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VSB Bancorp, Inc. Second Quarter 2014 Results of Operations

STATEN ISLAND, NY -- (Marketwired) -- 07/09/14 -- VSB Bancorp, Inc. (OTCQB: VSBN) reported net income of $296,535 for the second quarter of 2014, an increase of $73,466, or 32.9%, from the second quarter of 2013. The following unaudited figures were released today. Pre-tax income was $546,643 in the second quarter of 2014, compared to $411,241 for the second quarter of 2013. Net income for the quarter was $296,535, or basic income of $0.17 per common share, compared to a net income of $223,069, or $0.13 basic income per common share, for the quarter ended June 30, 2013. Return on average assets increased from 0.26% in the second quarter of 2013 to 0.41% in the second quarter of 2014, while return on average equity increased from 2.64% to 4.21%.

VSB Bancorp, Inc. is implementing a strategy to increase interest income while not taking excessive interest rate risk in the event that market interest rates increase. This strategy comprises a number of components. We have redeployed a portion of our overnight and short term investments into higher yielding securities investments. We are also aggressively seeking to increase our loan portfolio through a combination of outreach efforts in our community, seeking prudent loans through high quality mortgage brokers, and contacting other banks to seek to acquire participating interests in loans that the other banks originate. Additionally, we are actively seeking to expand our business development department as we look to broaden our lending into the areas outside of Staten Island.

The $73,466 increase in net income was due to an increase in non-interest income of $20,892, and a decrease in non-interest expense of $128,734, partially offset by an increase in the provision for income taxes of $61,936 and an increase in the provision for loan loss of $15,000.

Net interest income was relatively flat for the second quarter of 2014 because our interest income decreased by $28,478, while our cost of funds decreased by $29,254. The decline in interest income resulted from a $234,565 decrease in interest income from loans principally due to a $6.5 million decrease in the average balance of loans and a 31 basis point decrease in yield from the second quarter of 2013 to the second quarter of 2014. This was partially offset by a $224,707 increase in income from investment securities due to a $41.4 million increase in average balance between the periods and a 2 basis point increase in yield, as new securities were purchased at market rates at or above the rates on securities repaid or matured, between the periods.

Interest income from other interest earning assets (principally overnight investments) decreased by $18,620 due to a $31.2 million decrease in average balance. Overall, average interest-earning assets increased by $3.7 million from the second quarter of 2013 to the second quarter of 2014.

The decrease in interest expense was principally due to a $43,072 decrease in interest on time accounts, as the average cost declined by 15 basis points and the average balance between periods decreased by $12.2 million. Average demand deposits, an interest free source of funds for us to invest, increased $11.2 million, or 12.6%, from the second quarter of 2013, representing approximately 39% of average total deposits for the second quarter of 2014. Average interest-bearing deposits decreased by $7.5 million, resulting in an overall $3.5 million increase in average total deposits from the second quarter of 2013 to the second quarter of 2014.

The average yield on earning assets increased by 2 basis points and the average cost of funds declined by 5 basis points, from the second quarter of 2013 to the second quarter of 2014. The decline in the cost of funds was driven principally by the decline in the rate we paid on time accounts and a decline in the balance of time accounts as a percentage of total interest-bearing deposits from 57.7% during the second quarter of 2013 to 42.7% during the second quarter of 2014. Time accounts are our highest cost deposit category. These factors that reduced our cost of funds were partially offset by the 8 basis point increase in the cost of saving account deposits. Our interest rate margin increased by 6 basis points from 2.66% to 2.72% when comparing the second quarter of 2014 to the same quarter in 2013, while our interest rate spread increased by 7 basis points from 2.46% to 2.53%. The spread and margin both increased because of the combined effect of the rise in earnings we were able to obtain on our investments securities, the decreased average balance of low yielding other interest-earning assets partially offset by the adverse effect of the non-receipt of interest received on non-performing loans. These increases were complemented by corresponding declines in the cost of deposits because the rates we paid on deposits were low due to low markets rates.

Non-interest income increased by $20,892 to $661,830 in the second quarter of 2014, from $640,938 in the same quarter in 2013. The most significant component of the increase was an $81,181 rise in service charges on deposits, which consist mainly of insufficient fund fees that are inherently volatile, and are based upon the number of items being presented for payment against insufficient funds. This increase was partially offset by a $47,024 decrease in other income, due primarily to receipt of $36,394 on our business interruption claim related to Superstorm Sandy.

