| x                                               | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-------------------------------------------------|-----------------------------------------------------------------------------------------|
|   FOR THE QUARTER ENDED SEPTEMBER 30, 2010 |
|                                            |                                                                                    |
| o                                               | TRANSITION REPORT PURSUANT TO SECTION 13 OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD  |

| VSB Bancorp, Inc.                                              |
|----------------------------------------------------------------|
| (Exact name of registrant as specified 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                                                 |
| Registrant’s telephone number                            |
|                                                           |
| Common Stock                                                   |
| (Title of Class)                                               |

| Large Accelerated Filer o |   | Accelerated Filer o |   | Non-Accelerated Filer o |   | Smaller Reporting Company x |
|--------------------------------|--------|--------------------------|--------|-------------------------|--------|-----------------------------|

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|           |                                                                                                                                                           |   | Page     |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
|   PART I  |                                                                                                                                                           |   |
|           |                                                                                                                                                           |   |     |
| Item 1         | Consolidated Statements of Financial Condition as of September 30, 2010 and December 31, 2009 (unaudited)                                                      |   | 4        |
|           | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)                                              |   | 5        |
|           | Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2010 and the Year Ended December 31, 2009 (unaudited) |   | 6        |
|           | Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)                                              |   | 7        |
|           | Notes to Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)                                         |   | 8 to 19  |
|           |                                                                                                                                                           |   |     |
| Item 2         | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                    |   | 19 to 32 |
| Item 3         | Control and Procedures                                                                                                                                         |   | 32       |
|           |                                                                                                                                                           |   |     |
| PART II        |                                                                                                                                                           |   |
|           |                                                                                                                                                           |   |     |
| Item 1         | Legal Proceedings                                                                                                                                              |   | 33       |
|           |                                                                                                                                                           |   |
| Signature Page |                                                                                                                                                           | 34     |
|           |                                                                                                                                                           |   |
|           | Exhibit 31.1, 31.2, 32.1, 32.2                                                                                                                                 |   | 35 to 38 |

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|   | ! | 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 the public’s perception of financial institutions in general and banks in particular;                                                                                                                              |
|   | ! | changes in competition; and                                                                                                                                                                                                         |
|   | ! | changes in consumer preferences by our customers or the customers of our business borrowers.                                                                                                                                        |

----

Consolidated Statements of Financial Condition

|                                                                                                                                                                                         |   | September 30, |        |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|--------|--------------|--------|
|                                                                                                                                                                                         |   | 2010          |        |   | 2009         |   |
|                                                                                                                                                                                         |   |          |        |   |         |   |
| Assets:                                                                                                                                                                                      |   |          |        |   |         |   |
| Cash and due from banks                                                                                                                                                                      |   | $             | 48,172,249  |   |         | $      | 39,716,919 |   |
| Investment securities, available for sale                                                                                                                                                    |   |          | 111,825,511 |   |         |   | 113,912,404 |   |
| Loans receivable                                                                                                                                                                             |   |          | 78,991,268  |   |         |   | 78,834,156 |   |
| Allowance for loan loss                                                                                                                                                                      |   |          | (1,246,245  | )      |         |   | (1,063,454 | ) |
| Loans receivable, net                                                                                                                                                                        |   |          | 77,745,023  |   |         |   | 77,770,702 |   |
| Bank premises and equipment, net                                                                                                                                                             |   |          | 2,815,726   |   |         |   | 3,204,063 |   |
| Accrued interest receivable                                                                                                                                                                  |   |          | 613,366     |   |         |   | 722,228 |   |
| Other assets                                                                                                                                                                                 |   |          | 1,485,615   |   |         |   | 1,673,556 |   |
| Total assets                                                                                                                                                                                 |   | $             | 242,657,490 |   |         | $      | 236,999,872 |   |
| Liabilities and stockholders’ equity:                                                                                                                                                  |   |          |        |   |         |   |   |   |
| Liabilities:                                                                                                                                                                                 |   |          |        |   |         |   |   |   |
| Deposits:                                                                                                                                                                                    |   |          |        |   |         |   |   |   |
| Demand and checking                                                                                                                                                                          |   | $             | 70,380,356  |   |         | $      | 70,372,448 |   |
| NOW                                                                                                                                                                                          |   |          | 36,535,651  |   |         |   | 32,501,930 |   |
| Money market                                                                                                                                                                                 |   |          | 25,787,453  |   |         |   | 28,124,315 |   |
| Savings                                                                                                                                                                                      |   |          | 15,213,703  |   |         |   | 15,001,936 |   |
| Time                                                                                                                                                                                         |   |          | 65,466,728  |   |         |   | 64,669,128 |   |
| Total deposits                                                                                                                                                                               |   |          | 213,383,891 |   |         |   | 210,669,757 |   |
| Escrow deposits                                                                                                                                                                              |   |          | 355,811     |   |         |   | 316,329 |   |
| Accounts payable and accrued expenses                                                                                                                                                        |   |          | 2,450,261   |   |         |   | 1,529,837 |   |
| Total liabilities                                                                                                                                                                            |   |          | 216,189,963 |   |         |   | 212,515,923 |   |
|                                                                                                                                                                                         |   |          |        |   |         |   |   |   |
| Stockholders’ equity:                                                                                                                                                                  |   |          |        |   |         |   |   |   |
| Common stock ($.0001 par value, 3,000,000 shares authorized, 1,989,509 issued, 1,840,200 outstanding at September 30, 2010 and 1,945,134 issued, 1,762,191 outstanding at December 31, 2009) |   |          | 199         |   |         |   | 195 |   |
| Additional paid in capital                                                                                                                                                                   |   |          | 9,211,286   |   |         |   | 9,317,719 |   |
| Retained earnings                                                                                                                                                                            |   |          | 17,192,444  |   |         |   | 16,112,741 |   |
| Treasury stock, at cost (149,309 shares at September 30, 2010 and 182,943 shares at December 31, 2009)                                                                                       |   |          | (1,466,575  | )      |         |   | (1,840,249 | ) |
| Unearned Employee Stock Ownership Plan shares                                                                                                                                                |   |          | (605,863    | )      |         |   | (732,672 | ) |
| Accumulated other comprehensive income, net of taxes of $1,801,357 and $1,371,416, respectively                                                                                              |   |          | 2,136,036   |   |         |   | 1,626,215 |   |
| Total stockholders’ equity                                                                                                                                                             |   |          | 26,467,527  |   |         |   | 24,483,949 |   |
|                                                                                                                                                                                         |   |          |        |   |         |   |   |   |
| Total liabilities and stockholders’ equity                                                                                                                                             |   | $             | 242,657,490 |   |         | $      | 236,999,872 |   |

