UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




FORM
      10-Q





(Mark
                One)x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
              For
                the quarterly period ended June 30, 2008 ̈
            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: 000-51037





**SFSB,
      INC.**


(Exact
      name of registrant as specified in its charter)





United
                States
            
            20-2077715(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





1614
      Churchville Road, Bel Air, Maryland 21015


(Address
      of principal executive offices)  (Zip
      Code)





(443)
      265-5570


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. ****





Yes
            x
            
            No
             ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈       Accelerated
      filer  ̈





Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)  Smaller
      reporting company þ





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  ̈ Yes x No





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date:





As
      of
      August 13, 2008, there were 2,758,011 shares of the issuer’s Common Stock, par
      value $0.01 per share, outstanding.





**TABLE
      OF CONTENTS**





**Item**
            
            **Description**
            
            **Page****PART
                1**1
            
            Financial
                Statements (Unaudited)Consolidated
                Statements of Financial Condition
            
            3Consolidated
                Statements of Operations
            
            4Consolidated
                Statements of Comprehensive Loss
            
            5Consolidated
                Statements of Cash Flows
            
            6Notes
                to Consolidated Financial Statements
            
            7-112
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of 
                Operations
            
            123
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            314
            
            Controls
                and Procedures
            
            31**PART
                11**1
            
            Legal
                Proceedings
            
            322
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            323
            
            Defaults
                Upon Senior Securities
            
            324
            
            Submission
                of Matters to a Vote of Securities Holders
            
            325
            
            Other
                Information
            
            336
            
            Exhibit
                Index
            
            33Signatures
            
            34Exhibits


2


PART
      I -
      FINANCIAL INFORMATION


Item
      1. Financial Statements


**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**





**June 30,**
              **2008**
            
            **December 31,**
              **2007**(Dollars in thousands, except share data)**ASSETS**Cash
                and due from banks
            
            $
            575
            
            $
            612Federal
                funds sold
            
            
            960
            
            
            665Cash
                and cash equivalents
            
            
            1,535
            
            
            1,277Investment
                securities - available for sale
            
            
            8,462
            
            
            8,942Investment
                securities - held to maturity (fair value of 2008 $2,001; 2007
                $2,987)
            
            
            2,000
            
            
            3,000Mortgage-backed
                securities - held to maturity (fair value of 2008 $1,839; 2007
                $2,221)
            
            
            1,846
            
            
            2,247Loans
                receivable - net of allowance for loan losses of2008
                $1,044; 2007 $972
            
            
            154,170
            
            
            147,744Foreclosed
                Real Estate
            
            
            1,096
            
            
            1,083Federal
                Home Loan Bank of Atlanta stock, at cost
            
            
            1,706
            
            
            1,844Premises
                and equipment, net
            
            
            5,026
            
            
            5,107Accrued
                interest receivable
            
            
            612
            
            
            564Other
                assets
            
            
            809
            
            
            436**Total
                assets**
            
            $
            177,262
            
            $
            172,244**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities**Deposits
            
            $
            122,071
            
            $
            114,098Checks
                outstanding in excess of bank balance
            
            
            188
            
            
            1,077Borrowings
            
            
            31,000
            
            
            34,000Advance
                payments by borrowers for taxes and insurance
            
            
            1,728
            
            
            339Other
                liabilities
            
            
            656
            
            
            961**Total
                liabilities**
            
            
            155,643
            
            
            150,475**Stockholders’
                Equity**Preferred
                stock, no par value, 1,000,000 shares authorized, none issued and
                outstanding
            
            
            -
            
            
            -Common
                stock, par value $.01, 9,000,000 shares authorized, 2,975,625 shares
                issued at June 30, 2008 and December 31, 2007 and 2,817,044 and 2,817,644
                shares outstanding at June 30, 2008 and December 31, 2007,
                respectively
            
            
            30
            
            
            30Additional
                paid-in capital
            
            
            12,879
            
            
            12,828Retained
                earnings (substantially restricted)
            
            
            11,680
            
            
            11,496Unearned
                Employee Stock Ownership Plan shares
            
            
            (962
            )
            
            (992
            )Treasury
                Stock at cost, June 30, 2008, 158,581 shares and December 31, 2007,
                157,981 shares
            
            
            (1,439
            )
            
            (1,434
            )Accumulated
                other comprehensive loss
            
            
            (569
            )
            
            (159
            )**Total
                stockholders’ equity**
            
            
            21,619
            
            
            21,769**Total
                liabilities and stockholders’ equity**
            
            $
            177,262
            
            $
            172,244





See
      notes
      to consolidated financial statements.


3


**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Three Months Ended**
            
            **Six Months Ended****June 30,**
            
            **June 30**,**2008**
            
            **2007**
            
            **2008**
            
            **2007**(Dollars
                in thousands, except for per share data)Interest
                and fees on loans
            
            $
            2,300
            
            $
            2,056
            
            $
            4,525
            
            $
            4,098Interest
                and dividends on investment securities
            
            
            110
            
            
            151
            
            
            237
            
            
            297Interest
                on mortgage-backed securities
            
            
            21
            
            
            31
            
            
            45
            
            
            65Other
                interest income
            
            
            38
            
            
            85
            
            
            74
            
            
            165**Total
                interest income**
            
            
            2,469
            
            
            2,323
            
            
            4,881
            
            
            4,625Interest
                on deposits
            
            
            1,142
            
            
            1,149
            
            
            2,318
            
            
            2,263Interest
                on short-term borrowings
            
            
            33
            
            
            108
            
            
            100
            
            
            257Interest
                on long-term borrowings
            
            
            268
            
            
            263
            
            
            536
            
            
            524**Total
                interest expense**
            
            
            1,443
            
            
            1,520
            
            
            2,954
            
            
            3,044**Net
                interest income**
            
            
            1,026
            
            
            803
            
            
            1,927
            
            
            1,581Provision
                for loan losses
            
            
            38
            
            
            149
            
            
            74
            
            
            182Net
                    interest income after provision for loan
                    losses
            
            
            988
            
            
            654
            
            
            1,853
            
            
            1,399**Other
                Income**Rental
                income
            
            
            63
            
            
            41
            
            
            105
            
            
            80Other
                income
            
            
            59
            
            
            33
            
            
            100
            
            
            53Gain
                on sale of loans
            
            
            7
            
            
            31
            
            
            7
            
            
            39**Total
                other income**
            
            
            129
            
            
            105
            
            
            212
            
            
            172**Non-Interest
                Expenses**Compensation
                and other related expenses
            
            
            484
            
            
            426
            
            
            968
            
            
            860Occupancy
                expense
            
            
            94
            
            
            90
            
            
            191
            
            
            185Advertising
                expense
            
            
            48
            
            
            64
            
            
            102
            
            
            108Service
                bureau expense
            
            
            42
            
            
            40
            
            
            89
            
            
            83Furniture,
                fixtures and equipment
            
            
            30
            
            
            31
            
            
            61
            
            
            65Telephone,
                postage and delivery
            
            
            22
            
            
            19
            
            
            43
            
            
            38Other
                expenses
            
            
            147
            
            
            146
            
            
            295
            
            
            295**Total
                non-interest expenses**
            
            
            867
            
            
            816
            
            
            1,749
            
            
            1,634**Income
                (loss) before income tax provision (benefit)**
            
            
            250
            
            
            (57
            )
            
            316
            
            
            (63
            )Income
                tax provision (benefit)
            
            
            108
            
            
            (19
            )
            
            132
            
            
            (15
            )Net
                income (loss)
            
            $
            142
            
            $
            (38
            )
            $
            184
            
            $
            (48
            )**Basic
                Earnings (Loss) per Share**
            
            **$**
            **0.05**
            
            **$**
            **(0.01**
            **)**
            **$**
            **0.07**
            
            **$**
            **(0.02**
            **)****Diluted
                Earnings (Loss) per Share**
            
            **$**
            **0.05**
            
            **$**
            **(0.01**
            **)**
            **$**
            **0.07**
            
            **$**
            **(0.02**
            **)**





See
      notes
      to consolidated financial statements.


4





**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE LOSS**





**Three****Months Ended**
            
            **Six Months Ended****June 30,**
            
            **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Dollars
                in thousands)Net
                income (loss)
            
            $
            142
            
            $
            (38
            )
            $
            184
            
            $
            (48
            )Net
                unrealized loss on securitiesavailable
                for sale during the period(net
                  of taxes of $(231), $(17), $(267) and $(14))
            
            
            (354
            )
            
            (28
            )
            
            (410
            )
            
            (22
            )Total
                Comprehensive Loss
            
            $
            (212
            )
            $
            (66
            )
            $
            (226
            )
            $
            (70
            )





See
      notes
      to consolidated financial statements.


5


**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Six Months Ended****June 30,****2008**
            
            **2007**(Dollars
                in thousands)**Cash
                Flows From Operating Activities**Net
                income (loss)
            
            $
            184
            
            $
            (48
            )Adjustments
                to Reconcile Net Income (Loss) to Net Cash Provided (Used in) by
                Operating
                Activities:Non-cash
                compensation under stock based compensation plans and Employee Stock
                Ownership Plan
            
            
            81
            
            
            87Net
                amortization of premiums and discounts of investment
                securities
            
            
            5
            
            
            5Amortization
                of deferred loan fees
            
            
            (93
            )
            
            (23
            )Provision
                for loan losses
            
            
            74
            
            
            182Gain
                on sale of loans
            
            
            (7
            )
            
            (39
            )Loans
                originated for sale
            
            
            (648
            )
            
            (4,688
            )Proceeds
                from loans sold
            
            
            655
            
            
            4,727Provision
                for depreciation
            
            
            113
            
            
            117(Increase)
                  decrease in accrued interest receivable and other
                  assets
            
            
            (154
            )
            
            211(Decrease)
                increase in other liabilities
            
            
            (305
            )
            
            179**Net
                Cash (Used in) Provided by Operating Activities**
            
            
            (95
            )
            
            710**Cash
                Flows from Investing Activities**Purchase
                of available for sale securities
            
            
            (198
            )
            
            (222
            )Proceeds
                from redemption of held to maturity securities
            
            
            1,000
            
            
            -Net
                (increase) decreasein
                loans
            
            
            (6,285
            )
            
            1,943Purchase
                of loans
            
            
            (134
            )
            
            -Principal
                collected on mortgage-backed securities
            
            
            396
            
            
            465Purchase
                of Federal Home Loan Bank of Atlanta stock
            
            
            (23
            )
            
            -Redemption
                of Federal Home Loan Bank of Atlanta stock
            
            
            161
            
            
            277Purchases
                of premises and equipment
            
            
            (32
            )
            
            (65
            )**Net
                Cash (Used in) Provided by Investing Activities**
            
            
            (5,115
            )
            
            2,398**Cash
                Flows from Financing Activities**Net
                increase in deposits
            
            
            7,973
            
            
            2,465(Decrease)
                increase in checks outstanding in excess of bank balance
            
            
            (889
            )
            
            270Proceeds
                from long-term borrowings
            
            
            -
            
            
            5,000Repayment
                of long-term borrowings
            
            
            -
            
            
            (5,000
            )Net
                change in short-term borrowings
            
            
            (3,000
            )
            
            (5,500
            )Increase
                in advance payments by borrowers for taxes and insurance
            
            
            1,389
            
            
            1,410Issuance
                of common stock
            
            
            -
            
            
            67Purchase
                of treasury stock
            
            
            (5
            )
            
            (293
            )**Net
                Cash Provided by (Used in) Financing Activities**
            
            
            5,468
            
            
            (1,581
            )Increase
                in cash and cash equivalents
            
            
            258
            
            
            1,527Cash
                and cash equivalents at beginning of period
            
            
            1,277
            
            
            2,851**Cash
                and cash equivalents at end of period**
            
            $
            1,535
            
            $
            4,378**Supplemental
                Disclosures of Cash Flows Information**:Income
                taxes paid
            
            $
            223
            
            $
            -Interest
                expense paid
            
            $
            2,963
            
            $
            3,037Transfer
                of loan to foreclosed real estate
            
            $
            -
            
            $
            1,083





See
      notes
      to consolidated financial statements.


