----

----

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C.  20549**

**FORM        10-QSB**

| x      | QUARTERLY                  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT                  OF                  1934  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
|   | For                  the quarterly period ended  **September 30,                  2007**                                          |
|   |                                                                                                                                   |
| o      | TRANSITION                  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT                  OF                  1934 |
|   |                                                                                                                                   |
|   | For                  the transition period from _____________________ to                  _____________________         |
|   |                                                                                                                                   |
|   | Commission                  file number 0-51385                                                                                        |

**COLONIAL        BANKSHARES, INC.**

| **United                  States of America**                                   | **90-0183739**                            |
|---------------------------------------------------------------------------------|-------------------------------------------|
| (State                  or other jurisdiction of incorporation or organization) | (I.R.S.                  Employer ID No.) |

**2745        S. Delsea Drive, Vineland, New Jersey  08360**

**(856)        205-0058**

**N/A**

| (1) | x | Yes | o     No |
|-----|---|-----|-----------------------------------|
| (2) | x | Yes | o     No |

----

**TABLE        OF CONTENTS**

| **PART                  I**  | **FINANCIAL                  INFORMATION**                                                                                    | **PAGE** |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------|----------|
|                         |                                                                                                                          |     |
| Item                  1      | Consolidated                  Statements of Financial Condition (Unaudited)                                                   | 2        |
|                         | Consolidated                  Statements of Income (Unaudited)                                                                | 3        |
|                         | Consolidated                  Statements of Stockholders’ Equity (Unaudited)                                            | 4        |
|                         | Consolidated                  Statements of Cash Flows (Unaudited)                                                            | 5        |
|                         | Notes                  to Consolidated Financial Statements (Unaudited)                                                       | 6        |
|                         |                                                                                                                          |     |
| Item                  2      | Management’s                  Discussion and Analysis of Financial Condition and Results of                  Operations | 15       |
|                         |                                                                                                                          |     |
| Item                  3      | Controls                  and Procedures                                                                                      | 24       |
|                         |                                                                                                                          |     |
| **PART                  II** | **OTHER                  INFORMATION**                                                                                        |     |
|                         |                                                                                                                          |     |
| Item                  1      | Legal                  Proceedings                                                                                            | 25       |
|                         |                                                                                                                          |     |
| Item                  2      | Unregistered                  Sales of Equity Securities and Use of Proceeds                                                  | 25       |
|                         |                                                                                                                          |     |
| Item                  3      | Defaults                  Upon Senior Securities                                                                              | 25       |
|                         |                                                                                                                          |     |
| Item                  4      | Submission                  of Matters to Vote of Security Holders                                                            | 25       |
|                         |                                                                                                                          |     |
| Item                  5      | Other                  Information                                                                                            | 25       |
|                         |                                                                                                                          |     |
| Item                  6      | Exhibits                                                                                                                      | 25       |
|                         |                                                                                                                          |     |
|                         | Signatures                                                                                                                    | 26       |

----

**PART          I    FINANCIAL          INFORMATION**

**Item          1.    Financial          Statements**

***Colonial            Bankshares, Inc.***

----

|                                                                                                                                                                                                                         |   | September                  30,2007                             |    |   | December                  31,2006 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|---------|--------|-----------------------------------|--------|
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |
|                                                                                                                                                                                                                         |   | (Dollars                  in thousands, except per share data) |    |
| Assets                                                                                                                                                                                                                       |   |                                                           |    |   |                              |   |
| Cash                  and amounts due from banks                                                                                                                                                                             |   | $                                                              | 11,150  |   |                              | $      | 13,257 |   |
| Interest-bearing                  time deposits in banks                                                                                                                                                                     |   |                                                           | 725     |   |                              |   | 717 |   |
| Investment                  securities available for sale                                                                                                                                                                    |   |                                                           | 160,881 |   |                              |   | 136,925 |   |
| Investment                  securities held to maturity (fair value at September 30, 2007 -                  $16,334;                  at                  December 31, 2006 - $19,500)                                      |   |                                                           | 15,681  |   |                              |   | 18,722 |   |
| Loans                  receivable, net of allowance for loan losses of $1,456 at September                  30,                  2007 and $1,373 at December 31, 2006                                                        |   |                                                           | 231,049 |   |                              |   | 198,519 |   |
| Loans                  available for sale                                                                                                                                                                                    |   |                                                           | 152     |   |                              |   | - |   |
| Federal                  Home Loan Bank stock, at cost                                                                                                                                                                       |   |                                                           | 1,227   |   |                              |   | 775 |   |
| Office                  properties and equipment, net                                                                                                                                                                        |   |                                                           | 10,392  |   |                              |   | 7,337 |   |
| Bank-owned                  life insurance                                                                                                                                                                                   |   |                                                           | 2,554   |   |                              |   | 2,485 |   |
| Accrued                  interest receivable                                                                                                                                                                                 |   |                                                           | 2,211   |   |                              |   | 1,781 |   |
| Other                  assets                                                                                                                                                                                                |   |                                                           | 2,854   |   |                              |   | 3,079 |   |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Total                  Assets                                                                                                                                                                                                |   | $                                                              | 438,876 |   |                              | $      | 383,597 |   |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Liabilities                  and Stockholders’ Equity                                                                                                                                                                  |   |                                                           |    |   |                              |   |   |   |
| Liabilities                                                                                                                                                                                                                  |   |                                                           |    |   |                              |   |   |   |
| Deposits:                                                                                                                                                                                                                    |   |                                                           |    |   |                              |   |   |   |
|      Noninterest-bearing                                                                                                                                                                            |   | $                                                              | 18,639  |   |                              | $      | 18,055 |   |
|      Interest-bearing                                                                                                                                                                               |   |                                                           | 363,893 |   |                              |   | 319,199 |   |
| Total                  deposits                                                                                                                                                                                              |   |                                                           | 382,532 |   |                              |   | 337,254 |   |
| Federal                  Home Loan Bank short-term borrowings                                                                                                                                                                |   |                                                           | 10,025  |   |                              |   | 1,450 |   |
| Federal                  Home Loan Bank long-term borrowings                                                                                                                                                                 |   |                                                           | 6,640   |   |                              |   | 6,874 |   |
| Advances                  from borrowers for taxes and insurance                                                                                                                                                             |   |                                                           | 761     |   |                              |   | 793 |   |
| Accrued                  interest payable and other liabilities                                                                                                                                                              |   |                                                           | 1,226   |   |                              |   | 563 |   |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Total                  Liabilities                                                                                                                                                                                           |   |                                                           | 401,184 |   |                              |   | 346,934 |   |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Stockholders’                  Equity                                                                                                                                                                                  |   |                                                           |    |   |                              |   |   |   |
| Preferred                  stock, 1,000,000 shares authorized and unissued                                                                                                                                                   |   |                                                           | -       |   |                              |   | - |   |
| Common                  stock, par value $0.10 per share; authorized 10,000,000 shares;                  issued                  4,521,696 shares;  outstanding 4,433,071 shares in 2007 and                  2006 |   |                                                           | 452     |   |                              |   | 452 |   |
| Additional                  paid-in capital                                                                                                                                                                                  |   |                                                           | 19,796  |   |                              |   | 19,519 |   |
| Unearned                  shares held by Employee Stock Ownership Plan (“ESOP”)                                                                                                                                  |   |                                                           | (1,432  | )      |                              |   | (1,432 | ) |
| Treasury                  stock, at cost, 88,625 shares                                                                                                                                                                      |   |                                                           | (1,189  | )      |                              |   | (1,189 | ) |
| Retained                  earnings                                                                                                                                                                                           |   |                                                           | 20,864  |   |                              |   | 19,863 |   |
| Accumulated                  other comprehensive loss                                                                                                                                                                        |   |                                                           | (799    | )      |                              |   | (550 | ) |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Total                  Stockholders’ Equity                                                                                                                                                                            |   |                                                           | 37,692  |   |                              |   | 36,663 |   |
|                                                                                                                                                                                                                         |   |                                                           |    |   |                              |   |   |   |
| Total                  Liabilities and Stockholders’ Equity                                                                                                                                                            |   | $                                                              | 438,876 |   |                              | $      | 383,597 |   |