----

Consolidated Statements of Operations

|                                              |   | Three months  |      |   | Three months  |   |      | Nine months   |   |   | Nine months   |   |
|---------------------------------------------------|--------|---------------|-----------|--------|---------------|--------|-----------|---------------|--------|--------|---------------|--------|
|                                              |   | ended         |      |   | ended         |   |      | ended         |   |   | ended         |   |
|                                              |   | Sep. 30, 2010 |      |   | Sep. 30, 2009 |   |      | Sep. 30, 2010 |   |   | Sep. 30, 2009 |   |
| Interest and dividend income:                     |   |          |      |   |          |   |      |          |   |   |          |   |
| Loans receivable                                  |   | $             | 1,492,206 |   |          | $      | 1,360,529 |          |   | $      | 4,333,693     |   |   | $ | 4,014,424 |   |
| Investment securities                             |   |          | 1,089,101 |   |          |   | 1,252,213 |          |   |   | 3,375,355     |   |   |   | 3,949,499 |   |
| Other interest earning assets                     |   |          | 16,709    |   |          |   | 11,199    |          |   |   | 39,599        |   |   |   | 21,633 |   |
| Total interest income                             |   |          | 2,598,016 |   |          |   | 2,623,941 |          |   |   | 7,748,647     |   |   |   | 7,985,556 |   |
| Interest expense:                                 |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| NOW                                               |   |          | 42,915    |   |          |   | 37,685    |          |   |   | 123,515       |   |   |   | 100,458 |   |
| Money market                                      |   |          | 58,250    |   |          |   | 63,044    |          |   |   | 183,754       |   |   |   | 186,499 |   |
| Savings                                           |   |          | 11,978    |   |          |   | 12,186    |          |   |   | 35,567        |   |   |   | 38,507 |   |
| Time                                              |   |          | 136,333   |   |          |   | 202,074   |          |   |   | 444,343       |   |   |   | 733,391 |   |
| Total interest expense                            |   |          | 249,476   |   |          |   | 314,989   |          |   |   | 787,179       |   |   |   | 1,058,855 |   |
|                                              |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| Net interest income                               |   |          | 2,348,540 |   |          |   | 2,308,952 |          |   |   | 6,961,468     |   |   |   | 6,926,701 |   |
| Provision for loan loss                           |   |          | 15,000    |   |          |   | 75,000    |          |   |   | 125,000       |   |   |   | 450,000 |   |
| Net interest income after provision for loan loss |   |          | 2,333,540 |   |          |   | 2,233,952 |          |   |   | 6,836,468     |   |   |   | 6,476,701 |   |
| Non-interest income:                              |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| Loan fees                                         |   |          | 18,383    |   |          |   | 19,359    |          |   |   | 37,238        |   |   |   | 69,883 |   |
| Service charges on deposits                       |   |          | 559,728   |   |          |   | 528,203   |          |   |   | 1,651,448     |   |   |   | 1,612,252 |   |
| Net rental income                                 |   |          | 14,950    |   |          |   | 13,965    |          |   |   | 41,199        |   |   |   | 38,049 |   |
| Other income                                      |   |          | 42,814    |   |          |   | 35,557    |          |   |   | 129,175       |   |   |   | 105,152 |   |
| Total non-interest income                         |   |          | 635,875   |   |          |   | 597,084   |          |   |   | 1,859,060     |   |   |   | 1,825,336 |   |
| Non-interest expenses:                            |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| Salaries and benefits                             |   |          | 1,018,505 |   |          |   | 920,478   |          |   |   | 2,972,763     |   |   |   | 2,744,206 |   |
| Occupancy expenses                                |   |          | 358,718   |   |          |   | 372,965   |          |   |   | 1,084,114     |   |   |   | 1,125,288 |   |
| Legal expense                                     |   |          | 53,443    |   |          |   | 47,164    |          |   |   | 230,224       |   |   |   | 181,660 |   |
| Professional fees                                 |   |          | 68,000    |   |          |   | 78,000    |          |   |   | 194,850       |   |   |   | 230,500 |   |
| Computer expense                                  |   |          | 66,020    |   |          |   | 70,046    |          |   |   | 198,572       |   |   |   | 207,742 |   |
| Directors’ fees                             |   |          | 59,475    |   |          |   | 55,500    |          |   |   | 179,000       |   |   |   | 167,275 |   |
| FDIC and NYSBD assessments                        |   |          | 105,000   |   |          |   | 102,000   |          |   |   | 304,000       |   |   |   | 279,000 |   |
| Other expenses                                    |   |          | 305,864   |   |          |   | 303,661   |          |   |   | 948,558       |   |   |   | 939,279 |   |
| Total non-interest expenses                       |   |          | 2,035,025 |   |          |   | 1,949,814 |          |   |   | 6,112,081     |   |   |   | 5,874,950 |   |
| Income before income taxes                        |   |          | 934,390   |   |          |   | 881,222   |          |   |   | 2,583,447     |   |   |   | 2,427,087 |   |
| Provision/(benefit) for income taxes:             |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| Current                                           |   |          | 453,982   |   |          |   | 407,432   |          |   |   | 1,241,092     |   |   |   | 1,283,635 |   |
| Deferred                                          |   |          | (26,453   | )      |          |   | (679      | )             |   |   | (59,104       | )      |   |   | (163,365 | ) |
| Total provision for income taxes                  |   |          | 427,529   |   |          |   | 406,753   |          |   |   | 1,181,988     |   |   |   | 1,120,270 |   |
| Net income                                        |   | $             | 506,861   |   |          | $      | 474,469   |          |   | $      | 1,401,459     |   |   | $ | 1,306,817 |   |
| Earnings per share:                               |   |          |      |   |          |   |      |          |   |   |          |   |   |   |   |   |
| Basic                                             |   | $             | 0.28      |   |          | $      | 0.26      |          |   | $      | 0.79          |   |   | $ | 0.72 |   |
| Diluted                                           |   | $             | 0.28      |   |          | $      | 0.26      |          |   | $      | 0.79          |   |   | $ | 0.72 |   |
| Comprehensive income                              |   | $             | 611,445   |   |          | $      | 989,054   |          |   | $      | 1,911,280     |   |   | $ | 2,727,125 |   |
| Book value per common share                       |   | $             | 14.38     |   |          | $      | 13.69     |          |   | $      | 14.38         |   |   | $ | 13.69 |   |

