----

----

| x      | QUARTERLY      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | For      the quarterly period ended  September 30,      2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

| United      States of America                                       | 90-0183739                                |
|---------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) | (I.R.S.      Employer Identification No.) |
|                                                                |                                      |
| 2745      S. Delsea Drive                                           |                                      |
| Vineland,      New Jersey                                           | 08360                                     |
| (Address      of principal executive offices)                       | (Zip      code)                           |

| Large      accelerated filer    o           | Accelerated      filer    o |
|-----------------------------------------------------------------|-------------------------------------------------|
| Non-accelerated      filer      o | Smaller      reporting company  x     |

----

| PART      I   | FINANCIAL      INFORMATION                                                                            | PAGE   |
|---------------|-------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                  |   |
| Item      1   | Unaudited      Consolidated Statements of Financial Condition                                         | 2      |
|          | Unaudited      Consolidated Statements of Income                                                      | 3      |
|          | Unaudited      Consolidated Statements of Stockholders’ Equity                                  | 4      |
|          | Unaudited      Consolidated Statements of Cash Flows                                                  | 5      |
|          | Notes      to Unaudited Consolidated Financial Statements                                             | 6      |
|          |                                                                                                  |   |
| Item      2   | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations | 17     |
|          |                                                                                                  |   |
| Item      3   | Quantitative      and Qualitative Disclosures About Market Risk                                       | 27     |
|          |                                                                                                  |   |
| Item      4T. | Controls      and Procedures                                                                          | 27     |
|          |                                                                                                  |   |
| PART      II  | OTHER      INFORMATION                                                                                |   |
|          |                                                                                                  |   |
| Item      1   | Legal      Proceedings                                                                                | 28     |
|          |                                                                                                  |   |
| Item      1A. | Risk      Factors                                                                                     | 28     |
|          |                                                                                                  |   |
| Item      2   | Unregistered      Sales of Equity Securities and Use of Proceeds                                      | 29     |
|          |                                                                                                  |   |
| Item      3   | Defaults      Upon Senior Securities                                                                  | 30     |
|          |                                                                                                  |   |
| Item      4   | Submission      of Matters to Vote of Security Holders                                                | 30     |
|          |                                                                                                  |   |
| Item      5   | Other      Information                                                                                | 30     |
|          |                                                                                                  |   |
| Item      6   | Exhibits                                                                                              | 30     |
|          |                                                                                                  |   |
|          | Signatures                                                                                            | 31     |

----

| PART I       | FINANCIAL      INFORMATION |
|--------------|----------------------------|
| Item      1. | Financial      Statements  |

----

|                                                                                                                                                                                                                                  |   | September      30,2008                             |    |   | December      31,2007 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                  |   |                                               |    |
|                                                                                                                                                                                                                                  |   | (Dollars      in thousands, except per share data) |    |
| Assets                                                                                                                                                                                                                                |   |                                               |    |   |                  |   |
| Cash      and amounts due from banks                                                                                                                                                                                                  |   | $                                                  | 22,377  |   |                  | $      | 15,978 |   |
| Interest-bearing      time deposits in banks                                                                                                                                                                                          |   |                                               | -       |   |                  |   | 208 |   |
| Investment      securities available for sale                                                                                                                                                                                         |   |                                               | 170,996 |   |                  |   | 163,549 |   |
| Investment      securities held to maturity (fair value at September 30, 2008 - $17,296;      at December 31, 2007 - $17,976)                                                                                                         |   |                                               | 17,611  |   |                  |   | 17,213 |   |
| Loans      receivable, net of allowance for loan losses of $1,510 at September 30,      2008 and $1,392 at December 31, 2007                                                                                                          |   |                                               | 290,601 |   |                  |   | 241,040 |   |
| Real      estate owned                                                                                                                                                                                                                |   |                                               | 155     |   |                  |   | - |   |
| Federal      Home Loan Bank stock, at cost                                                                                                                                                                                            |   |                                               | 3,078   |   |                  |   | 2,545 |   |
| Office      properties and equipment, net                                                                                                                                                                                             |   |                                               | 11,385  |   |                  |   | 10,273 |   |
| Bank-owned      life insurance                                                                                                                                                                                                        |   |                                               | 2,650   |   |                  |   | 2,578 |   |
| Accrued      interest receivable                                                                                                                                                                                                      |   |                                               | 2,360   |   |                  |   | 2,185 |   |
| Other      assets                                                                                                                                                                                                                     |   |                                               | 3,472   |   |                  |   | 2,291 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| Total      Assets                                                                                                                                                                                                                     |   | $                                                  | 524,685 |   |                  | $      | 457,860 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                                                                                       |   |                                               |    |   |                  |   |   |   |
| Liabilities                                                                                                                                                                                                                           |   |                                               |    |   |                  |   |   |   |
| Deposits:                                                                                                                                                                                                                             |   |                                               |    |   |                  |   |   |   |
| Noninterest-bearing                                                                                                                                                                                                                   |   | $                                                  | 16,155  |   |                  | $      | 15,141 |   |
| Interest-bearing                                                                                                                                                                                                                      |   |                                               | 412,654 |   |                  |   | 356,241 |   |
| Total      deposits                                                                                                                                                                                                                   |   |                                               | 428,809 |   |                  |   | 371,382 |   |
| Federal      Home Loan Bank short-term borrowings                                                                                                                                                                                     |   |                                               | 27,060  |   |                  |   | 23,380 |   |
| Federal      Home Loan Bank long-term borrowings                                                                                                                                                                                      |   |                                               | 28,312  |   |                  |   | 22,559 |   |
| Advances      from borrowers for taxes and insurance                                                                                                                                                                                  |   |                                               | 738     |   |                  |   | 581 |   |
| Accrued      interest payable and other liabilities                                                                                                                                                                                   |   |                                               | 1,123   |   |                  |   | 930 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| Total      Liabilities                                                                                                                                                                                                                |   |                                               | 486,042 |   |                  |   | 418,832 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| 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      4,430,296 shares at September 30, 2008 and 4,450,796 shares at      December 31, 2007 |   |                                               | 452     |   |                  |   | 452 |   |
| Additional      paid-in capital                                                                                                                                                                                                       |   |                                               | 20,199  |   |                  |   | 19,922 |   |
| Unearned      shares held by Employee Stock Ownership Plan (“ESOP”)                                                                                                                                                       |   |                                               | (1,316  | )      |                  |   | (1,316 | ) |
| Treasury      stock, at cost, 109,125 shares at September 30, 2008 and 88,625 shares at      December 31, 2007                                                                                                                        |   |                                               | (1,405  | )      |                  |   | (1,189 | ) |
| Retained      earnings                                                                                                                                                                                                                |   |                                               | 22,069  |   |                  |   | 21,094 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                                                    |   |                                               | (1,356  | )      |                  |   | 65 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| Total      Stockholders’ Equity                                                                                                                                                                                                 |   |                                               | 38,643  |   |                  |   | 39,028 |   |
|                                                                                                                                                                                                                                  |   |                                               |    |   |                  |   |   |   |
| Total      Liabilities and Stockholders’ Equity                                                                                                                                                                                 |   | $                                                  | 524,685 |   |                  | $      | 457,860 |   |

