Edgar Filing: VSB BANCORP INC

UNITED STATES

SECURITY AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20849

FORM 10-QSB


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTER ENDED MARCH 31, 2008

o	TRANSITION REPORT PURSUANT TO SECTION 13 OF THE EXCHANGE ACT
	FOR THE TRANSITION PERIOD

COMMISSION FILE NUMBER 0-50237

VSB Bancorp, Inc.

(Name of Small Business Issuer in its charter)

New York

(State or other jurisdiction of incorporation or organization)

11 - 3680128

(I. R. S. Employer Identification No.)

4142 Hylan Boulevard, Staten Island, New York 10308

(Address of principal executive offices)

(718) 979-1100

Issuer’s telephone number

Common Stock

(Title of Class)


Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x


Transitional small business disclosure format:	Yes o No x

The Registrant had 1,900,509 common shares outstanding as of May 5, 2008.

CROSS REFERENCE INDEX


		Page

	PART I

Item 1	Consolidated Statements of Financial Condition as of March 31, 2008 and December 31, 2007 (unaudited)	4
	Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2008 and the Year Ended December 31, 2007 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007 (unaudited)	7
	Notes to Consolidated Financial Statements for the Three Months Ended March 31, 2008 and 2007 (unaudited)	8 to 13

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 to 19
Item 3	Control and Procedures	19

	PART II

Item 1	Legal Proceedings	19 to 20
Item 4	Submission of Matters to a Vote of Security Holders	20


Signature Page		21

	Exhibit 31.1, 31.2, 32.1, 32.2	22 to 25

Forward-Looking Statements

When used in this periodic report, or in any written or oral statement made by us or our officers, directors or employees, the words and phrases “will result,” “expect,” “will continue,” “anticipate,” “estimate,” “project,” or similar terms are intended to identify “forward-looking statements.” A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in any forward-looking statements. Some of the risks and uncertainties that may affect our operations, performance, development and results, the interest rate sensitivity of our assets and liabilities, and the adequacy of our loan loss allowance, include, but are not limited to:


	•	deterioration in local, regional, national or global economic conditions which could result in, among other things, an increase in loan delinquencies, a decrease in property values, or a change in the real estate turnover rate;

	•	changes in market interest rates or changes in the speed at which market interest rates change;

	•	changes in laws and regulations affecting the financial service industry;

	•	changes in competition; and

	•	changes in consumer preferences by our customers or the customers of our business borrowers.

Please do not place undue reliance on any forward-looking statement, which speaks only as of the date made. There are many factors, including those described above, that could affect our future business activities or financial performance and could cause our actual future results or circumstances to differ materially from those we anticipate or project. We do not undertake any obligation to update any forward-looking statement after it is made.

VSB Bancorp, Inc.
Consolidated Statements of Financial Condition
(unaudited)


	March 31, 2008			December 31, 2007


Assets:
Cash and due from banks	$	22,162,554		$	17,696,879
Investment securities, available for sale		121,880,050			117,814,117
Loans receivable		61,337,096			62,373,078
Allowance for loan loss		(919,450	)		(927,161	)

Loans receivable, net		60,417,646			61,445,917
Bank premises and equipment, net		3,824,211			3,931,679
Accrued interest receivable		709,237			799,249
Deferred taxes		102,908			991,297
Other assets		1,112,731			1,114,431

Total assets	$	210,209,337		$	203,793,569

Liabilities and stockholders’ equity:
Liabilities:
Deposits:
Demand and checking	$	63,036,898		$	62,525,053
NOW		18,745,240			16,931,113
Money market		23,457,102			20,534,721
Savings		11,057,143			11,349,111
Time		64,932,174			64,738,564

Total Deposits		181,228,557			176,078,562
Escrow deposits		420,307			255,881
Subordinated debt		5,155,000			5,155,000
Accounts payable and accrued expenses		1,203,806			1,420,321

Total liabilities		188,007,670			182,909,764




Stockholders’ equity:
Common stock, ($.0001 par value, 3,000,000 shares authorized, 1,900,509 issued and outstanding at March 31, 2008 and December 31, 2007)		190			190
Additional paid in capital		9,091,367			9,107,119
Retained earnings		13,474,309			13,226,395
Unearned Employee Stock Ownership Plan shares		(1,028,558	)		(1,070,827	)
Accumulated other comprehensive income (loss), net of taxes of $579,526 and ($330,668), respectively		664,359			(379,072	)

Total stockholders’ equity		22,201,667			20,883,805


Total liabilities and stockholders’ equity	$	210,209,337		$	203,793,569

See notes to consolidated financial statements.

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


	Three months ended March 31, 2008			Three months ended March 31, 2007

Interest and dividend income:
Loans receivable	$	1,244,491		$	1,572,353
Investment securities		1,384,297			1,300,460
Other interest earning assets		102,293			247,065

Total interest income		2,731,081			3,119,878
Interest expense:
NOW		32,231			28,789
Money market		96,092			85,850
Savings		18,982			24,428
Subordinated debt		89,040			89,040
Time		519,447			615,136

Total interest expense		755,792			843,243
Net interest income		1,975,289			2,276,635
Provision (credit) for loan loss		30,000			(30,000	)

Net interest income after provision for loan loss		1,945,289			2,306,635

Non-interest income:
Loan fees		22,223			27,468
Service charges on deposits		479,615			416,908
Net rental income (loss)		(1,011	)		14,813
Other income		65,075			82,174