----

Consolidated Statements of Changes in Stockholders’ Equity

|                                                                           |   | Number of   |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          | Accumulated   |   |   |                |   |
|--------------------------------------------------------------------------------|--------|-------------|---------------|--------|--------|--------|---------------|------------|--------|--------|---------------|--------|--------|----------|---------------|--------|----------|--------|---------------|---------------|--------|--------|---------------------|--------|
|                                                                           |   | Common      |          |   |   |   |          | Additional |   |   |          |   |   | Treasury |          |   | Unearned |   |          | Other         |   |   | Total               |   |
|                                                                           |   | Shares      |          |   | Common |   |          | Paid-In    |   |   | Retained      |   |   | Stock,   |          |   | ESOP     |   |          | Comprehensive |   |   | Stockholders’ |   |
|                                                                           |   | Outstanding |          |   | Stock  |   |          | Capital    |   |   | Earnings      |   |   | at cost  |          |   | Shares   |   |          | Income        |   |   | Equity              |   |
|                                                                           |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |
| Balance at January 1, 2009                                                     |   |        | 1,882,461     |   |   | $      | 192           |       |   | $      | 9,200,010     |   |   | $        | 14,714,143    |   |     | $      | (395,891      | )             |   | $      | (901,750            | )      |   | $ | 587,063 |   |   | $ | 23,203,767 |   |
|                                                                           |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Exercise of stock option, including tax benefit                                |   |        | 21,250        |   |   |   | 3             |       |   |   | 118,624       |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 118,627 |   |
| Stock-based compensation                                                       |   |        |          |   |   |   |          |       |   |   | 1,278         |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 1,278 |   |
| Amortization of earned portion of ESOP common stock                            |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   | 169,078             |   |   |   |   |   |   |   | 169,078 |   |
| Amortization of cost over fair value - ESOP                                    |   |        |          |   |   |   |          |       |   |   | (2,193        | )      |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | (2,193 | ) |
| Cash dividends declared ($0.24 per share)                                      |   |        |          |   |   |   |          |       |   |   |          |   |   |     | (423,679      | )      |     |   |          |          |   |   |                |   |   |   |   |   |   |   | (423,679 | ) |
| Purchase of treasury stock, at cost                                            |   |        | (141,520      | )      |   |   |          |       |   |   |          |   |   |     |          |   |     |   | (1,444,358    | )             |   |   |                |   |   |   |   |   |   |   | (1,444,358 | ) |
| Comprehensive income:                                                          |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Net income                                                                     |   |        |          |   |   |   |          |       |   |   |          |   |   |     | 1,822,277     |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 1,822,277 |   |
| Other comprehensive income, net:                                               |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Change in unrealized gain on securities available for sale, net of tax effects |   |        |  — |   |   |   |  — |       |   |   |  — |   |   |     |  — |   |     |   |  — |          |   |   |  —       |   |   |   |  1,039,152 |   |   |   |  1,039,152 |   |
| Total comprehensive income                                                     |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |  2,861,429 |   |
|                                                                           |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2009                                                   |   |        | 1,762,191     |   |   | $      | 195           |       |   | $      | 9,317,719     |   |   | $        | 16,112,741    |   |     | $      | (1,840,249    | )             |   | $      | (732,672            | )      |   | $ | 1,626,215 |   |   | $ | 24,483,949 |   |
|                                                                           |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Exercise of stock option, including tax benefit                                |   |        | 44,375        |   |   |   | 4             |       |   |   | 292,207       |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 292,211 |   |
| Stock-based compensation                                                       |   |        |          |   |   |   |          |       |   |   | 47,183        |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 47,183 |   |
| Amortization of earned portion of ESOP common stock                            |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   | 126,809             |   |   |   |   |   |   |   | 126,809 |   |
| Amortization of cost over fair value - ESOP                                    |   |        |          |   |   |   |          |       |   |   | (50,237       | )      |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | (50,237 | ) |
| Cash dividends declared ($0.18 per share)                                      |   |        |          |   |   |   |          |       |   |   |          |   |   |     | (321,756      | )      |     |   |          |          |   |   |                |   |   |   |   |   |   |   | (321,756 | ) |
| Purchase of treasury stock, at cost                                            |   |        | (1,866        | )      |   |   |          |       |   |   |          |   |   |     |          |   |     |   | (21,912       | )             |   |   |                |   |   |   |   |   |   |   | (21,912 | ) |
| Contribution to RRP Trust from treasury shares                                 |   |        | 35,500        |   |   |   |          |       |   |   | (395,586      | )      |   |     |          |   |     |   | 395,586       |          |   |   |                |   |   |   |   |   |   |   | — |   |
| Comprehensive income:                                                          |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Net income                                                                     |   |        |          |   |   |   |          |       |   |   |          |   |   |     | 1,401,459     |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 1,401,459 |   |
| Other comprehensive income, net:                                               |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Change in unrealized gain on securities available for sale, net of tax effects |   |        | —       |   |   |   | —       |       |   |   | —       |   |   |     | —       |   |     |   | —       |          |   |   | —             |   |   |   | 509,821 |   |   |   | 509,821 |   |
| Total comprehensive income                                                     |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   | 1,911,280 |   |
|                                                                           |   |        |          |   |   |   |          |       |   |   |          |   |   |     |          |   |     |   |          |          |   |   |                |   |   |   |   |   |   |   |   |   |
| Balance at September 30, 2010                                                  |   |        | 1,840,200     |   |   | $      | 199           |       |   | $      | 9,211,286     |   |   | $        | 17,192,444    |   |     | $      | (1,466,575    | )             |   | $      | (605,863            | )      |   | $ | 2,136,036 |   |   | $ | 26,467,527 |   |

----

Consolidated Statements of Cash Flows

|                                                                             |   | Three months  |        |   | Three months  |   |        | Nine months   |   |   | Nine months   |   |
|----------------------------------------------------------------------------------|--------|---------------|-------------|--------|---------------|--------|-------------|---------------|--------|--------|---------------|--------|
|                                                                             |   | ended         |        |   | ended         |   |        | ended         |   |   | ended         |   |
|                                                                             |   | Sep. 30, 2010 |        |   | Sep. 30, 2009 |   |        | Sep. 30, 2010 |   |   | Sep. 30, 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                            |   |          |        |   |          |   |        |          |   |   |          |   |
| Net income                                                                       |   | $             | 506,861     |   |          | $      | 474,469     |          |   | $      | 1,401,459     |   |   | $ | 1,306,817 |   |
| Adjustments to reconcile net income to net cash provided by operating activities |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| Depreciation and amortization                                                    |   |          | 147,390     |   |          |   | 163,910     |          |   |   | 449,156       |   |   |   | 502,691 |   |
| Accretion of income, net of amortization of premium                              |   |          | 12,478      |   |          |   | (1,422      | )             |   |   | 21,753        |   |   |   | (15,943 | ) |
| ESOP compensation expense                                                        |   |          | 25,085      |   |          |   | 26,521      |          |   |   | 76,572        |   |   |   | 68,695 |   |
| Stock-based compensation expense                                                 |   |          | 23,789      |   |          |   | 320         |          |   |   | 47,183        |   |   |   | 959 |   |
| Provision for loan losses                                                        |   |          | 15,000      |   |          |   | 75,000      |          |   |   | 125,000       |   |   |   | 450,000 |   |
| (Increase)/decrease in prepaid and other assets                                  |   |          | (8,578      | )      |          |   | 38,838      |          |   |   | 187,941       |   |   |   | 321,247 |   |
| Decrease in accrued interest receivable                                          |   |          | 5,965       |   |          |   | 5,475       |          |   |   | 108,862       |   |   |   | 18,012 |   |
| Increase in deferred income taxes                                                |   |          | (26,453     | )      |          |   | (679        | )             |   |   | (59,104       | )      |   |   | (163,365 | ) |
| Increase in accrued expenses and other liabilities                               |   |          | 428,232     |   |          |   | 8,596       |          |   |   | 549,588       |   |   |   | 263,632 |   |
| Net cash provided by operating activities                                        |   |          | 1,129,769   |   |          |   | 791,028     |          |   |   | 2,908,410     |   |   |   | 2,752,745 |   |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                            |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| Net change in loan receivable                                                    |   |          | (1,629,610  | )      |          |   | (3,444,888  | )             |   |   | (21,852       | )      |   |   | (6,883,891 | ) |
| Proceeds from repayment of investment securities, available for sale             |   |          | 8,838,964   |   |          |   | 10,362,372  |          |   |   | 27,560,762    |   |   |   | 28,711,718 |   |
| Purchases of investment securities, available for sale                           |   |          | (9,167,708  | )      |          |   | (10,638,412 | )             |   |   | (24,633,330   | )      |   |   | (22,414,623 | ) |
| Purchases of premises and equipment                                              |   |          | (12,548     | )      |          |   | (54,439     | )             |   |   | (60,819       | )      |   |   | (158,613 | ) |
| Net cash (used in)/provided by investing activities                              |   |          | (1,970,902  | )      |          |   | (3,775,367  | )             |   |   | 2,844,761     |   |   |   | (745,409 | ) |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                            |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| Net increase in deposits                                                         |   |          | (12,340,815 | )      |          |   | 2,743,593   |          |   |   | 2,753,616     |   |   |   | 14,457,743 |   |
| Exercise of stock options                                                        |   |          | —     |   |          |   | —     |          |   |   | 292,211       |   |   |   | 118,627 |   |
| Purchase of treasury stock, at cost                                              |   |          | (5,566      | )      |          |   | —     |          |   |   | (21,912       | )      |   |   | (462,972 | ) |
| Cash dividends paid                                                              |   |          | (109,093    | )      |          |   | (108,286    | )             |   |   | (321,756      | )      |   |   | (323,438 | ) |
| Net cash (used in)/provided by financing activities                              |   |          | (12,455,474 | )      |          |   | 2,635,307   |          |   |   | 2,702,159     |   |   |   | 13,789,960 |   |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                             |   |          | (13,296,607 | )      |          |   | (349,032    | )             |   |   | 8,455,330     |   |   |   | 15,797,296 |   |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   |   |          | 61,468,856  |   |          |   | 37,386,551  |          |   |   | 39,716,919    |   |   |   | 21,240,223 |   |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                         |   | $             | 48,172,249  |   |          | $      | 37,037,519  |          |   | $      | 48,172,249    |   |   | $ | 37,037,519 |   |
|                                                                             |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| Cash paid during the period for:                                                 |   |          |        |   |          |   |        |          |   |   |          |   |   |   |   |   |
| Interest                                                                         |   | $             | 249,231     |   |          | $      | 305,803     |          |   | $      | 816,435       |   |   | $ | 1,187,914 |   |
| Taxes                                                                            |   | $             | 633,463     |   |          | $      | 343,542     |          |   | $      | 1,347,868     |   |   | $ | 869,394 |   |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)

