VSB Bancorp, Inc. First Quarter 2019 Results of Operations Loan Portfolio Grew over 20%

STATEN ISLAND, NY / ACCESSWIRE / April 10, 2019 / VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $640,001 for the first quarter of 2019, a decrease of $263,781, or 29.2%, from the first quarter of 2018. The following unaudited figures were released today. Pre-tax income was $827,397 in the first quarter of 2019, compared to $1,158,657 for the first quarter of 2018. Net income for the quarter was $640,001, or basic income of $0.36 per common share, compared to a net income of $903,782, or $0.51 basic income per common share, for the quarter ended March 31, 2018. Return on average assets decreased from 0.96% in the first quarter of 2018 to 0.68% in the first quarter of 2019, while return on average equity decreased from 10.44% to 7.35%.

The $263,781 decrease in net income was due to an increase in non-interest expenses of $322,010, a decrease in non-interest income of $132,152 and an increase in the provision for loan loss of $50,000, partially offset by an increase in net
interest income of $172,902, and a decrease in the provision for income taxes of

The $172,902 increase in net interest income for the first quarter of 2019 occurred primarily because our interest income increased by $317,740 partially offset by the increase in our cost of funds of $144,838. The rise in interest income resulted from an increase in income from investment securities of $209,363, as there was a $11.7 million increase in the average balance and a 28 basis point increase in the yield. In mid-March, we purchased a participating interest in 53 performing commercial real estate loans of $19.4 million, generally secured by properties located in our lending footprint. We did not realize the full impact of that purchase during the first quarter of 2019 because we only had the benefit of interest earned on the loans purchased for the last 14 days of the quarter.

Interest income from other interest earning assets (principally overnight investments) increased by $113,871 due to a $12.1 million increase in the average balance and an 86 basis point increase in the yield. This average yield increase corresponded to the Federal Reserve’s increase in the target federal funds rate between the periods. We maintained a higher level of liquid assets as we negotiated the loan participation purchase to have funds available when negotiations were brought to fruition. Overall, average interest-earning assets increased by $23.8 million from the first quarter of 2018 to the first quarter of 2019.

The increase in interest expense was principally due to a $93,694 increase in interest on time accounts, as the average balance between periods increased by $4.0 million while the average cost increased by 63 basis points, and an $82,486 increase in the cost of NOW accounts, as the average balance between periods increased by $4.7 million and the average cost increased by 50 basis points. These increases were partially offset by a $30,197 decrease in the cost of money market accounts, due to a 10 basis point decrease in average cost and an $11.7 million decrease in the average balance. We also experienced a $1,145 decrease in interest paid on savings accounts. Average interest-bearing deposits decreased by $5.0 million. However, overall average total deposits increased by $21.9 million from the first quarter of 2018 to the first quarter of 2019, due primarily to a $26.9 million increase in the average balance of demand deposits. Our overall average cost of interest-bearing liabilities increased by 34 basis points due to the shift of our deposit mix toward higher costing time accounts and NOW accounts and away from money market accounts. The Federal Reserve increased the benchmark federal funds rate by 25 basis points in December 2018, 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 $26.9 million from the first quarter of 2018, representing approximately 47% of average total deposits for the first quarter of 2019.

The average yield on earning assets rose by 12 basis points while the average cost of funds grew by 34 basis points. The increase in the yield on assets was principally due to the change in asset mix as we invested the growth in deposits into investment securities and overnight investments with higher yields. Our interest rate margin decreased by 2 basis points from 3.33% to 3.31% when comparing the first quarter of 2018 to the same quarter in 2019, while our interest rate spread decreased by 22 basis points from 3.10% to 2.88%. The decline is margin was less significant than the decline in spread because the general increase in earning asset yields caused a corresponding increase in earnings from assets funded by non-interest bearing demand deposits and capital. Commentators have been far from unanimous in predicting the direction of interest rates in the upcoming year due to what they believe may be a reversal of the Federal Reserve’s trend of increasing rates. The effect on our net income based upon market interest rate fluctuations will depend on the strength of the overall economy in 2019.

Non-interest income decreased by $132,152 to $498,261 in the first quarter of 2019, compared to $630,413 in the same quarter in 2018. The decrease resulted from a $127,397 decrease in loan fees because we collected more loan prepayment fees and we recognized non-refundable commitment fees on loan commitments that were cancelled in the first quarter of 2018. We also experienced a $13,152 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 2019 with the same quarter in 2018, non-interest expense increased by $322,010, totaling $2.7 million for the first quarter of 2019. Non-interest expense increased for various business reasons including: (i) a $166,427 increase in salary and benefit costs as the higher level of staff for our new branch, the hiring of a new CFO and the addition of two new business development officers; (ii) a $114,620 increase in occupancy expenses due to the effect of adopting the new lease accounting standard ASC 842 for our bank branches, and rental expense associated with our planned new branch; and (iii) a $73,045 increase in computer expenses due to the increased costs associated with our new core system software. This was partially offset by a $51,464 decrease in other expenses due to $40,290 increase in deferred loan costs and a decrease of $14,000 in capital taxes.

