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**UNITED        STATES **

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**FORM        10-QSB**

| x      | QUARTERLY                  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT                  OF                  1934  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
|   | For                  the quarterly period ended  **March                  31, 2007**                                              |
|   |                                                                                                                                   |
| o      | TRANSITION                  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT                  OF                  1934 |
|   |                                                                                                                                   |
|   | For                  the transition period from                       to                       |
|   |                                                                                                                                   |
|   | Commission                  file number 0-51385                                                                                        |

**COLONIAL        BANKSHARES, INC.**

|   | **United                  States of America**                                  |   | **90-0183739**                            |   |
|--------|--------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|   | (State                  or other jurisdiction of incorporation or organization |   | (I.R.S.                  Employer ID No.) |   |
|   |                                                                           |   |                                      |   |
|   | **85                  West Broad Street, Bridgeton, New Jersey 08302**         |   |
|   | (Address                  of principal executive offices)                      |   |

**(856)        451-5800**

**N/A**

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

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**TABLE        OF CONTENTS**

| **PART                I** | **FINANCIAL                INFORMATION**                               | **PAGE**  |
|---------------------------|------------------------------------------------------------------------|----------------|
|                      |                                                                   |           |
| Item                  1   | Consolidated                  Statements of Financial Condition        | 2              |
|                      | Consolidated                  Statements of Income                     | 3              |
|                      | Consolidated                  Statements of Stockholders’ Equity | 4              |
|                      | Consolidated                  Statements of Cash Flows                 | 5              |
|                      | Notes                  to Consolidated Financial Statements            | 6              |

|                         |                                                                                                                              |   |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|--------|
| Item                  2      | Management’s                    Discussion and Analysis of Financial Condition and Results of                    Operations | 14     |
|                         |                                                                                                                              |   |
| Item                  3      | Controls                  and Procedures                                                                                          | 20     |
|                         |                                                                                                                              |   |
| **PART                  II** | **OTHER                  INFORMATION**                                                                                            |   |
|                         |                                                                                                                              |   |
| Item                  1      | Legal                  Proceedings                                                                                                | 20     |
|                         |                                                                                                                              |   |
| Item                  2      | Unregistered                  Sales of Equity Securities and Use of Proceeds                                                      | 20     |
|                         |                                                                                                                              |   |
| Item                  3      | Defaults                  Upon Senior Securities                                                                                  | 20     |
|                         |                                                                                                                              |   |
| Item                  4      | Submission                  of Matters to Vote of Security Holders                                                                | 20     |
|                         |                                                                                                                              |   |
| Item                  5      | Other                  Information                                                                                                | 20     |
|                         |                                                                                                                              |   |
| Item                  6      | Exhibits                                                                                                                          | 21     |
|                         |                                                                                                                              |   |
|                         | Signatures                                                                                                                        | 22     |

