**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 March 31, 2008o
            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
            o




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 o Accelerated
      filer o Non-accelerated
      filer o Smaller
      reporting company þ


(Do
      not check if a smaller reporting
      company)




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




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





As
      of May
      10, 2008, there were 2,817,644 shares of the issuer’s Common Stock, par value
      $0.01 per share, outstanding.
















**PART
      I - FINANCIAL INFORMATION**


Item
      1. Financial Statements




**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**


**March
                31, 2008**
            
            **December
                31, 2007**(Dollars
                in thousands, except per share data)**ASSETS**Cash
                and due from banks
            
            $
            769
            
            $
            612Federal
                funds sold
            
            
            1,044
            
            
            665Cash
                and cash equivalents
            
            
            1,813
            
            
            1,277Investment
                securities - available for sale
            
            
            8,952
            
            
            8,942Investment
                securities - held to maturity
            
            
            2,000
            
            
            3,000Mortgage
                backed securities - held to maturity
            
            
            2,061
            
            
            2,247Loans
                receivable - net of allowance for loan losses of2008
                $1,007; 2007 $972
            
            
            151,304
            
            
            147,744Foreclosed
                real estate
            
            
            1,096
            
            
            1,083Federal
                Home Loan Bank of Atlanta stock, at cost
            
            
            1,863
            
            
            1,844Premises
                and equipment, net
            
            
            5,070
            
            
            5,107Accrued
                interest receivable
            
            
            574
            
            
            564Other
                assets
            
            
            465
            
            
            436**Total
                assets**
            
            $
            175,198
            
            $
            172,244**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities**Deposits
            
            $
            117,703
            
            $
            114,098Checks
                outstanding in excess of bank balance
            
            
            —
            
            
            1,077Borrowings
            
            
            34,000
            
            
            34,000Advance
                payments by borrowers for taxes and insurance
            
            
            1,056
            
            
            339Other
                liabilities
            
            
            644
            
            
            961**Total
                liabilities**
            
            
            153,403
            
            
            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 March 31, 2008 and December 31, 2007 and 2,817,644 shares
                outstanding at March 31, 2008 and December 31, 2007,
                respectively
            
            
            30
            
            
            30Additional
                paid-in capital
            
            
            12,854
            
            
            12,828****Retained
                earnings (substantially restricted)
            
            
            11,538
            
            
            11,496Unearned
                Employee Stock Ownership Plan shares
            
            
            (978
            )
            
            (992
            )Treasury
                Stock at cost, March 31, 2008 and December 31, 2007, 157,981 shares
            
            
            (1,434
            )
            
            (1,434
            )Accumulated
                other comprehensive loss
            
            
            (215
            )
            
            (159
            )**Total
                stockholders’ equity**
            
            
            21,795
            
            
            21,769**Total
                liabilities and stockholders’ equity**
            
            $
            175,198
            
            $
            172,244


See
      notes
      to consolidated financial statements.


-
          2 -




**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**Three
                Months Ended****March
                31,****2008**
            
            **2007**(Dollars
                in thousands, except for per share data)Interest
                and fees on loans
            
            $
            2,225
            
            $
            2,042Interest
                and dividends on investment securities
            
            
            127
            
            
            146Interest
                on mortgage backed securities
            
            
            24
            
            
            34Other
                interest income
            
            
            36
            
            
            80**Total
                interest income**
            
            
            2,412
            
            
            2,302Interest
                on deposits
            
            
            1,176
            
            
            1,114Interest
                on short-term borrowings
            
            
            67
            
            
            149Interest
                on long-term borrowings
            
            
            268
            
            
            261**Total
                interest expense**
            
            
            1,511
            
            
            1,524**Net
                interest income**
            
            
            901
            
            
            778Provision
                for loan losses
            
            
            36
            
            
            33**Net
                interest income after provision for loan****losses**
            
            
            865
            
            
            745**Other
                Income**Rental
                income
            
            
            42
            
            
            39Other
                income
            
            
            41
            
            
            20Gain
                on sale of loans
            
            
            —
            
            
            8**Total
                other income**
            
            
            83
            
            
            67**Non-Interest
                Expenses**Compensation
                and other related expenses
            
            
            484
            
            
            434Occupancy
                expense
            
            
            97
            
            
            95Advertising
                expense
            
            
            54
            
            
            44Service
                bureau expense
            
            
            47
            
            
            43Furniture,
                fixtures and equipment
            
            
            31
            
            
            34Telephone,
                postage and delivery
            
            
            21
            
            
            19Other
                expenses
            
            
            148
            
            
            149**Total
                non-interest expenses**
            
            
            882
            
            
            818**Income
                (Loss) before income tax provision**
            
            
            66
            
            
            (6
            )Income
                tax provision
            
            
            24
            
            
            4Net
                income (loss)
            
            $
            42
            
            $
            (10
            )**Basic
                Earnings per Share**
            
            **$**
            **0.02**
            
            **$**
            **0.00****Diluted
                Earnings Per Share**
            
            **$**
            **0.02**
            
            **$**
            **0.00**


See
      notes
      to consolidated financial statements.