----

----

|                                                             |   | Three      Months Ended September 30,          |      |   | Nine      Months Ended September 30, |   |
|------------------------------------------------------------------|--------|------------------------------------------------|-----------|--------|--------------------------------------|--------|
|                                                             |   | 2008                                           |      |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                                             |   | (Dollars      in Thousands, Except Share Data) |      |
| Interest      Income                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |
| Loans,      including fees                                       |   | $                                              | 4,360     |   |                                 | $      | 3,643 |   |   | $ | 12,407 |   |   | $ | 10,227 |   |
| Mortgage-backed      securities                                  |   |                                           | 1,517     |   |                                 |   | 857 |   |   |   | 3,915 |   |   |   | 2,362 |   |
| Securities:                                                      |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                          |   |                                           | 959       |   |                                 |   | 1,136 |   |   |   | 3,268 |   |   |   | 3,157 |   |
| Tax-exempt                                                       |   |                                           | 140       |   |                                 |   | 362 |   |   |   | 443 |   |   |   | 1,080 |   |
| Total      Interest Income                                       |   |                                           | 6,976     |   |                                 |   | 5,998 |   |   |   | 20,033 |   |   |   | 16,826 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Expense                                            |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                         |   |                                           | 3,483     |   |                                 |   | 3,590 |   |   |   | 10,571 |   |   |   | 10,081 |   |
| Borrowings                                                       |   |                                           | 494       |   |                                 |   | 283 |   |   |   | 1,222 |   |   |   | 411 |   |
| Total      Interest Expense                                      |   |                                           | 3,977     |   |                                 |   | 3,873 |   |   |   | 11,793 |   |   |   | 10,492 |   |
| Net      Interest Income                                         |   |                                           | 2,999     |   |                                 |   | 2,125 |   |   |   | 8,240 |   |   |   | 6,334 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for Loan Losses                                   |   |                                           | 148       |   |                                 |   | - |   |   |   | 148 |   |   |   | 84 |   |
| Net      Interest Income after Provision for Loan Losses         |   |                                           | 2,851     |   |                                 |   | 2,125 |   |   |   | 8,092 |   |   |   | 6,250 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Income                                         |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Fees      and service charges                                    |   |                                           | 284       |   |                                 |   | 257 |   |   |   | 826 |   |   |   | 735 |   |
| Gain      on sale of loans                                       |   |                                           | -         |   |                                 |   | 14 |   |   |   | 7 |   |   |   | 37 |   |
| Impairment      charge on investment securities                  |   |                                           | (326      | )      |                                 |   | - |   |   |   | (844 | ) |   |   | - |   |
| Net      gain (loss) on sales and calls of investment securities |   |                                           | 35        |   |                                 |   | - |   |   |   | 251 |   |   |   | (2 | ) |
| Earnings      on life insurance                                  |   |                                           | 24        |   |                                 |   | 23 |   |   |   | 72 |   |   |   | 69 |   |
| Other                                                            |   |                                           | 5         |   |                                 |   | 6 |   |   |   | 15 |   |   |   | 23 |   |
| Total      Non-Interest Income                                   |   |                                           | 22        |   |                                 |   | 300 |   |   |   | 327 |   |   |   | 862 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Expenses                                       |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Compensation      and benefits                                   |   |                                           | 1,383     |   |                                 |   | 1,280 |   |   |   | 4,066 |   |   |   | 3,766 |   |
| Occupancy      and equipment                                     |   |                                           | 340       |   |                                 |   | 360 |   |   |   | 982 |   |   |   | 877 |   |
| Data      processing                                             |   |                                           | 206       |   |                                 |   | 175 |   |   |   | 582 |   |   |   | 535 |   |
| Office      supplies                                             |   |                                           | 43        |   |                                 |   | 42 |   |   |   | 119 |   |   |   | 133 |   |
| Professional      fees                                           |   |                                           | 95        |   |                                 |   | 92 |   |   |   | 296 |   |   |   | 259 |   |
| Other                                                            |   |                                           | 436       |   |                                 |   | 311 |   |   |   | 1,132 |   |   |   | 983 |   |
| Total      Non-Interest Expenses                                 |   |                                           | 2,503     |   |                                 |   | 2,260 |   |   |   | 7,177 |   |   |   | 6,553 |   |
| Income      before Income Tax Expense (Benefit)                  |   |                                           | 370       |   |                                 |   | 165 |   |   |   | 1,242 |   |   |   | 559 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income      Tax expense (Benefit)                                |   |                                           | 86        |   |                                 |   | (151 | ) |   |   | 267 |   |   |   | (442 | ) |
| Net      Income                                                  |   | $                                              | 284       |   |                                 | $      | 316 |   |   | $ | 975 |   |   | $ | 1,001 |   |
|                                                             |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share Data (See Note 3):                                |   |                                           |      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share – basic                            |   | $                                              | 0.07      |   |                                 | $      | 0.07 |   |   | $ | 0.23 |   |   | $ | 0.23 |   |
| Earnings      per share – diluted                          |   | $                                              | 0.07      |   |                                 | $      | 0.07 |   |   | $ | 0.23 |   |   | $ | 0.23 |   |
| Weighted      average number of shares outstanding – basic |   |                                           | 4,284,515 |   |                                 |   | 4,289,879 |   |   |   | 4,294,268 |   |   |   | 4,289,879 |   |
| Weighted      average number of shares outstanding - diluted     |   |                                           | 4,292,875 |   |                                 |   | 4,303,461 |   |   |   | 4,297,028 |   |   |   | 4,316,913 |   |

