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VSB Bancorp, Inc. Third Quarter 2018 Results of Operations

PR-Inside.com: 2018-10-11 15:27:24
STATEN ISLAND, NY / ACCESSWIRE / October 11, 2018 / VSB Bancorp, Inc. (OTCQX: VSBN) reported net income of $640,936 for the third quarter of 2018, a decrease of $83,277, or 11.5%, from the third quarter of 2017. The following unaudited figures were released today. Pre-tax income was $866,477 in the third quarter of 2018, compared to $1,114,097 for the third quarter of 2017. The primary cause of the 2018 decline was the recording of $226,000 in expenses related to the conversion of our core software system to a new service provider in August 2018. Net income for the quarter was $640,936, or basic income of $0.36 per common share, compared to net income of $724,213, or $0.41 basic net income per common share, for the quarter ended September 30, 2017. Return on average assets decreased from 0.77% in the third quarter of 2017 to 0.62% in the third quarter of 2018, while return on average equity decreased from 8.66% to 6.82%. The $83,277 decrease in net income was due to a $418,539 increase in non-interest expense, partially offset by a $164,343 decrease in the provision for income taxes, due to the reduced federal income tax rate, an increase in net interest income of $127,901 and a $43,018 increase in in non-interest income. We did not record a provision for loan loss in the third quarter as we recovered, in 2018, over $66,000 on loans that were previously charged off and the loan portfolio balance decreased $11.6 million compared to the prior period. The $127,901 increase in net interest income for the third quarter of 2018 occurred primarily because our interest income increased by $223,957. Our cost of funds increased $96,056 in the same period. The rise in interest income resulted from an increase in income from investment securities of $295,561, due to an increase of $27.1 million in average investment securities and a 30 basis point increase in yield between the periods. This increase was partially offset by a $69,813 decrease in income from loans as we had a $6.3 million decrease in average loan balance between the periods, partially offset by a 5 basis point increase in yield between the periods. The decrease in average balance was principally driven by significant payoffs in our construction loan portfolio between the periods. Interest income from other interest earning assets (principally overnight investments) decreased slightly as the average balance decreased by $13.8 million, which was substantially offset by a 69 basis point increase in the average yields. This average yield increase corresponded to the Federal Reserve's increase in the target federal funds rate between the periods. Overall, average interest-earning assets increased by $7.0 million from the third quarter of 2017 to the third quarter of 2018. The increase in interest expense was principally due to a 60 basis point increase in average cost and a $2.8 million increase in the average balance, which combined to cause a $90,073 increase in interest expense. We also had a $32,971 increase in interest on NOW accounts, as the average cost increased by 20 basis points while the average balance between periods increased by $5.5 million. These increases were partially offset by a $25,325 decrease in interest on money market accounts as the average balance decreased by $9.2 million and the average cost decreased by 6 basis points. Our overall average cost of interest-bearing liabilities increased by 21 basis points, which we believe was caused principally by the increased in market interest rates generally. We anticipate that recent increases in the federal funds rate may result in further upward pressure on deposit rates in the foreseeable future. Average demand deposits, an interest free source of funds for us to invest, increased $9.5 million from the third quarter of 2017 and represented approximately 44% of average total deposits for the third quarter of 2018. Average interest-bearing deposits decreased by $3.7 million, resulting in an overall $5.9 million increase in average total deposits from the third quarter of 2017 to the third quarter of 2018. The average yield on earning assets rose by 17 basis points while the average cost of funds rose by 21 basis points. The increase in the yield on assets was principally due to increases in the average balance of investment securities of 15%, 69 basis point increase in the yield on other interest earning assets and the 5 basis point increase the average yield on loans. Our interest rate margin increased by 8 basis points from 3.19% to 3.27% when comparing the third quarter of 2018 to the same quarter in 2017, while our interest rate spread decreased by 4 basis points from 2.97% to 2.93% in the same period. The margin increased because of a combination of factors. The margin increased despite the decrease in spread because of the increase in the level of non-interest bearing funding sources and the fact that as general market interest rates increase, we can earn higher yields on assets funded by demand deposits and capital. Although our cost of deposits has risen in recent periods, additional pressure from increases in the federal funds rate, and competition for deposits from banks in our marketplace, may cause us to increase the interest rates we pay in order to remain competitive and to attract new deposits. Non-interest income increased by $43,018 to $648,416 in the third quarter of 2018, compared to $605,398 in the same quarter in 2017. The increase was mainly a result of a $39,765 in loan fees, as we a higher level of pre-payment penalties in 2018. Comparing the third quarter of 2018 with the same quarter in 2017, non-interest expense increased by $418,539, totaling $2.7 million for the third quarter of 2018. Non-interest expense increased for various business reasons including: (i) a $224,060 in computer expenses due to charges associated with our core system conversion in August 2018; (ii) a $114,445 increase in salary and benefit costs due to a higher level of staff and overtime expenses related to the core system conversion; (iii) a $59,652 increase in other expenses due to additional insurance expense for the construction of the new branch and other expenses related to the core system conversion; and (iv) a $51,250 increase in occupancy expense due rental expense on our new branch that is under construction. We converted our core computer system to better position ourselves to upgrade our system generally and to provide advanced technological services to our customers. The increases were partially offset by a $23,000 decrease in FDIC assessments and a $13,675 decrease in professional fees, due principally to recruitment fees incurred in the 2017 period. Total assets increased to $370.7 million at September 30, 2018, an increase of $20.9 million, or 6.0%, from December 31, 2017. The latest components of this increase were a $16.4 million increase in cash and other liquid assets and a $14.8 million increase in
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Fred Gautreau
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