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**PART          I**

** **

**FINANCIAL          INFORMATION**

**Item          1.**
**Financial          Statements**

***Colonial          Bankshares, Inc.***

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|                                                                                                                                                                                                             |   | March                  31,2007                                 |    | December                  31, 2006 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|---------|------------------------------------|--------|
|                                                                                                                                                                                                             |   | (unaudited)                                                    |    |                               |   |
|                                                                                                                                                                                                             |   | (Dollars                  In Thousands, Except Per Share Data) |    |
| Assets                                                                                                                                                                                                           |   |                                                           |    |                               |   |
| Cash                  and amounts due from banks                                                                                                                                                                 |   | $                                                              | 24,189  |                               | $      | 13,257 |   |
| Interest-bearing                  time deposits in banks                                                                                                                                                         |   |                                                           | 725     |                               |   | 717 |   |
| Investment                  securities available for sale                                                                                                                                                        |   |                                                           | 141,614 |                               |   | 136,925 |   |
| Investment                  securities held to maturity                  (fair value at March 31, 2007 - $19,943; at                  December 31, 2006 - $19,500)                                               |   |                                                           | 19,071  |                               |   | 18,722 |   |
| Loans                  receivable, net of allowance for loan losses of $1,444                  at March 31, 2007 and $1,373 at December 31, 2006                                                                 |   |                                                           | 209,747 |                               |   | 198,519 |   |
| Federal                  Home Loan Bank stock, at cost                                                                                                                                                           |   |                                                           | 706     |                               |   | 775 |   |
| Office                  properties and equipment, net                                                                                                                                                            |   |                                                           | 9,191   |                               |   | 7,337 |   |
| Bank-owned                  life insurance                                                                                                                                                                       |   |                                                           | 2,508   |                               |   | 2,485 |   |
| Accrued                  interest                  receivable                                                                                                                                                    |   |                                                           | 1,868   |                               |   | 1,781 |   |
| Other                  assets                                                                                                                                                                                    |   |                                                           | 2,745   |                               |   | 3,079 |   |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Total                  Assets                                                                                                                                                                                    |   | $                                                              | 412,364 |                               | $      | 383,597 |   |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Liabilities                  and Stockholders’ Equity                                                                                                                                                      |   |                                                           |    |                               |   |   |   |
| Liabilities                                                                                                                                                                                                      |   |                                                           |    |                               |   |   |   |
| Deposits:                                                                                                                                                                                                        |   |                                                           |    |                               |   |   |   |
| Noninterest-bearing                                                                                                                                                                                              |   | $                                                              | 17,645  |                               | $      | 18,055 |   |
| Interest-bearing                                                                                                                                                                                                 |   |                                                           | 348,800 |                               |   | 319,199 |   |
| Total                  deposits                                                                                                                                                                                  |   |                                                           | 366,445 |                               |   | 337,254 |   |
| Federal                  Home Loan Bank short-term borrowings                                                                                                                                                    |   |                                                           | -       |                               |   | 1,450 |   |
| Federal                  Home Loan Bank long-term borrowings                                                                                                                                                     |   |                                                           | 6,797   |                               |   | 6,874 |   |
| Advances                  from borrowers for taxes and insurance                                                                                                                                                 |   |                                                           | 645     |                               |   | 793 |   |
| Accrued                  interest payable and other liabilities                                                                                                                                                  |   |                                                           | 1,244   |                               |   | 563 |   |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Total                  Liabilities                                                                                                                                                                               |   |                                                           | 375,131 |                               |   | 346,934 |   |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Stockholders’                  Equity                                                                                                                                                                      |   |                                                           |    |                               |   |   |   |
| Preferred                  stock, 1,000,000 shares authorized and unissued                                                                                                                                       |   |                                                           | -       |                               |   | - |   |
| Common                  stock, par value $0.10 per share; authorized 10,000,000                  shares;issued                  4,521,696 shares; outstanding 4,433,071 shares in 2007 and                  2006 |   |                                                           | 452     |                               |   | 452 |   |
| Additional                  paid-in                  capital                                                                                                                                                     |   |                                                           | 19,611  |                               |   | 19,519 |   |
| Unearned                  shares held by Employee Stock Ownership Plan (“ESOP”)                                                                                                                      |   |                                                           | (1,432  | )                                  |   | (1,432 | ) |
| Treasury                  stock, at cost, 88,625 shares                                                                                                                                                          |   |                                                           | (1,189  | )                                  |   | (1,189 | ) |
| Retained                  earnings                                                                                                                                                                               |   |                                                           | 20,275  |                               |   | 19,863 |   |
| Accumulated                  other comprehensive loss                                                                                                                                                            |   |                                                           | (484    | )                                  |   | (550 | ) |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Total                  Stockholders’ Equity                                                                                                                                                                |   |                                                           | 37,233  |                               |   | 36,663 |   |
|                                                                                                                                                                                                             |   |                                                           |    |                               |   |   |   |
| Total                  Liabilities and Stockholders’ Equity                                                                                                                                                |   | $                                                              | 412,364 |                               | $      | 383,597 |   |

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***Colonial          Bankshares, Inc.***

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|                                                                      |   |   | Three                  Months Ended                            |   |
|----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                                 |   |   | March                  31,                                     |   |
|                                                                 |   |   | 2007                                                           |   |   | 2006 |   |
| Interest                  Income                                     |   |   | (Dollars                  in Thousands, Except Per Share Data) |   |
| Loans,                  including fees                               |   | $      | 3,178                                                          |   | $ | 2,387 |   |
| Mortgage-backed                  securities                          |   |   | 740                                                            |   |   | 608 |   |
| Securities:                                                          |   |   |                                                           |   |   |   |   |
| Taxable                                                              |   |   | 952                                                            |   |   | 842 |   |
| Tax-exempt                                                           |   |   | 358                                                            |   |   | 337 |   |
| Total                  Interest Income                               |   |   | 5,228                                                          |   |   | 4,174 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Interest                  Expense                                    |   |   |                                                           |   |   |   |   |
| Deposits                                                             |   |   | 3,084                                                          |   |   | 1,996 |   |
| Borrowings                                                           |   |   | 75                                                             |   |   | 142 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Total                  Interest Expense                              |   |   | 3,159                                                          |   |   | 2,138 |   |
| Net                  Interest Income                                 |   |   | 2,069                                                          |   |   | 2,036 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Provision                  for Loan Losses                           |   |   | 69                                                             |   |   | 63 |   |
| Net                  Interest Income after Provision for Loan Losses |   |   | 2,000                                                          |   |   | 1,973 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Non-Interest                  Income                                 |   |   |                                                           |   |   |   |   |
| Fees                  and service charges                            |   |   | 244                                                            |   |   | 195 |   |
| Gain                  on sale of loans                               |   |   | 11                                                             |   |   | 15 |   |
| Earnings                  on life insurance                          |   |   | 23                                                             |   |   | 21 |   |
| Other                                                                |   |   | 10                                                             |   |   | 5 |   |
| Total                  Non-Interest Income                           |   |   | 288                                                            |   |   | 236 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Non-Interest                  Expenses                               |   |   |                                                           |   |   |   |   |
| Compensation                  and benefits                           |   |   | 1,167                                                          |   |   | 1,054 |   |
| Occupancy                  and equipment                             |   |   | 247                                                            |   |   | 233 |   |
| Data                  processing                                     |   |   | 174                                                            |   |   | 151 |   |
| Office                  supplies                                     |   |   | 33                                                             |   |   | 25 |   |
| Professional                  fees                                   |   |   | 75                                                             |   |   | 81 |   |
| Other                                                                |   |   | 278                                                            |   |   | 235 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Total                  Non-Interest Expenses                         |   |   | 1,974                                                          |   |   | 1,779 |   |
| Income                  before Income Taxes                          |   |   | 314                                                            |   |   | 430 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Income                  Tax Expense                  (Benefit)       |   |   | (98                                                            | )      |   | 70 |   |
| Net                  Income                                          |   | $      | 412                                                            |   | $ | 360 |   |
|                                                                 |   |   |                                                           |   |   |   |   |
| Per                  Share Data (See Note 3):                        |   |   |                                                           |   |   |   |   |
| Earnings                  per share - basic                          |   | $      | 0.10                                                           |   | $ | 0.08 |   |
| Earnings                  per share - diluted                        |   | $      | 0.09                                                           |   | $ | 0.08 |   |

