UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-KSB
 
 
 x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the Fiscal Year Ended December 31, 2007
 OR
 o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
transition period from  
to
______________________
  Commission
File Number: 000-51385
 
 Colonial Bankshares,
Inc.
 (Name of
Small Business Issuer in its Charter)
 
 Federal
              
              90-0183739(State
      or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
      Employer Identification Number)
 
 2745 S. Delsea Drive,
      Vineland, New Jersey
              
              08360(Address
      of Principal Executive Office)
              
              (Zip
      Code)
 
 (856)
205-0058
 (Issuer’s
Telephone Number including area code)
 
 Securities
Registered Pursuant to Section 12(b) of the Act:
 
 Title of Each
      Class
              Name of Each Exchange
      on Which RegisteredCommon
      Stock, par value $0.10 per share
              The
      NASDAQ Stock Market, LLC
 
 Securities
Registered Pursuant to Section 12(g) of the Act:  NONE
 
 Check whether the issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
o
 
 Check whether the issuer: (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past twelve months (or for such shorter period that the Registrant was
required to file reports) and (2) has been subject to such requirements for the
past 90 days.
 
 (1)
              YES  x.
              NO
              o.(2)
              YES  x.
              NO
              o.
 
 Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendments to this Form 10-KSB.
o
 
 Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
 o  YES  x  NO
 
 The Registrant’s revenues for the
fiscal year ended December 31, 2007 were $24.2 million.
 
 As of March 24, 2008 there were
4,450,796 shares outstanding of the Registrant’s Common Stock, including
2,441,716 shares owned by Colonial Bankshares, MHC.  The aggregate
value of the voting stock held by non-affiliates of the Registrant, computed by
reference to the closing price of the Common Stock as of March 24, 2008 was
$17.7 million.
 
 Transitional Small Business Disclosure
Format:                                                                                        Yes 
o    No 
x
 
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 1.
              Portions
      of Annual Report to Stockholders. (Parts II and IV)2.
              Portions
      of the Proxy Statement for the 2008 Annual Meeting of Stockholders. (Part
      III)
  
 
 PART
I
 
 ITEM
1.                      Business
  Forward
Looking Statements
  This
Annual Report contains certain “forward-looking statements” which may be
identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated” and “potential.”  Examples of
forward-looking statements include, but are not limited to, estimates with
respect to our financial condition, results of operations and business that are
subject to various factors which could cause actual results to differ materially
from these estimates and most other statements that are not historical in
nature.  These factors include, but are not limited to, general and
local economic conditions, changes in interest rates, deposit flows, demand for
mortgage, and other loans, real estate values, competition, changes in
accounting principles, policies, or guidelines, changes in legislation or
regulation, and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing products and
services.
  Colonial
Bankshares, MHC
  Colonial
Bankshares, MHC is the federally chartered mutual holding company parent of
Colonial Bankshares, Inc.  Colonial Bankshares, MHC has not engaged in
any significant business activity other than owning a majority of the
outstanding shares of common stock of Colonial Bankshares, Inc.  So
long as Colonial Bankshares, MHC exists, it will own a majority of the
outstanding shares of common stock of Colonial Bankshares, Inc.  The
executive offices of Colonial Bankshares, MHC are located at 2745 S. Delsea
Drive, Vineland, New Jersey 08360, and its telephone number is (856)
205-0058.  Colonial Bankshares, MHC is subject to comprehensive
regulation and examination by the Office of Thrift Supervision.
  Colonial
Bankshares, Inc.
  Colonial
Bankshares, Inc. is the mid-tier stock holding company of Colonial Bank,
FSB.  Colonial Bankshares, Inc. is a federally chartered corporation
and owns 100% of the outstanding shares of common stock of Colonial Bank,
FSB.  Colonial Bankshares, Inc. has not engaged in any significant
business activity other than owning all of the shares of common stock of
Colonial Bank, FSB.  At December 31, 2007, Colonial Bankshares, Inc.
had consolidated assets of $457.9 million, total deposits of $371.4 million
and equity of $39.0 million.  Colonial Bankshares, Inc.’s net income
for the year ended December 31, 2007 was $1.2 million.  The executive
offices of Colonial Bankshares, Inc. are located at 2745 S. Delsea Drive,
Vineland, New Jersey 08360, and its telephone number is (856) 205-0058. Colonial
Bankshares, Inc. is subject to comprehensive regulation and examination by the
Office of Thrift Supervision.
  Colonial
Bank, FSB
  Colonial
Bank, FSB is a federally chartered savings bank headquartered in Vineland, New
Jersey.  Colonial Bank, FSB was originally founded in 1913. Colonial
Bank, FSB conducts business from its main office located at 2745 S. Delsea Drive
in Vineland, New Jersey, its six branch offices located in Cumberland and
Gloucester Counties, New Jersey and through its Delaware operating subsidiary,
CB Delaware Investments, Inc., which was formed in September
2006.  The telephone number at its main office is (856)
205-0058.
  Our
principal business activity is the origination of one- to four-family
residential real estate loans.  We also offer home equity loans and
lines of credit, commercial real estate loans, commercial business loans and, to
a lesser extent, construction and consumer loans.  We also invest in
mortgage-backed securities and other investment securities.  We offer
a variety of deposit accounts, including demand accounts, NOW accounts, money
market accounts, savings accounts and certificates of
deposit.  Deposits are our primary source of funds for our lending and
investing activities.  We have also used borrowed funds as a source of
funds, and we borrow principally from the Federal Home Loan Bank of New
York.  We emphasize exceptional personal service for our
customers.  Colonial Bank, FSB is subject to comprehensive regulation
and examination by the Office of Thrift Supervision. Colonial Bank, FSB is a
member of the Federal Home Loan Bank system.
  2
  CB
Delaware Investments, Inc.
  CB Delaware Investments, Inc. is a 100%
owned subsidiary of Colonial Bank, FSB.  It is a Delaware corporation
that was formed in September 2006 to invest in and manage investment securities
that Colonial Bank, FSB is authorized to hold.
  General
  Our
principal business consists of attracting retail deposits from the general
public in the areas surrounding our main office in Vineland, New Jersey and six
branch offices in Cumberland and Gloucester Counties, New Jersey and investing
those deposits, together with funds generated from operations, primarily in one-
to four-family residential mortgage loans, home equity loans and lines of credit
and commercial real estate loans and, to a lesser extent, construction loans,
commercial business loans, consumer loans, and investment
securities.  Our revenues are derived principally from interest on
loans and securities.  We also generate revenues from fees and service
charges and other income.  Our primary sources of funds are deposits,
borrowings and principal and interest payments on loans and
securities.
  Market
Area
  We
primarily serve communities located in Cumberland and Gloucester Counties, New
Jersey.  Our primary market for loans and deposits is concentrated in
these counties.
  There are
many manufacturing and service industry companies in Cumberland County, while
Gloucester County is a community for people who work in the greater
Philadelphia, Pennsylvania area.  As of December 2007, unemployment
rates in Cumberland and Gloucester Counties were 6.3% and 4.1%, respectively,
compared to 4.5% for the State of New Jersey and the national average of
5.0%.  The population of Cumberland and Gloucester Counties increased
at annual growth rates of approximately 0.9% and 1.7%, respectively, between
2000 and July 2006, compared to an annual growth rate of 1.0% for the United
States as a whole during the same period.
  Competition
  We face
significant competition in both originating loans and attracting
deposits.  Cumberland and Gloucester Counties, New Jersey, which
comprise our primary market area, have a high concentration of financial
institutions, many of which are significantly larger and have greater financial
resources than we, and many of which are our competitors to varying
degrees.  As of June 30, 2007 (the latest date for which information
is available), our market share of deposits represented 16.96% of deposits in
Cumberland County, making us the second largest financial institution out of
12financial
institutions in Cumberland County based upon deposit share as of that
date.  As of June 30, 2007, our market share of deposits represented
0.91% of deposits in Gloucester County, making us the 17th largest financial
institution out of 23financial institutions
based on deposit share as of that date.  Some of our competitors offer
products and services that we currently do not offer, such as trust services and
private banking.  Our competition for loans comes principally from
commercial banks, savings banks, mortgage banking companies and credit
unions.  Our most direct competition for deposits has historically
come from commercial banks, savings banks and credit unions.  We face
additional competition for deposits from nondepository competitors such as the
mutual fund industry, securities and brokerage firms and insurance
companies.
  We seek
to meet this competition by emphasizing personalized banking, competitive
pricing strategies and the advantage of local decision-making in our banking
business. Specifically, we promote and maintain relationships and build customer
loyalty within our market area by emphasizing decentralized regional management
and by focusing our marketing and community involvement on the specific needs of
local communities. In addition, we seek to meet competition for loans by
offering our current and prospective borrowers preferred rates and terms on
deposit products for new lending business.  We do not rely on any
individual, group, or entity for a material portion of our
deposits.
  Lending
Activities
  General.We
originate one- to four-family residential real estate loans, home equity loans
and lines of credit, commercial real estate loans, commercial business loans,
construction loans, consumer loans and multi-family mortgage
loans.  At December 31, 2007, our gross loan portfolio totaled
$242.7 million compared to $200.2 million at December 31,
2006.
  3
  As of
December 31, 2007, $114.7 million, or 47.3% of our total loan portfolio,
consisted of one- to four-family residential mortgage loans, $55.6 million,
or 22.9% of our total loan portfolio, consisted of commercial real estate loans,
$40.3 million, or 16.6% of our total loan portfolio, consisted of home
equity loans and lines of credit, $12.6 million, or 5.2% of our total loan
portfolio, consisted of commercial loans, $5.6 million, or 2.3% of our total
portfolio, consisted of multi-family mortgage loans, $10.1 million, or 4.2%
of our total loan portfolio, consisted of construction loans, and
$3.8 million, or 1.5% of our total loan portfolio, consisted of consumer
loans.
  One- to
Four-Family Residential Real Estate Loans.We offer conforming
and non-conforming, fixed-rate and adjustable-rate residential real estate loans
with maturities of up to 30 years.  This portfolio totaled
$114.7 million, or 47.3% of our total loan portfolio at December 31,
2007.
  We
currently offer fixed-rate conventional mortgage loans with terms of 10 to 30
years that are fully amortizing with monthly loan payments, and adjustable-rate
conventional residential real estate loans with initial fixed terms of one,
three or five years that amortize up to 30 years.  One- to four-family
residential real estate loans are generally underwritten according to Fannie Mae
guidelines, and loans that conform to such guidelines are referred to as
“conforming loans.” We generally originate both fixed- and adjustable-rate loans
in amounts up to the maximum conforming loan limits as established by Fannie
Mae, which for 2007 was $417,000 for single-family
homes.  Private mortgage insurance is required for first mortgage
loans with loan-to-value ratios in excess of 80%.  We also originate
loans above conforming limits, referred to as “jumbo loans,” although the
significant majority of the loans we have originated have been within conforming
loan limits.
  We
currently offer several adjustable-rate loan products secured by residential
properties with rates that are fixed for an initial period ranging from one year
to five years. After the initial fixed-rate period, the interest rate on these
loans resets based upon a contractual spread or margin above the average yield
on U.S. Treasury securities, adjusted to a constant maturity of one, three or
five years, as published weekly by the Federal Reserve Board, subject to certain
periodic and lifetime limitations on interest rate
changes.  Adjustable-rate residential real estate loans generally pose
different credit risks than fixed-rate loans primarily because the underlying
debt service payments of the borrowers rise as interest rates rise, thereby
increasing the potential for default. At December 31, 2007, our adjustable-rate,
one- to four-family residential real estate loan portfolio totaled $11.5
million.
  We
require title insurance on all of our one- to four-family residential real
estate loans, and we also require that borrowers maintain fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) in an amount
at least equal to the lesser of the loan balance or the replacement cost of the
improvements.  Nearly all residential real estate loans must have a
mortgage escrow account from which disbursements are made for real estate
taxes.  We do not conduct environmental testing on residential real
estate loans unless specific concerns for hazards are determined by the
appraiser utilized in connection with the loan.
  Home Equity Loans
and Lines of Credit.In addition to traditional one- to
four-family residential real estate loans, we offer home equity loans and home
equity lines of credit that are secured by the borrower’s primary
residence.  At December 31, 2007, the outstanding balances of home
equity loans totaled $36.4 million, or 15.0% of our total loan portfolio,
and the outstanding balance of home equity lines of credit totaled
$3.9 million, or 1.6% of our total loan portfolio.  The borrower
is permitted to draw on a home equity line of credit at any time after it is
originated and may repay the outstanding balance over a term not to exceed 15
years from the date of the borrower’s last draw on the home equity line of
credit.  We review each performing line of credit every six years to
determine whether to continue to offer the unused portion of the line of credit
to the borrower.  Our home equity loans are generally originated as
mortgages with fixed terms of five to 15 years or with balloon maturities of
three or five years.  Home equity loans and lines of credit are
generally underwritten with the same criteria that we use to underwrite
fixed-rate, one- to four-family residential mortgage loans.  We
underwrite home equity loans and lines of credit with a loan-to-value ratio of
up to 90% when combined with the principal balance of the existing mortgage
loan.  We appraise the property securing the loan at the time of the
loan application in order to determine the value of the property securing the
home equity loan or line of credit.  At the time we close a home
equity loan or line of credit, we file a mortgage to perfect our security
interest in the underlying collateral.
  4
  Commercial Real
Estate Lending.We also originate real estate loans secured by
first liens on commercial real estate.  The commercial real estate
properties are predominantly professional offices, manufacturing and retail
facilities and shopping centers and, to a lesser extent, more specialized
properties such as nursing homes and other healthcare facilities.We have purchased
commercial real estate loan participations through the Thrift Institution
Community Investment Council, which originates loans for Community Reinvestment
Act purposes.  We have originated commercial real estate loans as a
participant with other lenders.  We emphasize commercial real estate
loans with initial principal balances between $100 thousand and $2.0
million.  Loans secured by commercial real estate totaled
$55.6 million, or 22.9% of our total loan portfolio, at December 31,
2007, and consisted of 240 loans outstanding with an average loan balance of
approximately $232 thousand, although we have originated loans with balances
substantially greater than this average.  Substantially all of our
commercial real estate loans are secured by properties located in our primary
market area.
  Our
commercial real estate loans are generally written as mortgages with balloon
maturities of five years.  Amortization of these loans is typically
based on 10- to 20-year payout schedules.  We also originate some 10
and 15-year, fixed-rate, fully amortizing loans.  We establish margins
for commercial real estate loans based upon our cost of funds, but we also
consider rates offered by our competitors in our market area.
  In the
underwriting of commercial real estate loans, we generally lend up to 80% of the
property’s appraised value.  We base our decisions to lend on the
economic viability of the property and the creditworthiness of the borrower. In
evaluating a proposed commercial real estate loan, we emphasize the ratio of the
property’s projected net cash flow to the loan’s debt service requirement
(generally requiring a minimum ratio of 120%), computed after deduction for a
vacancy factor and property expenses we deem appropriate.  Personal
guarantees are usually obtained from commercial real estate
borrowers.  We require title insurance insuring the priority of our
lien, fire and extended coverage casualty insurance, and, if appropriate, flood
insurance, in order to protect our security interest in the underlying
property.
  Commercial
real estate loans generally have higher interest rates and shorter terms than
those on one- to four-family residential mortgage loans.  Commercial
real estate loans, however, entail significant additional credit risks compared
to one- to four-family residential mortgage loans, as they typically involve
larger loan balances concentrated with single borrowers or groups of related
borrowers.  In addition, the repayment of loans secured by
income-producing properties typically depends on the successful operation of the
related real estate project and thus may be subject to a greater extent to
adverse conditions in the real estate market and in the general
economy.
  Commercial Loans.We make various types of secured and unsecured commercial loans to
customers in our market area for the purpose of expansion, working capital and
other general business purposes.  The terms of these loans generally
range from less than one year to five years.  The loans are either
negotiated on a fixed-rate basis or carry adjustable interest rates indexed to a
lending rate that is determined internally, or a short-term market rate index,
although the significant majority of our commercial loans are fixed-rate
loans.  At December 31, 2007, we had 159 commercial loans
outstanding with an aggregate balance of $12.6 million, or 5.2% of the
total loan portfolio.  These totals include 26 unsecured commercial
loans with an aggregate outstanding balance of $457 thousand.  As of
December 31, 2007, the average commercial loan balance (secured and unsecured
loans) was approximately $79 thousand, although we have originated loans with
balances substantially greater than this average.
  Commercial
credit decisions are based upon our credit assessment of the loan applicant. We
determine the applicant’s ability to repay in accordance with the proposed terms
of the loans and we assess the risks involved. We also evaluate the applicant’s
credit and business history and ability to manage the loan and its
business.  We usually obtain personal guarantees of the
principals.  In addition to evaluating the loan applicant’s financial
statements, we consider the adequacy of the primary and secondary sources of
repayment for the loan.  We supplement our analysis of the applicant’s
creditworthiness with credit agency reports of the applicant’s credit
history.  We may also check with other banks and conduct trade
investigations.  Collateral supporting a secured transaction also is
analyzed to determine its marketability.  Commercial business loans
generally have higher interest rates than residential loans of like duration
because they have a higher risk of default since their repayment generally
depends on the successful operation of the borrower’s business and the
sufficiency of any collateral.  Our pricing of commercial business
loans is based primarily on the credit risk of the borrower, with due
consideration given to borrowers with appropriate deposit relationships and
competition.
  5
  Construction
Loans.We originate construction loans to individuals and
builders in our market area.  These loans totaled $10.1 million, or
4.2% of our total loan portfolio at December 31, 2007.  These
loans are often originated in conjunction with development loans.  In
the case of residential subdivisions, these loans finance the cost of completing
homes on the improved property.  Advances on construction loans are
made in accordance with a schedule reflecting the cost of construction, but are
generally limited to 80% of actual construction costs and, as required by
applicable regulations, an 80% loan to completed appraised value
ratio.  Repayment of construction loans on residential subdivisions is
normally expected from the sale of units to individual purchasers.
  Construction
lending exposes us to greater credit risk than permanent mortgage
financing.  The repayment of construction loans may depend upon the
sale of the property to third parties or the availability of permanent financing
upon completion of all improvements.  Construction loans also expose
us to the risk that improvements will not be completed on time in accordance
with specifications and projected costs.  In addition, the ultimate
sale or rental of the property may not occur as anticipated.
  6
  Loan Portfolio
Composition.The following table sets forth the composition of
our loan portfolio, by type of loan at the dates indicated.
  At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              114,745
              
