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VSB Bancorp, Inc. Fourth Quarter and Full Year 2016 Results of Operations

STATEN ISLAND, NY -- (Marketwired) -- 01/13/17 -- 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       Three
                                months      months       Year        Year
                                 ended       ended      ended        ended
                               Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                 2016        2015        2016        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
                              ==========  ========== ===========  ==========

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

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