----

----

|                                                                                                                                 |   | CommonStock                 |   |   | AdditionalPaid-inCapital |   |   | Unearned      SharesHeld      byESOP |   |   | Retained      Earnings |   |   | TreasuryStock |   |   | Accumu-latedOtherCompre-hensive(Loss) |   |   | TotalStock-holders’Equity |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------------------------|--------|--------|--------------------------------------|--------|--------|------------------------|--------|--------|---------------|--------|--------|---------------------------------------|--------|--------|---------------------------------|--------|
|                                                                                                                                 |   | (Dollars      in thousands) |   |
| Balance,      January 1, 2008                                                                                                        |   | $                           | 452    |   |                     | $      | 19,922 |                                 |   | $      | (1,316                 | )      |   | $             | 21,094 |   |                                  | $      | (1,189 | )                               |   | $ | 65 |   |   | $ | 39,028 |   |
| Comprehensive      income (loss):                                                                                                    |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                      |   |                        | -      |   |                     |   | -      |                                 |   |   | -                      |   |   |          | 975    |   |                                  |   | -      |                            |   |   | - |   |   |   | 975 |   |
| Net      change in unrealized loss on securities available for sale, net of tax      benefit of $881                                 |   |                        | -      |   |                     |   | -      |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | (1,421 | ) |   |   | (1,421 | ) |
| Total      Comprehensive Loss                                                                                                        |   |                        | -      |   |                     |   | -      |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | - |   |   |   | (446 | ) |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Treasury      stock purchased (20,500 shares)                                                                                   |   |                        | -      |   |                     |   | -      |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | (216   | )                               |   |   | - |   |   |   | (216 | ) |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense(restricted stock awards)                                                                       |   |                        | -      |   |                     |   | 166    |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | - |   |   |   | 166 |   |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (stock options)                                                                                |   |                        | -      |   |                     |   | 111    |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | - |   |   |   | 111 |   |
| Balance,      September 30, 2008                                                                                                     |   | $                           | 452    |   |                     | $      | 20,199 |                                 |   | $      | (1,316                 | )      |   | $             | 22,069 |   |                                  | $      | (1,405 | )                               |   | $ | (1,356 | ) |   | $ | 38,643 |   |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,      January 1, 2007                                                                                                        |   | $                           | 452    |   |                     | $      | 19,519 |                                 |   | $      | (1,432                 | )      |   | $             | 19,863 |   |                                  | $      | (1,189 | )                               |   | $ | (550 | ) |   | $ | 36,663 |   |
| Comprehensive      income (loss):                                                                                                    |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| 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 |   |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (restricted stock awards)                                                                      |   |                        | -      |   |                     |   | 166    |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | - |   |   |   | 166 |   |
|                                                                                                                                 |   |                        |   |   |                     |   |   |                                 |   |   |                   |   |   |          |   |   |                                  |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (stock options)                                                                                |   |                        | -      |   |                     |   | 111    |                                 |   |   | -                      |   |   |          | -      |   |                                  |   | -      |                            |   |   | - |   |   |   | 111 |   |
| Balance,      September 30, 2007                                                                                                     |   | $                           | 452    |   |                     | $      | 19,796 |                                 |   | $      | (1,432                 | )      |   | $             | 20,864 |   |                                  | $      | (1,189 | )                               |   | $ | (799 | ) |   | $ | 37,692 |   |

----

----

|                                                                                        |   | Nine      Months Ended September 30, |    |
|---------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                                                        |   | 2008                                 |    |   | 2007 |   |
|                                                                                        |   | (In      thousands)                  |    |
| Cash      Flows from Operating Activities:                                                  |   |                                 |    |
| Net      income                                                                             |   | $                                    | 975     |   |   | $ | 1,001 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                                 |    |   |   |   |   |   |
| Provision      for loan losses                                                              |   |                                 | 148     |   |   |   | 84 |   |
| Depreciation      expense                                                                   |   |                                 | 432     |   |   |   | 379 |   |
| Stock-based      compensation expense                                                       |   |                                 | 277     |   |   |   | 277 |   |
| Impairment      charge on investment securities                                             |   |                                 | 844     |   |   |   | - |   |
| Deferred      income taxes                                                                  |   |                                 | (186    | ) |   |   | (368 | ) |
| Net      earnings on bank-owned life insurance                                              |   |                                 | (72     | ) |   |   | (69 | ) |
| Loans      originated for sale                                                              |   |                                 | (331    | ) |   |   | (2,164 | ) |
| Proceeds      from sale of loans                                                            |   |                                 | 338     |   |   |   | 2,049 |   |
| Gain      on sale of loans                                                                  |   |                                 | (7      | ) |   |   | (37 | ) |
| Net      amortization of loan fees (costs)                                                  |   |                                 | 29      |   |   |   | (55 | ) |
| Net      (gain) loss on sales and calls of securities                                       |   |                                 | (251    | ) |   |   | 2 |   |
| Accretion      of premium and discount on investment securities, net                        |   |                                 | (366    | ) |   |   | (423 | ) |
| Increase      in accrued interest receivable                                                |   |                                 | (175    | ) |   |   | (430 | ) |
| (Increase)      decrease in other assets                                                    |   |                                 | (114    | ) |   |   | 726 |   |
| Increase      in accrued interest payable and other liabilities                             |   |                                 | 193     |   |   |   | 663 |   |
| Net      cash provided by operating activities                                              |   |                                 | 1,734   |   |   |   | 1,635 |   |
| Cash      Flows from Investing Activities:                                                  |   |                                 |    |   |   |   |   |   |
| Proceeds      from sales of investment securities available for sale                        |   |                                 | 19,438  |   |   |   | - |   |
| Proceeds      from sales of mortgage-backed securities available forsale                    |   |                                 | 2,911   |   |   |   | - |   |
| Proceeds      from calls and maturities of investment securities available for      sale    |   |                                 | 30,173  |   |   |   | 2,335 |   |
| Proceeds      from calls and maturities of investment securities held to      maturity      |   |                                 | 3,000   |   |   |   | 3,162 |   |
| Purchase      of investment securities available for sale                                   |   |                                 | (21,973 | ) |   |   | (18,662 | ) |
| Purchase      of investment securities held to maturity                                     |   |                                 | (3,712  | ) |   |   | - |   |
| Purchase      of mortgage-backed securities available for sale                              |   |                                 | (53,041 | ) |   |   | (19,220 | ) |
| Purchase      of mortgage-backed securities held to maturity                                |   |                                 | -       |   |   |   | (719 | ) |
| Purchase      of office properties and equipment                                            |   |                                 | (1,544  | ) |   |   | (3,434 | ) |
| Principal      repayments from investment securities                                        |   |                                 | 852     |   |   |   | 1,777 |   |
| Principal      repayments from mortgage-backed securities                                   |   |                                 | 11,978  |   |   |   | 10,451 |   |
| Net      increase in Federal Home Loan Bank stock                                           |   |                                 | (533    | ) |   |   | (452 | ) |
| Purchase      of interest-bearing time deposits in banks                                    |   |                                 | -       |   |   |   | (208 | ) |
| Maturity      of interest-bearing time deposits in banks                                    |   |                                 | 208     |   |   |   | 200 |   |
| Net      increase in loans receivable                                                       |   |                                 | (49,893 | ) |   |   | (32,559 | ) |
| Net      cash used for investing activities                                                 |   |                                 | (62,136 | ) |   |   | (57,329 | ) |
| Cash      Flows from Financing Activities:                                                  |   |                                 |    |   |   |   |   |   |
| Net      increase in deposits                                                               |   |                                 | 57,427  |   |   |   | 45,278 |   |
| Increase      in Federal Home Loan Bank short-term borrowings, net                          |   |                                 | 3,680   |   |   |   | 8,575 |   |
| Proceeds      from Federal Home Loan Bank long-term borrowings                              |   |                                 | 6,000   |   |   |   | - |   |
| Repayment      of Federal Home Loan Bank long-term borrowings                               |   |                                 | (247    | ) |   |   | (234 | ) |
| Increase      (decrease) in advances from borrowers for taxes and    insurance              |   |                                 | 157     |   |   |   | (32 | ) |
| Acquisition      of treasury stock                                                          |   |                                 | (216    | ) |   |   | - |   |
| Net      cash provided by financing activities                                              |   |                                 | 66,801  |   |   |   | 53,587 |   |
| Increase      (decrease) in cash and cash equivalents                                       |   |                                 | 6,399   |   |   |   | (2,107 | ) |
| CASH      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       |   |                                 | 15,978  |   |   |   | 13,257 |   |
| CASH      AND CASH EQUIVALENTS AT END OF PERIOD                                             |   | $                                    | 22,377  |   |   | $ | 11,150 |   |
|                                                                                        |   |                                 |    |   |   |   |   |   |
|                                                                                        |   |                                 |    |   |   |   |   |   |
| Supplemental      Cash Flow Disclosures:                                                    |   |                                 |    |   |   |   |   |   |
| Cash      paid:                                                                             |   |                                 |    |   |   |   |   |   |
| Interest                                                                                    |   | $                                    | 11,892  |   |   | $ | 9,999 |   |
| Income      taxes                                                                           |   | $                                    | 631     |   |   | $ | 3 |   |
| Supplemental      Schedule of Noncash Investing and Financing Activities:                   |   |                                 |    |   |   |   |   |   |
| Other      real estate acquired in settlement of loans                                      |   | $                                    | 155     |   |   | $ | - |   |