6




**SFSB,
      Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS** ****





**Note
      1 – Principles of Consolidation**





The
      consolidated financial statements include the accounts of SFSB, Inc. (“the
      Company”), its wholly-owned subsidiaries, Slavie Federal Savings Bank (“the
      Bank”) and the Bank’s wholly-owned subsidiary, Slavie Holdings, LLC
      (“Holdings”). The accompanying consolidated financial statements include the
      accounts and transactions of these companies on a consolidated basis since
      inception. All intercompany accounts and transactions have been eliminated
      in
      the consolidated financial statements.





Slavie
      Bancorp, MHC, a mutual holding company whose activity is not included in the
      accompanying consolidated financial statements, owns 58.10% of the outstanding
      common stock of the Company as of June 30, 2008.





**Note
      2 – Basis of** **Presentation**





The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America
      (GAAP) for interim financial information and with the instructions to SEC Form
      10-Q. Accordingly, they do not include all the information and footnotes
      required by GAAP for complete financial statements.





The
      foregoing consolidated financial statements in the opinion of management include
      all adjustments (consisting only of normal recurring adjustments) necessary
      for
      a fair presentation thereof. These consolidated financial statements should
      be
      read in conjunction with the consolidated financial statements and notes thereto
      included in the Company’s Annual Report on Form 10-K for the year ended December
      31, 2007. The results of operations for the six months ended June 30, 2008
      are
      not necessarily indicative of the results that may be expected for the full
      year.





7


**Note
      3 – Earnings (Loss) Per Share**





Basic
      earnings (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding for the appropriate period.
      Unearned Employee Stock Ownership Plan (“ESOP”) shares are not included in
      outstanding shares. Diluted earnings (loss) per share is computed by dividing
      net income (loss) by the weighted average shares outstanding as adjusted for
      the
      dilutive effect of outstanding stock options and unvested stock awards.
      Potential common shares related to stock options and unvested stock awards
      are
      determined based on the “treasury stock” method. Information related to the
      calculation of earnings (loss) per share is summarized for the three and six
      months ended June 30 as follows:





**Three****Months
                Ended**
            
            **Six
                Months Ended****June
                30, 2008**
            
            **June
                30, 2008****Basic**
            
            **Diluted**
            
            **Basic**
            
            **Diluted**(Dollars
                in thousands, except per share data)Net
                income
            
            $
            142
            
            $
            142
            
            $
            184
            
            $
            184Weighted
                average shares outstanding
            
            
            2,717
            
            
            2,717
            
            
            2,716
            
            
            2,716Diluted
                Securities:Stock
                Options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unvested
                Stock Awards
            
            
            -
            
            
            -
            
            
            -
            
            
            -Adjusted
                Weighted average shares
            
            
            2,717
            
            
            2,717
            
            
            2,716
            
            
            2,716Per
                Share Amount
            
            $
            0.05
            
            $
            0.05
            
            $
            0.07
            
            $
            0.07





**Three****Months
                Ended**
            
            **Six
                Months Ended****June
                30, 2007**
            
            **June
                30, 2007****Basic**
            
            **Diluted**
            
            **Basic**
            
            **Diluted**(Dollars
                in thousands, except per share data)Net
                loss
            
            $
            (38
            )
            $
            (38
            )
            $
            (48
            )
            $
            (48
            )Weighted
                average shares outstanding
            
            
            2,795
            
            
            2,795
            
            
            2,794
            
            
            2,794Diluted
                Securities:Stock
                Options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unvested
                Stock Awards
            
            
            -
            
            
            -
            
            
            -
            
            
            -Adjusted
                Weighted average shares
            
            
            2,795
            
            
            2,795
            
            
            2,794
            
            
            2,794Per
                Share Amount
            
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.02
            )
            $
            (0.02
            )


8





**Note
      4 – Regulatory Capital Requirements**





At
      June
      30, 2008, the Bank met each of the three minimum regulatory capital
      requirements. The following table summarizes the Bank’s regulatory capital
      position at June 30, 2008 and December 31, 2007.





**To
                Be Well****Capitalized
                Under****For
                Capital**
            
            **Prompt
                Corrective****Actual**
            
            **Adequacy
                Purposes**
            
            **Action
                Provision****Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%**(Dollars
                in thousands)**June
                30, 2008**Tangible
                (1)
            
            $
            17,193
            
            
            9.64
            %
            $
            2,675
            
            
            1.50
            %
            
            N/A
            
            
            N/ATier
                I capital (2)
            
            
            17,193
            
            
            16.25
            %
            
            N/A
            
            
            N/A
            
            $
            6,350
            
            
            6.00
            %Core
                (leverage) (1)
            
            
            17,193
            
            
            9.64
            %
            
            7,134
            
            
            4.00
            %
            
            8,918
            
            
            5.00
            %Risk-weighted
                (2)
            
            
            18,137
            
            
            17.14
            %
            
            8,467
            
            
            8.00
            %
            
            10,583
            
            
            10.00
            %**December
                31, 2007**Tangible
                (1)
            
            $
            16,948
            
            
            9.81
            %
            $
            2,591
            
            
            1.50
            %
            
            N/A
            
            
            N/ATier
                I capital (2)
            
            
            16,948
            
            
            16.42
            %
            
            N/A
            
            
            N/A
            
            $
            6,194
            
            
            6.00
            %Core
                (leverage) (1)
            
            
            16,948
            
            
            9.81
            %
            
            6,909
            
            
            4.00
            %
            
            8,637
            
            
            5.00
            %Risk-weighted
                (2)
            
            
            17,920
            
            
            17.36
            %
            
            8,259
            
            
            8.00
            %
            
            10,324
            
            
            10.00
            %


_____________________


(1)
      To
      adjusted total assets.


(2)
      To
      risk-weighted assets.





**Note
      5 – Stock-Based Compensation**




The
      compensation cost charged against income for stock-based compensation plans,
      excluding ESOP, was  $30,000
      and $60,000 for the three and six months ended June 30, 2008. The total income
      tax benefit recognized was $8,000 and $17,000  for
      the
      three and six months ended June 30, 2008. The compensation cost charged against
      income for stock-based compensation plans, excluding ESOP, was  $30,000
      and $60,000 for the three and six months ended June 30, 2007. The total income
      tax benefit recognized was $8,000 and $17,000  for
      the
      three and six months ended June 30, 2007.




**Note
      6 – Fair Values for Financial Instruments**




In
      September 2006, the Financial Accounting Standards Board issued FASB Statement
      No. 157, “Fair Value Measurements,” (SFAS 157) which defines fair value,
      establishes a framework for measuring fair value under Generally Accepted
      Accounting Principles, and expands disclosures about fair value measurements.
      SFAS 157 applies to other accounting pronouncements that require or permit
      fair
      value measurements. The new guidance is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and for interim
      periods within those fiscal years. Effective January 1, 2008, the Company
      adopted SFAS 157. The primary effect of SFAS 157 on the Company was to expand
      the required disclosures pertaining to the methods used to determine fair
      values.




SFAS
      157
      establishes a fair value hierarchy that prioritizes the inputs to valuation
      methods used to measure fair value. The hierarchy gives the highest priority
      to
      unadjusted quoted prices in active markets for identical assets or liabilities
      (Level 1 measurement) and the lowest priority to unobservable inputs (Level
      3
      measurements).




9




The
      three
      levels of the fair value hierarchy under SFAS 157 are as follows:




Level
      1:
      Unadjusted quoted prices in active markets that are accessible at the
      measurement date for identical, unrestricted assets or liabilities.




Level
      2:
      Quoted prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the asset
      or
      liability.




Level
      3:
      Prices or valuation techniques that require inputs that are both significant
      to
      the fair value measurement and unobservable (i.e. supported with little or
      no
      market activity).




An
      asset
      or liability’s level within the fair value hierarchy is based on the lowest
      level of input that is significant to the fair value measurement.




For
      assets measured at fair value, the fair value measurements by level within
      the
      fair value hierarchy used at June 30, 2008 are as follows:





**June
                30,**
              **2008**
            
            **(Level
                1)**
              **Quoted**
              **Prices
                in**
              **Active**
              **Markets
                for**
              **Identical**
              **Assets**
            
            **(Level
                2****)**
              **Significant**
              **Other**
              **Observable**
              **Inputs**
            
            **(Level
                3)**
              **Significant**
              **Other**
              **Unobservable**
              **Inputs**(Dollars
                in thousands)Securities
                available for sale
            
            $
            8,462
            
            $
            8,462
            
            $
            -
            
            $
            -Impaired
                loans
            
            
            239
            
            
            -
            
            
            -
            
            
            239Foreclosed
                Real Estate
            
            
            1,096
            
            
            -
            
            
            -
            
            
            1,096Total
            
            $
            9,797
            
            $
            8,462
            
            $
            -
            
            $
            1,335





The
      following valuation techniques were used to measure the fair value of assets
      in
      the table above on a recurring basis as of June 30, 2008.





*Available
      for sale securities* –
      The fair value on available for sale securities was based on available market
      pricing for the securities.





*Impaired
      Loans* –
      Loans included in the above table are those that are accounted for under SFAS
      114, *Accounting
      by Creditors for Impairment of a Loan,* in which
      the Company has measured impairment generally based on the fair value of the
      loan’s collateral. Fair value was determined based upon a discounted cash flow
      from the expected proceeds. This asset is included as Level 3 fair value, based
      upon the lowest level of input that is significant to the fair value
      measurements. The fair value consists of the loan balance reduced by any
      specific impairment reserve.





*Foreclosed
      Real Estate* –
Fair
      value of foreclosed real estate was based on an independent third party
      appraisal of the property. This value was determined based on the sale price
      of
      similar development properties in the proximate vicinity. There has been no
      significant activity during the first six months of 2008 in foreclosed real
      estate.




10





**Note
      7 – Recent Accounting Pronouncements**





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This Statement identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of financial statements. This Statement is effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
      Generally Accepted Accounting Principles.” The Company is currently evaluating
      the potential impact the new pronouncement will have on its consolidated
      financial statements.





In
      April
      2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
      the Useful Life of Intangible Assets.” This FSP amends the factors that should
      be considered in developing renewal or extension assumptions used to determine
      the useful life of a recognized intangible asset under FASB Statement
      No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of
      this FSP is to improve the consistency between the useful life of a recognized
      intangible asset under SFAS 142 and the period of expected cash flows used
      to measure the fair value of the asset under SFAS 141R, and other GAAP. This
      FSP
      is effective for financial statements issued for fiscal years beginning after
      December 15, 2008, and interim periods within those fiscal years. Early
      adoption is prohibited. The
      Company is currently evaluating the potential impact the new pronouncement
      will
      have on its consolidated financial statements.





In
      June
      2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities.” This FSP clarifies that all outstanding unvested
      share-based payment awards that contain rights to non-forfeitable dividends
      participate in undistributed earnings with common shareholders. Awards of this
      nature are considered participating securities and the two-class method of
      computing basic and diluted earnings per share must be applied. This FSP is
      effective for fiscal years beginning after December 15, 2008. The Company is
      currently evaluating the potential impact the new pronouncement will have on
      its
      consolidated financial statements.





FASB
      statement No. 141 (R) “Business Combinations” was issued in December of 2007.
      This Statement establishes principles and requirements for how the acquirer
      of a
      business recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed, and any non-controlling interest
      in
      the acquired. The Statement also provides guidance for recognizing and measuring
      the goodwill acquired in the business combination and determines what
      information to disclose to enable users of the financial statements to evaluate
      the nature and financial effects of the business combination. The guidance
      will
      become effective as of the beginning of a company’s fiscal year beginning after
      December 15, 2008. This new pronouncement will impact the Company’s accounting
      for business combinations completed beginning January 1, 2009.