----

----

----

----

| Reconciliation of EPS                                                 |   |               |      |   |               |   |
|-----------------------------------------------------------------------|--------|--------------------|-----------|--------|--------------------|--------|
|                                                                  |   | Three months ended |      |   | Three months ended |   |
|                                                                  |   | September 30, 2010 |      |   | September 30, 2009 |   |
| Basic                                                                 |   |               |      |   |               |   |
| Distributed earnings allocated to common stock                        |   | $                  | 106,354   |   |               | $      | 108,553 |   |
| Undistributed earnings allocated to common sock                       |   |               | 390,555   |   |               |   | 365,916 |   |
| Net earnings allocated to common stock                                |   | $                  | 496,909   |   |               | $      | 474,469 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Weighted common shares outstanding including participating securities |   |               | 1,808,066 |   |               |   | 1,809,218 |   |
| Less: Participating securities                                        |   |               | (35,500   | )      |               |   | — |   |
| Weighted average shares                                               |   |               | 1,772,566 |   |               |   | 1,809,218 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Basic EPS                                                             |   | $                  | 0.28      |   |               | $      | 0.26 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Diluted                                                               |   |               |      |   |               |   |   |   |
| Net earnings allocated to common stock                                |   | $                  | 496,909   |   |               | $      | 474,469 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Weighted average shares for basic                                     |   |               | 1,772,566 |   |               |   | 1,809,218 |   |
| Dilutive effects of:                                                  |   |               |      |   |               |   |   |   |
| Stock Options                                                         |   |               | 69        |   |               |   | 19,420 |   |
| Unvested shares not considered particpating securtities               |   |               | —   |   |               |   | — |   |
|                                                                  |   |               | 1,772,635 |   |               |   | 1,828,638 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Diluted EPS                                                           |   | $                  | 0.28      |   |               | $      | 0.26 |   |

----

| Reconciliation of EPS                                                 |   |               |      |   |               |   |
|-----------------------------------------------------------------------|--------|--------------------|-----------|--------|--------------------|--------|
|                                                                  |   | Nine months ended  |      |   | Nine months ended  |   |
|                                                                  |   | September 30, 2010 |      |   | September 30, 2009 |   |
| Basic                                                                 |   |               |      |   |               |   |
| Distributed earnings allocated to common stock                        |   | $                  | 315,804   |   |               | $      | 324,591 |   |
| Undistributed earnings allocated to common sock                       |   |               | 1,071,135 |   |               |   | 982,226 |   |
| Net earnings allocated to common stock                                |   | $                  | 1,386,939 |   |               | $      | 1,306,817 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Weighted common shares outstanding including participating securities |   |               | 1,774,343 |   |               |   | 1,803,281 |   |
| Less: Participating securities                                        |   |               | (19,877   | )      |               |   | — |   |
| Weighted average shares                                               |   |               | 1,754,466 |   |               |   | 1,803,281 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Basic EPS                                                             |   | $                  | 0.79      |   |               | $      | 0.72 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Diluted                                                               |   |               |      |   |               |   |   |   |
| Net earnings allocated to common stock                                |   | $                  | 1,386,939 |   |               | $      | 1,306,817 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Weighted average shares for basic                                     |   |               | 1,754,466 |   |               |   | 1,803,281 |   |
| Dilutive effects of:                                                  |   |               |      |   |               |   |   |   |
| Stock Options                                                         |   |               | 167       |   |               |   | 17,331 |   |
| Unvested shares not considered particpating securtities               |   |               | —   |   |               |   | — |   |
|                                                                  |   |               | 1,754,633 |   |               |   | 1,820,612 |   |
|                                                                  |   |               |      |   |               |   |   |   |
| Diluted EPS                                                           |   | $                  | 0.79      |   |               | $      | 0.72 |   |

----

| For the Nine Months Ended September 30, 2010: |   |   |    |   |
|-----------------------------------------------|--------|--------|---------|--------|
|                                          |   |   |    |   | Weighted Average |   |
|                                          |   | Shares |    |   | Grant Date Share Value |   |
|                                          |   |   |    |   |   |   |
| Non vested at beginning of period             |   |   | — |   |   | $ | — |   |
| Granted                                       |   |   | 35,500  |   |   |   | 11.46 |   |
| Vested                                        |   |   | — |   |   |   |   |   |
| Non vested at end of period                   |   |   | 35,500  |   |   | $ | 11.46 |   |

----

|                                |   |  September 30, 2010 |        |   |       |   |
|-------------------------------------|--------|--------------------------|-------------|--------|------------|--------|
|                                |   | Amortized                |        |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                |   | Cost                     |        |   | Gains      |   |   | Losses |   |   | Value |   |
|                                |   |                     |        |   |       |   |   |   |   |   |   |   |
| FNMA MBS - Residential              |   | $                        | 3,669,895   |   |       | $      | 167,949 |   |   | $ | — |   |   | $ | 3,837,844 |   |
| GNMA MBS - Residential              |   |                     | 1,110,260   |   |       |   | 74,506 |   |   |   | — |   |   |   | 1,184,766 |   |
| Whole Loan MBS - Residential        |   |                     | 1,476,804   |   |       |   | 42,910 |   |   |   | — |   |   |   | 1,519,714 |   |
| Collateralized mortgage obligations |   |                     | 101,631,159 |   |       |   | 3,652,028 |   |   |   | — |   |   |   | 105,283,187 |   |
|                                |   | $                        | 107,888,118 |   |       | $      | 3,937,393 |   |   | $ | — |   |   | $ | 111,825,511 |   |