Total non-interest income		565,902			541,363

Non-interest expenses:
Salaries and benefits		910,408			1,017,330
Occupancy expenses		357,724			337,975
Legal expense		54,086			14,526
Professional fees		61,400			51,600
Computer expense		55,106			67,216
Directors’ fees		57,250			52,150
Other expenses		342,176			315,359

Total non-interest expenses		1,838,150			1,856,156

Income before income taxes		673,041			991,842
Provision/(benefit) for income taxes:
Current		332,900			442,730
Deferred		(21,804	)		19,341

Total provision for income taxes		311,096			462,071

Net income	$	361,945		$	529,771

Earnings per share:
Basic	$	0.20		$	0.29

Diluted	$	0.19		$	0.28

Comprehensive income	$	1,405,376		$	862,229

Book value per common share	$	11.68		$	9.85

See notes to consolidated financial statements.

VSB Bancorp, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Year Ended December 31, 2007 and Three Months Ended March 31, 2008
(unaudited)


	Number of Common Shares		Common Stock		Additional Paid-In Capital			Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity

Balance at January 1, 2007		1,891,759	$	189	$	8,667,665		$	11,293,200		$	(1,239,905	)	$	(1,379,878	)	$	17,341,271

Exercise of stock option, including tax benefit		8,750		1		77,832												77,833
Stock-based compensation						162												162
Amortization of earned portion of ESOP common stock												169,078						169,078
Amortization of deficit fair value of cost - ESOP						(37,566	)											(37,566	)
Transfer from ESOP repurchase obligation						399,026												399,026
Cash dividends declared ($0.06 per share)									(114,031	)								(114,031	)
Comprehensive income:
Net income									2,047,226									2,047,226
Other comprehensive income, net:
Change in unrealized loss on securities available for sale, net of tax effects		—		—		—			—			—			1,000,806			1,000,806

Total comprehensive income																		3,048,032

Balance at December 31, 2007		1,900,509		190		9,107,119			13,226,395			(1,070,827	)		(379,072	)		20,883,805


Stock-based compensation						320												320
Amortization of earned portion of ESOP common stock												42,269						42,269
Amortization of deficit fair value of cost - ESOP						(16,072	)											(16,072	)
Cash dividends declared ($0.06 per share)									(114,031	)								(114,031	)
Comprehensive income:
Net income									361,945									361,945
Other comprehensive income, net:
Change in unrealized loss on securities available for sale, net of tax effects		—		—		—			—			—			1,043,431			1,043,431

Total comprehensive income																		1,405,376

Balance at March 31, 2008		1,900,509	$	190	$	9,091,367		$	13,474,309		$	(1,028,558	)	$	664,359		$	22,201,667

See notes to consolidated financial statements.

VSB Bancorp, Inc.
Consolidated Statements of Cash Flows
(unaudited)


	Three months ended March 31, 2008			Three months ended March 31, 2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	361,945		$	529,771
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		150,994			143,851
Accretion of income, net of amortization of premium		(53,399	)		(57,712	)
ESOP compensation expense		26,197			36,533
Stock-based compensation expense		320			—
Provision/(credit) for loan losses		30,000			(30,000	)
Decrease/(increase) in prepaid and other assets		1,700			(47,681	)
Decrease/(increase) in accrued interest receivable		90,012			(2,706	)
(Increase)/decrease in deferred income taxes		(21,804	)		19,341
Decrease in accrued expenses and other liabilities		(216,515	)		(304,818	)

Net cash provided by operating activities		369,450			286,579


CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in loan receivable		1,031,224			4,948,058
Proceeds from repayment of investment securities, available for sale		7,407,082			5,666,281
Purchases of investment securities, available for sale		(9,498,945	)		—
Purchases of premises and equipment		(43,526	)		(683,723	)

Net cash (used in)/provided by investing activities		(1,104,165	)		9,930,616


CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits		5,314,421			(4,078,623	)
Cash dividends paid		(114,031	)		—

Net cash provided by financing activities		5,200,390			(4,078,623	)


NET INCREASE IN CASH AND CASH EQUIVALENTS		4,465,675			6,138,572


CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		17,696,879			25,363,069


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	22,162,554		$	31,501,641


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	1,061,869		$	995,097

Taxes	$	322,000		$	541,294


Transfer of construction in progress to premises and equipment	$	—		$	2,142,866

See notes to consolidated financial statements.

VSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2008 AND 2007

1. GENERAL

VSB Bancorp, Inc. (“Bancorp” or “Company”) is the holding company for Victory State Bank (“Bank”), a New York State chartered commercial bank. On May 30, 2003 as the result of a reorganization of the Bank into the holding company form of organization, the stockholders of the Bank became the stockholders of VSB Bancorp, Inc. As a result of the reorganization the stockholders of VSB Bancorp, Inc. received three shares of VSB Bancorp, Inc. stock for each two shares of Victory State Bank stock. Each stockholder owned the same percentage interest in VSB Bancorp immediately after the reorganization that the stockholder owned in the Bank immediately before the reorganization, subject to immaterial differences due to adjustments for cash in lieu of fractional shares. VSB Bancorp now owns 100% of the capital stock of the Bank. No stockholders of the Bank exercised dissenter’s rights to receive cash instead of shares of the Company. The transaction between these entities under common control was accounted for at historical cost on an “as if pooled basis”.