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***Colonial          Bankshares, Inc.***

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|                                                                                                                                          |   | CommonStock                             |   | AdditionalPaid-inCapital |   | UnearnedSharesHeld                  byESOP |   | Retained                  Earnings |   | TreasuryStock |   | Accumu-latedOtherCompre-hensiveIncome(Loss) |   | TotalStock-holders’Equity |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------------------------|--------|--------------------------------------------|--------|------------------------------------|--------|---------------|--------|---------------------------------------------|--------|---------------------------------|--------|
|                                                                                                                                          |   | (Dollars                  in Thousands) |   |
|                                                                                                                                          |   |                                    |   |                     |   |                                       |   |                               |   |          |   |                                        |   |                            |   |   |   |   |   |   |   |   |
| Balance,                  January 1, 2007                                                                                                     |   | $                                       | 452    |                     | $      | 19,519                                     |   | $                                  | (1,432 | )             | $      | 19,863                                      |   | $                               | (1,189 | ) | $ | (550 | ) | $ | 36,663 |   |
| Comprehensive                  income:                                                                                                        |   |                                    |   |                     |   |                                       |   |                               |   |          |   |                                        |   |                            |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                   |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | 412                                         |   |                            | -      |   |   | - |   |   | 412 |   |
| Net                  change in unrealized loss on securities available for sale, net                  of tax                  expense of $32  |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | 66 |   |   | 66 |   |
| Total                  Comprehensive Income                                                                                                   |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | - |   |   | 478 |   |
| Amortization                  of restricted stock awards                                                                                      |   |                                    | -      |                     |   | 55                                         |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | - |   |   | 55 |   |
| Amortization                  of stock options                                                                                                |   |                                    | -      |                     |   | 37                                         |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | - |   |   | 37 |   |
| Balance,                  March 31, 2007                                                                                                      |   | $                                       | 452    |                     | $      | 19,611                                     |   | $                                  | (1,432 | )             | $      | 20,275                                      |   | $                               | (1,189 | ) | $ | (484 | ) | $ | 37,233 |   |
|                                                                                                                                          |   |                                    |   |                     |   |                                       |   |                               |   |          |   |                                        |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                                                          |   |                                    |   |                     |   |                                       |   |                               |   |          |   |                                        |   |                            |   |   |   |   |   |   |   |   |
| Balance,                  January 1, 2006                                                                                                     |   | $                                       | 452    |                     | $      | 19,414                                     |   | $                                  | (1,548 | )             | $      | 18,252                                      |   | $                               | -      |   | $ | (709 | ) | $ | 35,861 |   |
| Comprehensive                  loss:                                                                                                          |   |                                    |   |                     |   |                                       |   |                               |   |          |   |                                        |   |                            |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                   |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | 360                                         |   |                            | -      |   |   | - |   |   | 360 |   |
| Net                  change in unrealized loss on securities available for sale, net                  of tax                  benefit of $390 |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | (585 | ) |   | (585 | ) |
| Total                  Comprehensive Loss                                                                                                     |   |                                    | -      |                     |   | -                                          |   |                               | -      |          |   | -                                           |   |                            | -      |   |   | - |   |   | (225 | ) |
| Balance,                  March 31, 2006                                                                                                      |   | $                                       | 452    |                     | $      | 19,414                                     |   | $                                  | (1,548 | )             | $      | 18,612                                      |   | $                               | -      |   | $ | (1,294 | ) | $ | 35,636 |   |

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***Colonial        Bankshares, Inc.***