Total assets increased to $394.3 million at March 31, 2019, an increase of $20.5 million, or 5.5%, from December 31, 2018. The significant component of this increase was a $26.2 million net increase in loans, or 20.5%, and a $5.2 million increase in bank premises and equipment due to the adoption of the new lease accounting standard. Our non-performing loans increased to $1.7 million at March 31, 2019 from $861,727 at year end 2018, due to the migration of three loan relationships to non-accrual. All three are now in payment stipulations and they have been performing under those conditions. We owned no OREO at March 31, 2019. Total deposits, including escrow deposits, increased to $351.0 million, an increase of $14.6 million, or 4.4%, during 2019. The increase was primarily attributable to increases of $12.6 million in demand and checking deposits, $6.4 million in NOW accounts, and $579,044 in saving accounts, partially offset by a $4.9 million decrease in money market accounts and a $318,334 decrease in time deposits.

Our total stockholders’ equity increased by $870,222, from year end 2019, principally due to $424,697 in retained earnings, $314,517 increase in other comprehensive income, due to the change in market interest rates, $105,976 in additional paid in capital due primarily to the exercise of certain options, and $25,031 of amortization of our ESOP loan. VSB Bancorp’s Tier 1 capital ratio was 9.47% at March 31, 2019. Book value per common share increased from $19.13 at year end 2018 to $19.56 at March 31, 2019.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.’s President and CEO, stated, “We have been able to supplement our loan pipeline with the purchase of participating interest in loans that should generate additional interest income in the remainder of 2019,” Joseph J. LiBassi, VSB Bancorp, Inc.’s Chairman, stated, “Our book price per share has grown to $19.56 as our capital base continues to increase. We paid our forty-sixth consecutive dividend to our stockholders while maintaining a dividend payout ratio, on fourth quarter 2018 earnings, below 25%. Our philosophy and strategic direction to deliver the highest quality personal service has been the catalyst 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 $35.9 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 the Meiers Corners section of Staten Island, in 2019, as we have received both regulatory and building department approvals.


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, 2019

March 31,

December 31,

2019 2018


Cash and cash equivalents
$ 26,466,135 $ 29,182,881
Investment securities, available for sale
35,398,995 38,296,615
Investment securities, held to maturity
162,635,145 168,272,336
Loans receivable
154,302,683 128,088,148
Allowance for loan loss
(1,582,291 ) (1,472,191 )
Loans receivable, net
152,720,392 126,615,957
Bank premises and equipment, net
6,458,444 1,295,719
Accrued interest receivable
1,025,618 973,057
Bank owned life insurance
5,571,073 5,543,958
Other assets
4,044,890 3,658,115
Total assets
$ 394,320,692 $ 373,838,638

Liabilities and stockholders’ equity:

Demand and checking
$ 165,891,551 $ 153,311,235
64,905,648 58,527,067
Money market
40,783,873 45,715,279
22,741,444 22,162,400
55,948,507 56,266,841
Total Deposits
350,271,023 335,982,822
Escrow deposits
753,016 409,262
Accounts payable and accrued expenses
7,393,261 2,413,384
Total liabilities
358,417,300 338,805,468

Stockholders’ equity:
Common stock, ($.0001 par value, 10,000,000 shares authorized
2,098,676 issued, 1,835,215 outstanding at March 31, 2019
and 2,094,676 issued, 1,831,215 outstanding at December 31, 2018)
210 209
Additional paid in capital
10,935,396 10,829,420
Retained earnings
28,673,508 28,248,811
Treasury stock, at cost (263,461 shares at March 31, 2019
and at December 31, 2018)
(2,813,653 ) (2,813,653 )
Unearned ESOP shares
(508,969 ) (534,000 )
Accumulated other comprehensive loss, net of tax benefits
of $108,054 and $196,764, respectively
(383,100 ) (697,617 )

Total stockholders’ equity
35,903,392 35,033,170

Total liabilities and stockholders’
$ 394,320,692 $ 373,838,638

VSB Bancorp, Inc.
Consolidated Statements of Operations
March 31, 2019

Three months

Three months

ended ended

March 31, 2019 March 31, 2018
Interest and dividend income:
Loans receivable
$ 1,947,412 $ 1,952,906
Investment securities
1,274,782 1,065,419
Other interest earning assets
189,643 75,772
Total interest income
3,411,837 3,094,097

Interest expense:
134,472 51,986
Money market
61,140 91,337
11,813 12,958
172,951 79,257
Total interest expense
380,376 235,538

interest income
3,031,461 2,858,559
Provision for loan loss
Net interest income
after provision for loan loss
2,981,461 2,858,559

Non-interest income:
Loan fees
(5,270 ) 122,127
Service charges on deposits
426,398 439,550
Net rental income (loss)
(10,379 ) (16,745 )
Other income
87,512 85,481
Total non-interest income
498,261 630,413

Non-interest expenses:
Salaries and benefits
1,395,849 1,229,422
Occupancy expenses
488,252 373,632
Professional fees
109,925 71,750
Legal expenses
81,000 106,629
Computer expense
170,639 97,594
Director fees
68,660 62,824
FDIC and NYSBD assessments
38,000 37,000
Other expenses
300,000 351,464
Total non-interest expenses
2,652,325 2,330,315

Income before income taxes
827,397 1,158,657

Provision (benefit) for income taxes:
199,544 302,570
(12,148 ) (47,695 )
Total provision for income taxes
187,396 254,875

Net income
$ 640,001 $ 903,782

income per common share
$ 0.36 $ 0.51

Diluted net income per share
$ 0.35 $ 0.50

value per common share
$ 19.56 $ 18.10

Contact Name:

Ralph M. Branca
President & CEO
(718) 979-1100

SOURCE: VSB Bancorp, Inc.

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