Through the Bank, the Company is primarily engaged in the business of commercial banking, and to a lesser extent retail banking. The Bank gathers deposits from individuals and businesses primarily in Staten Island, New York and makes loans throughout that community. The Bank invests funds that are not used for lending primarily in government securities, mortgage backed securities and collateralized mortgage obligations. Customer deposits are insured, up to the applicable limit, by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is supervised by the New York State Banking Department and the FDIC.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions for Form 10-QSB and Rule 10-01 of Regulation S-X and, therefore, do not include all the disclosures necessary for a complete presentation of the financial statements in conformity with U.S. generally accepted accounting principles. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of operations for the interim period. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the significant accounting and reporting policies followed in preparing and presenting the accompanying consolidated financial statements. These policies conform with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation - The consolidated financial statements of the Company include the accounts of the Company, including its subsidiary Victory State Bank. All significant inter-company accounts and transactions between the Company and Bank have been eliminated in consolidation.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results can differ from those estimates. The allowance for loan losses, prepayment estimates on the mortgage-backed securities and Collateralized Mortgage Obligation portfolios, contingencies and fair values of financial instruments are particularly subject to change.

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation.

Cash and Cash Equivalents – Cash and cash equivalents consists of cash on hand, due from banks and interest-bearing deposits. Net cash flows are reported for customer loan and deposit transactions and interest-bearing deposits. Regulation D of the Board of Governors of the Federal Reserve System requires that Victory State Bank maintain non-interest-bearing deposits or cash on hand as reserves against its demand deposits. The amount of reserves which Victory State Bank is required to maintain depends upon its level of transaction accounts. During the fourteen day period from March 27, 2008 through April 9, 2008, Victory State Bank was required to maintain reserves, after deducting vault cash, of $2,855,000. Reserves are required to be maintained on a fourteen day basis, so, from time to time, Victory State Bank may use available cash reserves on a day to day basis, so long as the fourteen day average reserves satisfy Regulation D requirements. Victory State Bank is required to report transaction account levels to the Federal Reserve on a weekly basis.

Interest-bearing bank balances – Interest-bearing bank balances mature overnight and are carried at cost.

Investment Securities, Available for Sale - Investment securities, available for sale, are to be held for an unspecified period of time and include securities that management intends to use as part of its asset/liability strategy. These securities may be sold in response to changes in interest rates, prepayments or other factors and are carried at estimated fair value. Gains or losses on the sale of such securities are determined by the specific identification method. Interest income includes amortization of purchase premium and accretion of purchase discount. Premiums and discounts are recognized in interest income using a method that approximates the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are estimated. Unrealized holding gains or losses, net of deferred income taxes, are excluded from earnings and reported as other comprehensive income in a separate component of stockholders’ equity until realized. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

The Company invests primarily in agency Collateralized Mortgage-Backed Obligations (“CMOs”) with estimated average lives primarily under 4.5 years and Mortgage-Backed Securities. These securities are primarily issued by the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”) and are primarily comprised of mortgage pools guaranteed by FNMA, GNMA or FHLMC. The Company also invests in whole loan CMOs, all of which are AAA rated. These securities expose the Company to risks such as interest rate, prepayment and credit risk and thus pay a higher rate of return than comparable treasury issues.

Loans Receivable - Loans receivable, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are stated at unpaid principal balances, adjusted for deferred net origination and commitment fees and the allowance for loan losses. Interest income on loans is credited as earned.

It is the policy of the Company to provide a valuation allowance for probable incurred losses on loans based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations which may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions in the Company’s lending area. The allowance is increased by provisions for loan losses charged to earnings and is reduced by charge-offs, net of recoveries. While management uses available information to estimate losses on loans, future additions to the allowance may be necessary based upon the expected growth of the loan portfolio and any changes in economic conditions beyond management’s control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management. Management believes, based upon all relevant and available information, that the allowance for loan losses is appropriate.

The Company has a policy that all loans 90 days past due are placed on non-accrual status. It is the Company’s policy to cease the accrual of interest on loans to borrowers past due less than 90 days where a probable loss is estimated and to reverse out of income all interest that is due. The Company applies payments received on non-accrual loans to the outstanding principal balance due before applying any amount to interest, until the loan is restored to an accruing status. On a limited basis, the Company may apply a payment to interest on a non-accrual loan if there is no impairment or no estimated loss on this asset. The Company continues to accrue interest on construction loans that are 90 days past contractual maturity date if the loan is expected to be paid in full in the next 60 days and all interest is paid up to date.

Loan origination fees and certain direct loan origination costs are deferred and the net amount recognized over the contractual loan terms using the level-yield method, adjusted for periodic prepayments in certain circumstances.

The Company considers a loan to be impaired when, based on current information, it is probable that the Company will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impairment is measured on a loan by loan basis for commercial and construction loans. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral. The fair value of the collateral, as reduced by costs to sell, is utilized if a loan is collateral dependent. Large groups of smaller balance homogeneous loans, such as consumer loans and residential loans, are collectively evaluated for impairment.

Long-Lived Assets - The Company periodically evaluates the recoverability of long-lived assets, such as premises and equipment, to ensure the carrying value has not been impaired. In performing the review for recoverability, the Company would estimate the future cash flows expected to result from the use of the asset. If the sum of the expected future cash flows is less than the carrying amount an impairment will be recognized. The Company reports these assets at the lower of the carrying value or fair value.