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|                                                                                                                |   | Three                  Months Ended March 31, |    |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                                                |   | 2007                                          |    | 2006 |   |
| Cash                  Flows from Operating Activities:                                                              |   | (In                  Thousands)               |
| Net                  income                                                                                         |   | $                                             | 412     |   | $ | 360 |   |
| Adjustments                  to reconcile net income to net cash provided by operating                  activities: |   |                                          |    |   |   |   |   |
| Provision                  for loan losses                                                                          |   |                                          | 69      |   |   | 63 |   |
| Depreciation                  expense                                                                               |   |                                          | 98      |   |   | 101 |   |
| Stock-based                  compensation expense                                                                   |   |                                          | 92      |   |   | - |   |
| Deferred                  income taxes                                                                              |   |                                          | (11     | ) |   | (94 | ) |
| Net                  earnings on bank-owned life insurance                                                          |   |                                          | (23     | ) |   | (21 | ) |
| Loans                  originated for sale                                                                          |   |                                          | (796    | ) |   | (953 | ) |
| Proceeds                  from sale of loans                                                                        |   |                                          | 577     |   |   | 968 |   |
| Gain                  on sale of loans                                                                              |   |                                          | (11     | ) |   | (15 | ) |
| Net                  amortization of loan fees                                                                      |   |                                          | 5       |   |   | 4 |   |
| Amortization                  (accretion) of premium and discount on investment securities,                  net    |   |                                          | (129    | ) |   | (45 | ) |
| Increase                  in accrued interest receivable                                                            |   |                                          | (87     | ) |   | (106 | ) |
| Decrease                  in other assets                                                                           |   |                                          | 311     |   |   | 65 |   |
| Increase                  in accrued interest payable and other liabilities                                         |   |                                          | 682     |   |   | 107 |   |
| Net                  cash provided by operating activities                                                          |   |                                          | 1,189   |   |   | 434 |   |
| Cash                  Flows from Investing Activities:                                                              |   |                                          |    |   |   |   |   |
| Proceeds                  from calls and maturities of:                                                             |   |                                          |    |   |   |   |   |
| Investment                  securities available for sale                                                           |   |                                          | -       |   |   | 263 |   |
| Investment                  securities held to maturity                                                             |   |                                          | 180     |   |   | - |   |
| Purchase                  of:                                                                                       |   |                                          |    |   |   |   |   |
| Investment                  securities available for sale                                                           |   |                                          | (3,425  | ) |   | (679 | ) |
| Investment                  securities held to maturity                                                             |   |                                          | -       |   |   | (180 | ) |
| Mortgage-backed                  securities available for sale                                                      |   |                                          | (4,770  | ) |   | (3,819 | ) |
| Mortgage-backed                  securities held to maturity                                                        |   |                                          | (719    | ) |   | - |   |
| Office                  properties and equipment                                                                    |   |                                          | (1,952  | ) |   | (288 | ) |
| Principal                  repayments from:                                                                         |   |                                          |    |   |   |   |   |
| Investment                  securities                                                                              |   |                                          | 601     |   |   | 871 |   |
| Mortgage-backed                  securities                                                                         |   |                                          | 3,323   |   |   | 3,504 |   |
| Net                  decrease (increase) in Federal Home Loan Bank stock                                            |   |                                          | 69      |   |   | (37 | ) |
| Purchase                  of interest-bearing time deposits in banks                                                |   |                                          | (208    | ) |   | (700 | ) |
| Maturity                  of interest-bearing time deposits in banks                                                |   |                                          | 200     |   |   | - |   |
| Net                  increase in loans receivable                                                                   |   |                                          | (11,072 | ) |   | (8,218 | ) |
| Net                  cash used for investing activities                                                             |   |                                          | (17,773 | ) |   | (9,283 | ) |
| Cash                  Flows from Financing Activities:                                                              |   |                                          |    |   |   |   |   |
| Net                  increase in deposits                                                                           |   |                                          | 29,191  |   |   | 6,217 |   |
| (Decrease)                  increase in Federal Home Loan Bank short-term borrowings                                |   |                                          | (1,450  | ) |   | 820 |   |
| Repayment                  of Federal Home Loan Bank long-term borrowings                                           |   |                                          | (77     | ) |   | - |   |
| (Decrease)                  increase in advances from borrowers for taxes and                  insurance            |   |                                          | (148    | ) |   | 111 |   |
| Net                  cash provided by financing activities                                                          |   |                                          | 27,516  |   |   | 7,148 |   |
| Increase                  (decrease) in cash and cash equivalents                                                   |   |                                          | 10,932  |   |   | (1,701 | ) |
| CASH                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                   |   |                                          | 13,257  |   |   | 10,669 |   |
| CASH                  AND CASH EQUIVALENTS AT END OF PERIOD                                                         |   | $                                             | 24,189  |   | $ | 8,968 |   |
|                                                                                                                |   |                                          |    |   |   |   |   |
| Supplemental                  Cash Flow Disclosures:                                                                |   |                                          |    |   |   |   |   |
| Cash                  paid:                                                                                         |   |                                          |         |   |   |  |   |
| Interest                                                                                                            |   | $                                             | 2,715   |   | $ | 2,066 |   |
| Income                  taxes                                                                                       |   | $                                             | -       |   | $ | 100 |   |

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**COLONIAL        BANKSHARES, INC.**