-
          3 -


**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**


**Three
                Months Ended****March
                31,****2008**
            
            **2007**(Dollars
                in thousands)Net
                income (loss)
            
            $
            42
            
            $
            (10
            )Net
                unrealized gain (loss) on securities available for sale during the
                period
                (net of taxes of $(37) and $3)
            
            
            (56
            )
            
            5Total
                Comprehensive Loss
            
            $
            (14
            )
            $
            (5
            )


See
      notes
      to consolidated financial statements.
















-
          4 -


**SFSB,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**Three
                Months Ended****March
                31,****2008**
            
            **2007**(Dollars
                in thousands)**Cash
                Flows From Operating Activities**Net
                income (loss)
            
            $
            42
            
            $
            (10
            )Adjustments
                to Reconcile Net Income (Loss) to Net Cash from Operating
                Activities:Non-cash
                compensation under stock based compensation plans and Employee Stock
                Ownership Plan
            
            
            41
            
            
            44Net
                amortization of premiums and discounts of investment
                securities
            
            
            2
            
            
            4Amortization
                of deferred loan fees
            
            
            (34
            )
            
            (11
            )Provision
                for loan losses
            
            
            36
            
            
            33Gain
                on sale of loans
            
            
            —
            
            
            (8
            )Loans
                originated for sale
            
            
            (430
            )
            
            (3,313
            )Proceeds
                from loans sold
            
            
            430
            
            
            3,321Provision
                for depreciation
            
            
            58
            
            
            59(Increase)
                decrease in accrued interest receivable and other assets
            
            
            (39
            )
            
            44(Decrease)
                increase in other liabilities
            
            
            (317
            )
            
            31**Net
                Cash (Used in) Provided by Operating Activities**
            
            
            (211
            )
            
            194**Cash
              Flows from Investing Activities**Purchase
                of available for sale securities
            
            
            (104
            )
            
            (109
            )Proceeds
                from redemption of held to maturity securities
            
            
            1,000
            
            
            —Net
                (increase) decreasein
                loans
            
            
            (3,403
            )
            
            1,250Purchase
                of loans
            
            
            (134
            )
            
            —Principal
                collected on mortgage backed securities
            
            
            184
            
            
            211Purchase
                of Federal Home Loan Bank of Atlanta stock
            
            
            (23
            )
            
            —Redemption
                of Federal Home Loan Bank of Atlanta stock
            
            
            3
            
            
            142Purchases
                of premises and equipment
            
            
            (22
            )
            
            (62
            )**Net
                Cash (Used in) Provided by********Investing
                Activities**
            
            
            (2,499
            )
            
            1,432**Cash
                Flows from Financing Activities**Net
                increase in deposits
            
            
            3,605
            
            
            1,973(Decrease)
                increase in checks outstanding in excess of bank balance
            
            
            (1,077
            )
            
            292Proceeds
                from long term borrowings
            
            
            —
            
            
            5,000Repayment
                of long term borrowings
            
            
            —
            
            
            (5,000
            )Net
                change in short term borrowings
            
            
            —
            
            
            (3,500
            )Increase
                in advance payments by borrowers for taxes and insurance
            
            
            718
            
            
            722**Net
                Cash********Provided
                by (Used in) Financing Activities**
            
            
            3,246
            
            
            (513
            )Increase
                in cash and cash equivalents
            
            
            536
            
            
            1,113Cash
                and cash equivalents at beginning of period
            
            
            1,277
            
            
            2,851**Cash
                and cash equivalents at end of period**
            
            $
            1,813
            
            $
            3,964**Supplemental
                Disclosures of Cash Flows Information**:Income
                taxes
            
            $
            133
            
            $
            —Interest
                expense
            
            $
            1,519
            
            $
            1,524


See
      notes
      to consolidated financial statements.




-
          5 -




**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 58.8% of the outstanding
      common stock of the Company as of March 31, 2008.




**Note
      2 - Business**





The
      Company's primary business is the ownership and operation of the Bank. The
      Bank’s primary business activity is the acceptance of deposits from the general
      public and the use of the proceeds for investments and loan originations. The
      Bank is subject to competition from other financial institutions. The Bank
      is
      subject to the regulations of certain federal agencies and undergoes periodic
      examinations by those regulatory authorities.





Holdings,
      formed on August 18, 1999 as a Maryland limited liability company, was created
      to acquire and manage certain real property located at 1614 Churchville Road,
      Bel Air, Maryland. This property includes the main office and corporate
      headquarters of the Bank. In addition, the property houses mixed use office
      space which is available for lease.





**Note
      3 - 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 three months ended March 31, 2008
      are not necessarily indicative of the results that may be expected for the
      full
      year.