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| 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”).  The Company is a federally chartered corporation and      owns 100% of the outstanding common stock of Colonial Bank,      FSB.  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.  The Bank is a wholly      owned subsidiary of the Company.  The Bank has established a      Delaware corporation, CB Delaware Investments, Inc. (the “Operating      Subsidiary”) whose purpose is to invest in and manage      securities.                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | 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 to a fair statement 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, 2008 (unaudited) are not necessarily indicative of the      results that may be expected for the year ending December 31,      2008. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The      balance sheet at December 31, 2007 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 our ability to realize deferred tax      assets.                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The      Bank maintains its 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 single-family residential, commercial and consumer loans and      investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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| 2.     | Recent      Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | In      October 2008, the Financial Accounting Standards Board (“FASB”) issued      FASB Staff Position (“FSP”) Statement of Financial Accounting Standards      (“SFAS”) No. 157-3, “Determining the Fair Value of a Financial      Asset When The Market for That Asset Is Not Active” (FSP 157-3), to      clarify the application of the provisions of SFAS 157 in an inactive      market and how an entity would determine fair value in an inactive      market.  FSP 157-3 is effective immediately and applies to      our September 30, 2008 financial statements.  The      application of the provisions of FSP 157-3 did not materially affect      our consolidated financial statements as of and for the periods ended      September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | In      September 2008, the FASB ratified Emerging Issues Task Force (“EITF”)      Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair      Value With a Third-Party Credit Enhancement” (EITF 08-5).  EITF      08-5 provides guidance for measuring liabilities issued with an attached      third-party credit enhancement (such as a guarantee).  It      clarifies that the issuer of a liability with a third-party credit      enhancement should not include the effect of the credit enhancement in the      fair value measurement of the liability.  EITF 08-5 is effective      for the first reporting period beginning after December 15,      2008.  The Company is currently assessing the impact of EITF      08-5 on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                         |
| .      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | In      May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally      Accepted Accounting Principles.”  This Statement identifies the      sources of accounting principles and the framework for selecting the      principles used in the preparation of financial      statements.  This Statement is effective 60 days following the      Securities and Exchange Commission’s approval of the Public Company      Accounting Oversight Board amendments to AU Section 411, “The Meaning of      Present Fairly in Conformity with Generally Accepted Accounting      Principles.”  The Company is currently evaluating the potential      impact the new pronouncement will have on its consolidated financial      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | In      March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative      Instruments and Hedging Activities—an amendment of FASB Statement No. 133”      (Statement 161).  Statement 161 requires entities that utilize      derivative instruments to provide qualitative disclosures about their      objectives and strategies for using such instruments, as well as any      details of credit-risk-related contingent features contained within      derivatives.  FASB Statement 161 also requires entities to      disclose additional information about the amounts and location of      derivatives located within the financial statements, how the provisions of      SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”      has been applied, and the impact that hedges have on an entity’s financial      position, financial performance, and cash flows.  FASB Statement      161 is effective for fiscal years and interim periods beginning after      November 15, 2008, with early application encouraged.  The      Company is currently evaluating the potential impact the new pronouncement      will have on its consolidated financial  statements. |

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|   | In      February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of      Financial Assets and Repurchase Financing Transactions.” This FSP      addresses the issue of whether or not these transactions should be viewed      as two separate transactions or as one "linked" transaction. The FSP      includes a "rebuttable presumption" that presumes linkage of the two      transactions unless the presumption can be overcome by meeting certain      criteria. The FSP will be effective for fiscal years beginning after      November 15, 2008 and will apply only to original transfers made after      that date; early adoption will not be allowed. The Company is currently      evaluating the potential impact the new pronouncement will have on its      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | SFAS      No. 141 (R), “Business Combinations,” was issued in December of 2007. This      Statement establishes principles and requirements for how the acquirer of      a business recognizes and measures in its financial statements the      identifiable assets acquired, the liabilities assumed, and any      noncontrolling interest in the acquiree. The Statement also provides      guidance for recognizing and measuring the goodwill acquired in the      business combination and determines what information to disclose to enable      users of the financial statements to evaluate the nature and financial      effects of the business combination. The guidance will become effective as      of the beginning of a company’s fiscal year beginning after December 15,      2008. This new pronouncement will impact the Company’s accounting for      business combinations completed after January 1, 2009.                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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 these calculations, the net income for the nine months      ended September 30, 2008 is $975 thousand and the net income for the nine      months ended September 30, 2007 is $1.0 million.  For the three      months ended September 30, 2008, net income is $284 thousand and for the      three months ended September 30, 2007, net income is $316      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.  The following table      sets forth the composition of the weighted average common shares      (denominator) used in the basic and diluted earnings per share      computation. |

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|                                                                              |   | For      the Three Months EndedSeptember      30, |      |   | For      the Nine Months EndedSeptember      30, |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|--------|--------------------------------------------------|--------|
|                                                                              |   | 2008                                              |      |   | 2007                                             |   |   | 2008 |   |   | 2007 |   |
| Net      Income                                                                   |   | $                                                 | 284,000   |   |                                             | $      | 316,000 |   |   | $ | 975,000 |   |   | $ | 1,001,000 |   |
|                                                                              |   |                                              |      |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares issued                                        |   |                                              | 4,521,696 |   |                                             |   | 4,521,696 |   |   |   | 4,521,696 |   |   |   | 4,521,696 |   |
| Average      unearned ESOP shares                                                 |   |                                              | (131,589  | )      |                                             |   | (143,192 | ) |   |   | (131,589 | ) |   |   | (143,192 | ) |
| Average      treasury stock shares                                                |   |                                              | (105,592  | )      |                                             |   | (88,625 | ) |   |   | (95,839 | ) |   |   | (88,625 | ) |
| Weighted      average common shares outstanding – basic                     |   |                                              | 4,284,515 |   |                                             |   | 4,289,879 |   |   |   | 4,294,268 |   |   |   | 4,289,879 |   |
| Effect      of dilutive non –vested shares and stock options    outstanding |   |                                              | 8,360     |   |                                             |   | 13,582 |   |   |   | 2,760 |   |   |   | 27,034 |   |
| Weighted      average common shares outstanding – diluted                   |   |                                              | 4,292,875 |   |                                             |   | 4,303,461 |   |   |   | 4,297,028 |   |   |   | 4,316,913 |   |
| Basic      earnings per share                                                     |   | $                                                 | 0.07      |   |                                             | $      | 0.07 |   |   | $ | 0.23 |   |   | $ | 0.23 |   |
| Diluted      earnings per share                                                   |   | $                                                 | 0.07      |   |                                             | $      | 0.07 |   |   | $ | 0.23 |   |   | $ | 0.23 |   |
|                                                                              |   |                                              |      |   |                                             |   |   |   |   |   |   |   |   |   |   |   |