*See            notes to consolidated financial statements.*

----

***Colonial            Bankshares, Inc.***

----

|                                                                         |   | Three                  Months EndedSeptember                  30, |      |   | Nine                  Months EndedSeptember                  30, |   |
|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------|--------|
|                                                                         |   | 2007                                                              |      |   | 2006                                                             |   |   | 2007 |   |   | 2006 |   |
|                                                                         |   | (Dollars                  in thousands, except per share data)    |      |
| Interest                  Income                                             |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |
| Loans,                  including fees                                       |   | $                                                                 | 3,643     |   |                                                             | $      | 2,940 |   |   | $ | 10,227 |   |   | $ | 7,991 |   |
| Mortgage-backed                  securities                                  |   |                                                              | 857       |   |                                                             |   | 630 |   |   |   | 2,362 |   |   |   | 1,862 |   |
| Securities:                                                                  |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                      |   |                                                              | 1,136     |   |                                                             |   | 878 |   |   |   | 3,157 |   |   |   | 2,560 |   |
| Tax-exempt                                                                   |   |                                                              | 362       |   |                                                             |   | 338 |   |   |   | 1,080 |   |   |   | 1,018 |   |
| Total                  Interest Income                                       |   |                                                              | 5,998     |   |                                                             |   | 4,786 |   |   |   | 16,826 |   |   |   | 13,431 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Expense                                            |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                     |   |                                                              | 3,590     |   |                                                             |   | 2,448 |   |   |   | 10,081 |   |   |   | 6,616 |   |
| Borrowings                                                                   |   |                                                              | 283       |   |                                                             |   | 245 |   |   |   | 411 |   |   |   | 598 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Interest Expense                                      |   |                                                              | 3,873     |   |                                                             |   | 2,693 |   |   |   | 10,492 |   |   |   | 7,214 |   |
| Net                  Interest Income                                         |   |                                                              | 2,125     |   |                                                             |   | 2,093 |   |   |   | 6,334 |   |   |   | 6,217 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Provision                  for Loan Losses                                   |   |                                                              | -         |   |                                                             |   | 21 |   |   |   | 84 |   |   |   | 120 |   |
| Net                  Interest Income after Provision for Loan Losses         |   |                                                              | 2,125     |   |                                                             |   | 2,072 |   |   |   | 6,250 |   |   |   | 6,097 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest                  Income                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Fees                  and service charges                                    |   |                                                              | 257       |   |                                                             |   | 223 |   |   |   | 735 |   |   |   | 633 |   |
| Gain                  on sale of loans                                       |   |                                                              | 14        |   |                                                             |   | 8 |   |   |   | 37 |   |   |   | 31 |   |
| Net                  gain (loss) on calls of securities                      |   |                                                              | -         |   |                                                             |   | 3 |   |   |   | (2 | ) |   |   | 3 |   |
| Earnings                  on life insurance                                  |   |                                                              | 23        |   |                                                             |   | 22 |   |   |   | 69 |   |   |   | 66 |   |
| Other                                                                        |   |                                                              | 6         |   |                                                             |   | 13 |   |   |   | 23 |   |   |   | 25 |   |
| Total                  Non-Interest Income                                   |   |                                                              | 300       |   |                                                             |   | 269 |   |   |   | 862 |   |   |   | 758 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest                  Expenses                                       |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Compensation                  and benefits                                   |   |                                                              | 1,280     |   |                                                             |   | 1,078 |   |   |   | 3,766 |   |   |   | 3,200 |   |
| Occupancy                  and equipment                                     |   |                                                              | 360       |   |                                                             |   | 223 |   |   |   | 877 |   |   |   | 676 |   |
| Data                  processing                                             |   |                                                              | 175       |   |                                                             |   | 159 |   |   |   | 535 |   |   |   | 461 |   |
| Office                  supplies                                             |   |                                                              | 42        |   |                                                             |   | 29 |   |   |   | 133 |   |   |   | 83 |   |
| Professional                  fees                                           |   |                                                              | 92        |   |                                                             |   | 88 |   |   |   | 259 |   |   |   | 257 |   |
| Other                                                                        |   |                                                              | 311       |   |                                                             |   | 296 |   |   |   | 983 |   |   |   | 851 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Non-Interest Expenses                                 |   |                                                              | 2,260     |   |                                                             |   | 1,873 |   |   |   | 6,553 |   |   |   | 5,528 |   |
| Income                  before Income Tax Expense (Benefit)                  |   |                                                              | 165       |   |                                                             |   | 468 |   |   |   | 559 |   |   |   | 1,327 |   |
|                                                                         |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense  (Benefit)                     |   |                                                              | (151      | )      |                                                             |   | 49 |   |   |   | (442 | ) |   |   | 184 |   |
| Net                  Income                                                  |   | $                                                                 | 316       |   |                                                             | $      | 419 |   |   | $ | 1,001 |   |   | $ | 1,143 |   |
| Per                  Share Data (See Note 3):                                |   |                                                              |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  per share – basic                            |   | $                                                                 | 0.07      |   |                                                             | $      | 0.10 |   |   | $ | 0.23 |   |   | $ | 0.26 |   |
| Earnings                  per share – diluted                          |   | $                                                                 | 0.07      |   |                                                             | $      | 0.10 |   |   | $ | 0.23 |   |   | $ | 0.26 |   |
| Weighted                  average number of shares outstanding – basic |   |                                                              | 4,289,879 |   |                                                             |   | 4,366,901 |   |   |   | 4,289,879 |   |   |   | 4,366,901 |   |
| Weighted                  average number of shares outstanding - diluted     |   |                                                              | 4,303,461 |   |                                                             |   | 4,366,901 |   |   |   | 4,316,913 |   |   |   | 4,366,901 |   |

