VSB Bancorp, Inc. First Quarter 2017 Results of Op

STATEN ISLAND, NY--(Marketwired - Apr 12, 2017) - VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $619,820 for the first quarter of 2017, an increase of $70,424, or 12.8%, from the first quarter of 2016. The following unaudited figures were released today. Pre-tax income was $953,575 in the first quarter of 2017, compared to $845,262 for the first quarter of 2016. Net income for the quarter was $619,820, or basic income of $0.35 per common share, compared to a net income of $549,396, or $0.32 basic income per common share, for the quarter ended March 31, 2016. Return on average assets increased from 0.67% in the first quarter of 2016 to 0.68% in the first quarter of 2017, while return on average equity increased from 7.25% to 7.77%.

The $70,424 increase in net income was due to an increase in net interest income of $226,623, a decrease in the provision for loan loss of $35,000 and an increase in non-interest income of $27,558, partially offset by an increase in non-interest expenses of $180,868, and an increase in the provision for income taxes of $37,889, due to an increase in pre-tax income.

The $226,623 increase in net interest income for the first quarter of 2017 occurred primarily because our interest income increased by $219,651, and our cost of funds decreased by $6,972. The rise in interest income resulted from an $183,151 increase in income from loans, due to a $19.4 million increase in average balance between the periods, partially offset by a 21 basis point decrease in yield between the periods, as we booked new loans at lower rates due to a more competitive environment. Income from investment securities decreased by $27,675, as the $8.9 million decrease in the average balance was partially offset by 5 basis point increase in the yield.

Interest income from other interest earning assets (principally overnight investments) increased by $64,175 due to a $23.5 million increase in the average balance and a 31 basis point increase in the yield. Overall, average interest-earning assets increased by $34.0 million from the first quarter of 2016 to the first quarter of 2017.

The decrease in interest expense was principally due to a $12,597 decrease in the cost of money market accounts, due to a 4 basis point decrease in average cost and a $3.1 million decrease in the average balance, and a $4,834 decrease in interest on time accounts, as the average balance between periods decreased by $4.3 million while the average cost increased by 2 basis points. These decreases were partially offset by a $9,274 increase in the cost of NOW accounts, as the average balance between periods increased by $11.1 million and the average cost increased by 4 basis points. We also experienced a $1,185 increase in interest on savings accounts. Average interest-bearing deposits increased by $6.3 million, resulting in an overall $31.7 million increase in average total deposits from the first quarter of 2016 to the first quarter of 2017. Our overall average cost of interest-bearing liabilities was lower due to the shift of our deposit mix toward lower costing NOW and savings accounts and away from money market and CD accounts. The Federal Reserve increased the benchmark federal funds rate by 25 basis points both in December 2016 and in March 2017, 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 $25.3 million from the first quarter of 2016, representing approximately 43% of average total deposits for the first quarter of 2017. 

The average yield on earning assets dropped by 1 basis point while the average cost of funds decreased by 3 basis points. The slight decrease in the yield on assets was principally due to the change in asset mix as we invested the growth in deposits into overnight funds pending the reinvestment of the funds into loans. The drop in the cost of funds was driven principally by the 4 basis point decrease in the cost of money market deposits, partially offset by the 2 basis point increase in the cost of time deposits, and the 4 basis point rise in the cost of NOW accounts. Our interest rate margin increased by 3 basis point from 3.09% to 3.12% when comparing the first quarter of 2016 to the same quarter in 2017, while our interest rate spread increased by 2 basis points from 2.86% to 2.88%. We experienced an enhanced positive effect as there was an increase in earnings from assets funded by non-interest bearing demand deposits and capital. However, this effect may reverse from the corresponding expected rise in the cost of deposits as market expectations of additional increases in the federal funds rate this year.

Non-interest income increased by $27,558 to $669,184 in the first quarter of 2017, compared to $641,626 in the same quarter in 2016. The increase was achieved through a $51,101 increase in loan fees as we collected prepayment fees on two loans and we recognized non-refundable commitment fees on loan commitments that were cancelled. This was partially offset by a $10,844 decrease in other income and a $9,946 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 first quarter of 2017 with the same quarter in 2016, non-interest expense increased by $180,868, totaling $2.3 million for the first quarter of 2017. Non-interest expense increased for various business reasons including: (i) an $118,342 increase in salary and benefit costs due to accelerated expenses relating to stock plans as a result of a director resignation and the cost of severance for an employee; (ii) a $39,048 increase in legal expenses due to an increase in collection and litigation; and (iii) a $47,508 increase in professionals fees because we hired our new human resource manager through a recruitment agency. 