----

|                                |   |  December 31, 2009 |        |   |       |   |
|-------------------------------------|--------|-------------------------|-------------|--------|------------|--------|
|                                |   | Amortized               |        |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                |   | Cost                    |        |   | Gains      |   |   | Losses |   |   | Value |   |
|                                |   |                    |        |   |       |   |   |   |   |   |   |   |
| FNMA MBS - Residential              |   | $                       | 4,855,213   |   |       | $      | 185,607 |   |   | $ | — |   |   | $ | 5,040,820 |   |
| GNMA MBS - Residential              |   |                    | 1,265,428   |   |       |   | 55,812 |   |   |   | — |   |   |   | 1,321,240 |   |
| Whole Loan MBS - Residential        |   |                    | 1,860,603   |   |       |   | 15,135 |   |   |   | (18,845 | ) |   |   | 1,856,893 |   |
| Collateralized mortgage obligations |   |                    | 102,933,529 |   |       |   | 3,085,224 |   |   |   | (325,302 | ) |   |   | 105,693,451 |   |
|                                |   | $                       | 110,914,773 |   |       | $      | 3,341,778 |   |   | $ | (344,147 | ) |   | $ | 113,912,404 |   |

|                                   |   | September 30, 2010 |        |
|----------------------------------------|--------|--------------------|-------------|
| Securities, Available for Sale         |   | Amortized          |        |   | Fair |   |
| Expected Maturity                      |   | Cost               |        |   | Value |   |
| Less than one year                     |   | $                  | 644,248     |   |   | $ | 655,337 |   |
| Due after one year through five years  |   |               | 2,046,552   |   |   |   | 2,085,394 |   |
| Due after five years through ten years |   |               | 32,449,412  |   |   |   | 34,059,004 |   |
| Due after ten years                    |   |               | 72,747,906  |   |   |   | 75,025,776 |   |
|                                   |   | $                  | 107,888,118 |   |   | $ | 111,825,511 |   |

| December 31, 2009                   |   | Less than 12 months |       |   | More than 12 months |   |     | Total  |
|-------------------------------------|--------|---------------------|------------|--------|---------------------|--------|----------|--------|
|                                |   | Fair                |       |   | Unrealized          |   |     | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                |   | Value               |       |   | Loss                |   |     | Value  |   |   | Loss |   |   | Value |   |   | Loss |   |
|                                |   |                |       |   |                |   |     |   |   |   |   |   |   |   |   |   |   |   |
| FNMA MBS                            |   | $                   | —    |   |                | $      | —  |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| GNMA MBS                            |   |                | —    |   |                |   | —  |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Whole Loan MBS                      |   |                | —    |   |                |   | —  |   |   |   | 433,666 |   |   |   | (18,845 | ) |   |   | 433,666 |   |   |   | (18,845 | ) |
| Collateralized mortgage obligations |   |                | 10,036,242 |   |                |   | (280,961 | )      |   |   | 1,750,950 |   |   |   | (44,341 | ) |   |   | 11,787,192 |   |   |   | (325,302 | ) |
|                                |   | $                   | 10,036,242 |   |                | $      | (280,961 | )      |   | $ | 2,184,616 |   |   | $ | (63,186 | ) |   | $ | 12,220,858 |   |   | $ | (344,147 | ) |

----

----

|                                      |   | September 30, 2010 |        |   | December 31, 2009 |   |
|-------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                      |   | Carrying           |        |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                      |   | Amount             |        |   | Value             |   |   | Amount |   |   | Value |   |
| Financial Assets:                         |   |               |        |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents                 |   | $                  | 48,172,249  |   |              | $      | 48,172,249 |   |   | $ | 39,716,919 |   |   | $ | 39,716,919 |   |
| Investment securities, available for sale |   |               | 111,825,511 |   |              |   | 111,825,511 |   |   |   | 113,912,404 |   |   |   | 113,912,404 |   |
| Loans receivable                          |   |               | 77,745,023  |   |              |   | 78,474,967 |   |   |   | 77,770,702 |   |   |   | 78,515,058 |   |
| Other financial assets                    |   |               | 613,366     |   |              |   | 613,366 |   |   |   | 722,228 |   |   |   | 722,228 |   |
| Total Financial Assets                    |   | $                  | 238,356,149 |   |              | $      | 239,086,093 |   |   | $ | 232,122,253 |   |   | $ | 232,866,609 |   |
| Financial Liabilities:                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits             |   | $                  | 70,736,167  |   |              | $      | 70,736,167 |   |   | $ | 70,688,777 |   |   | $ | 70,688,777 |   |
| Interest bearing deposits                 |   |               | 143,003,535 |   |              |   | 142,947,399 |   |   |   | 140,297,309 |   |   |   | 140,258,492 |   |
| Other liabilities                         |   |               | 19,116      |   |              |   | 19,116 |   |   |   | 45,695 |   |   |   | 45,695 |   |
| Total Financial Liabilities               |   | $                  | 213,758,818 |   |              | $      | 213,702,682 |   |   | $ | 211,031,781 |   |   | $ | 210,992,964 |   |

|   | 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.                                                                        |

|                                |   | Fair Value Measurements at September 30, 2010 Using |        |
|-------------------------------------|--------|-----------------------------------------------------|-------------|
|                                |   |                                                |        |   |   |   |   | Significant |   |   |   |   |
|                                |   |                                                |        |   | Quoted Prices in |   |   | Other |   |   | Significant |   |
|                                |   |                                                |        |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |
|                                |   | September 30,                                       |        |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|                                |   | 2010                                                |        |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:                             |   |                                                |        |   |   |   |   |   |   |   |   |   |
| FNMA MBS - Residential              |   | $                                                   | 3,837,844   |   |   | $ | — |   |   | $ | 3,837,844 |   |   | $ | — |   |
| GNMA MBS - Residential              |   |                                                | 1,184,766   |   |   |   | — |   |   |   | 1,184,766 |   |   |   | — |   |
| Whole Loan MBS - Residential        |   |                                                | 1,519,714   |   |   |   | — |   |   |   | 1,519,714 |   |   |   | — |   |
| Collateralized mortgage obligations |   |                                                | 105,283,187 |   |   |   | — |   |   |   | 105,283,187 |   |   |   | — |   |
| Total Available for sale Securities |   | $                                                   | 111,825,511 |   |   | $ | — |   |   | $ | 111,825,511 |   |   | $ | — |   |