| 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).  Only NQOs may be      granted to nonemployee directors under this plan and ISOs may be granted      to employees.  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 Incentive      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, 2008, there are 25,095 shares available for option grants      under the 2006 Plan. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | On      October 19, 2006, 88,625 shares of restricted stock were      awarded.  The restricted shares awarded had a grant date fair      value of $12.47 per share.  The restricted stock awarded vest      20% annually beginning October 19, 2007.  For the three and nine      months ended September 30, 2008, $55 thousand and $166 thousand,      respectively, in compensation expense was recognized in regard to these      restricted stock awards with a related tax benefit of $18 thousand and $54      thousand, respectively.  As of September 30, 2008, there was      $672 thousand of unrecognized compensation expense related to the      restricted stock awards which is expected to be recognized over a period      of 3.00 years.  At 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

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|   | Activity      in issued but unvested award shares during the nine months ended September      30, 2008, was as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------|

| Award      Shares                    |   | Number      ofShares |   |   | WeightedAverageGrant      DateFair      Value |   |
|--------------------------------------|--------|----------------------|--------|--------|-----------------------------------------------|--------|
| Restricted,      beginning of period |   |                 | 70,900 |   |                                          | $      | 12.47 |   |
| Granted                              |   |                 | -      |   |                                          |   | - |   |
| Forfeitures                          |   |                 | -      |   |                                          |   | - |   |
| Vested                               |   |                 | -      |   |                                          |   | - |   |
| Restricted      stock, end of period |   |                 | 70,900 |   |                                          | $      | 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 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, 2008: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | Shares |    |   | WeightedAverageExercisePrice |   |
|-----------------------------------------------|--------|--------|---------|--------|------------------------------|--------|
| Options      outstanding, beginning of period |   |   | 196,468 |   |                         | $      | 12.47 |   |
| Granted                                       |   |   | -       |   |                         |   | - |   |
| Exercised                                     |   |   | -       |   |                         |   | - |   |
| Forfeitures                                   |   |   | -       |   |                         |   | - |   |
| Options      outstanding, end of period       |   |   | 196,468 |   |                         | $      | 12.47 |   |
| Exercisable      at end of period             |   |   | 39,294  |   |                         | $      | 12.47 |   |

|   | 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.  The weighted average      contractual term of options outstanding and exercisable were 8.00 years at      September 30, 2008 and 9.00 years at September 30,2007.                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | Stock-based      compensation expense related to stock options for the three and nine      months ended September 30, 2008 was $37 thousand and $111 thousand,      respectively with a related tax benefit of $13 thousand and $39 thousand,      respectively.  As of September 30, 2008, there was approximately      $453 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 3.00 years.  At September      30, 2007, there was approximately $602 thousand of unrecognized      compensation cost related to unvested stock options granted in      2006. |

----

|   | 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 15 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 $90 thousand and $118 thousand for the nine months ended      September 30, 2008 and 2007, respectively and $30 thousand and $35      thousand for the three months ended September 30, 2008 and 2007,      respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The      following table presents the components of the ESOP  shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

|                                |   | September      30,2008 |    |   | September      30,2007 |   |
|-------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Shares      released for allocation |   |                   | 34,809  |   |                   |   | 23,206 |   |
| Unreleased      shares              |   |                   | 131,589 |   |                   |   | 143,192 |   |
| 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      income for the three and nine months ended September 30, 2008 and 2007 was      as follows: |

|                                                                           |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|--------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                           |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
|                                                                           |   | (In      Thousands)                       |   |
| Other      comprehensive gain (loss):                                          |   |                                      |   |
| Unrealized      holding (losses) on available for sale securities              |   | $                                         | (776   | )      |                                     | $      | 1,519 |   |   | $ | (2,051 | ) |   | $ | (384 | ) |
| Reclassification      adjustment for net (gains) losses realized in net income |   |                                      | (35    | )      |                                     |   | - |   |   |   | (251 | ) |   |   | 2 |   |
| Net      unrealized (losses)                                                   |   |                                      | (811   | )      |                                     |   | 1,519 |   |   |   | (2,302 | ) |   |   | (382 | ) |
| Income      tax (benefit)                                                      |   |                                      | (324   | )      |                                     |   | 521 |   |   |   | (881 | ) |   |   | (133 | ) |
| Net      of tax amount                                                         |   | $                                         | (487   | )      |                                     | $      | 998 |   |   | $ | (1,421 | ) |   | $ | (249 | ) |

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| 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 $2.7 million of standby letters of      credit outstanding as of September 30, 2008.  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.  The current amount of the liability as of September      30, 2008 for guarantees under standby letters of credit is not      material. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 7.     | Investment      Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The      following table sets forth the composition of our securities portfolio at      the dates indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|                                      |   | At      September 30, 2008 |    |   | At      December 31, 2007 |   |
|-------------------------------------------|--------|----------------------------|---------|--------|---------------------------|--------|
|                                      |   | AmortizedCost              |    |   | FairValue                 |   |   | AmortizedCost |   |   | FairValue |   |
|                                      |   | (In      thousands)        |    |
| Securities      available-for-sale:       |   |                       |    |   |                      |   |   |   |   |   |   |   |
| Mortgage-backed                           |   | $                          | 117,835 |   |                      | $      | 117,950 |   |   | $ | 79,085 |   |   | $ | 79,454 |   |
| U.      S. Government agency              |   |                       | 23,965  |   |                      |   | 23,882 |   |   |   | 44,052 |   |   |   | 44,275 |   |
| Corporate                                 |   |                       | 17,739  |   |                      |   | 15,481 |   |   |   | 12,880 |   |   |   | 12,267 |   |
| Mutual      funds                         |   |                       | 3,852   |   |                      |   | 3,217 |   |   |   | 14,385 |   |   |   | 14,385 |   |
| Municipal                                 |   |                       | 3,661   |   |                      |   | 3,660 |   |   |   | 5,402 |   |   |   | 5,504 |   |
| SBA      pools                            |   |                       | 6,750   |   |                      |   | 6,806 |   |   |   | 7,614 |   |   |   | 7,664 |   |
| Total      securities available-for-sale. |   | $                          | 173,802 |   |                      | $      | 170,996 |   |   | $ | 163,418 |   |   | $ | 163,549 |   |
|                                      |   |                       |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held-to-maturity:         |   |                       |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                           |   | $                          | 3,249   |   |                      | $      | 3,333 |   |   | $ | 3,766 |   |   | $ | 3,863 |   |
| U.      S. Government agency              |   |                       | 930     |   |                      |   | 982 |   |   |   | 1,420 |   |   |   | 1,442 |   |
| Corporate                                 |   |                       | 3,945   |   |                      |   | 3,364 |   |   |   | 2,173 |   |   |   | 2,317 |   |
| Municipal                                 |   |                       | 9,487   |   |                      |   | 9,617 |   |   |   | 9,854 |   |   |   | 10,354 |   |
| Total      securities held-to-maturity.   |   | $                          | 17,611  |   |                      | $      | 17,296 |   |   | $ | 17,213 |   |   | $ | 17,976 |   |

