8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 13, 2009

VSB Bancorp, Inc.
(Exact Name of Registrant as specified in its charter)
New York	0-50237	11-3680128
(State or other jurisdiction	Commission File	IRS Employer Identification
of incorporation)	Number	No.
4142 Hylan Boulevard, Staten Island, New York 10308
Address of principal (Zip/Postal Code) executive offices
Registrant’s telephone number: 718-979-1100
n/a
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

ITEM 2.02   RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ITEM 9.01   FINANCIAL STATEMENTS AND EXHIBITS

SIGNATURES

ITEM 2.02   RESULTS OF OPERATIONS AND FINANCIAL CONDITION

          On January 13, 2009, VSB Bancorp, Inc. (the “Company”) reported its results of operations for the quarter ended December 31, 2008 of $600,820 or diluted earnings per share of $0.32 and for the year ended December 31, 2008 of $1,931,744 or diluted earnings per share of $1.03. The Company’s return on average assets and average equity were 1.05% and 10.02%, respectively, for the quarter ended December 31, 2008. This information and the accompanying press release were disseminated on January 13, 2009 through the broad distribution of the press release in a manner designed to provide broad, non-exclusionary distribution of the information to the public, but this voluntary report on Form 8-K is being filed so that the public can have a consistent source for earnings releases by searching the SEC’s EDGAR database.

ITEM 9.01   FINANCIAL STATEMENTS AND EXHIBITS

c.	Exhibits – Press Release dated January 13, 2009 of VSB Bancorp, Inc. describing the results of operations for the quarter and year ended December 31, 2008 is annexed as Exhibit 99.1.
For additional information, see annexed Exhibit 99.1.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 15, 2009
	VSB Bancorp, Inc.
	By:	/s/ Raffaele M. Branca
		Raffaele M. Branca
		President and CEO

INDEX TO EXHIBITS

Exhibit No.	Description
99.1	Press Release reporting results of operations for the quarter and year ended December 31, 2008.

EX-99.1

Exhibit 99.1

VSB Bancorp, Inc.
Fourth Quarter 2008 and Full Year 2008 Results of Operations

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

Staten Island, N. Y. —January 13, 2009. VSB Bancorp, Inc. (NASDAQ GM: VSBN), the holding company for Victory State Bank, reported net income of $600,820 for the fourth quarter of 2008, a 17.1% increase from the fourth quarter of 2007. Net income for all of 2008 was $1,931,744 as compared to net income of $2,047,226 for 2007, a decline of 5.6%. The following unaudited figures were released today. Pre-tax income was $972,481 in the fourth quarter of 2008, as compared to $848,669 for the fourth quarter of 2007, an increase of $123,812, or 14.6%. Net income for the quarter was $600,820, or basic income of $0.32 per common share, as compared to a net income of $513,155, or $0.27 basic income per common share, for the quarter ended December 31, 2007.

The $87,665 increase in net income for the fourth quarter of 2008 was attributable primarily to a more rapid decline in our cost of funds than the decline in our asset yields as market interest rates declined. We experienced a decrease in interest expense on time deposits of $223,850, a $40,067 decrease in interest expense on money market deposits, and an $89,040 decrease in interest on subordinated debt due to repayment of the subordinated debt on August 8, 2008, for a total $361,883 decline in interest expense. This compares to a decrease in interest income on loans of $21,433 and a decrease in interest income from other interest earning assets of $172,909, which were the principal causes of the $174,072 decline in interest income. We also had a $49,615 increase in non-interest income, an increase in income tax expense of $36,147 and an increase in the provision for loan losses of $120,000. The increase in the provision for loan loss was due to the higher level of charge-offs and the further deterioration of the real estate market and local economy.

The reduction in interest income on loans is attributable to a rapid decline of the prime rate, which negatively affected the yield on our loans, partially offset by the increase in average loan balance of $6,029,760, for the fourth quarter of 2008. After remaining steady for approximately 15 months, the prime rate declined 3.25% from 8.25% at September 1, 2007 to 5.00% at September 1, 2008 and continued to decline during the fourth quarter of 2008 to reach 3.25% at December 16, 2008. The reductions in the prime rate 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. Non-interest expense was stable but the components had some volatility. Salary and benefits expense declined $39,150 due, in part, to the retirement of the former president and reduced incentive and ESOP compensation expense. This reduction was offset by a $55,395 increase in occupancy expense, mostly due to utility increases, a $15,900 increase in professional fees, and a $12,032 increase in computer expenses. Positively affecting non-interest expense was a $50,177 decrease in legal fees due to the recovery of legal fees on non-accrual loans that were paid in full, and a $7,400 reduction in director fees.