-
          6 -


**Note
      4 - Earnings Per Share**





Basic
      earnings 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 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 per
      share is summarized for the three months ended March 31, 2008 and 2007 as
      follows:





(In
                thousands, except per share data)**March
                31, 2008**Basic
            
            DilutedNet
                income
            
            $
            42
            
            $
            42Weighted
                average common shares outstanding
            
            
            2,716
            
            
            2,716Dilutive
                securities:Stock
                options
            
            
            **—**
            
            
            **—**Unvested
                Stock Awards
            
            
            **—**
            
            
            **—**Adjusted
                weighted average shares
            
            
            2,716
            
            
            2,716Per
                share amount
            
            $
            0.02
            
            $
            0.02




(In
                thousands, except per share data)**March
                31, 2007**Basic
            
            DilutedNet
                loss
            
            $
            (10
            )
            $
            (10
            )Weighted
                average common shares outstanding
            
            
            2,793
            
            
            2,793Dilutive
                securities:Stock
                options
            
            
            **—**
            
            
            **—**Unvested
                Stock Awards
            
            
            **—**
            
            
            **—**Adjusted
                weighted average shares
            
            
            2,793
            
            
            2,793Per
                share amount
            
            $
            0.00
            
            $
            0.00





-
          7 -




**Note
      5 - Regulatory Capital Requirements**





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





**Minimum****To
                Be Well****Minimum**
            
            **Capitalized
                Under****For
                Capital**
            
            **Prompt
                Corrective****Actual**
            
            **Adequacy
                Purposes**
            
            **Action
                Provision****Amount**
            
            **%**
            
            **Amount**
            
            **%**
            
            **Amount**
            
            **%**March
                31, 2008
            
            (Dollars
                in thousands)Tangible
                (1)
            
            $
            17,020
            
            
            9.68
            %
            $
            2,637
            
            
            1.50
            %
            
            N/A
            
            
            N/ATier
                I risk-based (2)
            
            
            17,020
            
            
            16.44
            %
            
            N/A
            
            
            N/A
            
            $
            6,213
            
            
            6.00
            %Core
                (leverage) (1)
            
            
            17,020
            
            
            9.68
            %
            
            7,033
            
            
            4.00
            %
            
            8,792
            
            
            5.00
            %Total
                risk-based (2)
            
            
            17,927
            
            
            17.31
            %
            
            8,284
            
            
            8.00
            %
            
            10,355
            
            
            10.00
            %December
                31, 2007Tangible
                (1)
            
            $
            16,948
            
            
            9.81
            %
            $
            2,591
            
            
            1.50
            %
            
            N/A
            
            
            N/ATier
                I risk-based (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
            %Total
                risk-based (2)
            
            
            17,920
            
            
            17.36
            %
            
            8,259
            
            
            8.00
            %
            
            10,324
            
            
            10.00
            %





(1)
            To
                adjusted total assets.


(2)
            To
                risk-weighted assets.





**Note
      6 - Stock-Based Compensation**




The
      compensation cost charged against income for stock-based compensation plans,
      excluding ESOP, was $30,000 for each of the three months ended March 31, 2008
      and 2007. The total income tax benefit recognized was $8,000 for each of the
      three months ended March 31, 2008 and 2007.




**Note
      7 - 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).




-
          8 -


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 on a recurring basis, the fair value measurements
      by level within the fair value hierarchy used at March 31, 2008 are as
      follows:




**March
                31, 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
            
            $
            8,952
            
            $
            8,952
            
            $
            —
            
            $
            —Foreclosed
                Real Estate
            
            
            1,096
            
            
            —
            
            
            —
            
            
            1,096Total
            
            $
            10,048
            
            $
            8,952
            
            $
            —
            
            $
            1,096




The
      valuation techniques were used to measure fair value of assets in the table
      above on a recurring basis as of March 31, 2008.





*Available
      for sale securities* - As of
      March 31, 2008, the fair value on available for sale securities was based on
      actual market pricing for the securities.





*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 quarter of 2008.





**Item
      2.**  **Management's
      Discussion and Analysis of Financial Condition and Results of Operations**





**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.”


-
          9 -




**Overview**





Earnings
      increased to $42,000 for the three months ended March 31, 2008 as compared
      to a
      net loss of $10,000 for the same period in 2007. This increase was primarily
      due
      to an increase in interest income as a result of an increase in higher yielding
      commercial 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 recent 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 $110,000, or 4.78%, non-interest income increased $16,000,
      or
      23.88%, and interest expense decreased $13,000, or 0.85%. These improvements
      were offset by a $64,000, or 7.82%, increase in non- interest expenses.