*See          notes to consolidated financial statements.*

----

***Colonial          Bankshares, Inc.***

----

|                                                                                                                                                                          |   | CommonStock                             |   |   | AdditionalPaid-inCapital |   |   | UnearnedSharesHeld                  byESOP |   |   | RetainedEarnings |   |   | TreasuryStock |   |   | Accumu-latedOtherCompre-hensiveIncome(Loss) |   |   | TotalStock-holders’Equity |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|--------------------------|--------|--------|--------------------------------------------|--------|--------|------------------|--------|--------|---------------|--------|--------|---------------------------------------------|--------|--------|---------------------------------|--------|
|                                                                                                                                                                          |   | (Dollars                  in thousands) |   |
| Balance,                  January 1, 2007                                                                                                                                     |   | $                                       | 452    |   |                     | $      | 19,519 |                                       |   | $      | (1,432           | )      |   | $             | 19,863 |   |                                        | $      | (1,189 | )                               |   | $ | (550 | ) |   | $ | 36,663 |   |
| Comprehensive                  income:                                                                                                                                        |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                                                   |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | 1,001  |   |                                        |   | -      |                            |   |   | - |   |   |   | 1,001 |   |
| Net                  change in unrealized loss on securities available for sale, net                  of tax                  benefit of $133 and reclassification adjustment |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | (249 | ) |   |   | (249 | ) |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Total                  comprehensive income                                                                                                                                   |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 752 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Amortization                  of restricted stock awards                                                                                                                      |   |                                    | -      |   |                     |   | 166    |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 166 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Amortization                  of stock options                                                                                                                                |   |                                    | -      |   |                     |   | 111    |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 111 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,                  September 30, 2007                                                                                                                                  |   | $                                       | 452    |   |                     | $      | 19,796 |                                       |   | $      | (1,432           | )      |   | $             | 20,864 |   |                                        | $      | (1,189 | )                               |   | $ | (799 | ) |   | $ | 37,692 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,                  January 1, 2006                                                                                                                                     |   | $                                       | 452    |   |                     | $      | 19,414 |                                       |   | $      | (1,548           | )      |   | $             | 18,252 |   |                                        | $      | -      |                            |   | $ | (709 | ) |   | $ | 35,861 |   |
| Comprehensive                  income:                                                                                                                                        |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                                                   |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | 1,143  |   |                                        |   | -      |                            |   |   | - |   |   |   | 1,143 |   |
| Net                  change in unrealized loss on securities available for sale, net                  of tax                  expense of $13                                  |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | 20 |   |   |   | 20 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Total                  comprehensive income                                                                                                                                   |   |                                    | -      |   |                     |   | -      |                                       |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 1,163 |   |
|                                                                                                                                                                          |   |                                    |   |   |                     |   |   |                                       |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,                  September 30, 2006                                                                                                                                  |   | $                                       | 452    |   |                     | $      | 19,414 |                                       |   | $      | (1,548           | )      |   | $             | 19,395 |   |                                        | $      | -      |                            |   | $ | (689 | ) |   | $ | 37,024 |   |

*See        notes to consolidated financial statements.*

----

***Colonial          Bankshares, Inc.***

----

|                                                                                                                          |   | Nine                  Months EndedSeptember                  30, |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|---------|
|                                                                                                                          |   | 2007                                                             |    |   | 2006 |   |
| Cash                  Flows from Operating Activities:                                                                        |   | (In                  thousands)                                  |    |
| Net                  income                                                                                                   |   | $                                                                | 1,001   |   |   | $ | 1,143 |   |
| Adjustments                  to reconcile net income to net cash provided by (used in) operating                  activities: |   |                                                             |    |   |   |   |   |   |
| Provision                  for loan losses                                                                                    |   |                                                             | 84      |   |   |   | 120 |   |
| Depreciation                  expense                                                                                         |   |                                                             | 379     |   |   |   | 295 |   |
| Stock-based                  compensation expense                                                                             |   |                                                             | 277     |   |   |   | - |   |
| Deferred                  income taxes                                                                                        |   |                                                             | (368    | ) |   |   | (259 | ) |
| Net                  earnings on bank-owned life insurance                                                                    |   |                                                             | (69     | ) |   |   | (66 | ) |
| Loans                  originated for sale                                                                                    |   |                                                             | (2,164  | ) |   |   | (2,158 | ) |
| Proceeds                  from sale of loans                                                                                  |   |                                                             | 2,049   |   |   |   | 2,189 |   |
| Gain                  on sale of loans                                                                                        |   |                                                             | (37     | ) |   |   | (31 | ) |
| Net                  amortization of loan fees                                                                                |   |                                                             | (55     | ) |   |   | (3 | ) |
| Net                  loss (gain) on calls of investment securities                                                            |   |                                                             | 2       |   |   |   | (3 | ) |
| Amortization                  (accretion) of premium and discount on investment securities,                  net              |   |                                                             | (423    | ) |   |   | (174 | ) |
| Increase                  in accrued interest receivable                                                                      |   |                                                             | (430    | ) |   |   | (268 | ) |
| Decrease                  (increase) in other assets                                                                          |   |                                                             | 726     |   |   |   | (29 | ) |
| Increase                  in accrued interest payable and other liabilities                                                   |   |                                                             | 663     |   |   |   | 337 |   |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| Net                  cash provided by operating activities                                                                    |   |                                                             | 1,635   |   |   |   | 1,093 |   |
| Cash                  Flows from Investing Activities:                                                                        |   |                                                             |    |   |   |   |   |   |
| Proceeds                  from calls and maturities of:                                                                       |   |                                                             |    |   |   |   |   |   |
| Investment                  securities available for sale                                                                     |   |                                                             | 2,335   |   |   |   | 2,541 |   |
| Investment                  securities held to maturity                                                                       |   |                                                             | 3,162   |   |   |   | 1,300 |   |
| Purchase                  of:                                                                                                 |   |                                                             |    |   |   |   |   |   |
| Investment                  securities available for sale                                                                     |   |                                                             | (18,662 | ) |   |   | (4,056 | ) |
| Investment                  securities held to maturity                                                                       |   |                                                             | -       |   |   |   | (5,545 | ) |
| Mortgage-backed                  securities available for sale                                                                |   |                                                             | (19,220 | ) |   |   | (6,231 | ) |
| Mortgage-backed                  securities held to maturity                                                                  |   |                                                             | (719    | ) |   |   | (1,860 | ) |
| Office                  properties and equipment                                                                              |   |                                                             | (3,434  | ) |   |   | (1,927 | ) |
| Principal                  repayments from:                                                                                   |   |                                                             |    |   |   |   |   |   |
| Investment                  securities                                                                                        |   |                                                             | 1,777   |   |   |   | 2,356 |   |
| Mortgage-backed                  securities                                                                                   |   |                                                             | 10,451  |   |   |   | 11,860 |   |
| Net                  increase in Federal Home Loan Bank stock                                                                 |   |                                                             | (452    | ) |   |   | (437 | ) |
| Purchase                  of interest-bearing time deposits in banks                                                          |   |                                                             | (208    | ) |   |   | (700 | ) |
| Maturity                  of interest-bearing time deposits in banks                                                          |   |                                                             | 200     |   |   |   | - |   |
| Net                  increase in loans receivable                                                                             |   |                                                             | (32,559 | ) |   |   | (36,366 | ) |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| Net                  cash used for investing activities                                                                       |   |                                                             | (57,329 | ) |   |   | (39,065 | ) |
| Cash                  Flows from Financing Activities:                                                                        |   |                                                             |    |   |   |   |   |   |
| Net                  increase in deposits                                                                                     |   |                                                             | 45,278  |   |   |   | 32,139 |   |
| Proceeds                  from Federal Home Loan Bank short-term borrowings                                                   |   |                                                             | 8,575   |   |   |   | 1,145 |   |
| Proceeds                  from Federal Home Loan Bank long-term borrowings                                                    |   |                                                             | -       |   |   |   | 7,000 |   |
| Repayment                  of Federal Home Loan Bank long-term borrowings                                                     |   |                                                             | (234    | ) |   |   | (50 | ) |
| (Decrease)                  increase in advances from borrowers for taxes and                  insurance                      |   |                                                             | (32     | ) |   |   | 252 |   |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| Net                  cash provided by financing activities                                                                    |   |                                                             | 53,587  |   |   |   | 40,486 |   |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| Increase                  (decrease) in cash and cash equivalents                                                             |   |                                                             | (2,107  | ) |   |   | 2,514 |   |
| CASH                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                             |   |                                                             | 13,257  |   |   |   | 10,669 |   |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS AT END OF PERIOD                                                                   |   | $                                                                | 11,150  |   |   | $ | 13,183 |   |
|                                                                                                                          |   |                                                             |    |   |   |   |   |   |
| Supplemental                  Cash Flow Disclosures:                                                                          |   |                                                             |    |   |   |   |   |   |
| Cash                  paid:                                                                                                   |   |                                                             |    |   |   |   |   |   |
| Interest                                                                                                                      |   | $                                                                | 9,999   |   |   | $ | 7,025 |   |
| Income                  taxes                                                                                                 |   | $                                                                | 3       |   |   | $ | 462 |   |