              
              
              47.3
              %
              
              $
              102,328
              
              
              
              51.1
              %
              
              $
              77,738
              
              
              
              48.8
              %
              
              $
              56,478
              
              
              
              44.4
              %
              
              $
              34,641
              
              
              
              39.5
              %Home
      equity loans and lines of credit
              
              
              40,264
              
              
              
              16.6
              
              
              
              38,074
              
              
              
              19.0
              
              
              
              33,067
              
              
              
              20.8
              
              
              
              31,883
              
              
              
              25.1
              
              
              
              28,452
              
              
              
              32.4Multi-family
              
              
              5,609
              
              
              
              2.3
              
              
              
              2,492
              
              
              
              1.2
              
              
              
              1,676
              
              
              
              1.1
              
              
              
              1,825
              
              
              
              1.4
              
              
              
              167
              
              
              
              0.2Commercial
              
              
              55,606
              
              
              
              22.9
              
              
              
              39,186
              
              
              
              19.6
              
              
              
              31,392
              
              
              
              19.7
              
              
              
              25,786
              
              
              
              20.3
              
              
              
              13,396
              
              
              
              15.3Construction
              
              
              10,137
              
              
              
              4.2
              
              
              
              8,371
              
              
              
              4.2
              
              
              
              6,267
              
              
              
              3.9
              
              
              
              2,265
              
              
              
              1.8
              
              
              
              1,934
              
              
              
              2.2Commercial
              
              
              12,600
              
              
              
              5.2
              
              
              
              7,337
              
              
              
              3.7
              
              
              
              6,880
              
              
              
              4.3
              
              
              
              6,055
              
              
              
              4.8
              
              
              
              6,627
              
              
              
              7.6Consumer
      and other
              
              
              3,752
              
              
              
              1.5
              
              
              
              2,427
              
              
              
              1.2
              
              
              
              2,258
              
              
              
              1.4
              
              
              
              2,824
              
              
              
              2.2
              
              
              
              2,499
              
              
              
              2.8Total
      loans receivable
              
              
              242,713
              
              
              
              100.0
              %
              
              
              200,215
              
              
              
              100.0
              %
              
              
              159,278
              
              
              
              100.0
              %
              
              
              127,116
              
              
              
              100.0
              %
              
              
              87,716
              
              
              
              100.0
              %Deferred
      loan fees
              
              
              (281
              )
              
              
              
              
              
              
              (323
              )
              
              
              
              
              
              
              (336
              )
              
              
              
              
              
              
              (326
              )
              
              
              
              
              
              
              (208
              )Allowance
      for loan losses
              
              
              (1,392
              )
              
              
              
              
              
              
              (1,373
              )
              
              
              
              
              
              
              (1,168
              )
              
              
              
              
              
              
              (990
              )
              
              
              
              
              
              
              (667
              )Total
      loans receivable, net
              
              $
              241,040
              
              
              
              
              
              
              $
              198,519
              
              
              
              
              
              
              $
              157,774
              
              
              
              
              
              
              $
              125,800
              
              
              
              
              
              
              $
              86,841
  7
  Loan Portfolio
Maturities and Yields.The following table summarizes the
scheduled repayments of our loan portfolio at December 31,
2007.  Demand loans, loans having no stated repayment schedule or
maturity, and overdraft loans are reported as being due in one year or
less.
  One-
      to Four-Family
                  Residential
              
              
              Home
      Equity Loans and
                  Lines
      of Credit
              
              
              Multi-Family
              
              
              Commercial
      Real EstateAmount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate(Dollars
      in thousands)Due
      During the Years
                Ending December
      31,2008
              
              $
              705
              
              
              7.24%
              
              
              $
              6,304
              
              
              6.54%
              
              
              $
              1,155
              
              
              8.02%
              
              
              $
              16,291
              
              
              7.04%2009
              
              
              316
              
              
              5.87%
              
              
              
              3,066
              
              
              5.21%
              
              
              
              -
              
              
              -%
              
              
              
              3,418
              
              
              5.60%2010
              
              
              180
              
              
              6.63%
              
              
              
              3,876
              
              
              5.72%
              
              
              
              3,368
              
              
              7.60%
              
              
              
              5,176
              
              
              6.47%2011
      to 2012
              
              
              754
              
              
              5.98%
              
              
              
              5,739
              
              
              6.44%
              
              
              
              299
              
              
              7.74%
              
              
              
              15,488
              
              
              7.38%2013
      to 2017
              
              
              4,674
              
              
              5.72%
              
              
              
              5,975
              
              
              6.53%
              
              
              
              303
              
              
              6.89%
              
              
              
              7,826
              
              
              6.32%2018
      to 2022
              
              
              17,017
              
              
              5.16%
              
              
              
              14,624
              
              
              6.58%
              
              
              
              -
              
              
              -%
              
              
              
              4,507
              
              
              6.85%2022
      and beyond
              
              
              91,099
              
              
              5.90%
              
              
              
              680
              
              
              5.86%
              
              
              
              484
              
              
              5.61%
              
              
              
              2,900
              
              
              6.93%Total
              
              $
              114,745
              
              
              5.79%
              
              
              $
              40,264
              
              
              6.35%
              
              
              $
              5,609
              
              
              7.48%
              
              
              $
              55,606
              
              
              6.87%
 
 Construction
              
              
              Commercial
              
              
              Consumer
      and Other
              
              
              TotalAmount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate
              
              
              Amount
              
              
              Weighted
      Average
                  Rate(Dollars
      in thousands)Due
      During the Years
                Ending December
      31,2008
              
              $
              10,137
              
              
              7.02%
              
              
              $
              2,790
              
              
              6.97%
              
              
              $
              1,387
              
              
              8.95%
              
              
              $
              38,769
              
              
              7.05%2009
              
              
              -
              
              
              -%
              
              
              
              975
              
              
              6.47%
              
              
              
              245
              
              
              10.00%
              
              
              
              8,020
              
              
              5.70%2010
              
              
              -
              
              
              -%
              
              
              
              1,906
              
              
              6.48%
              
              
              
              699
              
              
              10.55%
              
              
              
              15,205
              
              
              6.72%2011
      to 2012
              
              
              -
              
              
              -%
              
              
              
              4,729
              
              
              6.68%
              
              
              
              1,157
              
              
              7.23%
              
              
              
              28,166
              
              
              7.03%2013
      to 2017
              
              
              -
              
              
              -%
              
              
              
              2,200
              
              
              6.57%
              
              
              
              264
              
              
              7.76%
              
              
              
              21,242
              
              
              6.30%2018
      to 2022
              
              
              -
              
              
              -%
              
              
              
              -
              
              
              -%
              
              
              
              -
              
              
              -%
              
              
              
              36,148
              
              
              5.95%2022
      and beyond
              
              
              -
              
              
              -%
              
              
              
              -
              
              
              -%
              
              
              
              -
              
              
              -%
              
              
              
              95,163
              
              
              5.93%Total
              
              $
              10,137
              
              
              7.02%
              
              
              $
              12,600
              
              
              6.68%
              
              
              $
              3,752
              
              
              8.70%
              
              
              $
              242,713
              
              
              6.31%
 
 The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2007 that are contractually due after
December 31, 2008.
  Due
      After December 31, 2008Fixed
              
              
              Adjustable
              
              
              Total(In
      thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              102,570
              
              
              $
              11,470
              
              
              $
              114,040Home
      equity loans and lines of credit
              
              
              33,960
              
              
              
              -
              
              
              
              33,960Multi-family
              
              
              3,784
              
              
              
              670
              
              
              
              4,454Commercial
              
              
              39,315
              
              
              
              -
              
              
              
              39,315Commercial
              
              
              9,810
              
              
              
              -
              
              
              
              9,810Consumer
      and other
              
              
              2,365
              
              
              
              -
              
              
              