11





**Item
      2.**  **Management's
      Discussion and Analysis**





**Introduction**





Some
      of
      the matters discussed below include forward-looking statements within the
      meaning of the federal securities laws. Forward-looking statements often use
      words such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,”
“contemplate,” “anticipate,” “forecast,” “intend” or other words of similar
      meaning. You can also identify them by the fact that they do not relate strictly
      to historical or current facts. Our actual results and the actual outcome of
      our
      expectations and strategies could be materially different from those anticipated
      or estimated for the reasons discussed below and the reasons under the heading
      “Information Regarding Forward Looking Statements.”





**Overview**





Earnings
      increased to $184,000 for the six months ended June 30, 2008 as compared to
      a
      net loss of $48,000 for the same period in 2007. This increase was primarily
      due
      to an increase of interest income as a result of an increase in higher yielding
      commercial real estate loan originations and an increase in fee income from
      commissions earned through a financial services operation established in
      mid-2007. The increase also resulted from a decrease in interest expense because
      the interest rates we pay on deposit accounts have dropped as a result of
      decreases in the prime rate instituted by the Federal Reserve Board in response
      to the unfavorable economy. These increases were partially offset by an increase
      in non-interest expenses primarily due to an increase in compensation expenses
      related to the hiring of two experienced commercial loan originators and a
      certified financial planner.  Interest
      income increased $256,000, or 5.54%, non-interest income increased $40,000,
      or
      23.26%, and interest expense decreased $90,000, or 2.96%. These improvements
      were offset by a $115,000, or 7.04%, increase in non- interest expenses.




Assets
      increased during the first six months of 2008 primarily because we increased
      our
      loan portfolio by $6,426,000, or 4.35%, to $154,170,000 at June 30, 2008 from
      $147,744,000 at December 31, 2007. The increase is also the result of increases
      in cash and cash equivalents of $258,000, or 20.20%, to $1,535,000 at June
      30,
      2008 from $1,277,000 at December 31, 2007, accrued interest receivable of
      $48,000, or 8.51%, to $612,000 at June 30, 2008 from $564,000 at December 31,
      2007 and other assets of $373,000, or 85.55%, to $809,000 at June 30, 2008
      from
      $436,000 at December 31, 2007. These increases were partially offset by
      decreases in investment securities held to maturity of $1,000,000, or 33.33%,
      to
      $2,000,000 at June 30, 2008 from $3,000,000 at December 31, 2007, investment
      securities available for sale of $480,000, or 5.37%, to $8,462,000 at June
      30,
      2008 from $8,942,000 at December 31, 2007, Federal Home Loan Bank of Atlanta
      stock of $138,000, or 7.48%, to $1,706,000 at June 30, 2008 from $1,844,000
      at
      December 31, 2007 and mortgage backed securities held to maturity of $401,000,
      or 17.85%, to $1,846,000 at June 30, 2008 from $2,247,000 at December 31,
      2007.





As
      further discussed in the Asset Quality section of this report, we hold a 19%
      participation (approximately $1,096,000 in unpaid principal balance) in an
      acquisition and development loan.  This loan was transferred foreclosed
      real estate. The foreclosed property had been contracted for sale subject to
      a
      feasibility study, however, the feasibility study period expired on June 15,
      2008. The buyer has requested an extension to the original contract subject
      to a
      feasibility study period to expire on April 30, 2009. If the new contract is
      accepted, settlement is expected before the end of the third quarter of 2009.
      We
      still believe that we will recover the carrying amount of the real estate,
      although there can be no assurance that this will be the case. Additionally,
      a
      $100,000 business line of credit loan, restructured in the third quarter of
      2007, is classified as impaired, because we believe that there is a substantial
      likelihood that we will not collect the total amount of the outstanding
      principal balance on this loan. A specific reserve of $100,000, or 100%, of
      the
      remaining loan balance continues to remain in our allowance for loan losses
      with
      respect to this loan.




12





To
      remain
      competitive and offer even more choices to our customers, we
      implemented  a  health
      savings account to assist customers in making medical expenses more affordable
      and a Coverdell Education Savings Account to assist our customers with planning
      for educational expenses. We also offer an eight month certificate of deposit
      and a carefree premium checking account with what we believe are attractive
      interest rates. In addition, we offer a merchant bank card service through
      a
      third party vendor, which offers our commercial checking account customers
      the
      convenience of processing their debit and credit transactions with ease and
      foreign currency services for our customers traveling abroad. We also offer
      a
      comprehensive and full service approach to managing finances and investing
      in
      the future. The creation of Slavie Financial Services and the addition of a
      certified financial planner in mid-2007 enabled us to bring investment guidance
      and financial planning expertise to our customers, while expanding our ability
      to provide personalized services that focus on the successful financial well
      being of our customers.





We
      expect
      that during the third quarter of 2008, our product development and review
      committee will implement remote deposit for commercial accountholders, a Slavie
      credit card,  and
      check
      imaging services for our checking accountholders to provide an even wider
      variety of products and services to our customers. We also plan to expand our
      Automated Teller Machine network to include access to 47,000 ATMs throughout
      the
      United States and offer coin counting services in each of our lobbies. In
      addition, we hired an investment advisor who will join Slavie Financial Services
      in the third quarter of 2008.





We
      continue to implement strategies formed during strategic planning meetings
      of
      the Board of Directors and the Company’s officers during 2006. In our continued
      efforts to boost the yield of our interest earning assets during a period of
      net
      interest margin compression, management, along with our two experienced
      commercial loan originators, continues to increase and diversify the Bank’s mix
      of commercial loans to residential loans in its portfolio. In addition, we
      intensified our marketing strategy by offering incentives to attract new
      checking accounts in an effort to attain our goal of decreasing the cost of
      our
      interest bearing liabilities. Our directors, officers, management and staff
      remain committed in a unified effort to improve the Bank’s profitability.





Key
      measurements and events for the three- and six-month periods ended June 30,
      2008
      include the following:





·
            Total
                assets at June 30, 2008 increased by 2.91% to $177,262,000 as compared
                to
                $172,244,000 as of December 31,
                2007.




·
            Total
                borrowings decreased by 8.82% from $34,000,000 as of December 31,
                2007 to
                $31,000,000 as of June 30, 2008.





·
            Net
                loans outstanding increased by 4.35% from $147,744,000 as of December
                31,
                2007 to $154,170,000 as of June 30,
                2008.





·
            Nonperforming
                loans and foreclosed real estate totaled $3,305,000 at June 30, 2008
                as
                compared with a total of $1,551,000 at December 31, 2007. We believe
                an
                appropriate allowance for loan losses continues to be
                maintained.





·
            Deposits
                at June 30, 2008 were $122,071,000, an increase of $7,973,000 or
                6.99%
                from $114,098,000 at December 31, 2007.





·
            We
                realized net income of $142,000 and $184,000 for the three-month
                and
                six-month periods ended June 30, 2008. This compares to a net loss
                of
                $38,000 and $48,000 for the three-month and six-month periods ended
                June
                30, 2007.




13





·
            Net
                interest income, our main source of income, was $1,026,000 and $1,927,000
                during the three-month and six-month periods ended June 30, 2008
                compared
                to $803,000 and $1,581,000 for the same periods in 2007. This represents
                an increase of 27.77% and 21.88% for the three months and six months
                ended
                June 30, 2008 as compared to the same periods in 2007.





·
            We
                had four overdraft protection loan charge-offs totaling $2,300 during
                the
                six-month period ending June 30, 2008. We had a commercial non-real
                estate
                loan charge-off of $120,000 and two overdraft protection loan charge-offs
                totaling $1,100 during the six-month period ending June 30, 2007.





·
            Non-interest
                income increased by $24,000 and $40,000, or 22.86% and 23.26%, for
                the
                three-month and six-month periods ended June 30, 2008, as compared
                to the
                three-month and six-month periods ended June 30, 2007.





·
            Non-interest
                expenses increased by $51,000 and $115,000, or 6.25% and 7.04%, for
                the
                three-month and six-month periods ended June 30, 2008, as compared
                to the
                three- and six-month periods ended June 30, 2007.





A
      detailed discussion of the factors leading to these changes can be found in
      the
      discussion below.





**Critical
      Accounting Policies**





The
      Company’s consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States of America or
      GAAP, and follow general practices within the industry in which we operate.
      Application of these principles requires management to make estimates,
      assumptions, and judgments that affect the amounts reported in the financial
      statements and accompanying notes. These estimates, assumptions, and judgments
      are based on information available as of the date of the financial statements;
      accordingly, as this information changes, the financial statements could reflect
      different estimates, assumptions, and judgments. Certain policies inherently
      have a greater reliance on the use of estimates, assumptions, and judgments
      and
      as such have a greater possibility of producing results that could be materially
      different than originally reported. Estimates, assumptions, and judgments are
      necessary when assets and liabilities are required to be recorded at fair value,
      when a decline in the value of an asset not carried on the financial statements
      at fair value warrants an impairment write-down or valuation allowance to be
      established, or when an asset or liability needs to be recorded contingent
      upon
      a future event. Carrying assets and liabilities at fair value inherently results
      in more financial statement volatility. The fair values and the information
      used
      to record valuation adjustments for certain assets and liabilities are based
      either on quoted market prices or are provided by other third-party sources,
      when available.





Based
      on
      the valuation techniques used and the sensitivity of financial statement amounts
      to the methods, assumptions, and estimates underlying those amounts, management
      has identified the determination of the allowance for loan losses as an
      accounting area that requires the subjective or complex judgments, and as such
      could be subject to revision as new information becomes available.





Securities
      available for sale are carried at fair value. Unrealized gains and losses,
      net
      of tax, on available for sale securities are reported as accumulated other
      comprehensive income (loss) until realized. Realized gains and losses on sales,
      determined using the specific identification method, are included in earnings.
      Investments and mortgage-backed securities held to maturity are carried at
      amortized cost since management has the ability and intention to hold them
      to
      maturity. Amortization of related premiums and discounts are computed using
      the
      level yield method over the terms of the securities.


14





The
      Company evaluates securities for other-than-temporary impairment on a quarterly
      basis. Consideration is given to (1) the length of time and the extent to which
      the fair value has been less than the cost, (2) the financial condition and
      near-term prospects of the issuer, and (3) the intent and ability of the Company
      to retain its investment with the issuer for a period of time sufficient to
      allow for an anticipated recovery in fair value. In evaluating an issuer’s
      financial condition, management considers whether the securities are issued
      by
      the federal government or its agencies, whether downgrades by bond rating
      agencies have occurred and industry analysts’ reports.





The
      Company purchased Shay Asset Management Fund (AMF) Ultra Short Mortgages,
      consisting of short-term adjustable rate mortgage portfolio mutual funds, to
      control its interest rate risks and to generate interest income. It purchased
      the mutual funds incrementally between the years 2001 and 2003. As of June
      30,
      2008, the mutual fund has an amortized cost of $9,400,000 and a fair value
      of
      $8,500,000. Management has identified the Shay AMF Ultra Short Mortgage Fund
      as
      an impaired asset, meaning that the fair value is below the cost of the
      investment and these securities available for sale are carried at fair value.
      The unrealized losses of $900,000 on the available for sale securities are
      reported as accumulated other comprehensive loss. The unrealized losses are
      the
      result of declines in pricing levels differing from those existing at the time
      of the purchase of the fund. No gains or losses have been realized in income
      for
      any year since the initial purchases. The mutual funds have no stated maturity
      date.