*See        notes to consolidated financial statements.*

----

**COLONIAL        BANKSHARES, INC.**

**Notes        to Consolidated Financial Statements**

**(Unaudited)**

| **1.** | **Organization                  and Basis of Presentation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Colonial                  Bankshares, Inc. (the “Company”) was organized in January 2003 to serve as                  the mid-tier stock holding company of Colonial Bank, FSB (the                  “Bank”).  Colonial Bankshares, Inc. is a federally chartered                  corporation and owns 100% of the outstanding common stock of the                  Bank.  The Bank is a federally chartered capital stock savings                  bank.  Colonial Bankshares, MHC, a federally chartered mutual                  holding company, is the parent of the Company and owns approximately                  54%                  of the Company’s outstanding common stock.  In September 2006,                  after receiving regulatory approval, the Bank established a Delaware                  corporation, CB Delaware Investments, Inc. (the “Operating Subsidiary”),                  whose purpose is to invest in and manage securities.  The                  Operating Subsidiary was funded by the Bank with cash and investment                  securities with an approximate value of $134.0 million in exchange                  for all                  the outstanding common stock of the Operating                  Subsidiary.   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The                  consolidated financial statements include the accounts of Colonial                  Bankshares, Inc. Colonial Bank, FSB and CB Delaware Investments,                  Inc.  All material intercompany transactions and balances have                  been eliminated.  The Company prepares its financial statements                  on the accrual basis and in conformity with accounting principles                  generally accepted in the United States of America (“US                  GAAP”).  The unaudited information furnished herein reflects all                  adjustments (consisting of normal recurring accruals) that are,                  in the                  opinion of management, necessary for a fair presentation of the                  results                  for the interim periods presented.  They do not include all of                  the information and footnotes required by US GAAP for complete                  financial                  statements.  Operating results for the three and nine months                  ended September 30, 2007 (unaudited) are not necessarily indicative                  of the                  results that may be expected for the year ending December 31,                  2007. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The                  balance sheet at December 31, 2006 has been derived from the audited                  consolidated financial statements at that date but does not include                  all of                  the information and footnotes required by US GAAP for complete                  financial                  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The                  preparation of financial statements in conformity with US GAAP                  requires                  management to make estimates and assumptions that affect the reported                  amounts of assets and liabilities and disclosure of contingent                  assets and                  liabilities at the date of the financial statements and the reported                  amounts of income and expenses during the reporting                  period.  Actual results could differ from those                  estimates.  Material estimates that are particularly susceptible                  to significant change in the near term relate to the determination                  of the                  allowance for loan losses, evaluation of other-than-temporary impairment                  of investment securities and the realizability of deferred tax                  assets.                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The                  Bank maintains a newly opened executive office and main branch                  in                  Vineland, New Jersey with branches in Bridgeton, Mantua, Millville,                  Upper                  Deerfield, Vineland and Sewell, New Jersey.  The Bank’s                  principal business consists of attracting customer deposits and                  investing                  these deposits primarily in investments and single-family residential,                  commercial and consumer loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

| **2.** | **Recent                  Accounting Pronouncements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  May 2007, the Financial Accounting Standards Board (“FASB”) issued FASB                  Staff Position (“FSP”) FIN 48-1 “Definition of Settlement in FASB                  Interpretation No. 48” (FSP FIN 48-1).  FSP FIN 48-1 provides                  guidance on how to determine whether a tax position is effectively                  settled                  for the purpose of recognizing previously unrecognized tax                  benefits.  FSP FIN 48-1 is effective retroactively to January 1,                  2007.  The implementation of this standard did not have a                  material impact on our consolidated financial position or results                  of                  operations.                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  March 2007, the FASB ratified EITF Issue No. 06-11, “Accounting                  for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF                  06-11 requires companies to recognize the income tax benefit realized                  from                  dividends or dividend equivalents that are charged to retained                  earnings                  and paid to employees for nonvested equity-classified employee                  share-based                  payment awards as an increase to additional paid-in                  capital.  EITF 06-11 is effective for fiscal years beginning                  after September 15, 2007.   The Company does not                  expect EITF 06-11 will have a material impact on its financial                  position,                  results of operations or cash flows.                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  March 2007, the FASB ratified EITF Issue No. 06-10, “Accounting for                  Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF                  06-10).  EITF 06-10 provides guidance for determining a                  liability for the postretirement benefit obligation as well as                  recognition                  and measurement of the associated asset on the basis of the terms                  of the                  collateral assignment agreement.  EITF 06-10 is effective for                  fiscal years beginning after December 15, 2007.  The Company is                  currently assessing the impact of EITF 06-10 on its consolidated                  financial                  position and results of operations.                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  February 2007, the FASB issued Statement of Financial Accounting                  Standards                  (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and                  Financial Liabilities-Including an amendment of FASB Statement                  No.                  115.   SFAS No. 159 permits entities to choose to measure                  many financial instruments and certain other items at fair                  value.  Unrealized gains and losses on items for which the fair                  value option has been elected will be recognized in earnings at                  each                  subsequent reporting date.  SFAS No. 159 is effective for the                  Company on January 1, 2008.  The Company is evaluating the                  impact that the adoption of SFAS No. 159 will have on our consolidated                  financial position and results of operations. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  September 2006, the FASB issued FASB Statement No. 157, Fair Value                  Measurements, which defines fair value, establishes a framework                  for                  measuring fair value under GAAP, and expands disclosures about                  fair value                  measurements.  FASB Statement No. 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.  We are                  currently evaluating the potential impact, if any, of the adoption                  of FASB                  Statement No. 157 on our consolidated financial position, results of                  operations and cash flows.                           |