              2,365Total
      loans
              
              $
              191,804
              
              
              $
              12,140
              
              
              $
              203,944
 
 Loan
Originations, Purchases, Sales and Servicing.While we
originate both fixed-rate and adjustable-rate loans, our ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by other lenders competing in our market
area.  Loan originations are derived from a number of sources,
including branch office personnel, existing customers, borrowers, builders,
attorneys, accountants and other professionals, real estate broker referrals and
walk-in customers.
  8
  Our loan
origination activity may be adversely affected by a rising interest rate
environment that typically results in decreased loan demand, while declining
interest rates may stimulate increased loan demand. Accordingly, the volume of
loan originations, the mix of fixed and adjustable-rate loans, and the
profitability of this activity can vary from period to period.  One-
to four-family residential mortgage loans are generally underwritten to current
Fannie Mae seller/servicer guidelines, and are closed on documents that conform
to Fannie Mae guidelines.
  During
2007, we sold approximately $2.9 million in loans.  We have not
purchased any loans in recent periods.  We are an approved loan seller
and seller/servicer for IndyMAC Bank and Fannie Mae, respectively.  We
may sell conforming loans in the future, and we may retain the servicing rights
for the conforming loans we sell, and to continue to collect payments on the
loans, maintain tax escrows and applicable fire and flood insurance coverage,
and supervise foreclosure proceedings if necessary.  We would retain a
portion of the interest paid by the borrower on the loans as consideration for
our servicing activities.
  Loan Approval
Authority and Underwriting.Our Board of Directors grants
lending authority to our Management Loan Committee and individual executive
officers and loan officers.  Our lending activities are subject to
written policies established by the Board.  These policies are
reviewed periodically.
  The
Management Loan Committee may approve loans in accordance with applicable loan
policies, including our policy governing loans to one borrower.  This
policy places limits on the aggregate dollar amount of credit that may be
extended to any one borrower and related entities.  The Management
Loan Committee may approve real estate loans in amounts up to $300 thousand, and
other loans in amounts up to $100 thousand.
  In
connection with our residential and commercial real estate loans, we generally
require property appraisals to be performed by independent appraisers who are
approved by the Board.  Appraisals are then reviewed by the
appropriate loan underwriting areas.  Under certain conditions, we may
not require appraisals for loans under $250,000, but we obtain appraisals in
many of these cases.  We also require title insurance, hazard
insurance and, if necessary, flood insurance on property securing mortgage
loans.
  Loan Origination
Fees and Costs.In addition to interest earned on loans, we
also receive loan origination fees.  Such fees vary with the volume
and type of loans and commitments made, and competitive conditions in the
mortgage markets, which in turn respond to the demand and availability of
money.  We defer loan origination fees and costs and amortize such
amounts as an adjustment to yield over the term of the loan by use of the
level-yield method. Deferred loan origination fees (net of deferred costs) were
$281 thousand and $323 thousand at December 31, 2007 and 2006,
respectively.
  Loans to One
Borrower.At December 31, 2007, our five largest aggregate
amounts loaned to any one borrower and related interests totaled
$5.0 million, $4.9 million, $4.9 million, $4.6 million and
$3.9 million.  These loans are all secured loans and are
performing according to their terms.  Under federal banking
regulations, at December 31, 2007 our maximum loan-to-one borrower limit was
$5.9million.  See
“Supervision and Regulation—Federal Banking Regulation—Loans to One Borrower”
for a discussion of applicable regulatory limitations.
  Delinquent
Loans, Other Real Estate Owned and Classified Assets
  Collection
Procedures.We send a computer-generated late notice on the
tenth day after the payment due date on a loan, which requests the payment due
plus any late charge that is assessed.  When a loan is more than 15
days delinquent, we contact the borrower by telephone to determine the reason
for delinquency and arrange for payment, and accounts are monitored
electronically for receipt of payments.  If payments are not received
within 30 days of the original due date, a letter demanding payment of all
arrearages is sent and contact efforts are continued.  If payment is
not received within 60 days of the due date, we generally accelerate loans and
demand payment in full.  Failure to pay within 90 days of the original
due date may result in legal action, notwithstanding ongoing collection efforts.
Unsecured consumer loans are generally charged-off after 120
days.  For commercial loans, procedures with respect to demand letters
and legal action may vary depending upon individual circumstances.
  9
  Loans Past Due
and Nonperforming Assets.Loans are reviewed on a regular
basis, and generally are placed on nonaccrual status when either principal or
interest is 90 days or more past due.  In addition, we place loans on
nonaccrual status when we believe that there is sufficient reason to question
the borrower’s ability to continue to meet contractual principal or interest
payment obligations.  Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is reversed from interest
income.  Interest payments received on nonaccrual loans are not
recognized as income unless warranted based on the borrower’s financial
condition and payment record.
  Real
estate acquired as a result of foreclosure or by deed in lieu of foreclosure is
classified as real estate owned until such time as it is sold.  We
have had no real estate owned in recent periods.  When real estate is
acquired through foreclosure or by deed in lieu of foreclosure, it is recorded
at its fair value, less estimated costs of disposal.  If the fair
value of the property is less than the loan balance, the difference is charged
against the allowance for loan losses.
  The
following table sets forth certain information with respect to our loan
portfolio delinquencies at the dates indicated.  Loans delinquent for
90 days or more are generally classified as nonaccrual loans.
  Loans
      Delinquent For60-89
      Days
              
              
              90
      Days and Over
              
              
              TotalNumber
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Number
              
              
              Amount(Dollars
      in thousands)At December 31,
      2007Real
      estate loans:One-
      to four-family residential
              
              
              1
              
              
              $
              82
              
              
              
              4
              
              
              $
              682
              
              
              
              5
              
              
              $
              764Home
      equity loans and lines of credit
              
              
              4
              
              
              
              78
              
              
              
              1
              
              
              
              10
              
              
              
              5
              
              
              
              88Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              252
              
              
              
              1
              
              
              
              252Construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              2
              
              
              
              197
              
              
              
              3
              
              
              
              118
              
              
              
              5
              
              
              
              315Consumer
      and other
              
              
              7
              
              
              
              18
              
              
              
              2
              
              
              
              22
              
              
              
              9
              
              
              
              40Total
              
              
              14
              
              
              $
              375
              
              
              
              11
              
              
              $
              1,084
              
              
              
              25
              
              
              $
              1,459At December 31,
      2006Real
      estate loans:One-
      to four-family residential
              
              
              1
              
              
              $
              52
              
              
              
              2
              
              
              $
              167
              
              
              
              3
              
              
              $
              219Home
      equity loans and lines of credit
              
              
              5
              
              
              
              253
              
              
              
              2
              
              
              
              22
              
              
              
              7
              
              
              
              275Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              44
              
              
              
              1
              
              
              
              44Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              7
              
              
              
              115
              
              
              
              -
              
              
              
              -
              
              
              
              7
              
              
              
              115Total
              
              
              13
              
              
              $
              420
              
              
              
              5
              
              
              $
              233
              
              
              
              18
              
              
              $
              653At December 31,
      2005Real
      estate loans:One-
      to four-family residential
              
              
              1
              
              
              $
              41
              
              
              
              2
              
              
              $
              37
              
              
              
              3
              
              
              $
              78Home
      equity loans and lines of credit
              
              
              4
              
              
              
              147
              
              
              
              1
              
              
              
              39
              
              
              
              5
              
              
              
              186Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              11
              
              
              
              209
              
              
              
              1
              
              
              
              4
              
              
              
              12
              
              
              
              213Total
              
              
              16
              
              
              $
              397
              
              
              
              4
              
              
              $
              80
              
              
              
              20
              
              
              $
              477
 
 10
  Loans
      Delinquent For60-89
      Days
              
              
              90
      Days and Over
              
              
              TotalNumber
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Number
              
              
              Amount(Dollars
      in thousands)At December 31,
      2004Real
      estate loans:One-
      to four-family residential
              
              
              2
              
              
              $
              25
              
              
              
              1
              
              
              $
              22
              
              
              
              3
              
              
              $
              47Home
      equity loans and lines of credit
              
              
              5
              
              
              
              129
              
              
              
              2
              
              
              
              60
              
              
              
              7
              
              
              
              189Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              9
              
              
              
              32
              
              
              
              2
              
              
              
              25
              
              
              
              11
              
              
              
              57Total
              
              
              16
              
              
              $
              186
              
              
              
              5
              
              
              $
              107
              
              
              
              21
              
              
              $
              293
 
 At December 31,
      2003Real
      estate loans:One-
      to four-family residential
              
              
              3
              
              
              $
              944
              
              
              
              2
              
              
              $
              95
              
              
              
              5
              
              
              $
              1,039Home
      equity loans and lines of credit
              
              
              2
              
              
              
              63
              
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              63Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              17
              
              
              
              2
              
              
              
              17Total
              
              
              5
              
              
              $
              1,007
              
              
              
              4
              
              
              $
              112
              
              
              
              9
              
              
              $
              1,119
  Nonperforming
Assets.The table below sets forth the amounts and categories
of our nonperforming assets at the dates indicated.  At each date
presented, we had no troubled debt restructurings (loans for which a portion of
interest or principal has been forgiven and loans modified at interest rates
materially less than current market rates).
  At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars
      in thousands)Non-accrual
      loans:Real
      estate loans:One-
      to four-family residential
              
              $
              764
              
              
              $
              167
              
              
              $
              37
              
              
              $
              -
              
              
              $
              95Home
      equity loans and lines of credit
              
              
              10
              
              
              
              22
              
              
              
              39
              
              
              
              -
              
              
              
              -Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              252
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              44
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              118
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              22
              
              
              
              -
              
              
              
              4
              
              
              
              -
              
              
              
              -Total
              
              
              1,166
              
              
              
              233
              
              
              
              80
              
              
              
              -
              
              
              
              95Accruing
      loans 90 days or more past due:Real
      estate loans:One-
      to four-family residential
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              22
              
              
              
              -Home
      equity loans and lines of credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              60
              
              
              
              -Multi-family
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Commercial
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
      and other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25
              
              
              
              17Total
      loans 90 days or more past due
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              107
              
              
              
              17Total
      non-performing loans
              
              
              1,166
              
              
              
              233
              
              
              
              80
              
              
              
              107
              
              
              
              112Foreclosed
      real estate
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      non-performing assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      non-performing assets
              
              $
              1,166
              
              
              $
              233
              
              
              $
              80
              
              
              $
              107
              
              
              $
              112Ratios:Total
      non-performing loans to total loans
              
              
              0.48
              %
              
              
              0.12
              %
              
              
              0.05
              %
              
              
              0.08
              %
              
              
              0.12
              %Total
      non-performing loans to total assets
              
              
              0.25
              %
              
              
              0.06
              %
              
              
              0.02
              %
              
              
              0.03
              %
              
              
              0.04
              %Total
      non-performing assets to total assets
              
              
              0.25
              %
              
              
              0.06
              %
              
              
              0.02
              %
              
              
              0.03
              %
              
              
              0.04
              %
  11
  The
amount of the allowance for loan losses allocated to the $1.2 million of
non-performing loans at December 31, 2007, noted above, was $3
thousand.  We have calculated this amount by applying our allowance
for loan losses methodology to each of the respective loan categories. 
This amount represents general allowances.
  Classification of
Assets.Our policies, consistent with regulatory guidelines,
provide for the classification of loans and other assets that are considered to
be of lesser quality as substandard, doubtful, or loss assets. An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if
any.  Substandard assets include those characterized by the distinct
possibility that we will sustain some loss if the deficiencies are not
corrected.  Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable.  Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not
warranted.  Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess
potential weaknesses that deserve our close attention, are required to be
designated as special mention.  As of December 31, 2007, we had $792
thousand of assets designated as special mention.
  When we
classify assets as either substandard or doubtful, we allocate a portion of the
related general loss allowances to such assets as we deem
prudent.  The allowance for loan losses represents amounts that have
been established to recognize losses inherent in the loan portfolio that are
both probable and reasonably estimable at the date of the financial
statements.  When we classify problem assets as loss, we charge-off
such amounts.  Our determination as to the classification of our
assets and the amount of our loss allowances are subject to review by our
regulatory agencies, which can require that we establish additional loss
allowances.  We regularly review our asset portfolio to determine
whether any assets require classification in accordance with applicable
regulations.  On the basis of our review of our assets at December 31,
2007, classified assets consisted of special mention assets of $792 thousand,
substandard assets of $1.2 million and no loans classified as doubtful or loss
assets.  The classified assets total includes $1.2 million of
nonperforming loans.
  Allowance for
Loan Losses.We provide for loan losses based on the allowance
method.  Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to it.  Additions to the
allowance for loan losses are provided by charges to income based on various
factors which, in our judgment, deserve current recognition in estimating
probable losses.  We regularly review the loan portfolio and make
provisions for loan losses in order to maintain the allowance for loan losses in
accordance with accounting principles generally accepted in the United States of
America.  The allowance for loan losses consists of three
components:
  (1)
              specific
      allowances established for any impaired commercial real estate,
      commercial, construction and multi-family mortgage loans for which the
      recorded investment in the loan exceeds the measured value of the
      loan;(2)
              allowances
      for loan losses for each loan type based on historical loan loss
      experience; and(3)
              adjustments
      to historical loss experience (general allowances), maintained to cover
      uncertainties that affect our estimate of probable losses for each loan
      type.
  The
adjustments to historical loss experience are based on our evaluation of several
factors, including:
  ·
              levels
      of, and trends in, charge-offs and recoveries;·
              national
      and local economic trends and conditions;·
              trends
      in volume and terms of loans, including any credit concentrations in the
      loan portfolio; and·
              experience,
      ability, and depth of lending management and other relevant
      staff.
 
 12
  We
evaluate the allowance for loan losses based upon the combined total of the
specific, historical loss and general components.  Generally when the
loan portfolio increases, absent other factors, the allowance for loan loss
methodology results in a higher dollar amount of estimated probable losses than
would be the case without the increase.  Generally when the loan
portfolio decreases, absent other factors, the allowance for loan loss
methodology results in a lower dollar amount of estimated probable losses than
would be the case without the decrease.
  We
consider commercial loans, commercial real estate loans and construction loans
to be riskier than one- to four-family residential mortgage
loans.  Commercial loans involve a higher risk of default than
residential loans of like duration since their repayment generally depends on
the successful operation of the borrower’s business and the sufficiency of
collateral, if any.  Commercial real estate loans also have greater
credit risks compared to one- to four-family residential mortgage loans, as they
typically involve large loan balances concentrated with single borrowers or
groups of related borrowers.  In addition, the payment experience on
loans secured by income-producing properties typically depends on the successful
operation of the related real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market and in the
general economy.  Construction loans have greater credit risk than
permanent mortgage financing.  The repayment of these loans depends
upon the sale of the property to third parties or the availability of permanent
financing upon completion of all improvements.  In the event we make
an acquisition loan on property that is not yet approved for the planned
development, there is the risk that approvals will not be granted or will be
delayed.  These events may adversely affect the borrower and the
collateral value of the property.  Construction loans also expose us
to the risk that improvements will not be completed on time in accordance with
specifications and projected costs.  In addition, the ultimate sale or
rental of the property may not occur as anticipated.
  We
periodically evaluate the carrying value of loans and the allowance is adjusted
accordingly.  While we use the best information available to make
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the information used in making the
evaluations.  In addition, as an integral part of their examination
process, our regulatory agencies periodically review the allowance for loan
losses.  Such agencies may require us to recognize additions to the
allowance based on their evaluation of information available to them at the time
of their examination.
  13
  The
following table sets forth activity in our allowance for loan losses for the
years indicated.
  At
      or For the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars
      in thousands)Balance
      at beginning of year
              
              $
              1,373
              
              
              $
              1,168
              
              
              $
              990
              
              
              $
              667
              
              
              $
              421Charge-offs:Real
      estate loans:One-
      to four-family residential
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (4
              )
              
              
              (2
              )Home
      equity loans and lines of credit
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Multi-family
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              (62
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Consumer
      and other
              
              
              (6
              )
              
              
              (10
              )
              
              
              (31
              )
              
              
              (38
              )
              
              
              (47
              )Total
      charge-offs
              
              
              (68
              )
              
              
              (10
              )
              
              
              (31
              )
              
              
              (42
              )
              
              
              (49
              )Recoveries:Real
      estate loans:One-
      to four-family residential
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Home
      equity loans and lines of credit
              
              
              —
              
              
              
              15
              
              
              