**Notes        to Consolidated Financial Statements**

**(Unaudited)**

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

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| **2.** | **Recent                        Accounting Pronouncements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                          September 2006, the Financial Accounting Standards Board                          (“FASB”) issued                          Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair                          Value Measurements, which defines fair value, establishes                          a framework for                          measuring fair value under GAAP, and expands disclosures                          about fair value                          measurements. FASB Statement No. 157 applies to other accounting                          pronouncements that require or permit fair value measurements.                          The new                          guidance is effective for financial statements issued for                          fiscal years                          beginning after November 15, 2007, and for interim periods within                          those fiscal years. We are currently evaluating the potential                          impact, if                          any, of the adoption of FASB Statement No. 157 on our consolidated                          financial position, results of operations and cash                          flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                          September 29, 2006, the FASB issued SFAS No. 158, Employers’                          Accounting for Defined Benefit Pension and Other Postretirement                          Plans                          (“SFAS 158”), which amends SFAS No. 87 and SFAS No. 106 to require                          recognition of the overfunded or underfunded status of                          pension and other                          postretirement benefit plans on the balance sheet. Under                          SFAS No. 158,                          gains and losses, prior service costs and credits, and                          any remaining                          transition amounts under SFAS No. 87 and SFAS No. 106 that                          have not yet                          been recognized through net periodic benefit cost will                          be recognized in                          accumulated other comprehensive income, net of tax effects,                          until they are                          amortized as a component of net periodic cost. The measurement                          date — the                          date at which the benefit obligation and plan assets are                          measured — is                          required to be the company’s fiscal year end. SFAS No. 158 is effective                          for publicly-held companies for fiscal years ending after                          December 15, 2006, except for the measurement date provisions, which                          are effective for fiscal years ending after December 15, 2008. The                          Company is currently analyzing the effects of SFAS No.                          158 but does not                          expect its implementation will have a significant impact                          on the Company’s                          financial conditions or results of operations. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                          September 7, 2006, the Task Force reached a conclusion on EITF Issue                          No. 06-5, “Accounting for Purchases of Life Insurance - Determining                          the Amount That Could Be Realized in Accordance with FASB                          Technical                          Bulletin No. 85-4, Accounting for Purchases of Life Insurance” (“EITF                          06-5”). The scope of EITF 06-5 consists of six separate issues                          relating to                          accounting for life insurance policies purchased by entities                          protecting                          against the loss of “key persons.” The six issues are clarifications of                          previously issued guidance on FASB Technical Bulletin No. 85-4. EITF                          06-5 is effective for fiscal years beginning after December 15, 2006.                          The Company does not expect it to have a material impact                          on the Company’s                          consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                          March 2007, the FASB ratified EITF Issue No. 06-10, “Accounting for                          Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF                          06-10). EITF 06-10 provides guidance for determining a                          liability for the                          postretirement benefit obligation as well as recognition                          and measurement                          of the associated asset on the basis of the terms of the                          collateral                          assignment agreement. EITF 06-10 is effective for fiscal                          years beginning                          after December 15, 2007. The Company is currently assessing                          the impact of                          EITF 06-10 on its consolidated financial position and results                          of                          operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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|   | In                        March 2007, the FASB ratified EITF Issue No. 06-11, “Accounting                        for Income Tax Benefits of Dividends on Share-Based Payment                        Awards.” EITF                        06-11 requires companies to recognize the income tax benefit                        realized from                        dividends or dividend equivalents that are charged to retained                        earnings                        and paid to employees for nonvested equity-classified employee                        share-based                        payment awards as an increase to additional paid-in capital.                        EITF 06-11 is                        effective for fiscal years beginning after September 15, 2007. The                        Company does not expect EITF 06-11 will have a material impact                        on its                        financial position, results of operations or cash                        flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **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                        the net income for the three months ended March 31, 2007                        is $412 thousand                        and the net income for the three months ended March 31, 2006                        is $360                        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. All                        stock options and non-vested stock grants are assumed to                        be 100% vested                        for purposes of the earnings per share computations. The                        following table                        sets forth the composition of the weighted average common                        shares                        (denominator) used in the basic and diluted earnings per                        share                        computation. |

|                                                                                                 |   | For                  the Three Months EndedMarch                  31, |      |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|
|                                                                                                 |   | 2007                                                                  |      | 2006 |   |
| Net                  Income                                                                          |   | $                                                                     | 412,000   |   | $ | 360,000 |   |
|                                                                                                 |   |                                                                  |      |   |   |   |   |
| Weighted                  average common shares issued                                               |   |                                                                  | 4,521,696 |   |   | 4,521,696 |   |
| Average                  unearned ESOP shares                                                        |   |                                                                  | (143,192  | ) |   | (154,795 | ) |
| Average                  treasury stock shares                                                       |   |                                                                  | (88,625   | ) |   | - |   |
| Weighted                  average common shares outstanding - basic                                  |   |                                                                  | 4,289,879 |   |   | 4,366,901 |   |
| Effect                  of dilutive non-vested shares and stock options                  outstanding |   |                                                                  | 108,506   |   |   | - |   |
| Weighted                  average common shares outstanding - diluted                                |   |                                                                  | 4,398,385 |   |   | 4,366,901 |   |
| Basic                  earnings per share                                                            |   | $                                                                     | 0.10      |   | $ | 0.08 |   |
| Diluted                  earnings per share                                                          |   | $                                                                     | 0.09      |   | $ | 0.08 |   |

| **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. |

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|   | 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 March 31, 2007, 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 will vest 20% annually beginning                      October 19,                      2007. For the three months ended March 31, 2007, $55 thousand                      in                      compensation expense was recognized in regard to these restricted                      stock                      awards with a related tax benefit of $19 thousand. As of March                      31, 2007,                      there was $1.0 million of unrecognized compensation expense                      related to the                      restricted stock awards which is expected to be recognized                      over a period                      of 4.5 years. At March 31, 2006, there was no compensation                      expense                      recognized as the Company did not have any stock-based incentive                      plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Activity                      in issued but unvested award shares during the three months                      ended March                      31, 2007, was as                      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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