----

|   | On                  September 7, 2006, the EITF reached a conclusion on EITF Issue                  No. 06-5, “Accounting for Purchases of Life Insurance – Determining                  the Amount That Could Be Realized in Accordance with FASB Technical                  Bulletin No. 85-4, Accounting for Purchases of Life Insurance” (“EITF                  06-5”).  The scope of EITF 06-5 consists of six separate issues                  relating to accounting for life insurance policies purchased by                  entities                  protecting against the loss of “key persons.”  The six issues                  are clarifications of previously issued guidance on FASB Technical                  Bulletin No. 85-4.  EITF 06-5 is effective for fiscal years                  beginning after December 15, 2006.  The adoption of EITF                  06-5 had no effect on the Company’s consolidated financial                  statements.                                                                                                                                                                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | In                  September 2006, FASB ratified the consensus reached by the EITF                  in Issue                  06-4, Accounting for Deferred Compensation and Postretirement Benefit                  Aspects of Endorsement Split-Dollar Life Insurance                  Arrangements.  EITF 06-4 applies to life insurance arrangements                  that provide an employee with a specified benefit that is not limited                  to                  the employee’s active service period, including certain bank-owned life                  insurance (“BOLI”) policies.  EITF 06-4 requires an employer to                  recognize a liability and related compensation costs for future                  benefits                  that extend to postretirement periods.   EITF 06-4 is                  effective for fiscal years beginning after December 31, 2007, with                  earlier                  application permitted.  The Company is continuing to evaluate                  the impact of this consensus, which may require it to recognize                  an                  additional liability and compensation expense related to its BOLI                  policies.                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **3.** | **Earnings                  Per Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | There                  are no convertible securities which would affect the net income                  (numerator) in calculating basic and diluted earnings per share;                  therefore, for purposes of these calculations, the net income for                  the nine                  months ended September 30, 2007 is $1.0 million and the net income                  for the                  nine months ended September 30, 2006 is $1.1 million.  For the                  three months ended September 30, 2007, net income is $316 thousand                  and for                  the three months ended September 30, 2006, net income is $419                  thousand.  Basic and diluted earnings per share data are based                  on the weighted-average number of common shares outstanding during                  each                  period.  Diluted earnings per share are further adjusted for                  potential common shares that were dilutive and outstanding during                  the                  period.  Potential common shares consist of stock options                  outstanding and non-vested stock grants under the stock-based incentive                  plans.  The dilutive effect of potential common shares is                  computed using the treasury stock                  method. |

----

|                                                                                                        |   | For                  the Three Months EndedSeptember                  30, |      |   | For                  the Nine Months EndedSeptember                  30, |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|-----------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                        |   | 2007                                                                      |      |   | 2006                                                                     |   |   | 2007 |   |   | 2006 |   |
| Net                  Income                                                                                 |   | $                                                                         | 316,000   |   |                                                                     | $      | 419,000 |   |   | $ | 1,001,000 |   |   | $ | 1,143,000 |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average common shares issued                                                      |   |                                                                      | 4,521,696 |   |                                                                     |   | 4,521,696 |   |   |   | 4,521,696 |   |   |   | 4,521,696 |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Average                  unearned ESOP shares                                                               |   |                                                                      | (143,192  | )      |                                                                     |   | (154,795 | ) |   |   | (143,192 | ) |   |   | (154,795 | ) |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Average                  treasury stock shares                                                              |   |                                                                      | (88,625   | )      |                                                                     |   | - |   |   |   | (88,625 | ) |   |   | - |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average common shares outstanding – basic                                   |   |                                                                      | 4,289,879 |   |                                                                     |   | 4,366,901 |   |   |   | 4,289,879 |   |   |   | 4,366,901 |   |
| Effect                  of dilutive non –vested shares and stock options                  outstanding |   |                                                                      | 13,582    |   |                                                                     |   | - |   |   |   | 27,034 |   |   |   | - |   |
| Weighted                  average common shares outstanding – diluted                                 |   |                                                                      | 4,303,461 |   |                                                                     |   | 4,366,901 |   |   |   | 4,316,913 |   |   |   | 4,366,901 |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share                                                                   |   | $                                                                         | 0.07      |   |                                                                     | $      | 0.10 |   |   | $ | 0.23 |   |   | $ | 0.26 |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  earnings per share                                                                 |   | $                                                                         | 0.07      |   |                                                                     | $      | 0.10 |   |   | $ | 0.23 |   |   | $ | 0.26 |   |
|                                                                                                        |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |

| **4.** | **Stock                  Based Compensation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  Company’s Board of Directors and stockholders have adopted the 2006                  Colonial Bankshares, Inc. Stock-Based Incentive Plan (the “2006                  Plan”).  The Stock-Based Incentive Plan provides for the grant                  of shares of common stock and the grant of stock options to officers,                  employees and directors of the Company.  Under the 2006 Plan,                  the Company may grant options to purchase 221,563 shares of Company                  stock                  and may grant up to 88,625 shares of common stock as restricted                  stock                  awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  2006 Plan enables the Board of Directors to grant stock options                  to                  executives, other key employees and nonemployee directors.  The                  options granted under the Plan may be either non-qualified stock                  options                  (NQOs) or incentive stock options (ISOs).  Nonemployee directors                  may only receive NQOs under this plan, while employees may receive                  ISOs or                  NQOs.  The Company has reserved 221,563 shares of common stock                  for issuance upon the exercise of options granted under the 2006                  Plan.  The 2006 Plan will terminate ten years from the grant                  date.  Options may not be granted with an exercise price that is                  less than 100% of the fair market value of the Company’s common stock on                  the date of grant.  Options may not be granted with a term                  longer than 10 years.  Stock options granted under the 2006 Plan                  are subject to limitations under Section 422 of the Internal Revenue                  Code.  The number of shares available under the 2006 Plan, the                  number of shares subject to outstanding options and the exercise                  price of                  outstanding options will be adjusted to reflect any stock dividend,                  stock                  split, merger, reorganization or other event generally affecting                  the                  number of the Company’s outstanding shares.  At September 30,                  2007, there are 25,095 options available for grants under the 2006                  Plan. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                  October 19, 2006, 88,625 shares of restricted stock were                  awarded.  The restricted stock awarded had a grant date fair                  value of $12.47 per share.  The restricted stock awarded will                  vest 20% annually beginning October 19, 2007.  For the nine and                  three months ended September 30, 2007, $166 thousand and $55 thousand,                  respectively, in compensation expense was recognized on restricted                  stock                  awards with a related tax benefit of $56 thousand and $19 thousand,                  respectively.  As of September 30, 2007, there was $893 thousand                  of unrecognized compensation expense related to the restricted                  stock                  awards which is expected to be recognized over a period of 4.00                  years.  For the three and nine months ended September 30, 2006,                  there was no stock-based compensation expense recognized as the                  Company                  did not have any stock-based incentive plans at that                  time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