Subordinated Debt - In August of 2003, the Company formed VSB Capital Trust I (the “Trust”). The Trust is a statutory business trust organized under Delaware law and the Company owns all of its common securities. The Trust issued $5.0 million of Trust Preferred Capital Securities to an independent investor and $155,000 of common securities to the Company. The Company issued a $5.16 million subordinated debenture to the Trust. The subordinated debenture is the sole asset of the Trust. The subordinated debenture and the Trust Preferred Capital Securities pay interest and dividends, respectively, on a quarterly basis, at a rate of 6.909%, for the first five years. They mature thirty years after the issuance of the securities and are non-callable for five years. After the first five years, the Trust Preferred Securities may be called by the Company at any quarterly interest payment date at par and the rate of interest that fluctuates quarterly based upon 300 basis points over the 90 day LIBOR rate. The Trust is not consolidated with the Company.

Premises and Equipment - Premises, leasehold improvements, and furniture and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are accumulated by the straight-line method over the estimated useful lives of the respective assets, which range from three to ten years. Leasehold improvements are amortized at the lesser of their useful life or the term of the lease.

Federal Home Loan Bank (FHLB) Stock - The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment. Because this stock is viewed as a long term investment, impairment is based on ultimate recovery of par value, which is the price the Bank pays for the FHLB Stock. Both cash and stock dividends are reported as income.

Income Taxes - The Company utilizes the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined on differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws expected to be in effect when the differences are expected to reverse. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Financial Instruments - In the ordinary course of business, the Company has entered into off-balance sheet financial instruments, primarily consisting of commitments to extend credit.

Basic and Diluted Net Income Per Common Share - Basic net income per share of common stock is based on 1,845,097 shares and 1,826,519 shares, the weighted average number of common shares outstanding for the three months ended March 31, 2008 and 2007, respectively. Diluted net income per share of common stock is based on 1,893,420 and 1,876,460, the weighted average number of common shares and potentially dilutive common shares outstanding for the three months ended March 31, 2008 and 2007, respectively. The weighted average number of potentially dilutive common shares excluded in calculating diluted net income per common share due to the anti-dilutive effect is 80,124 and 51,184 shares for the three months ended March 31, 2008 and 2007, respectively. Common stock equivalents were calculated using the treasury stock method.

The reconciliation of the numerators and the denominators of the basic and diluted per share computations for the three months ended March 31, are as follows:


Reconciliation of EPS	Three months ended March 31, 2008						Three months ended March 31, 2007

	Net Income		Weighted Average Shares		Per Share Amount		Net Income		Weighted Average Shares		Per Share Amount


Basic earnings per common share
Net income available to common stockholders	$	361,945		1,845,097	$	0.20	$	529,771		1,826,519	$	0.29


Effect of dilutive shares
Weighted average shares, if converted				48,323						49,941


Diluted earnings per common share
Net income available to common stockholders	$	361,945		1,893,420	$	0.19	$	529,771		1,876,460	$	0.28

Stock Based Compensation - FAS 123, Revised, requires companies to record compensation expense for stock options provided to employees in return for employment service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employment service period, which is normally the vesting period of the options. This applies to awards granted or modified in fiscal years beginning in 2006.

Employee Stock Ownership Plan (“ESOP”) - The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Cash dividends on allocated ESOP shares reduce retained earnings; cash dividends on unearned ESOP shares reduce debt and accrued interest. As of March 16, 2007, the Company listed its common stock on the NASDAQ Capital Market. We are no longer required to reclassify out of stockholders’ equity an amount equal to the put option of the allocated ESOP shares and we reclassed the 2006 put option allocation in the first quarter of 2007.

Comprehensive Income - Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses, net of taxes, on securities available for sale which are also recognized as separate components of equity.

Fair Value Option and Fair Value Measurement - In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.

Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing and asset or liability.

The fair value of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	Fair Value Measurements at March 31, 2008 Using

	March 31, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
Available for sale securities	$	121,880,050	$	—	$	121,880,050	$	—

Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria. As of March 31, 2008, we did not have any impaired loans that were collateral dependent.

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis were not significant at March 31, 2008.

Recently-Issued Accounting Standards - SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for the Company on January 1, 2008. The Company chose not to exercise the valuation option permitted it under SFAS 159.

On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value through Earnings (“SAB 109”). Previously, SAB 105, Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of this standard was not material.

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition at March 31, 2008

Total assets were $210,209,337 at March 31, 2008, an increase of $6,415,768 or, 3.1%, from December 31, 2007. The increase resulted from the investment of funds available to us as the result of an increase in deposits. The deposit increase was caused generally by our efforts to grow our franchise and specifically by the deposit increases at our branch offices. We invested these funds, together with funds resulting from a decrease in net loans receivable, primarily in investment securities available for sale and overnight investments, both of which increased. The net increase in assets can be summarized as follows:


•	A $4,465,675 net increase in cash and cash equivalents

•	A $4,065,933 net increase in investment securities available for sale; partially offset by

•	A $1,028,271 net decrease in net loans receivable.

In addition, we also experienced changes in other asset categories due to normal fluctuations in operations.

The decline in loans, our highest yielding asset category, was the result of a number of factors. The largest component of our loans represent loans to the residential building trades and related businesses on Staten Island. A slow down in the housing market has reduced business activity among our customers. In addition, we have experienced an increase in competition as the number of banks with offices on Staten Island has increased and some existing local banks have been acquired by larger banks with greater resources.