----

|   | Following      the decisions made in the fourth quarter of 2007 and the first and second      quarters of 2008, the Company continued the write down of a mutual fund      held in its available-for-sale investment portfolio for      “other-than-temporary impairment.”  For the three and nine      months ended September 30, 2008, the Company took an impairment charge of      $326 thousand (pre-tax) and $844 thousand (pre-tax), respectively, or an      after-tax charge of $196 thousand and $507 thousand,      respectively.  The Company’s decision was based on the length of      time the mutual fund was in a loss position and based on the fact that the      mutual fund had not made any recovery during the recent reduction in      interest rates. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | During      the third quarter of 2008, the Company redeemed $250 thousand of the      mutual fund at a pre-tax loss of approximately $3 thousand, or an      after-tax loss of $2 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 8.     | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The      components of loans at September 30, 2008 and December 31, 2007 are as      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|                                       |   | At      September 30, 2008  |    |   | At      December 31, 2007 |   |
|--------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|
|                                       |   | Amount                      |    |   | Percent                   |   |   | Amount |   |   | Percent |   |
|                                       |   | (Dollars      in thousands) |    |
| Real      estate loans:                    |   |                        |    |   |                      |   |   |   |   |   |   |   |
| One-      to four-family residential       |   | $                           | 141,302 |   |                      |   | 48.3 | % |   | $ | 114,745 |   |   |   | 47.3 | % |
| Home      equity loans and lines of credit |   |                        | 40,735  |   |                      |   | 13.9 |   |   |   | 40,264 |   |   |   | 16.6 |   |
| Multi-family                               |   |                        | 4,958   |   |                      |   | 1.7 |   |   |   | 5,609 |   |   |   | 2.3 |   |
| Commercial                                 |   |                        | 76,642  |   |                      |   | 26.2 |   |   |   | 55,606 |   |   |   | 22.9 |   |
| Construction                               |   |                        | 11,095  |   |                      |   | 3.8 |   |   |   | 10,137 |   |   |   | 4.2 |   |
| Commercial                                 |   |                        | 14,950  |   |                      |   | 5.1 |   |   |   | 12,600 |   |   |   | 5.2 |   |
| Consumer      and other                    |   |                        | 2,739   |   |                      |   | 1.0 |   |   |   | 3,752 |   |   |   | 1.5 |   |
| Total      loans receivable                |   | $                           | 292,421 |   |                      |   | 100.0 | % |   | $ | 242,713 |   |   |   | 100.0 | % |
| Deferred      loan fees                    |   |                        | (310    | )      |                      |   |   |   |   |   | (281 | ) |   |   |   |   |
| Allowance      for loan losses             |   |                        | (1,510  | )      |                      |   |   |   |   |   | (1,392 | ) |   |   |   |   |
| Total      loans receivable, net           |   | $                           | 290,601 |   |                      |   |   |   |   | $ | 241,040 |   |   |   |   |   |

|   | Our      loans are originated and administered through our loan      policies.  We originate one- to four-family residential real      estate loans, home equity loans and lines of credit, commercial real      estate loans, commercial business loans, construction loans, consumer      loans and multi-family loans.  We offer fixed-rate,      adjustable-rate and balloon loans that fully amortize with monthly loan      payments. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | We      have not originated or purchased any sub-prime or Alt-A      loans.  We have not originated or purchased payment-option ARMs      or negative amortizing loans.                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Nonaccrual      loans amounted to approximately $1.3 million and $1.2 million at September      30, 2008 and December 31, 2007, respectively.                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Loans      are reviewed on a regular basis, and generally are placed on nonaccrual      status when either principal or interest is 90 days or more past due or if      we believe that there is sufficient reason to question the borrower’s      ability to continue to meet contractual principal or interest payment      obligations.                                                                                                                |

----

| 9.     | Deposits                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------|
|   |                                                                                                        |
|   | Deposit      accounts, by type, at September 30, 2008 and December 31, 2007 are      summarized as follows: |

|                              |   | At      September 30, 2008  |    |   | At      December 31, 2007 |   |
|-----------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|
|                              |   | Balance                     |    |   | Percent                   |   |   | Wtd.Avg.Rate |   |   | Balance |   |   | Percent |   |   | Wtd.Avg.Rate |   |
|                              |   | (Dollars      in thousands) |    |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposit      type:                |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing demand. |   | $                           | 16,155  |   |                      |   | 3.77 | % |   |   | - | % |   | $ | 15,141 |   |   |   | 4.08 | % |   |   | - | % |
| Savings                           |   |                        | 82,076  |   |                      |   | 19.14 |   |   |   | 2.73 |   |   |   | 55,716 |   |   |   | 15.00 |   |   |   | 2.18 |   |
| NOW      accounts                 |   |                        | 49,951  |   |                      |   | 11.65 |   |   |   | 1.17 |   |   |   | 45,255 |   |   |   | 12.18 |   |   |   | 2.12 |   |
| Super      NOW accounts           |   |                        | 15,104  |   |                      |   | 3.52 |   |   |   | 1.75 |   |   |   | 16,520 |   |   |   | 4.45 |   |   |   | 1.77 |   |
| Money      market accounts        |   |                        | 35,980  |   |                      |   | 8.39 |   |   |   | 3.27 |   |   |   | 20,670 |   |   |   | 5.57 |   |   |   | 3.72 |   |
| Total      transaction accounts   |   |                        | 199,266 |   |                      |   | 46.47 |   |   |   | 2.14 |   |   |   | 153,302 |   |   |   | 41.28 |   |   |   | 2.11 |   |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates      of deposit      |   |                        | 229,543 |   |                      |   | 53.53 |   |   |   | 4.23 |   |   |   | 218,080 |   |   |   | 58.72 |   |   |   | 4.86 |   |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      deposits               |   | $                           | 428,809 |   |                      |   | 100.00 | % |   |   | 3.26 | % |   | $ | 371,382 |   |   |   | 100.00 | % |   |   | 3.72 | % |

| 10.    | Federal      Home Loan Bank Borrowings                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                         |
|   | The      following table sets forth information concerning advances from the      Federal Home Loan Bank (“FHLB”) of New York, at September 30, 2008 and      December 31, 2007: |

