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 $20.46 million; its shares were traded at around $11.06 with a P/E ratio of 10.74 and P/S ratio of 1.53. The dividend yield of Vsb Bancorp Inc. stocks is 2.17%. Highlight of Business Operations: Our deposits (including escrow deposits) were $202,567,192 at September 30, 2009, an increase of $14,457,743 or 7.7%, from December 31, 2008. The increase in deposits resulted from increases of $14,403,236 in NOW accounts, $6,545,846 in non-interest demand deposits, $1,667,090 in savings accounts and $3,997,022 in money market accounts, partially offset by a decrease of $12,155,451 in time deposits. The decrease in time deposits, and the primary increase in NOW accounts were primarily due to the conversion by the depositor of a $10 million municipal time deposit into a NOW account. This deposit had been made as part of the state’s Banking Development District program.
Total stockholders’ equity was $25,332,763 at September 30, 2009, an increase of $2,128,996 from December 31, 2008. The increase reflected (i) net income of $1,306,817 for the nine months ended September 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 $1,420,308 reflecting the positive effect of low market interest rates on the fair value of our securities portfolio and (iv) a reduction of $126,809 in Unearned ESOP shares reflecting the gradual payment of the loan we made to fund the ESOP’s purchase of our stock. These increases were partially offset by $323,438 of dividends paid, representing the three $0.06 per share quarterly 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 Company’s previously announced stock repurchase plans.
Interest Income. Interest income was $2,623,941 for the quarter ended September 30, 2009, compared to $2,798,701 for the quarter ended September 30, 2008, a decrease of $174,760, or 6.2%. Interest income on loans increased by $84,241 in the third quarter of 2009. We generated a $7.0 million increase in the average loan balances for the third quarter of 2009 compared to the third quarter of 2008 as management sought to deploy funds in loans, our highest yielding major asset category. This volume increase was the principal reason for the increase in interest income on loans. However, the volume increase was partially offset by a 13 basis point decrease in loan yield as new loans were originated at slightly lower rates than the yields we were earning on existing loans being repaid. 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 third quarter of 2009 included $28,110 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, compared to $68,070 of such prior year interest that we recognized in the 2008 quarter.
Interest Income. Interest income was $7,985,556 for the nine months ended September 30, 2009, compared to $8,208,613 for the nine months ended September 30, 2008, a decrease of $223,057, or 2.7%. The principal reason for the decline was a decline in market interest rates, which was the primary cause of $203,526 decline in interest income from other interest earning assets (principally overnight investments) and a $340,259 decline in interest income on investment securities. On the positive side, interest income on loans increased by $320,728.
Provision for Loan Losses. We took a provision for loan losses of $450,000 for the nine months ended September 30, 2009 compared to a provision for loan losses of $125,000 for the nine months ended September 30, 2008. The $325,000 increase in the provision was due to a higher level of charge-offs, $467,336 for the first nine months of 2009 as compared to $301,731 in the same period in 2008, and the uncertainty in the condition 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 management’s 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.
Income Tax Expense. Income tax expense was $1,120,270 for the nine months ended September 30, 2009, compared to income tax expense of $1,144,592 for the same period ended September 30, 2008. The decrease in income tax expense was due to the $48,429 decrease in income before income taxes in the 2009 period. Our effective tax rate for the first nine months ended September 30, 2009 was 46.2%, the same as for the same period ended September 30, 2008.
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