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VSB Bancorp, Inc. First Quarter 2014 Results of Operations

STATEN ISLAND, NY -- (Marketwired) -- 04/09/14 -- VSB Bancorp, Inc. (OTCQB: VSBN) reported net income of $244,725 for the first quarter of 2014, an increase of $34,854, or 16.6%, from the first quarter of 2013. The following unaudited figures were released today. Pre-tax income was $451,096 in the first quarter of 2014, compared to $386,873 for the first quarter of 2013. Net income for the quarter was $244,725, or basic income of $0.14 per common share, compared to a net income of $209,871, or $0.12 basic income per common share, for the quarter ended March 31, 2013. Return on average assets increased from 0.29% in the first quarter of 2013 to 0.31% in the first quarter of 2014, while return on average equity increased from 2.84% to 3.23%.

The $34,854 increase in net income was due to an increase in net interest income of $99,559, and an increase in non-interest income of $17,551, partially offset by an increase in non-interest expense of $32,887, an increase in the provision for income taxes of $29,369, and an increase in the provision for loan loss of $20,000.

The $99,559 increase in net interest income for the first quarter of 2014 occurred primarily because our interest income increased by $74,658, while our cost of funds decreased by $24,901. The rise in interest income resulted from a $221,041 increase in income from investment securities, due to a $38.0 million increase in average balance between the periods and a 5 basis point increase in yield, as new securities were purchased at market rates at or above the rates on securities repaid or matured, between the periods. The increase in interest income was partially offset by a $136,301 decrease in interest income from loans principally due to a $8.7 million decrease in the average balance of loans and a 3 basis point decrease in yield from the first quarter of 2013 to the first quarter of 2014.

Interest income from other interest earning assets (principally overnight investments) decreased by $10,082 due to an $18.2 million decrease in average balance. Overall, average interest-earning assets increased by $11.0 million from the first quarter of 2013 to the first quarter of 2014.

The decrease in interest expense was principally due to a $36,719 decrease in interest on time accounts, as the average cost declined by 15 basis points and the average balance between periods decreased by $7.3 million. This decrease was partially offset by a $7,572 increase in the cost of savings account deposits, due to a 8 basis point increase in the cost and a $3.1 million increase in the average balance and a $5,801 increase in interest on money market accounts, as the average balance between periods increased by $8.4 million, but was partially offset by the 8 basis point drop in the average cost. Average demand deposits, an interest free source of funds for us to invest, increased $7.9 million, or 9.2%, from the first quarter of 2013, representing approximately 36% of average total deposits for the first quarter of 2014. Average interest-bearing deposits increased by $4.2 million, resulting in an overall $11.9 million increase in average total deposits from the first quarter of 2013 to the first quarter of 2014.

The average yield on earning assets declined by 4 basis points while the average cost of funds declined by 7 basis points. The reduction in the yield on assets was principally due to the 3 basis point drop in the yield on loans, partially offset by a 5 basis point increase in the yield on investment securities. The decline in the cost of funds was driven principally by the 15 basis point drop in the cost of time account deposits, and the 8 basis point drop in the cost of money market deposits partially offset by the 8 basis point increase in the cost of saving account deposits. Our interest rate margin increased by 1 basis point from 2.74% to 2.75% when comparing the first quarter of 2014 to the same quarter in 2013, while our interest rate spread increased by 3 basis points from 2.53% to 2.56%. The spread and margin both increased because of the combined effect of the rise in earnings we were able to obtain on our investments securities, the decreased average balance of low yielding other interest-earning assets partially offset by the adverse effect of the non-receipt of interest received on non-performing loans. These increases were complimented by corresponding declines in the cost of deposits because the rates we paid on deposits were low due to low markets rates.

Non-interest income increased by $17,551 to $628,152 in the first quarter of 2014, from $610,601 in the same quarter in 2013. The most significant component of the increase was a $44,155 rise in service charges on deposits, which consist mainly of insufficient fund fees that are inherently volatile, and are based upon the number of items being presented for payment against insufficient funds. This increase was partially offset by $24,977 decrease in other income, due primarily to a $17,571 gain on the sale of other fixed assets recognized in the first quarter of 2013.

Comparing the first quarter of 2014 with the same quarter in 2013, non-interest expense increased by $32,887, totaling $2.0 million for the first quarter of 2014. Non-interest expense increased for various business reasons including (i) a $33,202 increase in legal fees due to due to costs of removing our common stock from SEC registration in 2014 and a higher level of collection costs; (ii) a $32,570 increase in occupancy expenses due to an insurance payout in the first quarter of 2013 on monies expensed in the remediation of our Dongan Hills branch; (iii) a $12,445 increase in professional fees due to due to higher costs and the hiring of a consultant; (iv) a $8,950 increase in director fees due to a greater number of meetings; and (v) a $7,500 increase in FDIC and NYSBD assessments due to a larger assessment base (generally average assets minus tangible capital) in 2014. These increases were partially offset by a $13,298 decrease in salary and benefit costs due to reduced staff, and a $52,863 decrease in other non-interest expenses due to reduced OREO costs, and decreased costs of regulatory filings, as we completed the deregistering of our Company on March 31, 2014.