Our deposits (including escrow deposits) were $181,648,864 at March 31, 2008, an increase of $5,314,421, or 3.0%, from December 31, 2007. The increase in deposits resulted from increases of $2,922,381 in money market, $1,814,127 in NOW, $676,271 in non-interest demand deposit and $193,610 in time deposits accounts, partially offset by a decrease of $291,968 in savings accounts.

Total stockholders’ equity was $22,201,667 at March 31, 2008, an increase of $1,317,862 from December 31, 2007. The increase reflected net income of $361,945 for the three months ended March 31, 2008, increased by in the net unrealized gain on securities available for sale of $1,043,431, increased by a reduction of $42,269 in Unearned ESOP shares reflecting the effect of the gradual payment of the loan we made to fund the ESOP’s purchase of our stock. This was partially offset by the use of $114,031, representing the $0.06 per share, to pay our second cash dividend.

The unrealized gain on securities available for sale is excluded from the calculation of regulatory capital. Management does not anticipate selling securities in this portfolio, but changes in market interest rates or in the demand for funds may change management’s plans with respect to the securities portfolio. If there is a material increase in interest rates, the market value of the available for sale portfolio may decline. Management believes that the principal and interest payments on this portfolio, combined with the existing liquidity, will be sufficient to fund loan growth and potential deposit outflow.

For financial statement reporting purposes, we record the compensation expense related to the ESOP when shares are committed to be released from the security interest for the loan. The amount of the compensation expense is based upon the fair market value of the shares at that time, not the original purchase price. The initial sale of shares to the ESOP did not increase our capital by the amount of the purchase price because the purchase price was paid by the loan we made to the ESOP. Instead, capital increases as the shares are allocated or committed to be allocated to employee accounts (i.e., as the ESOP loan is gradually repaid), based upon the fair market value of the shares at that time. When we calculate earnings per share, only shares allocated or committed to be allocated to employee accounts are considered to be outstanding. However, all shares that the ESOP owns are legally outstanding, so they have voting rights and, if we pay dividends, dividends will be paid on all ESOP shares.

Effect of Adverse Conditions in the Residential Mortgage Market.

We do not expect that adverse conditions in the residential mortgage market throughout the United States will have a direct adverse effect on our financial condition or results of operations. We are not a residential mortgage lender. At March 31, 2008, we owned $121.9 million of securities that are either collateralized by residential mortgage loans or that represent shares in pools of such loans. However, 94.1% of those securities are issued or guaranteed by FNMA, GNMA or FHLMC. The remainder of the securities portfolio is all investment grade fixed-rate securities rated AAA that are at least five years old. None of those securities have experienced ratings downgrades We do not hold any loans in our portfolio of the type that are commonly known as subprime residential mortgage loans

Many of our customers, both loan and deposit customers, are involved in the residential construction business in Staten Island. We believe that the turmoil in the national housing and residential mortgage markets has had an adverse effect on some of our customers. An apparent slow down in the local housing market and a noticeable reduction in the availability of residential mortgage loans seems to have had an adverse effect on our customers and reduced their business activity. We believe that this, in turn, has caused a reduction in their demand for loans from us, such as construction loans to build new homes. It also appears to have adversely affected the level of deposits they maintain.

Results of Operations for the Three Months Ended March 31, 2008 and March 31, 2007

Our results of operations depend primarily on net interest income, which is the difference between the income we earn on our loan and investment portfolios and our cost of funds, consisting primarily of interest we pay on customer deposits. Our operating expenses principally consist of employee compensation and benefits, occupancy expenses, professional fees, advertising and marketing expenses and other general and administrative expenses. Our results of operations are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities.

General. We had net income of $361,945 for the quarter ended March 31, 2008, compared to net income of $529,771 for the comparable quarter in 2007. The principal categories which make up the 2008 net income are:


	•	Interest income of $2,731,081

	•	Reduced by interest expense of $755,792

	•	Reduced by a provision for loan losses of $30,000

	•	Increased by non-interest income of $565,902

	•	Reduced by non-interest expense of $1,838,150

	•	Reduced by $311,096 in income tax expense

We discuss each of these categories individually and the reasons for the differences between the quarters ended March 31, 2008 and 2007 in the following paragraphs. In general, the principal reason for the decline in net income when comparing the first quarter of 2008 with the same quarter in 2007 was a reduction in the yield on interest-earning assets, primarily in the loan portfolio and in other-interest earning assets, which reduced interest income.

Interest Income. Interest income was $2,731,081 for the quarter ended March 31, 2008, compared to $3,119,878 for the quarter ended March 31, 2007, a decrease of $388,797, or 12.5%. The principal reasons for this decrease was a 214 basis point decrease in the yield on our loan portfolio and a 201 basis point decrease in the yield of other-interest earning assets. These decreases in yield, coupled with a $6,287,872 decrease in the average balance of other interest-earning assets (principally overnight investments) caused a $327,862, or 20.9% decrease in interest income. The average balance of overnight investments decreased primarily due to the use of excess funds to purchase higher yielding investment securities. The continued slow real estate market in Staten Island, which has reduced construction and commercial loan originations, hampered our efforts to increase our loan portfolio. The average yield on our loans decreased because the majority of our loans have adjustable rates tied to the prime rate which decreased 300 basis points from March 2007 to March 2008.