Comparing the second quarter of 2014 with the same quarter in 2013, non-interest expense decreased by $128,734, totaling $2.0 million for the second quarter of 2014. Non-interest expense decreased for various business reasons including a $44,273 decrease in salary and benefit costs due to acceleration of stock benefits due to a retirement and the accrual for severance expenses in the 2013 period, a $10,400 decrease in director fees due to a lower number of meetings and a $139,291 decrease in other non-interest expenses due to: (i) $59,972 writedown of OREO in the 2013 period; (ii) $21,434 in decreased costs of regulatory filings and associated costs, as we completed the deregistering of our Bancorp in 2014; (ii) $18,592 in reduced ATM Fees due to a switch in vendor and reduction of expenses; (iii) $17,862 in reduced OREO costs; and (iv) $16,379 in reduced advertising expenses. The reductions were partially offset by a $43,078 increase in legal fees due to due to costs of litigation for a potential branch site and a higher level of collection costs in 2014.

Total assets decreased to $285.4 million at June 30, 2014, a decrease of $11.8 million, or 4.0%, from December 31, 2013. The significant component of this decrease was a $19.5 million decrease in cash and other liquid assets, partially offset by a $10.0 million increase in investment securities. Our non-performing loans increased from $4.2 million at December 31, 2013 to $4.8 million at June 30, 2014, due primarily to a delinquent loan that is expected to be refinanced in the third quarter of 2014. Total deposits, including escrow deposits, decreased to $255.9 million, a decrease of $12.7 million, or 4.7%. The decrease was primarily attributable to large withdrawals from two customers that re-deployed their deposits into non-bank investments. We had decreases of $11.9 million in time deposits, $3.3 million in NOW accounts, and $892,817 in money market accounts, partially offset by increases of $2.7 million in savings deposits and $628,051 in demand and checking deposits from year end 2013. Our total stockholders' equity increased by $594,240 as the growth of retained earnings, the positive re-evaluation of our available for sale portfolio, and the amortization of our ESOP loan were partially offset by the increase in treasury shares due to the repurchase of 364 shares of common stock in our announced third stock repurchase program. The Bancorp's Tier 1 capital ratio was 9.53% at June 30, 2014.

For the first six months of 2014, pre-tax income increased to $997,739 from $798,114 for the first six months of 2013, a rise of $199,625, or 25.0%. Net income for the six months ended June 30, 2014 was $541,260, or basic net income of $0.30 per common share, as compared to a net income of $432,940, or basic net income of $0.24 per common share, for the six months ended June 30, 2013. The $108,320 increase in net income for the six months ended June 30, 2014 was attributable principally to a $100,335 increase in net interest income, a $95,847 reduction in non-interest expenses and a $38,443 increase in non-interest income, partially offset by a $35,000 increase in the provision for loan losses. The decrease in non-interest expense of $95,847 was due primarily to (i) $87,923 in costs of holding real estate acquired in foreclosure in the 2013 period compared to none in the first six months of 2014; (ii) a $57,571 decrease in employee salary and benefit costs due to the acceleration of stock benefits resulting from a retirement and employee termination expenses in the 2013 period; and (iii) a $36,262 in decreased costs of regulatory filings and associated costs. These decreases were partially offset by a $76,280 increase in legal fees due to ongoing litigation; collection costs and a 2013 recovery of a past due loan on which the legal fees had been expensed; a $44,284 increase in occupancy expenses due to higher costs of repairs and maintenance. Income tax expense increased $91,305 due to the $199,625 increase in pre-tax income. The net interest margin increased by 3 basis points to 2.75% for the six months ended June 30, 2014 from 2.72% in the same period in 2013, as the yield on our investment securities rose and we had a lower level of overnight deposits. Average interest earning assets, for the six months ended June 30, 2014, increased by $7.4 million, or 2.7%, from the same period in 2013.

Raffaele (Ralph) M. Branca, VSB Bancorp, Inc.'s President and CEO, stated, "The expansion of our investment portfolio and our expense control have led to greater earnings in this quarter. We are employing different venues to generate additional loan production as well as looking for additional loan participations." Joseph J. LiBassi, VSB Bancorp, Inc.'s Chairman, stated, "We reported a 33% increase in net income from the 2013 period. We paid our twenty-seventh consecutive dividend to our stockholders, continued buying back our shares, and now our book value per share stands at $15.08. We are always looking for additional opportunities to increase stockholder value and to provide the best in personal service to our customers."

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 $28.1 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).


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
                              June 30, 2014

                                                  June 30,     December 31,
                                                    2014           2013
                                               -------------  -------------


Cash and cash equivalents                      $  46,034,891  $  65,562,635
Investment securities, available for sale         66,853,770     57,517,211
Investment securities, held to maturity           97,827,284     97,146,039
Loans receivable                                  71,177,411     73,081,310
 Allowance for loan loss                          (1,015,584)    (1,093,788)
                                               -------------  -------------
   Loans receivable, net                          70,161,827     71,987,522
Bank premises and equipment, net                   1,981,423      1,992,527
Accrued interest receivable                          592,806        539,092
Other assets                                       1,904,721      2,391,082
                                               -------------  -------------
    Total assets                               $ 285,356,722  $ 297,136,108
                                               =============  =============

