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

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).

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