Total assets increased to $354.3 million at March 31, 2017, an increase of $21.2 million, or 6.4%, from December 31, 2016. The significant component of this increase was a $5.8 million net increase in investment securities, a $3.0 million net increase in loans and a $12.5 million increase in cash and other liquid assets. Our non-performing loans remained at $1.8 million at March 31, 2017. Total OREO stood at $51,000 at March 31, 2017. Total deposits, including escrow deposits, increased to $321.1 million, an increase of $20.2 million, or 6.7%, during 2017. The increase was primarily attributable to increases of $13.5 million in demand and checking deposits, $4.9 million in NOW accounts, $4.0 million in money market accounts and $2.2 million in saving accounts, partially offset by a $4.7 million decrease in time deposits. 

Our total stockholders' equity increased by $638,824, principally due to $477,586 in retained earnings, $97,738 in additional paid in capital, $38,469 in other comprehensive income, and $25,031 of amortization of our ESOP loan. VSB Bancorp's Tier 1 capital ratio was 8.85% at March 31, 2017. Book value per common share increased from $16.72 at year end 2016 to $17.07 at March 31, 2017. 

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "We have been able to consistently generate growth in our demand and checking accounts. We have a significant loan pipeline which we expect to convert to loans in the near future." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "Our loan portfolio is generating more income as we have been able to originate more loans. We paid our thirty-eighth consecutive dividend to our stockholders and our book value per share has reached $17.07. Our dedication to deliver the highest quality personal service is a key factor in of our success."

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 $31.2 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
March 31, 2017
(unaudited)
					March 31,				December 31,
					2017				2016
Assets:
Cash and cash equivalents					$	49,722,137			$	37,240,361
Investment securities, available for sale						40,219,662				42,588,960
Investment securities, held to maturity						127,181,232				118,979,809
Loans receivable						129,192,272				126,196,441
	Allowance for loan loss					(1,410,343	)			(1,374,567	)
		Loans receivable, net				127,781,929				124,821,874
Bank premises and equipment, net						1,353,530				1,418,054
Accrued interest receivable						752,375				756,277
Bank owned life insurance						5,345,927				5,316,199
Other assets						1,931,743				1,951,425
				Total assets	$	354,288,535			$	333,072,959
Liabilities and stockholders' equity:
Liabilities:
	Deposits:
		Demand and checking			$	137,125,282			$	123,572,468
		NOW				46,402,501				41,489,564
		Money market				59,644,465				55,644,761
		Savings				25,006,077				22,774,931
		Time				52,397,447				57,146,886
			Total Deposits			320,575,772				300,628,610
Escrow deposits						484,392				244,784
Accounts payable and accrued expenses						2,017,192				1,627,210
				Total liabilities		323,077,356				302,500,604
Stockholders' equity:
	Common stock, ($.0001 par value, 10,000,000 shares authorized
		2,086,509 issued, 1,828,298 outstanding at March 31, 2017 and at December 31, 2016)				209				209
	Additional paid in capital					10,367,192				10,269,454
	Retained earnings					24,247,150				23,769,564
	Treasury stock, at cost (258,211 shares at March 31, 2017 and at December 31, 2016)					(2,717,128	)			(2,717,128	)
	Unearned ESOP shares					(709,219	)			(734,250	)
	Accumulated other comprehensive gain (loss), net of taxes of $12,371 and ($8,343), respectively					22,975				(15,494	)
			Total stockholders' equity			31,211,179				30,572,355
				Total liabilities and stockholders' equity	$	354,288,535			$	333,072,959

VSB Bancorp, Inc.
Consolidated Statements of Operations
March 31, 2017
(unaudited)
						Three months				Three months
						ended				ended
						March 31, 2017				March 31, 2016
Interest and dividend income:
	Loans receivable					$	1,880,746			$	1,697,595
	Investment securities						871,511				899,186
	Other interest earning assets						93,536				29,361
			Total interest income				2,845,793				2,626,142
Interest expense:
	NOW						23,329				14,055
	Money market						112,076				124,673
	Savings						12,726				11,541
	Time						81,554				86,388
			Total interest expense				229,685				236,657
Net interest income							2,616,108				2,389,485
Provision for loan loss							15,000				50,000
		Net interest income
				after provision for loan loss			2,601,108				2,339,485
Non-interest income:
	Loan fees						63,967				12,866
	Service charges on deposits						507,010				516,956
	Net rental income						10,801				13,554
	Other income						87,406				98,250
			Total non-interest income				669,184				641,626
Non-interest expenses:
	Salaries and benefits						1,241,973				1,123,631
	Occupancy expenses						335,299				335,816
	Professional fees						89,795				42,287
	Legal expenses						127,379				88,331
	Computer expense						103,829				95,452
	Director fees						58,179				57,450
	FDIC and NYSBD assessments						29,000				42,000
	Other expenses						331,263				350,882
			Total non-interest expenses				2,316,717				2,135,849
				Income before income taxes			953,575				845,262
Provision (benefit) for income taxes:
	Current						368,355				342,486
	Deferred						(34,600	)			(46,620	)
			Total provision for income taxes				333,755				295,866
					Net income	$	619,820			$	549,396
Basic income per common share						$	0.35			$	0.32
Diluted net income per share						$	0.35			$	0.32
Book value per common share						$	17.07			$	16.34