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|   | On                    October 19, 2006, options to purchase 196,468 shares of common                    stock at                    $12.47 per share were awarded. The options awarded will vest                    20% annually                    beginning October 19, 2007. The following is a summary of the                    Company’s                    stock option activity for the three months ended March 31,                    2007: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                      |   | Shares |    | WeightedAverageExercisePrice |   | WeightedAverageRemainingContractualTerm |   | AggregateIntrinsicValue |                       |
|-----------------------------------------------------------|--------|--------|---------|------------------------------|--------|-----------------------------------------|--------|-------------------------|----------------------------|
| Options                  outstanding, beginning of period |   |   | 196,468 |                         | $      | 12.47                                   |   |                    | 9.5                  years |   |   |   |   |
| Granted                                                   |   |   | -       |                         |   | -                                       |   |                    |                       |   |   |   |   |
| Exercised                                                 |   |   | -       |                         |   | -                                       |   |                    |                       |   |   |   |   |
| Forfeitures                                               |   |   | -       |                         |   | -                                       |   |                    |                       |   |   |   |   |
| Options                  outstanding, end of period       |   |   | 196,468 |                         | $      | 12.47                                   |   |                    | 9.5                  years |   | $ | 301,000 |   |
| Exercisable                  at end of period             |   |   | -       |                         | $      | 12.47                                   |   |                    | 9.5                  years |   | $ | - |   |

|   | The                      fair value of each option grant is estimated on the date of                      grant using                      the Black-Sholes option-pricing model with the following weighted                      average                      assumptions for options granted in 2006: dividend yield of                      0%, risk-free                      interest rate of 4.79%, expected life of 6.5 years, and expected                      volatility of 15.00%. The calculated fair value of options                      granted in 2006                      was $3.79 per option.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Stock-based                      compensation expense related to stock options for the three                      months ended                      March 31, 2007 was $37 thousand with a related tax benefit                      of $13                      thousand. As of March 31, 2007, there was approximately $676                      thousand of                      unrecognized compensation cost related to unvested stock options                      granted                      in 2006. The cost will be recognized on a graded vesting method                      over a                      period of 4.5 years. At March 31, 2006, there was no compensation                      expense                      recognized as the Company did not have any stock-based incentive                      plans.                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The                      Company has an Employee Stock Ownership Plan (“ESOP”) for the benefit of                      employees who meet the eligibility requirements as defined                      in the plan.                      The ESOP trust purchased 166,398 shares of common stock in                      the initial                      public offering using proceeds of a loan from the Company.                      The Bank will                      make cash contributions to the ESOP on an annual basis sufficient                      to                      enable the ESOP to make the required loan payments to the Company.                      The                      loan bears an interest rate of 6.00% with principal and interest                      payable                      annually in equal installments over fifteen years. The loan                      is secured by                      the shares of the stock purchased.                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | As                      the debt is repaid, shares are released from the collateral                      and allocated                      to qualified employees. Accordingly, the shares pledged as                      collateral are                      reported as unearned ESOP shares in the Consolidated Statements                      of                      Financial Condition. As shares are released from collateral,                      the Company                      reports compensation expense equal to the current market price                      of the                      shares, and the shares become outstanding for earnings per                      share                      computations. The compensation expense is recorded on a monthly                      basis. The                      Company’s contribution expense for the ESOP was $41 thousand and $32                      for                      the three months ended March 31, 2007 and 2006,                      respectively. |

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|   | The                    following table                    presents the components of the ESOP                    shares: |
|--------|--------------------------------------------------------------------------------------------------------------------------|

|                                            |   | March                  31, 2007 |    | March                  31, 2006 |   |
|-------------------------------------------------|--------|---------------------------------|---------|---------------------------------|--------|
| Shares                  released for allocation |   |                            | 23,206  |                            |   | 11,603 |   |
| Unreleased                  shares              |   |                            | 143,192 |                            |   | 154,795 |   |
| Total                  ESOP shares              |   |                            | 166,398 |                            |   | 166,398 |   |
|                                            |   |                            |    |                            |   |   |   |

| **5.** | **Comprehensive                    Income**                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                           |
|   | Comprehensive                      income for the Company consists of net income and unrealized                      gains and                      losses on available for sale securities. Other comprehensive                      gain (loss)                      for the three months ended March 31, 2007 and 2006 was as                      follows: |

|                                                                                  |   |   | Three                    Months Ended March 31, |   |
|---------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------|--------|
|                                                                                  |   |   | 2007                                            |   |   | 2006 |   |
| Other                    comprehensive gain (loss):                                   |   |   | (In                    Thousands)               |   |
| Unrealized                    holding gains (losses) on available for sale securities |   | $      | 98                                              |   | $ | (975 | ) |
| Reclassification                    adjustment for net gains realized in net income   |   |   | -                                               |   |   | - |   |
| Net                    unrealized gains (losses)                                      |   |   | 98                                              |   |   | (975 | ) |
| Income                    tax expense (benefit)                                       |   |   | (32                                             | )      |   | 390 |   |
| Net                    of tax amount                                                  |   | $      | 66                                              |   | $ | (585 | ) |

| **6.** | **Contingent                    Liabilities and Guarantees**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | 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 $2.4                      million of standby letters of credit outstanding as of March                      31, 2007.                      Management believes that the proceeds obtained through a liquidation                      of                      collateral and the enforcement of guarantees would be sufficient                      to cover                      the potential amount of future payment required under the corresponding                      guarantees. The current amount of the liability as of March                      31, 2007 for                      guarantees under standy letters of credit is not                      material. |