Liabilities and stockholders' equity:

  Demand and checking                          $  97,268,620  $  96,640,569
  NOW                                             29,707,033     32,989,791
  Money market                                    41,182,484     42,075,301
  Savings                                         26,764,420     24,075,184
  Time                                            60,684,080     72,538,100
                                               -------------  -------------
    Total Deposits                               255,606,637    268,318,945
Escrow deposits                                      260,658        235,633
Accounts payable and accrued expenses              1,362,439      1,048,782
                                               -------------  -------------
    Total liabilities                            257,229,734    269,603,360
                                               -------------  -------------

Stockholders' equity:
Common stock, ($.0001 par value, 10,000,000
 shares authorized, 2,078,509 issued, 1,865,345
 outstanding at June 30, 2014 and 1,780,109 at
 December 31, 2013)                                      208            199
Additional paid in capital                        10,407,107      9,364,950
Retained earnings                                 20,288,564     19,960,933
Treasury stock, at cost (213,164 shares at June
 30, 2014 and 209,400 at December 31, 2013)       (2,164,432)    (2,123,546)
Unearned ESOP shares                                (984,563)       (56,360)
Accumulated other comprehensive gain, net of
 taxes of $489,212 and $326,003, respectively        580,104        386,572
                                               -------------  -------------

    Total stockholders' equity                    28,126,988     27,532,748
                                               -------------  -------------

    Total liabilities and stockholders' equity $ 285,356,722  $ 297,136,108
                                               =============  =============

                             VSB Bancorp, Inc.
                   Consolidated Statements of Operations
                               June 30, 2014

                                 Three       Three
                                months      months    Six months  Six months
                                 ended       ended       ended       ended
                               June 30,    June 30,    June 30,    June 30,
                                 2014        2013        2014        2013
                              ----------  ----------  ----------  ----------
Interest and dividend income:
  Loans receivable            $1,191,991  $1,426,556  $2,454,831  $2,825,697
  Investment securities          870,847     646,140   1,721,799   1,276,051
  Other interest earning
   assets                         24,914      43,534      55,357      84,059
                              ----------  ----------  ----------  ----------
    Total interest income      2,087,752   2,116,230   4,231,987   4,185,807

Interest expense:
  NOW                             12,538      16,870      26,306      32,193
  Money market                    59,596      49,519     115,993     100,115
  Savings                         27,502      19,429      53,578      37,933
  Time                            74,160     117,232     166,032     245,823
                              ----------  ----------  ----------  ----------
    Total interest expense       173,796     203,050     361,909     416,064

Net interest income            1,913,956   1,913,180   3,870,078   3,769,743
Provision for loan loss           30,000      15,000     170,000     135,000
                              ----------  ----------  ----------  ----------
    Net interest income after
     provision for loan loss   1,883,956   1,898,180   3,700,078   3,634,743

Non-interest income:
  Loan fees                         (942)     11,276      16,432      23,733
  Service charges on deposits    593,061     511,880   1,145,967   1,020,631
  Net rental income               17,203      18,250      27,645      35,236
  Other income                    52,508      99,532      99,938     171,939
                              ----------  ----------  ----------  ----------
    Total non-interest income    661,830     640,938   1,289,982   1,251,539

Non-interest expenses:
  Salaries and benefits          957,448   1,001,721   1,893,513   1,951,084
  Occupancy expenses             338,316     326,602     698,629     654,345
  Legal expense                   94,376      51,298     189,440     113,160
  Professional fees               79,419      82,200     180,636     170,972
  Computer expense                92,267      79,048     170,423     152,823
  Director fees                   57,500      67,900     122,800     124,250
  FDIC and NYSBD assessments      58,000      58,000     122,500     115,000
  Other expenses                 321,817     461,108     614,380     806,534
                              ----------  ----------  ----------  ----------
    Total non-interest
     expenses                  1,999,143   2,127,877   3,992,321   4,088,168

      Income before income
       taxes                     546,643     411,241     997,739     798,114
                              ----------  ----------  ----------  ----------

Provision (benefit) for income
  Current                        253,513      99,330     498,442     101,623
  Deferred                        (3,405)     88,842     (41,963)    263,551
                              ----------  ----------  ----------  ----------
    Total provision for income
     taxes                       250,108     188,172     456,479     365,174

        Net income            $  296,535  $  223,069  $  541,260  $  432,940
                              ==========  ==========  ==========  ==========

Basic net income per common
 share                        $     0.17  $     0.13  $     0.30  $     0.24
                              ==========  ==========  ==========  ==========

Diluted net income per share  $     0.17  $     0.13  $     0.30  $     0.24
                              ==========  ==========  ==========  ==========

Book value per common share   $    15.08  $    15.29  $    15.08  $    15.29
                              ==========  ==========  ==========  ==========

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

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