| Maturity                |   | InterestRate |   |   | September      30,2008      |   |   | December      31,2007 |   |
|-------------------------|--------|--------------|--------|--------|-----------------------------|--------|--------|-----------------------|--------|
|                    |   |         |   |   | (Dollars      in thousands) |   |
| January      2, 2008    |   | 3.61         | %      |   | $                           | -      |   |                  | $      | 15,000 |   |
| January      2, 2008    |   | 4.11         |   |   |                        | -      |   |                  |   | 380 |   |
| March      24, 2008     |   | 4.79         |   |   |                        | -      |   |                  |   | 4,000 |   |
| October      1, 2008    |   | 1.61         |   |   |                        | 13,060 |   |                  |   | - |   |
| October      7, 2008    |   | 2.40         |   |   |                        | 4,000  |   |                  |   | - |   |
| November      20, 2008  |   | 4.42         |   |   |                        | 4,000  |   |                  |   | 4,000 |   |
| December      23, 2008  |   | 2.89         |   |   |                        | 3,000  |   |                  |   | - |   |
| June      23, 2009      |   | 3.35         |   |   |                        | 3,000  |   |                  |   | - |   |
| October      19, 2009   |   | 4.65         |   |   |                        | 4,000  |   |                  |   | 4,000 |   |
| November      20, 2009  |   | 4.23         |   |   |                        | 4,000  |   |                  |   | 4,000 |   |
| December      03, 2009  |   | 3.89         |   |   |                        | 4,000  |   |                  |   | 4,000 |   |
| June      23, 2010      |   | 3.88         |   |   |                        | 3,000  |   |                  |   | - |   |
| October      18, 2010   |   | 4.70         |   |   |                        | 4,000  |   |                  |   | 4,000 |   |
| June      23, 2011      |   | 4.31         |   |   |                        | 3,000  |   |                  |   | - |   |
| September      30, 2021 |   | 5.57         |   |   |                        | 6,312  |   |                  |   | 6,559 |   |
|                    |   |         |   |   | $                           | 55,372 |   |                  | $      | 45,939 |   |

----

|   | At      September 30, 2008, the Bank had a borrowing capacity of $138.6 million      available from the FHLB of New York, which is based on the amount of FHLB      stock held or levels of other assets, including investment securities,      which are available for collateral.  At September 30, 2008, the      Bank had $55.4 million in outstanding borrowings from the FHLB of New      York.                                                                                                                                                                                                                                                             |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 11.    | Fair      Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The      Company uses fair value measurements to record fair value adjustments to      certain assets to determine fair value disclosures.  Investment      and mortgage-backed securities available for sale are recorded at fair      value on a recurring basis.  Additionaly, from time to time, the      Company may be required to record at fair value other assets on a      recurring basis, such as impaired loans, real estate owned and certain      other assets.  These non recurring fair value adjustments      typically involve application of lower-of-cost-or-market accounting or      write-downs of individual assets. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | SFAS      No. 157 establishes a fair value hierarchy that prioritizes the input to      valuation techniques used to measure fair value.  The hierarchy      gives the highest priority to unadjusted prices in active markets for      identical assets or liabilities (level 1 measurements) and the lowest      priority to unobservable inputs (level 3 measurements).  The      three levels of the fair value hierarchy under SFAS No. 157 are described      below:                                                                                                                                                                              |

|   |   | Level      1 – Unadjusted quoted prices in active markets that are accessible at the      measurement date for identical, unrestricted assets or      liabilities;                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | Level      2 – Quoted prices in markets that are not active, or inputs that are      observable, either directly or indirectly, for substantially the full term      of the asset or liability;       |
|   |   | Level      3 – Prices or valuation techniques that require inputs that are both      significant to the fair value measurement and observable (1.e., supported      by little or no market activity). |

|   | A      financial instrument’s level within the fair value hierarchy is based on      the lowest level of input that is significant to the fair value      measurement.                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | A      description of the valuation methodologies used for instruments measured      at fair value, as well as the general classification of such instruments      pursuant to the valuation hierarchy, is set forth below.  These      valuation methodologies were applied to all of the Company’s financial      assets and financial liabilities carried at fair value for September 30,      2008.                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Company’s cash instruments are generally classified within level 1 or      level 2 of the fair value hierarchy because they are valued using quoted      market prices, broker or dealer quotations, or alternative pricing sources      with reasonable levels of price transparency.                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Company’s investment and mortgage-backed securities available for sale are      generally classified within level 2 of the fair value      hierarchy.  For these securities, we obtain fair value      measurements from independent pricing services.  The fair value      measurements consider observable data that may include dealer quotes,      market spreads, cash flows, the U. S. treasury yield curve, trading      levels, market consensus prepayment speeds, credit information and the      instrument’s terms and conditions. |

----

|   | Level      3 is for positions that are not traded in active markets or are subject to      transfer restrictions, valuations are adjusted to reflect illiquidity      and/or non-transferability, and such adjustments are generally based on      available market evidence.  In the absence of such evidence,      management’s best estimate is used.  Subsequent to inception,      management only changes level 3 inputs and assumptions when corroborated      by evidence such as transactions in similar instruments, completed or      pending third-party transactions in the underlying investment or      comparable entities, subsequent rounds of financing, recapitalization and      other transactions across the capital structure, offerings in the equity      or debt markets, and changes in financial ratios or cash      flows. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The      Company’s impaired loans are reported at the fair value of the underlying      collateral if repayment is expected solely from the      collateral.  Collateral values are estimated using level 3      imputs based upon discounting criteria.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The      Company’s real estate owned includes foreclosed properties securing      mortgage or commercial loans.  Real estate properties acquired      through foreclosure are initially recorded at fair value of the property      at the date of foreclosure.  After foreclosure, valuations are      periodically performed by management and the real estate is carried at the      lower of cost or fair value less estimated costs to sell.  Fair      value is generally based upon independent market prices or appraised value      of the collateral.  The fair value of real estate owned is      estimated using level 3 inputs.                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | For      assets measured at fair value on a recurring basis, the fair value      measurements by level within the fair value hierarchy used at September      30, 2008 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                               |   | QuotedPrices      inActiveMarkets      for IdenticalAssets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |    | Significant      Unobservable Inputs(Level      3) |   |   | September      30,2008 |   |
|------------------------------------|--------|--------------------------------------------------------------------------|--------|--------|------------------------------------------------|--------|---------|----------------------------------------------------|--------|--------|------------------------|--------|
|                               |   |                                                                     |   |   |                                           |   |    |                                               |   |   |                   |   |
| Securities      available-for-sale |   | $                                                                        | -      |   |                                           | $      | 170,996 |                                               |   | $      | -                      |   |   | $ | 170,996 |   |
| Impaired      loans                |   |                                                                     | -      |   |                                           |   | -       |                                               |   |   | 281                    |   |   |   | 281 |   |
| Real      estate owned             |   |                                                                     | -      |   |                                           |   | -       |                                               |   |   | 155                    |   |   |   | 155 |   |
| Total                              |   | $                                                                        | -      |   |                                           | $      | 170,996 |                                               |   | $      | 436                    |   |   | $ | 171,432 |   |