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| **7.** | **Investment                      Securities**                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                    |
|   | The                        following table sets forth the composition of our securities                        portfolio at                        the dates indicated. |

|                                                 |   | At                  March 31, 2007      |    | At                  December 31, 2006 |   |
|------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                 |   | Amortized                  Cost         |    | Fair                  Value           |   | Amortized                  Cost |   | Fair                  Value |   |
|                                                 |   | (Dollars                  in thousands) |    |
| Securities                  available-for-sale:      |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                      |   | $                                       | 55,348  |                                  | $      | 54,949 |   | $ | 53,646 |   | $ | 53,229 |   |
| U.                  S. Government agency             |   |                                    | 30,791  |                                  |   | 30,482 |   |   | 29,534 |   |   | 29,128 |   |
| Corporate                                            |   |                                    | 8,954   |                                  |   | 8,666 |   |   | 8,956 |   |   | 8,660 |   |
| Mutual                  funds                        |   |                                    | 14,117  |                                  |   | 13,920 |   |   | 13,942 |   |   | 13,716 |   |
| Municipal                                            |   |                                    | 24,003  |                                  |   | 24,336 |   |   | 23,927 |   |   | 24,259 |   |
| SBA                  pools                           |   |                                    | 9,142   |                                  |   | 9,261 |   |   | 7,759 |   |   | 7,933 |   |
| Total                  securities available-for-sale |   | $                                       | 142,355 |                                  | $      | 141,614 |   | $ | 137,764 |   | $ | 136,925 |   |
|                                                 |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Securities                  held-to-maturity:        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                      |   | $                                       | 4,449   |                                  | $      | 4,537 |   | $ | 3,972 |   | $ | 4,064 |   |
| U.                  S. Government agency             |   |                                    | 1,414   |                                  |   | 1,437 |   |   | 1,412 |   |   | 1,369 |   |
| Corporate                                            |   |                                    | 1,707   |                                  |   | 1,848 |   |   | 1,698 |   |   | 1,828 |   |
| Municipal                                            |   |                                    | 11,501  |                                  |   | 12,121 |   |   | 11,640 |   |   | 12,239 |   |
| Total                  securities held-to-maturity   |   | $                                       | 19,071  |                                  | $      | 19,943 |   | $ | 18,722 |   | $ | 19,500 |   |
|                                                 |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |

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

|                                                         |   | At                  March 31, 2007      |    | At                  December 31, 2006 |   |
|--------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                         |   | Amount                                  |    | Percent                               |   | Amount |   | Percent |   |
|                                                         |   | (Dollars                  in thousands) |    |
| Real                  estate loans:                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| One-                  to four-family residential             |   | $                                       | 105,063 |                                  |   | 49.7 | % | $ | 102,328 |   |   | 51.1 | % |
| Home                  equity loans and lines of credit  |   |                                    | 38,440  |                                  |   | 18.2 |   |   | 38,074 |   |   | 19.0 |   |
| Multi-family                                                 |   |                                    | 2,690   |                                  |   | 1.3 |   |   | 2,492 |   |   | 1.2 |   |
| Commercial                                                   |   |                                    | 45,214  |                                  |   | 21.4 |   |   | 39,186 |   |   | 19.6 |   |
| Construction                                                 |   |                                    | 8,572   |                                  |   | 4.0 |   |   | 8,371 |   |   | 4.2 |   |
| Commercial                                              |   |                                    | 9,035   |                                  |   | 4.2 |   |   | 7,337 |   |   | 3.7 |   |
| Consumer                  and other                          |   |                                    | 2,505   |                                  |   | 1.2 |   |   | 2,427 |   |   | 1.2 |   |
| Total                  loans receivable                      |   | $                                       | 211,519 |                                  |   | 100.0 | % | $ | 200,215 |   |   | 100.0 | % |
| Deferred                  loan fees                          |   |                                    | (328    | )                                     |   |   |   |   | (323 | ) |   |   |   |
| Allowance                  for loan losses                   |   |                                    | (1,444  | )                                     |   |   |   |   | (1,373 | ) |   |   |   |
| Total                  loans receivable, net                 |   | $                                       | 209,747 |                                  |   |   |   | $ | 198,519 |   |   |   |   |

|   | Loans                            committed for sale totaled $230 thousand as of March                            31,                            2007.                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                     |
|   | Nonaccrual                            loans amounted to approximately $201 thousand and $233                            thousand at                            March                            31, 2007                            and December 31, 2006,                            respectively. |

----

| **9.** | **Deposits**                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                           |
|   | Deposit                            accounts, by type, at March 31, 2007 and December 31,                            2006 are summarized                            as follows: |