Management
      believes that the unrealized losses of the securities available for sale, which
      have existed over the last few years, are only temporary and are due to the
      fund’s pricing decline. The Fund has paid an attractive yield and has made all
      principal and interest payments on time.  Management believes that there is a strong correlation between market rate
      movement and a widening of mortgage spreads. The combination of a current bond
      market with falling rates and a widening of mortgage spreads, along with an
      abnormally flat treasury curve, create a situation where unrealized losses
      are
      higher than ever. There is a strong indication that the turmoil in the U.S.
      housing market brought about, in part, by the subprime lending situation has
      driven the widening of the mortgage spreads and has created a perception of
      credit problems within the fund’s loan portfolio. Management believes these
      disruptions are only temporary in nature and expects the asset values of the
      fund to improve once liquidity is restored to the market and mortgage pricing
      spreads begin to narrow and return to a more stable market. As management has
      the intent and ability to hold these securities for the foreseeable future
      until
      anticipated recovery, the declines are not deemed to be other than temporary.





Management
      believes that the mutual fund has performed as intended within its investment
      objectives of seeking to protect its net interest margin in periods of rising
      rates and of providing as high a level of current income as is consistent with
      the preservation of capital and maintenance of liquidity. The yield of the
      Shay
      Asset Management Fund has consistently, since its inception, performed better
      than federal funds rates, the mutual funds hold primarily the highest quality
      credit rating adjustable rate mortgages and the investment is paying as agreed.





Assets
      acquired through, or in lieu of, loan foreclosure are held for sale and are
      initially recorded at fair value less cost to sell at the date of foreclosure,
      establishing a new cost basis. Subsequent to foreclosure, valuations are
      periodically performed by management and the assets are carried at the lower
      of
      carrying amount or fair value less cost to sell. Revenue and expenses from
      operations and changes in the valuation allowance are included in other
      expenses.


15


Management’s
      judgment is inherent in the determination of the provision and allowance for
      loan losses, including in connection with the valuation of collateral and the
      financial condition of the borrower. The establishment of allowance factors
      is a
      continuing exercise and allowance factors may change over time, resulting in
      an
      increase or decrease in the amount of the provision or allowance based upon
      the
      same volume and classification of loans. Changes in allowance factors or in
      management’s interpretation of those factors will have a direct impact on the
      amount of the provision, and a corresponding effect on income and assets. Also,
      errors in management’s perception and assessment of the allowance factors could
      result in the allowance not being adequate to cover losses in the portfolio,
      and
      may result in additional provisions or charge-offs, which would adversely affect
      income and capital. For additional information regarding the allowance for
      loan
      losses, see “Results of Operations for the Three and Six Months Ended June 30,
      2008 and 2007 - Provision for Loan Losses and Analysis of Allowance for Loan
      Losses.” ****





**Results
      of Operations for the Three and Six Months Ended June 30, 2008 and
      2007**





*General* .
      Net
      income increased $180,000 to a net income of $142,000 for the three months
      ended
      June 30, 2008 compared to a net loss of $38,000 for the same period in the
      prior
      year. The increase was due primarily to a $146,000 increase in interest
      income.





Net
      income increased $232,000, to a net income of $184,000 for the six months ended
      June 30, 2008 compared to a net loss of $48,000 for the same period in the
      prior
      year. The increase was due primarily to a $256,000 increase in interest income
      and a $40,000 increase in non-interest income, offset by a $115,000 increase
      in
      non-interest expenses.


16





*Average
      Balances, Net Interest Income, Yields Earned and Rates Paid.* The
      following tables present for the periods indicated the total dollar amount
      of
      interest income from average interest earning assets and the resultant yields,
      as well as the interest expense on average interest bearing liabilities,
      expressed both in dollars and rates. No tax equivalent adjustments were made
      because no income was exempt from federal income taxes. All average balances
      are
      monthly average balances. We do not believe that the monthly averages differ
      materially from what the daily averages would have been. Non-accruing loans
      have
      been included in the table as loans carrying a zero yield. The amortization
      of
      loan fees is included in computing interest income, however, such fees are
      not
      material.





**Three
                Months Ended**
              **June
                30, 2008**
            
            **Three********Months
                Ended**
              **June
                30, 2007****Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**Dollars
                in Thousands
            
            Dollars
                in ThousandsInterest-earning
                assets:Loans
                receivable(1)
            
            $
            152,338
            
            $
            2,300
            
            
            6.04
            %
            $
            144,668
            
            $
            2,056
            
            
            5.68
            %Mortgage-backed
                securities
            
            
            1,916
            
            
            21
            
            
            4.38
            
            
            2,816
            
            
            31
            
            
            4.40Investment
                securities (available
                for sale)
            
            
            8,643
            
            
            94
            
            
            4.35
            
            
            8,704
            
            
            113
            
            
            5.19Investment
                securities (held to
                maturity)
            
            
            2,000
            
            
            16
            
            
            3.20
            
            
            4,000
            
            
            38
            
            
            3.80Other
                interest-earning
                assets
            
            
            3,442
            
            
            38
            
            
            4.42
            
            
            5,628
            
            
            85
            
            
            6.04Total
                interest-earning
                assets
            
            
            168,339
            
            
            2,469
            
            
            5.87
            %
            
            165,816
            
            
            2,323
            
            
            5.60
            %Non-interest
                earning assets
            
            
            8,159
            
            
            
            
            
            
            
            
            6,885Total
                assets
            
            $
            176,498
            
            
            
            
            
            
            
            $
            172,701Interest-bearing
                liabilities:Savings
                deposits
            
            $
            13,662
            
            
            28
            
            
            0.82
            %
            $
            16,580
            
            
            48
            
            
            1.16
            %Demand
                and NOW
                accounts
            
            
            10,995
            
            
            62
            
            
            2.26
            
            
            7,292
            
            
            42
            
            
            2.30Certificates
                of
                deposit
            
            
            94,790
            
            
            1,052
            
            
            4.44
            
            
            88,183
            
            
            1,059
            
            
            4.80Escrows
            
            
            3
            
            
            -
            
            
            -
            
            
            9
            
            
            -
            
            
            -Borrowings
            
            
            31,667
            
            
            301
            
            
            3.80
            
            
            33,833
            
            
            371
            
            
            4.39Total
                interest-bearing liabilities
            
            
            151,117
            
            
            1,443
            
            
            3.82
            %
            
            145,897
            
            
            1,520
            
            
            4.17
            %Non-interest
                bearing liabilities
            
            
            3,697
            
            
            
            
            
            
            
            
            4,461Total
                liabilities
            
            
            154,814
            
            
            
            
            
            
            
            
            150,358Total
                equity
            
            
            21,684
            
            
            
            
            
            
            
            
            22,343Total
                liabilities and equity
            
            $
            176,498
            
            
            
            
            
            
            
            $
            172,701Net
                interest income
            
            
            
            
            $
            1,026
            
            
            
            
            
            
            
            $
            803Interest
                rate spread(2)
            
            
            
            
            
            
            
            
            2.05
            %
            
            
            
            
            
            
            
            1.43
            %Net
                interest-earning assets
            
            $
            17,222
            
            
            
            
            
            
            
            $
            19,919Net
                interest margin(3)
            
            
            
            
            
            
            
            
            2.44
            %
            
            
            
            
            
            
            
            1.94
            %Ratio
                of interest earning assets to interest bearing
                liabilities
            
            
            
            
            
            1.11x
            
            
            
            
            
            
            
            
            1.14x





(1)
            Loans
                receivable are net of the allowance for loan
                losses.


(2)
            Net
                interest rate spread represents the difference between the average
                yield
                on interest earning assets and the average cost of interest bearing
                liabilities.


(3)
            Net
                interest margin represents net interest income as a percentage of
                average
                interest earning assets.


17





**Six
                Months Ended**
              **June
                30, 2008**
            
            **Six
                Months Ended**
              **June
                30, 2007****Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**Dollars
                in Thousands
            
            Dollars
                in ThousandsInterest-earning
                assets:Loans
                receivable(1)
            
            $
            151,079
            
            $
            4,525
            
            
            5.99
            %
            $
            145,350
            
            $
            4,098
            
            
            5.64
            %Mortgage-backed
                securities
            
            
            2,024
            
            
            45
            
            
            4.45
            
            
            2,933
            
            
            65
            
            
            4.43Investment
                securities (available
                for sale)
            
            
            8,806
            
            
            198
            
            
            4.50
            
            
            8,655
            
            
            222
            
            
            5.13Investment
                securities (held to
                maturity)
            
            
            2,167
            
            
            39
            
            
            3.60
            
            
            4,000
            
            
            75
            
            
            3.75Other
                interest-earning
                assets
            
            
            3,113
            
            
            74
            
            
            4.75
            
            
            5,460
            
            
            165
            
            
            6.04Total
                interest-earning
                assets
            
            
            167,189
            
            
            4,881
            
            
            5.84
            %
            
            166,398
            
            
            4,625
            
            
            5.56
            %Non-interest
                earning assets
            
            
            8,002
            
            
            
            
            
            
            
            
            6,984Total
                assets
            
            $
            175,191
            
            
            
            
            
            
            
            $
            173,382Interest-bearing
                liabilities:Savings
                deposits
            
            $
            13,977
            
            
            64
            
            
            0.92
            %
            $
            16,965
            
            
            95
            
            
            1.12
            %Demand
                and NOW
                accounts
            
            
            9,862
            
            
            120
            
            
            2.43
            
            
            7,253
            
            
            84
            
            
            2.32Certificates
                of
                deposit
            
            
            93,155
            
            
            2,134
            
            
            4.58
            
            
            87,483
            
            
            2,084
            
            
            4.76Escrows
            
            
            2
            
            
            -
            
            
            -
            
            
            7
            
            
            -
            
            
            -Borrowings
            
            
            32,917
            
            
            636
            
            
            3.86
            
            
            35,250
            
            
            781
            
            
            4.43Total
                interest-bearing liabilities
            
            
            149,913
            
            
            2,954
            
            
            3.94
            %
            
            146,958
            
            
            3,044
            
            
            4.14
            %Non-interest
                bearing liabilities
            
            
            3,538
            
            
            
            
            
            
            
            
            4,048Total
                liabilities
            
            
            153,451
            
            
            
            
            
            
            
            
            151,006Total
                equity
            
            
            21,740
            
            
            
            
            
            
            
            
            22,376Total
                liabilities and equity
            
            $
            175,191
            
            
            
            
            
            
            
            $
            173,382Net
                interest income
            
            
            
            
            $
            1,927
            
            
            
            
            
            
            
            $
            1,581Interest
                rate spread(2)
            
            
            
            
            
            
            
            
            1.90
            %
            
            
            
            
            
            
            
            1.42
            %Net
                interest-earning assets
            
            $
            17,276
            
            
            
            
            
            
            
            $
            19,440Net
                interest margin(3)
            
            
            
            
            
            
            
            
            2.31
            %
            
            
            
            
            
            
            
            1.90
            %Ratio
                of interest earning assets to interest bearing
                liabilities
            
            
            
            
            
            1.12x
            
            
            
            
            
            
            
            
            1.13x





(1)
            Loans
                receivable are net of the allowance for loan
                losses.


(2)
            Net
                interest rate spread represents the difference between the average
                yield
                on interest earning assets and the average cost of interest bearing
                liabilities.


(3)
            Net
                interest margin represents net interest income as a percentage of
                average
                interest earning assets.





*Net
      Interest Income* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





Net
      interest income increased $223,000, or 27.77%, to $1,026,000 for the three
      months ended June 30, 2008 from $803,000 for the three months ended June 30,
      2007. The increase was primarily a result of a $2,523,000, or 1.52%, increase
      in
      average interest earning assets to $168,339,000 from $165,816,000, a 27 basis
      point increase in the yield on average interest earning assets, from 5.60%
      to
      5.87% and a 35 basis point decrease in the cost of average interest bearing
      liabilities, from 4.17% to 3.82%. These were offset by a $5,220,000, or 3.58%,
      increase in average interest bearing liabilities to $151,117,000 from
      $145,897,000.


