VSB BANCORP INC. is the one-bank holding company for Victory State Bank a Staten Island based commercial bank. 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 $21.6 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). VSB Bancorp Inc. has a market cap of $18.3 million; its shares were traded at around $9.95 with a P/E ratio of 9.6 and P/S ratio of 1.4. The dividend yield of VSB Bancorp Inc. stocks is 2.4%.
Highlight of Business Operations:Our deposits (including escrow deposits) were $197,032,552 at March 31, 2009, an increase of $8,923,103 or 4.7%, from December 31, 2008. The increase in deposits resulted from increases of $16,828,064 in NOW accounts, $1,706,632 in non-interest demand deposits, $1,233,673 in savings accounts and $975,623 in money market accounts, partially offset by a decrease of $11,820,889 in time deposits. The decrease in time deposits was primarily due to the transfer of a $10 million jumbo CD to the NOW accounts class, consisting of a deposit made in conjunction with the Bank Development District program.
Total stockholders equity was $23,928,894 at March 31, 2009, an increase of $725,127 from December 31, 2008. The increase reflected (i) net income of $373,051 for the three months ended March 31, 2009, (ii) an increase in the net unrealized gain on securities available for sale of $901,891 and (iii) a reduction of $42,270 in Unearned ESOP shares reflecting the gradual payment of the loan we made to fund the ESOPs purchase of our stock. These increases were partially offset by $106,867 of dividends paid, representing the first $0.06 per share quarterly cash dividends in 2009, and $462,972 representing the cost of 53,220 shares repurchased in the first quarter of 2009 under the Companys previously announced stock repurchase plan.
Interest Income. Interest income was $2,718,066 for the quarter ended March 31, 2009, compared to $2,731,081 for the quarter ended March 31, 2008, a decrease of $13,015, or 0.5%. Interest income from other interest earning assets decreased by $97,552, which was partially offset by an increase in interest income on loans of $86,215, due primarily to the reinstatement of a loan that was previously classified as non-accrual. The Bank received $88,805 of interest on that loan during the first quarter of 2009 which was due but unpaid, and not accrued, in 2008. The principal reason for the decrease in interest income on other interest earning assets was a 289 basis point decrease in the yield on those assets (principally overnight investments) due to lower market interest rates. Without the benefit of the non-accrual loan reinstatement, interest income on loans remained stable. The 33 basis point decrease in yield, due to the decline of the prime rate, was partially offset by the $4.9 million increase in the average loan balances for the first quarter of 2009. The decline in yields on loans was less than the decline in yields on overnight investments because we have introduced interest rate floors on most of our loans that limit the decrease in yield when market interest rates are declining. We also used the growth in deposits to fund the purchase of investment securities.
Provision for Loan Losses. We took a provision for loan losses of $275,000 for the quarter ended March 31, 2009 compared to a provision for loan losses of $30,000 for the quarter ended March 31, 2008. The $245,000 increase in the provision was due to a higher level of charge-offs, $350,023 for the 2009 quarter as compared to $93,730 in the same period in 2008, and continuing deterioration of the real estate market and local economy. We are aggressively collecting these charged-off loans in an effort to recover the amounts charged off. The provision for loan losses in any period depends upon the amount necessary to bring the allowance for loan losses to the level management believes is appropriate, after taking into account charge offs and recoveries. Our allowance for loan losses is based on managements evaluation of the risks inherent in our loan portfolio and the general economy. Management periodically evaluates both broad categories of performing loans and problem loans individually to assess the appropriate level of the allowance.
Non-interest Income. Non-interest income was $613,169 for the three months ended March 31, 2009, compared to $565,902 during the same period last year. The $47,267, or 8.4%, increase in non-interest income was a direct result of a $66,247 increase in service charges on deposits and an increase in net rental income of $12,528, partially offset by a decrease of $35,036 in other income. Service fees on deposit accounts, principally non-sufficient funds fees, increased from 2008 to 2009 due to an increase in the number of non-sufficient fund transactions coupled with our decision to increase per item charges for both insufficient fund and bounced check fees and other deposit fees in March of 2008. The increase in net rental income was because the Bank was able to sublease a portion of a leased property that was previously vacant. The decrease in other income was a result of the loss of a check cashing customer and the fee income associated with that business in the first quarter of 2008.
Income Tax Expense. Income tax expense was $319,773 for the quarter ended March 31, 2009, compared to income tax expense of $311,096 for the quarter ended March 31, 2008. The increase in income tax expense was due to the $19,783 increase in income before income taxes in the 2009 quarter. Our effective tax rate for the quarter ended March 31, 2009 was 46.2%, the same as for the quarter ended March 31, 2008.
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