|                                          |   | At                  March 31, 2007      |    | At                  December 31, 2006 |   |
|-----------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                          |   | Balance                                 |    | Percent                               |   | Wtd.Avg.Rate |   | Balance |   | Percent |   | Wtd.Avg.Rate |   |
|                                          |   | (Dollars                  in thousands) |    |
|                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **Deposit                  type:**            |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  bearing demand. |   | $                                       | 17,645  |                                  |   | 4.82 | % |   | - | % | $ | 18,055 |   |   | 5.35 | % |   | - | % |
| Savings                                       |   |                                    | 57,428  |                                  |   | 15.67 |   |   | 2.05 |   |   | 57,260 |   |   | 16.98 |   |   | 1.72 |   |
| NOW                  accounts                 |   |                                    | 41,156  |                                  |   | 11.23 |   |   | 2.37 |   |   | 36,740 |   |   | 10.89 |   |   | 1.89 |   |
| Super                  NOW accounts           |   |                                    | 14,515  |                                  |   | 3.96 |   |   | 1.70 |   |   | 14,200 |   |   | 4.21 |   |   | 1.71 |   |
| Money                  market accounts        |   |                                    | 19,888  |                                  |   | 5.43 |   |   | 3.57 |   |   | 20,553 |   |   | 6.10 |   |   | 3.54 |   |
| Total                  transaction accounts   |   |                                    | 150,632 |                                  |   | 41.11 |   |   | 2.06 |   |   | 146,808 |   |   | 43.53 |   |   | 1.81 |   |
|                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates                  of deposit      |   |                                    | 215,813 |                                  |   | 58.89 |   |   | 4.82 |   |   | 190,446 |   |   | 56.47 |   |   | 4.74 |   |
|                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  deposits               |   | $                                       | 366,445 |                                  |   | 100.00 | % |   | 3.69 | % | $ | 337,254 |   |   | 100.00 | % |   | 3.46 | % |

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

| Description                            |   | MaturityDate |       | InterestRate |   | March                  31,2007          |   | December                  31,2006 |   |
|----------------------------------------|--------|--------------|------------|--------------|--------|-----------------------------------------|--------|-----------------------------------|--------|
|                                   |   |         |       |         |   | (Dollars                  in Thousands) |   |
| Fixed                  rate amortizing |   |         | 06/30/2021 |         |   | 5.57%                                   |   | $                                 | 6,797  |   | $ | 6,874 |   |
| Short-term                  borrowing  |   |         | 01/02/2007 |         |   | 5.39%                                   |   |                              | -      |   |   | 1,450 |   |
|                                   |   |         |       |         |   |                                    |   | $                                 | 6,797  |   | $ | 8,324 |   |

|   | At                                March 31, 2007, the Bank had a borrowing capacity                                of $75.2 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 March 31,                                2007, the Bank had $6.8                                million in outstanding borrowings from the FHLB of                                New                                York. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Forward-Looking        Statements**

**Critical        Accounting Policies**

**Allowance        for Loan Losses**

----

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

----

**Comparison        of Operating Results for the Three Months Ended March 31, 2007 and March        31,        2006**

***General.***

***Interest        Income***
*.        *

***Interest        Expense.***
* *

----

***Provision        for Loan Losses.***

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

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

----

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

**Liquidity        and Capital Resources**

----

----

| **Item                                3.** |  | **Controls                                  and                                  Procedures** |
|--------------------------------------------|--|-----------------------------------------------------------------------------------------------|

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

**PART        II - OTHER INFORMATION**

| **Item                  1.** |   | **Legal                  Proceedings**                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   | The                  Company or the Bank is periodically involved in various claims                  and                  lawsuits in the ordinary course of business. Management of the                  Company                  believes that such proceedings will not have a material adverse                  effect on                  the Company’s financial condition, results of operations or cash flows. |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Item                2.**   |   | **Unregistered                Sales of Equity Securities and Use of Proceeds**                                                                                                                                                                                                                                                                                                                                               |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   | None                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Item                  3.** |   | **Defaults                Upon                Senior** **Securities**                                                                                                                                                                                                                                                                                                                                                   |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   | None                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Item                4.**   |   | **Submission                of                Matters to Vote of Security Holders**                                                                                                                                                                                                                                                                                                                                          |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   | None                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Item                5.**   |   | **Other                Information**                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |   | None                                                                                                                                                                                                                                                                                                                                                                                                                         |

----

| **Item                  6.** |   | **Exhibits** |
|------------------------------|--------|--------------|
|                         |   |         |

|   | Exhibit                  31.1 | Certification                    of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley                    Act                    of 2002                                                |
|--------|-------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                          |                                                                                                                                                                                                   |   |
|   | Exhibit                  31.2 | Certification                    of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley                    Act                    of 2002                                                |
|   |                          |                                                                                                                                                                                                   |   |
|   | Exhibit                  32   | Certification                    of Chief Executive Officer and Chief Financial Officer Pursuant                    to Section                    906 of Sarbanes-Oxley Act of                    2002 |

----

**SIGNATURES**

|                                |   | **COLONIAL                BANKSHARES, INC.**           |
|-------------------------------------|--------|--------------------------------------------------------|
|                                |   | Registrant                                             |
|                                |   |                                                   |
|                                |   |                                                   |
| Date:                  May 10, 2007 |   | By:                  /s/ Edward J. Geletka             |
|                                |   | Edward                  J. Geletka                     |
|                                |   | President                  and Chief Executive Officer |
|                                |   | (Principal                  Executive Officer)         |

|                                  |   |                                                                           |
|---------------------------------------|--------|--------------------------------------------------------------------------------|
|                                  |   |                                                                           |
| Date:                    May 10, 2007 |   | By:                  /s/ L. Joseph Stella, III, CPA                            |
|                                  |   | L.                    Joseph Stella, III, CPA                                  |
|                                  |   | Executive                    Vice President and Chief Financial Officer   |
|                                  |   | (Principal                  Accounting                  and Financial Officer) |