----

|                                |   | Fair Value Measurements at December 31, 2009 Using |        |
|-------------------------------------|--------|----------------------------------------------------|-------------|
|                                |   |                                               |        |   |   |   |   | Significant |   |   |   |   |
|                                |   |                                               |        |   | Quoted Prices in |   |   | Other |   |   | Significant |   |
|                                |   |                                               |        |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |
|                                |   | December 31,                                       |        |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|                                |   | 2009                                               |        |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:                             |   |                                               |        |   |   |   |   |   |   |   |   |   |
| FNMA MBS - Residential              |   | $                                                  | 5,040,820   |   |   | $ | — |   |   | $ | 5,040,820 |   |   | $ | — |   |
| GNMA MBS - Residential              |   |                                               | 1,321,240   |   |   |   | — |   |   |   | 1,321,240 |   |   |   | — |   |
| Whole Loan MBS - Residential        |   |                                               | 1,856,893   |   |   |   | — |   |   |   | 1,856,893 |   |   |   | — |   |
| Collateralized mortgage obligations |   |                                               | 105,693,451 |   |   |   | — |   |   |   | 105,693,451 |   |   |   | — |   |
| Total Available for sale Securities |   | $                                                  | 113,912,404 |   |   | $ | — |   |   | $ | 113,912,404 |   |   | $ | — |   |

|           |   | Fair Value Measurements at September 30, 2010 Using |    |
|----------------|--------|----------------------------------------------------------|---------|
|           |   |                                                     |    |   |   |   |   | Significant |   |   |   |   |
|           |   |                                                     |    |   | Quoted Prices in |   |   | Other |   |   | Significant |   |
|           |   |                                                     |    |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |
|           |   | September 30,                                            |    |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|           |   | 2010                                                     |    |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:        |   |                                                     |    |   |   |   |   |   |   |   |   |   |
| Impaired loans |   | $                                                        | 381,264 |   |   | $ | — |   |   | $ | — |   |   | $ | 381,264 |   |

|           |   | Fair Value Measurements at December 31, 2009 Using |   |
|----------------|--------|----------------------------------------------------|--------|
|           |   |                                               |   |   |   |   |   | Significant |   |   |   |   |
|           |   |                                               |   |   | Quoted Prices in |   |   | Other |   |   | Significant |   |
|           |   |                                               |   |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |
|           |   | December 31,                                       |   |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|           |   | 2009                                               |   |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:        |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Impaired loans |   | $                                                  | 43,505 |   |   | $ | — |   |   | $ | — |   |   | $ | 43,505 |   |

----

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

|   | ● | a $8,455,330 net increase in cash and cash equivalents, partially offset by |
|--------|---------|-----------------------------------------------------------------------------|
|   | ● | a $2,086,893 net decrease in investment securities available for sale and   |
|   | ● | a $388,337 net decrease in bank premises and equipment.                     |

----

|   | 1.     | The law exempts smaller reporting companies filing with the Securities and Exchange Commission, such as our company, from the internal controls attestation rules of Section 404(b) of the Sarbanes-Oxley Act. Thus far, we have incurred expenses to prepare for compliance but we have not been governed by Section 404(b) due to temporary SEC extensions of the compliance deadline. The permanent exemption means that we will not be required to incur the expense of actual compliance as long as we continue to qualify as a smaller reporting company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 2.     | Securities brokers may not vote shares held in “street name” unless they receive instructions from their customers on the election of directors, executive compensation or any other significant matter, as determined by the SEC. This may increase our costs of holding annual stockholder meetings if it becomes necessary for us to retain the services of a proxy solicitor to increase shareholder participation in our meetings or to obtain approval of matters that the Board presents to stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 3.     | At least every three years, we will be required to submit to our stockholders, for a non-binding vote, our executive compensation. Depending upon SEC implementing regulations, this requirement may increase the cost of holding some stockholder meetings. The law also requires that the SEC implement other requirements for enhanced compensation disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 4.     | The law includes a number of changes to expand FDIC insurance coverage, as well as changes to the premiums banks must pay for insurance coverage, and the requirements applicable to the reserve ratio (the ratio of the deposit insurance fund to the amount of insured deposits). One important change is that, in the future, deposit insurance premiums we pay will be based upon total assets minus tangible capital, rather than based upon deposits. Since we do not use material borrowings to provide funds for asset growth, and we do not have material intangible assets that are excluded from capital such as goodwill, we anticipate that our share of the total deposit premiums to be collected may decrease as the result of this change. However, other factors, such as required replenishment of the current reserve fund, which has a negative reserve ratio and which must be increased to 1.35% of total insured deposits in the next ten years, as well as future failures of banks that may further deplete the fund, may result in an increase in our future deposit insurance premium. The FDIC must provide an offset for smaller banks negating the adverse effect of requiring a reserve ratio in excess of 1.15%, but reaching even the 1.15% ratio may require additional burdens on smaller banks. The overall increase in premiums may more than offset the effect of the change from a deposit-based to an asset-based premium structure. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 5.     | The law increases the amount of each customer’s deposits that are subject to FDIC insurance. The general limit has been permanently increased from $100,000 to $250,000. In addition, non-interest bearing transaction accounts will be fully insured, without limit, from December 31, 2010 to January 1, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 6.     | The law repeals the prohibition on paying interest on demand deposit accounts, effective in July 2011. Interest-free demand deposits represent a substantial portion of our deposit base. Once the prohibition on paying interest on such deposits becomes effective, competitive pressures may require that we offer interest checking accounts to businesses in order to retain deposits. That could have a direct adverse effect on our cost of funds. Although current market interest rates are very low, and such deposits are unlikely to carry high rates of interest, an increase in market interest rates could result in significant additional costs in order to maintain the level of such deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

----

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 7.     | The law makes interstate branching by banks much easier than in the past. We have no plans to branch outside New York State, but the law may facilitate out of state banks branching into our market area, thus increasing competition.                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | 8.     | The law creates a new federal agency – the Bureau of Consumer Financial Protection – which will have substantial authority to regulate consumer financial transactions. Our loans are primarily made to businesses rather than individual consumers, so the bureau will not have a direct effect on many of our loan transactions. However, the bureau also has authority to regulate other non-loan consumer transactions, such as deposits and electronic banking transactions. The implementation of new consumer regulations may increase our operating costs in a manner we cannot predict until regulations are adopted. |

----

----

|   | ● | Interest income of $2,598,016                     |
|--------|---------|---------------------------------------------------|
|   | ● | Reduced by interest expense of $249,476           |
|   | ● | Reduced by a provision for loan losses of $15,000 |
|   | ● | Increased by non-interest income of $635,875      |
|   | ● | Reduced by non-interest expense of $2,035,025     |
|   | ● | Reduced by income tax expense of $427,529         |

----

----

|   | ● | a $98,027 increase in salaries and benefits as a result of new hires, higher benefit costs and normal raises for existing employees; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | a $14,247 decrease in occupancy expenses primarily due to the retirement of certain fixed assets.                                    |

|   | ● | Interest income of $7,748,647                      |
|--------|---------|----------------------------------------------------|
|   | ● | Reduced by interest expense of $787,179            |
|   | ● | Reduced by a provision for loan losses of $125,000 |
|   | ● | Increased by non-interest income of $1,859,060     |
|   | ● | Reduced by non-interest expense of $6,112,081      |
|   | ● | Reduced by income tax expense of $1,181,988        |