              —
              
              
              
              —
              
              
              
              —Multi-family
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Consumer
      and other
              
              
              3
              
              
              
              21
              
              
              
              5
              
              
              
              11
              
              
              
              12Total
      recoveries
              
              
              3
              
              
              
              36
              
              
              
              5
              
              
              
              11
              
              
              
              12Net
      recoveries (charge-offs)
              
              
              (65
              )
              
              
              26
              
              
              
              (26
              )
              
              
              (31
              )
              
              
              (37
              )Provision
      for loan losses
              
              
              84
              
              
              
              179
              
              
              
              204
              
              
              
              354
              
              
              
              283Balance
      at end of year
              
              $
              1,392
              
              
              $
              1,373
              
              
              $
              1,168
              
              
              $
              990
              
              
              $
              667Ratios:Net
      recoveries (charge-offs) to average loans outstanding
              
              
              (0.03
              )%
              
              
              0.01
              %
              
              
              (0.03
              )%
              
              
              (0.05
              )%
              
              
              (0.05
              )Allowance
      for loan losses to non-performing loans at end of year
              
              
              119.38
              %
              
              
              589.27
              %
              
              
              1,460.00
              %
              
              
              925.23
              %
              
              
              595.54
              %Allowance
      for loan losses to total loans at end of year
              
              
              0.57
              %
              
              
              0.69
              %
              
              
              0.73
              %
              
              
              0.77
              %
              
              
              0.76
              %
 
 14
 
 Allocation of
Allowance for Loan Losses.The following tables set forth the
allowance for loan losses allocated by loan category, the percent of the
allowance to the total allowance and the percent of loans in each category to
total loans at the dates indicated.  The allowance for loan losses
allocated to each category is not necessarily indicative of future losses in any
particular category and does not restrict the use of the allowance to absorb
losses in other categories.
  At
      December 31,2007
              
              
              2006
              
              
              2005Amount
              
              
              Percent
      of Allowance to Total
                  Allowance
              
              
              Percent
      of
                  Loans
      in Category to
                  Total
      Loans
              
              
              Amount
              
              
              Percent
      of Allowance to Total
                  Allowance
              
              
              Percent
      of
                  Loans
      in Category to
                  Total
      Loans
              
              
              Amount
              
              
              Percent
      of Allowance to Total
                  Allowance
              
              
              Percent
      of
                  Loans
      in Category to
                  Total
      Loans(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              115
              
              
              
              8.3
              %
              
              
              47.3
              %
              
              $
              265
              
              
              
              19.3
              %
              
              
              51.1
              %
              
              $
              205
              
              
              
              17.5
              %
              
              
              48.8Home
      equity loans and lines of credit
              
              
              40
              
              
              
              2.9
              
              
              
              16.6
              
              
              
              95
              
              
              
              6.9
              
              
              
              19.0
              
              
              
              83
              
              
              
              7.1
              
              
              
              20.8Multi-family
              
              
              70
              
              
              
              5.0
              
              
              
              2.3
              
              
              
              —
              
              
              
              —
              
              
              
              1.2
              
              
              
              —
              
              
              
              —
              
              
              
              1.1Commercial
              
              
              825
              
              
              
              59.3
              
              
              
              22.9
              
              
              
              695
              
              
              
              50.6
              
              
              
              19.6
              
              
              
              640
              
              
              
              54.8
              
              
              
              19.7Construction
              
              
              71
              
              
              
              5.1
              
              
              
              4.2
              
              
              
              —
              
              
              
              —
              
              
              
              4.2
              
              
              
              —
              
              
              
              —
              
              
              
              3.9Commercial
              
              
              158
              
              
              
              11.3
              
              
              
              5.2
              
              
              
              220
              
              
              
              16.0
              
              
              
              3.7
              
              
              
              155
              
              
              
              13.3
              
              
              
              4.3Consumer
      and other
              
              
              113
              
              
              
              8.1
              
              
              
              1.5
              
              
              
              98
              
              
              
              7.2
              
              
              
              1.2
              
              
              
              85
              
              
              
              7.3
              
              
              
              1.4Total
      allowance for loan losses
              
              $
              1,392
              
              
              
              100.0
              %
              
              
              100.0
              %
              
              $
              1,373
              
              
              
              100.0
              %
              
              
              100.0
              %
              
              $
              1,168
              
              
              
              100.0
              %
              
              
              100.0
              %
 
 At
      December 31,2004
              
              
              2003Amount
              
              
              Percent
      of Allowance to Total
                  Allowance
              
              
              Percent
      of Loans in Category to Total Loans
              
              
              Amount
              
              
              Percent
      of Allowance to Total Allowance
              
              
              Percent
      of Loans in Category to Total Loans(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              146
              
              
              
              14.8
              %
              
              
              44.4
              %
              
              $
              159
              
              
              
              23.8
              %
              
              
              39.5
              %Home
      equity loans and lines of credit
              
              
              80
              
              
              
              8.1
              
              
              
              25.1
              
              
              
              127
              
              
              
              19.0
              
              
              
              32.4Multi-family
              
              
              —
              
              
              
              —
              
              
              
              1.4
              
              
              
              —
              
              
              
              —
              
              
              
              0.2Commercial
              
              
              518
              
              
              
              52.3
              
              
              
              20.3
              
              
              
              321
              
              
              
              48.1
              
              
              
              15.3Construction
              
              
              —
              
              
              
              —
              
              
              
              1.8
              
              
              
              —
              
              
              
              —
              
              
              
              2.2Commercial
              
              
              156
              
              
              
              15.8
              
              
              
              4.8
              
              
              
              —
              
              
              
              —
              
              
              
              7.6Consumer
      and other
              
              
              90
              
              
              
              9.0
              
              
              
              2.2
              
              
              
              60
              
              
              
              9.1
              
              
              
              2.8Total
      allowance for loan losses
              
              $
              990
              
              
              
              100.0
              %
              
              
              100.0
              %
              
              $
              667
              
              
              
              100.0
              %
              
              
              100.0
              %
  15
 Securities
Activities
  Our
securities investment policy is established by our Board of Directors. This
policy dictates that investment decisions be made based on the safety of the
investment, liquidity requirements, potential returns, cash flow targets, and
consistency with our interest rate risk management strategy.  Our
Asset/Liability Management Committee, which consists of senior management,
oversees our investing strategies.  The Board of Directors reviews the
Asset/Liability Management Committee’s activities and strategies, and evaluates
on an ongoing basis our investment policy and objectives. Our chief executive
officer and our chief financial officer are responsible for making securities
portfolio decisions in accordance with established policies.  Our
chief executive officer and our chief financial officer have the authority to
purchase and sell securities within specific guidelines established by the
investment policy. In addition, all transactions are reviewed by the
Asset/Liability Management Committee at least monthly.
  Our
current investment policy generally permits securities investments in debt
securities issued by the U.S. Government and U.S. Government agencies, municipal
bonds, and corporate debt obligations, as well as investments in preferred and
common stock of U.S. Government agencies and U.S. Government sponsored
enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank of
New York. Securities in these categories are classified as “investment
securities” for financial reporting purposes.  The policy also permits
investments in mortgage-backed securities, including pass-through securities
issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, as well as
collateralized mortgage obligations (“CMOs”) issued or backed by securities
issued by these government agencies or government-sponsored enterprises. Also
permitted are investments in securities issued or backed by the Small Business
Administration.  As of December 31, 2007, we held no asset-backed
securities (securities collateralized by automobile loans, credit card
receivables and home equity loans), and we held no preferred securities issued
by either Fannie Mae or Freddie Mac.  Our current investment strategy
uses a risk management approach of diversified investing in fixed-rate
securities with short- to intermediate-term maturities, as well as
adjustable-rate securities, which may have a longer term to maturity. The
emphasis of this approach is to increase overall investment securities yields
while managing interest rate risk.
  Statement
of Financial Accounting Standards No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” requires that, at the time of purchase, we
designate a security as held to maturity, available-for-sale, or trading,
depending on our ability and intent.  Securities available-for-sale
are reported at fair value, while securities held to maturity are reported at
amortized cost. We do not have a trading portfolio.
  Mortgage-Backed
Securities.We invest in mortgage-backed securities in order
to generate positive interest rate spreads with minimal administrative expense,
lower credit risk as a result of the guarantees provided by Freddie Mac, Fannie
Mae and Ginnie Mae, and increased liquidity.  We invest primarily in
mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, and
Ginnie Mae.  At December 31, 2007, our mortgage-backed securities
portfolio had a fair value of $83.3 million, consisting of pass-through
securities.
  Mortgage-backed
securities are created by pooling mortgages and issuing a security
collateralized by the pool of mortgages with an interest rate that is less than
the interest rate on the underlying mortgages.  Mortgage-backed
securities typically represent a participation interest in a pool of
single-family or multi-family mortgages, although most of our mortgage-backed
securities are collateralized by single-family mortgages. The issuers of such
securities (government sponsored enterprises, such as Fannie Mae, Freddie Mac
and Ginnie Mae) pool and resell the participation interests in the form of
securities to investors, such as Colonial Bank, FSB, and guarantee the payment
of principal and interest to these investors.  Investments in
mortgage-backed securities involve a risk that actual prepayments will be
greater or less than the prepayment rate estimated at the time of purchase,
which may require adjustments to the amortization of any premium or accretion of
any discount relating to such instruments, thereby affecting the net yield on
such securities.  We review prepayment estimates for our
mortgage-backed securities at the time of purchase to ensure that prepayment
assumptions are reasonable considering the underlying collateral for the
securities at issue and current interest rates, and to determine the yield and
estimated maturity of the mortgage-backed securities
portfolio.  Periodic reviews of current prepayment speeds are
performed in order to ascertain whether prepayment estimates require
modification that would cause amortization or accretion
adjustments.
  16
  CMOs are
types of debt securities issued by a special-purpose entity that aggregates
pools of mortgages and mortgage-backed securities and creates different classes
of securities with varying maturities and amortization schedules, as well as a
residual interest, with each class possessing different risk
characteristics.  The cash flows from the underlying collateral are
generally divided into “tranches” or classes that have descending priorities
with respect to the distribution of principal and interest cash flows, while
cash flows on pass-through mortgage-backed securities are distributed pro rata
to all security holders. Our practice is to limit fixed-rate CMO investments
primarily to the early-to-intermediate tranches, which have the greatest cash
flow stability.  Floating rate CMOs are purchased with emphasis on the
relative trade-offs between lifetime interest rate caps, prepayment risk and
interest rates.
  Corporate Debt
Securities and Municipal Bonds.At December 31, 2007, we held
$14.6 million in corporate debt securities, at fair value, $12.3 million of
which were classified as available for sale and $2.3 million of which were
classified as held to maturity.  At December 31, 2007, we held $15.9
million in bonds issued by states and political subdivisions, $10.4 million of
which were classified as held to maturity at amortized cost and $5.5 million of
which were classified as available for sale at fair value.  Although
corporate debt securities and municipal bonds may offer a higher yield than a
U.S. Treasury or agency security of comparable duration, these securities also
have a higher risk of default due to adverse changes in the creditworthiness of
the issuer.  In recognition of this potential risk, we generally limit
investments in corporate bonds to securities rated in one of the four highest
categories by at least one nationally recognized rating agency, and to a total
investment of no more than $1.0 million per issuer.  We also generally
limit investments in municipal bonds to issues that are insured unless the
issuer is a local government entity within our service area.  Such
local entity obligations generally are not rated, and are subject to internal
credit reviews.  In addition, our investment policy imposes an
investment limitation of $1.5 million per municipal issue.
  Equity
Securities.  At December 31, 2007, our equity securities
consisted of Federal Home Loan Bank of New York common stock and mutual
funds.  We hold the Federal Home Loan Bank of New York common stock to
qualify for membership in the Federal Home Loan Bank System and to be eligible
to borrow funds under the Federal Home Loan Bank of New York’s advance
program.  There is no market for the common stock, but it is the
current practice of the Federal Home Loan Bank of New York to redeem shares at
par value.  The aggregate fair value of our Federal Home Loan Bank of
New York common stock as of December 31, 2007 was $2.5 million based on its
par value.  No unrealized gains or losses have been recorded because
the par value of the common stock represents its fair value.  Our
mutual funds consist solely of Shay Asset Management Funds.  We
selected these mutual funds because the underlying securities bear similar risk
characteristics to investments that we purchase directly.  These
mutual funds provide us with increased liquidity since we can redeem our shares
within several days and also provide us with a higher yield than other
short-term earning assets such as federal funds.  At December 31,
2007, the Company made a determination to write down this mutual fund for “other
than temporary impairment”.  The Company took an impairment charge of
$284 thousand (pre-tax) based on the length of time the mutual fund was in a
loss position and based on the fact that the mutual fund had not made any
recovery during the recent reduction in interest rates.  The Company
does not believe this impairment is related to credit quality but rather to the
widening of spreads in the bond market for mortgage related
securities.
  U.S. Government
Agency Securities.At December 31, 2007, we held U.S.
Government agency securities available for sale with a fair value of $44.3
million and U.S. Government agency securities held to maturity of $1.4 million.
Generally, these securities have short- to medium-term maturities (one to five
years) and may have call or step-up features.  While these securities
generally provide lower yields than other investments such as mortgage-backed
securities, our current investment strategy is to maintain investments in such
instruments to the extent appropriate for liquidity purposes, as collateral for
borrowings, and for prepayment protection.
  17
  The
following table sets forth the composition of our securities portfolio
(excluding Federal Home Loan Bank of New York common stock) at the dates
indicated.
  At
      December 31,2007
              
              
              2006
              
              
              2005Amortized
                  Cost
              
              
              Fair
      Value
              
              
              Amortized
                  Cost
              
              
              Fair
      Value
              
              
              Amortized
                  Cost
              
              
              Fair
      Value(In
      thousands)Securities
      available-for-sale:Mortgage-backed
              
              $
              79,085
              
              
              $
              79,454
              
              
              $
              53,646
              
              
              $
              53,229
              
              
              $
              53,771
              
              
              $
              53,030U.S.
      Government agency
              
              
              44,052
              
              
              
              44,275
              
              
              
              29,534
              
              
              
              29,128
              
              
              
              29,509
              
              
              
              29,051Corporate
              
              
              12,880
              
              
              
