VSB Bancorp 8-K VSB Bancorp, Inc. Third Quarter 2009 Results of Operations

Exhibit 99.1

VSB Bancorp, Inc.
Third Quarter 2009 Results of Operations

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

Staten Island, N. Y. —October 14, 2009. VSB Bancorp, Inc. (NASDAQ GM: VSBN) reported net income of $474,469 for the third quarter of 2009, a 12.6% decrease from the third quarter of 2008. The following unaudited figures were released today. Pre-tax income was $881,222 in the third quarter of 2009, as compared to $1,009,408 for the third quarter of 2008, a decrease of $128,186, or 12.7%. Net income for the quarter was $474,469, or basic income of $0.26 per common share, as compared to a net income of $542,704, or $0.29 basic income per common share, for the quarter ended September 30, 2008.

The $68,235 decrease in net income was attributable to an increase in non-interest expense of $114,084 and an increase in the provision for loan losses of $35,000. These increases were partially offset by an increase in net interest income of $27,779 and a decrease in income tax expense of $59,951.

The $27,779 increase in net interest income for the third quarter of 2009 occurred primarily because our cost of funds decreased by $202,539 and our interest income decreased by $174,760. The most significant components of the decrease in interest expense were a $163,388 decrease in interest on time deposits and a $36,606 decrease in interest on subordinated debt because we repaid the subordinated debt on August 8, 2008. In contrast, the decline in interest income resulted from a $221,886 decrease in investment income, due to a 49 basis point decrease in yield coupled with a $6.7 million decrease in its average balance between the periods, and a $37,115 decline in interest income from other interest earning assets (principally overnight investments) due to a 169 point decrease in yield partially offset by the $29.4 million increase in its average balance. The decrease in interest income was partially offset by an $82,241 increase in interest income from loans. The increase in interest income on loans included $28,110 representing interest owed for a prior period that was paid during the third quarter of 2009 on a non-accrual loan that was paid in full. We also had an increase in the provision for loan losses of $35,000 due to continued economic weakness.

The average yield on loans declined 13 basis points from the third quarter of 2008 to the third quarter of 2009 but that decline was partially offset by a $7.0 million increase in average loan balances. Reductions in the prime rate during 2008 have caused our prime based loans to reach their interest rate floors. These floors have helped to stabilize the interest income from the loan portfolio and were a significant contributor to moderating the decline in interest income. In contrast, the average yield on our investment securities portfolio declined 49 basis points, as new securities were purchased at rates substantially below the rates on securities repaid or matured, and the average balance of that portfolio decreased by $6.7 million. The average yield on overnight investments declined 169 basis points between the same periods, corresponding to a 175 basis point decline in the average target federal funds rate between the two periods. Non-interest income remained relatively stable, decreasing by $6,881 to $597,084 in the third quarter of 2009 when compared to the same quarter in 2008. These factors caused our interest rate spread and margin to decrease by 22 basis points and 50 basis points, respectively.

Comparing the third quarter of 2009 with the same quarter in 2008, non-interest expense increased by $114,084, totaling $1.9 million for the third quarter of 2009. The principal increase was an increase in FDIC and NYSBD assessments due to an increase in FDIC regular assessment rates which were effective April 1, 2009. The FDIC increased its insurance premium rates to banks in 2009 due to losses to the FDIC insurance fund as a result of bank failures during 2008 and 2009, coupled with additional losses that the FDIC projects for the remainder of 2009 due to anticipated additional bank failures. The other categories of non-interest expenses increased for various business reasons including increased salary and benefits due to additional staff and higher related benefit costs, increased professional fees due to preparing for our first year of compliance with Section 404(b) of the Sarbanes-Oxley Act. The SEC recently extended the initial compliance date for non-accelerated filers such as the Company so Section 404(b) will not apply to us until next year. The increase in these non-interest expenses was partially offset by a $20,775 decrease in legal expenses due to reduced collection costs.