----

----

----

|   | ● | a $228,557 increase in salaries and benefits as a result of new hires, higher related benefit costs, including the costs of the recently adopted stock plans, and increased salary and benefits due to normal raises; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | a $48,564 increase in legal expense primarily due to increased collection costs;                                                                                                                                      |
|   | ● | a $25,000 increase in FDIC and NYSBD assessments due to an increase in the FDIC assessment rate and assessment base over the prior year;                                                                              |
|   | ● | a $41,174 decrease in occupancy expenses due to the full depreciation of certain fixed assets; and                                                                                                                    |
|   | ● | a $35,650 decrease in professional fees due to the costs involved with the hiring of key staff in 2009 period.                                                                                                        |

----

|                                                             |   | Three         |        |          | Three         |      |   | Nine          |   |    | Nine          |   |
|------------------------------------------------------------------|--------|---------------|-------------|---------------|---------------|-----------|--------|---------------|--------|---------|---------------|--------|
|                                                             |   | Months Ended  |        |          | Months Ended  |      |   | Months Ended  |   |    | Months Ended  |   |
|                                                             |   | Sep. 30, 2010 |        |          | Sep. 30, 2009 |      |   | Sep. 30, 2010 |   |    | Sep. 30, 2009 |   |
|                                                             |   | Average       |        |          |          |      | Yield/ |          |   | Average |          |   |   |   |   | Yield/ |   |   | Average |   |   |   |   |   | Yield/ |   |   | Average |   |   |   |   |   | Yield/ |   |
|                                                             |   | Balance       |        | Interest      |          |      | Cost   |          |   | Balance |          |   | Interest |   |   | Cost |   |   | Balance |   |   | Interest |   |   | Cost |   |   | Balance |   |   | Interest |   |   | Cost |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets:                                                          |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                         |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                                                 |   | $             | 79,291,813  |          | $             | 1,492,206 |   |          |   | 7.43    | %             |   | $ | 71,009,578 |   |   | $ | 1,360,529 |   |   |   | 7.48 | % |   | $ | 79,090,898 |   |   | $ | 4,333,693 |   |   |   | 7.32 | % |   | $ | 69,663,430 |   |   | $ | 4,014,424 |   |   |   | 7.62 | % |
| Investment securities, afs                                       |   |          | 115,185,650 |          |          | 1,089,101 |   |          |   | 3.75    |          |   |   | 116,730,348 |   |   |   | 1,252,213 |   |   |   | 4.26 |   |   |   | 114,727,995 |   |   |   | 3,375,355 |   |   |   | 3.93 |   |   |   | 119,650,066 |   |   |   | 3,949,499 |   |   |   | 4.41 |   |
| Other interest-earning assets                                    |   |          | 40,892,132  |          |          | 16,709    |   |          |   | 0.16    |          |   |   | 40,052,255 |   |   |   | 11,199 |   |   |   | 0.11 |   |   |   | 37,946,205 |   |   |   | 39,599 |   |   |   | 0.14 |   |   |   | 28,291,238 |   |   |   | 21,633 |   |   |   | 0.10 |   |
| Total interest-earning assets                                    |   |          | 235,369,595 |          |          | 2,598,016 |   |          |   | 4.37    |          |   |   | 227,792,181 |   |   |   | 2,623,941 |   |   |   | 4.53 |   |   |   | 231,765,098 |   |   |   | 7,748,647 |   |   |   | 4.47 |   |   |   | 217,604,734 |   |   |   | 7,985,556 |   |   |   | 4.88 |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                      |   |          | 8,373,191   |          |          |      |   |          |   |    |          |   |   | 4,451,999 |   |   |   |   |   |   |   |   |   |   |   | 8,752,172 |   |   |   |   |   |   |   |   |   |   |   | 4,968,315 |   |   |   |   |   |   |   |   |   |
| Total assets                                                     |   | $             | 243,742,786 |          |          |      |   |          |   |    |          |   | $ | 232,244,180 |   |   |   |   |   |   |   |   |   |   | $ | 240,517,270 |   |   |   |   |   |   |   |   |   |   | $ | 222,573,049 |   |   |   |   |   |   |   |   |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and equity:                                          |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                    |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                 |   | $             | 15,380,086  |          |          | 11,978    |   |          |   | 0.31    |          |   | $ | 14,382,492 |   |   |   | 12,186 |   |   |   | 0.34 |   |   | $ | 15,337,351 |   |   |   | 35,567 |   |   |   | 0.31 |   |   | $ | 13,452,968 |   |   |   | 38,507 |   |   |   | 0.38 |   |
| Time accounts                                                    |   |          | 65,295,545  |          |          | 136,333   |   |          |   | 0.83    |          |   |   | 63,615,847 |   |   |   | 202,074 |   |   |   | 1.26 |   |   |   | 65,229,271 |   |   |   | 444,343 |   |   |   | 0.91 |   |   |   | 67,189,776 |   |   |   | 733,391 |   |   |   | 1.46 |   |
| Money market accounts                                            |   |          | 26,947,870  |          |          | 58,250    |   |          |   | 0.86    |          |   |   | 27,410,656 |   |   |   | 63,044 |   |   |   | 0.91 |   |   |   | 28,254,099 |   |   |   | 183,754 |   |   |   | 0.87 |   |   |   | 25,002,496 |   |   |   | 186,499 |   |   |   | 1.00 |   |
| Now accounts                                                     |   |          | 37,233,822  |          |          | 42,915    |   |          |   | 0.46    |          |   |   | 32,539,332 |   |   |   | 37,685 |   |   |   | 0.46 |   |   |   | 35,182,199 |   |   |   | 123,515 |   |   |   | 0.47 |   |   |   | 27,586,887 |   |   |   | 100,458 |   |   |   | 0.49 |   |
| Total interest-bearing liabilities                               |   |          | 144,857,323 |          |          | 249,476   |   |          |   | 0.68    |          |   |   | 137,948,327 |   |   |   | 314,989 |   |   |   | 0.91 |   |   |   | 144,002,920 |   |   |   | 787,179 |   |   |   | 0.73 |   |   |   | 133,232,127 |   |   |   | 1,058,855 |   |   |   | 1.06 |   |
| Checking accounts                                                |   |          | 69,702,483  |          |          |      |   |          |   |    |          |   |   | 67,296,333 |   |   |   |   |   |   |   |   |   |   |   | 68,288,162 |   |   |   |   |   |   |   |   |   |   |   | 63,111,585 |   |   |   |   |   |   |   |   |   |
| Escrow deposits                                                  |   |          | 375,319     |          |          |      |   |          |   |    |          |   |   | 426,026 |   |   |   |   |   |   |   |   |   |   |   | 424,378 |   |   |   |   |   |   |   |   |   |   |   | 472,859 |   |   |   |   |   |   |   |   |   |
| Total deposits                                                   |   |          | 214,935,125 |          |          |      |   |          |   |    |          |   |   | 205,670,686 |   |   |   |   |   |   |   |   |   |   |   | 212,715,460 |   |   |   |   |   |   |   |   |   |   |   | 196,816,571 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                |   |          | 2,338,998   |          |          |      |   |          |   |    |          |   |   | 1,793,925 |   |   |   |   |   |   |   |   |   |   |   | 2,092,069 |   |   |   |   |   |   |   |   |   |   |   | 1,579,111 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                |   |          | 217,274,123 |          |          |      |   |          |   |    |          |   |   | 207,464,611 |   |   |   |   |   |   |   |   |   |   |   | 214,807,529 |   |   |   |   |   |   |   |   |   |   |   | 198,395,682 |   |   |   |   |   |   |   |   |   |
| Equity                                                           |   |          | 26,468,663  |          |          |      |   |          |   |    |          |   |   | 24,779,569 |   |   |   |   |   |   |   |   |   |   |   | 25,709,741 |   |   |   |   |   |   |   |   |   |   |   | 24,177,367 |   |   |   |   |   |   |   |   |   |
| Total liabilities and equity                                     |   | $             | 243,742,786 |          |          |      |   |          |   |    |          |   | $ | 232,244,180 |   |   |   |   |   |   |   |   |   |   | $ | 240,517,270 |   |   |   |   |   |   |   |   |   |   | $ | 222,573,049 |   |   |   |   |   |   |   |   |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income/net interest rate spread                     |   |          |        |          | $             | 2,348,540 |   |          |   | 3.69    | %             |   |   |   |   |   | $ | 2,308,952 |   |   |   | 3.62 | % |   |   |   |   |   | $ | 6,961,468 |   |   |   | 3.74 | % |   |   |   |   |   | $ | 6,926,701 |   |   |   | 3.82 | % |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest earning assets/net interest margin                  |   | $             | 90,512,272  |          |          |      |   |          |   | 3.95    | %             |   | $ | 89,843,854 |   |   |   |   |   |   |   | 3.98 | % |   | $ | 87,762,178 |   |   |   |   |   |   |   | 4.01 | % |   | $ | 84,372,607 |   |   |   |   |   |   |   | 4.23 | % |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of interest-earning assets to interest-bearing liabilities |   |          | 1.62        |  x  |          |      |   |          |   |    |          |   |   | 1.65 |  x  |   |   |   |   |   |   |   |   |   |   | 1.61 |  x  |   |   |   |   |   |   |   |   |   |   | 1.63 |  x |   |   |   |   |   |   |   |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |          |        |          |          |      |   |          |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on Average Assets (1)                                     |   |          | 0.82        | %             |          |      |   |          |   |    |          |   |   | 0.79 | % |   |   |   |   |   |   |   |   |   |   | 0.78 | % |   |   |   |   |   |   |   |   |   |   | 0.77 | % |   |   |   |   |   |   |   |   |
| Return on Average Equity (1)                                     |   |          | 7.54        | %             |          |      |   |          |   |    |          |   |   | 7.42 | % |   |   |   |   |   |   |   |   |   |   | 7.28 | % |   |   |   |   |   |   |   |   |   |   | 7.10 | % |   |   |   |   |   |   |   |   |
| Tangible Equity to Total Assets                                  |   |          | 10.91       | %             |          |      |   |          |   |    |          |   |   | 11.01 | % |   |   |   |   |   |   |   |   |   |   | 10.91 | % |   |   |   |   |   |   |   |   |   |   | 11.01 | % |   |   |   |   |   |   |   |   |