18





Our
      interest rate spread increased to 2.05% for the quarter ended June 30, 2008
      from
      1.43% for the quarter ended June 30, 2007, reflecting a more rapid increase
      in
      the yield of our average interest earning assets as compared to the decrease
      in
      the cost of our average interest bearing liabilities. Our net interest margin
      increased to 2.44% from 1.94%, because of a higher yield on average interest
      earning assets and a decrease in the cost of our average interest bearing
      liabilities. The ratio of interest earning assets to interest bearing
      liabilities decreased slightly to 1.11 times for the three months ended June
      30,
      2008 from 1.14 times for the same period in 2007.





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





Net
      interest income increased $346,000, or 21.88%, to $1,927,000 for the six months
      ended June 30, 2008 from $1,581,000 for the six months ended June 30, 2007.
      The
      increase was primarily a result of a $791,000, or 0.48%, increase in average
      interest earning assets to $167,189,000 from $166,398,000, a 28 basis point
      increase in the yield on average interest earning assets, from 5.56% to 5.84%
      and a 20 basis point decrease in the cost of average interest bearing
      liabilities, from 4.14% to 3.94%. These were offset by a $2,955,000, or 2.01%,
      increase in average interest bearing liabilities to $149,913,000 from
      $146,958,000.





Our
      interest rate spread increased to 1.90% from 1.42%, reflecting a more rapid
      increase in the yield of our average interest earning assets as compared to
      the
      decrease in the cost of our average interest bearing liabilities. Our net
      interest margin increased to 2.31% from 1.90%, because of a higher yield on
      average interest earning assets and a decrease in the cost of our average
      interest bearing liabilities. The ratio of interest earning assets to interest
      bearing liabilities remained relatively steady at 1.12 times for the six months
      ended June 30, 2008 from 1.13 times for 2007.





*Interest
      Income* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





Interest
      income increased by $146,000, or 6.28%, to $2,469,000 for the three months
      ended
      June 30, 2008, from $2,323,000 for the three months ended June 30, 2007. The
      increase in interest income resulted from an increase of $244,000, or 11.87%,
      in
      interest and fee income from loans, partially offset by decreases of $41,000,
      or
      27.15%, in interest income from investment securities, $10,000, or 32.26%,
      in
      interest income from mortgage-backed securities and $47,000, or 55.29%, in
      interest income from other interest earning assets (primarily consisting of
      interest earned on federal funds sold and Federal Home Loan Bank stock).





The
      increase in interest income reflects a $2,523,000, or 1.52%, increase in the
      average balance of interest-earning assets to $168,339,000 during the quarter
      ended June 30, 2008 from $165,816,000 during the quarter ended June 30, 2007
      and
      a 27 basis point increase in the yield on average interest-earning assets to
      5.87% for the three months ended June 30, 2008 from 5.60% for the three months
      ended June 30, 2007. This is due to a focus on increasing our commercial real
      estate loan origination volume and the higher interest rates those loans yield.





The
      increase in interest income and fees on loans was due to a $7,670,000, or 5.30%,
      increase in average net loans receivable, from $144,668,000 during the quarter
      ended June 30, 2007 to $152,338,000 during the quarter ended June 30, 2008
      and a
      36 basis point increase in the average yield on net loans receivable. The
      decrease in interest income from investment securities was primarily reflective
      of a 66 basis point decrease in the average yield and a $2,061,000, or 16.22%,
      decrease in the average balance of the investment securities. The decrease
      in
      interest income from mortgage-backed securities was primarily the result of
      a
      $900,000, or 31.96%, decline in the average balance of mortgage-backed
      securities and a 2 basis point decrease in the average yield on these
      securities.


19





The
      decrease in interest income from other interest-earning assets (primarily
      federal funds sold) was due to a $2,186,000, or 38.84%, decrease in average
      other interest-earning assets, from $5,628,000 during the quarter ended June
      30,
      2007 to $3,442,000 during the quarter ended June 30, 2008 (as a result of using
      federal funds to fund commercial real estate loan settlements and to pay down
      Federal Home Loan Bank borrowings) and a 162 basis point decrease in the average
      yield on these assets (as a result of decreases in short term market interest
      rates).





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





Interest
      income increased by $256,000, or 5.54%, to $4,881,000 for the six months ended
      June 30, 2008, from $4,625,000 for the six months ended June 30, 2007. The
      increase in interest income resulted primarily from an increase of $427,000,
      or
      10.42%, in interest and fee income from loans, partially offset by decreases
      of
      $60,000, or 20.20%, in interest income from investment securities, $91,000,
      or
      55.15%, in interest income from other interest earning assets (primarily
      consisting of interest earned on federal funds sold and Federal Home Loan Bank
      stock) and $20,000, or 30.77%, in interest income from mortgage backed
      securities.





The
      increase in interest income reflects a $791,000, or 0.48%, increase in the
      average balance of interest-earning assets to $167,189,000 from $166,398,000,
      and a 28 basis point increase in the yield on average interest-earning assets
      to
      5.84% for the six months ended June 30, 2008 from 5.56% for the six months
      ended
      June 30, 2007, reflecting an increase in our loan volume, primarily commercial
      real estate loans, and the higher interest rates those loans yield.





The
      increase in interest income and fees on loans was due to a $5,729,000, or 3.94%,
      increase in average net loans receivable, from $145,350,000 for the six months
      ended June 30, 2007 to $151,079,000 for the six months ended June 30, 2008
      and a
      35 basis point increase in average yield on net loans receivable. The decrease
      in interest income from investment securities was primarily reflective of a
      43
      basis point decrease in the average yield and a $1,682,000, or 13.29%, decrease
      in the average balance of the investment securities. The decrease in interest
      income from mortgage-backed securities was primarily the result of a $909,000
      or
      30.99% decline in the average balance of mortgage-backed securities, which
      was
      partially offset by a 2 basis point increase in the average yield on these
      securities.





The
      decrease in interest income from other interest-earning assets (primarily
      federal funds sold) was due to a $2,347,000, or 75.39%, decrease in average
      other interest-earning assets, from $5,460,000 during the six months ended
      June
      30, 2007 to $3,113,000 during the six months ended June 30, 2008 (as a result
      of
      using federal funds to fund commercial real estate loan settlements and to
      pay
      down Federal Home Loan Bank borrowings) and a 129 basis point decrease in the
      average yield on these assets (as a result of decreases in short term market
      interest rates).





*Interest
      Expense* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





Interest
      expense, which consists of interest paid on deposits and borrowings, decreased
      by $77,000, or 5.07%, to $1,443,000 for the three months ended June 30, 2008
      from $1,520,000 for the three months ended June 30, 2007. The decrease in
      interest expense resulted from decreases of $75,000, or 69.44%, in interest
      paid
      on short-term borrowings and $7,000, or 0.61%, in interest paid on deposits,
      partially offset by an increase of $5,000, or 1.90%, in interest paid on
      long-term borrowings. The decrease in interest expense reflects a 35 basis
      point
      decrease in the average cost of interest-bearing liabilities, to 3.82% for
      the
      three months ended June 30, 2008 from 4.17% for the three months ended June
      30,
      2007, while the average balance of interest-bearing liabilities increased to
      $151,117,000 during the quarter ended June 30, 2008 from $145,897,000 during
      the
      quarter ended June 30, 2007.


20





The
      decrease in interest paid on deposits is due to a 33 basis point decrease in
      the
      average cost of deposits as a result of lowered market interest rates, partially
      offset by a $7,392,000, or 6.60%, increase in the balance of interest bearing
      deposits to $119,447,000 for the three months ended June 30, 2008 from
      $112,055,000 for the three months ended June 30, 2007. The decrease in interest
      paid on borrowings is a result of a decrease in the average balance of
      borrowings to $31,667,000 during the quarter ended June 30, 2008 from
      $33,833,000 in the same quarter of 2007 and a 59 basis point decrease in the
      average cost of borrowings as a result of borrowing at lower interest rates
      in
      connection with short-term borrowings which are renewed at current interest
      rates, which were lower during the 2007 period.





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





Interest
      expense decreased by $90,000, or 2.96%, to $2,954,000 for the six months ended
      June 30, 2008 from $3,044,000 for the six months ended June 30, 2007. The
      decrease in interest expense resulted from a decrease of $157,000, or 61.09%,
      in
      interest paid on short-term borrowings, partially offset by increases of
      $55,000, or 2.43%, in interest paid on deposits and $12,000, or 2.29%, in
      interest paid on long-term borrowings. The decrease in interest expense reflects
      a 20 basis point decrease in the average cost of interest-bearing liabilities,
      to 3.94% for the six months ended June 30, 2008 from 4.14% for the six months
      ended June 30, 2007, while the average balance of interest-bearing liabilities
      increased to $149,913,000 for the six months ended June 30, 2008 from
      $146,958,000 for the same period of 2007. Interest paid on deposits increased
      due to an increase in the average balance of deposits to $116,994,000 from
      $111,701,000, which offset a decrease in the average cost of deposits by 15
      basis points as a result of lower market interest rates. The average balance
      of
      borrowings decreased to $32,917,000 during the six months ended June 30, 2008
      from $35,250,000 in the same period of 2007 and the average cost of borrowings
      decreased by 57 basis points as a result of borrowing at lower interest rates.
      Although the average balance in borrowings and the average cost of borrowings
      decreased, the interest on long-term borrowings increased due to a long-term
      convertible rate FHLB advance being called in July 2007 and replaced by a
      long-term convertible FHLB advance at a higher interest rate.





*Provision
      for Loan Losses and Analysis of Allowance for Loan Losses* .
      We
      establish provisions for loan losses, which are charged to operations, at a
      level estimated as necessary to absorb known and inherent losses that are both
      probable and reasonably estimable at the date of the financial statements.
      In
      evaluating the level of the allowance for loan losses, management considers,
      among other things, historical loss experience, the types of loans and the
      amount of loans in the loan portfolio, adverse situations that may affect the
      borrower’s ability to repay, estimated value of any underlying collateral, and
      prevailing economic conditions (particularly as such conditions relate to our
      market area). We charge losses on loans against the allowance when we believe
      that collection of loan principal is unlikely. Recoveries on loans previously
      charged off are added back to the allowance.





Based
      on
      our evaluation of these factors, and as discussed further below, management
      made
      a provision of $38,000 and $149,000 for the three months ended June 30, 2008
      and
      June 30, 2007, and a provision of $74,000 and $182,000 for the six months ended
      June 30, 2008 and June 30, 2007, respectively. There were four overdraft
      protection loan charge-offs totaling $2,300 during the six-month period ended
      June 30, 2008. There was one commercial non-real estate loan charge-off of
      $120,000 during the six-month period ended June 30, 2007 which is discussed
      below under “General Valuation Allowance on the Remainder of the Loan
      Portfolio.” We used the same methodology  and
      generally similar assumptions in computing the allowance for these periods.





We
      have
      developed a methodology for assessing the adequacy of the allowance for loan
      losses. Our methodology consists of three key elements: (1) specific allowances
      for identified problem loans, primarily collateral-dependent; (2) a general
      valuation allowance on certain identified problem loans; and (3) a general
      valuation allowance on the remainder of the loan portfolio.


21





*Specific
      Allowance on Identified Problem Loans.* The loan
      portfolio is segregated first between loans that are on our “watch list” and
      loans that are not. Our watch list includes:




·
            loans
                90 or more days delinquent;





·
            loans
                with anticipated losses;





·
            loans
                referred to attorneys for collection or in the process of
                foreclosure;





·
            nonaccrual
                loans;





·
            loans
                classified as substandard, doubtful or loss by either our internal
                classification system or by regulators during the course of their
                examination of us; and





·
            troubled
                debt restructurings and other non-performing
                loans.





Two
      of
      our officers review each loan on the watch list and establish an individual
      allowance allocation on certain loans based on such factors as: (1) the strength
      of the customer’s personal or business cash flow; (2) the availability of other
      sources of repayment; (3) the amount due or past due; (4) the type and value
      of
      collateral; (5) the strength of our collateral position; (6) the estimated
      cost
      to sell the collateral; and (7) the borrower’s effort to cure the delinquency.