              12,267
              
              
              
              8,956
              
              
              
              8,660
              
              
              
              9,341
              
              
              
              9,263Mutual
      funds (1)
              
              
              14,385
              
              
              
              14,385
              
              
              
              13,942
              
              
              
              13,716
              
              
              
              13,314
              
              
              
              13,116Municipal
              
              
              5,402
              
              
              
              5,504
              
              
              
              23,927
              
              
              
              24,259
              
              
              
              23,902
              
              
              
              24,061SBA
      pools
              
              
              7,614
              
              
              
              7,664
              
              
              
              7,759
              
              
              
              7,933
              
              
              
              10,597
              
              
              
              10,735Total
      securities available-for-sale
              
              $
              163,418
              
              
              $
              163,549
              
              
              $
              137,764
              
              
              $
              136,925
              
              
              $
              140,434
              
              
              $
              139,256Securities
      held-to-maturity:Mortgage-backed
              
              $
              3,766
              
              
              $
              3,863
              
              
              $
              3,972
              
              
              $
              4,064
              
              
              $
              3,499
              
              
              $
              3,592U.S.
      Government agency
              
              
              1,420
              
              
              
              1,442
              
              
              
              1,412
              
              
              
              1,369
              
              
              
              1,000
              
              
              
              998Corporate
              
              
              2,173
              
              
              
              2,317
              
              
              
              1,698
              
              
              
              1,828
              
              
              
              2,964
              
              
              
              3,130Municipal
              
              
              9,854
              
              
              
              10,354
              
              
              
              11,640
              
              
              
              12,239
              
              
              
              10,011
              
              
              
              10,511Total
      securities held-to-maturity
              
              $
              17,213
              
              
              $
              17,976
              
              
              $
              18,722
              
              
              $
              19,500
              
              
              $
              17,474
              
              
              $
              18,231
 
 
 (1)  The
cost and fair value for 2007 reflect an impairment charge of approximately $284
thousand before income tax benefit.
  18
  Portfolio
Maturities and Yields.The composition and maturities of the
investment debt securities portfolio and the mortgage-backed securities
portfolio at December 31, 2007 are summarized in the following
table.  Maturities are based on the final contractual payment dates,
and do not reflect the impact of prepayments or early redemptions that may
occur.  State and municipal securities yields have been adjusted to a
tax-equivalent basis.
  One
      Year or Less
              
              
              More
      than One Year
                  through
      Five Years
              
              
              More
      than Five Years
                  through
      Ten Years
              
              
              More
      than Ten Years
              
              
              Total
      SecuritiesAmortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Fair
      Value
              
              
              Weighted
      Average Yield(Dollars
      in thousands)Securities
      available-for-sale:Mortgage-backed
              
              $
              -
              
              
              
              -
              %
              
              $
              3,576
              
              
              
              4.73
              %
              
              $
              1,550
              
              
              
              5.30
              %
              
              $
              73,959
              
              
              
              5.06
              %
              
              $
              79,085
              
              
              $
              79,454
              
              
              
              5.05
              %U.S.
      Government agency
              
              
              2,787
              
              
              
              4.43
              
              
              
              11,990
              
              
              
              4.90
              
              
              
              18,640
              
              
              
              5.26
              
              
              
              10,635
              
              
              
              6.25
              
              
              
              44,052
              
              
              
              44,275
              
              
              
              5.35Corporate
              
              
              2,494
              
              
              
              4.90
              
              
              
              6,116
              
              
              
              5.30
              
              
              
              2,788
              
              
              
              3.95
              
              
              
              1,482
              
              
              
              4.66
              
              
              
              12,880
              
              
              
              12,267
              
              
              
              4.86Mutual
      funds
              
              
              14,385
              
              
              
              5.02
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,385
              
              
              
              14,385
              
              
              
              5.02Municipal
              
              
              85
              
              
              
              7.88
              
              
              
              579
              
              
              
              7.51
              
              
              
              2,464
              
              
              
              6.82
              
              
              
              2,274
              
              
              
              7.09
              
              
              
              5,402
              
              
              
              5,504
              
              
              
              7.02SBA
      pools
              
              
              -
              
              
              
              -
              
              
              
              2,563
              
              
              
              8.11
              
              
              
              3,111
              
              
              
              8.27
              
              
              
              1,940
              
              
              
              4.88
              
              
              
              7,614
              
              
              
              7,664
              
              
              
              7.35Total
      securities available-for-sale
              
              $
              19,751
              
              
              
              4.94
              %
              
              $
              24,824
              
              
              
              5.36
              %
              
              $
              28,553
              
              
              
              5.60
              %
              
              $
              90,290
              
              
              
              5.24
              %
              
              $
              163,418
              
              
              $
              163,549
              
              
              
              5.36
              %Securities
      held-to-maturity:Mortgage-backed
              
              $
              17
              
              
              
              6.15
              %
              
              $
              36
              
              
              
              6.80
              %
              
              $
              1,462
              
              
              
              6.20
              %
              
              $
              2,251
              
              
              
              5.98
              %
              
              $
              3,766
              
              
              $
              3,863
              
              
              
              6.08
              %U.S.
      Government agency
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              495
              
              
              
              5.25
              
              
              
              925
              
              
              
              6.00
              
              
              
              1,420
              
              
              
              1,442
              
              
              
              5.74Corporate
              
              
              987
              
              
              
              5.35
              
              
              
              -
              
              
              
              -
              
              
              
              991
              
              
              
              7.13
              
              
              
              195
              
              
              
              6.44
              
              
              
              2,173
              
              
              
              2,317
              
              
              
              6.26Municipal
              
              
              1,180
              
              
              
              5.74
              
              
              
              2,422
              
              
              
              6.77
              
              
              
              900
              
              
              
              8.72
              
              
              
              5,352
              
              
              
              8.56
              
              
              
              9,854
              
              
              
              10,354
              
              
              
              7.80Total
      securities held-to-maturity
              
              $
              2,184
              
              
              
              5.57
              %
              
              $
              2,458
              
              
              
              6.77
              %
              
              $
              3,848
              
              
              
              6.91
              %
              
              $
              8,723
              
              
              
              7.57
              %
              
              $
              17,213
              
              
              $
              17,976
              
              
              
              7.06
              %
 
 19
 
 Sources
of Funds
  General.Deposits,
borrowings, repayments and prepayments of loans and securities, proceeds from
sales of securities, proceeds from maturing securities and cash flows from
operations are the primary sources of our funds for use in lending, investing
and for other general purposes.
  Deposits.We
offer a variety of deposit accounts with a range of interest rates and
terms.  Our deposit accounts consist of certificates of deposit,
savings accounts, NOW accounts, checking accounts, money market accounts, club
accounts andindividual retirement
accounts.We
provide commercial checking accounts for businesses.  In addition, we
provide low-cost checking account services for low-income
customers.
  Our
deposits are obtained predominantly from the areas in which our branch offices
are located.  We rely on our customer service and competitive pricing
to attract and retain these deposits.  We accept certificates of
deposit in excess of $100,000 for which we may provide preferential
rates.  At December 31, 2007, we had $28.0 million in brokered
certificates of deposits.
  The
following tables set forth the distribution of total deposit accounts, by
account type, at the dates indicated.
  At
      December 31,2007
              
              
              2006
              
              
              2005Balance
              
              
              Percent
              
              
              Weighted
      Average
                  Rate
              
              
              Balance
              
              
              Percent
              
              
              Weighted
      Average
                  Rate
              
              
              Balance
              
              
              Percent
              
              
              Weighted
      Average
                  Rate(Dollars
      in thousands)Deposit
      type:Non-interest
      bearing demand
              
              $
              15,141
              
              
              
              4.08
              %
              
              
              —
              %
              
              $
              18,055
              
              
              
              5.35
              %
              
              
              —
              %
              
              $
              13,638
              
              
              
              4.79
              %
              
              
              —
              %Savings
              
              
              55,716
              
              
              
              15.00
              
              
              
              2.18
              
              
              
              57,260
              
              
              
              16.98
              
              
              
              1.72
              
              
              
              61,635
              
              
              
              21.65
              
              
              
              1.50NOW
      accounts
              
              
              45,255
              
              
              
              12.19
              
              
              
              2.12
              
              
              
              36,740
              
              
              
              10.89
              
              
              
              1.89
              
              
              
              33,844
              
              
              
              11.89
              
              
              
              1.43Super
      NOW accounts
              
              
              16,520
              
              
              
              4.45
              
              
              
              1.77
              
              
              
              14,200
              
              
              
              4.21
              
              
              
              1.71
              
              
              
              17,492
              
              
              
              6.14
              
              
              
              1.00Money
      market demand
              
              
              20,670
              
              
              
              5.56
              
              
              
              3.72
              
              
              
              20,553
              
              
              
              6.10
              
              
              
              3.54
              
              
              
              18,778
              
              
              
              6.59
              
              
              
              2.39Total
      transaction accounts
              
              
              153,302
              
              
              
              41.28
              
              
              
              2.11
              
              
              
              146,808
              
              
              
              43.53
              
              
              
              1.81
              
              
              
              145,387
              
              
              
              51.06
              
              
              
              1.39Certificates
      of deposit
              
              
              218,080
              
              
              
              58.72
              
              
              
              4.86
              
              
              
              190,446
              
              
              
              56.47
              
              
              
              4.74
              
              
              
              139,338
              
              
              
              48.94
              
              
              
              3.96Total
      deposits
              
              $
              371,382
              
              
              
              100.00
              %
              
              
              3.72
              %
              
              $
              337,254
              
              
              
              100.00
              %
              
              
              3.46
              %
              
              $
              284,725
              
              
              
              100.00
              %
              
              
              2.65
              %
 
 As of
December 31, 2007, the aggregate amount of outstanding certificates of deposit
in amounts greater than or equal to $100,000 was approximately $119.7
million.  The following table sets forth the maturity of those
certificates as of December 31, 2007.
  At
                  December
      31, 2007(In
      thousands)Three
      months or less
              
              $
              27,508Over
      three months through six months
              
              
              11,472Over
      six months through one year
              
              
              41,739Over
      one year to three years
              
              
              28,209Over
      three years
              
              
              10,790Total
              
              $
              119,718
 
 At
December 31, 2007, $150.4 million of our certificates of deposit had maturities
of one year or less.  We monitor activity on these accounts and, based
on historical experience and our current pricing strategy, we believe we will
retain a large portion of these accounts upon maturity.
  20
  The
following table sets forth the interest-bearing deposit activities for the years
indicated.
  Year
      Ended December 31,2007
              
              
              2006
              
              
              2005(In
      thousands)Beginning
      balance
              
              $
              319,199
              
              
              $
              271,087
              
              
              $
              249,820Net
      deposits (withdrawals) before interest credited
              
              
              23,410
              
              
              
              38,655
              
              
              
              14,839Interest
      credited
              
              
              13,632
              
              
              
              9,457
              
              
              
              6,428Ending
      balance
              
              $
              356,241
              
              
              $
              319,199
              
              
              $
              271,087
 
 Borrowings.Our
borrowings consist of short-term and long-term Federal Home Loan Bank
advances.  The following table sets forth information concerning the
borrowing balances and interest rates at the dates and for the years
indicated.
  At
      or For the Year Ended December 31,2007
              
              
              2006
              
              
              2005(Dollars
      in thousands)Balance
      at end of year
              
              $
              45,939
              
              
              $
              8,324
              
              
              $
              15,415Average
      balance during year
              
              $
              17,605
              
              
              $
              15,504
              
              
              $
              5,912Maximum
      outstanding at any month end
              
              $
              45,939
              
              
              $
              23,975
              
              
              $
              15,740Weighted
      average interest rate at end of year
              
              
              4.33
              %
              
              
              5.54
              %
              
              
              4.17
              %Average
      interest rate during year
              
              
              4.54
              %
              
              
              4.84
              %
              
              
              3.30
              %
 
 At
December 31, 2007, the maturities of the borrowings are as
follows:  $15.4 million due in January 2008, $4.0 million due in March
2008, $4.0 million due in November 2008, $4.0 million due in October 2009, $4.0
million due in November 2009, $4.0 million due in December 2009, $4.0 million
due in October 2010 and $6.6 million is an monthly amortizing loan with a final
maturity  due in June 2021.
  At
December 31, 2007, we had the ability to borrow approximately $112.9 million
under our credit facilities with the Federal Home Loan Bank of New York of which
$45.9 million was outstanding.
  Employees
  As of
December 31, 2007, we had 79 full-time employees and 13 part-time
employees.  The employees are not represented by a collective
bargaining unit and we consider our relationship with our employees to be
good.
  Legal
Proceedings
  We are
not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business, which, in the
aggregate, involve amounts that we believe are immaterial to our consolidated
financial condition, results of operations and cash flows.
  