Assets
      increased during the first three months of 2008 primarily because we increased
      our loan portfolio by $3,560,000, or 2.41%, to $151,304,000 at March 31, 2008
      from $147,744,000 at December 31, 2007. The increase is also the result of
      increases in cash and cash equivalents of $536,000, or 41.97%, to $1,813,000
      at
      March 31, 2008 from $1,277,000 at December 31, 2007, investment securities
      available for sale of $10,000, or 0.11%, to $8,952,000 at March 31, 2008 from
      $8,942,000 at December 31, 2007, Federal Home Loan Bank of Atlanta stock of
      $19,000, or 1.03%, to $1,863,000 at March 31, 2008 from $1,844,000 at December
      31, 2007 and other assets of $29,000, or 6.65%, to $465,000 at March 31, 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 March 31, 2008 from $3,000,000 at December 31, 2007 and mortgage
      backed securities held to maturity of $186,000, or 8.27%, to $2,061,000 at
      March
      31, 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 is a foreclosed real estate
      participation loan. The foreclosed property has been contracted subject to
      a feasibility study period currently scheduled to expire on June 15, 2008.
      With
      a pending settlement expected before the end of the third quarter of 2008,
      we
      anticipate 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.





To
      remain
      competitive and offer even more choices to our customers, we have 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. 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-year 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.





During
      2008, our product development and review committee expects to develop and
      implement remote deposit for commercial accountholders, a Slavie credit card,
      foreign currency services for our customers traveling abroad and check imaging
      services for our checking accountholders to provide an even wider variety of
      products and services to our customers.


-
          10 -


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-month period ended March 31, 2008 include
      the following:





·
            Total
                assets at March 31, 2008 increased by 1.72% to $175,198,000 as compared
                to
                $172,244,000 as of December 31, 2007.





·
            Net
                loans outstanding increased by 2.41% from $147,744,000 as of December
                31,
                2007 to $151,304,000 as of March 31,
                2008.





·
            Nonperforming
                loans and foreclosed real estate totaled $1,935,000 at March 31,
                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 March 31, 2008 were $117,703,000, an increase of $3,605,000 or
                3.16%
                from $114,098,000 at December 31, 2007.





·
            We
                realized net income of $42,000 for the three-month period ended March
                31,
                2008. This compares to a net loss of $10,000 for the three-month
                period
                ended March 31, 2007.





·
            Net
                interest income, our main source of income, was $865,000 during the
                three-month period ended March 31, 2008 compared to $745,000 for
                the same
                period in 2007. This represents an increase of 16.11% for the three
                months
                ended March 31, 2008 as compared to the same period in 2007.





·
            We
                had three overdraft protection loan charge-offs totaling $1,000 during
                the
                three-month period ended March 31, 2008. We had a commercial non-real
                estate loan charge-off of $120,000 during the same period in 2007.





·
            Non-interest
                income increased by $16,000, or 23.88%, for the three-month period
                ended
                March 31, 2008, as compared to the three-month period ended March
                31,
                2007, from $67,000 to $83,000.





·
            Non-interest
                expense increased by $64,000 or 7.82% for the three-month period
                ended
                March 31, 2008, as compared to the same period in 2007, from $818,000
                to
                $882,000.





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


-
          11 -


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 the
      accounting area that requires the most subjective or complex judgments, and
      as
      such could be most subject to revision as new information becomes available.





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 Months Ended March 31, 2008 and
      2007 - Provision for Loan Losses and Analysis of Allowance for Loan
      Losses.”





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





*General* .
      Net
      income increased $52,000 to a net income of $42,000 for the three months ended
      March 31, 2008 compared to a net loss of $10,000 for the same period in the
      prior year. The increase was due primarily to a $110,000 increase in interest
      income, offset by a $64,000 increase in non-interest expenses.





*Average
      Balances, Net Interest Income, Yields Earned and Rates Paid.* The
      following table presents 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.




-
          12 -






**Three
                Months Ended**
              **March
                31, 2008**
            
            **Three
                Months Ended**
              **March
                31, 2007****Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Outstanding**
              **Balance**
            
            **Interest**
              **Earned/**
              **Paid**
            
            **Yield/**
              **Rate**(Dollars
                in thousands)Interest-earning
                assets:Loans
                receivable(1)
            
            $
            149,821
            
            $
            2,225
            
            
            5.94
            %
            $
            146,033
            
            $
            2,042
            
            
            5.59
            %Mortgage-backed
                securities
            
            
            2,131
            
            
            24
            
            
            4.50
            
            
            3,050
            
            
            34
            
            
            4.46Investment
                securities (available for sale)
            
            
            8,969
            
            
            104
            
            
            4.64
            
            
            8,607
            
            
            109
            
            
            5.07Investment
                securities (held to maturity)
            
            
            2,333
            
            
            23
            
            
            3.94
            
            
            4,000
            
            
            37
            
            
            3.70Other
                interest-earning assets
            
            
            2,784
            
            
            36
            
            
            5.17
            
            
            5,290
            
            
            80
            
            
            6.05Total
                interest-earning assets
            
            
            166,038
            
            
            2,412
            
            
            5.81
            %
            
            166,980
            
            
            2,302
            
            
            5.51
            %Non-interest
                earning assets
            
            
            7,845
            
            
            