We
      review
      and establish, if necessary, an allowance for impaired loans for the amounts
      by
      which the discounted cash flows (or collateral value or observable market price)
      are lower than the carrying value of the loan. Under current accounting
      guidelines, a loan is defined as impaired when, based on current information
      and
      events, it is probable that a creditor will be unable to collect all amounts
      when due under the contractual terms of the loan agreement.





*General
      Valuation Allowance on Certain Identified Problem Loans.* We
      also
      establish a general allowance for watch list loans that do not meet the
      definition of impaired and do not have an individual allowance. We segregate
      these loans by loan category and assign allowance percentages to each category
      based on inherent losses associated with each type of lending and consideration
      that these loans, in the aggregate, represent an above-average credit risk
      and
      that more of these loans will prove to be uncollectible compared to loans in
      the
      general portfolio.




*General
      Valuation Allowance on the Remainder of the Loan Portfolio.* We
      establish another general allowance for loans that are not on the watch list
      to
      recognize the inherent losses associated with lending activities, but which,
      unlike specific allowances and the general valuation allowance on certain
      identified problem loans, has not been allocated to particular problem assets.
      This general valuation allowance is determined by segregating the loans by
      loan
      category and assigning allowance percentages based on our historical loss
      experience and delinquency trends. The allowance may be adjusted for significant
      factors that, in management’s judgment, affect the collectibility of the
      portfolio as of the evaluation date. These significant factors may include
      changes in lending policies and procedures, changes in existing general economic
      and business conditions affecting our primary lending areas, credit quality
      trends, collateral value, loan volumes and concentrations, seasoning of the
      loan
      portfolio, specific industry conditions within portfolio segments, recent loss
      experience in a particular segment of the portfolio, duration of the current
      business cycle and bank regulatory examination results. The applied loss factors
      are reevaluated annually to ensure their relevance in the current
      environment.


22





Although
      we believe that we use the best information available to establish the allowance
      for loan losses, the evaluation is inherently subjective as it requires
      estimates that are susceptible to significant revisions as more information
      becomes available or as future events change. If circumstances differ
      substantially from the assumptions used in making our determinations, future
      adjustments to the allowance for loan losses may be necessary and our results
      of
      operations could be adversely affected. In addition, the Office of Thrift
      Supervision, as an integral part of its examination process, periodically
      reviews our allowance for loan losses. The Office of Thrift Supervision may
      require us to increase the allowance for loan losses based on its judgments
      about information available to it at the time of its examination, which would
      adversely affect our results of operations.





The
      allowance for loan losses totaled $1,044,000  or
      0.67%
      of gross loans outstanding of $155,526,000 at June 30, 2008, compared to an
      allowance for loan losses of $972,000, or 0.65%, of  gross
      loans outstanding of $150,501,000 at December 31, 2007. The increase to the
      loan
      loss reserve is due to the increased commercial real estate loan balances,
      which
      historically create a mix of riskier loan products since commercial loans are
      considered to be a higher risk than residential mortgage loans. As of June
      30,
      2008, we have specific reserves of $100,000 within the allowance for loan losses
      because we believe there is a substantial likelihood that we will not collect
      the total amount of the outstanding principal balance on a commercial non-real
      estate loan that is classified as impaired. The corporate commercial loan
      borrower filed Chapter 7 corporate bankruptcy in the third quarter of 2006
      and
      filed Chapter 7 personal bankruptcy in the second quarter of 2007. We
      restructured the remaining debt to facilitate repayment of the loan in the
      third
      quarter of 2007 and the borrower has been making payments in accordance with
      the
      terms of the restructured loan agreement.





The
      following table summarizes the activity in the provision for loan losses for
      the
      three and six months ended June 30, 2008 and 2007.





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Dollars
                in Thousands)Balance
                at beginning of period
            
            $
            1,007
            
            $
            764
            
            $
            972
            
            $
            850Charge-offs
                (1)
            
            
            (1
            )
            
            (1
            )
            
            (2
            )
            
            (120
            )Recoveries
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                charge-offs
            
            
            (1
            )
            
            (1
            )
            
            (2
            )
            
            (120
            )Provision
                for loan losses
            
            
            38
            
            
            149
            
            
            74
            
            
            182Ending
                balance
            
            $
            1,044
            
            $
            912
            
            $
            1,044
            
            $
            912Ratio
                of net charge-offs during the period to average loans outstanding,
                net,
                during the period
            
            
            -
            
            
            -
            
            
            -
            
            
            0.08
            %Ratio
                of allowance for loan losses to total loans outstanding
            
            
            0.67
            %
            
            0.63
            %
            
            0.67
            %
            
            0.63
            %Allowance
                for loan losses as a percent of total non-performing loans
            
            
            47.26
            %
            
            219.76
            %
            
            47.26
            %
            
            219.76
            %





(1)
            Charge
                offs consisted primarily of the principal loss of overdraft protection
                lines of credit with the exception of a commercial non-real estate
                loan
                charge off of $120,000 in 2007.


23





*Other
      Income* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





Historically,
      our non-interest income has been relatively modest and one of our strategic
      initiatives is to increase our non-interest income. Non-interest income
      increased $24,000, or 22.86%, to $129,000 for the three months ended June 30,
      2008, as compared to $105,000 for the three months ended June 30, 2007. The
      primary reason for the increase in non-interest income is a $26,000, or 78.79%,
      increase in other income (primarily consisting of fees earned from the sale
      of
      non-insured investment products, processing fees and late charges on loan
      products and income from checking accounts and ATM usage) to $59,000 for the
      three months ended June 30, 2008, as compared to $33,000 for the three months
      ended June 30, 2007 and a $22,000, or 53.66%, increase in rental income from
      our
      headquarters building to $63,000 for the three months ended June 30, 2008,
      as
      compared to $41,000 for the three months ended June 30, 2007 (as a result of
      a
      $11,500 early termination penalty as a tenant vacated their space prior to
      the
      contract expiration and paid in full their portion of the costs of $9,000
      associated with building improvements and an increase in leasing rates to
      certain non-affiliated tenants since June 2007). One tenant has vacated a
      portion of our leaseable space, terminated their lease and paid us in full
      through July 31, 2008. While we have experienced the loss of another small
      tenant in the second quarter of 2008, they continue to pay the rent due pursuant
      to the agreed upon rent schedule while we seek to lease their space. Our rental
      income has also remained constant due to increases in rental rates provided
      for
      in the applicable lease agreements of the remaining tenants. As of June 30,
      2008, we leased 100% of the total leaseable space in our headquarters building.
      We expect this figure to decrease only slightly to 93% in the third quarter
      of
      2008 as we do not anticipate any vacant leaseable space in our headquarters
      building, other than due to the tenants mentioned above.





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





Non-interest
      income increased $40,000, or 23.26%, to $212,000 for the six months ended June
      30, 2008, as compared to $172,000 for the six months ended June 30, 2007. The
      primary reason for the increase in non-interest income is a $47,000, or 88.68%,
      increase in other income and a $25,000, or 31.25%, increase in rental income
      from our headquarters building.





*Non-interest
      Expense* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





Non-interest
      expense was $867,000 for the three months ended June 30, 2008 as compared to
      $816,000 for the three months ended June 30, 2007, an increase of $51,000,
      or
      6.25%. The increase was due primarily to an increase of $58,000, or 13.62%,
      in
      compensation and related expenses, partially offset by a decrease of $16,000,
      or
      25.00%, in advertising expenses. The increase in compensation and related
      expenses is the result of hiring two experienced commercial loan originators,
      one in February of 2007 and one in November 2007 and a certified financial
      planner in June 2007.





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





Non-interest
      expense was $1,749,000 for the six months ended June 30, 2008, as compared
      to
      $1,634,000 for the six months ended June 30, 2007, an increase of
      $115,000  or
      7.04%.
      The increase was due  primarily
      to a $108,000, or 12.56%, increase in compensation expenses, partially offset
      by
      a decrease of $6,000, or 5.56%, in advertising expenses. The increase in
      compensation expenses for the six months ended June 30, 2008 is due to the
      same
      factors as stated above for the three month period.


24





*Income
      Tax Expense* .





Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007 .





The
      provision for income taxes was $108,000 for the three months ended June 30,
      2008
      compared to a benefit for income taxes of $19,000 for the three months ended
      June 30, 2007, representing a $127,000, or 668.42%, increase. The increase
      in
      the provision for income taxes was primarily due to our income before taxes
      of
      $250,000 for the three months ended June 30, 2008, as compared to our loss
      of
      $57,000 for the three months ended June 30, 2007. The effective tax rate was
      43.20% for the three months ended June 30, 2008 compared with 33% for the same
      period in 2007. The increase in the effective tax rate was primarily due to
      the
      lower interest on the U.S. obligations which are exempt for state tax purposes
      for the three months ended June 30, 2008, as compared to the three months ended
      June 30, 2007.





Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007 .





The
      provision for income taxes was $132,000 for the six months ended June 30, 2008
      compared to a benefit for income taxes of $15,000 for the six months ended
      June
      30, 2007, representing a $147,000, or 980.00%, increase. The increase in the
      provision for income taxes was primarily due to our income before taxes of
      $316,000 for the six months ended June 30, 2008, as compared to our loss of
      $63,000 for the six months ended June 30, 2007. The effective tax rate was
      41.77% for the six months ended June 30, 2008 compared with 23.81% for the
      same
      period in 2007. The reason for the increase  in
      the
      effective tax rate for the six month period ending June 30, 2008 is the same
      as
      stated above for the quarter ending June 30, 2008.





**Analysis
      of Financial Condition**





*Assets.*





General .





Our
      total
      assets increased by $5,018,000 or 2.91%, to $177,262,000 at June 30, 2008,
      from
      $172,244,000 at December 31, 2007. The increase in total assets resulted
      primarily from increases of $6,426,000, or 4.35% increase in net loans
      receivable, from $147,744,000 at December 31, 2007 to $154,170,000 at June
      30,
      2008, $258,000, or 20.20%, increase in cash and cash equivalents, from
      $1,277,000 at December 31, 2007 to $1,535,000 at June 30, 2008 and $373,000,
      or
      85.55%, in other assets (consisting primarily of deferred income taxes, prepaid
      assets, and an investment in Mortgage Department Services, LLC), from $436,000
      at December 31, 2007 to $809,000 at June 30, 2008. These increases were offset
      by a $1,000,000, or 33.33%, decrease in investment securities - held to
      maturity, from $3,000,000 at December 31, 2007 to $2,000,000 at June 30, 2008,
      a
      $480,000, or 5.37%, decrease in investment securities - available for sale,
      from
      $8,942,000 at December 31, 2007 to $8,462,000 at June 30, 2008 and a $401,000,
      or 17.85%, decrease in mortgage backed securities-held to maturity, from
      $2,247,000 at December 31, 2007 to $1,846,000 at June 30, 2008.


25


Investment
      Securities .





The
      investment portfolio at June 30, 2008 amounted to $12,308,000, a decrease of
      $1,881,000, or 13.26%,  from
      $14,189,000 at December 31, 2007. Investment securities – available for sale,
      decreased $480,000, or 5.37%, to $8,462,000 at June 30, 2008 from $8,942,000
      at
      December 31, 2007, primarily as a result of unrealized losses to the account.
      Investment securities – held to maturity, decreased $1,000,000, or 33.33%,
      to $2,000,000 at June 30, 2008 from $3,000,000 at December 31, 2007, as a result
      of a principal repayment on a matured investment. Mortgage-backed securities
–
held to maturity, decreased $401,000, or 17.85%, to $1,846,000 at June 30,
      2008
      from $2,247,000 at December 31, 2007, as a result of principal repayments.
      As we
      are not continuing to purchase mortgage-backed securities, we expect continued
      decreases in this asset both in amount and as a percentage of our
      assets .