  FEDERAL
AND STATE TAXATION
  Tax
Allocation
  Colonial
Bank, FSB, Colonial Bankshares, Inc. and CB Delaware Investments, Inc. have
entered into an agreement to establish a method for allocating and for
reimbursing the payment of their consolidated tax liability.
  21
  Federal
Taxation
  General.Colonial
Bankshares, Inc., Colonial Bank, MHC, Colonial Bank, FSB and CB Delaware
Investments, Inc. are subject to federal income taxation in the same general
manner as other corporations, with some exceptions discussed
below.  Colonial Bankshares, MHC’s and Colonial Bank, FSB’s federal
tax returns are not currently under audit, and have not been audited during the
past five years.  The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the applicable tax rules.
  Method of
Accounting.For federal
income tax purposes, Colonial Bankshares, Inc. reports income and expenses on
the accrual method of accounting and uses a tax year ending December 31 for
filing its federal and state income tax returns.
  Bad Debt
Reserves.Colonial Bank,
FSB is permitted to establish a reserve for bad debts and to make annual
additions to the reserve.  These additions can, within specified
formula limits, be deducted in arriving at our taxable
income.  Pursuant to the Small Business Protection Act of 1996 (the
“1996 Act”), savings institutions were required to recapture any excess reserves
over those established as of December 31, 1988 (base year
reserve).  Colonial Bank, FSB recaptured approximately $50,000 of
reserves over the six-year period ended December 31, 2002.
  Taxable
Distributions and Recapture.Prior to the
1996 Act, bad debt reserves created prior to December 31, 1988 were subject to
recapture into taxable income should Colonial Bank, FSB fail to meet certain
thrift asset and definitional tests.  Federal legislation has
eliminated these thrift related recapture rules.
  At
December 31, 2007, our total federal pre-1988 base year reserve was
approximately $1.5 million.  However, under current law, pre-1988 base
year reserves remain subject to recapture should Colonial Bank, FSB make certain
non-dividend distributions, repurchase any of its stock, pay dividends in excess
of tax earnings and profits, or cease to maintain a financial institution
charter.
  Alternative
Minimum Tax.The Internal
Revenue Code of 1986, as amended (the “Code”) imposes an alternative minimum tax
(“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax
preferences (“alternative minimum taxable income”).  The AMT is
payable to the extent such alternative minimum taxable income is in excess of an
exemption amount and the AMT exceeds the regular income tax.  Net
operating losses can offset no more than 90% of alternative minimum taxable
income.  Certain payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years.  Colonial
Bank, FSB has no such amounts available as credits for carryover.
  Net Operating
Loss Carryovers.A financial
institution may carry back net operating losses to the preceding two taxable
years and forward to the succeeding 20 taxable years.  At December 31,
2007, Colonial Bank, FSB had no net operating loss carryforwards for federal
income tax purposes.
  Corporate
Dividends-Received Deduction.Colonial
Bankshares, Inc. may exclude from its income 100% of dividends received from
Colonial Bank, FSB as a member of the same affiliated group of
corporations.  The corporate dividends-received deduction is 80% in
the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct
only 70% of dividends received or accrued on their behalf.
  State
Taxation
  New Jersey State
Taxation.Colonial Bankshares,
MHC, Colonial Bankshares, Inc. and Colonial Bank, FSB file New Jersey
Corporation Business tax returns for banking and financial
corporations.  Generally, the income of savings institutions in New
Jersey is subject to the New Jersey Corporation Business tax at the rate of 9%
on its taxable income, before net operating loss deductions and special
deductions for federal income tax purposes. For this purpose, “taxable income”
generally means federal taxable income subject to certain adjustments (including
addition of interest income on state and municipal obligations).  With
the formation of CB Delaware Investments, Inc. and the transfer of investment
securities to it, the taxable state income of Colonial Bank, FSB has been
substantially reduced.  With the reduction, the Bank is in a net
operating loss position for state tax purposes and may utilize state net
operating loss carryforwards to reduce future state income taxes though there is
no guarantee that these carryforwards will be realized.
  22
  Colonial
Bankshares, MHC, Colonial Bankshares, Inc. and Colonial Bank, FSB are not
currently under audit with respect to their New Jersey income tax returns and
their state tax returns have not been audited for the past five
years.
  SUPERVISION
AND REGULATION
  General
  Colonial
Bank, FSB is examined and supervised by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation.  This regulation and
supervision establishes a comprehensive framework of activities in which an
institution may engage and is intended primarily for the protection of the
Federal Deposit Insurance Corporation’s deposit insurance funds and
depositors.  Under this system of federal regulation, financial
institutions are periodically examined to ensure that they satisfy applicable
standards with respect to their capital adequacy, assets, management, earnings,
liquidity and sensitivity to market interest rates.  Following
completion of its examination, the federal agency critiques the institution’s
operations and assigns its rating (known as an institution’s CAMELS
rating).  Under federal law, an institution may not disclose its
CAMELS rating to the public.  Colonial Bank, FSB also is a member of
and owns stock in the Federal Home Loan Bank of New York, which is one of the
twelve regional banks in the Federal Home Loan Bank System.  Colonial
Bank, FSB is also regulated to a lesser extent by the Board of Governors of the
Federal Reserve System, governing reserves to be maintained against deposits and
other matters.  The Office of Thrift Supervision examines Colonial
Bank, FSB and prepares reports for the consideration of its Board of Directors
on any operating deficiencies.  Colonial Bank, FSB’s relationship with
its depositors and borrowers also is regulated to a great extent by both federal
and state laws, especially in matters concerning the ownership of deposit
accounts and the form and content of Colonial Bank, FSB’s mortgage
documents.
  Any
change in these laws or regulations, whether by the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision or Congress, could have a material
adverse impact on Colonial Bankshares, Inc. and Colonial Bank, FSB and their
operations.
  Federal
Banking Regulation
  Business
Activities.A federal savings bank derives its lending and
investment powers from the Home Owners’ Loan Act, as amended, and the
regulations of the Office of Thrift Supervision.  Under these laws and
regulations, Colonial Bank, FSB may invest in mortgage loans secured by
residential real estate without limitations as a percentage of assets and
non-residential real estate loans which may not in the aggregate exceed 400% of
capital, commercial business loans up to 20% of assets in the aggregate and
consumer loans up to 35% of assets in the aggregate, certain types of debt
securities and certain other assets.  Colonial Bank, FSB also may
establish subsidiaries that may engage in activities not otherwise permissible
for Colonial Bank, FSB directly including real estate investment, and securities
and insurance brokerage.
  Capital
Requirements.  Office of Thrift Supervision regulations require
savings banks to meet three minimum capital standards:  a 1.5%
tangible capital ratio, a 4% leverage ratio (3% for savings banks receiving the
highest rating on the CAMELS rating system), and an 8% risk-based capital
ratio.  The prompt corrective action standards discussed below, in
effect, establish a minimum 2% tangible capital standard.
  The
risk-based capital standard for savings banks requires the maintenance of
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively.  In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision,
based on the risks believed inherent in the type of asset.  Core
capital is defined as common stockholders’ equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card
relationships.  The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock, the allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 46% of net unrealized gains on available-for-sale
equity securities with readily determinable fair market
values.  Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.  Additionally, a
savings bank that retains credit risk in connection with an asset sale may be
required to maintain additional regulatory capital because of the recourse back
to the savings bank.  Colonial Bank, FSB does not typically engage in
asset sales.
  23
  At
December 31, 2007, Colonial Bank, FSB’s capital exceeded all applicable
requirements.
  Loans to One
Borrower. A
federal savings bank generally may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of unimpaired capital and
surplus.  An additional amount may be loaned, equal to 10% of
unimpaired capital and surplus, if the loan is secured by readily marketable
collateral, which generally does not include real estate.  As of
December 31, 2007, Colonial Bank, FSB was in compliance with the
loans-to-one-borrower limitations.
  Qualified Thrift
Lender Test.As a federal savings
bank, Colonial Bank, FSB must satisfy the qualified thrift lender, or “QTL,”
test.  Under the QTL test, Colonial Bank, FSB must maintain at least
65% of its “portfolio assets” in “qualified thrift investments” (primarily
residential mortgages and related investments including mortgage-backed
securities) in at least nine of the most recent 12-month
period.  “Portfolio assets” generally means total assets of a savings
institution, less the sum of specified liquid assets up to 20% of total assets,
goodwill and other intangible assets, and the value of property used in the
conduct of the savings bank’s business.
  Colonial
Bank, FSB also may satisfy the QTL test by qualifying as a “domestic building
and loan association” as defined in the Internal Revenue Code.
  A savings
bank that fails the qualified thrift lender test must either convert to a bank
charter or operate under specified restrictions.  At December 31,
2007, Colonial Bank, FSB held 83.42% of its “portfolio assets” in “qualified
thrift investments,” and satisfied this test.
  Capital
Distributions.Office of Thrift
Supervision regulations govern capital distributions by a federal savings bank,
which include cash dividends, stock repurchases and other transactions charged
to the capital account.  A savings bank must file an application for
approval of a capital distribution if:
  ·
              the
      total capital distributions for the applicable calendar year exceed the
      sum of the association’s net income for that year to date plus the savings
      bank’s retained net income for the preceding two years;·
              the
      savings bank would not be at least adequately capitalized following the
      distribution;·
              the
      distribution would violate any applicable statute, regulation, agreement
      or Office of Thrift Supervision-imposed condition; or·
              the
      savings bank is not eligible for expedited treatment of its
      filings.
  Even if
an application is not otherwise required, every savings bank that is a
subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the Board of Directors declares a
dividend or approves a capital distribution.
  The
Office of Thrift Supervision may disapprove a notice or application
if:
  ·
              the
      savings bank would be undercapitalized following the
      distribution;·
              the
      proposed capital distribution raises safety and soundness concerns;
      or·
              the
      capital distribution would violate a prohibition contained in any statute,
      regulation or agreement.
  In
addition, the Federal Deposit Insurance Act provides that an insured depository
institution shall not make any capital distribution, if after making such
distribution the institution would be undercapitalized.
  Liquidity.  A
federal savings bank is required to maintain a sufficient amount of liquid
assets to ensure its safe and sound operation.
  24
  Community
Reinvestment Act and Fair Lending Laws.  All savings banks have
a responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods.  In
connection with its examination of a federal savings bank, the Office of Thrift
Supervision is required to assess the association’s record of compliance with
the Community Reinvestment Act.  In addition, the Equal Credit
Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in
their lending practices on the basis of characteristics specified in those
statutes.  A savings bank’s failure to comply with the provisions of
the Community Reinvestment Act could, at a minimum, result in denial of certain
corporate applications such as branches or mergers, or in restrictions on its
activities.  The failure to comply with the Equal Credit Opportunity
Act and the Fair Housing Act could result in enforcement actions by the Office
of Thrift Supervision, as well as other federal regulatory agencies and the
Department of Justice.  Colonial Bank, FSB received a “satisfactory”
Community Reinvestment Act rating in its most recent federal
examination.
  Privacy
Standards.  Financial institutions, including Colonial Bank,
FSB, are subject to Federal Deposit Insurance Corporation regulations
implementing the privacy protection provisions of the Gramm-Leach-Bliley
Act.  These regulations require Colonial Bank, FSB to disclose its
privacy policy, including identifying with whom it shares “non-public personnel
information” to customers at the time of establishing the customer relationship
and annually thereafter.
  The
regulations also require Colonial Bank, FSB to provide its customers with
initial and annual notices that accurately reflect its privacy policies and
practices.  In addition, Colonial Bank, FSB is required to provide its
customers with the ability to “opt-out” of having Colonial Bank, FSB share their
non-public personal information with unaffiliated third parties before it can
disclose such information, subject to certain exceptions.  The
implementation of these regulations did not have a material adverse effect on
Colonial Bank, FSB.  The Gramm-Leach-Bliley Act also provides for the
ability of each state to enact legislation that is more protective of consumers’
personal information. We cannot predict whether New Jersey may enact such
legislation or what impact, if any, it would have if enacted.
  The
Federal Deposit Insurance Corporation and other federal banking agencies have
adopted guidelines establishing standards for safeguarding customer information
to implement certain provisions of the Gramm-Leach-Bliley Act.  The
guidelines describe the agencies’ expectations for the creation, implementation
and maintenance of an information security program, which would include
administrative, technical and physical safeguards appropriate to the size and
complexity of the institution and the nature and scope of its activities. The
standards set forth in the guidelines are intended to insure the security and
confidentiality of customer records and information, protect against any
anticipated threats or hazards to the security or integrity of such records and
protect against unauthorized access to or use of such records or information
that could result in substantial harm or inconvenience to any
customer.  Colonial Bank, FSB has implemented these guidelines and
such implementation did not have a material adverse effect on our
operations.
  Transactions with
Related Parties.  A federal savings bank’s authority to engage
in transactions with its affiliates is limited by Office of Thrift Supervision
regulations and by Sections 23A and 23B of the Federal Reserve Act and its
implementing Regulation W. An affiliate is a company that controls, is
controlled by, or is under common control with an insured depository institution
such as Colonial Bank, FSB.  Colonial Bankshares, Inc. is an affiliate
of Colonial Bank, FSB.  In general, loan transactions between an
insured depository institution and its affiliate are subject to certain
quantitative and collateral requirements.  In this regard,
transactions between an insured depository institution and its affiliate are
limited to 10% of the institution’s unimpaired capital and unimpaired surplus
for transactions with any one affiliate and 20% of unimpaired capital and
unimpaired surplus for transactions in the aggregate with all
affiliates.  Collateral in specified amounts ranging from 100% to 130%
of the amount of the transaction must usually be provided by affiliates in order
to receive loans from the savings bank.  In addition, Office of Thrift
Supervision regulations prohibit a savings bank from lending to any of its
affiliates that are engaged in activities that are not permissible for bank
holding companies and from purchasing the securities of any affiliate, other
than a subsidiary.  Finally, transactions with affiliates must be
consistent with safe and sound banking practices, not involve low-quality assets
and be on terms that are as favorable to the institution as comparable
transactions with non-affiliates.  The Office of Thrift Supervision
requires savings banks to maintain detailed records of all transactions with
affiliates.
  25
  Colonial
Bank, FSB’s authority to extend credit to its directors, executive officers and
10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the
FRA and Regulation O of the Federal Reserve Board.  Among other
things, these provisions require that extensions of credit to insiders (i) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features, and (ii) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of Colonial Bank, FSB’s capital.  In addition, extensions of
credit in excess of certain limits must be approved by Colonial Bank, FSB’s
Board of Directors.
  Enforcement.  The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring enforcement action against
all “institution-affiliated parties,” including stockholders, and attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured
institution.  Formal enforcement action by the Office of Thrift
Supervision may range from the issuance of a capital directive or cease and
desist order, to removal of officers and/or directors of the institution and the
appointment of a receiver or conservator.  Civil penalties cover a
wide range of violations and actions, and range up to $25,000 per day, unless a
finding of reckless disregard is made, in which case penalties may be as high as
$1 million per day.  The Federal Deposit Insurance Corporation also
has the authority to terminate deposit insurance or to recommend to the Director
of the Office of Thrift Supervision that enforcement action be taken with
respect to a particular savings institution.  If action is not taken
by the Director, the Federal Deposit Insurance Corporation has authority to take
action under specified circumstances.
  Standards for
Safety and Soundness.  Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions.  These standards relate to, among other things, internal
controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, compensation, and other
operational and managerial standards as the agency deems
appropriate.  The federal banking agencies adopted Interagency
Guidelines Prescribing Standards for Safety and Soundness to implement the
safety and soundness standards required under federal law.  The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired.  The guidelines address internal
controls and information systems, internal audit systems, credit underwriting,
loan documentation, interest rate risk exposure, asset growth, compensation,
fees and benefits.  If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard.  If an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan.
  Prompt Corrective
Action Regulations.  Under the prompt
corrective action regulations, the Office of Thrift Supervision is required and
authorized to take supervisory actions against undercapitalized savings
banks.  For this purpose, a savings bank is placed in one of the
following five categories based on the association’s capital:
  ·
              well-capitalized
      (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10%
      total risk-based capital);·
              adequately
      capitalized (at least 4% leverage capital, 4% Tier 1 risk-based
      capital and 8% total risk-based capital);·
              undercapitalized
      (less than 8% total risk-based capital, 4% Tier 1 risk-based capital
      or 3% leverage capital);·
              significantly
      undercapitalized (less than 6% total risk-based capital, 3% Tier 1
      risk-based capital or 3% leverage capital); and·
              critically
      undercapitalized (less than 2% tangible
  capital).
  Generally,
a banking regulator is required to appoint a receiver or conservator for an
association that is “critically undercapitalized” within specific time
frames.  The regulations also provide that a capital restoration plan
must be filed with the Office of Thrift Supervision within 45 days of the date
an association receives notice that it is “undercapitalized,” “significantly
undercapitalized” or “critically undercapitalized.”  The criteria for
an acceptable capital restoration plan include, among other things, the
establishment of the methodology and assumptions for attaining adequately
capitalized status on an annual basis, procedures for ensuring compliance with
restrictions imposed by applicable federal regulations, the identification of
the types and levels of activities the savings bank will engage in while the
capital restoration plan is in effect, and assurances that the capital
restoration plan will not appreciably increase the current risk profile of the
savings bank.  Any holding company for the savings bank required to
submit a capital restoration plan must guarantee the lesser of: an amount equal
to 5% of the savings bank’s assets at the time it was notified or deemed to be
undercapitalized by the Office of Thrift Supervision, or the amount necessary to
restore the savings bank to adequately capitalized status.  This
guarantee remains in place until the Office of Thrift Supervision notifies the
savings bank that it has maintained adequately capitalized status for each of
four consecutive calendar quarters, and the Office of Thrift Supervision has the
authority to require payment and collect payment under the
guarantee.  Failure by a holding company to provide the required
guarantee will result in certain operating restrictions on the savings bank,
such as restrictions on the ability to declare and pay dividends, pay executive
compensation and management fees, and increase assets or expand operations.
The Office of
Thrift Supervision may also take any one of a number of discretionary
supervisory actions against undercapitalized associations, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
  26
  At
December 31, 2007, Colonial Bank, FSB met the criteria for being considered
“well-capitalized.”
  Insurance of
Deposit Accounts.Deposit accounts in
Colonial Bank, FSB are insured by the Federal Deposit Insurance Corporation,
generally up to a maximum of $100,000 per separately insured depositor and up to
a maximum of $250,000 for self-directed retirement accounts.  Colonial
Bank, FSB’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments.  The Federal Deposit
Insurance Corporation has adopted a risk-based system for determining deposit
insurance assessments.  The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates as necessary to maintain the required
ratio of reserves to insured deposits of 1.25%.  In addition, all
Federal Deposit Insurance Corporation-insured institutions must pay assessments
to the Federal Deposit Insurance Corporation at an annual rate of approximately
0.0144% of insured deposits to fund interest payments on bonds maturing in 2017
issued by a federal agency to recapitalize the predecessor to the Savings
Association Insurance Fund.
  Federal
legislation, adopted in 2006, required among other things, an increase in the
amount of federal deposit insurance coverage per separately insured depositor
(with a cost of living adjustment to become effective in five years), and the
reserve ratio to be modified to provide for a range between 1.15% and 1.40% of
estimated insured deposits.  The new legislation required the FDIC to
issue regulations implementing the law and changes required by the law will not
be effective until final regulations have been issued.
  Effective
March 31, 2006, the Federal Deposit Insurance Corporation merged the BIF and the
SAIF into a single insurance fund called the Deposit Insurance
Fund.  As a result of the merger, the BIF and SAIF were
abolished.  The merger of the BIF and SAIF into the Deposit Insurance
Fund does not affect the authority of the Financing Corporation (“FICO”) to
impose and collect, with approval of the Federal Deposit Insurance Corporation,
assessments for anticipated payments, insurance costs and custodial fees on
bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and
Loan Insurance Corporation.  The bonds issued by the FICO are due to
mature in 2017 through 2019.  For the quarter ended December 31, 2007,
the FICO assessment was equal to 1.24 basis points for each $100 in domestic
deposits maintained at an institution.
  On
November 2, 2006, the Federal Deposit Insurance Corporation adopted final
regulations establishing a risk-based assessment system that will enable the
Federal Deposit Insurance Corporation to more closely tie each financial
institution’s premiums to the risk it poses to the deposit insurance
fund.  Under the new risk-based assessment system the Federal Deposit
Insurance Corporation evaluates the risk of each financial institution based on
three primary sources of information: (1) its supervisory rating, (2) its
financial ratios, and (3) its long-term debt issuer rating, if the institution
has one.  The new rates for nearly all of the financial institution
industry will vary between five and seven cents for every $100 of domestic
deposits.  At the same time, the Federal Deposit Insurance Corporation
also adopted final regulations designating the reserve ratio for the deposit
insurance fund during 2007 at 1.25% of estimated insured deposits.
  Prohibitions
Against Tying Arrangements.  Federal savings
banks are prohibited, subject to some exceptions, from extending credit to or
offering any other service, or fixing or varying the consideration for such
extension of credit or service, on the condition that the customer obtain some
additional service from the institution or its affiliates or not obtain services
of a competitor of the institution.
  27
  Federal Home Loan
Bank System.  Colonial Bank, FSB is a member of the Federal
Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks.  The Federal Home Loan Bank System provides a central credit
facility primarily for member institutions.  As a member of the
Federal Home Loan Bank of New York, Colonial Bank, FSB is required to acquire
and hold shares of capital stock in the Federal Home Loan
Bank.  Currently, the capital stock requirement is comprised of: 1)
Membership Stock, which equals 0.20% of Colonial Bank, FSB’s mortgage-related
assets as of December 31, 2007 and 2) Activity-Based Stock, which equals 4.5% of
outstanding borrowings from the Federal Home Loan Bank.  As of
December 31, 2007, Colonial Bank, FSB was in compliance with this
requirement.
  Federal
Reserve System
  The
Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts.  At
December 31, 2007, Colonial Bank, FSB was in compliance with these reserve
requirements.
  Internet
Banking
  Technological
developments are significantly altering the ways in which most companies,
including financial institutions, conduct their business.  The growth
of the Internet is prompting banks to reconsider business strategies and adopt
alternative distribution and marketing systems.  The federal bank
regulatory agencies have conducted seminars and published materials targeted to
various aspects of internet banking, and have indicated their intention to
reevaluate their regulations to ensure that they encourage banks’ efficiency and
competitiveness consistent with safe and sound banking practices. We cannot
assure you that the bank regulatory agencies will adopt new regulations that
will not materially affect any of our internet operations or restrict any such
further operations.
  The
USA PATRIOT Act
  The USA
Patriot Act gives the federal government powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers,
increased information sharing and broadened anti-money laundering
requirements.  The USA Patriot Act also requires the federal banking
agencies to take into consideration the effectiveness of controls designed to
combat money laundering activities in determining whether to approve a merger or
other acquisition application of a member institution.  Accordingly,
if we engage in a merger or other acquisition, our controls designed to combat
money laundering would be considered as part of the application
process.  We have established policies, procedures and systems
designed to comply with these regulations.
  Sarbanes-Oxley
Act of 2002
  The
Sarbanes-Oxley Act of 2002 was enacted to address, among other issues, corporate
governance, auditing and accounting, executive compensation, and enhanced and
timely disclosure of corporate information.  Under Section 302(a) of
the Sarbanes-Oxley Act, the Chief Executive Officer and Chief Financial Officer
of Colonial Bankshares, Inc. are required to certify that its quarterly and
annual reports filed with the Securities and Exchange Commission do not contain
any untrue statement of a material fact.  Rules promulgated under the
Sarbanes-Oxley Act require that these officers certify that: they are
responsible for establishing, maintaining and regularly evaluating the
effectiveness of our internal controls; they have made certain disclosures to
our auditors and the audit committee of the Board of Directors about our
internal controls; and they have included information in our quarterly and
annual reports about their evaluation and whether there have been significant
changes in our internal controls or in other factors that could significantly
affect internal controls. Colonial Bankshares, Inc. is subject to additional
reporting and audit requirements beginning with the year ending December 31,
2007 under the Sarbanes-Oxley Act.  Colonial Bankshares, Inc. has
existing policies, procedures and systems designed to comply with these
regulations, and is further enhancing and documenting such policies, procedures
and systems to ensure continued compliance with these regulations.
  28
  Holding
Company Regulation
  General.  Colonial
Bankshares, MHC and Colonial Bankshares, Inc. are non-diversified savings and
loan holding companies within the meaning of the Home Owners’ Loan
Act.  As such, Colonial Bankshares, MHC and Colonial Bankshares, Inc.
are registered with the Office of Thrift Supervision and are subject to Office
of Thrift Supervision regulations, examinations, supervision and reporting
requirements.  In addition, the Office of Thrift Supervision has
enforcement authority over Colonial Bankshares, Inc. and Colonial Bankshares,
MHC, and their subsidiaries.  Among other things, this authority
permits the Office of Thrift Supervision to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings
institution.  As federal corporations, Colonial Bankshares, Inc. and
Colonial Bankshares, MHC are generally not subject to state business
organization laws.
  Permitted
Activities.  Pursuant to Section 10(o) of the Home Owners’ Loan
Act and Office of Thrift Supervision regulations and policy, a mutual holding
company and a federally chartered mid-tier holding company such as Colonial
Bankshares, Inc. may engage in the following activities:
  (i)
              investing
      in the stock of a savings bank;(ii)
              acquiring
      a mutual association through the merger of such association into a savings
      bank subsidiary of such holding company or an interim savings bank
      subsidiary of such holding company;(iii)
              merging
      with or acquiring another holding company, one of whose subsidiaries is a
      savings bank;(iv)
              investing
      in a corporation, the capital stock of which is available for purchase by
      a savings bank under federal law or under the law of any state where the
      subsidiary savings bank or associations share their home
      offices;(v)
              furnishing
      or performing management services for a savings bank subsidiary of such
      company;(vi)
              holding,
      managing or liquidating assets owned or acquired from a savings subsidiary
      of such company;(vii)
              holding
      or managing properties used or occupied by a savings bank subsidiary of
      such company;(viii)
              acting
      as trustee under deeds of trust;(ix)
              any
      other activity:(A)
              that
      the Federal Reserve Board, by regulation, has determined to be permissible
      for bank holding companies under Section 4(c) of the Bank Holding Company
      Act of 1956, unless the Director, by regulation, prohibits or limits any
      such activity for savings and loan holding companies;
or(B)
              in
      which multiple savings and loan holding companies were authorized (by
      regulation) to directly engage on March 5, 1987;(x)
              any
      activity permissible for financial holding companies under Section 4(k) of
      the Bank Holding Company Act, including securities and insurance
      underwriting; and(xi)
              purchasing,
      holding, or disposing of stock acquired in connection with a qualified
      stock issuance if the purchase of such stock by such savings and loan
      holding company is approved by the Director.  If a mutual
      holding company acquires or merges with another holding company, the
      holding company acquired or the holding company resulting from such merger
      or acquisition may only invest in assets and engage in activities listed
      in (i) through (x) above, and has a period of two years to cease any
      nonconforming activities and divest any nonconforming
      investments.
 