            
            
            
            
            
            7,082Total
                assets
            
            $
            173,883
            
            
            
            
            
            
            
            $
            174,062Interest-bearing
                liabilities:Savings
                deposits
            
            $
            14,291
            
            
            36
            
            
            1.01
            %
            $
            17,350
            
            
            47
            
            
            1.08
            %Demand
                and NOW accounts
            
            
            8,730
            
            
            58
            
            
            2.66
            
            
            7,213
            
            
            42
            
            
            2.33Certificates
                of deposit
            
            
            91,520
            
            
            1,082
            
            
            4.73
            
            
            86,783
            
            
            1,025
            
            
            4.72Escrows
            
            
            1
            
            
            —
            
            
            —
            
            
            5
            
            
            —
            
            
            —Borrowings
            
            
            34,167
            
            
            335
            
            
            3.92
            
            
            36,666
            
            
            410
            
            
            4.47Total
                interest-bearing liabilities
            
            
            148,709
            
            
            1,511
            
            
            4.06
            %
            
            148,017
            
            
            1,524
            
            
            4.12
            %Non-interest
                bearing liabilities
            
            
            3,377
            
            
            
            
            
            
            
            
            3,636Total
                liabilities
            
            
            152,086
            
            
            
            
            
            
            
            
            151,653Total
                equity(2)
            
            
            21,797
            
            
            
            
            
            
            
            
            22,409Total
                liabilities and equity
            
            $
            173,883
            
            
            
            
            
            
            
            $
            174,062Net
                interest income
            
            
            
            
            $
            901
            
            
            
            
            
            
            
            $
            778Interest
                rate spread(3)
            
            
            
            
            
            
            
            
            1.75
            %
            
            
            
            
            
            
            
            1.39
            %Net
                interest-earning assets
            
            $
            17,329
            
            
            
            
            
            
            
            $
            18,963Net
                interest margin(4)
            
            
            
            
            
            
            
            
            2.17
            %
            
            
            
            
            
            
            
            1.86
            %Ratio
                of interest earning assets to interest bearing liabilities
            
            
            
            
            
            1.11x
            
            
            
            
            
            
            
            
            1.12x





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


(2)
            Total
                equity includes retained earnings and accumulated other comprehensive
                income (loss).


(3)
            Net
                interest rate spread represents the difference between the average
                yield
                on interest earning assets and the average cost of interest bearing
                liabilities.


(4)
            Net
                interest margin represents net interest income as a percentage of
                average
                interest earning assets.





*Net
      Interest Income* .





Net
      interest income increased $123,000, or 15.81%, to $901,000 for the three months
      ended March 31, 2008 from $778,000 for the three months ended March 31, 2007.
      The increase was a result of a 30 basis point increase in the yield on average
      interest earning assets, from 5.51% to 5.81% and a slight decrease of 6 basis
      points in the cost of average interest bearing liabilities, from 4.12% to 4.06%.
      These were offset by a $942,000, or 0.56%, decrease in average interest earning
      assets to $166,038,000 from $166,980,000 and a $692,000, or 0.47%, increase
      in
      average interest bearing liabilities to $148,709,000 from $148,017,000.





Our
      interest rate spread increased to 1.75% for the quarter ended March 31, 2008
      from 1.39% for the quarter ended March 31, 2007, reflecting a more rapid
      increase in the yield of our interest earning assets as compared to the decrease
      in the cost of our average interest bearing liabilities. Our net interest margin
      increased to 2.17% from 1.86%, because of a higher yield on average interest
      earning assets and a decrease in the cost of the average interest bearing
      liabilities. The ratio of interest earning assets to


-
          13 -


interest
      bearing liabilities remained relatively steady at 1.11 times for the three
      months ended March 31, 2008 and 1.12 times for the same period in
      2007.




*Interest
      Income* .





Interest
      income increased by $110,000, or 4.78%, to $2,412,000 for the three months
      ended
      March 31, 2008, from $2,302,000 for the three months ended March 31, 2007.
      The
      increase in interest income resulted from an increase of $183,000, or 8.96%,
      in
      interest and fee income from loans, partially offset by decreases of $19,000,
      or
      13.01%, in interest income from investment securities, $44,000, or 55.00%,
      in
      interest income from other interest-earning assets (primarily consisting of
      interest earned on federal funds sold and Federal Home Loan Bank stock) and
      $10,000, or 29.41%, in interest income from mortgage backed
      securities.





The
      increase in interest income reflected a 30 basis point increase in the yield
      on
      average interest earning assets to 5.81% for the three months ended March 31,
      2008 from 5.51% for the three months ended March 31, 2007. This is due to a
      focus on increasing our commercial loan origination volume and the higher
      interest rates those loans yield.