Total assets decreased to $287.6 million at March 31, 2014, a decrease of $9.5 million, or 3.2%, from December 31, 2013. The significant component of this decrease was a $18.2 million decrease in cash and other liquid assets, partially offset by a $9.3 million increase in investment securities. Our non-performing loans increased from $4.2 million at December 31, 2013 to $4.5 million at March 31, 2014, due primarily to a past maturity loan that is expected to be renewed in the second quarter of 2014. Total deposits, including escrow deposits, decreased to $258.1 million, a decrease of $10.5 million, or 3.9%. The decrease was primarily attributable to two large withdrawals from two customers that re-deployed the deposits into non-bank investments. We had increases in demand and checking deposits of $1.5 million, and a $1.7 million increase in savings deposits, partially offset by a decrease of $9.3 million in in time deposits, $3.0 million in NOW accounts, and a $1.6 million in money market accounts and from year end 2013. Our total stockholders' equity increased by $162,746 as the growth of retained earnings and the amortization of our ESOP loan were partially offset by the increase in treasury shares due to the repurchase of 3,400 shares of common stock in our announced third stock repurchase program. The Bancorp's Tier 1 capital ratio was 9.44% at March 31, 2014.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "We have generated more net interest income, more non-interest income and we have controlled our non-interest expenses in 2014. While our total deposits decreased in the first quarter of 2014, those decreases were primarily concentrated in our highest costing liabilities, which we funded with our excess cash." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We posted a 17% increase in net income from the 2013 period. As we look to different opportunities to generate income, we are confident that we will be able generate a higher return than last year. We paid our twenty-sixth consecutive dividend to our stockholders and our book value per share rose to $15.59. Our commitment to providing the utmost in customer service has driven our growth and has led to increased 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 $27.7 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).


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, 2014

                                                March 31,     December 31,
                                                  2014            2013
                                             --------------  --------------


  Cash and cash equivalents                  $   47,315,331  $   65,562,635
  Investment securities, available for sale      63,278,866      57,517,211
  Investment securities, held to maturity       100,726,292      97,146,039
  Loans receivable                               72,709,735      73,081,310
    Allowance for loan loss                      (1,016,364)     (1,093,788)
                                             --------------  --------------
    Loans receivable, net                        71,693,371      71,987,522
  Bank premises and equipment, net                1,988,737       1,992,527
  Accrued interest receivable                       555,790         539,092
  Other assets                                    2,060,319       2,391,082
                                             --------------  --------------
    Total assets                             $  287,618,706  $  297,136,108
                                             ==============  ==============

Liabilities and stockholders' equity:

    Demand and checking                      $   98,122,213  $   96,640,569
    NOW                                          30,034,380      32,989,791
    Money market                                 40,473,675      42,075,301
    Savings                                      25,745,971      24,075,184
    Time                                         63,246,820      72,538,100
                                             --------------  --------------
      Total Deposits                            257,623,059     268,318,945
  Escrow deposits                                   438,702         235,633
  Accounts payable and accrued expenses           1,861,451       1,048,782
                                             --------------  --------------
    Total liabilities                           259,923,212     269,603,360
                                             --------------  --------------

Stockholders' equity:
  Common stock, ($.0001 par value,
   10,000,000 shares authorized 1,989,509
   issued, 1,776,709 outstanding at March
   31, 2014 and 1,780,109 at December 31,
   2013)                                                199             199
  Additional paid in capital                      9,375,784       9,364,950
  Retained earnings                              20,098,910      19,960,933
  Treasury stock, at cost (212,800 shares at
   March 31, 2014 and 209,400 at December
   31, 2013)                                     (2,160,275)     (2,123,546)
  Unearned ESOP shares                              (14,090)        (56,360)
  Accumulated other comprehensive gain, net
   of taxes of $330,082 and $326,003,
   respectively                                     394,966         386,572
                                             --------------  --------------

    Total stockholders' equity                   27,695,494      27,532,748
                                             --------------  --------------

    Total liabilities and stockholders'
     equity                                  $  287,618,706  $  297,136,108
                                             ==============  ==============

                              VSB Bancorp, Inc.
                    Consolidated Statements of Operations
                               March 31, 2014

                                                 Three months   Three months
                                                    ended          ended
                                                  March 31,      March 31,
                                                     2014           2013
                                                -------------  -------------
Interest and dividend income:
  Loans receivable                              $   1,262,840  $   1,399,141
  Investment securities                               850,952        629,911
  Other interest earning assets                        30,443         40,525
                                                -------------  -------------
    Total interest income                           2,144,235      2,069,577

Interest expense:
  NOW                                                  13,768         15,323
  Money market                                         56,397         50,596
  Savings                                              26,076         18,504
  Time                                                 91,872        128,591
                                                -------------  -------------
    Total interest expense                            188,113        213,014

Net interest income                                 1,956,122      1,856,563
Provision for loan loss                               140,000        120,000
                                                -------------  -------------
  Net interest income after provision for loan
   loss                                             1,816,122      1,736,563

Non-interest income:
  Loan fees                                            17,374         12,457
  Service charges on deposits                         552,906        508,751
  Net rental income                                    10,442         16,986
  Other income                                         47,430         72,407
                                                -------------  -------------
    Total non-interest income                         628,152        610,601

Non-interest expenses:
  Salaries and benefits                               936,065        949,363
  Occupancy expenses                                  360,313        327,743
  Professional fees                                   101,217         88,772
  Legal expenses                                       95,064         61,862
  Computer expense                                     78,156         73,775
  Director fees                                        65,300         56,350
  FDIC and NYSBD assessments                           64,500         57,000
  Other expenses                                      292,563        345,426
                                                -------------  -------------
    Total non-interest expenses                     1,993,178      1,960,291

    Income before income taxes                        451,096        386,873
                                                -------------  -------------

Provision (benefit) for income taxes:
  Current                                             244,929          2,293
  Deferred                                            (38,558)       174,709
                                                -------------  -------------
    Total provision for income taxes                  206,371        177,002

      Net income                                $     244,725  $     209,871
                                                =============  =============

Basic income per common share                   $        0.14  $        0.12
                                                =============  =============

Diluted net income per share                    $        0.14  $        0.12
                                                =============  =============

Book value per common share                     $       15.59  $       15.53
                                                =============  =============

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

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