----

|   | Activity                  in issued but unvested stock awards during the nine months ended                  September                  30, 2007, was as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Award                  Shares                         |   | AwardShares |   |   | WeightedAverageGrant                  DateFair                  Value |   |
|-------------------------------------------------------|--------|-------------|--------|--------|-----------------------------------------------------------------------|--------|
| Unvested                  awards, beginning of period |   |        | 88,625 |   |                                                                  | $      | 12.47 |   |
| Granted                                               |   |        | -      |   |                                                                  |   | - |   |
| Exercised                                             |   |        | -      |   |                                                                  |   | - |   |
| Forfeitures                                           |   |        | -      |   |                                                                  |   | - |   |
| Unvested                  awards, end of period       |   |        | 88,625 |   |                                                                  | $      | 12.47 |   |

|   | On                  October 19, 2006, options to purchase 196,468 shares of common                  stock at                  $12.47 per share were awarded.  The options awarded will vest                  20% annually beginning October 19, 2007.  The following is a                  summary of the Company’s stock option activity for the nine months ended                  September 30, 2007: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                      |   | Shares |    |   | WeightedAverageExercisePrice |   | WeightedAverageRemainingContractualTerm |   | AggregateIntrinsicValue(inthousands) |   |
|-----------------------------------------------------------|--------|--------|---------|--------|------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Options                  outstanding, beginning of period |   |   | 196,468 |   |                         | $      | 12.47                                   |   | 9.00                  years          |   |   |   |
| Granted                                                   |   |   | -       |   |                         |   | -                                       |   |                                 |   |   |   |
| Exercised                                                 |   |   | -       |   |                         |   | -                                       |   |                                 |   |   |   |
| Forfeitures                                               |   |   | -       |   |                         |   | -                                       |   |                                 |   |   |   |
| Options                  outstanding, end of period       |   |   | 196,468 |   |                         | $      | 12.47                                   |   | 9.00                  years          |   | $ | 210 |   |
| Exercisable                  at end of period             |   |   | -       |   |                         | $      | 12.47                                   |   | 9.00                  years          |   | $ | - |   |

|   | The                  fair value of each option grant is estimated on the date of grant                  using                  the Black-Sholes option-pricing model with the following weighted                  average                  assumptions for options granted in 2006:  dividend yield of 0%,                  risk-free interest rate of 4.79%, expected life of 6.5 years, and                  expected                  volatility of 15.00%.  The calculated fair value of options                  granted in 2006 was $3.79 per option.                                                                                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | Stock-based                  compensation expense related to stock options for the nine and                  three                  months ended September 30, 2007 was $111 thousand and $37 thousand,                  respectively, with a related tax benefit of $13 thousand and $4                  thousand,                  respectively.  As of September 30, 2007, there was approximately                  $602 thousand of unrecognized compensation cost related to unvested                  stock                  options granted in 2006.  The cost will be recognized on a                  graded vesting method over a period of 4.00 years.  For the                  three and nine months ended September 30, 2006, there was no compensation                  expense recognized as the Company did not have any stock-based                  incentive                  plans at that time. |

----

|   | The                  Company has an Employee Stock Ownership Plan (“ESOP”) for the benefit of                  employees who meet the eligibility requirements as defined in the                  plan.  The ESOP trust purchased 166,398 shares of common stock                  in the initial public offering using proceeds of a loan from the                  Company.  The Bank will make cash contributions to the ESOP on                  an annual basis sufficient to enable the ESOP to make the required                  loan                  payments to the Company.  The loan bears an interest rate of                  6.00% with principal and interest payable annually in equal installments                  over fifteen years.  The loan is secured by the shares of the                  stock purchased.                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | As                  the debt is repaid, shares are released from the collateral and                  allocated                  to qualified employees.  Accordingly, the shares pledged as                  collateral are reported as unearned ESOP shares in the Consolidated                  Statements of Financial Condition.  As shares are released from                  collateral, the Company reports compensation expense equal to the                  current                  market price of the shares, and the shares become outstanding for                  earnings                  per share computations.  The compensation expense is recorded on                  a monthly basis.  The Company’s contribution expense for the                  ESOP was $118 thousand and $105 for the nine months ended September                  30,                  2007 and 2006, respectively, and $35 thousand and $37 thousand,                  respectively, for the three months ended September 30, 2007 and                  2006. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The                  following table presents the components of the ESOP                  shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|                                            |   | September                  30,2007 |    |   | September                  30,2006 |   |
|-------------------------------------------------|--------|------------------------------------|---------|--------|------------------------------------|--------|
| Shares                  released for allocation |   |                               | 23,206  |   |                               |   | 11,603 |   |
| Unreleased                  shares              |   |                               | 143,192 |   |                               |   | 154,795 |   |
| Total                  ESOP shares              |   |                               | 166,398 |   |                               |   | 166,398 |   |

| **5.** | **Comprehensive                  Income**                                                                                                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                           |
|   | Comprehensive                  income for the Company consists of net income and unrealized gains                  and                  losses on available for sale securities.  Other comprehensive                  gain (loss) for the three and nine months ended September 30, 2007                  and                  2006 was as follows: |

|                                                                                       |   | Three                  Months EndedSeptember                  30, |   |   | Nine                  Months EndedSeptember                  30, |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                                                                       |   | 2007                                                              |   |   | 2006                                                             |   |   | 2007 |   |   | 2006 |   |
|                                                                                       |   | (In                  Thousands)                                   |   |
| Other                  comprehensive gain (loss):                                          |   |                                     |   |
| Unrealized                  holding gains (losses) on available for sale securities        |   | $                                                                 | 1,519  |   |                                                             | $      | 1,998 |   |   | $ | (384 | ) |   | $ | 36 |   |
| Reclassification                  adjustment for net losses (gains) realized in net income |   |                                                              | -      |   |                                                             |   | (3 | ) |   |   | 2 |   |   |   | (3 | ) |
| Net                  unrealized gains (losses)                                             |   |                                                              | 1,519  |   |                                                             |   | 1,995 |   |   |   | (382 | ) |   |   | 33 |   |
| Income                  tax expense (benefit)                                              |   |                                                              | 521    |   |                                                             |   | 797 |   |   |   | (133 | ) |   |   | 13 |   |
| Net                  of tax amount                                                         |   | $                                                                 | 998    |   |                                                             | $      | 1,198 |   |   | $ | (249 | ) |   | $ | 20 |   |