The
      carrying value of available for sale securities includes a net unrealized loss
      of $936,000 at June 30, 2008 (reflected as accumulated other comprehensive
      loss
      of $569,000 in equity after deferred taxes) as compared to a net unrealized
      loss
      of $258,000 ($158,000 net of taxes) as of December 31, 2007. In general, the
      increase in unrealized loss was a result of **** instability
      in the mortgage-backed securities market.





Loan
      Portfolio





Loans
      receivable, net, increased $6,426,000, or 4.35%, to $154,170,000 at June 30,
      2008 from $147,744,000 at December 31, 2007. The commercial real estate loan
      portfolio increased $3,430,000, or 21.62%, to  $19,296,000  at
      June
      30, 2008 from $15,866,000 at December 31, 2007. One-to-four family residential
      loans decreased $1,853,000, or 1.65% to $110,385,000 at June 30, 2008 from
      $112,238,000 at December 31, 2007. Our loan customers are generally located
      in
      the Baltimore Metropolitan area and its surrounding counties in Maryland.





Asset
      Quality .





Loans
      are
      reviewed on a regular basis and are generally placed on non-accrual status
      when
      they become more than 90 days delinquent. When we classify a loan as
      non-accrual, we no longer accrue interest on such loan and reverse any interest
      previously accrued but not collected. Typically, payments received on a
      non-accrual loan are applied to the outstanding principal and interest as
      determined at the time of collection of the loan. We return a non-accrual loan
      to accrual status when factors indicating doubtful collection no longer exist
      and the loan has been brought current. We consider repossessed assets and loans
      that are 90 days or more past due to be non-performing assets.





Real
      estate and other assets that we acquire as a result of foreclosure or by
      deed-in-lieu of foreclosure or repossession on collateral-dependent loans are
      classified as real estate or other repossessed assets until sold. Such assets
      are recorded at fair value less estimated selling costs at foreclosure or other
      repossession and updated quarterly at the lower of cost or estimated fair value
      less estimated selling costs. Any portion of the outstanding loan balance in
      excess of fair value at the time of foreclosure is charged off against the
      allowance for loan losses. If, upon ultimate disposition of the property, net
      sales proceeds exceed the net carrying value of the property, a gain on sale
      of
      foreclosed real estate or other assets is recorded. We have one foreclosed
      real
      estate participation loan totaling $1,096,000 at June 30, 2008. This asset
      is an
      acquisition and development real estate participation that became delinquent
      in
      the fourth quarter of 2004 and was placed on non-accrual status in the third
      quarter of 2005. Both the principal of the borrower and the entity that owns
      the
      collateral property filed for bankruptcy in the fourth quarter of 2006. An
      automatic stay was imposed in connection with the bankruptcy filings that had
      prevented the sale of the property, which was lifted in the second quarter
      of
      2007. The property was sold at auction to the lead participating bank, requiring
      us to reclassify the participation as foreclosed real estate in the same
      quarter. Subsequently, a real estate developer made an offer to purchase the
      foreclosed property and the lead participating bank accepted a letter of intent
      and executed a contract with a feasibility study period, which expired on June
      15, 2008. The real estate developer is requesting reinstatement of the contract
      of sale with a new expiration date of April 30, 2009, with a pending settlement
      expected before the end of the third quarter of 2009. We are also pursuing
      other
      interested buyers. We still expect to recover the carrying amount of the real
      estate, although there can be no assurance that this will be the
      case.  We
      had
      foreclosed real estate of $1,096,000 at June 30, 2008 and $1,083,000 at December
      31, 2007.


26





Non-accrual
      loans totaled $772,000, or 0.50%, $468,000, or 0.32% and  $415,000,
      or 0.29% of net loans receivable at June 30, 2008, December 31, 2007 and June
      30, 2007, respectively. Of the non-accrual loans at June 30, 2008, $100,000
      consisted of a commercial non-real estate loan and $672,000 consisted of four
      one- to-four-family residential mortgage loans. The increase in the amount
      of
      non-accrual loans between the first six months of 2008 and 2007 is due to an
      increase in the number of residential loans that are over ninety days past
      due
      during the second quarter of 2008.





Under
      current accounting guidelines, a loan is defined as impaired when, based on
      current information and events, it is probable that a creditor will be unable
      to
      collect all amounts when due under the contractual terms of the loan
      agreement.  We consider one- to four-family mortgage loans and consumer
      installment loans to be homogeneous and, therefore, do not separately evaluate
      them for impairment.  All other loans are evaluated for impairment on an
      individual basis. We generally classify non-accrual loans as
      impaired.





As
      of
      June 30, 2008, we have classified a commercial non-real estate loan as impaired
      as was discussed in the “Provision for Loan Losses and Analysis of Allowance for
      Loan Losses” section of this report. In anticipation of a minimal recovery of
      principal on this loan, we charged a portion of the loan balance against our
      allowance for loan losses and we have reserved $100,000, or 100%, of the
      remaining balance of the loan to our allowance for loan losses in 2007. The
      remaining debt was restructured at that time.





We
      have
      also placed a commercial real estate loan in the amount of $1,133,000 on our
      watch list due to slow housing sales. The borrower is a well regarded builder
      and developer and we expect all payments to be made as agreed. As of June 30,
      2008, the loan is being paid as agreed.




**** Other
      than as disclosed in the paragraphs above, there are no other loans at June
      30,
      2008 about which management has serious doubts concerning the ability of the
      borrowers to comply with the present loan repayment terms.





*Liabilities.*





General .





Total
      liabilities increased by $5,168,000, or 3.43%, to $155,643,000 at June 30,
      2008,
      from $150,475,000 at December 31, 2007. The increase in total liabilities
      resulted from increases of $7,973,000, or 6.99% in deposits and $1,389,000,
      or
      409.73%, in advance payments by borrowers for taxes and insurance, partially
      offset by decreases of $3,000,000, or 8.82%, in borrowings and $889,000, or
      82.54%, in checks outstanding in excess of bank balance. The decrease in
      borrowings is the result of paying down the Federal Home Loan Bank advances
      when
      our liquidity is favorable. Advance payments by borrowers for taxes and
      insurance increased because the July 2008 semi-annual property taxes had not
      been paid as of  June
      30,
      2008. The balance in checks outstanding in excess of bank balance at the end
      of
      a period is dependent on the number and amounts of checks issued on the account
      at our correspondent’s bank and when such checks are presented for payment. Any
      excess funds are automatically transferred into an interest-earning federal
      funds account. Therefore, changes in checks outstanding in excess of bank
      balance as reflected on the balance sheet, generally, do not reflect any
      underlying changes in the Company’s financial condition. The other liabilities
      consist primarily of accrued federal and state income taxes and accrued interest
      on Federal Home Loan Bank borrowings.





Deposits





Deposits
      increased $7,973,000, or 6.99%, to $122,071,000 at June 30, 2008 from
      $114,098,000 at December 31, 2007. Certificates of deposits increased
      $5,728,000, or 6.39%, to $95,403,000 at June 30, 2008 from $89,675,000 at
      December 31, 2007, and NOW and money market demand deposit accounts increased
      by
      $2,368,000, or 14.18%, to $19,073,000 at June 30, 2008 from $16,705,000 at
      December 31, 2007. Savings deposits decreased by $123,000, or 1.59%, to
      $7,595,000 at June 30, 2008 from $7,718,000 at December 31, 2007. We believe
      that, as deposit rates fall and the stock market remains volatile, our customers
      are moving funds into shorter term investments with higher yields or keeping
      their funds liquid in anticipation of an economic recovery, thus accounting
      for
      the increase in certificate of deposit and core deposit accounts and the decline
      in lower rate paying savings deposit accounts.


27





Borrowings .





At
      June
      30, 2008, we were permitted to borrow up to $53,179,000 from the Federal Home
      Loan Bank of Atlanta. We had $31,000,000 and $34,000,000 of Federal Home Loan
      Bank advances outstanding as of June 30, 2008 and December 31, 2007,
      respectively, and we averaged  $32,917,000
      and $33,917,000 of Federal Home Loan Bank advances during the six months ended
      June 30, 2008 and the year ended December 31, 2007, respectively. The decrease
      in borrowings reflects $3,000,000 Federal Home Loan Bank advance pay downs
      and
      $26,000,000 in the rollover of advances, offset by maturing advances of
      $26,000,000 in the first half of 2008.





**Liquidity
      Management**





Liquidity
      is the ability to meet current and future financial obligations of a short-term
      nature. Our primary sources of funds consist of deposit inflows, borrowings
      from
      the Federal Home Loan Bank of Atlanta, scheduled amortization and prepayment
      of
      loans and mortgage-backed securities, maturities and calls of held to maturity
      investment securities and earnings and funds provided from operations. While
      scheduled principal repayments on loans and mortgage-backed securities are
      a
      relatively predictable source of funds, deposit flows, calls of securities
      and
      loan prepayments are greatly influenced by market interest rates, economic
      conditions, and rates offered by our competitors.





We
      regularly adjust our investments in liquid assets based upon our assessment
      of
      (1) expected loan demand, (2) expected deposit flows, (3) yields available
      on
      interest-earning deposits and securities and (4) the objectives of our
      asset/liability management policy.





Our
      most
      liquid assets are cash and cash equivalents. The levels of these assets depend
      on our operating, financing, lending and investing activities during any given
      period. At June 30, 2008, cash and cash equivalents totaled $1,535,000.
      Securities classified as available-for-sale, which can provide additional
      sources of liquidity, totaled $8,462,000 at June 30, 2008. However, because
      all
      of these securities were in an unrealized loss position at June 30, 2008, and
      because management has the intent and ability to hold these securities until
      recovery or maturity, management does not consider these securities as a source
      of liquidity at June 30, 2008.  Also,
      at
      June 30, 2008, we had advances outstanding of $31,000,000 from the Federal
      Home
      Loan Bank of Atlanta. On that date, we had the ability to borrow an additional
      $22,179,000.





At
      June
      30, 2008, we had outstanding commitments to originate loans of $786,000
      (excluding the undisbursed portions of loans). These commitments do not
      necessarily represent future cash requirements since certain of these
      instruments may expire without being funded, although this would be unusual.
      We
      also extend lines of credit to customers, primarily home equity lines of credit.
      The borrower is able to draw on these lines as needed, thus the funding is
      generally unpredictable. Unused home equity lines of credit amounted to
      $4,957,000 at June 30, 2008. Since the majority of unused lines of credit expire
      without being funded, it is anticipated that our obligation to fund the above
      commitment amounts will be substantially less than the amounts
      reported.





Certificates
      of deposit accounts scheduled to mature within one year totaled $63,159,000
      or
      51.74% of total deposits at June 30, 2008. Management believes that the large
      percentage of deposits in shorter-term certificates of deposit reflects
      customers’ hesitancy to invest their funds in long-term certificates of deposit
      in the current interest rate environment. If these deposits do not remain with
      us, we will be required to seek other sources of funds, including other
      certificates of deposit and/or additional borrowings. Depending on market
      conditions, we may be required to pay higher rates on such deposits or other
      borrowings than we currently pay on the certificates of deposit due on or before
      June 30, 2009. We believe, however, that, based on past experience, a
      significant portion of our certificates of deposit will remain with us. We
      also
      believe we have the ability to attract and retain deposits by adjusting the
      interest rates offered.


28





Our
      borrowings are with the Federal Home Loan Bank of Atlanta and are secured by
      Federal Home Loan Bank of Atlanta stock that we own and a blanket lien on
      mortgages. Borrowings at June 30, 2008 consisted of  $4,500,000  short
      term fixed rate FHLB advances bearing interest at rates ranging from 2.57%
      to
      2.77% and $26,500,000 long term convertible rate FHLB advances with fixed
      interest rates ranging from 3.63% to 4.90%. If not repaid or converted to a
      different product, the convertible rate advances will convert from a fixed
      to a
      floating rate after the initial borrowing periods ranging from three months
      to
      sixty months.