----

----

----

| Contractual Obligations                                              |   | Payment due by Period |       |   |
|----------------------------------------------------------------------|--------|-----------------------|------------|--------|
|                                                                 |   | Less than             |       |   | One to three |   |   | Four to five |   |   | After |   |   | Total Amounts |   |
|                                                                 |   | One Year              |       |   | years |   |   | years |   |   | five years |   |   | committed |   |
|                                                                 |   |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minimum annual rental payments under non-cancelable operating leases |   | $                     | 411,055    |   |   | $ | 846,750 |   |   | $ | 762,047 |   |   | $ | 1,132,519 |   |   | $ | 3,152,371 |   |
| Remaining contractual maturities of time deposits                    |   |                  | 60,151,470 |   |   |   | 1,828,987 |   |   |   | 3,486,271 |   |   |   | — |   |   |   | 65,466,728 |   |
| Total contractual cash obligations                                   |   | $                     | 60,562,525 |   |   | $ | 2,675,737 |   |   | $ | 4,248,318 |   |   | $ | 1,132,519 |   |   | $ | 68,619,099 |   |

| Other commitments |   |  Amount of Commitment Expiration by Period |       |
|-------------------|--------|-------------------------------------------------|------------|
|              |   | Less than                                       |       |   | One to three |   |   | Four to five |   |   | After |   |   | Total Amounts |   |
|              |   | One Year                                        |       |   | years |   |   | years |   |   | five years |   |   | committed |   |
|              |   |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan commitments  |   | $                                               | 25,354,739 |   |   | $ | 4,740,454 |   |   | $ | — |   |   | $ | — |   |   | $ | 30,095,193 |   |

| ● | $2,412,274 in two loans to a retail business, which are fully secured by commercial real estate collateral. We have entered into a modified repayment arrangement with the borrower and we have obtained confessions of judgment. We have collected a large portion of their arrears and the borrower has agreed to pay all remaining arrears over the upcoming year and the borrower is current in payments under the modified payment terms. We maintain the personal guaranties of the principals on these loans. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | $2,200,000 in two residential mortgage loans that are fully secured. We have entered into modified repayment arrangements with the borrowers and we have obtained confessions of judgment. We have collected a large portion of their arrears and the borrowers have agreed to pay all remaining arrears over the upcoming year. The borrowers are current in payments under the modified payments terms.                                                                                                            |
| ● | $381,264 in a loan to a local business in which we are a participant in the loan with another bank. We are not the lead lender. The loan is in arrears and the lead lender has commenced a foreclosure action. The loan is secured by a first mortgage on a commercial building, a security interest in the business, and the personal guaranties of the principals.                                                                                                                                                 |

----

| ● | $341,581 in a loan to a local business, which is fully secured by a first mortgage on commercial real estate collateral. We have entered into modified repayment arrangements with the borrowers and we have obtained confessions of judgment. We maintain a security interest in the business as well as the personal guaranty of the principal. The borrower is current under the modified payments terms. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | $330,221 in a loan to a local business, which is fully secured by a first mortgage on two pieces of commercial real estate. The loan has been sent to our attorneys for collection. We also have a security interest in the business as well as the personal guaranty of the principal.                                                                                                                      |

Item 4 –Controls and Procedures

----

Part II

Item 1 – Legal Proceedings

----

Signature Page

|                   |   | VSB Bancorp, Inc.                              |
|------------------------|--------|------------------------------------------------|
|                   |   |                                           |
| Date: November 9, 2010 |   | /s/ Raffaele M. Branca                         |
|                   |   | Raffaele M. Branca                             |
|                   |   | President, CEO and Principal Executive Officer |
|                   |   |                                           |
| Date: November 9, 2010 |   | /s/ Jonathan B. Lipschitz                      |
|                   |   | Jonathan B. Lipschitz,                         |
|                   |   | Vice President, Controller and Principal       |
|                   |   | Accounting Officer                             |

| 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 Principal Accounting Officer    |
| 32.1    |   | Certification by CEO pursuant to 18 U.S.C. 1350.                          |
| 32.2    |   | Certification by Principal Accounting Officer pursuant to 18 U.S.C. 1350. |

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| 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 Principal Accounting Officer    |
| 32.1    | Certification by CEO pursuant to 18 U.S.C. 1350.                          |
| 32.2    | Certification by Principal Accounting Officer pursuant to 18 U.S.C. 1350. |

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