----

| **6.** | **Contingent                  Liabilities and Guarantees**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In                  the normal course of business, there are various outstanding commitments                  and contingent liabilities, such as commitments to extend credit                  and                  standby letters of credit that are not reflected in the accompanying                  financial statements.  No material losses are anticipated as a                  result of those transactions on either a completed or uncompleted                  basis.  The Company does not issue any guarantees that would                  require liability recognition or disclosure, other than its standby                  letters of credit.  Standby letters of credit are conditional                  commitments issued by the Company to guarantee the performance                  of a                  customer to a third party.  Generally, all letters of credit,                  when issued, have expiration dates within one year.  The credit                  risk involved in issuing letters of credit is essentially the same                  as                  those that are involved in extending loan facilities to                  customers.  The Company generally holds collateral and/or                  personal guarantees supporting those commitments.  The Company                  had $1.4 million of standby letters of credit outstanding as of                  September                  30, 2007.  Management believes that the proceeds obtained                  through a liquidation of collateral and the enforcement of guarantees                  would be sufficient to cover the potential amount of future payment                  required under the corresponding guarantees. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | During                  the three months ended September 30, 2007, the Bank sold loans                  in the                  amount of $569 thousand that contained limited recourse                  provisions.  The Bank is required to repurchase the loan if the                  first or second payment that is due is 30 or more days                  late.  During the three and nine months ended September 30,                  2007, the Bank did not repurchase any previously sold loans.  No                  liability for credit loss has been recorded on these loans sold                  with these                  limited recourse provisions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **7.** | **Investment                  Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The                  following table sets forth the composition of our securities portfolio                  at                  the dates indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                                                                                     |   | At                  September 30, 2007 |    |   | At                  December 31, 2006 |   |
|------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|--------|---------------------------------------|--------|
|                                                                                     |   | AmortizedCost                          |    |   | Fair                  Value           |   |   | AmortizedCost |   |   | Fair Value |   |
|                                                                                     |   | (In                  Thousands)        |    |
| Securities                  available-for-sale:                                          |   |                                   |    |   |                                  |   |   |   |   |   |   |   |
|    Mortgage-backed                                                        |   | $                                      | 63,213  |   |                                  | $      | 62,855 |   |   | $ | 53,646 |   |   | $ | 53,229 |   |
|    U.                  S. Government agency                               |   |                                   | 43,454  |   |                                  |   | 43,127 |   |   |   | 29,534 |   |   |   | 29,128 |   |
|    Corporate                                                              |   |                                   | 8,451   |   |                                  |   | 7,858 |   |   |   | 8,956 |   |   |   | 8,660 |   |
|    Mutual                  funds                                          |   |                                   | 14,486  |   |                                  |   | 14,188 |   |   |   | 13,942 |   |   |   | 13,716 |   |
|    Municipal                                                              |   |                                   | 24,548  |   |                                  |   | 24,839 |   |   |   | 23,927 |   |   |   | 24,259 |   |
|    SBA                  pools                                             |   |                                   | 7,948   |   |                                  |   | 8,014 |   |   |   | 7,759 |   |   |   | 7,933 |   |
|       Total                  securities available-for-sale |   | $                                      | 162,100 |   |                                  | $      | 160,881 |   |   | $ | 137,764 |   |   | $ | 136,925 |   |
|                                                                                     |   |                                   |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Securities                  held-to-maturity:                                            |   |                                   |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
|    Mortgage-backed                                                        |   | $                                      | 3,947   |   |                                  | $      | 3,998 |   |   | $ | 3,972 |   |   | $ | 4,064 |   |
|    U.                  S. Government agency                               |   |                                   | 1,418   |   |                                  |   | 1,438 |   |   |   | 1,412 |   |   |   | 1,369 |   |
|    Corporate                                                              |   |                                   | 1,186   |   |                                  |   | 1,280 |   |   |   | 1,698 |   |   |   | 1,828 |   |
|    Municipal                                                              |   |                                   | 9,130   |   |                                  |   | 9,618 |   |   |   | 11,640 |   |   |   | 12,239 |   |
|       Total                  securities held-to-maturity   |   | $                                      | 15,681  |   |                                  | $      | 16,334 |   |   | $ | 18,722 |   |   | $ | 19,500 |   |
|                                                                                     |   |                                   |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |

----

| **8.** | **Loans**                                                                                                                              |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
|   | The                  components of loans at September 30, 2007 and December 31, 2006                  are as                  follows: |

|                                                              |   | At                  September 30, 2007  |    |   | At                  December 31, 2006 |   |
|-------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|---------------------------------------|--------|
|                                                              |   | Amount                                  |    |   | Percent                               |   |   | Amount |   |   | Percent |   |
|                                                              |   | (Dollars                  in Thousands) |    |
| Real                  estate loans:                               |   |                                    |    |   |                                  |   |   |   |   |   |   |   |
| One-                  to four-family residential                  |   | $                                       | 113,728 |   |                                  |   | 48.9 | % |   | $ | 102,328 |   |   |   | 51.1 | % |
| Home                  equity loans and  lines of credit |   |                                    | 40,545  |   |                                  |   | 17.4 |   |   |   | 38,074 |   |   |   | 19.0 |   |
| Multi-family                                                      |   |                                    | 1,783   |   |                                  |   | 0.8 |   |   |   | 2,492 |   |   |   | 1.2 |   |
| Commercial                                                        |   |                                    | 54,787  |   |                                  |   | 23.5 |   |   |   | 39,186 |   |   |   | 19.6 |   |
| Construction                                                      |   |                                    | 7,727   |   |                                  |   | 3.3 |   |   |   | 8,371 |   |   |   | 4.2 |   |
| Commercial                                                        |   |                                    | 11,448  |   |                                  |   | 4.9 |   |   |   | 7,337 |   |   |   | 3.7 |   |
| Consumer                  and other                               |   |                                    | 2,755   |   |                                  |   | 1.2 |   |   |   | 2,427 |   |   |   | 1.2 |   |
| Total                  loans receivable                           |   | $                                       | 232,773 |   |                                  |   | 100.0 | % |   | $ | 200,215 |   |   |   | 100.0 | % |
| Deferred                  loan fees                               |   |                                    | (268    | )      |                                  |   |   |   |   |   | (323 | ) |   |   |   |   |
| Allowance                  for loan losses                        |   |                                    | (1,456  | )      |                                  |   |   |   |   |   | (1,373 | ) |   |   |   |   |
| Total                  loans receivable, net                      |   | $                                       | 231,049 |   |                                  |   |   |   |   | $ | 198,519 |   |   |   |   |   |

|   | Nonaccrual                  loans amounted to approximately $1.4 million and $233 thousand                  at                  September 30, 2007 and December 31, 2006,                  respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                          |
| **9.** | **Deposits**                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                          |
|   | Deposit                  accounts, by type, at September 30, 2007 and December 31, 2006                  are                  summarized as follows:                                                          |

|                                         |   | At                  September 30, 2007  |    |   | At                  December 31, 2006 |   |
|----------------------------------------------|--------|-----------------------------------------|---------|--------|---------------------------------------|--------|
|                                         |   | Balance                                 |    |   | Percent                               |   |   | Wtd.Avg.Rate |   |   | Balance |   |   | Percent |   |   | Wtd.Avg.Rate |   |
|                                         |   | (Dollars                  in Thousands) |    |
| **Deposit                  type:**           |   |                                    |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  bearing demand |   | $                                       | 18,639  |   |                                  |   | 4.87 | % |   |   | - | % |   | $ | 18,055 |   |   |   | 5.35 | % |   |   | - | % |
| Savings                                      |   |                                    | 56,734  |   |                                  |   | 14.83 |   |   |   | 2.11 |   |   |   | 57,260 |   |   |   | 16.98 |   |   |   | 1.72 |   |
| NOW                  accounts                |   |                                    | 43,581  |   |                                  |   | 11.39 |   |   |   | 2.17 |   |   |   | 36,740 |   |   |   | 10.89 |   |   |   | 1.89 |   |
| Super                  NOW accounts          |   |                                    | 14,579  |   |                                  |   | 3.81 |   |   |   | 1.72 |   |   |   | 14,200 |   |   |   | 4.21 |   |   |   | 1.71 |   |
| Money                  market accounts       |   |                                    | 18,570  |   |                                  |   | 4.86 |   |   |   | 3.72 |   |   |   | 20,553 |   |   |   | 6.10 |   |   |   | 3.54 |   |
| Total                  transaction accounts  |   |                                    | 152,103 |   |                                  |   | 39.76 |   |   |   | 2.03 |   |   |   | 146,808 |   |   |   | 43.53 |   |   |   | 1.81 |   |
|                                         |   |                                    |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates                  of deposit     |   |                                    | 230,429 |   |                                  |   | 60.24 |   |   |   | 4.95 |   |   |   | 190,446 |   |   |   | 56.47 |   |   |   | 4.74 |   |
|                                         |   |                                    |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  deposits              |   | $                                       | 382,532 |   |                                  |   | 100.00 | % |   |   | 3.79 | % |   | $ | 337,254 |   |   |   | 100.00 | % |   |   | 3.46 | % |