Total assets increased to $230.0 million at September 30, 2009, an increase of $17.4 million, or 8.2%, from December 31, 2008. Total deposits, including escrow deposits, increased to $202.6 million, an increase of $14.5 million, or 7.7%. The mix of our deposits also changed as NOW accounts increased by $14.4 million, demand and checking increased by $6.5 million and time deposits decreased by $12.2 million from year end 2008. The Bancorp’s Tier 1 capital ratio was 10.04% at September 30, 2009.

Average interest-earning assets and average loans increased by $29.6 million and $7.0 million, respectively, from the third quarter of 2008 to the third quarter of 2009. Average demand deposits, an interest free source of funds for us to invest, increased by $2.6 million from the third quarter of 2008, representing approximately 33% of average total deposits for the third quarter of 2009. Average interest-bearing deposits increased by $17.3 million, resulting in an overall $19.9 million increase in average total deposits from the third quarter of 2008 to the third quarter of 2009. Average interest-bearing liabilities increased by $15.1 million, which included the decrease in liabilities caused by repaying $5.2 million in subordinated debt in August 2008. The Company’s interest rate spread and interest rate margin were 3.62% and 3.98%, respectively, for the quarter ended September 30, 2009 as compared to 3.84% and 4.48%, respectively, for the quarter ended September 30, 2008. The interest rate spread and margin decreased because the proceeds from payments on investment securities were reinvested at lower rates and overnight investment yields declined, both because of the dramatic decline in market interest rates.

Pre-tax income decreased to $2,427,087 for the first nine months of 2009, as compared to $2,475,516 for 2008, a decrease of $48,429, or 2.0%. Net income for the nine months ended September 30, 2009 was $1,306,817, or basic net income of $0.72 per common share, as compared to a net income of $1,330,924, or basic net income of $0.72 per common share, for the nine months ended September 30, 2008. The $24,107 decline in net income for the nine months ended September 30, 2009 was attributable principally to an increase in the provision for loan losses of $325,000, due to weakness in the economy, an increase in non-interest expense of $338,893, due primarily to a $141,500 increase in FDIC and NYSBD assessments, and a $44,100 increase in professional fees, due to preparing for our first year of compliance with Section 404(b) of the Sarbanes-Oxley Act.

These expense increases were partially offset by a $584,229 increase in net interest income as interest expense decreased by $807,286, due to a 101 basis point drop in the cost of time deposits and a $214,685 reduction in interest on subordinated debt due to its repayment in August 2008. Interest income decreased by $223,057 as the decline in market rates had a lesser effect on interest income than on our cost of funds, due principally to the floors on our prime-based loans. Average interest earning assets also increased by $20.9 million from the 2008 period, resulting in additional increases in interest income. We also had a $31,235 increase in non-interest income. Income tax expense decreased $24,322 due to the decrease in pre-tax income.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.’s President and CEO, stated, “Problems that persist in both the national and local economies are putting more stress on our Company’s earnings. The recent increases in the FDIC’s base assessment and the imposition of the special assessment have also contributed to earnings pressure. Despite these factors, we have been able to generate substantially the same income for the nine months ended 2009 as compared to the same period in 2008.” Joseph J. LiBassi, VSB Bancorp, Inc.’s Chairman, stated “Our ROA was 0.79% and our ROE was 7.42% for the third quarter of 2009, which compares favorably to our peers. We continue to increase our book value per share, which now stands at $13.69. We have been able to grow relationships in this tough market by delivering the highest quality personal service to the professionals and business owners on Staten Island.”

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 $25.3 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).

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
September 30, 2009
(unaudited)

