/EINPresswire.com/ -- NEW YORK, NY--(Marketwired - Oct 12, 2016) - VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $567,167 for the third quarter of 2016, an increase of $64,745, or 12.9%, from the third quarter of 2015. The following unaudited figures were released today. Pre-tax income was $872,525 in the third quarter of 2016, compared to $772,894 for the third quarter of 2015. Net income for the quarter was $567,167, or basic income of $0.32 per common share, compared to a net income of $502,422, or $0.29 basic net income per common share, for the quarter ended September 30, 2015. Return on average assets increased from 0.59% in the third quarter of 2015 to 0.66% in the third quarter of 2016, while return on average equity increased from 6.49% to 7.28%.

The $64,745 increase in net income was due to an increase in net interest income of $220,015 and a decrease in the provision for loan loss of $10,000. The increase was partially offset by a decrease in non-interest income of $72,677, due primarily to a reduction in insufficient fund charges, an increase in non-interest expenses of $57,707, and an increase in the provision for income taxes of $34,886, due to an increase in pre-tax income.

The $220,015 increase in net interest income for the third quarter of 2016 occurred primarily because our interest income increased by $267,630, while our cost of funds increased by $47,615. The rise in interest income resulted from a $278,452 increase in income from loans, due to a $23.4 million increase in average loan balance between the periods, partially offset by a 13 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 24.0% 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 $35,929 due to an $8.2 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 2 basis point increase in the average yield.

Interest income from other interest earning assets (principally overnight investments) increased by $25,107 due to a $6.5 million increase in the average balance and a 25 basis point increase in the average yield. Overall, average interest-earning assets increased by $21.7 million from the third quarter of 2015 to the third quarter of 2016, as we kept more cash on hand to fund prospective loan closings and disbursements.

The $47,615 increase in interest expense was principally due to a $45,044 increase in the cost of money market accounts, due to a 20 basis point increase in average cost and a $10.8 million increase in the average balance. There was also a $7,206 increase in interest on time accounts, as the average cost increased by 8 basis points while the average balance between periods decreased by $2.6 million. We also experienced a $6,959 increase in interest on NOW accounts. These increases were partially offset by $11,594 drop in the cost of savings accounts, as the average balance between periods decreased by $3.1 million and the average cost decreased by 15 basis points. Our overall average cost of interest-bearing liabilities increased by 8 basis points as the Federal Reserve increased the benchmark federal funds rate by 25 basis points in December 2015, resulting in upward pressure on deposit rates generally.

Average demand deposits, an interest free source of funds for us to invest, increased $4.3 million from the third quarter of 2015 and represented approximately 41% of average total deposits for the third quarter of 2016. Average interest-bearing deposits increased by $13.1 million, resulting in an overall $17.6 million increase in average total deposits from the third quarter of 2015 to the third quarter of 2016.

The average yield on earning assets rose by 18 basis points while the average cost of funds rose by 8 basis points. 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 13 basis points from 2.96% to 3.09% when comparing the third quarter of 2016 to the same quarter in 2015, while our interest rate spread increased by 10 basis points from 2.76% to 2.86%. The margin increased because of a combination of multiple factors. Loans increased as a percentage of interest-earning assets from 32.5% in the third quarter of 2015 to 37.6% in the third 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 18 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, although lessened, 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 $72,677 to $639,024 in the third quarter of 2016, compared to $711,701 in the same quarter in 2015. The decrease was a result of an $80,406 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 third quarter of 2016 with the same quarter in 2015, non-interest expense increased by $57,707, totaling $2.2 million for the third quarter of 2016. Non-interest expense increased for various business reasons including: (i) an $110,072 increase in salary and benefit costs due to a higher level of staff; and (ii) a $14,193 increase in computer expenses due to equipment and software upgrades. The increases were partially offset by a $43,663 decrease in professional fees due to expenses related to the recruitment of a new loan development officer in the 2015 period and a $17,516 decrease in legal fees due to a reduction in loan collections.