Total assets increased to $212.7 million at December 31, 2008, an increase of $8.9 million, or 4.3%, from December 31, 2007. This increase occurred despite our repayment of $5.2 million in subordinated debt during 2008. Total deposits, including escrow deposits, increased to $188.1 million, an increase of $11.8 million, or 6.7%. The Bancorp’s Tier 1 capital ratio was 10.70% at December 31, 2008. We redeemed our trust preferred securities and repaid the subordinate debt on August 8, 2008, the first available redemption date.

Average interest-earning assets and average loans increased by $11.7 million and $6.0 million, respectively, from the fourth quarter of 2007 to the fourth quarter of 2008. Average demand deposits, an interest free source of funds for the Bancorp to invest, decreased by $515,559 from the fourth quarter of 2007 to approximately 34% of average total deposits for the fourth quarter of 2008. Average interest-bearing deposits increased by $7.3 million, resulting in an overall $6.8 million increase in total deposits from the fourth quarter of 2007 to the fourth quarter of 2008. The Company’s interest rate spread and interest rate margin were 3.73% and 4.34%, respectively, for the quarter ended December 31, 2008 as compared to 3.36% and 4.36%, respectively, for the quarter ended December 31, 2007. Non-interest income increased $49,615 to $606,814 in the fourth quarter of 2008 due in part to the increase in the per item charge for insufficient fund transactions that went into effect in March 2008. Non-interest expense totaled $1.8 million in the fourth quarter of 2008.

Pre-tax income decreased to $3,447,997 for the year ended December 31, 2008, as compared to $3,720,737 for 2007, a decrease of $272,740, or 7.3%. Net income for the year ended December 31, 2008 was $1,931,744, or basic net income of $1.04 per common share, as compared to a net income of $2,047,226, or basic net income of $1.12 per common share, for the year ended December 31, 2007. The $115,482 reduction in net income for the year ended December 31, 2008 was attributable to an increase in the provision for loan loss of $290,000, and a decrease in interest income of $1,263,059. The yield on average loans dropped 188 basis points, which caused an 80 basis point drop in our overall average yield on interest-earning assets. The drop in loan yield was due to the 5.00% reduction in the prime rate from September 2007 to December 2008.

The decrease in loan income, which totaled $901,557 when comparing the two periods, was combined with a $756,844 decrease in income on short term investments, but was partially offset by an increase in interest income from investments securities of $395,342 due to the increase in average investment security balance of $7.8 million. The overall $1,263,059 decline in interest income was partially offset by a decrease in interest expense of $1,117,999 due to a 136 basis point drop in the average cost of time deposits. Net income was also positively affected by an increase in non-interest income of $227,523, but reduced by a $65,203 increase in non-interest expense. We had a decrease in salary and benefits expense of $286,056, due to reduced salary, incentive and ESOP compensation expense, partially offset by (i) an increase in legal fees of $86,798 because in 2007 we received reimbursement from our insurance company of legal fees previously expensed, (ii) an increase of $111,466 in other expenses, due to our new marketing campaign and our introduction of our online ATMs and debit cards, and (iii) a $116,262 increase in occupancy expenses due to higher utility bills and real estate taxes. Income tax expense also decreased $157,258 between the periods as pre-tax income decreased and our effective tax rate declined to 44.0% from 45.0%.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.’s President and CEO, stated, “2008 was marked by financial turmoil as the subprime and real estate markets collapsed. Despite this harsh environment, we were able to generate strong earnings. We continued to pay our $0.06 per share quarterly dividend, we started to repurchase our stock, and we called our trust preferred securities and repaid the related subordinated debt. We increased deposits by almost $12 million and we controlled our non-interest expenses.” Joseph J. LiBassi, VSB Bancorp, Inc.’s Chairman, stated “We have repurchased 41,423 shares under our recently announced stock buyback program. We paid our fifth quarterly dividend of $0.06 per common share for stockholders of record on December 17, 2008. Our strong capital position allowed us to institute these capital management strategies, generating value for our stockholders. Our philosophy of delivering the highest quality personal service has made Victory the premier business bank on the 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 $23.2 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).

2

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, 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.