 29
  The Home
Owners’ Loan Act prohibits a savings and loan holding company, including
Colonial Bankshares, Inc. and Colonial Bankshares, MHC, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of another
savings institution or holding company thereof, without prior written approval
of the Office of Thrift Supervision.  It also prohibits the
acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary company engaged in activities other than those permitted by the
Home Owners’ Loan Act, or acquiring or retaining control of an institution that
is not federally insured.  In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the company
and institution involved, the effect of the acquisition on the risk to the
federal deposit insurance fund, the convenience and needs of the community and
competitive factors.
  The
Office of Thrift Supervision is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions:
  (i)
              the
      approval of interstate supervisory acquisitions by savings and loan
      holding companies; and(ii)
              the
      acquisition of a savings institution in another state if the laws of the
      state of the target savings institution specifically permit such
      acquisitions.  The states vary in the extent to which they
      permit interstate savings and loan holding company
      acquisitions.
  Waivers of
Dividends byColonial
Bankshares, MHC.  Office of Thrift Supervision regulations
require Colonial Bankshares, MHC to notify the Office of Thrift Supervision of
any proposed waiver of its receipt of dividends from Colonial Bankshares,
Inc.  The Office of Thrift Supervision reviews dividend waiver notices
on a case-by-case basis, and, in general, does not object to any such waiver
if:
  (i)
              the
      waiver would not be detrimental to the safe and sound operation of the
      subsidiary savings association; and(ii)
              the
      mutual holding company’s Board of Directors determines that such waiver is
      consistent with such directors’ fiduciary duties to the mutual holding
      company’s members.
  We
anticipate that Colonial Bankshares, MHC will waive any dividends paid by
Colonial Bankshares, Inc.  Under Office of Thrift Supervision
regulations, our public stockholders would not be diluted because of any
dividends waived by Colonial Bankshares, MHC (and waived dividends would not be
considered in determining an appropriate exchange ratio) in the event Colonial
Bankshares, MHC converts to stock form.
  Conversion ofColonial
Bankshares, MHCto Stock
Form.  Office of Thrift Supervision regulations permit Colonial
Bankshares, MHC to convert from the mutual form of organization to the capital
stock form of organization (a “Conversion Transaction”).  There can be
no assurance when, if ever, a Conversion Transaction will occur, and the Board
of Directors has no current intention or plan to undertake a Conversion
Transaction.  In a Conversion Transaction a new stock holding company
would be formed as the successor to Colonial Bankshares, Inc. (the “New Holding
Company”), Colonial Bankshares, MHC’s corporate existence would end, and certain
depositors and borrowers of Colonial Bank, FSB would receive the right to
subscribe for additional shares of the New Holding Company.  In a
Conversion Transaction, each share of common stock held by stockholders other
than Colonial Bankshares, MHC (“Minority Stockholders”) would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant an exchange ratio that ensures that Minority Stockholders
own the same percentage of common stock in the New Holding Company as they owned
in Colonial Bankshares, Inc. immediately prior to the Conversion
Transaction.  Under Office of Thrift Supervision regulations, Minority
Stockholders would not be diluted because of any dividends waived by Colonial
Bankshares, MHC (and waived dividends would not be considered in determining an
appropriate exchange ratio), in the event Colonial Bankshares, MHC converts to
stock form.  The total number of shares held by Minority Stockholders
after a Conversion Transaction also would be increased by any purchases by
Minority Stockholders in the offering conducted as part of the Conversion
Transaction.
  30
  Any
Conversion Transaction would require the approval of a majority of the
outstanding shares of common stock of Colonial Bankshares, Inc. held by Minority
Stockholders and by two thirds of the total outstanding shares of common stock
of Colonial Bankshares, Inc.  Any second-step conversion transaction
also would require the approval of a majority of the eligible votes of members
of Colonial Bankshares, MHC.
  Federal
Securities Laws
  Colonial
Bankshares, Inc. common stock is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934.  Colonial
Bankshares, Inc. is subject to the information, proxy solicitation, insider
trading restrictions and other requirements under the Securities Exchange Act of
1934.
  The
registration under the Securities Act of 1933 of shares of common stock issued
in the offering does not cover the resale of those shares.  Shares of
common stock purchased by persons who are not affiliates of Colonial Bankshares,
Inc. may be resold without registration.  Shares purchased by an
affiliate of Colonial Bankshares, Inc. are subject to the resale restrictions of
Rule 144 under the Securities Act of 1933.  If we meet the current
public information requirements of Rule 144 under the Securities Act of 1933,
each affiliate of Colonial Bankshares, Inc. that complies with the other
conditions of Rule 144, including those that require the affiliate’s sale to be
aggregated with those of other persons, would be able to sell in the public
market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of our outstanding shares, or the average
weekly volume of trading in the shares during the preceding four calendar
weeks.  In the future, we may permit affiliates to have their shares
registered for sale under the Securities Act of 1933.
  ITEM
2.                      Description of
Property
  The
following table provides certain information with respect to our seven banking
offices as of December 31, 2007:
  Location
              