The
      increase in interest income and fees on loans was due to a $3,788,000, or 2.59%
      increase in average net loans receivable, from $146,033,000 to $149,821,000,
      and
      a 35 basis point increase in the average yield on net loans receivable. The
      decrease in interest income from investment securities was primarily reflective
      of a 14 basis point decrease in the average yield and a $1,305,000 or 10.35%
      decrease in the average balance of the investment securities. The decrease
      in
      interest income from other interest-earning assets (primarily federal funds
      sold) was due to an $2,506,000, or 47.37%, decrease in average other
      interest-earning assets, from $5,290,000 during the quarter ended March 31,
      2007
      to $2,784,000 during the quarter ended March 31, 2008 (as a result of using
      federal funds to fund commercial loan settlements) and an 88 basis point
      decrease in the average yield on these assets (as a result of decreases in
      short
      term market interest rates).





The
      decrease in interest income from mortgage-backed securities was primarily the
      result of a $919,000 or 30.13% decline in the average balance of mortgage-backed
      securities, which was only slightly offset by a 4 basis point increase in the
      yield on these securities.





*Interest
      Expense* .





Interest
      expense, which consists of interest paid on deposits and borrowings, decreased
      by $13,000, or 0.85%, to $1,511,000 for the three months ended March 31, 2008
      from $1,524,000 for the three months ended March 31, 2007. The decrease in
      interest expense resulted from a decrease in interest paid on short-term
      borrowings of $82,000, or 55.03%, partially offset by increases of $62,000,
      or
      5.57%, in interest paid on deposits and $7,000, or 2,68%, in interest paid
      on
      long-term borrowings. The decrease in interest expense reflects a 6 basis point
      decrease in the average cost of interest-bearing liabilities, to 4.06% for
      the
      three months ended March 31, 2008 from 4.12% for the three months ended March
      31, 2007. The increase in interest paid on deposits is due to an increase in
      the
      average balance of interest bearing deposits to $114,541,000 from $111,346,000
      and an increase in the average cost of deposits by 11 basis points as a result
      of a volatile interest rate market in which customers are moving their funds
      into short term investments with a higher rate of return. The decrease in
      interest paid on borrowings is a result of a decrease in the average balance
      of
      borrowings to $34,167,000 from $36,666,000 and the average cost of borrowings
      by
      55 basis points 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 2008 period.





*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


-
          14 -


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 $36,000 and $33,000 for the three months ended March 31, 2008
      and
      March 31, 2007, respectively. There were three overdraft protection loan
      charge-offs of $1,000 during the three-month period ended March 31, 2008. There
      was one commercial non-real estate loan charge-off of $120,000 during the
      three-month period ended March 31, 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.




*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;





·
            non-accrual
                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 borrowers’ efforts 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.




-
          15 -


*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.





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 $1,007,000, or 0.66%, of gross loans
      outstanding of $152,754,000 at March 31, 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 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 March 31, 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.




The
      following table summarizes the activity in the provision for loan losses for
      the
      three months ended March 31, 2008 and 2007:




**Three
                Months Ended****March
                31,****2008**
            
            **2007**(Dollars
                in thousands)Balance
                at beginning of period
            
            $
            972
            
            $
            850Charge-offs
                (1)
            
            
            (1
            )
            
            (120
            )Recoveries
            
            
            —
            
            
            —Net
                charge-offs
            
            
            (1
            )
            
            (120
            )Provision
                for loan losses
            
            
            36
            
            
            33Ending
                balance
            
            $
            1,007
            
            $
            763Ratio
                of net charge-offs during the period to average loans outstanding,
                net,
                during the period
            
            
            0.00
            %
            
            0.08
            %Ratio
                of allowance for loan losses to total loans outstanding
            
            
            0.66
            %
            
            0.52
            %Allowance
                for loan losses as a percent of total non-performing loans
            
            
            120.02
            %
            
            59.73
            %







(1)
            Charge
                offs consisted of the principal loss of three overdraft protection
                lines
                of credit totaling $1,000 in 2008 and a commercial non-real estate
                loan of
                $120,000 in 2007.




*Other
      Income* .





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 $16,000, or 23.88%, to $83,000 for the three months ended March 31,
      2008, as compared to $67,000 for the three months ended March 31, 2007. The
      primary reason for the increase in non-interest income is a $21,000, or 105.00%,
      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 $41,000 for the
      three months ended March 31, 2008, as compared to $20,000 for the three months
      ended March 31, 2007. Rental income from our headquarters building increased
      $3,000, or 7.69%, to $42,000 for the three months ended March 31, 2008, as
      compared to $39,000 for the three months ended March 31, 2007 as the result
      of
      an increase in leasing rates to certain non-affiliated tenants since March
      2007.
      While one tenant has vacated a portion of our leaseable space and another tenant
      is expected to vacate in the second quarter of 2008, the tenants continue to
      pay
      the rent due pursuant to the agreed upon rent schedule while we seek to lease
      their respective spaces. As of March 31, 2008, we leased 100% of the total
      leaseable space in our headquarters building. We expect this figure to remain
      constant for the second quarter of 2008 as we do not anticipate any vacant
      leaseable space in our headquarters building, other than due to the tenants
      mentioned above.