The average yield on our investment securities portfolio increased 2 basis points, from 4.73% to 4.75%, due to the purchase of new investment securities at higher market rates than the yields on the principal paydowns we received. The yield on investment securities increased slowly because most of the bonds and notes in our investment portfolio have either fixed interest rates or interest rates that react more slowly to changes in market interest rate conditions. The average balance of our investment portfolio increased by $5,721,129, or 5.13%, between the periods. The increase in volume and the increase in yield resulted in an overall $83,837 increase in interest income from investment securities. The investment securities portfolio represented 89.5% of average non-loan interest earning assets in the 2008 period compared to 84.8% in the 2007 period.

Interest Expense. Interest expense was $755,792 for the quarter ended March 31, 2008, compared to $843,243 for the quarter ended March 31, 2007, a decrease of 10.4%. The decrease was primarily the result of a decrease in the rates we paid on deposits, specifically time deposits. Decreases in the average balance of savings accounts, time accounts and now accounts also helped reduce interest expense. Our average cost of funds decreased to 2.51% from 2.79% between the periods due to a decline in market interest rates that began in approximately September 2007.

Net Interest Income Before Provision for Loan Losses. Net interest income before the provision for loan losses was $1,975,289 for the quarter ended March 31, 2008, a decrease of $301,346, or 13.2% over the $2,276,635 in the comparable 2007 quarter. The decrease resulted principally from margin compression as the yield on average interest-earning assets decreased by 83 basis points, as compared to a 28 basis point reduction in the average cost of funds in the first quarter of 2008. This effect caused our net interest spread to decrease to 3.13% in the first quarter of 2008 from 3.68% in the first quarter of 2007 and caused our net interest margin to decrease to 4.07% in the first quarter of 2008 from 4.72% in the first quarter of 2007. The drop in the yield on interest-earning assets was both larger in magnitude and faster than the drop in the cost of deposits. Both the target fed funds and the prime rate were reduced by 75 basis points during the last four months of 2007 and by an additional 200 basis points during the first quarter of 2008. Our daily adjustable prime-based loans and overnight investments dropped an equal number of basis points in step with those reductions. We cannot re-price our liabilities downward in the same manner because a large portion of those liabilities, specifically time deposits and subordinated debt, have fixed rates and thus they can only adjust at maturity. In addition, we could not decrease the cost of other interest-bearing deposits by the same magnitude (275 basis points) because they initially had lower interest rates and thus the reduction could only be a fraction of the reduction in the target federal funds rate. However, we note that the daily adjustable rate prime based loans are now at their interest rate floors and, in effect, have become fixed rate loans until the prime rate adjusts upward.

Provision for Loan Losses. We took a provision for loan losses of $30,000 for the quarter ended March 31, 2008 compared to a credit to the provision for loan losses of $30,000 for the quarter ended March 31, 2007. The increase in the provision was the result of a moderate increase in loan delinquencies. 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.

Although management uses available information to assess the appropriateness of the allowance on a quarterly basis in consultation with outside advisors and the board of directors, changes in national or local economic conditions, the circumstances of individual borrowers, or other factors, may change, increasing the level of problem loans and requiring an increase in the level of the allowance. The allowance for loan losses represented 1.50% of total loans at March 31, 2008, but there can be no assurance that a higher level, or a higher provision for loan losses, will not be necessary in the future.

Non-interest Income. Non-interest income was $565,902 for the three months ended March 31, 2008, compared to $541,363 during the same period last year. The $24,539, or 4.5%, increase in non-interest income was a direct result of a $62,707 increase in service charges on deposits (primarily non-sufficient fund fees), partially offset by a decrease of $17,099 in other income and a decrease in net rental income of $15,824. Service fees on deposit accounts, principally non-sufficient funds fees, increased from 2007 to 2008 due to an increase in the number of non-sufficient fund transactions coupled with our decision to increase per item charges for both insufficient fund and bounced check fees and other deposit fees in March of 2008. The decrease in other income was a result of the loss of a check cashing customer and the decrease in net rental income was due to the vacancy of one of the Bank’s subleased properties.

Non-interest Expense. Non-interest expense was $1,838,150 for the quarter ended March 31, 2008, compared to $1,856,156 for the quarter ended March 31, 2007. The principal causes of the $18,006 decrease were:


•	$106,922 decrease in salaries and benefits expense, due in part to the retirement of the former president and reduced incentive and ESOP compensation expense;

•	$19,749 increase in occupancy expenses due to the operation of our new main office in Great Kills;

•	$39,560 increase in legal expenses due to an increase in loans in the process of collection; and

•	$26,817 increase in other expenses due to a $14,965 increase in advertising expenses in connection with the Bank’s new advertising campaign and increases in expenses associated with the Bank’s conversion to online processing for ATMs, debit cards and online bill pay.

Income Tax Expense. Income tax expense was $311,096 for the quarter ended March 31, 2008, compared to income tax expense of $462,071 for the quarter ended March 31, 2007. The reduction in income tax expense was due to the $318,801 decrease in income before income taxes in the 2008 quarter. Our effective tax rate for the quarter ended March 31, 2008 was 46.2% and for the quarter ended March 31, 2007 was 46.6%.