	September 30, 2009			December 31, 2008
Assets:
Cash and cash equivalents	$	37,037,519		$	21,240,223
Investment securities, available for sale		116,543,013			120,288,588
Loans receivable		72,805,540			66,246,652
Allowance for loan loss		(1,024,025	)		(987,876	)
Loans receivable, net		71,781,515			65,258,776
Bank premises and equipment, net		3,351,744			3,695,822
Accrued interest receivable		705,461			723,473
Deferred taxes		—			525,839
Other assets		603,760			925,007
Total assets	$	230,023,012		$	212,657,728
Liabilities and stockholders’ equity:
Liabilities:
Deposits:
Demand and checking	$	65,072,578		$	58,598,579
NOW		32,039,390			17,636,154
Money market		26,826,811			22,829,789
Savings		14,079,651			12,412,561
Time		64,168,043			76,323,494
Total Deposits		202,186,473			187,800,577
Escrow deposits		380,719			308,872
Accounts payable and accrued expenses		2,123,057			1,344,512
Total liabilities		204,690,249			189,453,961
Stockholders’ equity:
Common stock, ($.0001 par value, 3,000,000 shares authorized, 1,945,134 issued, 1,850,491 outstanding at September 30, 2009 and 1,923,884 issued, 1,882,461outstanding December 31, 2008)		195			192
Additional paid in capital		9,261,479			9,200,010
Retained earnings		15,697,522			14,714,143
Treasury stock, at cost (94,643 shares at September 30, 2009 and 41,423 shares at December 31, 2008)		(858,863	)		(395,891	)
Unearned ESOP shares		(774,941	)		(901,750	)
Accumulated other comprehensive gain, net of taxes of $1,692,852 and $488,735, respectively		2,007,371			587,063
Total stockholders’ equity		25,332,763			23,203,767
Total liabilities and stockholders’ equity	$	230,023,012		$	212,657,728

VSB Bancorp, Inc.
Consolidated Statements of Operations
September 30, 2009
(unaudited)

	Three months ended Sept. 30, 2009			Three months ended Sept. 30, 2008			Nine months ended Sept. 30, 2009			Nine months ended Sept. 30, 2008
Interest and dividend income:
Loans receivable	$	1,360,529		$	1,276,288		$	4,014,424		$	3,693,696
Investment securities		1,252,213			1,474,099			3,949,499			4,289,758
Other interest earning assets		11,199			48,314			21,633			225,159
Total interest income		2,623,941			2,798,701			7,985,556			8,208,613
Interest expense:
NOW		37,685			31,612			100,458			96,545
Money market		63,044			64,094			186,499			232,695
Savings		12,186			19,754			38,507			56,927
Subordinated debt		—			36,606			—			214,685
Time		202,074			365,462			733,391			1,265,289
Total interest expense		314,989			517,528			1,058,855			1,866,141
Net interest income		2,308,952			2,281,173			6,926,701			6,342,472
Provision for loan loss		75,000			40,000			450,000			125,000
Net interest income after provision for loan loss		2,233,952			2,241,173			6,476,701			6,217,472
Non-interest income:
Loan fees		19,359			11,778			69,883			55,286
Service charges on deposits		528,203			544,686			1,612,252			1,570,203
Net rental income		13,965			13,796			38,049			23,888
Other income		35,557			33,705			105,152			144,724
Total non-interest income		597,084			603,965			1,825,336			1,794,101
Non-interest expenses:
Salaries and benefits		920,478			866,644			2,744,206			2,645,315
Occupancy expenses		372,965			376,699			1,125,288			1,092,889
Legal expense		47,164			67,939			181,660			187,725
Professional fees		78,000			62,900			230,500			186,400
Computer expense		70,046			63,772			207,742			176,076
Director fees		55,500			54,200			167,275			169,150
FDIC and NYSBD assessments		102,000			44,500			279,000			137,500
Other expenses		303,661			299,076			939,279			941,002
Total non-interest expenses		1,949,814			1,835,730			5,874,950			5,536,057
Income before income taxes		881,222			1,009,408			2,427,087			2,475,516
Provision (benefit) for income taxes:
Current		407,432			777,900			1,283,635			1,511,490
Deferred		(679	)		(311,196	)		(163,365	)		(366,898	)
Total provision for income taxes		406,753			466,704			1,120,270			1,144,592
Net income	$	474,469		$	542,704		$	1,306,817		$	1,330,924
Basic income per common share	$	0.26		$	0.29		$	0.72		$	0.72
Diluted net income per share	$	0.26		$	0.29		$	0.72		$	0.71
Book value per common share	$	13.69		$	11.53		$	13.69		$	11.53