              Owned
      or
                  Leased
              
              Net
      Book Value of Real Property(In
      thousands)Main
      Office:2745
      S. Delsea Drive
                Vineland,
      New Jersey 08360
              
              Owned
              
              $
              5,849Branch
      Offices:85
      West Broad Street
                Bridgeton,
      New Jersey 08302
              
              Owned
              
              $
              3461107
      North High Street
                Millville,
      New Jersey 08332
              
              Owned
              
              $
              291227
      Bridgeton Pike
                Mantua,
      New Jersey 08051
              
              Owned
              
              $
              492Route
      77 and Big Oak Road
                Upper
      Deerfield Township, New Jersey 08302
              
              Owned
              
              $
              3901771
      South Lincoln Avenue
                Vineland,
      New Jersey 08361
              
              Owned
              
              $
              325271
      Lambs Road
                Sewell,
      New Jersey 08080
              
              Owned
              
              $
              309
 
 In
addition to the above properties, the Company has purchased land in the Borough
of Buena in Atlantic County, New Jersey as a possible branch
location.  The land was purchased for $269 thousand and approximately
$17 thousand has been spent on site work.  The Company has purchased
land in Millville, Cumberland County, New Jersey as a possible branch
location.  In January 2007, the Company purchased land in Harrison
Township, New Jersey as a possible branch location.  The cost of the
land was $984 thousand and approximately $69 thousand has been spent on site
work.  As we are in the early stages of planning, we cannot determine
completion dates or estimated costs to complete.
  31
  In
February 2008, the Company signed an agreement to purchase property in Vineland,
New Jersey.  The settlement is expected to occur in the second quarter
of 2008 and the purchase price is $325 thousand.
  The net
book value of our premises, land and equipment was approximately $10.3 million
at December 31, 2007.
  For
information regarding the Company’s investment in mortgages and mortgage-related
securities, see “Item 1. Business” herein.
  ITEM 3.Legal
Proceedings
  From time
to time, we are involved as plaintiff or defendant in various legal proceedings
arising in the ordinary course of business.  At December 31, 2007, we
were not involved in any legal proceedings, the outcome of which would be
material to our financial condition or results of operations.
  ITEM 4.Submission of Matters to a
Vote of Security Holders
  No
matters were submitted to a vote of stockholders during the fourth quarter of
the year under report.
  PART
II
  ITEM 5. Market for Common Equity,
Related Stockholder Matters and Small Business Issuer Purchases of
Securities
  (a)              
Reference is made to the “Market for Common Stock” section of Colonial
Bankshares’ 2007 Annual Report to Stockholders, which is incorporated herein by
reference.
  (b)            
 Not applicable.
  (c)
              Purchases of Equity Securities
  The Company had no repurchases of its common stock during the fourth quarter of
2007.
  ITEM 6. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
  The
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of Colonial Bankshares’ 2007 Annual Report to Stockholders
is incorporated herein by reference.
  ITEM 7. Financial
Statements
  The
consolidated financial statements included in Colonial Bankshares’ 2007 Annual
Report to Stockholders are incorporated herein by reference.
  ITEM 8. Changes In and Disagreements
With Accountants on Accounting and Financial
Disclosure
  None.
  ITEM 8A. Controls and
Procedures
  ITEM 8A(T).Controls and
Procedures
  (a)
              Under
      the supervision and with the participation of our management, including
      our Principal Executive Officer and Principal Financial Officer, we
      evaluated the effectiveness of the design and operation of our disclosure
      controls and procedures (as defined in Rule 13a-15(e) under the Securities
      Exchange Act of 1934) as of the end of the period covered by this report.
      Based upon that evaluation, the Principal Executive Officer and Principal
      Financial Officer concluded that, as of the end of the period covered by
      this report, our disclosure controls and procedures were effective to
      ensure that information required to be disclosed in the reports that the
      Company files or submits under the Securities Exchange Act of 1934, is
      recorded, processed, summarized and reported, within the time periods
      specified in the SEC’s rules and forms.  There has been no
      change in the Company’s internal control over financial reporting during
      the Company’s fourth quarter of fiscal year 2007 that has materially
      affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.(b)
              Management’s
      annual report on internal control over financial
  reporting.
  32
  Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting.
  The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company’s assets that could have a material effect on the financial
statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  Management,
including the principal executive officer and principal financial officer,
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007, based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
“Internal Control-Integrated Framework.”  Based on such assessment,
management believes that, as of December 31, 2007, the Company’s internal
control over financial reporting is effective, based on those
criteria.
  This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only the
management’s report in this annual report.
  ITEM 8B. Other
Information
  None.
  PART
III
  ITEM 9. Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act
  Colonial
Bankshares has adopted a Code of Ethics that applies to Colonial Bankshares’
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.  The
Code of Ethics is incorporated by reference to Exhibit 14 to the Annual Report
on Form 10-KSB for the year ended December 31, 2005, as originally filed with
the Securities and Exchange Commission on March 30, 2006.  A copy of
the Code will be furnished without charge upon written request to the Secretary,
Colonial Bankshares, Inc., 2745 S. Delsea Drive, Vineland, NJ
08360.
  The
information contained under the sections captioned “Proposal I – Election of
Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the
Company’s definitive Proxy Statement for the 2008 Annual Meeting of Stockholders
is incorporated herein by reference.
  ITEM 10. Executive
Compensation
  The
information contained under the section captioned “Executive Compensation” in
the definitive Proxy Statement is incorporated herein by reference.
  33
  ITEM 11. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
  (a)
              Security
      Ownership of Certain Beneficial OwnersThe
      information required by this item is incorporated herein by reference to
      the section captioned “Voting Securities and Principal Holders” in the
      Proxy Statement.(b)
              Security
      Ownership of ManagementThe
      information required by this item is incorporated herein by reference to
      the section captioned “Proposal I – Election of Directors” in the Proxy
      Statement.(c)
              Changes
      in ControlManagement
      of the Company know of no arrangements, including any pledge by any person
      of securities of the Company, the operation of which may at a subsequent
      date result in a change in control of the registrant.(d)
              Securities
      Authorized for issuance Under Stock-Based Compensation
    PlansSet
      forth below is information as of December 31, 2007 with respect to
      compensation plans under which equity securities of the Registrant are
      authorized for issuance.
 
 STOCK-BASED
      COMPENSATION PLAN INFORMATIONNumber
      of securities
                to
      be issued upon
                exercise
      of
                outstanding
      options, warrants and rights
              
              
              Weighted-average
                exercise
      price of outstanding options, warrants and rights
              
              
              Number
      of securities remaining available
                for
      future issuance
                under
      stock-based compensation plans (excluding securities reflected in
      first
                column)Stock-based
      compensation plans approved by stockholders
              
              
              285,093
              
              
              $
              12.47
              
              
              
              25,095Stock-based
      compensation plans not approved by stockholders
              
              
              N/A
              
              
              
              N/A
              
              
              
              N/ATotal
              
              
              285,093
              
              
              $
              12.47
              
              
              
              25,095
 
 
 ITEM 12. Certain Relationships and
Related Transactions
  The
information required by this item is incorporated herein by reference to the
section captioned “Proposal I – Election of Directors – Certain Relationships
and Related Transactions” of the Proxy Statement.
  
 34
  ITEM 13. Exhibits
  3.1
              Charter
      of Colonial Bankshares, Inc. (1)3.2
              Bylaws
      of Colonial Bankshares, Inc. (1)4
              Form
      of Common Stock Certificate of Colonial Bankshares, Inc.
    (1)10.1
              Form
      of Employee Stock Ownership Plan (1)10.2
              Colonial
      Bankshares, Inc. 2006 Stock-Based Incentive Plan (2)10.3
              Form
      of Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan Stock Option
      Agreement (Outside Directors) (3)10.4
              Form
      of Colonial Bankshares, Inc. 2006 stock-Based Incentive Plan Stock Option
      Agreement (Employees) (3)10.5
              Form
      of Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan Restricted
      Stock Award Notice (Outside Directors) (3)10.6
              Form
      of Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan Restricted
      Stock Award Notice (Employees) (3)10.7
              Employment
      Agreement By and Between Colonial Bank, FSB and Edward J. Geletka
      (4)10.8
              Employment
      Agreement By and Between Colonial Bank, FSB and L. Joseph Stella, III
      (5)10.9
              Employment
      Agreement By and Between Colonial Bank, FSB and William F. Whelan
      (6)13
              Portions
      of Annual Report to Stockholders14
              Code
      of Ethics (7)21
              Subsidiaries
      of Registrant23
              Consent
      of Independent Registered Public Accounting Firm31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
   ______________________________(1)
              Incorporated
      by reference to the Registration Statement on Form SB-2 of Colonial
      Bankshares (File no. 333-123583), originally filed with the Securities and
      Exchange Commission on March 25, 2005.(2)
              Incorporated
      by reference to the Definitive Proxy Statement for the Annual Meeting of
      Stockholders of Colonial Bankshares held July 20, 2006 (File no.
      000-51385), filed with the Securities and Exchange Commission on June 15,
      2006.(3)
              Incorporated
      by reference to the Current Report on Form 8-K of Colonial Bankshares,
      Inc. (File no. 000-51385), filed with the Securities and Exchange
      Commission on October 23, 2006.(4)
              Incorporated
      by reference to Exhibit 10.5 to the Quarterly Report on Form 10-QSB for
      the quarter ended September 30, 2006 of Colonial Bankshares (File no.
      000-51385), filed with the Securities and Exchange Commission on November
      14, 2006.(5)
              Incorporated
      by reference to Exhibit 10.6 to the Quarterly Report on Form 10-QSB for
      the quarter ended September 30, 2006 of Colonial Bankshares (File no.
      000-51385), filed with the Securities and Exchange Commission on November
      14, 2006.(6)
              Incorporated
      by reference to Exhibit 10.7 to the Quarterly Report on Form 10-QSB for
      the quarter ended September 30, 2006 of Colonial Bankshares (File no.
      000-51385), filed with the Securities and Exchange Commission on November
      14, 2006.(7)
              Incorporated
      by reference to Exhibit 14 to the Annual Report on Form 10-KSB for the
      year ended December 31, 2005 of Colonial Bankshares (File no. 000-51385),
      originally filed with the Securities and Exchange Commission on March 30,
      2006.
 
  ITEM 14.Principal Accountant Fees
and Services
 
 The
information required by this item is incorporated herein by reference to the
section captioned “Proposal II – Ratification of Appointment of Independent
Registered Public Accounting Firm” in the Proxy Statement.
  35
  SIGNATURES
 
 Pursuant to the requirements of Section
13 of the Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 COLONIAL
      BANKSHARES, INC.Date:
      March 31, 2008
              By:  /s/ Edward J.
      GeletkaEdward
      J. GeletkaPresident,
      Chief Executive Officer and Director(Duly
      Authorized Representative)
 
 Pursuant to the requirements of the
Securities Exchange of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
 
 Signatures
              
              Title
              
              Date/s/ Edward J. Geletka
              
              
              President,
      Chief Executive
              
              March
      31, 2008Edward
      J. Geletka
              
              
              Officer
      and Director (PrincipalExecutive
      Officer)/s/ L. Joseph Stella, III
              
              
              Executive
      Vice President and
              
              March
      31, 2008L.
      Joseph Stella, III
              
              
              Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)/s/ Frank M. Hankins
              
              
              Chairman
      of the Board
              
              March
      31, 2008Frank
      M. Hankins/s/ Albert A. Fralinger
              
              
              Vice
      Chairman of the Board
              
              March
      31, 2008Albert
      A. Fralinger/s/ Richard S. Allen
              
              
              Director
              
              March
      31, 2008Richard
      S. Allen/s/ Gregory J. Facemyer
              
              
              Director
              
              March
      31, 2008Gregory
      J. Facemyer/s/ John Fitzpatrick
              
              
              Director
              
              March
      31, 2008John
      Fitzpatrick/s/ James Quinn
              
              
              Director
              
              March
      31, 2008James
      Quinn