Total assets increased to $330.6 million at September 30, 2016, an increase of $24.2 million, or 7.9%, from December 31, 2015. The largest components of this increase were an $18.3 million increase in loans and a $19.0 million increase in cash and other liquid assets, which were partially offset by a $12.6 million decrease in investment securities. Our non-performing loans decreased from $1.9 million at December 31, 2015 to $1.1 million at September 30, 2016, due primarily to the payoff of $730,548 of non-performing loans, and the charge-off of $240,337 in non-accrual loans in 2016. Total OREO stood at $50,000 at September 30, 2016. Total deposits, including escrow deposits, increased to $295.5 million, an increase of $19.2 million, or 6.9% during 2016. The increase was primarily attributable to increases of $18.2 million in demand and checking deposits, $9.5 million in NOW accounts, and $1.4 million in saving accounts, partially offset by a $6.8 million decrease in money market accounts and a $3.7 million decrease in time deposits. 

Our total stockholders' equity increased by $1.5 million, principally due to $1.3 million in retained earnings, $175,979 in other comprehensive income, a net decrease in treasury stock of $271,630 (due to the issuance of 50,000 common shares to our Recognition and Retention Plan shares from Treasury Shares and the repurchase of 18,200 shares of common stock during 2016) and $75,094 of amortization of our ESOP loan. These increases were partially offset by a $292,406 decrease in additional paid in capital, due to the net change in treasury shares. We are currently in our fourth stock repurchase program. VSB Bancorp's Tier 1 capital ratio was 9.03% at September 30, 2016. Book value per common share increased from $15.94 at year end 2015 to $16.58 at September 30, 2016. 

For the first nine months of 2016, pre-tax income increased to $2.6 million from $1.9 million for the first nine months of 2015, an improvement of $689,758, or 36.5%. Net income for the nine months ended September 30, 2016 was $1.7 million, or basic net income of $0.96 per common share, as compared to net income of $1.0 million, or basic net income of $0.60 per common share, for the nine months ended September 30, 2015. The increase in net income for the nine months ended September 30, 2016 compared to the same period in 2015 was attributable principally to a $767,300 increase in net interest income partially offset by a $69,123 decrease in non-interest income, due to a $138,350 decrease in insufficient funds charges and a $66,733 decrease in non-interest income recorded upon the settlement of pending litigation in the 2015 period, partially offset by a $128,251 gain on the sale of OREO property in 2016. Additional offsets included a $62,979 increase in the provision for income taxes and a $13,419 increase in non-interest expenses. The tax effect of the increase in pre-tax income was partially offset because our effective tax rate was lower in 2016 than in 2015, due to the $155,266 valuation allowance we recorded against of our deferred tax asset in the 2015 period, due to changes in New York state tax laws in 2015. Return on average assets increased from 0.47% for the first nine months of 2015 to 0.68% in the first nine months of 2016, while return on average equity increased from 4.85% to 7.43%.

The increase in non-interest expense of $13,419 was due primarily to a $321,286 increase in salary and benefit. This increase was substantially offset by a $128,569 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 $63,977 decrease in legal fees due to lower collection costs, a $52,000 decrease in FDIC assessments due to a reduction in the rate charged and a $37,940 decrease in occupancy expenses due to a lower level of repairs and the retirement of certain fixed assets The net interest margin increased by 6 basis points to 3.10% for the nine months ended September 30, 2016 from 3.04% in the same period in 2015, as the average balance of our loans grew by 28% and the average balance on our investment securities dropped by 4%. Average interest earning assets for the nine months ended September 30, 2016 increased by $29.4 million, or 10.3%, from the same period in 2015.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "We continue to generate increased earnings quarter over quarter. We have been able to grow our assets while maintaining our favorable deposit mix." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "Our return on assets was 0.66% and return on equity was 7.28% this quarter. Our book value per share rose to $16.58. Our improving metrics are due to the growth of our loan portfolio and our unsurpassed level of personal service."