----

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

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| Item      3.  | Quantitative      and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | Not      applicable, as the Company is a Smaller Reporting  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item      4.  | Controls      and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | Not      applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item      4T. | Controls      and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| (a)           | Evaluation      of disclosure controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | Under      the supervision and with the participation of our management, including      our Chief Executive Officer and Chief 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 Chief Executive      Officer and Chief 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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| Item      1.  | Legal      Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|          | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| Item      1A. | Risk      Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|          | The      risks set forth below, in addition to the other risks described in this      quarterly report, represent material changes from those risk factors      previously disclosed in the Company’s previous filings with the Securities      and Exchange Commission, and may adversely affect our business, financial      condition and operating results.  In addition to the risks set      forth below and the other risks described in this quarterly report, there      may also be additional risks and uncertainties that are not currently      known to us or that we currently deem to be immaterial that could      materially and adversely affect our business, financial condition or      operating results.  As a result, past financial performance may      not be a reliable indicator of future performance, and historical trends      should not be used to anticipate results or trends in future periods.      Further, to the extent that any of the information contained in this      Quarterly Report on Form 10-Q constitutes forward-looking statements, the      risk factors set forth below also are cautionary statements identifying      important factors that could cause our actual results to differ materially      from those expressed in any forward-looking statements made by or on      behalf of us. |
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|          | Our      Expenses Will Increase as a Result of Increases in FDIC Insurance      Premiums                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|          | The      Federal Deposit Insurance Corporation (“FDIC”) imposes an assessment      against institutions for deposit insurance.  This assessment is      based on the risk category of the institution and ranges from five to 43      basis points of the institution’s deposits.  Federal law      requires that the designated reserve ratio for the deposit insurance fund      be established by the FDIC at 1.15% to 1.50% of estimated insured      deposits.  If this reserve ratio drops below 1.15% or the FDIC      expects it to do so within six months, the FDIC must, within 90 days,      establish and implement a plan to restore the designated reserve ratio to      1.15% of estimated insured deposits within five years (absent      extraordinary circumstances).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|          | Recent      bank failures coupled with deteriorating economic conditions have      significantly reduced the deposit insurance fund’s reserve      ratio.  As of June 30, 2008, the designated reserve ratio was      1.01% of estimated insured deposits at March 31, 2008.  As a      result of this reduced reserve ratio, on October 16, 2008, the FDIC      published a proposed rule that would restore the reserve ratios to its      required level.  The proposed rule would raise the current      deposit insurance assessment rates uniformly for all institutions by seven      basis points (to a range from 12 to 50 basis points) for the first quarter      of 2009.  The proposed rule would also alter the way the FDIC      calculates federal deposit insurance assessment rates beginning in the      second quarter of 2009 andthereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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|         | Under      the proposed rule, the FDIC would first establish an institution’s initial      base assessment rate.  This initial base assessment rate would      range, depending on the risk category of the institution, from 10 to 45      basis points.  The FDIC would then adjust the initial base      assessment (higher or lower) to obtain the total base assessment      rate.  The adjustments to the initial base assessment rate would      be based upon an institution’s levels of unsecured debt, secured      liabilities, and brokered deposits.  The total base assessment      rate would range from eight to 77.5 basis points of the institution’s      deposits. There can be no assurance that the proposed rule will be      implemented by the FDIC or implemented in its proposed    form. |
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|         | In      addition, the Emergency Economic Stabilization Act of 2008 (EESA)      temporarily increased the limit on FDIC insurance coverage for deposits to      $250,000 through December 31, 2009, and the FDIC took action to provide      coverage for newly issued senior unsecured debt and non-interest bearing      transaction accounts in excess of the $250,000 limit, for which      institutions will be assessed additional premiums.                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|         | These      actions will significantly increase the Company’s non-interest expense in      2009 and in future years as long as the increased premiums are in      place.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| Item      2. | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|         | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Not      applicable |
|         | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Not      applicable |
|         | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Purchases      of Equity Securities |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The      Company’s repurchases of its common stock made during the quarter are set      forth in the following table: |

|  Period                          |   | TotalNumber      ofSharesPurchased |   |   | AveragePricePaid      perShare |   |   | TotalNumber      ofSharesPurchasedas      Part ofPublicly      AnnouncedPlans      orPrograms |   |   | MaximumNumberof      Sharesthat      Mayyet      bePurchasedUnder      thePlan      orPrograms(1) |   |
|---------------------------------------|--------|------------------------------------|--------|--------|--------------------------------|--------|--------|-----------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|--------|
| July      1 – July 31           |   |                               | -      |   |                           | $      | -      |                                                                                          |   |   | -                                                                                                 |   |   |   | 84,954 |   |
|                                  |   |                               |   |   |                           |   |   |                                                                                          |   |   |                                                                                              |   |   |   |   |   |
| August      1 – August 31       |   |                               | -      |   |                           |   | -      |                                                                                          |   |   | -                                                                                                 |   |   |   | 84,954 |   |
|                                  |   |                               |   |   |                           |   |   |                                                                                          |   |   |                                                                                              |   |   |   |   |   |
| September      1 – September 30 |   |                               | 5,000  |   |                           |   | 10.55  |                                                                                          |   |   | 5,000                                                                                             |   |   |   | 79,954 |   |
|                                  |   |                               |   |   |                           |   |   |                                                                                          |   |   |                                                                                              |   |   |   |   |   |
| Total                                 |   |                               | 5,000  |   |                           | $      | 10.55  |                                                                                          |   |   | 5,000                                                                                             |   |   |   | 79,954 |   |
|                                  |   |                               |   |   |                           |   |   |                                                                                          |   |   |                                                                                              |   |   |   |   |   |
| ___________________                   |   |                               |   |   |                           |   |   |                                                                                          |   |   |                                                                                              |   |   |   |   |   |

| (1) | On      March 24, 2008, the Company announced its second stock repurchase program      to repurchase 100,454 shares or approximately 5.0% of the Company’s      outstanding common stock held by stockholders other than Colonial Bank      MHC. |
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| Item      3. | Defaults Upon SeniorSecurities                         |
|--------------|--------------------------------------------------------|
|         |                                                   |
|         | 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 |

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|                                    | COLONIAL      BANKSHARES, INC.                            |   |
|-----------------------------------------|-----------------------------------------------------------|--------|
|                                    | Registrant                                                |   |
|                                    |                                                      |   |
|                                    |                                                      |   |
|                                    |                                                      |   |
| Date:  November      14, 2008 | By:  /s/      Edward J. Geletka                 |   |
|                                    | Edward      J. Geletka                                    |   |
|                                    | President      and Chief Executive Officer                |   |
|                                    | (Principal      Executive Officer)                        |   |
|                                    |                                                      |   |
|                                    |                                                      |   |
| Date:  November      14, 2008 | By:  /s/ L.      Joseph Stella, III, CPA        |   |
|                                    | L.      Joseph Stella, III, CPA                           |   |
|                                    | Executive      Vice President and Chief Financial Officer |
|                                    | (Principal      Accounting and FinancialOfficer)          |