3

VSB Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2008

(unaudited)

	December 31, 2008			December 31, 2007
Assets:
Cash and cash equivalents	$	21,240,223		$	17,696,879
Investment securities, available for sale		120,288,588			117,814,117
Loans receivable		66,246,652			62,373,078
Allowance for loan loss		(987,876	)		(927,161	)
Loans receivable, net		65,258,776			61,445,917
Bank premises and equipment, net		3,695,822			3,931,679
Accrued interest receivable		723,473			799,249
Deferred taxes		525,839			991,297
Other assets		925,007			1,114,431
Total assets	$	212,657,728		$	203,793,569
Liabilities and stockholders’ equity:
Liabilities:
Deposits:
Demand and checking	$	58,598,579		$	62,525,053
NOW		17,636,154			16,931,113
Money market		22,829,789			20,534,721
Savings		12,412,561			11,349,111
Time		76,323,494			64,738,564
Total Deposits		187,800,577			176,078,562
Escrow deposits		308,872			255,881
Subordinated debt		—			5,155,000
Accounts payable and accrued expenses		1,344,512			1,420,321
Total liabilities		189,453,961			182,909,764
Stockholders’ equity:
Common stock, ($.0001 par value, 3,000,000 shares authorized, 1,882,461 issued and outstanding at December 31, 2008 and 1,900,509 issued and outstanding December 31, 2007)		192			190
Additional paid in capital		9,234,854			9,107,119
Retained earnings		14,679,299			13,226,395
Treasury shares, at cost (41,423 shares at December 31, 2008)		(395,891	)		—
Unearned ESOP shares		(901,750	)		(1,070,827	)
Accumulated other comprehensive gain (loss), net of taxes of $483,735 and ($330,668), respectively		587,063			(379,072	)
Total stockholders’ equity		23,203,767			20,883,805
Total liabilities and stockholders’equity	$	212,657,728		$	203,793,569

4

VSB Bancorp, Inc.
Consolidated Statements of Operations
December 31, 2008
(unaudited)

	Three months ended Dec. 31, 2008		Three months ended Dec. 31, 2007			Twelve months ended Dec. 31, 2008			Twelve months ended Dec. 31, 2007
Interest and dividend income:
Loans receivable	$	1,384,880	$	1,406,313		$	5,078,576		$	5,980,133
Investment securities		1,409,470		1,389,200			5,699,228			5,303,886
Other interest earning assets		12,331		185,240			237,490			994,334
Total interest income		2,806,681		2,980,753			11,015,294			12,278,353
Interest expense:
NOW		30,521		34,945			127,066			131,634
Money market		78,019		118,086			310,714			439,236
Savings		19,084		23,586			76,011			97,900
Subordinated debt		—		89,040			214,685			356,159
Time		349,853		573,703			1,615,142			2,436,688
Total interest expense		477,477		839,360			2,343,618			3,461,617
Net interest income		2,329,204		2,141,393			8,671,676			8,816,736
Provision (benefit) for loan loss		160,000		40,000			285,000			(5,000	)
Net interest income after provision for loan loss		2,169,204		2,101,393			8,386,676			8,821,736
Non-interest income:
Loan fees		10,973		20,945			66,259			84,603
Service charges on deposits		550,566		475,277			2,120,769			1,794,699
Net rental income (loss)		13,774		(14,172	)		37,662			(15,048	)
Other income		31,501		75,149			176,225			309,138
Total non-interest income		606,814		557,199			2,400,915			2,173,392
Non-interest expenses:
Salaries and benefits		869,583		908,733			3,514,898			3,800,954
Occupancy expenses		377,009		321,614			1,469,898			1,353,636
Legal expense		1,393		51,570			189,118			102,320
Professional fees		70,100		54,200			256,500			207,200
Computer expense		68,938		56,906			245,014			258,881
Director fees		48,300		55,700			217,450			216,150
Other expenses		368,214		361,200			1,446,716			1,335,250
Total non-interest expenses		1,803,537		1,809,923			7,339,594			7,274,391
Income before income taxes		972,481		848,669			3,447,997			3,720,737
Provision (benefit) for income taxes:
Current		358,708		303,719			1,870,198			1,533,554
Deferred		12,953		31,795			(353,945	)		139,957
Total provision for income taxes		371,661		335,514			1,516,253			1,673,511
Net income	$	600,820	$	513,155		$	1,931,744		$	2,047,226
Basic income per common share	$	0.32	$	0.27		$	1.04		$	1.12
Diluted net income per share	$	0.32	$	0.26		$	1.03		$	1.09
Book value per common share	$	12.33	$	10.99		$	12.33		$	10.99

5