*Non-interest
      Expense* .





Non-interest
      expense increased $64,000, or 7.82%, to $882,000 for the three months ended
      March 31, 2008 as compared to $818,000 for the three months ended March 31,
      2007. The increase was due primarily to an increase of $50,000, or 11.52%,
      in
      compensation and related expenses, $10,000, or 22.73%, in advertising expenses
      and $4,000, or 9.30%, in service bureau expenses, partially offset by a decrease
      of $3,000, or 8.82%, in furniture, fixtures and equipment 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.


-
          16 -




*Income
      Tax Expense* .




The
      provision for income taxes increased to $24,000 for the three months ended
      March
      31, 2008 from $4,000 for the three months ended March 31, 2007, representing
      a
      $20,000, or 500.00%, increase. The increase in the provision for income taxes
      was primarily due to our income before taxes of $66,000 for the three months
      ended March 31, 2008, as compared to our loss of $6,000 for the three months
      ended March 31, 2007. The effective tax rate was 36.36% for the three months
      ended March 31, 2008. Although the Company recorded a pre-tax loss for the
      three
      months ended March 31, 2007, a tax expense of $4,000 was recorded due to
      non-deductible stock based compensation.





**Analysis
      of Financial Condition**





***Assets.***





General .





Our
      total
      assets increased by $2,954,000 or 1.72%, to $175,198,000 at March 31, 2008,
      from
      $172,244,000 at December 31, 2007. The increase in total assets resulted
      primarily from a $3,560,000, or 2.41% increase in net loans receivable, from
      $147,744,000 at December 31, 2007 to $151,304,000 at March 31, 2008 and a
      $536,000, or 41.97%, increase in cash and cash equivalents, from $1,277,000
      at
      December 31, 2007 to $1,813,000 at March 31, 2008. These increases were offset
      by a $1,000,000 decrease in investment securities - held to maturity, from
      $3,000,000 at December 31, 2007 to $2,000,000 at March 31, 2008 and a $186,000,
      or 8.28%, decrease in mortgage backed securities-held to maturity, from
      $2,247,000 at December 31, 2007 to $2,061,000 at March 31, 2008.





Investment
      Securities .





The
      investment portfolio at March 31, 2008 amounted to $13,013,000, a decrease
      of
      $1,176,000, or 8.29%, from $14,189,000 at December 31, 2007. Investment
      securities - available for sale, increased $10,000, or 0.11%, to $8,952,000
      at
      March 31, 2008 from $8,942,000 at December 31, 2007, as a result of dividends
      credited to the account. Investment securities - held to maturity, decreased
      $1,000,000, or 33.33%, to $2,000,000 at March 31, 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 $186,000, or 8.28%,
      to
      $2,061,000 at March 31, 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 $351,000 at March 31, 2008 (reflected as accumulated other comprehensive
      loss
      of $215,000 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 $3,560,000, or 2.41%, to $151,304,000 at March 31,
      2008 from $147,744,000 at December 31, 2007. The commercial loan portfolio
      increased $1,742,000, or 10.98%, to  $17,608,000  at
      March
      31, 2008 from $15,866,000 at December 31, 2007. One-to-four family residential
      loans decreased $133,000, or 0.12% to $112,105,000 at March 31, 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.


-
          17 -




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 foreclosed 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
      March 31, 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 that was imposed
      in
      connection with the bankruptcy filings and had prevented the sale of the
      property was lifted in the second quarter of 2007 and 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, currently scheduled to expire on June 15, 2008.
      With
      a pending settlement expected before the end of the third quarter of 2008,
      we
      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 March 31, 2008 and $1,083,000 at
      December 31, 2007.





Non-accrual
      loans totaled $839,000, or 0.55%, $468,000, or 0.32% and $1,279,000, or 0.88%
      of
      net loans receivable at March 31, 2008, December 31, 2007 and March 31, 2007,
      respectively. Of the non-accrual loans at March 31, 2008, $100,000 consisted
      of
      a commercial non-real estate loan and $739,000 consisted of five one-
      to-four-family residential mortgage loans. The decrease in the amount of
      non-accrual loans between the first quarter of 2008 and 2007 is due to the
      reclassification of the participation loan as foreclosed real estate during
      the
      second quarter of 2007, as discussed above.





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
      March 31, 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.





**** Other
      than as disclosed in the paragraphs above, there are no other loans at March
      31,
      2008 about which management has serious doubts concerning the ability of the
      borrowers to comply with the present loan repayment terms.