Our
      primary investing activity is the origination of loans, primarily one- to
      four-family residential mortgage loans and commercial real estate loans. Our
      primary financing activity consists of activity in deposit accounts and Federal
      Home Loan Bank of Atlanta advances. Deposit growth has continued to outpace
      asset growth over the past twelve to fifteen months and the increased liquidity
      has been placed in a federal funds account with our correspondent bank and
      used
      to pay down borrowed funds and to fund commercial real estate and acquisition
      and renovation loans. Deposit flows are affected by the overall level of
      interest rates, the interest rates and products offered by us and our local
      competitors and other factors. We generally manage the pricing of our deposits
      to be competitive. Occasionally, we offer promotional rates on certain deposit
      products to attract deposits.





We
      are
      not aware of any known trends, events or uncertainties that will have or are
      reasonably likely to have a material effect on our liquidity, capital or
      operations, nor are we aware of any current recommendation by regulatory
      authorities, which if implemented, would have a material effect on liquidity,
      capital or operations.




***Stockholders’
      Equity***





Total
      stockholders’ equity decreased $150,000, or 0.69%, to $21,619,000 at June 30,
      2008 from $21,769,000 at December 31, 2007 as a result of increases in stock
      based compensation of $51,000, net income of $184,000 and an accumulated other
      comprehensive loss of $410,000 (resulting from the unrealized losses on
      investments available for sale, net of tax). We are considered “well
      capitalized” under the risk-based capital guidelines applicable to
      us.


29





***Off-balance
      Sheet Arrangements***





In
      the
      normal course of operations, we engage in a variety of financial transactions
      that, in accordance with generally accepted accounting principles, are not
      recorded in our financial statements. These transactions involve, to varying
      degrees, elements of credit, interest rate, and liquidity risk. Such
      transactions are used primarily to manage customers’ requests for funding and
      take the form of loan commitments and lines of credit. Our exposure to credit
      loss from non-performance by the other party to the above-mentioned financial
      instruments is represented by the contractual amount of those instruments.
      We
      use the same credit policies in making commitments and conditional obligations
      as we do for on-balance sheet instruments.





**Financial
                Instruments Whose****Contract
                Amount Represents**
            
            **Contract
                Amount At****Credit
                Risk**
            
            **June 30, 2008**
            
            **December 31, 2007**(Dollars
                in thousands)Lines
                of credit – commercial
            
            $
            8,227
            
            $
            887Lines
                of credit – home equity
            
            
            4,957
            
            
            4,964Lines
                of credit – overdraft checking
            
            
            128
            
            
            129Mortgage
                loan commitments
            
            
            786
            
            
            1,541




Commercial
      real estate lines of credit, including equipment lines of credit discussed
      below, are generally secured by a blanket lien on assets of the borrower.
      Revolving Lines of Credit (RLOC) are typically used for short term working
      capital needs and are based most heavily on the accounts receivable and
      inventory components of the borrower’s balance sheet. RLOC have terms of one
      year, are subject to annual reaffirmation and carry variable rates of interest.
      We generally receive a one percent fee, based on the commitment
      amount.





Equipment
      lines of credit are secured by equipment being purchased and sometimes by a
      blanket lien on assets of the borrower as well. Each advance is repaid over
      a
      term of three to five years and carries a variable or prevailing fixed rate
      of
      interest. We will generally advance up to 80% of the cost of the new or used
      equipment. These credit facilities are revolving in nature and the commitment
      is
      subject to annual reaffirmation.





For
      both
      types of credit facilities listed above, we evaluate each customer’s credit
      worthiness on a case-by-case basis.





Home
      equity lines of credit are secured by second deeds of trust on residential
      real
      estate. They have fixed expiration dates as long as there is no violation of
      any
      condition established in the contract. We evaluate each customer’s credit
      worthiness on a case-by-case basis.





Overdraft
      lines of credit on checking accounts are unsecured. Linked to any Slavie Federal
      personal checking account, the line will automatically make a deposit to the
      customer’s checking account if the balance falls below the amount needed to pay
      an item presented for payment.





Our
      outstanding commitments to make mortgages are at fixed rates ranging from 7.50%
      to 8.00% and 6.250% to 8.250% at June 30, 2008 and December 31, 2007,
      respectively. Loan commitments expire 60 days from the date of the
      commitment.





For
      the
      six months ended June 30, 2008, we engaged in no off-balance sheet transactions
      reasonably likely to have a material effect on our financial condition, results
      of operations or cash flows.




30





**Information
      Regarding Forward-Looking Statements**





In
      addition to the historical information contained in Part I of this Quarterly
      Report on Form 10-Q, the discussion in Part I of this Quarterly Report on Form
      10-Q contains certain forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended. Forward-looking statements often use words
      such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,”
“contemplate,” “anticipate,” “forecast,” “intend” or other words of similar
      meaning. You can also identify them by the fact that they do not relate strictly
      to historical or current facts.





Our
      goals, objectives, expectations and intentions, including statements regarding
      the development and introduction of new products and services, the allowance
      for
      loan losses, leaseable space in our headquarters building, repayment of
      non-accrual and watch list loans, retention of maturing certificates of deposit,
      liquidity management, funding of unused lines of credit, our holding of
      mortgage-backed securities and financial and other goals are forward looking.
      These statements are based on our beliefs, assumptions and on information
      available to us as of the date of this filing, and involve risks and
      uncertainties. These risks and uncertainties include, among others, those
      discussed in this Quarterly Report on Form 10-Q and in our Annual Report on
      Form
      10-K for the year ended December 31, 2007; the effect of falling interest rates
      on our profits and asset values; risks related to our intended increased focus
      on commercial real estate and commercial business loans; adverse economic
      conditions in our market area; our dependence on key personnel; competitive
      factors within our market area; the effect of developments in technology on
      our
      business; adverse changes in the overall national economy as well as adverse
      economic conditions in our specific market area; adequacy of the allowance
      for
      loan losses; expenses as a result of our stock benefit plans; and changes in
      regulatory requirements and/or restrictive banking legislation.





Our
      actual results and the actual outcome of our expectations and strategies could
      differ materially from those discussed herein and you should not put undue
      reliance on any forward-looking statements. All forward-looking statements
      speak
      only as of the date of this filing, and we undertake no obligation to make
      any
      revisions to the forward-looking statements to reflect events or circumstances
      after the date of this filing or to reflect the occurrence of unanticipated
      events.





**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





Not
      Applicable





**Item
      4.**  **Controls
      and Procedures.**





As
      of the
      end of the period covered by this quarterly report on Form 10-Q, SFSB, Inc.’s
      Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
      of SFSB, Inc.’s disclosure controls and procedures. Based upon that evaluation,
      SFSB, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that
      SFSB, Inc.’s disclosure controls and procedures are effective as of June 30,
      2008. Disclosure controls and procedures are controls and other procedures
      that
      are designed to ensure that information required to be disclosed by SFSB, Inc.
      in the reports that it files or submits under the Securities Exchange Act of
      1934, as amended, is recorded, processed, summarized and reported within the
      time periods specified in the Securities and Exchange Commission’s rules and
      forms.





In
      addition, there were no changes in SFSB, Inc.’s internal control over financial
      reporting (as defined in Rule 13a-15 or Rule 15d-15 under the Securities Act
      of
      1934, as amended) during the quarter ended June 30, 2008, that have materially
      affected, or are reasonably likely to materially affect, SFSB, Inc.’s internal
      control over financial reporting.


31


**PART
      II - OTHER INFORMATION**





Item
      1.Legal
      Proceedings.





None.





Item
      2.Unregistered
      Sales of Equity Securities and Use of Proceeds.





The
      table
      below summarizes our repurchases of equity securities during the second quarter
      of 2008.





**ISSUER
      PURCHASES OF SECURITIES**





**Period**
            
            **Total Number of**
              **Shares Purchased****(1)**
            
            **Average**
              **Price**
              **Paid per**
              **Share**
            
            **Total Number of**
              **Shares**
              **Purchased as Part**
              **of**
              **Publicly Announced**
              **Plans or**
              **Programs****(1)**
            
            **Maximum**
              **Number of Shares**
              **that May Yet**
              **Be Purchased**
              **Under**
              **The Plans or**
              **Programs****(1)**April
                1 – 30, 2008
            
            
            0
            
            
            n/a
            
            
            0
            
            
            58,552May
                1 –31, 2008
            
            
            500
            
            $
            6.90
            
            
            500
            
            
            58,052June
                1 - 30, 2008
            
            
            100
            
            $
            6.90
            
            
            100
            
            
            57,952**Total
                Second Quarter**
            
            
            **600**
            
            **$**
            **6.90**
            
            
            **600**
            
            
            **57,952**




(1)  On
      November 21, 2005, SFSB, Inc.’s board of directors adopted a stock repurchase
      program to acquire up to 53,561 shares, or approximately 4% of our outstanding
      common stock held by persons other than Slavie Bancorp, MHC. SFSB, Inc.’s board
      of Directors approved additional repurchases of up to an additional 66,951
      shares on May 10, 2006, 62,334 shares on August 6, 2007, 59,052 shares on
      February 19, 2008 and 59,022 on July 21, 2008, in each case constituting
      approximately 5% of its outstanding common stock held by persons other than
      Slavie Bancorp, MHC at such time. Stock purchases are made from time to time
      in
      the open market at the discretion of management. Any share repurchases under
      the
      repurchase program are dependent upon market conditions and other applicable
      legal requirements and must be undertaken within a 12-month period of the
      board’s authorization. As of June 30, 2008, SFSB, Inc. had repurchased 183,947
      shares on the open market at an average cost of  $9.14  per
      share
      to fund a stock-based compensation plan. In accordance with the terms of the
      stock repurchase program, as of June 30, 2008, SFSB, Inc. is authorized to
      purchase an additional 57,952 shares before February 19, 2009 and, as of the
      date of this filing,  an
      aggregate of 57,941 shares before July 21, 2009.





Item
      3.Defaults
      Upon Senior Securities.





Not
      applicable.





Item
      4.Submission
      of Matters to a Vote of Securities Holders.




(a)  SFSB,
      Inc. held its annual meeting of stockholders on May 15, 2008.


32





(b)  At
      the
      annual meeting, Philip E. Logan and Robert M. Stahl IV were elected to serve
      a
      three-year term expiring upon the date of SFSB, Inc.’s 2011 Annual Meeting. The
      term of office of the following directors continued after the meeting: J. Benson
      Brown, Thomas J. Drechsler, Charles E. Wagner, Jr. and James D. Wise.





(c)  1.
      The
      following individuals were nominees for the Board of Directors for a term to
      expire at the 2011 annual meeting of stockholders. The number of votes for
      or
      withheld for each nominee is as follows:





For
            Withheld
            TotalPhilip
                E. Logan
            2,769,729
            72,743
            2,842,472Robert
                M. Stahl IV
            2,770,229
            72,243
            2,842,472





2.
      The
      ratification of the appointment of Beard Miller Company LLP as independent
      public accountants to audit the financial statements of SFSB, Inc. for
      2008:





For
            Against
            Abstain
            Broker
                Non-Votes
            Total2,804,463
            37,909
            100
            0
            2,842,472





Item
      5.  Other
      Information.





None.





Item
      6.Exhibits.





31.1
            Rule
                13a-14(a) Certification of Chief Executive Officer31.2
            Rule
                13a-14(a) Certification of Chief Financial Officer32
            Section
                1350 Certification of Chief Executive Officer and Chief Financial
                Officer


33


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.





SFSB,
                Inc.Date:
                August 14,2008
            By:
            /s/
                Philip E. LoganPhilip
                E. Logan, President(Principal
                Executive Officer)Date:
                August 14, 2008
            By:
            /s/
                Sophie T. WittelsbergerSophie
                Torin Wittelsberger, Chief Financial Officer(Principal
                Accounting and Financial Officer)




34