VSB Bancorp, Inc.
Consolidated Average Balance Sheets
(unaudited)


	Three Months Ended March 31, 2008								Three Months Ended March 31, 2007

	Average Balance			Interest		Yield/ Cost			Average Balance			Interest		Yield/ Cost

Assets:
Interest-earning assets:
Loans receivable	$	62,991,593		$	1,244,491		7.88	%	$	63,248,356		$	1,572,353		10.02	%
Investment securities, afs		117,303,627			1,384,297		4.75			111,582,498			1,300,460		4.73
Other interest-earning assets		13,742,193			102,293		2.99			20,030,065			247,065		5.00

Total interest-earning assets		194,037,413			2,731,081		5.64			194,860,919			3,119,878		6.47

Non-interest earning assets		13,159,112								16,607,790

Total assets	$	207,196,525							$	211,468,709


Liabilities and equity:
Interest-bearing liabilities:
Savings accounts	$	10,993,663			18,982		0.69		$	12,410,880			24,428		0.80
Time accounts		65,193,032			519,447		3.20			66,760,483			615,136		3.74
Money market accounts		21,853,581			96,092		1.77			18,383,022			85,850		1.89
Now accounts		17,877,491			32,231		0.73			19,765,134			28,789		0.59
Subordinated debt		5,155,000			89,040		6.95			5,155,000			89,040		6.91

Total interest-bearing liabilities		121,072,767			755,792		2.51			122,474,519			843,243		2.79
Checking accounts		63,047,901								68,086,917

Total deposits and subordinated debt		184,120,668								190,561,436
Other liabilities		1,355,991								2,794,791

Total liabilities		185,476,659								193,356,227
Equity		21,719,866								18,112,482

Total liabilities and equity	$	207,196,525							$	211,468,709


Net interest income/net interest rate spread				$	1,975,289		3.13	%				$	2,276,635		3.68	%


Net interest earning assets/net interest margin	$	72,964,646					4.07	%	$	72,386,400					4.72	%


Ratio of interest-earning assets to interest-bearing liabilities		1.60	x							1.59	x

Return on Average Assets (1)		0.69	%							1.01	%

Return on Average Equity (1)		6.59	%							11.75	%

Tangible Equity to Total Assets		10.56	%							8.94	%

(1) Ratios have been annualized.

Liquidity and Capital Resources

Our primary sources of funds are increases in deposits, proceeds from the repayment of investment securities, and the repayment of loans. We use these funds to purchase new investment securities and to fund new and renewing loans in our loan portfolio. Remaining funds are invested in short-term liquid assets such as overnight federal funds loans and bank deposits.

During the three months ended March 31, 2008, we had a net increase in total deposits of $5,314,421 due to increases of $2,922,381 in money market, $1,814,127 in NOW, $676,271 in non-interest demand deposit and $193,610 in time deposits accounts. This was partially offset by a decrease of $291,968 in savings accounts. We received proceeds from repayment of investment securities of $7,407,082 and we had a reduction in net loans of $1,031,224. We used $9,498,945 of available funds to purchase new investment securities. These changes resulted in an overall increase in cash and cash equivalents of $4,465,675.

In contrast, during the three months ended March 31, 2007, we had a net decrease in total deposits of $4,078,623 as a result of a $3,227,654 decrease in demand deposits, a $902,986 decrease in time deposits, a $103,498 decline in savings accounts and a $195,675 decline in money market accounts, partially offset by a $351,190 increase in NOW accounts. We received proceeds from repayment of investment securities of $5,666,281 which we used to fund the deposit outflow. We had a net loan reduction of $4,948,058 and we used $2,826,589 of cash, of which $683,723 was purchased in 2008, for capitalized leasehold improvements and equipment for our new main office in Great Kills. These changes resulted in an overall increase in cash and cash equivalents of $6,138,572.

Victory State Bank satisfied all capital ratio requirements of the Federal Deposit Insurance Corporation at March 31, 2008, with a Tier I Leverage Capital ratio of 11.37%, a ratio of Tier I Capital to Risk-Weighted Assets ratio of 27.13%, and a Total Capital to Risk-Weighted Assets ratio of 28.20%.

VSB Bancorp, Inc. satisfied all capital ratio requirements of the Federal Reserve at March 31, 2008, with a Tier I Leverage Capital ratio of 12.81%, a ratio of Tier I Capital to Risk-Weighted Assets ratio of 29.98%, and a Total Capital to Risk-Weighted Assets ratio of 31.02%.

The following table sets forth our contractual obligations and commitments for future lease payments, time deposit maturities and loan commitments.

Contractual Obligations and Commitments at March 31, 2008


Contractual Obligations	Payment due by Period

	Less than One Year		One to three years		Four to five years		After five years		Total Amounts committed


Minimum annual rental payments under non-cancelable operating leases	$	395,383	$	806,908	$	838,254	$	2,109,857	$	4,150,402
Remaining contractual maturities of time deposits		61,680,058		1,304,167		1,947,949		—		64,932,174

Total contractual cash obligations	$	62,075,441	$	2,111,075	$	2,786,203	$	2,109,857	$	69,082,576


Other commitments	Amount of commitment Expiration by Period

	Less than One Year		One to three years		Four to five years		After five years		Total Amounts committed



Loan commitments	$	23,533,370	$	6,426,009	$	—	$	—	$	29,959,379

Our loan commitments shown in the above table represent both commitments to make new loans and obligations to make additional advances on existing loans, such as construction loans in process and lines of credit. Substantially all of these commitments involve loans with fluctuating interest rates, so the outstanding commitments do not expose us to interest rate risk upon fluctuation in market rates.

Critical Accounting Policies and Judgments

We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. The allowance for loan losses, prepayment estimates on the mortgage-backed securities and Collateralized Mortgage Obligation portfolios, contingencies and fair values of financial instruments are particularly subject to change and to management’s estimates. Actual results can differ from those estimates and may have an impact on our financial statements.