----

| **10.** | **Federal                  Home Loan Bank Borrowings**                                                                                                                                                                                            |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                              |
|    | The                  following table sets forth information concerning advances with                  the                  Federal Home Loan Bank (“FHLB”) of New York, at September 30, 2007 and                  December 31, 2006: |

| Description                            |   | MaturityDate |   | InterestRate |   |   | September                  30,2007      |   |   | December                  31,2006 |   |
|----------------------------------------|--------|--------------|--------|--------------|--------|--------|-----------------------------------------|--------|--------|-----------------------------------|--------|
|                                   |   |         |   |         |   |   | (Dollars                  in Thousands) |   |
| Fixed                  rate amortizing |   | 06/30/2021   |   |         | 5.57%  |   |                                    |   | 6,640  |                              |   |   | 6,874 |   |
| Short-term                  borrowing  |   | 01/02/2007   |   |         | 5.39%  |   |                                    |   | -      |                              |   |   | 1,450 |   |
| Short-term                  borrowing  |   | 10/01/2007   |   |         | 5.24%  |   |                                    |   | 3,025  |                              |   |   | - |   |
| Short-term                  borrowing  |   | 10/22/2007   |   |         | 4.96%  |   |                                    |   | 3,000  |                              |   |   | - |   |
| Short-term                  borrowing  |   | 03/24/2008   |   |         | 4.79%  |   |                                    |   | 4,000  |                              |   |   | - |   |
|                                   |   |         |   |         |   |   |                                    | $      | 16,665 |                              |   | $ | 8,324 |   |

----

| **Item                  2.** | **Management’s                  Discussion and Analysis of Financial Condition and Results of                  Operations** |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|

**Forward-Looking        Statements**

**Critical        Accounting Policies**

**Allowance        for Loan Losses**

----

**Other-Than-Temporary        Impairment.**

**Valuation        of Deferred Tax Assets.**

**Comparison        of Financial Condition at September 30, 2007 and December 31,        2006**

----

**Comparison        of Operating Results for the Three Months Ended September 30, 2007 and September        30, 2006**

***General.***

----

***Interest        Income***
*.  *

***Interest        Expense.***
* *

***Provision        for Loan Losses.  ***

----

***Non-interest        Income***
*.  *

***Non-interest        Expense***
*.*

***Income        Tax Expense (Benefit)***
*.*
*** ***

----

**Comparison        of Operating Results for the Nine Months Ended September 30, 2007 and September        30, 2006**

***General.***

***Interest        Income***
*.  *

***Interest        Expense.***
* *

----

***Provision        for Loan Losses.  ***

***Non-interest        Income***
*.  *

***Non-interest        Expense***
*.*

----

***Income        Tax Expense (Benefit)***
*.*
*** ***

**Liquidity        and Capital Resources**

----

----

| **Item                  3.** | **Controls                  and Procedures**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| (a)                          | Evaluation                  of disclosure controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|                         | Under                the supervision and with the participation of our management, including                our Principal Executive Officer and Principal Financial Officer,                we                evaluated the effectiveness of the design and operation of our disclosure                controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)                under                the Exchange Act) as of the end of the period covered by this quarterly                report.   Based upon that evaluation, the Principal                Executive Officer and Principal Financial Officer concluded that,                as of                the end of the period covered by this quarterly report, our disclosure                controls and procedures were effective to ensure that information                required                to be disclosed in the reports that the Company files or submits                under the                Exchange Act is recorded, processed, summarized and reported within                the                time periods specified in the Securities and Exchange Commission’s rules                and forms. |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| (b)                          | Changes                in internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|                         | There                were no changes made in our internal control over financial reporting                during the period covered by this report that have materially affected,                or                are reasonably likely to materially affect, our internal control                over                financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

**PART        II – OTHER INFORMATION**

| **Item                  1.** | **Legal                  Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | The                  Company or the Bank is periodically involved in various claims                  and                  lawsuits in the ordinary course of business.  Management of the                  Company believes that such proceedings will not have a material                  adverse                  effect on the Company’s financial condition, results of operations or cash                  flows. |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Item                  2.** | **Unregistered                  Sales of Equity Securities and Use of Proceeds**                                                                                                                                                                                                                                                                                                                                                        |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | None                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Item                  3.** | **Defaults                  Upon Senior****Securities**                                                                                                                                                                                                                                                                                                                                                                                 |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | None                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Item                  4.** | **Submission                  of Matters to Vote of Security Holders**                                                                                                                                                                                                                                                                                                                                                                  |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | None                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Item                  5.** | **Other                  Information**                                                                                                                                                                                                                                                                                                                                                                                                  |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | None                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Item                  6.** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | Exhibit                  31.1                                                                                                                                                                                                                                                                                                                                                                                                           | Certification                  of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley                  Act                  of 2002 |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | Exhibit                  31.2                                                                                                                                                                                                                                                                                                                                                                                                           | Certification                  of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley                  Act                  of 2002 |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                         | Exhibit                  32                                                                                                                                                                                                                                                                                                                                                                                                             | Certification                  of Chief Executive Officer and Chief Financial Officer Pursuant                  to Section                  906 of Sarbanes-Oxley Act of 2002 |

----

**SIGNATURES**

|                                                |   | **COLONIAL                  BANKSHARES, INC.**                             |
|-----------------------------------------------------|--------|----------------------------------------------------------------------------|
|                                                |   | Registrant                                                                 |   |
|                                                |   |                                                                       |   |   |
|                                                |   |                                                                       |   |   |
|                                                |   |                                                                       |   |   |
| Date:  November                  13, 2007 |   | By:                   /s/                  Edward J. Geletka          |   |
|                                                |   | Edward                J. Geletka                                           |   |
|                                                |   | President                and Chief Executive Officer                       |   |
|                                                |   | (Principal                Executive Officer)                               |   |
|                                                |   |                                                                       |   |   |
|                                                |   |                                                                       |   |   |
| Date:  November                  13, 2007 |   | By:                   /s/                  L. Joseph Stella, III, CPA |   |
|                                                |   | L.                Joseph Stella, III, CPA                                  |   |
|                                                |   | Executive                Vice President and Chief Financial Officer   |
|                                                |   |  (Principal                Accounting and Financial Officer)          |   |