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 $30.3 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
September 30, 2016
(unaudited)
						September 30,				December 31,
						2016				2015
Assets:
	Cash and cash equivalents					$	33,890,283			$	14,845,096
	Investment securities, available for sale						51,000,828				58,096,583
	Investment securities, held to maturity						115,132,051				120,585,784
	Loans receivable						122,656,154				104,341,670
		Allowance for loan loss					(1,323,404	)			(1,290,563	)
			Loans receivable, net				121,332,750				103,051,107
	Bank premises and equipment, net						1,454,756				1,528,914
	Accrued interest receivable						714,183				743,375
	Bank owned life insurance						5,285,798				5,194,945
	Other assets						1,816,456				2,361,325
				Total assets		$	330,627,105			$	306,407,129
Liabilities and stockholders' equity:
Liabilities:
	Deposits:
			Demand and checking			$	119,907,333			$	101,659,731
			NOW				40,920,118				31,428,768
			Money market				54,146,608				60,912,775
			Savings				22,538,872				21,136,015
			Time				57,450,255				61,110,374
				Total Deposits			294,963,186				276,247,663
Escrow deposits							516,631				56,600
Accounts payable and accrued expenses							1,810,935				1,303,575
				Total liabilities			297,290,752				277,607,838
Stockholders' equity:
	Common stock, ($.0001 par value, 10,000,000 shares authorized 2,086,509 issued, 1,829,198 outstanding at September 30, 2016 and 2,078,509 issued, 1,799,398 outstanding at December 31, 2015)						209				208
	Additional paid in capital						10,219,635				10,512,041
	Retained earnings						23,327,771				22,021,007
	Treasury stock, at cost (257,311 shares at September 30, 2016 and 279,111 at December 31, 2015)						(2,704,545	)			(2,976,175	)
	Unearned ESOP shares						(759,281	)			(834,375	)
	Accumulated other comprehensive gain, net of taxes of $135,996 and $41,238, respectively						252,564				76,585
			Total stockholders' equity				30,336,353				28,799,291
			Total liabilities and stockholders' equity			$	327,627,105			$	306,407,129

VSB Bancorp, Inc.
Consolidated Statements of Operations
September 30, 2016
(unaudited)
					Three months				Three months				Nine months				Nine months
					ended				ended				ended				ended
					Sept. 30, 2016				Sept. 30, 2015				Sept. 30, 2016				Sept. 30, 2015
Interest and dividend income:
	Loans receivable				$	1,843,282			$	1,564,830			$	5,291,887			$	4,412,202
	Investment securities					857,845				893,774				2,641,367				2,666,037
	Other interest earning assets					41,445				16,338				106,957				31,091
		Total interest income				2,742,572				2,474,942				8,040,211				7,109,330
Interest expense:
	NOW					21,237				14,278				55,399				35,999
	Money market					115,505				70,461				355,314				214,969
	Savings					12,257				23,851				35,770				71,773
	Time					83,132				75,926				255,970				216,131
		Total interest expense				232,131				184,516				702,453				538,872
Net interest income						2,510,441				2,290,426				7,337,758				6,570,458
Provision for loan loss						30,000				40,000				225,000				230,000
		Net interest income after provision for loan loss				2,480,441				2,250,426				7,112,758				6,340,458
Non-interest income:
	Loan fees					36,286				26,425				60,876				47,762
	Service charges on deposits					497,872				578,278				1,525,789				1,664,139
	Net rental income					13,112				15,444				51,141				56,546
	Other income					91,754				91,554				397,369				335,851
		Total non-interest income				639,024				711,701				2,035,175				2,104,298
Non-interest expenses:
	Salaries and benefits					1,174,676				1,064,604				3,431,355				3,110,069
	Occupancy expenses					360,051				359,968				1,008,209				1,046,149
	Legal expense					49,540				67,056				135,815				199,792
	Professional fees					88,787				132,450				269,443				314,078
	Computer expense					103,112				88,919				296,787				279,583
	Director fees					64,975				56,175				183,700				181,650
	FDIC and NYSBD assessments					57,000				66,000				146,000				198,000
	Other expenses					348,799				354,061				1,098,381				1,226,950
		Total non-interest expenses				2,246,940				2,189,233				6,569,690				6,556,271
			Income before income taxes			872,525				772,894				2,578,243				1,888,485
Provision (benefit) for income taxes:
	Current					375,801				292,457				1,055,553				606,527
	Deferred					(70,443	)			(21,985	)			(153,141	)			232,906
		Total provision for income taxes				305,358				270,472				902,412				839,433
			Net income		$	567,167			$	502,422			$	1,675,831			$	1,049,052
Basic net income per common share					$	0.32			$	0.29			$	0.96			$	0.60
Diluted net income per share					$	0.32			$	0.29			$	0.96			$	0.60
Book value per common share					$	16.58			$	15.94			$	16.58			$	15.94