-
          18 -




***Liabilities.***





General .





Total
      liabilities increased by $2,928,000, or 1.95%, to $153,403,000 at March 31,
      2008, from $150,475,000 at December 31, 2007. The increase in total liabilities
      resulted from increases of $3,605,000, or 3.16% in deposits and $717,000, or
      211.50%, in advance payments by borrowers for taxes and insurance, partially
      offset by decreases of $317,000, or 32.99%, in other liabilities and $1,077,000,
      or 100.00%, in checks outstanding in excess of bank balance. Advance payments
      by
      borrowers for taxes and insurance increased because of the increased property
      taxes of the loan portfolio. 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 $3,605,000, or 3.16%, to $117,703,000 at March 31, 2008 from
      $114,098,000 at December 31, 2007. Certificates of deposits increased $2,773,000
      to $92,448,000 at March 31, 2008 from $89,675,000 at December 31, 2007, and
      NOW
      and money market demand deposit accounts increased by $1,170,000 to $17,875,000
      at March 31, 2008 from $16,705,000 at December 31, 2007. Savings deposits
      decreased by $338,000 to $7,380,000 at March 31, 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.





Borrowings .





At
      March
      31, 2008, we were permitted to borrow up to $52,559,000 from the Federal Home
      Loan Bank of Atlanta. We had $34,000,000 and $34,000,000 of Federal Home Loan
      Bank advances outstanding as of March 31, 2008 and December 31, 2007,
      respectively, and we averaged $34,167,000 and $33,917,000 of Federal Home Loan
      Bank advances during the three months ended March 31, 2008 and the year ended
      December 31, 2007, respectively. The borrowings remained steady reflecting
      $22,500,000 in the rollover of Federal Home Loan Bank short term advances,
      offset by maturing short term advances of $22,500,000 in the first quarter
      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.


-
          19 -


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 March 31, 2008, cash and cash equivalents totaled $1,813,000.
      Securities classified as available-for-sale, which can provide additional
      sources of liquidity, totaled $8,952,000 at March 31, 2008. However, because
      all
      of these securities were in an unrealized loss position at March 31, 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 March 31, 2008.  Also,
      at
      March 31, 2008, we had advances outstanding of $34,000,000 from the Federal
      Home
      Loan Bank of Atlanta. On that date, we had the ability to borrow an additional
      $18,559,000.





At
      March
      31, 2008, we had outstanding commitments to originate loans of $787,000
      (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
      $4,902,000 and unused commercial lines of credit amounted to
      $6,976,000  at
      March
      31, 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.





Certificate
      of deposit accounts scheduled to mature within one year totaled $59,861,000
      or
      50.86% of total deposits at March 31, 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 volatile 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
      March 31, 2009. We believe, however, 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.





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 March 31, 2008 consisted of $7,500,000 short term
      fixed
      rate FHLB advances bearing interest at rates ranging from 2.18% to 3.00% 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, and
      the
      purchase of securities. 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 months and the
      increased liquidity has been placed in a federal funds account with our
      correspondent bank and used to fund commercial 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.




-
          20 -




***Stockholders’
      Equity***




Total
      stockholders’ equity increased $26,000, or 0.12%, to $21,795,000 at March 31,
      2008 from $21,769,000 at December 31, 2007 as a result of stock based
      compensation of $40,000, net income of $42,000, and an increase of $56,000
      in
      accumulated other comprehensive loss (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.




***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**
            
            **March
                31, 2008**
            
            **December
                31, 2007**(Dollars
                in thousands)Lines
                of credit - commercial real estate
            
            $
            6,976
            
            $
            887Lines
                of credit - home equity
            
            
            4,902
            
            
            4,
                964Lines
                of credit - overdraft protection
            
            
            132
            
            
            129Mortgage
                loan commitments
            
            
            787
            
            
            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
      three to five year period 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
      5.875%  to
      7.500%
      and 6.250% to 8.250% at March 31, 2008 and December 31, 2007, respectively.
      Loan
      commitments expire 60 days from the date of the commitment.




-
          21 -





For
      the
      three months ended March 31, 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.





**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 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


March
      31,
      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 March 31, 2008, that have materially
      affected, or are reasonably likely to materially affect, SFSB, Inc.’s internal
      control over financial reporting.




-
          22 -




**PART
      II - OTHER INFORMATION**





Item
      1. Legal
      Proceedings.





None.





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





None.





Item
      3. Defaults
      Upon Senior Securities.





Not
      applicable.





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





None.




Item
      5. Other
      Information.





None.





Item
      6. Exhibits.




31.1
            Rule
                13a-14(a) Certification of Chief Executive
                Officer




31.2
            Rule
                13a-14(a) Certification of Chief Financial Officer




32
            Section
                1350 Certification of Chief Executive Officer and Chief Financial
                Officer




-
          23 -




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


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        24
        -