-interest income				655,570				714,841			2,690,745				2,827,949
Non-interest expenses:
	Salaries and benefits					1,167,922				1,100,880			4,599,277				4,210,949
	Occupancy expenses					324,341				337,494			1,332,550				1,383,643
	Legal expense					57,665				26,141			193,480				225,933
	Professional fees					96,130				89,408			365,573				403,486
	Computer expense					108,463				97,390			405,250				376,973
	Director fees					62,875				60,500			246,575				242,150
	FDIC and NYSBD assessments					42,000				66,000			188,000				264,000
	Other expenses					377,600				377,554			1,475,981				1,613,314
		Total non-interest expenses				2,236,996				2,155,367			8,806,686				8,720,448
			Income before income taxes			897,380				895,129			3,475,623				2,783,614
Provision (benefit) for income taxes:
	Current					362,229				256,473			1,417,782				863,000
	Deferred					(48,108	)			57,005			(201,249	)			289,911
		Total provision for income taxes				314,121				313,478			1,216,533				1,152,911
			Net income		$	583,259			$	581,651		$	2,259,090			$	1,630,703
Basic net income per common share					$	0.33			$	0.34		$	1.29			$	0.93
Diluted net income per share					$	0.33			$	0.34		$	1.28			$	0.93
Book value per common share					$	16.72			$	16.00		$	16.72			$	16.00