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 $21.95 million; its shares were traded at around $12 with a P/E ratio of 11.32 and P/S ratio of 1.64. The dividend yield of VSB Bancorp Inc. stocks is 2%.
Highlight of Business Operations:Our deposits (including escrow deposits) were $199,823,599 at June 30, 2009, an increase of $11,714,150 or 6.2%, from December 31, 2008. The increase in deposits resulted from increases of $16,986,466 in NOW accounts, $6,742,916 in non-interest demand deposits, $1,121,860 in savings accounts and $1,079,957 in money market accounts, partially offset by a decrease of $14,217,049 in time deposits. The decrease in time deposits, and the primary increase in NOW accounts, was primarily due to the conversion of a $10 million municipal certificate of deposit into a NOW account. This deposit had been made in conjunction with the Bank Development District program.
Total stockholders equity was $24,425,154 at June 30, 2009, an increase of $1,221,387 from December 31, 2008. The increase reflected (i) net income of $832,348 for the six months ended June 30, 2009, (ii) an increase of additional paid in capital of $118,624 due to the exercise by officers and directors of options to purchase 21,250 shares of common stock, (iii) an increase in the net unrealized gain on securities available for sale of $905,723 and (iv) a reduction of $84,539 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 $215,152 of dividends paid, representing the first and second quarters $0.06 per share cash dividends in 2009, and $462,972 representing the cost of 53,220 shares of common stock we repurchased in the first quarter of 2009 under our Companys previously announced stock repurchase plans.
Interest Income. Interest income was $2,643,549 for the quarter ended June 30, 2009, compared to $2,678,831 for the quarter ended June 30, 2008, a decrease of $35,282, or 1.3%. Interest income on loans increased by $150,272 in the second quarter of 2009. We had a $7.9 million increase in the average loan balances for the second quarter of 2009 compared to the second quarter of 2008 as management sought to deploy funds in loans, our highest yielding major asset category. The volume increase was the principal reason for the increase in interest income. However, the volume increase was partially offset by a 10 basis point decrease in loan yield due to the decline of the prime rate. 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. In addition, interest income on loans during the second quarter of 2009 included $47,793 of interest paid in 2009 on a loan that was classified as non-accrual in 2008 but restored to performing and accrual status in 2009.
Income Tax Expense. Income tax expense was $393,744 for the quarter ended June 30, 2009, compared to income tax expense of $366,792 for the quarter ended June 30, 2008. The increase in income tax expense was due to the $59,974 increase in income before income taxes in the 2009 quarter. Our effective tax rate for the quarter ended June 30, 2009 was 46.2%, the same as for the quarter ended June 30, 2008.
Interest Income. Interest income was $5,361,615 for the six months ended June 30, 2009, compared to $5,409,912 for the six months ended June 30, 2008, a decrease of $48,297, or 0.9%. The principal reason for the decline was a decline in market interest rates, which was the primary cause of $166,411 decline in interest income from other interest earning assets (principally overnight investments) and a $118,373 decline in interest income on investment securities. On the positive side, interest income on loans increased by $236,487.
Provision for Loan Losses. We took a provision for loan losses of $375,000 for the six months ended June 30, 2009 compared to a provision for loan losses of $85,000 for the six months ended June 30, 2008. The $290,000 increase in the provision was due to a higher level of charge-offs, $466,893 for the first six months of 2009 as compared to $251,716 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.
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