Item 3 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures: As of March 31, 2008, we undertook an evaluation of our disclosure controls and procedures under the supervision and with the participation of Raffaele M. Branca, President, CEO and CFO. Disclosure controls are the systems and procedures we use that are designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934 (such as annual reports on Form 10-KSB and quarterly periodic reports on Form 10-QSB) is recorded, processed, summarized and reported, in a manner which will allow senior management to make timely decisions on the public disclosure of that information. Mr. Branca concluded that our current disclosure controls and procedures are effective in ensuring that such information is (i) collected and communicated to senior management in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Since our last evaluation of our disclosure controls, we have not made any significant changes in, or corrective actions taken regarding, either our internal controls or other factors that could significantly affect those controls.

We intend to continually review and evaluate the design and effectiveness of our disclosure controls and procedures and to correct any deficiencies that we may discover. Our goal is to ensure that senior management has timely access to all material financial and non-financial information concerning our business so that they can evaluate that information and make determinations as to the nature and timing of disclosure of that information. While we believe the present design of our disclosure controls and procedures is effective to achieve this goal, future events may cause us to modify our disclosure controls and procedures.

Part II

Item 1 – Legal Proceedings

The Bank is a defendant in an action pending in Supreme Court, Richmond County, commenced by IndyMac Bank, F.S.B. against the Bank, LaMattina & Associates, Inc. (“LAI”) and various individuals and entities alleged to be officers, directors or otherwise to have relationships with LAI. LAI was a deposit customer of the Bank engaged in the business of providing real estate settlement services to lenders making residential mortgage loans. The plaintiff alleges that it was such a lender and that it had provided funds to LAI by wiring those funds to an account of LAI at the Bank to use to fund mortgage loans to be made by the plaintiff, only to have LAI not use those funds for their intended purpose. The action was commenced in August 2005. In November 2005, the plaintiff amended its complaint to add the Bank as a defendant. The plaintiff amended its complaint again and the Bank moved to dismiss the claims. In February 2007, the court dismissed two of the claims against the Bank but allowed the Plaintiff to proceed and conduct discovery with respect to two claims, one for negligence and the other for conversion.

The amended complaint requests monetary damages against the Bank of $1,817,041. The Bank intends to defend aggressively the amended claims and has referred the litigation to its insurance carrier, which has indicated that the claims asserted against the Bank are covered by insurance. The Bank has also asserted cross-claims against various former customers, principals of those customers, and other related persons on the grounds that if the Bank is held liable to the plaintiff, then the liability is the result of the misdeeds or negligence of those other parties. Pre-trial discovery among the parties is in process.

VSB Bancorp, Inc., is not involved in any pending legal proceedings. The Bank, from time to time, is involved in routine collection proceedings in the ordinary course of business on loans in default. Management believes that such other routine legal proceedings in the aggregate are immaterial to our financial condition or results of operations.

Item 4 – Submission of Matters to a Vote of Security Holders

No matters were submitted to security holders for a vote during the period from January 1, 2008 through March 31, 2008. VSB Bancorp, Inc. held its fifth Annual Meeting of Stockholders on April 29, 2008 at its principal office, 4142 Hylan Boulevard, Staten Island, New York 10308 at 5:00 P.M. At that meeting, 1,649,631 shares of the capital stock of the Company were represented in person or by proxy, being 86.8% of all outstanding shares of the capital stock of the Company, with a quorum being present. The Annual Meeting was held for the purpose of voting on two proposals, with the results of the voting as follows:


	1.	The election of three directors for three-year terms:


Director Elected	Votes For		Percentage of shares voted			Votes Withheld		Percentage of shares voted


Raffaele M. Branca		1,601,327		97.1	%		48,304		2.9	%
Robert S. Cutrona, Sr.		1,602,536		97.1	%		47,095		2.9	%
Chaim Farkas		1,603,118		97.2	%		46,513		2.8	%


	No other persons received any votes.

	The following directors continued as directors of the Company: Alfred C. Johnsen, Carlos Perez MD, Bruno Savo, Joseph J. LiBassi, Merton Corn and Joan Nerlino Caddell.

	2.	The ratification of the appointment of Crowe Chizek and Company LLC as our independent public accountants for the fiscal year ending December 31, 2008.


Votes For	Percentage of shares voted			Votes Against		Percentage of shares voted			Proxies marked Abstained


1,589,823		99.2	%		12,917		0.8	%		46,891

There were no broker non-votes.

Signature Page

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VSB Bancorp, Inc.

Date: May 14, 2008	/s/ Raffaele M. Branca

	Raffaele M. Branca
	President and Chief Executive Officer

EXHIBIT INDEX


Exhibit Number		Description of Exhibit

31.1		Rule 13A-14(a)/15D-14(a) Certification of Chief Executive Officer
31.2		Rule 13A-14(a)/15D-14(a) Certification of Chief Financial Officer
32.1		Certification by CEO pursuant to 18 U.S.C. 1350.
32.2		Certification by CFO pursuant to 18 U.S.C. 1350.



Item 6 - Exhibits

Exhibit Number		Description of Exhibit

31.1		Rule 13A-14(a)/15D-14(a) Certification of Chief Executive Officer
31.2		Rule 13A-14(a)/15D-14(a) Certification of Chief Financial Officer
32.1		Certification by CEO pursuant to 18 U.S.C. 1350.
32.2		Certification by CFO pursuant to 18 U.S.C. 1350.